10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

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

COMMISSION FILE NUMBER: 0-22955

BAY BANKS OF VIRGINIA, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

VIRGINIA	54-1838100
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(I.R.S. EMPLOYER IDENTIFICATION NO.)

100 SOUTH MAIN STREET, KILMARNOCK, VA 22482

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(804) 435-1171

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  yes    ¨  no

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

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

4,817,856 shares of common stock on May 10, 2013

FORM 10-Q

For the interim period ending March 31, 2013.

INDEX

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS MARCH 31, 2013 (UNAUDITED) AND DECEMBER 31, 2012	3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (UNAUDITED)	4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH  31, 2013 AND 2012 (UNAUDITED)	5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (UNAUDITED)	6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (UNAUDITED)	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31
ITEM 4. CONTROLS AND PROCEDURES	31
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	32
ITEM 1A. RISK FACTORS	32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	32
ITEM 4. MINE SAFETY DISCLOSURES	32
ITEM 5. OTHER INFORMATION	32
ITEM 6. EXHIBITS	32

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Cash and due from banks	$	7,082,360		$	4,757,889
Interest-bearing deposits		28,832,996			35,166,448
Federal funds sold		868,694			48,009
Securities available for sale, at fair value		38,305,952			36,700,520
Restricted securities		1,517,900			1,584,700
Loans, net of allowance for loan losses of $3,034,407 and $3,093,623		231,841,528			236,144,526
Premises and equipment, net		11,537,226			11,611,688
Accrued interest receivable		1,014,667			1,070,763
Other real estate owned, net of valuation allowance		3,662,561			3,151,346
Goodwill		2,807,842			2,807,842
Other assets		1,660,461			1,753,945
Total assets	$	329,132,187		$	334,797,676
LIABILITIES
Noninterest-bearing deposits	$	49,858,751		$	50,467,907
Savings and interest-bearing demand deposits		113,764,670			117,954,879
Time deposits		104,072,053			106,751,785
Total deposits	$	267,695,474		$	275,174,571
Securities sold under repurchase agreements		8,237,300			6,459,839
Federal Home Loan Bank advances		15,000,000			15,000,000
Other liabilities		1,406,206			1,578,295
Total liabilities	$	292,338,980		$	298,212,705
SHAREHOLDERS’ EQUITY
Common stock ($5 par value; authorized - 10,000,000 shares; outstanding - 4,817,856 and 4,810,856 shares, respectively)	$	24,089,280		$	24,054,280
Additional paid-in capital		2,753,724			2,670,021
Retained earnings		10,381,487			10,241,396
Accumulated other comprehensive (loss), net		(431,284	)		(380,726	)
Total shareholders’ equity	$	36,793,207		$	36,584,971
Total liabilities and shareholders’ equity	$	329,132,187		$	334,797,676

See Notes to Consolidated Financial Statements.

3

CONSOLIDATED STATEMENTS OF INCOME

Quarters Ended March 31,	2013		2012
	(unaudited)		(unaudited)
INTEREST INCOME
Loans, including fees	$	3,154,348	$	3,224,780
Securities:
Taxable		123,691		200,933
Tax-exempt		56,361		70,594
Federal funds sold		35		1,366
Interest-bearing deposit accounts		18,144		7,062
Total interest income		3,352,579		3,504,735
INTEREST EXPENSE
Deposits		630,538		749,154
Securities sold under repurchase agreements		3,903		2,921
FHLB advances		139,200		140,924
Total interest expense		773,641		892,999
Net interest income		2,578,938		2,611,736
Provision for loan losses		83,000		96,024
Net interest income after provision for loan losses		2,495,938		2,515,712
NON-INTEREST INCOME
Income from fiduciary activities		165,249		160,154
Service charges and fees on deposit accounts		274,546		166,863
VISA-related fees		179,598		159,469
Other service charges and fees		233,457		189,110
Secondary market lending fees		132,286		77,208
Gains on sale of securities available for sale		2,941		8,861
Net (losses) on other assets		—		(4,906	)
Other income		11,774		28,324
Total non-interest income		999,851		785,083
NON-INTEREST EXPENSES
Salaries and employee benefits		1,730,320		1,562,169
Occupancy expense		499,105		504,331
Bank franchise tax		43,935		42,990
VISA expense		154,442		131,160
Telephone expense		49,263		41,324
FDIC assessments		103,469		103,851
Debit card expense		17,961		55,404
Foreclosure property expense		23,249		43,254
Other real estate losses		14,090		68,053
Consulting expense		16,469		66,079
Other expense		630,530		563,596
Total non-interest expenses		3,282,833		3,182,211
Net income before income taxes		212,956		118,584
Income tax expense		72,865		12,957
Net income	$	140,091	$	105,627
Basic Earnings Per Share
Average basic shares outstanding		4,813,812		2,610,856
Earnings per share, basic	$	0.03	$	0.04
Diluted Earnings Per Share
Average diluted shares outstanding		4,816,490		2,612,206
Earnings per share, diluted	$	0.03	$	0.04

See Notes to Consolidated Financial Statements.

4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three months ended March 31, 2013 (unaudited)
Net income			$	140,091
Other comprehensive loss, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding (losses) arising during the period (net of tax benefit, $25,045)	(48,617	)
Less reclassification adjustment for gains recognized in income (net of tax, $1,000)	(1,941	)
Other comprehensive loss, net of tax				(50,558	)
Comprehensive income			$	89,533
Three months ended March 31, 2012 (unaudited)
Net income			$	105,627
Other comprehensive loss, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding (losses) arising during the period (net of tax benefit, $36,885)	(71,603	)
Less reclassification adjustment for gains recognized in income (net of tax, $3,013)	(5,848	)
Other comprehensive loss, net of tax				(77,451	)
Comprehensive income			$	28,176

See Notes to Consolidated Financial Statements.

5

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Shares of Common Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Three months ended March 31, 2013 (unaudited)
Balance at beginning of period		4,810,856	$	24,054,280	$	2,670,021	$	10,241,396	$	(380,726	)	$	36,584,971
Net income		—		—		—		140,091		—			140,091
Other comprehensive loss		—		—		—		—		(50,558	)		(50,558	)
Stock-based compensation		7,000		35,000		83,703		—		—			118,703
Balance at end of period		4,817,856	$	24,089,280	$	2,753,724	$	10,381,487	$	(431,284	)	$	36,793,207
Three months ended March 31, 2012 (unaudited)
Balance at beginning of period		2,610,856	$	13,054,280	$	4,971,531	$	9,543,634	$	445,339		$	28,014,784
Net income		—		—		—		105,627		—			105,627
Other comprehensive loss		—		—		—		—		(77,451	)		(77,451	)
Stock-based compensation		—		—		2,193		—		—			2,193
Balance at end of period		2,610,856	$	13,054,280	$	4,973,724	$	9,649,261	$	367,888		$	28,045,153

See Notes to Consolidated Financial Statements.

6

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended March 31,	2013			2012
Cash Flows From Operating Activities
Net income	$	140,091		$	105,627
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		187,305			194,031
Net amortization and accretion of securities		100,682			62,859
Provision for loan losses		83,000			96,024
Stock-based compensation		118,703			2,193
Deferred income tax (benefit)		(3,762	)		—
(Gain) on securities available-for-sale		(2,941	)		(8,861	)
Increase in OREO valuation allowance		16,090			14,100
(Gain) loss on sale of other real estate		(2,000	)		53,953
Loss on disposal of fixed assets		—			4,906
Decrease in accrued income and other assets		148,435			13,894
(Decrease) increase in other liabilities		(142,281	)		94,742
Net cash provided by operating activities	$	643,322		$	633,468
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities	$	616,482		$	1,364,846
Proceeds from sales and calls of available-for-sale securities		1,095,250			2,326,850
Purchases of available-for-sale securities		(3,491,508	)		(1,935,039	)
Sales of restricted securities		66,800			—
Decrease (increase) in interest bearing deposits in other banks		6,333,452			(6,285,892	)
(Increase) in federal funds sold		(820,685	)		(108,770	)
Loan (originations) and principal collections, net		3,693,838			(5,585,242	)
Proceeds from sale of other real estate		2,000			261,086
(Purchases) of premises and equipment		(112,843	)		(63,640	)
Net cash provided by (used in) investing activities	$	7,382,785		$	(10,025,801	)
Cash Flows From Financing Activities
(Decrease) increase in demand, savings, and other interest-bearing deposits	$	(4,799,365	)	$	9,401,757
Net (decrease) in time deposits		(2,679,732	)		(809,691	)
Net increase in securities sold under repurchase agreements		1,777,461			982,089
Net cash provided by (used in) financing activities	$	(5,701,636	)	$	9,574,155
Net increase in cash and due from banks		2,324,471			181,822
Cash and due from banks at beginning of period		4,757,889			4,728,895
Cash and due from banks at end of period	$	7,082,360		$	4,910,717
Supplemental Schedule of Cash Flow Information
Interest paid	$	777,759		$	888,164
Income taxes paid		53,137			—
Unrealized gain (loss) on investment securities		(76,603	)		(117,350	)
Loans transferred to other real estate owned		526,160			309,857

See Notes to Consolidated Financial Statements.

7

Notes to Consolidated Financial Statements

Note 1: General

Bay Banks of Virginia, Inc. (the “Company”) owns 100% of the Bank of Lancaster (the “Bank”), 100% of Bay Trust Company, Inc. (the “Trust Company”) and 100% of Steptoes Holdings, LLC (“Steptoes Holdings”). The consolidated financial statements include the accounts of the Bank, the Trust Company, Steptoes Holdings and Bay Banks of Virginia, Inc.

The Company completed a private placement of 2,200,000 shares of its common stock for $4.25 per share at the end of the day on December 31, 2012, which materially increased the number of shares outstanding and the level of capital.

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.

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

These consolidated financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company’s 2012 Annual Report to Shareholders.

Note 2: Securities

The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:

Available-for-sale securities (unaudited) March 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,579,421	$	71,095	$	(59,590	)	$	9,590,926
State and municipal obligations		26,395,112		399,547		(63,451	)		26,731,208
Certificates of deposits		1,985,000		775		(1,957	)		1,983,818
	$	37,959,533	$	471,417	$	(124,998	)	$	38,305,952
Available-for-sale securities December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,411,627	$	78,178	$	(25,990	)	$	9,463,815
State and municipal obligations		24,880,871		412,759		(44,102	)		25,249,528
Certificates of deposits		1,985,000		3,271		(1,094	)		1,987,177
	$	36,277,498	$	494,208	$	(71,186	)	$	36,700,520

Securities with a market value of $9.4 million were pledged as collateral for repurchase agreements and for other purposes as required by law as of March 31, 2013. The market value of pledged securities at December 31, 2012 was $8.1 million.

8

Securities in an unrealized loss position at March 31, 2013 and December 31, 2012, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All securities are investment grade or better and all losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. Furthermore, we do expect to recover the entire amortized cost basis. Bonds with unrealized loss positions at March 31, 2013 included six certificates of deposit, thirteen municipals and five federal agencies. Bonds with unrealized loss positions at December 31, 2012 included three certificates of deposit, ten municipals and two federal agencies. The tables are shown below.

	Less than 12 months				12 months or more				Total
March 31, 2013 (unaudited)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	2,359,185	$	59,590	$	—	$	—	$	2,359,185	$	59,590
States and municipal obligations		4,148,137		61,062		1,037,800		2,389		5,185,937		63,451
Certificates of deposits		1,486,043		1,957		—		—		1,486,043		1,957
Total temporarily impaired securities	$	7,993,365	$	122,609	$	1,037,800	$	2,389	$	9,031,165	$	124,998
	Less than 12 months				12 months or more				Total
December 31, 2012	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,080,438	$	25,990	$	—	$	—	$	1,080,438	$	25,990
States and municipal obligations		2,863,106		37,731		1,037,825		6,371		3,900,931		44,102
Certificates of deposits		742,906		1,094		—		—		742,906		1,094
Total temporarily impaired securities	$	4,686,450	$	64,815	$	1,037,825	$	6,371	$	5,724,275	$	71,186

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled $1.1 million at March 31, 2013 and December 31, 2012. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLBs or its member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2013 and no impairment has been recognized. FHLB stock is shown in the restricted securities line item on the consolidated balance sheets and is not a part of the available-for-sale securities portfolio.

Note 3: Loans

The following is a summary of the balances of loans:

	March 31, 2013			December 31, 2012
	(unaudited)
Mortgage loans on real estate:
Construction, Land and Land Development	$	28,565,493		$	29,024,294
Farmland		1,421,060			1,442,757
Commercial Mortgages (Non-Owner Occupied)		13,511,592			13,420,551
Commercial Mortgages (Owner Occupied)		34,088,111			33,634,384
Residential First Mortgages		106,587,625			107,555,694
Residential Revolving and Junior Mortgages		26,588,765			26,982,512
Commercial and Industrial loans		17,876,966			20,524,547
Consumer Loans		6,236,323			6,653,410
Total loans	$	234,875,935		$	239,238,149
Allowance for loan losses		(3,034,407	)		(3,093,623	)
Loans, net	$	231,841,528		$	236,144,526

9

The recorded investment in past due and nonaccruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection.

Loans Past Due and Nonaccruals March 31, 2013 (unaudited)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	47,483	$	251,165	$	108,861	$	647,647	$	1,055,156	$	27,510,337	$	28,565,493
Farmland		—		—		—		—		—		1,421,060		1,421,060
Commercial Mortgages (Non-Owner Occupied)		—				—		—		—		13,511,592		13,511,592
Commercial Mortgages (Owner Occupied)		—		167,066		—		803,210		970,276		33,117,835		34,088,111
Residential First Mortgages		402,205		756,367		161,638		2,040,208		3,360,418		103,227,207		106,587,625
Residential Revolving and Junior Mortgages		295,524		27,911		9,643		1,144,945		1,478,023		25,110,742		26,588,765
Commercial and Industrial		3,150		—		—		36,897		40,047		17,836,919		17,876,966
Consumer Loans		476		—		—		3,638		4,114		6,232,209		6,236,323
Total	$	748,838	$	1,202,509	$	280,142	$	4,676,545	$	6,908,034	$	227,967,901	$	234,875,935

Loans Past Due and Nonaccruals December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due  and Still Accruing		Nonaccruals		Total Past Due  and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	108,861	$	122,005	$	—	$	655,397	$	886,263	$	28,138,031	$	29,024,294
Farmland		—		—		—		—		—		1,442,757		1,442,757
Commercial Mortgages (Non-Owner Occupied)		—				—		318,418		318,418		13,102,133		13,420,551
Commercial Mortgages (Owner Occupied)		—		—		71,254		819,467		890,721		32,743,663		33,634,384
Residential First Mortgages		608,471		153,510		502		2,677,788		3,440,271		104,115,423		107,555,694
Residential Revolving and Junior Mortgages		8,303		9,778		—		1,257,915		1,275,996		25,706,516		26,982,512
Commercial and Industrial		10,003		90,883		50,075		—		150,961		20,373,586		20,524,547
Consumer Loans		12,193		—		3,688		1,479		17,360		6,636,050		6,653,410
Total	$	747,831	$	376,176	$	125,519	$	5,730,464	$	6,979,990	$	232,258,159	$	239,238,149

Note 4: Allowance for Loan Losses

A disaggregation of and an analysis of the change in the allowance for loan losses by segment is shown below.

Allowance for Loan Losses by Portfolio Segment

For the three months ended March 31, 2013 (unaudited)

	Construction, Land and Land Development		Farmland			Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages		Commercial and Industrial		Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	191,882	$	2,000		$	106,000		$	545,084		$	1,209,454		$	517,253	$	262,000	$	252,210		$	7,740		$	3,093,623
(Charge-offs)		—		—			—			—			(167,554	)		—		—		(28,375	)					(195,929	)
Recoveries		11,896		—			15,889			—			23,385			—		35		2,508						53,713
Provision		3.682		(1,000	)		(36,889	)		(86,225	)		(6,900	)		169,240		43,965		4,867			(7,740	)		83,000
Ending Balance	$	207,460	$	1,000		$	85,000		$	458,859		$	1,058,385		$	686,493	$	306,000	$	231,210		$	—		$	3,034,407
Individually evaluated for impairment	$	23,618	$	—		$	—		$	115,859		$	353,385		$	321,493	$	—	$	74,210		$	—		$	888,565
Collectively evaluated for impairment	$	183,842	$	1,000		$	85,000		$	343,000		$	705,000		$	365,000	$	306,000	$	157,000		$	—		$	2,145,842
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	213,420	$	—		$	—		$	1,282,324		$	4,294,251		$	1,224,588	$	—	$	73,130					$	7,087,713
Collectively evaluated for impairment		28,352,073		1,421,060			13,511,592			32,805,787			102,293,374			25,364,177		17,876,966		6,163,193						227,788,222
Total Gross Loans	$	28,565,493	$	1,421,060		$	13,511,592		$	34,088,111		$	106,587,625		$	26,588,765	$	17,876,966	$	6,236,323					$	234,875,935

Provision is negative for the Commercial Mortgages segments due mainly to a reduction in the total level of allowance required for these segments. Provision is negative for the Residential First Mortgages segment due mainly to a reduction in the level of individual impaired allowance required for this segment.

10

Allowance for Loan Losses by Portfolio Segment

For the Year Ended December 31, 2012

	Construction, Land and Land Development			Farmland		Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages			Commercial and Industrial			Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	190,500		$	—	$	88,000		$	554,318		$	1,161,551		$	719,121		$	281,650		$	185,000		$	8,401		$	3,188,541
(Charge-offs)		(200,278	)		—		(283,569	)		—			(787,108	)		(527,857	)		(388,026	)		(188,724	)		—			(2,375562	)
Recoveries		—			—		285,326			—			4,059			—			18,369			78,205			—			385,959
Provision		201,660			2,000		16,243			(9,234	)		830,952			325,989			350,007			177,729			(661	)		1,894,685
Ending Balance	$	191,882		$	2,000	$	106,000		$	545,084		$	1,209,454		$	517,253		$	262,000		$	252,210		$	7,740		$	3,093,623
Individually evaluated for impairment	$	25,882		$	—	$	—		$	165,084		$	467,454		$	101,253		$	—		$	74,210		$	—		$	833,883
Collectively evaluated for impairment	$	166,000		$	2,000	$	106,000		$	380,000		$	742,000		$	416,000		$	262,000		$	178,000		$	7,740		$	2,259,740
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	275,650		$	—	$	—		$	1,617,001		$	4,278,290		$	1,336,761		$	—		$	73,978					$	7,581,680
Collectively evaluated for impairment		28,748,644			1,442,757		13,420,551			32,017,383			103,277,404			25,645,751			20,524,547			6,579,432						231,656,469
Total Gross Loans	$	29,024,294		$	1,442,757	$	13,420,551		$	33,634,384		$	107,555,694		$	26,982,512		$	20,524,547		$	6,653,410					$	239,238,149

Internal risk rating grades are assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, loans to real estate developers and contractors, and consumer loans greater than $250,000 with chronic delinquency, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly.

As of March 31, 2013 (unaudited) INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,242,528	$	1,421,060	$	7,126,309	$	24,423,756	$	13,919,104	$	68,132,757
Watch		4,754,949		—		3,470,529		6,723,733		2,652,893		17,602,104
Special mention		1,337,558		—		2,574,371		336,282		1,068,734		5,316,945
Substandard		1,030,458		—		340,383		2,604,340		236,235		4,211,416
Doubtful		200,000		—		—		—		—		200,000
Total	$	28,565,493	$	1,421,060	$	13,511,592	$	34,088,111	$	17,876,966	$	95,463,222

As of December 31, 2012 INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,877,355	$	1,442,757	$	7,362,289	$	23,974,131	$	16,418,910	$	71,075,442
Watch		4,746,266		—		2,824,575		6,680,142		2,866,739		17,117,722
Special mention		1,162,388		—		2,574,371		338,902		759,554		4,835,215
Substandard		1,038,285		—		659,316		2,641,209		479,344		4,818,154
Doubtful		200,000		—		—		—		—		200,000
Total	$	29,024,294	$	1,442,757	$	13,420,551	$	33,634,384	$	20,524,547	$	98,046,533

11

Loans not assigned internal risk rating grades are comprised of residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. Loans are considered to be nonperforming when they are delinquent by 90 days or more or on nonaccrual, as shown in the table below.

As of March 31, 2013 (unaudited) PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving and Junior Mortgages		Consumer Loans		Total
Performing	$	104,385,779	$	25,434,177	$	6,232,685	$	136,052,641
Nonperforming		2,201,846		1,154,588		3,638		3,360,072
Total	$	106,587,625	$	26,588,765	$	6,236,323	$	139,412,713
As of December 31, 2012 PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving And Junior Mortgages		Consumer Loans		Total
Performing	$	104,877,404	$	25,724,597	$	6,648,243	$	137,250,244
Nonperforming		2,678,290		1,257,915		5,167		3,941,372
Total	$	107,555,694	$	26,982,512	$	6,653,410	$	141,191,616

12

The following table shows the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable. Also shown are the average recorded investments in impaired loans and the related amount of interest recognized and collected during the time the loans were impaired.

IMPAIRED LOANS

As of March 31, 2013 (unaudited)

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	13,420	$	13,806	$	—	$	13,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		1,478,276		1,492,465		—		1,487,094		3,325		3,383
Residential Revolving and Junior Mortgages (1)		96,341		98,153		—		97,247		—		—
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		752,170		757,329		—		755,281		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		—		—		—		—		—		—
	$	2,340,207	$	2,361,753	$	—	$	2,353,477	$	10,259	$	7,930
With an allowance recorded:
Construction, land & land development	$	200,000	$	200,000	$	23,618	$	200,000	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,815,975		2,815,975		353,385		2,511,351		28,504		26,774
Residential Revolving and Junior Mortgages (1)		1,128,247		1,936,968		321,493		1,041,632		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		530,154		538,307		115,859		535,173		—		—
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	4,747,506	$	5,564,380	$	888,565	$	4,361,710	$	31,629	$	29,213
Total Impaired Loans:
Construction, land & land development	$	213,420	$	213,806	$	23,618	$	213,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,294,251		4,308,440		353,385		3,998,445		31,829		30,157
Residential Revolving and Junior Mortgages (1)		1,224,588		2,035,121		321,493		1,138,879		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,282,324		1,295,636		115,859		1,290,454		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	7,087,713	$	7,926,133	$	888,565	$	6,715,187	$	41,888	$	37,143

(1) Junior mortgages include equity lines

(2) includes credit cards

13

IMPAIRED LOANS

As of December 31, 2012

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	213,768	$	213,914	$	—	$	202,754	$	162	$	130
Farmland		—				—		—		—		—
Residential First Mortgages		1,495,910		1,495,910		—		1,372,196		44,756		59,727
Residential Junior Mortgages		971,654		1,785,259		—		1,380,596		3,750		2,488
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		758,391		758,391		—		429,600		30,518		34,754
Commercial & industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
	$	3,439,723	$	4,253,474	$	—	$	3,385,145	$	79,186	$	97,099
With an allowance recorded:
Construction, land & land development	$	61,882	$	65,566	$	25,882	$	63,761	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,782,380		2,807,875		467,454		1,803,730		90,030		82,370
Residential Junior Mortgages		365,107		381,452		101,253		310,726		1,953		1,205
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		858,610		858,610		165,084		863,479		15,900		11,961
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	4,141,957	$	4,187,481	$	833,883	$	3,109,017	$	116,268	$	104,214
Total Impaired Loans:
Construction, land & land development	$	275,650	$	279,480	$	25,882	$	266,515	$	162	$	130
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,278,290		4,303,785		467,454		3,175,925		134,786		142,097
Residential Junior Mortgages		1,336,761		2,166,711		101,253		1,691,321		5,703		3,693
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,617,001		1,617,001		165,084		1,293,079		46,418		46,715
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	7,581,680	$	8,440,955	$	833,883	$	6,494,162	$	195,454	$	201,313

(1) Junior mortgages include equity lines

(2) includes credit cards

At March 31, 2013 and December 31, 2012, nonaccruing loans excluded from impaired loan disclosure totaled $768,649 and $721,951, respectively. If interest on these nonaccruing loans had been accrued, such income would have approximated $10,828 during the three months ended March 31, 2013 and $16,139 during the year ended December 31, 2012.

14

The following table presents, by segments of loans, information related to loans modified as Troubled Debt Restructurings (“TDR’s”) during the three months ended March 31, 2013 and 2012.

	For the three months ended March 31, 2013 (unaudited)
	Number of		Pre-Modification Outstanding		Post-Modification Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment
Residential First Mortgages		2	$	314,889	$	314,655

No loans were modified as TDR’s during the three months ended March 31, 2012. There were no loans modified as TDR’s within 12 months prior to a default that subsequently defaulted (i.e. 90 days or more past due following a modification) during the three months ended March 31, 2013.

Note 5: Earnings per share

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

Three Months Ended (unaudited)	March 31, 2013				March 31, 2012
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,813,812	$	0.03		2,610,856	$	0.04
Effect of dilutive securities:
Stock options		2,678				1,350
Diluted earnings per share		4,816,490	$	0.03		2,612,206	$	0.04

As of March 31, 2013 and 2012, options on 185,467 and 158,861 shares, respectively, were not included in computing diluted earnings per share, because their effects were anti-dilutive.

15

Note 6: Stock-Based Compensation

The Company has four stock-based compensation plans. The 1994 Incentive Stock Option Plan expired and no additional options may be granted under this plan. The 2003 Incentive Stock Option Plan made 175,000 shares available for grant. Under this plan, the exercise price of each option equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is ten years. Options granted are exercisable only after meeting certain performance targets during a specified time period. If the targets are not met, the options are forfeited. Since this plan expired on April 30, 2013, no additional options may be granted under the plan. The third plan is the 1998 Non-Employee Directors Stock Option Plan, which has expired and therefore no additional options may be granted. The fourth plan is the 2008 Non-Employee Directors Stock Option Plan. This plan had 7,903 shares available for grant at March 31, 2013. All information has been adjusted for stock dividends.

Stock-based compensation expense related to stock options during the three-month periods ended March 31, 2013 and March 31, 2012 was $93,018 and $2,193, respectively. There was no unrecognized compensation expense related to stock options as of March 31, 2013. No options were granted during the three months ended March 31, 2012. Compensation expense for stock options is the estimated fair value of options granted using the Black-Scholes Model amortized on a straight-line basis over the vesting period of the award. The fair value of options granted under the 2003 Incentive Stock Option Plan and the 2008 Non-Employee Directors Stock Option Plan during the three months ended March 31, 2013 was $1.03 and $1.08, respectively. The variables used in these calculations include the historical dividend yield, expected life of the options, expected stock price volatility, and a risk-free interest rate, which is assumed to be the rate on 5-year U.S. Treasury bonds.

Stock option plan activity for the three months ended March 31, 2013, is summarized below:

(Unaudited)	Shares		Weighted Average Exercise Price		Remaining Contractual Life (in years)		Aggregate Intrinsic Value (1)
Options outstanding, January 1		120,617	$	9.51		5.4
Granted		89,500		5.25
Forfeited		—		—
Exercised		—		—
Expired		—		—
Options outstanding, March 31		210,117		7.69		7.1	$	11,688
Options exercisable, March 31		210,117		7.69		7.1	$	11,688

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2013. This amount changes based on changes in the market value of the Company’s common stock.

As of February 21, 2013, a total of 7,000 shares of the Company’s common stock was awarded to the Chief Executive Officer, the Executive Vice President and the Chief Financial Officer. These shares vested immediately and $36,750 in compensation expense recognized on that date.

Note 7: Goodwill

The Company has goodwill recorded on the consolidated financial statements relating to the purchase of five branches during the years 1994 through 2000. The balance of the goodwill at March 31, 2013 and December 31, 2012, as reflected on the consolidated balance sheets, was $2,807,842. Management determined that these purchases qualified as acquisitions of businesses and that the related unidentifiable intangibles were goodwill. Therefore, amortization was discontinued effective January 1, 2002. The goodwill balance was tested for impairment as of September 30, 2012, and no impairment was determined to exist. The current year impairment testing will be completed during the 4^th quarter.

16

Note 8: Employee Benefit Plans

The Company has a non-contributory, defined benefit pension plan for all full-time employees over 21 years of age. Under this cash balance plan, until December 31, 2012, the account balance for each participant will grow each year with annual pay credits based on age and years of service and monthly interest credits based on an amount established each year by the Company’s Board of Directors. Effective December 31, 2012, this plan was frozen. Annual pay credits have been discontinued, but each participant’s account balance will continue to grow based on monthly interest credits. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.

The Company sponsors a postretirement benefit plan covering current and future retirees who acquire age 55 and 10 years of service or age 65 and 5 years of service. The post-retirement benefit plan provides coverage toward a retiree’s eligible medical and life insurance benefits expenses.

Components of Net Periodic Benefit Cost

(Unaudited)

	Pension Benefits						Post-Retirement Benefits
	2013			2012			2013		2012
Three months ended March 31,
Service cost	$	—		$	63,571		$	5,738	$	6,501
Interest cost		35,815			44,575			7,477		7,489
Expected return on plan assets		(53,665	)		(80,466	)		—		—
Amortization of unrecognized prior service cost		—			(13,491	)		—		—
Amortization of unrecognized net loss		22,436			17,860			1,124		735
Amortization of transition obligation		—			—			728		728
Net periodic benefit cost	$	4,586		$	32,049		$	15,066	$	15,453

The Company expects to make no contribution to its pension plan and $23,945 to its post-retirement benefit plan in 2013. The Company has contributed $3,992 toward the post-retirement plan during the first three months of 2013.

Note 9: Long Term Debt

On March 31, 2013, the Bank had FHLB debt consisting of two advances. The FHLB holds an option to terminate the $10 million advance on any quarterly payment date. The $10 million advance has an early conversion option which gives the FHLB the option to convert, in whole only, into a one-month LIBOR-based floating rate advance, effective on any quarterly payment date. If the FHLB elects to convert, the Bank may elect to terminate, in whole or in part, without a prepayment fee.

Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans with a lendable collateral value of $57.1 million. Immediate available credit, as of March 31, 2013, was $40.1 million. With additional collateral, the total line of credit is worth $67.5 million, with $50.5 million available.

The two advances are shown in the following table.

Description	Balance		Acquired		Current Interest Rate			Maturity Date
Convertible	$	10,000,000		9/12/2006		4.23	%		9/12/2016
Fixed Rate Hybrid		5,000,000		5/20/2011		2.69	%		5/20/2014
	$	15,000,000

17

Note 10: Fair Value Measurements

The Company uses fair value to record certain assets and liabilities and to determine fair value disclosures. Authoritative accounting guidance 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.

Authoritative accounting guidance 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:

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.

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:

Securities available for sale: Securities available for sale 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. Currently, all of the Company’s available-for-sale securities are considered to be Level 2 securities.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

			Fair Value Measurements at March 31, 2013  Using
Description	Balance as of   March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
U. S. Government agencies	$	9,590,926	$	—	$	9,590,926	$	—
State and municipal obligations		26,731,208		—		26,731,208		—
Certificates of deposit		1,983,818		—		1,983,818		—

			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U. S. Government agencies	$	9,463,815	$	—	$	9,463,815	$	—
State and municipal obligations		25,249,528		—		25,249,528		—
Certificates of deposit		1,987,177		—		1,987,177		—

18

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 according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is 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 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). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
	(unaudited)
Impaired Loans, net of valuation allowance	$	3,858,941	$	—	$	—	$	3,858,941
Other real estate owned		3,662,561		—		—		3,662,561
			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Impaired Loans, net of valuation allowance	$	3,308,074	$	—	$	—	$	3,308,074
Other real estate owned		3,151,346		—		—		3,151,346

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The following table displays quantitative information about Level 3 Fair Value Measurements as of the date indicated.

	Balance as of March 31, 2013		Valuation	Unobservable	Range (Weighted
	(unaudited)		Technique	Input	Average)
Impaired Loans, net of valuation allowance	$	3,858,941	Discounted appraised value	Selling Cost	10% - 20% (11%)
				Lack of Marketability	0% - 100% (32%)
Other real estate owned		3,662,561	Discounted appraised value	Selling Cost	4% - 13% (6%)
				Lack of Marketability	10% - 20% (15%)

The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
Financial Assets:
Cash and due from banks	$	7,082,360	$	7,082,360	$	—	$	—
Interest-bearing deposits		28,832,996		28,832,996		—		—
Federal funds sold		868,694		868,694		—		—
Securities available-for-sale		38,305,952		—		38,305,952
Restricted securities		1,517,900		—		—		1,517,900
Loans, net		231,841,528		—		—		237,374,000
Accrued interest receivable		1,014,667		—		1,014,667		—
Financial Liabilities:
Non-interest-bearing liabilities	$	49,858,751	$	49,858,751	$	—	$	—
Savings and other interest-bearing deposits		113,764,670		113,764,670		—		—
Time deposits		104,072,053		—		—		107,144,000
Securities sold under repurchase agreements		8,237,300		—		8,237,300		—
FHLB advances		15,000,000		—		16,364,663		—
Accrued interest payable		152,694		—		152,694		—

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			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and due from banks	$	4,757,889	$	4,757,889	$	—	$	—
Interest-bearing deposits		35,166,448		35,166,448		—		—
Federal funds sold		48,009		48,009		—		—
Securities available-for-sale		36,700,520		—		36,700,520		—
Restricted securities		1,584,700		—		—		1,584,700
Loans, net		236,144,526		—		—		244,708,821
Accrued interest receivable		1,070,763		—		1,070,763		—
Financial Liabilities:
Non-interest-bearing liabilities	$	50,467,907	$	50,467,907	$	—	$	—
Savings and other interest-bearing deposits		117,954,879		117,954,879		—		—
Time deposits		106,751,785		—		—		109,449,974
Securities sold under repurchase agreements		6,459,839		—		6,459,839		—
FHLB advances		15,000,000		—		16,483,342		—
Accrued interest payable		156,812		—		156,812		—

The carrying amounts of cash and due from banks, federal funds sold or purchased, accrued interest, non-interest-bearing deposits, savings, and securities sold under repurchase agreements, represent items which do not present significant market risks, are payable on demand, or are of such short duration that carrying value approximates market value.

Available-for-sale securities are carried at the fair values measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Therefore carrying value equals market value. The carrying value of restricted securities approximates fair value based on the redemption provisions.

The fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar remaining maturities. This calculation ignores loan fees and certain factors affecting the interest rates charged on various loans such as the borrower’s creditworthiness and compensating balances and dissimilar types of real estate held as collateral. The fair value of impaired loans is measured as described within the Impaired Loans section of this note.

Time deposits are presented at estimated fair value using interest rates offered for deposits of similar remaining maturities.

The fair value of the FHLB advances is estimated by discounting the future cash flows using the interest rate offered for similar advances.

The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date.

At March 31, 2013 and December 31, 2012, the fair value of loan commitments and standby letters of credit was immaterial. Therefore, they are not included in the table above.

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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.

Note 11: Changes in Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) (“AOCI”) balances, including amounts reclassified out of AOCI, are shown in the following table.

	Net Unrealized Gains (Losses) on Securities			Pension and Post- retirement Benefit Plans			Accumulated Other Comprehensive Income (Loss)
Three months ended March 31, 2013 (unaudited)
Beginning balance	$	279,195		$	(659,921	)	$	(380,726	)
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $25,045		(48,617	)		—			(48,617	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $1,000		(1,941	)		—			(1,941	)
Balance at March 31, 2013	$	228,637		$	(659,921	)	$	(431,284	)
Three months ended March 31, 2012 (unaudited)
Beginning balance	$	760,730		$	(315,391	)	$	445,339
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $36,885		(71,603	)		—			(71,603	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $3,013		(5,848	)		—			(5,848	)
Balance at March 31, 2012	$	683,279		$	(315,391	)	$	367,888

Reclassifications of unrealized gains (losses) on AFS securities are reported in the income statement as “Gains on sale of securities available for sale” with the corresponding income tax effect being reflected as a component of income tax expense. During the three months ended March 31, 2013 and 2012, the Company reported net gains on sales of securities of $2,941 and $8,861, respectively; the tax effect of these transactions was $1,000 and $3,013, respectively, which was included as a component of income tax expense.

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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”). This discussion should be read in conjunction with the above consolidated financial statements and the notes thereto.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

EXECUTIVE SUMMARY

The main reason our capital raise was so successful last fall is because of our plans for growth. So, we are pleased to report that our new residential loan production office is now open in Hartfield, Virginia. We anticipate this new office will make a positive contribution to earnings within its first year of operation. The quest for improved core earnings continues, but with a focus on growing into new markets. Net income for the first quarter of 2013 was 32.6% better than the first quarter of 2012. Non-interest income was 27.4% better for the same time frame comparison, a direct result of the earnings enhancements made throughout 2012. Fees on sales of mortgages to Fannie Mae in the first quarter of 2013 were 64.5% better than the first quarter of 2012. No sales of investment securities to provide gains have been necessary for two quarters.

During April, 2013, we refinanced the $10.0 million loan we hold with the Federal Home Loan Bank of Atlanta, (“FHLB”) with anticipated annual savings of $157 thousand. Also in April, we invested $5.0 million in bank owned life insurance which is expected to yield at least $190 thousand during the first twelve months to support existing employee benefit programs.

Regarding asset quality, we continue to actively manage problem assets, and believe the worst is behind us. Non-performing assets are down to $8.6 million as of March 31, 2013 compared to $9.0 million as of December 31, 2012. A typical consequence of reductions in non-performing loans is increased balances in other real estate owned (“OREO”), and this is true for us as OREO balances are up to $3.7 million as of March 31, 2013 compared to $3.2 million as of December 31, 2012. The good news is that non-accruing loan balances decreased more than OREO balances increased. These OREO properties continue to stress earnings due to repair and maintenance expenses, and although appraisals of these properties are kept current, potential buyers seem to expect that banks will accept offers at significant discounts to market value. The challenge is to balance the potential damage to earnings created by the loss on a sale of an OREO property against the reduced level of non-performing assets.

Annualized net loan charge-offs against the allowance for loan losses (“ALL”) are down to 0.24% of total loans for the first quarter of 2013 compared to 0.83% in 2012. This has resulted in corresponding reductions in provision for loan losses expense. The majority of these charged off loans were included in the ALL as specific reserves on impaired loans.

Interest margins declined during the first quarter of 2013. It has become increasingly difficult to reduce interest expense (and cost of funds) by the same or more than the reductions in interest income (and yields on loans and investments). As this historic low-rate climate continues, loan yields continue to decline, contributing to reduced interest income, which is also negatively impacted, but to a lesser degree, by non-accruing loans. In order to drive increases in interest income, a bank’s main source of revenue, we are concentrating on loan growth via cautious expansion into new markets. The refinance of the FHLB loan noted above will also make a difference on the cost of funds side. Noticeable time deposit maturities later in 2013 will also help our cost of funds as those renew at lower rates.

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Finally, our core capital levels and regulatory ratios continue to increase beyond the levels considered “well capitalized” by our regulators, due in no small part to last fall’s successful capital raise. The Company took no Troubled Asset Relief Program (“TARP”) nor Small Business Lending Fund (“SBLF”) investments from the U.S. Treasury. We will continue to closely monitor the developments related to the Consumer Financial Protection Bureau’s proposed rules for Basel III capital requirements, which is one of many new regulations yet to come from the Dodd-Frank Act.

For more information, visit the Company’s website at www.baybanks.com. Information contained on the Company’s website is not a part of this report.

CRITICAL ACCOUNTING POLICIES

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

ALLOWANCE FOR LOAN LOSSES (“ALL”). The ALL is an estimate which reflects management’s judgment of probable losses inherent in the loan portfolio. The ALL is based on two basic principles of accounting: (1) that losses be accrued when they are probable of occurring and estimable and (2) that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The ALL is increased by charges to income, through the provision for loan losses expense, and decreased by charge-offs (net of recoveries).

Management calculates the ALL and evaluates it for adequacy every quarter. This process is lengthy and thorough. The calculation is based on information such as past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. The quarterly process includes consideration of certain borrowers’ payment histories compared to the terms of each loan agreement and other adverse factors such as divorce, loss of employment income, and bankruptcy. Each loan is then given a risk grade which represents the extent (or lack) of weakness. This grading process occurs dynamically throughout each quarter as new information is learned about each borrowing relationship.

The ALL calculation has three main elements. First, large commercial and construction loan relationships with adverse risk rating grades, in bankruptcy, nonaccruing, or more than 30 days past due are evaluated for impairment. For loans determined to be impaired, a specific allowance is provided when the loan balance exceeds its discounted collateral value. Real estate collateral value is determined based on appraisals done by third parties. At such time as a loan is assigned to a ‘watch’ grade, if the most recent appraisal is more than two years old, a new appraisal will generally be ordered. Discounts applied to collateral include estimated realtor commissions on real estate (in consideration of selling costs should the Bank end up owning the property), and industry-standard reductions in values for accounts receivable, inventory and other varying forms of collateral.

Second, loans not deemed impaired under the first element, plus smaller commercial loans, residential mortgages and consumer loans, are collectively evaluated in groups of homogenous pools called segments, then a historical loss factor is applied to each segment of loans. The historical loss factor for each segment is calculated by averaging the losses over the prior five years.

Finally, a set of qualitative factors, such as changes in credit quality, changes in loan staff experience, changes in loan policies and underwriting guidelines, and changes in national and local economic conditions, is used to estimate the value of intrinsic risk in each of the segments.

The summation of these three elements results in the total estimated ALL. Management may also include an unallocated component to cover uncertainties in the level of probable losses. This estimate is inherently subjective and actual losses could be greater or less than the estimates. For a more detailed description of the ALL, see Note 1 to the Consolidated Financial Statements in Item 8 of the previously filed Form 10-K for the year ended December 31, 2012.

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EARNINGS SUMMATION

For the three months ended March 31, 2013, net income was $140 thousand, an increase of 32.6% compared to the $106 thousand for the similar period in 2012. Diluted earnings per average share for the three months ended March 31, 2013 decreased to $0.03, from $0.04 for the same period in 2012; return on average assets was 0.17% for the three months ended March 31, 2013 and 0.13% for the same period in 2012; and return on average equity was 0.38% for both periods, even after last fall’s successful capital raise.

The principal source of earnings for the Company is net interest income. Net interest income is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest-earning assets. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, the associated yields and rates, and the volume of non-performing assets have an effect on net interest income, the net interest margin, and net income. Although interest income is down by $152 thousand in the first three months of 2013 compared to the same period in 2012 and interest expense is down by $119 thousand, the level of net interest income declined by only $33 thousand, or 1.3%. The decrease in interest income was driven mainly by lower yields and lower balances on investments. The decrease in interest expense was due mainly to lower rates and lower balances in time deposit accounts.

Net Interest Income Analysis (unaudited)

(Fully taxable equivalent basis)	Average Balances, Income and Expense, Yields and Rates
(Dollars in Thousands)	Three months ended 3/31/2013							Three months ended 3/31/2012
	Average Balance		Income/ Expense		Yield/ Cost			Average Balance		Income/ Expense		Yield/ Cost
INTEREST EARNING ASSETS:
Taxable investments	$	26,734	$	124		1.86	%	$	30,056	$	201		2.68	%
Tax-exempt investments (1)		11,775		85		2.88	%		11,821		108		3.64	%
Total investments		38,509		209		2.17	%		41,877		309		2.95	%
Gross loans (2)		235,022		3,154		5.38	%		239,316		3,224		5.38	%
Interest-bearing deposits		32,658		18		0.23	%		12,126		7		0.23	%
Federal funds sold		204		—		0.07	%		2,424		1		0.23	%
Total Interest Earning Assets	$	306,393	$	3,381		4.41	%	$	295,743	$	3,541		4.79	%
INTEREST-BEARING LIABILITIES:
Savings deposits	$	46,031	$	30		0.26	%	$	47,736	$	62		0.52	%
NOW deposits		40,997		23		0.23	%		38,263		20		0.21	%
Time deposits => $100,000		47,239		260		2.23	%		51,848		332		2.57	%
Time deposits < $100,000		58,149		277		1.93	%		64,208		298		1.86	%
Money market deposit accounts		27,879		41		0.60	%		22,744		37		0.65	%
Total Deposits	$	220,295	$	631		1.16	%	$	224,799	$	749		1.34	%
Securities sold under repurchase agreements	$	6,908	$	4		0.23	%	$	5,143	$	3		0.23	%
FHLB advances		15,000		139		3.76	%		15,000		141		3.77	%
Total Interest-Bearing Liabilities	$	242,203	$	774		1.30	%	$	244,942	$	893		1.46	%
Effect of non-interest bearing deposits	$	49,129				-0.23	%	$	44,290				-0.23	%
Cost of funds						1.06	%						1.23	%
Net interest income and net interest margin			$	2,607		3.40	%			$	2,648		3.58	%
Net interest rate spread						3.35	%						3.55	%

Notes:

(1) Income and yield assumes a federal tax rate of 34%.

(2) Includes Visa program and nonaccrual loans.

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The annualized net interest margin was 3.40% for the three months ended March 31, 2013, down from 3.58% for the same period in 2012. The main reason for the decrease is lower yields on investments. However, reductions in deposit costs and related interest expense have helped to mitigate the reduced interest income. Also, the mix of deposits continue to improve as lower cost balances in checking and money market accounts have increased while higher cost time deposit balances have declined. Further reductions in the cost of funds are anticipated as time deposits mature and are replaced at lower rates. As long as market rates remain low, this positive trend is expected to continue.

Average interest-earning assets increased 3.6% to $306.4 million for the three months ended March 31, 2013, as compared to $295.7 million for the three months ended March 31, 2012, a result of higher interest-bearing deposit balances. Average interest-earning assets as a percent of total average assets was 92.5% for the three months ended March 31, 2013 as compared to 93.2% for the same period of 2012. As shown in the table above, for the three months ended March 31, 2013, the loan portfolio, with $235.0 million in average balances, is the largest category of interest-earning assets.

Average interest-bearing liabilities decreased 1.1% to $242.2 million for the three months ended March 31, 2013, as compared to $244.9 million for the three months ended March 31, 2012. The largest category of interest-bearing liabilities is time deposits, with combined average balances of $105.4 million for the three months ended March 31, 2013, down from $116.1 million for the similar period in 2012.

The net interest spread, which is the difference between the annualized yield on earning assets and the annualized cost of interest-bearing liabilities, decreased to 3.35% for the three months ended March 31, 2013 compared to 3.55% for the same period in 2012.

LIQUIDITY

Liquidity represents an institution’s ability to meet present and future financial obligations (such as commitments to fund loans) through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing 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 to meet its customers’ credit needs.

At March 31, 2013, cash totaled $7.1 million, federal funds sold totaled $869 thousand, interest-bearing deposits totaled $28.8 million, and securities and loans maturing in one year or less totaled $21.8 million. This results in a liquidity ratio as of March 31, 2013 of 17.8% as compared to 18.6% as of December 31, 2012. The Company determines this ratio by dividing the sum of cash and cash equivalents, investment securities maturing in one year or less, loans maturing in one year or less and federal funds sold, by total assets. The Bank has a formal liquidity management policy and contingency plan. Given current economic uncertainty, management is maintaining a historically high level of liquidity.

In addition, as noted earlier, the Company has a line of credit with the FHLB of $67.5 million, plus federal funds lines of credit with correspondent banks totaling $20.3 million.

OFF BALANCE SHEET COMMITMENTS

In the normal course of business, the Company offers various financial products to its 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 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 standby-letters of credit is represented by the contractual amount of these instruments. 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 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. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

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Off Balance Sheet Arrangements

	March 31, 2013		December 31, 2012
	(unaudited)
(Dollars in Thousands)
Total Loan Commitments Outstanding	$	30,544	$	30,459
Standby-by Letters of Credit		305		359

The Company maintains liquidity and credit facilities with non-affiliated banks in excess of the total loan commitments and stand-by letters of credit. As these commitments are earning assets only upon takedown of the instrument by the customer, thereby increasing loan balances, management expects the revenue of the Company to be enhanced as these credit facilities are utilized.

There have been no material changes to the off balance sheet items disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

CONTRACTUAL OBLIGATIONS

There have been no material changes outside the ordinary course of business to the contractual obligations disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

CAPITAL RESOURCES

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 allow management to effectively leverage its capital to maximize return to shareholders. The Company’s capital, also known as shareholders’ equity, is comprised mainly of outstanding common stock and retained earnings. Capital can be increased with securities offerings or through earnings. On December 31, 2012, the Company sold a total of 2,200,000 shares of its common stock at a purchase price of $4.25 per share to certain accredited investors in a private placement exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. The Company received gross proceeds of $9.35 million from such private placement. The Company has a formal capital policy and plan and management believes that the capital level at March 31, 2013, which was enhanced by this successful private placement, supports plans for growth.

From December 31, 2012 to March 31, 2013, total shareholders’ equity increased by $208 thousand to $36.8 million. Several factors impact shareholder’s equity, including net income, and regulatory capital requirements.

The Company’s capital resources are also impacted by net unrealized gains or losses on securities. The available-for-sale securities portfolio is marked to market monthly and unrealized gains or losses, net of taxes, are recognized as accumulated other comprehensive income (loss) on the balance sheets and statement of changes in shareholders’ equity. Another factor effecting accumulated other comprehensive income (loss) is changes in the market value of the Company’s pension and post-retirement benefit plans. Shareholders’ equity before accumulated other comprehensive income (loss) was $37.2 million on March 31, 2013 compared to $37.0 million on December 31, 2012. Accumulated other comprehensive loss increased $51 thousand between December 31, 2012 and March 31, 2013, a result of reductions in unrealized gains in the investment portfolio.

Book value per share, basic, increased to $7.64 from $7.60 on March 31, 2013 as compared to December 31, 2012. Book value per share, basic, before accumulated other comprehensive income on March 31, 2013, compared to December 31, 2012, increased to $7.73 from $7.68. No cash dividends were paid for the three-month period ended March 31, 2013, nor for the comparable period ended March 31, 2012. Of the 10,000,000 common shares authorized, 4,817,856 were outstanding on March 31, 2013, up 7,000 shares from 4,810,856 on December 31, 2012, a result of stock awarded to the Company’s Chief Executive Officer, Executive Vice President and Chief Financial Officer.

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The Bank is subject to minimum regulatory capital ratios as defined by Federal Financial Institutions Examination Council guidelines. These ratios continue to be well in excess of regulatory minimums. As of March 31, 2013, the Bank maintained Tier 1 capital of $29.0 million, net risk weighted assets of $218.1 million, and Tier 2 capital of $2.7 million. On March 31, 2013, the Tier 1 capital to risk weighted assets ratio was 13.31%, the total capital ratio was 14.56%, and the Tier 1 leverage ratio was 8.86%.

FINANCIAL CONDITION

Total assets decreased by 1.7% to $329.1 million during the three months ended March 31, 2013 from $334.8 million at December 31, 2012. Cash and due from banks, which produces no income, increased to $7.1 million on March 31, 2013 from $4.7 million at year-end 2012, a result of holding higher balances with the Bank’s correspondent bank to reap earnings credits towards account fees.

During the three months ended March 31, 2013, gross loans decreased by $4.4 million or 1.8%, to $234.9 million from $239.2 million at year-end 2012. The largest component of this decrease was a $2.6 million decline in Commercial and industrial loan balances, driven by one large loan maturity.

Consumer loans, including residential real estate loans, are generally underwritten based on the borrower’s debt-to-income ratio, credit score or payment history and the ratio of the requested loan amount to the value of any collateral. There are established underwriting criteria for these parameters to determine if a loan will be considered an acceptable credit risk. For commercial borrowers, factors we assess include the legal entity of the borrower, the capacity of the borrower to cover its debt service obligations, the strength and creditworthiness of any guarantor support, the value of any collateral relative to the loan amount, stability and predictability of the borrower’s cash flow, and the borrower’s standing with the Virginia State Corporation Commission.

As of March 31, 2013, loans valued at $7.1 million were considered impaired, whereas $7.6 million were considered impaired as of December 31, 2012. Between December 31, 2012 and March 31, 2013, two impaired loan relationships were identified and two were dispensed through foreclosures and charge-offs. Management has reviewed these impaired credits and the underlying collateral and expects no additional losses above those which are specifically reserved in the ALL.

Risk rating grades are assigned conservatively, causing some homogenous loans, like residential mortgages, to fall into the pool of adversely risk rated loans and thereby evaluated for impairment, even though they may be performing as agreed and therefore not impaired.

Non-Performing Assets

(Dollars in Thousands)	March 31, 2013						December 31, 2012
	(unaudited)
(percentages are as a percent of total loans)	$			%			$			%
Loans past due 90 days or more and still accruing	$	280			0.1	%	$	126			0.1	%
Non-accruing loans		4,677			2.0	%		5,730			2.4	%
Total non-performing loans	$	4,957			2.1	%	$	5,856			2.4	%
Allowance for loan losses	$	3,034			1.29	%	$	3,094			1.29	%
Allowance to non-performing loans		61.2	%					52.8	%
(percentages are as a percent of total loans plus OREO)
Other real estate owned		3,663			1.5	%		3,151			1.3	%
Total non-performing assets	$	8,620			3.7	%	$	9,007			3.7	%

Non-performing loans, which include loans past due 90 days or more and still accruing, plus non-accruing loans, as a percentage of total loans, decreased to 2.1% as of March 31, 2013 compared to 2.4% as of December 31, 2012. Non-accruing loans totaled $4.7 million as of March 31, 2013, down from $5.7 million at year-end 2012. Non-performing assets, which include OREO in addition to non-performing loans, remained at 3.7% at March 31, 2013 as compared to December 31, 2012. Management believes that the allowance to non-performing loans ratio of 61.2% is sufficient.

28

Loans charged off during the first three months of 2013, net of recoveries, totaled $142 thousand compared to $816 thousand for the fourth quarter of 2012. This represents a decline in the annualized net charge-off ratio to 0.24% for the first three months of 2013 compared to 1.36% on a linked quarter basis, reflecting an improvement in asset quality. The majority of the charge-offs were anticipated and specific reserves had been provided for them in the ALL. Management is maintaining an adequate level of the ALL at 1.29% of total loans for both March 31, 2013 and December 31, 2012.

The Bank had $3.7 million of OREO at March 31, 2013 and $3.2 million at December 31, 2012. OREO consists of ten residences, thirteen lots, two former convenience stores, a seafood house, one piece of farmland, one former nursery property and two commercial business properties. In 2013, two properties with a total book value of $526 thousand from two borrowers were added through foreclosures. Write-downs of book value on OREO properties totaled $16 thousand during the first three months of 2013, compared to $14 thousand for the same period in 2012. All properties maintained as OREO are valued at the lesser of carrying value or fair value less estimated costs to sell and are actively marketed.

As of March 31, 2013, securities available-for-sale at fair value totaled $38.3 million as compared to $36.7 million on December 31, 2012. This represents a net increase of $1.6 million or 4.4% for the three months. As of March 31, 2013, these securities represented 11.6% of total assets and 12.6% of earning assets. All securities in the Company’s investment portfolio are classified as available-for-sale and marked to market on a monthly basis. These gains or losses, net of tax, are booked as an adjustment to shareholders’ equity, and are not realized as an adjustment to earnings until the securities are actually sold or an other than temporary impairment occurs. Management does not consider any of the securities with unrealized losses to be other than temporarily impaired.

The Company has goodwill recorded on the consolidated financial statements relating to the purchase of five branches during the years 1994 through 2000. The balance of the goodwill at March 31, 2013, as reflected on the consolidated balance sheets, was $2,807,842. Management determined that these purchases qualified as acquisitions of businesses and that the related unidentifiable intangibles were goodwill. Therefore, amortization was discontinued effective January 1, 2002. Subsequently, this goodwill has been tested annually for impairment. The test performed as of September 30, 2012 found no impairment.

As of March 31, 2013, total deposits were $267.7 million compared to $275.2 million at year-end 2012. This represents a decrease in balances of 7.5 million or 2.7% during the three months. Approximately $3.0 million of the decline is attributable to normal daily fluctuation of demand deposit balances.

RESULTS OF OPERATIONS

NON-INTEREST INCOME

Non-interest income for the three months ended March 31, 2013 was up by $215 thousand, or 27.4%, compared to the three months ended March 31, 2012. The main driver of this increase is service charges and fees on deposit accounts, which were up by $108 thousand, which in turn was driven by the Bank’s new Overdraft Privilege Program. Overdraft fees have increased to $215 thousand for the first three months of 2013 compared to $123 thousand for the similar period in 2012. Fees from sales of mortgages into the secondary market increased by $55 thousand, which was driven nearly exclusively by increased loan sales to Fannie Mae. Income from Investment Advantage increased by $34 thousand. Investment Advantage contributes the majority of income to other service charges and fees, and since income from Investment Advantage is commission-based, increases in investment activity will cause increases in the Company’s income. VISA^® related fees increased by $20 thousand to $180 thousand in the first three months of 2013 compared to the similar period in 2012.

Income from fiduciary activities was up by $5 thousand to $165 thousand for the first three months of 2013 compared to the similar period in 2012. The Company’s fiduciary income is derived from the operations of its subsidiary, Bay Trust Company, which offers a broad range of trust and related fiduciary services. Among these are estate settlement and testamentary trusts, revocable and irrevocable personal trusts, managed agency, custodial accounts, and rollover IRAs, both self-directed and managed. Fiduciary income is largely affected by changes in the performance of the stock and bond market, which directly impacts the market value of the accounts upon which fees are earned and therefore the levels of this fee income.

29

NON-INTEREST EXPENSE

For the three months ended March 31, 2013, non-interest expenses totaled $3.3 million, an increase of $101 thousand, or 3.2%, compared to $3.2 million for the same period in 2012. The largest component of non-interest expense is salaries and benefits, which increased by $168 thousand as we position the Company for growth and invest in new technologies. Savings from last year’s reduction in force have been redeployed into positions which will generate new revenue.

Occupancy expense decreased by $5 thousand for the first three months of 2013 compared to the similar period in 2012, a result of decreased building maintenance expense. Losses on OREO were reclassified into non-interest expense from non-interest income, and have improved by $54 thousand. Expenses related to the maintenance of OREO properties has also improved, by $20 thousand. Telephone expenses, which include the cost of the Company’s Customer Care Center and data network communications, increased to $49 thousand for the current period compared to $41 thousand for the same period in 2012. Finally, consulting expense is down by $50 thousand.

Expenses related to the VISA^® program increased to $154 thousand in the first three months of 2013 as compared to $131 thousand for the same period in 2012. When also considering the interest and non-interest income generated by the VISA^® program prior to taxes, it provided a net positive contribution to the Company of $57 thousand in the first three months of 2013, down from $61 thousand for the same period in 2012.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards (“FASB”) issued Accounting Standards Update “(ASU”) 2011-11, “Balance Sheet (Topic 210) — Disclosures about Offsetting Assets and Liabilities.” This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” The amendments in this ASU apply to all entities that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. The amendments in this ASU provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine whether it should perform a quantitative impairment test. The amendments also enhance the consistency of impairment testing guidance among long-lived asset categories by permitting an entity to assess qualitative factors to determine whether it is necessary to calculate the asset’s fair value when testing an indefinite-lived intangible asset for impairment. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In January 2013, the FASB issued ASU 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” The amendments in this ASU clarify the scope for derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset or subject to netting arrangements. An entity is required to apply the amendments for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The amendments in this ASU require an entity to present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income. In addition, the amendments require a cross-reference to other disclosures currently required for other reclassification items to be reclassified directly to net income in their entirety in the same reporting period. Companies should apply these amendments for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The Company has included the required disclosures from ASU 2013-02 in the consolidated financial statements.

30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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. 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 controls and procedures 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 their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Securities and Exchange Commission filings as of March 31, 2013.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There was no change to the Company’s internal control over financial reporting during the quarter ended March 31, 2013 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RISK FACTORS

Not required.

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

None to report.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None to report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None to report.

ITEM 6. EXHIBITS

31.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (ii) Consolidated Statements of Income for the three months ended March 31, 2013 and 2012, (iii) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2013 and 2012, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.*

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data File attached as Exhibit 101 hereto is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under such sections.

32

SIGNATURES

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

		Bay Banks of Virginia, Inc.
		(Registrant)
May 14, 2013	By:	/s/ Randal R. Greene
		Randal R. Greene
		President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Deborah M. Evans
		Deborah M. Evans
		Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

33

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Section 302 Certification

I, Randal R. Greene, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices.

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Randal R. Greene	Dated: May 14, 2013
Randal R. Greene
President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Section 302 Certification

I, Deborah M. Evans, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting practices.

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Deborah M. Evans	Dated: May 14, 2013
Deborah M. Evans
Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bay Banks of Virginia, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their knowledge and belief: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ Randal R. Greene

Randal R. Greene, President and Chief Executive Officer

/s/ Deborah M. Evans

Deborah M. Evans, Treasurer and Chief Financial Officer

May 14, 2013

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 will be retained by Bay Banks of Virginia, Inc., and furnished to the Securities and Exchange Commission and its staff upon request.

XML

Allowance for Loan Losses (Details 4) (Residential First Mortgages [Member], USD $)	3 Months Ended
	Mar. 31, 2013 Loans
Residential First Mortgages [Member]
Summary of Troubled Debt Restructurings
Number of Loans	2
Pre-Modification Outstanding Recorded Investment	$ 314,889
Post-Modification Outstanding Recorded Investment	$ 314,655

XML

Changes in Accumulated Other Comprehensive Income (Loss) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 Net Unrealized Gains (Losses) on Securities [Member]	Mar. 31, 2012 Net Unrealized Gains (Losses) on Securities [Member]	Mar. 31, 2013 Pension and Postretirement Benefit Plans [Member]	Dec. 31, 2012 Pension and Postretirement Benefit Plans [Member]	Mar. 31, 2012 Pension and Postretirement Benefit Plans [Member]	Dec. 31, 2011 Pension and Postretirement Benefit Plans [Member]
Schedule of changes in accumulated other comprehensive income (loss)
Beginning Balance	$ (380,726)	$ 445,339	$ 279,195	$ 760,730	$ (659,921)	$ (659,921)	$ (315,391)	$ (315,391)
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $25,045 & $36,885	(48,617)	(71,603)	(48,617)	(71,603)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $1,000 & $3,013	(1,941)	(5,848)	(1,941)	(5,848)
Balance at March 31, 2013 & 2012	$ (431,284)	$ 367,888	$ 228,637	$ 683,279	$ (659,921)	$ (659,921)	$ (315,391)	$ (315,391)

XML

Long Term Debt (Details) (USD $)			3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Convertible [Member]	Mar. 31, 2013 Fixed Rate Hybrid [Member]
Advances of long term debt
Federal Home Loan Bank advances	$ 15,000,000	$ 15,000,000	$ 10,000,000	$ 5,000,000
Acquired			Sep. 12, 2006	May 20, 2011
Current Interest Rate			4.23%	2.69%
Maturity Date			Sep. 12, 2016	May 20, 2014

XML

Changes In Accumulated Other Comprehensive Income (Loss) (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Schedule of changes in accumulated other comprehensive income (loss) (Textual) [Abstract]
Gains on sale of securities available for sale	$ 2,941	$ 8,861
Unrealized holding (losses) arising during the period, net of tax benefit	25,045	36,885
Reclassification adjustment for gains recognized in income, tax	1,000	3,013
Reclassification Out of Accumulated Other Comprehensive Income [Member] | Net Unrealized Gains (Losses) on Securities [Member]
Schedule of changes in accumulated other comprehensive income (loss) (Textual) [Abstract]
Gains on sale of securities available for sale	2,941	8,861
Unrealized holding (losses) arising during the period, net of tax benefit	$ 25,045	$ 36,885

XML

Employee Benefit Plans (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Pension Benefits [Member]
Components of Net Periodic Benefit Cost
Service cost		$ 63,571
Interest cost	35,815	44,575
Expected return on plan assets	(53,665)	(80,466)
Amortization of unrecognized prior service cost		(13,491)
Amortization of unrecognized net loss	22,436	17,860
Amortization of transition obligation
Net periodic benefit cost	4,586	32,049
Post-Retirement Benefits [Member]
Components of Net Periodic Benefit Cost
Service cost	5,738	6,501
Interest cost	7,477	7,489
Expected return on plan assets
Amortization of unrecognized prior service cost
Amortization of unrecognized net loss	1,124	735
Amortization of transition obligation	728	728
Net periodic benefit cost	$ 15,066	$ 15,453

XML

Loans (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Summary of balances of loans
Total loans	$ 234,875,935	$ 239,238,149
Allowance for loan losses	(3,034,407)	(3,093,623)
Loans, net	231,841,528	236,144,526
Construction, Land and Land Development [Member]
Summary of balances of loans
Total loans	28,565,493	29,024,294
Farmland [Member]
Summary of balances of loans
Total loans	1,421,060	1,442,757
Commercial Mortgages (Non-Owner Occupied) [Member]
Summary of balances of loans
Total loans	13,511,592	13,420,551
Commercial Mortgages (Owner Occupied) [Member]
Summary of balances of loans
Total loans	34,088,111	33,634,384
Residential First Mortgages [Member]
Summary of balances of loans
Total loans	106,587,625	107,555,694
Residential Revolving and Junior Mortgages [Member]
Summary of balances of loans
Total loans	26,588,765	26,982,512
Commercial and Industrial loans [Member]
Summary of balances of loans
Total loans	17,876,966	20,524,547
Consumer Loans [Member]
Summary of balances of loans
Total loans	$ 6,236,323	$ 6,653,410

XML

Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2013

Employee Benefit Plans [Abstract]

Components of Net Periodic Benefit Cost

Components of Net Periodic Benefit Cost

(Unaudited)

	Pension Benefits						Post-Retirement Benefits
	2013			2012			2013		2012
Three months ended March 31,
Service cost	$	—		$	63,571		$	5,738	$	6,501
Interest cost		35,815			44,575			7,477		7,489
Expected return on plan assets		(53,665	)		(80,466	)		—		—
Amortization of unrecognized prior service cost		—			(13,491	)		—		—
Amortization of unrecognized net loss		22,436			17,860			1,124		735
Amortization of transition obligation		—			—			728		728
Net periodic benefit cost	$	4,586		$	32,049		$	15,066	$	15,453

XML

Fair Value Measurements (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	$ 38,305,952	$ 36,700,520
U. S. Government agencies [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	9,590,926	9,463,815
State and municipal obligations [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	26,731,208	25,249,528
Certificates of deposit [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	1,983,818	1,987,177
Recorded Balance [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	38,305,952	36,700,520
Recorded Balance [Member] | U. S. Government agencies [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	9,590,926	9,463,815
Recorded Balance [Member] | State and municipal obligations [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	26,731,208	25,249,528
Recorded Balance [Member] | Certificates of deposit [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	1,983,818	1,987,177
Recorded Balance [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U. S. Government agencies [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | State and municipal obligations [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Certificates of deposit [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Significant Other Observable Inputs (Level 2) [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	38,305,952	36,700,520
Recorded Balance [Member] | Significant Other Observable Inputs (Level 2) [Member] | U. S. Government agencies [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	9,590,926	9,463,815
Recorded Balance [Member] | Significant Other Observable Inputs (Level 2) [Member] | State and municipal obligations [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	26,731,208	25,249,528
Recorded Balance [Member] | Significant Other Observable Inputs (Level 2) [Member] | Certificates of deposit [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale	1,983,818	1,987,177
Recorded Balance [Member] | Significant Unobservable Inputs (Level 3) [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Significant Unobservable Inputs (Level 3) [Member] | U. S. Government agencies [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Significant Unobservable Inputs (Level 3) [Member] | State and municipal obligations [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale
Recorded Balance [Member] | Significant Unobservable Inputs (Level 3) [Member] | Certificates of deposit [Member]
Schedule of balances of financial assets measured at fair value on a recurring basis
Securities available-for-sale

XML

Earnings per share (Details Textual)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings per share (Textual) [Abstract]
Shares not included in computing diluted earnings per share as effects were anti-dilutive	185,467	158,861

XML

Allowance for Loan Losses (Details 2) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Performing and non performing loans
Loan receivables	$ 139,412,713	$ 141,191,616
Performing [Member]
Performing and non performing loans
Loan receivables	136,052,641	137,250,244
Nonperforming [Member]
Performing and non performing loans
Loan receivables	3,360,072	3,941,372
Residential First Mortgages [Member]
Performing and non performing loans
Loan receivables	106,587,625	107,555,694
Residential First Mortgages [Member] | Performing [Member]
Performing and non performing loans
Loan receivables	104,385,779	104,877,404
Residential First Mortgages [Member] | Nonperforming [Member]
Performing and non performing loans
Loan receivables	2,201,846	2,678,290
Residential Revolving and Junior Mortgages [Member]
Performing and non performing loans
Loan receivables	26,588,765	26,982,512
Residential Revolving and Junior Mortgages [Member] | Performing [Member]
Performing and non performing loans
Loan receivables	25,434,177	25,724,597
Residential Revolving and Junior Mortgages [Member] | Nonperforming [Member]
Performing and non performing loans
Loan receivables	1,154,588	1,257,915
Consumer Loans [Member]
Performing and non performing loans
Loan receivables	6,236,323	6,653,410
Consumer Loans [Member] | Performing [Member]
Performing and non performing loans
Loan receivables	6,232,685	6,648,243
Consumer Loans [Member] | Nonperforming [Member]
Performing and non performing loans
Loan receivables	$ 3,638	$ 5,167

XML

Fair Value Measurements (Details 2) (Discounted appraised value [Member], Fair Value, Inputs, Level 3 [Member], USD $)	3 Months Ended
	Mar. 31, 2013
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value Disclosure	3,858,941
Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	20.00%
Unobservable Input, Lack of Marketability	100.00%
Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	10.00%
Unobservable Input, Lack of Marketability	0.00%
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	11.00%
Unobservable Input, Lack of Marketability	32.00%
Other real estate owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value Disclosure	3,662,561
Other real estate owned [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	13.00%
Unobservable Input, Lack of Marketability	20.00%
Other real estate owned [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	4.00%
Unobservable Input, Lack of Marketability	10.00%
Other real estate owned [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	6.00%
Unobservable Input, Lack of Marketability	15.00%

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Employee Benefit Plans (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013 Age
Employee Benefit Plans (Additional Textual) [Abstract]
Minimum age of full time employees	21
Conditional age-1 for availing plan	55
Conditional age-2 for availing plan	65
Conditional years of service -1 for availing plan	10 years
Conditional years of service-2 for availing plan	5 years
Pension Benefits [Member]
Employee Benefit Plans (Textual) [Abstract]
Estimated future benefit payments in 2013	0
Post-Retirement Benefits [Member]
Employee Benefit Plans (Textual) [Abstract]
Estimated future benefit payments in 2013	23,945
Employer contributions	3,992

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General

3 Months Ended

Mar. 31, 2013

General [Abstract]

General

Note 1: General

Bay Banks of Virginia, Inc. (the “Company”) owns 100% of the Bank of Lancaster (the “Bank”), 100% of Bay Trust Company, Inc. (the “Trust Company”) and 100% of Steptoes Holdings, LLC (“Steptoes Holdings”). The consolidated financial statements include the accounts of the Bank, the Trust Company, Steptoes Holdings and Bay Banks of Virginia, Inc.

The Company completed a private placement of 2,200,000 shares of its common stock for $4.25 per share at the end of the day on December 31, 2012, which materially increased the number of shares outstanding and the level of capital.

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.

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

These consolidated financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company’s 2012 Annual Report to Shareholders.

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Stock-Based Compensation (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Summary of the status of the stock option plans
Options outstanding, January 1, shares	120,617
Granted, shares	89,500	0
Forfeited, shares
Exercised, Shares
Expired, shares
Options outstanding, March 31, shares	210,117		120,617
Options exercisable, March 31	210,117
Options outstanding, January 1,Weighted Average Exercise Price	$ 9.51
Granted, Weighted Average Exercise Price	$ 5.25
Forfeited, Weighted Average Exercise Price
Exercised, Weighted Average Exercise Price
Expired, Weighted Average Exercise Price
Options outstanding, March 31, Weighted Average Exercise Price	$ 7.69		$ 9.51
Options exercisable, March 31, Weighted Average Exercise Price	$ 7.69
Options outstanding, January 1, Remaining Contractual Life	7 years 1 month 6 days		5 years 4 months 24 days
Options outstanding, March 31, Remaining Contractual Life	7 years 1 month 6 days		5 years 4 months 24 days
Options exercisable, March 31, Remaining Contractual Life	7 years 1 month 6 days
Options outstanding, March 31, Aggregate Intrinsic Value (1)	$ 11,688
Options exercisable, March 31, Aggregate Intrinsic Value (1)	$ 11,688

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General (Details) (USD $)				12 Months Ended
	Mar. 31, 2013 Bank of Lancaster [Member]	Mar. 31, 2013 Bay Trust Company [Member]	Mar. 31, 2013 Steptoes Holdings [Member]	Dec. 31, 2012 Private Placement [Member]
General (Textual) [Abstract]
Percent of ownership	100.00%	100.00%	100.00%
Stock issued during period				2,200,000
Common stock per share price				$ 4.25

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Changes in Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Schedule of changes in accumulated other comprehensive income (loss)

Changes in accumulated other comprehensive income (loss) (“AOCI”) balances, including amounts reclassified out of AOCI, are shown in the following table.

	Net Unrealized Gains (Losses) on Securities			Pension and Post- retirement Benefit Plans			Accumulated Other Comprehensive Income (Loss)
Three months ended March 31, 2013 (unaudited)
Beginning balance	$	279,195		$	(659,921	)	$	(380,726	)
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $25,045		(48,617	)		—			(48,617	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $1,000		(1,941	)		—			(1,941	)
Balance at March 31, 2013	$	228,637		$	(659,921	)	$	(431,284	)
Three months ended March 31, 2012 (unaudited)
Beginning balance	$	760,730		$	(315,391	)	$	445,339
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $36,885		(71,603	)		—			(71,603	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $3,013		(5,848	)		—			(5,848	)
Balance at March 31, 2012	$	683,279		$	(315,391	)	$	367,888

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Stock-Based Compensation (Details Textual) (USD $)	1 Months Ended	3 Months Ended		12 Months Ended
	Feb. 21, 2013	Mar. 31, 2013 Plan	Mar. 31, 2012	Dec. 31, 2012
Stock-Based Compensation (Textual) [Abstract]
Additional options granted under plan		89,500	0
Options maximum term		7 years 1 month 6 days		5 years 4 months 24 days
Stock Based Compensation (Additional Textual) [Abstract]
Number of stock-based compensation plans		4
Stock-based compensation expense	$ 36,750	$ 93,018	$ 2,193
Stock price volatility, risk free interest period		5 years
Officers [Member]
Stock-Based Compensation (Textual) [Abstract]
Additional options granted under plan	7,000
Unrecognized compensation expense related to stock options		$ 0
1994 Incentive Stock Option Plan [Member]
Stock-Based Compensation (Textual) [Abstract]
Additional options granted under plan		0
1998 Non-Employee Directors Stock Option Plan [Member]
Stock-Based Compensation (Textual) [Abstract]
Additional options granted under plan		0
2003 Incentive Stock Option Plan [Member]
Stock-Based Compensation (Textual) [Abstract]
Shares available for grant		175,000
Plan description		Exercise price of each option equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is ten years.
Options maximum term		10 years
Fair value of options granted		$ 1.03
Plan expiration date		Apr. 30, 2013
2003 Incentive Stock Option Plan [Member] | Subsequent Event [Member]
Stock-Based Compensation (Textual) [Abstract]
Shares available for grant		0
2008 Non-Employee Directors Stock Option Plan [Member]
Stock-Based Compensation (Textual) [Abstract]
Shares available for grant			7,903
Fair value of options granted			$ 1.08

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Securities (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Aggregate amortized costs and fair values of the available-for-sale securities portfolio
Amortized Cost	$ 37,959,533	$ 36,277,498
Gross Unrealized Gains	471,417	494,208
Gross Unrealized (Losses)	(124,998)	(71,186)
Fair Value	38,305,952	36,700,520
U. S. Government agencies [Member]
Aggregate amortized costs and fair values of the available-for-sale securities portfolio
Amortized Cost	9,579,421	9,411,627
Gross Unrealized Gains	71,095	78,178
Gross Unrealized (Losses)	(59,590)	(25,990)
Fair Value	9,590,926	9,463,815
State and municipal obligations [Member]
Aggregate amortized costs and fair values of the available-for-sale securities portfolio
Amortized Cost	26,395,112	24,880,871
Gross Unrealized Gains	399,547	412,759
Gross Unrealized (Losses)	(63,451)	(44,102)
Fair Value	26,731,208	25,249,528
Certificates of deposit [Member]
Aggregate amortized costs and fair values of the available-for-sale securities portfolio
Amortized Cost	1,985,000	1,985,000
Gross Unrealized Gains	775	3,271
Gross Unrealized (Losses)	(1,957)	(1,094)
Fair Value	$ 1,983,818	$ 1,987,177

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Securities (Details 1) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Unrealized loss positions
Less than Twelve Months, Fair Value	$ 7,993,365	$ 4,686,450
Twelve Months or Longer, Fair Value	1,037,800	1,037,825
Fair Value, Total	9,031,165	5,724,275
Unrealized Loss, Less than 12 Months	122,609	64,815
Unrealized Loss, 12 Months or Longer	2,389	6,371
Unrealized Loss ,Total	124,998	71,186
U. S. Government agencies [Member]
Unrealized loss positions
Less than Twelve Months, Fair Value	2,359,185	1,080,438
Twelve Months or Longer, Fair Value
Fair Value, Total	2,359,185	1,080,438
Unrealized Loss, Less than 12 Months	59,590	25,990
Unrealized Loss, 12 Months or Longer
Unrealized Loss ,Total	59,590	25,990
States and municipal obligations [Member]
Unrealized loss positions
Less than Twelve Months, Fair Value	4,148,137	2,863,106
Twelve Months or Longer, Fair Value	1,037,800	1,037,825
Fair Value, Total	5,185,937	3,900,931
Unrealized Loss, Less than 12 Months	61,062	37,731
Unrealized Loss, 12 Months or Longer	2,389	6,371
Unrealized Loss ,Total	63,451	44,102
Certificates of deposit [Member]
Unrealized loss positions
Less than Twelve Months, Fair Value	1,486,043	742,906
Twelve Months or Longer, Fair Value
Fair Value, Total	1,486,043	742,906
Unrealized Loss, Less than 12 Months	1,957	1,094
Unrealized Loss, 12 Months or Longer
Unrealized Loss ,Total	$ 1,957	$ 1,094

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Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash Flows From Operating Activities
Net income	$ 140,091	$ 105,627
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	187,305	194,031
Net amortization and accretion of securities	100,682	62,859
Provision for loan losses	83,000	96,024
Stock-based compensation	118,703	2,193
Deferred income tax (benefit)	(3,762)
(Gain) on securities available-for-sale	(2,941)	(8,861)
Increase in OREO valuation allowance	16,090	14,100
(Gain) loss on sale of other real estate	(2,000)	53,953
Loss on disposal of fixed assets		4,906
Decrease in accrued income and other assets	148,435	13,894
(Decrease) increase in other liabilities	(142,281)	94,742
Net cash provided by operating activities	643,322	633,468
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities	616,482	1,364,846
Proceeds from sales and calls of available-for-sale securities	1,095,250	2,326,850
Purchases of available-for-sale securities	(3,491,508)	(1,935,039)
Sales of restricted securities	66,800
Decrease (increase) in interest bearing deposits in other banks	6,333,452	(6,285,892)
(Increase) in federal funds sold	(820,685)	(108,770)
Loan (originations) and principal collections, net	3,693,838	(5,585,242)
Proceeds from sale of other real estate	2,000	261,086
(Purchases) of premises and equipment	(112,843)	(63,640)
Net cash provided by (used in) investing activities	7,382,785	(10,025,801)
Cash Flows From Financing Activities
(Decrease) increase in demand, savings, and other interest-bearing deposits	(4,799,365)	9,401,757
Net (decrease) in time deposits	(2,679,732)	(809,691)
Net increase in securities sold under repurchase agreements	1,777,461	982,089
Net cash provided by (used in) financing activities	(5,701,636)	9,574,155
Net increase in cash and due from banks	2,324,471	181,822
Cash and due from banks at beginning of period	4,757,889	4,728,895
Cash and due from banks at end of period	7,082,360	4,910,717
Supplemental Schedule of Cash Flow Information
Interest paid	777,759	888,164
Income taxes paid	53,137
Unrealized gain (loss) on investment securities	(76,603)	(117,350)
Loans transferred to other real estate owned	$ 526,160	$ 309,857

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Securities (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013 Certificates Bonds	Dec. 31, 2012 Bonds Certificates
Securities (Textual) [Abstract]
Market value of securities	$ 9,400,000	$ 8,100,000
Company's investment in Federal Home Loan Bank Stock	1,100,000	1,100,000
Certificates deposits	6	3
Municipal bonds with unrealized loss position	13	10
Federal agencies bonds with unrealized loss position	5	2
Impairment of Investment in Federal Home Loan Bank of Atlanta	$ 0

XML

Allowance for Loan Losses (Details Textual) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Mar. 31, 2011
Allowance for Loan Losses (Additional Textual) [Abstract]
Nonaccruing loans excluded from impaired loan	$ 768,649	$ 721,951
Nonaccruing loans accrued interest	10,828	16,139
Trouble debt restructuring amount			0	0
Period of Nonperforming Loans	90 days
Residential Mortgage [Member]
Allowance for Loan Losses (Textual) [Abstract]
Minimum balance in order to assign a risk rating grade	1,000,000
Consumer [Member]
Allowance for Loan Losses (Textual) [Abstract]
Minimum balance in order to assign a risk rating grade	$ 250,000

XML

Fair Value Measurements (Details 3) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Financial Assets:
Securities available-for-sale	$ 38,305,952	$ 36,700,520
Recorded Balance [Member]
Financial Assets:
Cash and due from banks	7,082,360	4,757,889
Interest-bearing deposits	28,832,996	35,166,448
Federal funds sold	868,694	48,009
Securities available-for-sale	38,305,952	36,700,520
Restricted securities	1,517,900	1,584,700
Loans, net	231,841,528	236,144,526
Accrued interest receivable	1,014,667	1,070,763
Financial Liabilities:
Non-interest-bearing liabilities	49,858,751	50,467,907
Savings and other interest-bearing deposits	113,764,670	117,954,879
Time deposits	104,072,053	106,751,785
Securities sold under repurchase agreements	8,237,300	6,459,839
FHLB advances	15,000,000	15,000,000
Accrued interest payable	152,694	156,812
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Recorded Balance [Member]
Financial Assets:
Cash and due from banks	7,082,360	4,757,889
Interest-bearing deposits	28,832,996	35,166,448
Federal funds sold	868,694	48,009
Securities available-for-sale
Restricted securities
Loans, net
Accrued interest receivable
Financial Liabilities:
Non-interest-bearing liabilities	49,858,751	50,467,907
Savings and other interest-bearing deposits	113,764,670	117,954,879
Time deposits
Securities sold under repurchase agreements
FHLB advances
Accrued interest payable
Significant Other Observable Inputs (Level 2) [Member] | Recorded Balance [Member]
Financial Assets:
Cash and due from banks
Interest-bearing deposits
Federal funds sold
Securities available-for-sale	38,305,952	36,700,520
Restricted securities
Loans, net
Accrued interest receivable	1,014,667	1,070,763
Financial Liabilities:
Non-interest-bearing liabilities
Savings and other interest-bearing deposits
Time deposits
Securities sold under repurchase agreements	8,237,300	6,459,839
FHLB advances	16,364,663	16,483,342
Accrued interest payable	152,694	156,812
Significant Unobservable Inputs (Level 3) [Member] | Recorded Balance [Member]
Financial Assets:
Cash and due from banks
Interest-bearing deposits
Federal funds sold
Securities available-for-sale
Restricted securities	1,517,900	1,584,700
Loans, net	237,374,000	244,708,821
Accrued interest receivable
Financial Liabilities:
Non-interest-bearing liabilities
Savings and other interest-bearing deposits
Time deposits	107,144,000	109,449,974
Securities sold under repurchase agreements
FHLB advances
Accrued interest payable

XML

Consolidated Balance Sheets (USD $)	Mar. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 7,082,360	$ 4,757,889
Interest-bearing deposits	28,832,996	35,166,448
Federal funds sold	868,694	48,009
Securities available for sale, at fair value	38,305,952	36,700,520
Restricted securities	1,517,900	1,584,700
Loans, net of allowance for loan losses of $3,034,407 and $3,093,623	231,841,528	236,144,526
Premises and equipment, net	11,537,226	11,611,688
Accrued interest receivable	1,014,667	1,070,763
Other real estate owned, net of valuation allowance	3,662,561	3,151,346
Goodwill	2,807,842	2,807,842
Other assets	1,660,461	1,753,945
Total assets	329,132,187	334,797,676
LIABILITIES
Noninterest-bearing deposits	49,858,751	50,467,907
Savings and interest-bearing demand deposits	113,764,670	117,954,879
Time deposits	104,072,053	106,751,785
Total deposits	267,695,474	275,174,571
Securities sold under repurchase agreements	8,237,300	6,459,839
Federal Home Loan Bank advances	15,000,000	15,000,000
Other liabilities	1,406,206	1,578,295
Total liabilities	292,338,980	298,212,705
SHAREHOLDERS' EQUITY
Common stock ($5 par value; authorized -10,000,000 shares; outstanding - 4,817,856 and 4,810,856 shares, respectively)	24,089,280	24,054,280
Additional paid-in capital	2,753,724	2,670,021
Retained earnings	10,381,487	10,241,396
Accumulated other comprehensive (loss), net	(431,284)	(380,726)
Total shareholders' equity	36,793,207	36,584,971
Total liabilities and shareholders' equity	$ 329,132,187	$ 334,797,676

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Goodwill (Details Textual) (USD $)	1 Months Ended	84 Months Ended
	Sep. 30, 2012	Dec. 31, 2000 Branches	Mar. 31, 2013	Dec. 31, 2012
Goodwill (Textual) [Abstract]
Goodwill			$ 2,807,842	$ 2,807,842
Number of branches purchased during the years 1994 through 2000		5
Impairment of goodwill	$ 0

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Consolidated Statement of Comprehensive Income (Parenthetical) (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statement of Comprehensive Income [Abstract]
Unrealized holding (losses) arising during the period, net of tax benefit	$ 25,045	$ 36,885
Reclassification adjustment for gains recognized in income, tax	$ 1,000	$ 3,013

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Allowance for Loan Losses (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$ 3,093,623	$ 3,188,541
(Charge-offs)	(195,929)	(2,375,562)
Recoveries	53,713	385,959
Provision	83,000	1,894,685
Ending Balance	3,034,407	3,093,623
Individually evaluated for impairment	888,565	833,883
Collectively evaluated for impairment	2,145,842	2,259,740
Ending Balance:
Individually evaluated for impairment	7,087,713	7,581,680
Collectively evaluated for impairment	227,788,222	231,656,469
Total Loans	234,875,935	239,238,149
Construction, Land and Land Development [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	191,882	190,500
(Charge-offs)		(200,278)
Recoveries	11,896
Provision	3,682	201,660
Ending Balance	207,460	191,882
Individually evaluated for impairment	23,618	25,882
Collectively evaluated for impairment	183,842	166,000
Ending Balance:
Individually evaluated for impairment	213,420	275,650
Collectively evaluated for impairment	28,352,073	28,748,644
Total Loans	28,565,493	29,024,294
Farmland [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	2,000
(Charge-offs)
Recoveries
Provision	(1,000)	2,000
Ending Balance	1,000	2,000
Individually evaluated for impairment
Collectively evaluated for impairment	1,000	2,000
Ending Balance:
Individually evaluated for impairment
Collectively evaluated for impairment	1,421,060	1,442,757
Total Loans	1,421,060	1,442,757
Commercial Mortgages (Non-Owner Occupied) [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	106,000	88,000
(Charge-offs)		(283,569)
Recoveries	15,889	285,326
Provision	(36,889)	16,243
Ending Balance	85,000	106,000
Individually evaluated for impairment
Collectively evaluated for impairment	85,000	106,000
Ending Balance:
Individually evaluated for impairment
Collectively evaluated for impairment	13,511,592	13,420,551
Total Loans	13,511,592	13,420,551
Commercial Mortgages (Owner Occupied) [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	545,084	554,318
(Charge-offs)
Recoveries
Provision	(86,225)	(9,234)
Ending Balance	458,859	545,084
Individually evaluated for impairment	115,859	165,084
Collectively evaluated for impairment	343,000	380,000
Ending Balance:
Individually evaluated for impairment	1,282,324	1,617,001
Collectively evaluated for impairment	32,805,787	32,017,383
Total Loans	34,088,111	33,634,384
Residential First Mortgages [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	1,209,454	1,161,551
(Charge-offs)	(167,554)	(787,108)
Recoveries	23,385	4,059
Provision	(6,900)	830,952
Ending Balance	1,058,385	1,209,454
Individually evaluated for impairment	353,385	467,454
Collectively evaluated for impairment	705,000	742,000
Ending Balance:
Individually evaluated for impairment	4,294,251	4,278,290
Collectively evaluated for impairment	102,293,374	103,277,404
Total Loans	106,587,625	107,555,694
Residential Junior Mortgages [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	517,253	719,121
(Charge-offs)		(527,857)
Recoveries
Provision	169,240	325,989
Ending Balance	686,493	517,253
Individually evaluated for impairment	321,493	101,253
Collectively evaluated for impairment	365,000	416,000
Ending Balance:
Individually evaluated for impairment	1,224,588	1,336,761
Collectively evaluated for impairment	25,364,177	25,645,751
Total Loans	26,588,765	26,982,512
Commercial and Industrial [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	262,000	281,650
(Charge-offs)		(388,026)
Recoveries	35	18,369
Provision	43,965	350,007
Ending Balance	306,000	262,000
Individually evaluated for impairment
Collectively evaluated for impairment	306,000	262,000
Ending Balance:
Individually evaluated for impairment
Collectively evaluated for impairment	17,876,966	20,524,547
Total Loans	17,876,966	20,524,547
Consumer Loans [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	252,210	185,000
(Charge-offs)	(28,375)	(188,724)
Recoveries	2,508	78,205
Provision	4,867	177,729
Ending Balance	231,210	252,210
Individually evaluated for impairment	74,210	74,210
Collectively evaluated for impairment	157,000	178,000
Ending Balance:
Individually evaluated for impairment	73,130	73,978
Collectively evaluated for impairment	6,163,193	6,579,432
Total Loans	6,236,323	6,653,410
Unallocated [Member]
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	7,740	8,401
(Charge-offs)
Recoveries
Provision	(7,740)	(661)
Ending Balance		7,740
Individually evaluated for impairment
Collectively evaluated for impairment		7,740
Ending Balance:
Individually evaluated for impairment
Collectively evaluated for impairment
Total Loans

XML

Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2013

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses by Portfolio Segment

Allowance for Loan Losses by Portfolio Segment

For the three months ended March 31, 2013 (unaudited)

	Construction, Land and Land Development		Farmland			Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages		Commercial and Industrial		Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	191,882	$	2,000		$	106,000		$	545,084		$	1,209,454		$	517,253	$	262,000	$	252,210		$	7,740		$	3,093,623
(Charge-offs)		—		—			—			—			(167,554	)		—		—		(28,375	)					(195,929	)
Recoveries		11,896		—			15,889			—			23,385			—		35		2,508						53,713
Provision		3.682		(1,000	)		(36,889	)		(86,225	)		(6,900	)		169,240		43,965		4,867			(7,740	)		83,000
Ending Balance	$	207,460	$	1,000		$	85,000		$	458,859		$	1,058,385		$	686,493	$	306,000	$	231,210		$	—		$	3,034,407
Individually evaluated for impairment	$	23,618	$	—		$	—		$	115,859		$	353,385		$	321,493	$	—	$	74,210		$	—		$	888,565
Collectively evaluated for impairment	$	183,842	$	1,000		$	85,000		$	343,000		$	705,000		$	365,000	$	306,000	$	157,000		$	—		$	2,145,842
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	213,420	$	—		$	—		$	1,282,324		$	4,294,251		$	1,224,588	$	—	$	73,130					$	7,087,713
Collectively evaluated for impairment		28,352,073		1,421,060			13,511,592			32,805,787			102,293,374			25,364,177		17,876,966		6,163,193						227,788,222
Total Gross Loans	$	28,565,493	$	1,421,060		$	13,511,592		$	34,088,111		$	106,587,625		$	26,588,765	$	17,876,966	$	6,236,323					$	234,875,935

Allowance for Loan Losses by Portfolio Segment

For the Year Ended December 31, 2012

	Construction, Land and Land Development			Farmland		Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages			Commercial and Industrial			Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	190,500		$	—	$	88,000		$	554,318		$	1,161,551		$	719,121		$	281,650		$	185,000		$	8,401		$	3,188,541
(Charge-offs)		(200,278	)		—		(283,569	)		—			(787,108	)		(527,857	)		(388,026	)		(188,724	)		—			(2,375562	)
Recoveries		—			—		285,326			—			4,059			—			18,369			78,205			—			385,959
Provision		201,660			2,000		16,243			(9,234	)		830,952			325,989			350,007			177,729			(661	)		1,894,685
Ending Balance	$	191,882		$	2,000	$	106,000		$	545,084		$	1,209,454		$	517,253		$	262,000		$	252,210		$	7,740		$	3,093,623
Individually evaluated for impairment	$	25,882		$	—	$	—		$	165,084		$	467,454		$	101,253		$	—		$	74,210		$	—		$	833,883
Collectively evaluated for impairment	$	166,000		$	2,000	$	106,000		$	380,000		$	742,000		$	416,000		$	262,000		$	178,000		$	7,740		$	2,259,740
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	275,650		$	—	$	—		$	1,617,001		$	4,278,290		$	1,336,761		$	—		$	73,978					$	7,581,680
Collectively evaluated for impairment		28,748,644			1,442,757		13,420,551			32,017,383			103,277,404			25,645,751			20,524,547			6,579,432						231,656,469
Total Gross Loans	$	29,024,294		$	1,442,757	$	13,420,551		$	33,634,384		$	107,555,694		$	26,982,512		$	20,524,547		$	6,653,410					$	239,238,149

Internal risk rating grades are assigned to commercial loans not secured

Internal risk rating grades are assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, loans to real estate developers and contractors, and consumer loans greater than $250,000 with chronic delinquency, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly.

As of March 31, 2013 (unaudited) INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,242,528	$	1,421,060	$	7,126,309	$	24,423,756	$	13,919,104	$	68,132,757
Watch		4,754,949		—		3,470,529		6,723,733		2,652,893		17,602,104
Special mention		1,337,558		—		2,574,371		336,282		1,068,734		5,316,945
Substandard		1,030,458		—		340,383		2,604,340		236,235		4,211,416
Doubtful		200,000		—		—		—		—		200,000
Total	$	28,565,493	$	1,421,060	$	13,511,592	$	34,088,111	$	17,876,966	$	95,463,222

As of December 31, 2012 INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,877,355	$	1,442,757	$	7,362,289	$	23,974,131	$	16,418,910	$	71,075,442
Watch		4,746,266		—		2,824,575		6,680,142		2,866,739		17,117,722
Special mention		1,162,388		—		2,574,371		338,902		759,554		4,835,215
Substandard		1,038,285		—		659,316		2,641,209		479,344		4,818,154
Doubtful		200,000		—		—		—		—		200,000
Total	$	29,024,294	$	1,442,757	$	13,420,551	$	33,634,384	$	20,524,547	$	98,046,533

Performing and non performing loans

Loans not assigned internal risk rating grades are comprised of residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. Loans are considered to be nonperforming when they are delinquent by 90 days or more or on nonaccrual, as shown in the table below.

As of March 31, 2013 (unaudited) PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving and Junior Mortgages		Consumer Loans		Total
Performing	$	104,385,779	$	25,434,177	$	6,232,685	$	136,052,641
Nonperforming		2,201,846		1,154,588		3,638		3,360,072
Total	$	106,587,625	$	26,588,765	$	6,236,323	$	139,412,713
As of December 31, 2012 PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving And Junior Mortgages		Consumer Loans		Total
Performing	$	104,877,404	$	25,724,597	$	6,648,243	$	137,250,244
Nonperforming		2,678,290		1,257,915		5,167		3,941,372
Total	$	107,555,694	$	26,982,512	$	6,653,410	$	141,191,616

Company's recorded investment and the customers unpaid principal balances for impaired loans, with the associated allowance amount

The following table shows the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable. Also shown are the average recorded investments in impaired loans and the related amount of interest recognized and collected during the time the loans were impaired.

IMPAIRED LOANS

As of March 31, 2013 (unaudited)

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	13,420	$	13,806	$	—	$	13,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		1,478,276		1,492,465		—		1,487,094		3,325		3,383
Residential Revolving and Junior Mortgages (1)		96,341		98,153		—		97,247		—		—
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		752,170		757,329		—		755,281		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		—		—		—		—		—		—
	$	2,340,207	$	2,361,753	$	—	$	2,353,477	$	10,259	$	7,930
With an allowance recorded:
Construction, land & land development	$	200,000	$	200,000	$	23,618	$	200,000	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,815,975		2,815,975		353,385		2,511,351		28,504		26,774
Residential Revolving and Junior Mortgages (1)		1,128,247		1,936,968		321,493		1,041,632		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		530,154		538,307		115,859		535,173		—		—
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	4,747,506	$	5,564,380	$	888,565	$	4,361,710	$	31,629	$	29,213
Total Impaired Loans:
Construction, land & land development	$	213,420	$	213,806	$	23,618	$	213,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,294,251		4,308,440		353,385		3,998,445		31,829		30,157
Residential Revolving and Junior Mortgages (1)		1,224,588		2,035,121		321,493		1,138,879		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,282,324		1,295,636		115,859		1,290,454		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	7,087,713	$	7,926,133	$	888,565	$	6,715,187	$	41,888	$	37,143

(1) Junior mortgages include equity lines

(2) includes credit cards

IMPAIRED LOANS

As of December 31, 2012

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	213,768	$	213,914	$	—	$	202,754	$	162	$	130
Farmland		—				—		—		—		—
Residential First Mortgages		1,495,910		1,495,910		—		1,372,196		44,756		59,727
Residential Junior Mortgages		971,654		1,785,259		—		1,380,596		3,750		2,488
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		758,391		758,391		—		429,600		30,518		34,754
Commercial & industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
	$	3,439,723	$	4,253,474	$	—	$	3,385,145	$	79,186	$	97,099
With an allowance recorded:
Construction, land & land development	$	61,882	$	65,566	$	25,882	$	63,761	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,782,380		2,807,875		467,454		1,803,730		90,030		82,370
Residential Junior Mortgages		365,107		381,452		101,253		310,726		1,953		1,205
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		858,610		858,610		165,084		863,479		15,900		11,961
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	4,141,957	$	4,187,481	$	833,883	$	3,109,017	$	116,268	$	104,214
Total Impaired Loans:
Construction, land & land development	$	275,650	$	279,480	$	25,882	$	266,515	$	162	$	130
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,278,290		4,303,785		467,454		3,175,925		134,786		142,097
Residential Junior Mortgages		1,336,761		2,166,711		101,253		1,691,321		5,703		3,693
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,617,001		1,617,001		165,084		1,293,079		46,418		46,715
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	7,581,680	$	8,440,955	$	833,883	$	6,494,162	$	195,454	$	201,313

(1) Junior mortgages include equity lines

(2) includes credit cards

Summary of Troubled Debt Restructurings

The following table presents, by segments of loans, information related to loans modified as Troubled Debt Restructurings (“TDR’s”) during the three months ended March 31, 2013 and 2012.

	For the three months ended March 31, 2013 (unaudited)
	Number of		Pre-Modification Outstanding		Post-Modification Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment
Residential First Mortgages		2	$	314,889	$	314,655

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Allowance for Loan Losses (Details 1) (USD $)	Mar. 31, 2013	Dec. 31, 2012
INTERNAL RISK RATING GRADES
Loan Receivables	$ 95,463,222	$ 98,046,533
Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	28,565,493	29,024,294
Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	1,421,060	1,442,757
Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	13,511,592	13,420,551
Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	34,088,111	33,634,384
Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	17,876,966	20,524,547
Pass [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	68,132,757	71,075,442
Pass [Member] | Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	21,242,528	21,877,355
Pass [Member] | Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	1,421,060	1,442,757
Pass [Member] | Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	7,126,309	7,362,289
Pass [Member] | Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	24,423,756	23,974,131
Pass [Member] | Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	13,919,104	16,418,910
Watch [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	17,602,104	17,117,722
Watch [Member] | Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	4,754,949	4,746,266
Watch [Member] | Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Watch [Member] | Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	3,470,529	2,824,575
Watch [Member] | Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	6,723,733	6,680,142
Watch [Member] | Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	2,652,893	2,866,739
Special mention [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	5,316,945	4,835,215
Special mention [Member] | Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	1,337,558	1,162,388
Special mention [Member] | Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Special mention [Member] | Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	2,574,371	2,574,371
Special mention [Member] | Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	336,282	338,902
Special mention [Member] | Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	1,068,734	759,554
Substandard [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	4,211,416	4,818,154
Substandard [Member] | Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	1,030,458	1,038,285
Substandard [Member] | Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Substandard [Member] | Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	340,383	659,316
Substandard [Member] | Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	2,604,340	2,641,209
Substandard [Member] | Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	236,235	479,344
Doubtful [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	200,000	200,000
Doubtful [Member] | Construction, Land and Land Development [Member]
INTERNAL RISK RATING GRADES
Loan Receivables	200,000	200,000
Doubtful [Member] | Farmland [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Doubtful [Member] | Commercial Mortgages (Non-Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Doubtful [Member] | Commercial Mortgages (Owner Occupied) [Member]
INTERNAL RISK RATING GRADES
Loan Receivables
Doubtful [Member] | Commercial and Industrial [Member]
INTERNAL RISK RATING GRADES
Loan Receivables

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2013

Stock-Based Compensation [Abstract]

Summary of the status of the stock option plans

Stock option plan activity for the three months ended March 31, 2013, is summarized below:

(Unaudited)	Shares		Weighted Average Exercise Price		Remaining Contractual Life (in years)		Aggregate Intrinsic Value (1)
Options outstanding, January 1		120,617	$	9.51		5.4
Granted		89,500		5.25
Forfeited		—		—
Exercised		—		—
Expired		—		—
Options outstanding, March 31		210,117		7.69		7.1	$	11,688
Options exercisable, March 31		210,117		7.69		7.1	$	11,688

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2013. This amount changes based on changes in the market value of the Company’s common stock.

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $)	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period at Dec. 31, 2011	$ 28,014,784	$ 13,054,280	$ 4,971,531	$ 9,543,634	$ 445,339
Balance at beginning of period, Shares at Dec. 31, 2011		2,610,856
Net income	105,627			105,627
Other comprehensive loss	(77,451)				(77,451)
Stock-based compensation	2,193		2,193
Balance at end of period at Mar. 31, 2012	28,045,153	13,054,280	4,973,724	9,649,261	367,888
Balance at end of period, Shares at Mar. 31, 2012		2,610,856
Balance at beginning of period at Dec. 31, 2012	36,584,971	24,054,280	2,670,021	10,241,396	(380,726)
Balance at beginning of period, Shares at Dec. 31, 2012		4,810,856
Net income	140,091			140,091
Other comprehensive loss	(50,558)				(50,558)
Stock-based compensation, Shares		7,000
Stock-based compensation	118,703	35,000	83,703
Balance at end of period at Mar. 31, 2013	$ 36,793,207	$ 24,089,280	$ 2,753,724	$ 10,381,487	$ (431,284)
Balance at end of period, Shares at Mar. 31, 2013		4,817,856

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Consolidated Balance Sheets [Abstract]
Loans, allowance for loan losses	$ 3,034,407	$ 3,093,623
Common stock, par value	$ 5	$ 5
Common stock, authorized shares	10,000,000	10,000,000
Common stock, outstanding shares	4,817,856	4,810,856

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Long Term Debt

3 Months Ended

Mar. 31, 2013

Long Term Debt [Abstract]

Long-Term Debt

Note 9: Long Term Debt

On March 31, 2013, the Bank had FHLB debt consisting of two advances. The FHLB holds an option to terminate the $10 million advance on any quarterly payment date. The $10 million advance has an early conversion option which gives the FHLB the option to convert, in whole only, into a one-month LIBOR-based floating rate advance, effective on any quarterly payment date. If the FHLB elects to convert, the Bank may elect to terminate, in whole or in part, without a prepayment fee.

Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans with a lendable collateral value of $57.1 million. Immediate available credit, as of March 31, 2013, was $40.1 million. With additional collateral, the total line of credit is worth $67.5 million, with $50.5 million available.

The two advances are shown in the following table.

Description	Balance		Acquired		Current Interest Rate			Maturity Date
Convertible	$	10,000,000		9/12/2006		4.23	%		9/12/2016
Fixed Rate Hybrid		5,000,000		5/20/2011		2.69	%		5/20/2014
	$	15,000,000

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 10, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	BAY BANKS OF VIRGINIA INC
Entity Central Index Key	0001034594
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,817,856

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Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 10: Fair Value Measurements

The Company uses fair value to record certain assets and liabilities and to determine fair value disclosures. Authoritative accounting guidance 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.

Authoritative accounting guidance 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:

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.

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:

Securities available for sale: Securities available for sale 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. Currently, all of the Company’s available-for-sale securities are considered to be Level 2 securities.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

			Fair Value Measurements at March 31, 2013  Using
Description	Balance as of   March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
U. S. Government agencies	$	9,590,926	$	—	$	9,590,926	$	—
State and municipal obligations		26,731,208		—		26,731,208		—
Certificates of deposit		1,983,818		—		1,983,818		—

			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U. S. Government agencies	$	9,463,815	$	—	$	9,463,815	$	—
State and municipal obligations		25,249,528		—		25,249,528		—
Certificates of deposit		1,987,177		—		1,987,177		—

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 according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is 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 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). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Other real estate owned (“OREO”) is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the Allowance for Loan Losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
	(unaudited)
Impaired Loans, net of valuation allowance	$	3,858,941	$	—	$	—	$	3,858,941
Other real estate owned		3,662,561		—		—		3,662,561
			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Impaired Loans, net of valuation allowance	$	3,308,074	$	—	$	—	$	3,308,074
Other real estate owned		3,151,346		—		—		3,151,346

The following table displays quantitative information about Level 3 Fair Value Measurements as of the date indicated.

	Balance as of March 31, 2013		Valuation	Unobservable	Range (Weighted
	(unaudited)		Technique	Input	Average)
Impaired Loans, net of valuation allowance	$	3,858,941	Discounted appraised value	Selling Cost	10% - 20% (11%)
				Lack of Marketability	0% - 100% (32%)
Other real estate owned		3,662,561	Discounted appraised value	Selling Cost	4% - 13% (6%)
				Lack of Marketability	10% - 20% (15%)

The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
Financial Assets:
Cash and due from banks	$	7,082,360	$	7,082,360	$	—	$	—
Interest-bearing deposits		28,832,996		28,832,996		—		—
Federal funds sold		868,694		868,694		—		—
Securities available-for-sale		38,305,952		—		38,305,952
Restricted securities		1,517,900		—		—		1,517,900
Loans, net		231,841,528		—		—		237,374,000
Accrued interest receivable		1,014,667		—		1,014,667		—
Financial Liabilities:
Non-interest-bearing liabilities	$	49,858,751	$	49,858,751	$	—	$	—
Savings and other interest-bearing deposits		113,764,670		113,764,670		—		—
Time deposits		104,072,053		—		—		107,144,000
Securities sold under repurchase agreements		8,237,300		—		8,237,300		—
FHLB advances		15,000,000		—		16,364,663		—
Accrued interest payable		152,694		—		152,694		—

			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and due from banks	$	4,757,889	$	4,757,889	$	—	$	—
Interest-bearing deposits		35,166,448		35,166,448		—		—
Federal funds sold		48,009		48,009		—		—
Securities available-for-sale		36,700,520		—		36,700,520		—
Restricted securities		1,584,700		—		—		1,584,700
Loans, net		236,144,526		—		—		244,708,821
Accrued interest receivable		1,070,763		—		1,070,763		—
Financial Liabilities:
Non-interest-bearing liabilities	$	50,467,907	$	50,467,907	$	—	$	—
Savings and other interest-bearing deposits		117,954,879		117,954,879		—		—
Time deposits		106,751,785		—		—		109,449,974
Securities sold under repurchase agreements		6,459,839		—		6,459,839		—
FHLB advances		15,000,000		—		16,483,342		—
Accrued interest payable		156,812		—		156,812		—

The carrying amounts of cash and due from banks, federal funds sold or purchased, accrued interest, non-interest-bearing deposits, savings, and securities sold under repurchase agreements, represent items which do not present significant market risks, are payable on demand, or are of such short duration that carrying value approximates market value.

Available-for-sale securities are carried at the fair values measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Therefore carrying value equals market value. The carrying value of restricted securities approximates fair value based on the redemption provisions.

The fair value of performing loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar remaining maturities. This calculation ignores loan fees and certain factors affecting the interest rates charged on various loans such as the borrower’s creditworthiness and compensating balances and dissimilar types of real estate held as collateral. The fair value of impaired loans is measured as described within the Impaired Loans section of this note.

Time deposits are presented at estimated fair value using interest rates offered for deposits of similar remaining maturities.

The fair value of the FHLB advances is estimated by discounting the future cash flows using the interest rate offered for similar advances.

The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter parties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date.

At March 31, 2013 and December 31, 2012, the fair value of loan commitments and standby letters of credit was immaterial. Therefore, they are not included in the table above.

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.

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Consolidated Statements of Income (unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INTEREST INCOME
Loans, including fees	$ 3,154,348	$ 3,224,780
Securities:
Taxable	123,691	200,933
Tax-exempt	56,361	70,594
Federal funds sold	35	1,366
Interest-bearing deposit accounts	18,144	7,062
Total interest income	3,352,579	3,504,735
INTEREST EXPENSE
Deposits	630,538	749,154
Securities sold under repurchase agreements	3,903	2,921
FHLB advances	139,200	140,924
Total interest expense	773,641	892,999
Net interest income	2,578,938	2,611,736
Provision for loan losses	83,000	96,024
Net interest income after provision for loan losses	2,495,938	2,515,712
NON-INTEREST INCOME
Income from fiduciary activities	165,249	160,154
Service charges and fees on deposit accounts	274,546	166,863
VISA-related fees	179,598	159,469
Other service charges and fees	233,457	189,110
Secondary market lending fees	132,286	77,208
Gains on sale of securities available for sale	2,941	8,861
Net (losses) on other assets		(4,906)
Other income	11,774	28,324
Total non-interest income	999,851	785,083
NON-INTEREST EXPENSES
Salaries and employee benefits	1,730,320	1,562,169
Occupancy expense	499,105	504,331
Bank franchise tax	43,935	42,990
VISA expense	154,442	131,160
Telephone expense	49,263	41,324
FDIC assessments	103,469	103,851
Debit card expense	17,961	55,404
Foreclosure property expense	23,249	43,254
Other real estate losses	14,090	68,053
Consulting expense	16,469	66,079
Other expense	630,530	563,596
Total non-interest expenses	3,282,833	3,182,211
Net income before income taxes	212,956	118,584
Income tax expense	72,865	12,957
Net income	$ 140,091	$ 105,627
Basic Earnings Per Share
Average basic shares outstanding	4,813,812	2,610,856
Earnings per share, basic	$ 0.03	$ 0.04
Diluted Earnings Per Share
Average diluted shares outstanding	4,816,490	2,612,206
Earnings per share, diluted	$ 0.03	$ 0.04

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Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

Allowance for Loan Losses [Abstract]

Allowance for loan losses

Note 4: Allowance for Loan Losses

A disaggregation of and an analysis of the change in the allowance for loan losses by segment is shown below.

Allowance for Loan Losses by Portfolio Segment

For the three months ended March 31, 2013 (unaudited)

	Construction, Land and Land Development		Farmland			Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages		Commercial and Industrial		Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	191,882	$	2,000		$	106,000		$	545,084		$	1,209,454		$	517,253	$	262,000	$	252,210		$	7,740		$	3,093,623
(Charge-offs)		—		—			—			—			(167,554	)		—		—		(28,375	)					(195,929	)
Recoveries		11,896		—			15,889			—			23,385			—		35		2,508						53,713
Provision		3.682		(1,000	)		(36,889	)		(86,225	)		(6,900	)		169,240		43,965		4,867			(7,740	)		83,000
Ending Balance	$	207,460	$	1,000		$	85,000		$	458,859		$	1,058,385		$	686,493	$	306,000	$	231,210		$	—		$	3,034,407
Individually evaluated for impairment	$	23,618	$	—		$	—		$	115,859		$	353,385		$	321,493	$	—	$	74,210		$	—		$	888,565
Collectively evaluated for impairment	$	183,842	$	1,000		$	85,000		$	343,000		$	705,000		$	365,000	$	306,000	$	157,000		$	—		$	2,145,842
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	213,420	$	—		$	—		$	1,282,324		$	4,294,251		$	1,224,588	$	—	$	73,130					$	7,087,713
Collectively evaluated for impairment		28,352,073		1,421,060			13,511,592			32,805,787			102,293,374			25,364,177		17,876,966		6,163,193						227,788,222
Total Gross Loans	$	28,565,493	$	1,421,060		$	13,511,592		$	34,088,111		$	106,587,625		$	26,588,765	$	17,876,966	$	6,236,323					$	234,875,935

Provision is negative for the Commercial Mortgages segments due mainly to a reduction in the total level of allowance required for these segments. Provision is negative for the Residential First Mortgages segment due mainly to a reduction in the level of individual impaired allowance required for this segment.

Allowance for Loan Losses by Portfolio Segment

For the Year Ended December 31, 2012

	Construction, Land and Land Development			Farmland		Commercial Mortgages (Non Owner Occupied)			Commercial Mortgages (Owner Occupied)			Residential First Mortgages			Residential Junior Mortgages			Commercial and Industrial			Consumer Loans			Unallocated			Total
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$	190,500		$	—	$	88,000		$	554,318		$	1,161,551		$	719,121		$	281,650		$	185,000		$	8,401		$	3,188,541
(Charge-offs)		(200,278	)		—		(283,569	)		—			(787,108	)		(527,857	)		(388,026	)		(188,724	)		—			(2,375562	)
Recoveries		—			—		285,326			—			4,059			—			18,369			78,205			—			385,959
Provision		201,660			2,000		16,243			(9,234	)		830,952			325,989			350,007			177,729			(661	)		1,894,685
Ending Balance	$	191,882		$	2,000	$	106,000		$	545,084		$	1,209,454		$	517,253		$	262,000		$	252,210		$	7,740		$	3,093,623
Individually evaluated for impairment	$	25,882		$	—	$	—		$	165,084		$	467,454		$	101,253		$	—		$	74,210		$	—		$	833,883
Collectively evaluated for impairment	$	166,000		$	2,000	$	106,000		$	380,000		$	742,000		$	416,000		$	262,000		$	178,000		$	7,740		$	2,259,740
LOAN RECEIVABLES:
Ending Balance:
Individually evaluated for impairment	$	275,650		$	—	$	—		$	1,617,001		$	4,278,290		$	1,336,761		$	—		$	73,978					$	7,581,680
Collectively evaluated for impairment		28,748,644			1,442,757		13,420,551			32,017,383			103,277,404			25,645,751			20,524,547			6,579,432						231,656,469
Total Gross Loans	$	29,024,294		$	1,442,757	$	13,420,551		$	33,634,384		$	107,555,694		$	26,982,512		$	20,524,547		$	6,653,410					$	239,238,149

Internal risk rating grades are assigned to commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, loans to real estate developers and contractors, and consumer loans greater than $250,000 with chronic delinquency, as shown in the following table. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. Risk grades are evaluated as new information becomes available for each borrowing relationship or at least quarterly.

As of March 31, 2013 (unaudited) INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,242,528	$	1,421,060	$	7,126,309	$	24,423,756	$	13,919,104	$	68,132,757
Watch		4,754,949		—		3,470,529		6,723,733		2,652,893		17,602,104
Special mention		1,337,558		—		2,574,371		336,282		1,068,734		5,316,945
Substandard		1,030,458		—		340,383		2,604,340		236,235		4,211,416
Doubtful		200,000		—		—		—		—		200,000
Total	$	28,565,493	$	1,421,060	$	13,511,592	$	34,088,111	$	17,876,966	$	95,463,222

As of December 31, 2012 INTERNAL RISK RATING GRADES	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	21,877,355	$	1,442,757	$	7,362,289	$	23,974,131	$	16,418,910	$	71,075,442
Watch		4,746,266		—		2,824,575		6,680,142		2,866,739		17,117,722
Special mention		1,162,388		—		2,574,371		338,902		759,554		4,835,215
Substandard		1,038,285		—		659,316		2,641,209		479,344		4,818,154
Doubtful		200,000		—		—		—		—		200,000
Total	$	29,024,294	$	1,442,757	$	13,420,551	$	33,634,384	$	20,524,547	$	98,046,533

Loans not assigned internal risk rating grades are comprised of residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. Loans are considered to be nonperforming when they are delinquent by 90 days or more or on nonaccrual, as shown in the table below.

As of March 31, 2013 (unaudited) PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving and Junior Mortgages		Consumer Loans		Total
Performing	$	104,385,779	$	25,434,177	$	6,232,685	$	136,052,641
Nonperforming		2,201,846		1,154,588		3,638		3,360,072
Total	$	106,587,625	$	26,588,765	$	6,236,323	$	139,412,713
As of December 31, 2012 PAYMENT ACTIVITY STATUS	Residential First Mortgages		Residential Revolving And Junior Mortgages		Consumer Loans		Total
Performing	$	104,877,404	$	25,724,597	$	6,648,243	$	137,250,244
Nonperforming		2,678,290		1,257,915		5,167		3,941,372
Total	$	107,555,694	$	26,982,512	$	6,653,410	$	141,191,616

The following table shows the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable. Also shown are the average recorded investments in impaired loans and the related amount of interest recognized and collected during the time the loans were impaired.

IMPAIRED LOANS

As of March 31, 2013 (unaudited)

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	13,420	$	13,806	$	—	$	13,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		1,478,276		1,492,465		—		1,487,094		3,325		3,383
Residential Revolving and Junior Mortgages (1)		96,341		98,153		—		97,247		—		—
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		752,170		757,329		—		755,281		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		—		—		—		—		—		—
	$	2,340,207	$	2,361,753	$	—	$	2,353,477	$	10,259	$	7,930
With an allowance recorded:
Construction, land & land development	$	200,000	$	200,000	$	23,618	$	200,000	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,815,975		2,815,975		353,385		2,511,351		28,504		26,774
Residential Revolving and Junior Mortgages (1)		1,128,247		1,936,968		321,493		1,041,632		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		530,154		538,307		115,859		535,173		—		—
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	4,747,506	$	5,564,380	$	888,565	$	4,361,710	$	31,629	$	29,213
Total Impaired Loans:
Construction, land & land development	$	213,420	$	213,806	$	23,618	$	213,855	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,294,251		4,308,440		353,385		3,998,445		31,829		30,157
Residential Revolving and Junior Mortgages (1)		1,224,588		2,035,121		321,493		1,138,879		1,756		1,547
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,282,324		1,295,636		115,859		1,290,454		6,934		4,547
Commercial & industrial		—		—		—		—		—		—
Consumer (2)		73,130		73,130		74,210		73,554		1,369		892
	$	7,087,713	$	7,926,133	$	888,565	$	6,715,187	$	41,888	$	37,143

(1) Junior mortgages include equity lines

(2) includes credit cards

IMPAIRED LOANS

As of December 31, 2012

	Recorded Investment		Customers’ Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Interest Income Collected
With no related allowance:
Construction, land & land development	$	213,768	$	213,914	$	—	$	202,754	$	162	$	130
Farmland		—				—		—		—		—
Residential First Mortgages		1,495,910		1,495,910		—		1,372,196		44,756		59,727
Residential Junior Mortgages		971,654		1,785,259		—		1,380,596		3,750		2,488
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		758,391		758,391		—		429,600		30,518		34,754
Commercial & industrial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
	$	3,439,723	$	4,253,474	$	—	$	3,385,145	$	79,186	$	97,099
With an allowance recorded:
Construction, land & land development	$	61,882	$	65,566	$	25,882	$	63,761	$	—	$	—
Farmland		—		—		—		—		—		—
Residential First Mortgages		2,782,380		2,807,875		467,454		1,803,730		90,030		82,370
Residential Junior Mortgages		365,107		381,452		101,253		310,726		1,953		1,205
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		858,610		858,610		165,084		863,479		15,900		11,961
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	4,141,957	$	4,187,481	$	833,883	$	3,109,017	$	116,268	$	104,214
Total Impaired Loans:
Construction, land & land development	$	275,650	$	279,480	$	25,882	$	266,515	$	162	$	130
Farmland		—		—		—		—		—		—
Residential First Mortgages		4,278,290		4,303,785		467,454		3,175,925		134,786		142,097
Residential Junior Mortgages		1,336,761		2,166,711		101,253		1,691,321		5,703		3,693
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		1,617,001		1,617,001		165,084		1,293,079		46,418		46,715
Commercial & industrial		—		—		—		—		—		—
Consumer		73,978		73,978		74,210		67,322		8,385		8,678
	$	7,581,680	$	8,440,955	$	833,883	$	6,494,162	$	195,454	$	201,313

(1) Junior mortgages include equity lines

(2) includes credit cards

At March 31, 2013 and December 31, 2012, nonaccruing loans excluded from impaired loan disclosure totaled $768,649 and $721,951, respectively. If interest on these nonaccruing loans had been accrued, such income would have approximated $10,828 during the three months ended March 31, 2013 and $16,139 during the year ended December 31, 2012.

The following table presents, by segments of loans, information related to loans modified as Troubled Debt Restructurings (“TDR’s”) during the three months ended March 31, 2013 and 2012.

	For the three months ended March 31, 2013 (unaudited)
	Number of		Pre-Modification Outstanding		Post-Modification Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment
Residential First Mortgages		2	$	314,889	$	314,655

No loans were modified as TDR’s during the three months ended March 31, 2012. There were no loans modified as TDR’s within 12 months prior to a default that subsequently defaulted (i.e. 90 days or more past due following a modification) during the three months ended March 31, 2013.

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Loans

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

Loans

Note 3: Loans

The following is a summary of the balances of loans:

	March 31, 2013			December 31, 2012
	(unaudited)
Mortgage loans on real estate:
Construction, Land and Land Development	$	28,565,493		$	29,024,294
Farmland		1,421,060			1,442,757
Commercial Mortgages (Non-Owner Occupied)		13,511,592			13,420,551
Commercial Mortgages (Owner Occupied)		34,088,111			33,634,384
Residential First Mortgages		106,587,625			107,555,694
Residential Revolving and Junior Mortgages		26,588,765			26,982,512
Commercial and Industrial loans		17,876,966			20,524,547
Consumer Loans		6,236,323			6,653,410
Total loans	$	234,875,935		$	239,238,149
Allowance for loan losses		(3,034,407	)		(3,093,623	)
Loans, net	$	231,841,528		$	236,144,526

The recorded investment in past due and nonaccruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection.

Loans Past Due and Nonaccruals March 31, 2013 (unaudited)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	47,483	$	251,165	$	108,861	$	647,647	$	1,055,156	$	27,510,337	$	28,565,493
Farmland		—		—		—		—		—		1,421,060		1,421,060
Commercial Mortgages (Non-Owner Occupied)		—				—		—		—		13,511,592		13,511,592
Commercial Mortgages (Owner Occupied)		—		167,066		—		803,210		970,276		33,117,835		34,088,111
Residential First Mortgages		402,205		756,367		161,638		2,040,208		3,360,418		103,227,207		106,587,625
Residential Revolving and Junior Mortgages		295,524		27,911		9,643		1,144,945		1,478,023		25,110,742		26,588,765
Commercial and Industrial		3,150		—		—		36,897		40,047		17,836,919		17,876,966
Consumer Loans		476		—		—		3,638		4,114		6,232,209		6,236,323
Total	$	748,838	$	1,202,509	$	280,142	$	4,676,545	$	6,908,034	$	227,967,901	$	234,875,935

Loans Past Due and Nonaccruals December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due  and Still Accruing		Nonaccruals		Total Past Due  and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	108,861	$	122,005	$	—	$	655,397	$	886,263	$	28,138,031	$	29,024,294
Farmland		—		—		—		—		—		1,442,757		1,442,757
Commercial Mortgages (Non-Owner Occupied)		—				—		318,418		318,418		13,102,133		13,420,551
Commercial Mortgages (Owner Occupied)		—		—		71,254		819,467		890,721		32,743,663		33,634,384
Residential First Mortgages		608,471		153,510		502		2,677,788		3,440,271		104,115,423		107,555,694
Residential Revolving and Junior Mortgages		8,303		9,778		—		1,257,915		1,275,996		25,706,516		26,982,512
Commercial and Industrial		10,003		90,883		50,075		—		150,961		20,373,586		20,524,547
Consumer Loans		12,193		—		3,688		1,479		17,360		6,636,050		6,653,410
Total	$	747,831	$	376,176	$	125,519	$	5,730,464	$	6,979,990	$	232,258,159	$	239,238,149

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Earnings per share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings per share [Abstract]

Weighted average number of shares used in computing earnings per share

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

Three Months Ended (unaudited)	March 31, 2013				March 31, 2012
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,813,812	$	0.03		2,610,856	$	0.04
Effect of dilutive securities:
Stock options		2,678				1,350
Diluted earnings per share		4,816,490	$	0.03		2,612,206	$	0.04

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Changes in Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2013

Accumulated Other Comprehensive Income [Abstract]

Changes in Accumulated Other Comprehensive Income (Loss)

Note 11: Changes in Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) (“AOCI”) balances, including amounts reclassified out of AOCI, are shown in the following table.

	Net Unrealized Gains (Losses) on Securities			Pension and Post- retirement Benefit Plans			Accumulated Other Comprehensive Income (Loss)
Three months ended March 31, 2013 (unaudited)
Beginning balance	$	279,195		$	(659,921	)	$	(380,726	)
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $25,045		(48,617	)		—			(48,617	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $1,000		(1,941	)		—			(1,941	)
Balance at March 31, 2013	$	228,637		$	(659,921	)	$	(431,284	)
Three months ended March 31, 2012 (unaudited)
Beginning balance	$	760,730		$	(315,391	)	$	445,339
Change in net unrealized holding gains on securities, before reclassifications, net of tax benefit of $36,885		(71,603	)		—			(71,603	)
Reclassification for previously unrealized net gains on securities recognized in net income, net of tax of $3,013		(5,848	)		—			(5,848	)
Balance at March 31, 2012	$	683,279		$	(315,391	)	$	367,888

Reclassifications of unrealized gains (losses) on AFS securities are reported in the income statement as “Gains on sale of securities available for sale” with the corresponding income tax effect being reflected as a component of income tax expense. During the three months ended March 31, 2013 and 2012, the Company reported net gains on sales of securities of $2,941 and $8,861, respectively; the tax effect of these transactions was $1,000 and $3,013, respectively, which was included as a component of income tax expense.

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Goodwill

3 Months Ended

Mar. 31, 2013

Goodwill [Abstract]

Goodwill

Note 7: Goodwill

The Company has goodwill recorded on the consolidated financial statements relating to the purchase of five branches during the years 1994 through 2000. The balance of the goodwill at March 31, 2013 and December 31, 2012, as reflected on the consolidated balance sheets, was $2,807,842. Management determined that these purchases qualified as acquisitions of businesses and that the related unidentifiable intangibles were goodwill. Therefore, amortization was discontinued effective January 1, 2002. The goodwill balance was tested for impairment as of September 30, 2012, and no impairment was determined to exist. The current year impairment testing will be completed during the 4^th quarter.

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Earnings per share

3 Months Ended

Mar. 31, 2013

Earnings per share [Abstract]

Earnings per share

Note 5: Earnings per share

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

Three Months Ended (unaudited)	March 31, 2013				March 31, 2012
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,813,812	$	0.03		2,610,856	$	0.04
Effect of dilutive securities:
Stock options		2,678				1,350
Diluted earnings per share		4,816,490	$	0.03		2,612,206	$	0.04

As of March 31, 2013 and 2012, options on 185,467 and 158,861 shares, respectively, were not included in computing diluted earnings per share, because their effects were anti-dilutive.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 6: Stock-Based Compensation

The Company has four stock-based compensation plans. The 1994 Incentive Stock Option Plan expired and no additional options may be granted under this plan. The 2003 Incentive Stock Option Plan made 175,000 shares available for grant. Under this plan, the exercise price of each option equals the market price of the Company’s common stock on the date of grant and an option’s maximum term is ten years. Options granted are exercisable only after meeting certain performance targets during a specified time period. If the targets are not met, the options are forfeited. Since this plan expired on April 30, 2013, no additional options may be granted under the plan. The third plan is the 1998 Non-Employee Directors Stock Option Plan, which has expired and therefore no additional options may be granted. The fourth plan is the 2008 Non-Employee Directors Stock Option Plan. This plan had 7,903 shares available for grant at March 31, 2013. All information has been adjusted for stock dividends.

Stock-based compensation expense related to stock options during the three-month periods ended March 31, 2013 and March 31, 2012 was $93,018 and $2,193, respectively. There was no unrecognized compensation expense related to stock options as of March 31, 2013. No options were granted during the three months ended March 31, 2012. Compensation expense for stock options is the estimated fair value of options granted using the Black-Scholes Model amortized on a straight-line basis over the vesting period of the award. The fair value of options granted under the 2003 Incentive Stock Option Plan and the 2008 Non-Employee Directors Stock Option Plan during the three months ended March 31, 2013 was $1.03 and $1.08, respectively. The variables used in these calculations include the historical dividend yield, expected life of the options, expected stock price volatility, and a risk-free interest rate, which is assumed to be the rate on 5-year U.S. Treasury bonds.

Stock option plan activity for the three months ended March 31, 2013, is summarized below:

(Unaudited)	Shares		Weighted Average Exercise Price		Remaining Contractual Life (in years)		Aggregate Intrinsic Value (1)
Options outstanding, January 1		120,617	$	9.51		5.4
Granted		89,500		5.25
Forfeited		—		—
Exercised		—		—
Expired		—		—
Options outstanding, March 31		210,117		7.69		7.1	$	11,688
Options exercisable, March 31		210,117		7.69		7.1	$	11,688

(1) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2013. This amount changes based on changes in the market value of the Company’s common stock.

As of February 21, 2013, a total of 7,000 shares of the Company’s common stock was awarded to the Chief Executive Officer, the Executive Vice President and the Chief Financial Officer. These shares vested immediately and $36,750 in compensation expense recognized on that date.

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2013

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 8: Employee Benefit Plans

The Company has a non-contributory, defined benefit pension plan for all full-time employees over 21 years of age. Under this cash balance plan, until December 31, 2012, the account balance for each participant will grow each year with annual pay credits based on age and years of service and monthly interest credits based on an amount established each year by the Company’s Board of Directors. Effective December 31, 2012, this plan was frozen. Annual pay credits have been discontinued, but each participant’s account balance will continue to grow based on monthly interest credits. The Company funds pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act.

The Company sponsors a postretirement benefit plan covering current and future retirees who acquire age 55 and 10 years of service or age 65 and 5 years of service. The post-retirement benefit plan provides coverage toward a retiree’s eligible medical and life insurance benefits expenses.

Components of Net Periodic Benefit Cost

(Unaudited)

	Pension Benefits						Post-Retirement Benefits
	2013			2012			2013		2012
Three months ended March 31,
Service cost	$	—		$	63,571		$	5,738	$	6,501
Interest cost		35,815			44,575			7,477		7,489
Expected return on plan assets		(53,665	)		(80,466	)		—		—
Amortization of unrecognized prior service cost		—			(13,491	)		—		—
Amortization of unrecognized net loss		22,436			17,860			1,124		735
Amortization of transition obligation		—			—			728		728
Net periodic benefit cost	$	4,586		$	32,049		$	15,066	$	15,453

The Company expects to make no contribution to its pension plan and $23,945 to its post-retirement benefit plan in 2013. The Company has contributed $3,992 toward the post-retirement plan during the first three months of 2013.

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Loans (Details 1) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	$ 748,838	$ 747,831
60-89 Days Past Due	1,202,509	376,176
90 Days or More Past Due and Still Accruing	280,142	125,519
Nonaccruals	4,676,545	5,730,464
Total Past Due and Nonaccruals	6,908,034	6,979,990
Current	227,967,901	232,258,159
Total Loans	234,875,935	239,238,149
Construction, Land and Land Development [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	47,483	108,861
60-89 Days Past Due	251,165	122,005
90 Days or More Past Due and Still Accruing	108,861
Nonaccruals	647,647	655,397
Total Past Due and Nonaccruals	1,055,156	886,263
Current	27,510,337	28,138,031
Total Loans	28,565,493	29,024,294
Farmland [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due
60-89 Days Past Due
90 Days or More Past Due and Still Accruing
Nonaccruals
Total Past Due and Nonaccruals
Current	1,421,060	1,442,757
Total Loans	1,421,060	1,442,757
Commercial Mortgages (Non-Owner Occupied) [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due
60-89 Days Past Due
90 Days or More Past Due and Still Accruing
Nonaccruals		318,418
Total Past Due and Nonaccruals		318,418
Current	13,511,592	13,102,133
Total Loans	13,511,592	13,420,551
Commercial Mortgages (Owner Occupied) [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due
60-89 Days Past Due	167,066
90 Days or More Past Due and Still Accruing		71,254
Nonaccruals	803,210	819,467
Total Past Due and Nonaccruals	970,276	890,721
Current	33,117,835	32,743,663
Total Loans	34,088,111	33,634,384
Residential First Mortgages [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	402,205	608,471
60-89 Days Past Due	756,367	153,510
90 Days or More Past Due and Still Accruing	161,638	502
Nonaccruals	2,040,208	2,677,788
Total Past Due and Nonaccruals	3,360,418	3,440,271
Current	103,227,207	104,115,423
Total Loans	106,587,625	107,555,694
Residential Revolving and Junior Mortgages [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	295,524	8,303
60-89 Days Past Due	27,911	9,778
90 Days or More Past Due and Still Accruing	9,643
Nonaccruals	1,144,945	1,257,915
Total Past Due and Nonaccruals	1,478,023	1,275,996
Current	25,110,742	25,706,516
Total Loans	26,588,765	26,982,512
Commercial and Industrial [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	3,150	10,003
60-89 Days Past Due		90,883
90 Days or More Past Due and Still Accruing		50,075
Nonaccruals	36,897
Total Past Due and Nonaccruals	40,047	150,961
Current	17,836,919	20,373,586
Total Loans	17,876,966	20,524,547
Consumer Loans [Member]
Recorded investment in past due and nonaccruing loans
30-59 Days Past Due	476	12,193
60-89 Days Past Due
90 Days or More Past Due and Still Accruing		3,688
Nonaccruals	3,638	1,479
Total Past Due and Nonaccruals	4,114	17,360
Current	6,232,209	6,636,050
Total Loans	$ 6,236,323	$ 6,653,410

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Fair Value Measurements (Details 1) (Recorded Balance [Member], USD $)	Mar. 31, 2013	Dec. 31, 2012
Summary of Company's assets measured at fair value on a nonrecurring basis
Impaired Loans, net of valuation allowance	$ 3,858,941	$ 3,308,074
Other real estate owned	3,662,561	3,151,346
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Summary of Company's assets measured at fair value on a nonrecurring basis
Impaired Loans, net of valuation allowance
Other real estate owned
Significant Other Observable Inputs (Level 2) [Member]
Summary of Company's assets measured at fair value on a nonrecurring basis
Impaired Loans, net of valuation allowance
Other real estate owned
Significant Unobservable Inputs (Level 3) [Member]
Summary of Company's assets measured at fair value on a nonrecurring basis
Impaired Loans, net of valuation allowance	3,858,941	3,308,074
Other real estate owned	$ 3,662,561	$ 3,151,346

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Loans (Tables)

3 Months Ended

Mar. 31, 2013

Loans [Abstract]

Summary of balances of loans

The following is a summary of the balances of loans:

	March 31, 2013			December 31, 2012
	(unaudited)
Mortgage loans on real estate:
Construction, Land and Land Development	$	28,565,493		$	29,024,294
Farmland		1,421,060			1,442,757
Commercial Mortgages (Non-Owner Occupied)		13,511,592			13,420,551
Commercial Mortgages (Owner Occupied)		34,088,111			33,634,384
Residential First Mortgages		106,587,625			107,555,694
Residential Revolving and Junior Mortgages		26,588,765			26,982,512
Commercial and Industrial loans		17,876,966			20,524,547
Consumer Loans		6,236,323			6,653,410
Total loans	$	234,875,935		$	239,238,149
Allowance for loan losses		(3,034,407	)		(3,093,623	)
Loans, net	$	231,841,528		$	236,144,526

Recorded investment in past due and nonaccruing loans

The recorded investment in past due and nonaccruing loans is shown in the following table. A loan past due by more than 90 days is generally placed on nonaccrual unless it is both well secured and in the process of collection.

Loans Past Due and Nonaccruals March 31, 2013 (unaudited)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	47,483	$	251,165	$	108,861	$	647,647	$	1,055,156	$	27,510,337	$	28,565,493
Farmland		—		—		—		—		—		1,421,060		1,421,060
Commercial Mortgages (Non-Owner Occupied)		—				—		—		—		13,511,592		13,511,592
Commercial Mortgages (Owner Occupied)		—		167,066		—		803,210		970,276		33,117,835		34,088,111
Residential First Mortgages		402,205		756,367		161,638		2,040,208		3,360,418		103,227,207		106,587,625
Residential Revolving and Junior Mortgages		295,524		27,911		9,643		1,144,945		1,478,023		25,110,742		26,588,765
Commercial and Industrial		3,150		—		—		36,897		40,047		17,836,919		17,876,966
Consumer Loans		476		—		—		3,638		4,114		6,232,209		6,236,323
Total	$	748,838	$	1,202,509	$	280,142	$	4,676,545	$	6,908,034	$	227,967,901	$	234,875,935

Loans Past Due and Nonaccruals December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due  and Still Accruing		Nonaccruals		Total Past Due  and Nonaccruals		Current		Total Loans
Construction, Land and Land Development	$	108,861	$	122,005	$	—	$	655,397	$	886,263	$	28,138,031	$	29,024,294
Farmland		—		—		—		—		—		1,442,757		1,442,757
Commercial Mortgages (Non-Owner Occupied)		—				—		318,418		318,418		13,102,133		13,420,551
Commercial Mortgages (Owner Occupied)		—		—		71,254		819,467		890,721		32,743,663		33,634,384
Residential First Mortgages		608,471		153,510		502		2,677,788		3,440,271		104,115,423		107,555,694
Residential Revolving and Junior Mortgages		8,303		9,778		—		1,257,915		1,275,996		25,706,516		26,982,512
Commercial and Industrial		10,003		90,883		50,075		—		150,961		20,373,586		20,524,547
Consumer Loans		12,193		—		3,688		1,479		17,360		6,636,050		6,653,410
Total	$	747,831	$	376,176	$	125,519	$	5,730,464	$	6,979,990	$	232,258,159	$	239,238,149

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Long Term Debt (Tables)

3 Months Ended

Mar. 31, 2013

Long Term Debt [Abstract]

Advances of long term debt

The two advances are shown in the following table.

Description	Balance		Acquired		Current Interest Rate			Maturity Date
Convertible	$	10,000,000		9/12/2006		4.23	%		9/12/2016
Fixed Rate Hybrid		5,000,000		5/20/2011		2.69	%		5/20/2014
	$	15,000,000

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Long Term Debt (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013
Long Term Debt (Textual) [Abstract]
Advance on which FHLB holds an option to terminate	$ 10
Advances, Variable rate description	One-month LIBOR-based floating rate advance
Lendable collateral value of 1 to 4 family residential real estate loans	57.1
Immediate available credit	40.1
Total line of credit	67.5
Available line of credit	$ 50.5

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Earnings per share (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Weighted average number of shares used in computing earnings per share
Average basic shares outstanding	4,813,812	2,610,856
Basic earnings per share	$ 0.03	$ 0.04
Effect of dilutive securities:
Stock options	2,678	1,350
Average diluted shares outstanding	4,816,490	2,612,206
Diluted earnings per share	$ 0.03	$ 0.04

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Consolidated Statement of Comprehensive Income (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Consolidated Statement of Comprehensive Income [Abstract]
Net income	$ 140,091	$ 105,627
Unrealized gains (losses) on securities:
Unrealized holding (losses) arising during the period (net of tax benefit, $25,045 and $36,885 in March, 2013 and 2012 respectively)	(48,617)	(71,603)
Less reclassification adjustment for gains recognized in income (net of tax, $1000 and $3,013 in March 2013 and March 2012)	(1,941)	(5,848)
Other comprehensive loss, net of tax	(50,558)	(77,451)
Comprehensive income	$ 89,533	$ 28,176

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Securities

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Securities

Note 2: Securities

The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:

Available-for-sale securities (unaudited) March 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,579,421	$	71,095	$	(59,590	)	$	9,590,926
State and municipal obligations		26,395,112		399,547		(63,451	)		26,731,208
Certificates of deposits		1,985,000		775		(1,957	)		1,983,818
	$	37,959,533	$	471,417	$	(124,998	)	$	38,305,952
Available-for-sale securities December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,411,627	$	78,178	$	(25,990	)	$	9,463,815
State and municipal obligations		24,880,871		412,759		(44,102	)		25,249,528
Certificates of deposits		1,985,000		3,271		(1,094	)		1,987,177
	$	36,277,498	$	494,208	$	(71,186	)	$	36,700,520

Securities with a market value of $9.4 million were pledged as collateral for repurchase agreements and for other purposes as required by law as of March 31, 2013. The market value of pledged securities at December 31, 2012 was $8.1 million.

Securities in an unrealized loss position at March 31, 2013 and December 31, 2012, by duration of the unrealized loss, are shown below. The unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All securities are investment grade or better and all losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. Furthermore, we do expect to recover the entire amortized cost basis. Bonds with unrealized loss positions at March 31, 2013 included six certificates of deposit, thirteen municipals and five federal agencies. Bonds with unrealized loss positions at December 31, 2012 included three certificates of deposit, ten municipals and two federal agencies. The tables are shown below.

	Less than 12 months				12 months or more				Total
March 31, 2013 (unaudited)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	2,359,185	$	59,590	$	—	$	—	$	2,359,185	$	59,590
States and municipal obligations		4,148,137		61,062		1,037,800		2,389		5,185,937		63,451
Certificates of deposits		1,486,043		1,957		—		—		1,486,043		1,957
Total temporarily impaired securities	$	7,993,365	$	122,609	$	1,037,800	$	2,389	$	9,031,165	$	124,998
	Less than 12 months				12 months or more				Total
December 31, 2012	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,080,438	$	25,990	$	—	$	—	$	1,080,438	$	25,990
States and municipal obligations		2,863,106		37,731		1,037,825		6,371		3,900,931		44,102
Certificates of deposits		742,906		1,094		—		—		742,906		1,094
Total temporarily impaired securities	$	4,686,450	$	64,815	$	1,037,825	$	6,371	$	5,724,275	$	71,186

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled $1.1 million at March 31, 2013 and December 31, 2012. FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLBs or its member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2013 and no impairment has been recognized. FHLB stock is shown in the restricted securities line item on the consolidated balance sheets and is not a part of the available-for-sale securities portfolio.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Measurements [Abstract]

Schedule of balances of financial assets measured at fair value on a recurring basis

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012:

			Fair Value Measurements at March 31, 2013  Using
Description	Balance as of   March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
U. S. Government agencies	$	9,590,926	$	—	$	9,590,926	$	—
State and municipal obligations		26,731,208		—		26,731,208		—
Certificates of deposit		1,983,818		—		1,983,818		—

			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U. S. Government agencies	$	9,463,815	$	—	$	9,463,815	$	—
State and municipal obligations		25,249,528		—		25,249,528		—
Certificates of deposit		1,987,177		—		1,987,177		—

Summary of Company's assets measured at fair value on a nonrecurring basis

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
	(unaudited)
Impaired Loans, net of valuation allowance	$	3,858,941	$	—	$	—	$	3,858,941
Other real estate owned		3,662,561		—		—		3,662,561
			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level  3)
Impaired Loans, net of valuation allowance	$	3,308,074	$	—	$	—	$	3,308,074
Other real estate owned		3,151,346		—		—		3,151,346

Summary of quantitative Fair Value Measurements for Level 3

The following table displays quantitative information about Level 3 Fair Value Measurements as of the date indicated.

	Balance as of March 31, 2013		Valuation	Unobservable	Range (Weighted
	(unaudited)		Technique	Input	Average)
Impaired Loans, net of valuation allowance	$	3,858,941	Discounted appraised value	Selling Cost	10% - 20% (11%)
				Lack of Marketability	0% - 100% (32%)
Other real estate owned		3,662,561	Discounted appraised value	Selling Cost	4% - 13% (6%)
				Lack of Marketability	10% - 20% (15%)

Estimated fair values of financial instruments

The estimated fair values of financial instruments are shown in the following table. The carrying amounts in the table are included in the balance sheet under the applicable captions.

			Fair Value Measurements at March 31, 2013 Using
Description	Balance as of March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(unaudited)
Financial Assets:
Cash and due from banks	$	7,082,360	$	7,082,360	$	—	$	—
Interest-bearing deposits		28,832,996		28,832,996		—		—
Federal funds sold		868,694		868,694		—		—
Securities available-for-sale		38,305,952		—		38,305,952
Restricted securities		1,517,900		—		—		1,517,900
Loans, net		231,841,528		—		—		237,374,000
Accrued interest receivable		1,014,667		—		1,014,667		—
Financial Liabilities:
Non-interest-bearing liabilities	$	49,858,751	$	49,858,751	$	—	$	—
Savings and other interest-bearing deposits		113,764,670		113,764,670		—		—
Time deposits		104,072,053		—		—		107,144,000
Securities sold under repurchase agreements		8,237,300		—		8,237,300		—
FHLB advances		15,000,000		—		16,364,663		—
Accrued interest payable		152,694		—		152,694		—

			Fair Value Measurements at December 31, 2012 Using
Description	Balance as of December 31,2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and due from banks	$	4,757,889	$	4,757,889	$	—	$	—
Interest-bearing deposits		35,166,448		35,166,448		—		—
Federal funds sold		48,009		48,009		—		—
Securities available-for-sale		36,700,520		—		36,700,520		—
Restricted securities		1,584,700		—		—		1,584,700
Loans, net		236,144,526		—		—		244,708,821
Accrued interest receivable		1,070,763		—		1,070,763		—
Financial Liabilities:
Non-interest-bearing liabilities	$	50,467,907	$	50,467,907	$	—	$	—
Savings and other interest-bearing deposits		117,954,879		117,954,879		—		—
Time deposits		106,751,785		—		—		109,449,974
Securities sold under repurchase agreements		6,459,839		—		6,459,839		—
FHLB advances		15,000,000		—		16,483,342		—
Accrued interest payable		156,812		—		156,812		—

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Allowance for Loan Losses (Details 3) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
With no related allowance:
Recorded Investment	$ 2,340,207	$ 3,439,723
Customers' Unpaid Principal Balance	2,361,753	4,253,474
Related Allowance
Average Recorded Investment	2,353,477	3,385,145
Interest Income Recognized	10,259	79,186
Interest Income Collected	7,930	97,099
With an allowance recorded:
Recorded Investment	4,747,506	4,141,957
Customers' Unpaid Principal Balance	5,564,380	4,187,481
Related Allowance	888,565	833,883
Average Recorded Investment	4,361,710	3,109,017
Interest Income Recognized	31,629	116,268
Interest Income Collected	29,213	104,214
Total Impaired Loans:
Recorded Investment	7,087,713	7,581,680
Customers' Unpaid Principal Balance	7,926,133	8,440,955
Related Allowance	888,565	833,883
Average Recorded Investment	6,715,187	6,494,162
Interest Income Recognized	41,888	195,454
Interest Income Collected	37,143	201,313
Construction, Land and Land Development [Member]
With no related allowance:
Recorded Investment	13,420	213,768
Customers' Unpaid Principal Balance	13,806	213,914
Related Allowance
Average Recorded Investment	13,855	202,754
Interest Income Recognized		162
Interest Income Collected		130
With an allowance recorded:
Recorded Investment	200,000	61,882
Customers' Unpaid Principal Balance	200,000	65,566
Related Allowance	23,618	25,882
Average Recorded Investment	200,000	63,761
Interest Income Recognized
Interest Income Collected
Total Impaired Loans:
Recorded Investment	213,420	275,650
Customers' Unpaid Principal Balance	213,806	279,480
Related Allowance	23,618	25,882
Average Recorded Investment	213,855	266,515
Interest Income Recognized		162
Interest Income Collected		130
Farmland [Member]
With no related allowance:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
With an allowance recorded:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Total Impaired Loans:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Residential First Mortgages [Member]
With no related allowance:
Recorded Investment	1,478,276	1,495,910
Customers' Unpaid Principal Balance	1,492,465	1,495,910
Related Allowance
Average Recorded Investment	1,487,094	1,372,196
Interest Income Recognized	3,325	44,756
Interest Income Collected	3,383	59,727
With an allowance recorded:
Recorded Investment	2,815,975	2,782,380
Customers' Unpaid Principal Balance	2,815,975	2,807,875
Related Allowance	353,385	467,454
Average Recorded Investment	2,511,351	1,803,730
Interest Income Recognized	28,504	90,030
Interest Income Collected	26,774	82,370
Total Impaired Loans:
Recorded Investment	4,294,251	4,278,290
Customers' Unpaid Principal Balance	4,308,440	4,303,785
Related Allowance	353,385	467,454
Average Recorded Investment	3,998,445	3,175,925
Interest Income Recognized	31,829	134,786
Interest Income Collected	30,157	142,097
Residential Revolving and Junior Mortgages [Member]
With no related allowance:
Recorded Investment	96,341
Customers' Unpaid Principal Balance	98,153
Related Allowance
Average Recorded Investment	97,247
Interest Income Recognized
Interest Income Collected
With an allowance recorded:
Recorded Investment	1,128,247
Customers' Unpaid Principal Balance	1,936,968
Related Allowance	321,493
Average Recorded Investment	1,041,632
Interest Income Recognized	1,756
Interest Income Collected	1,547
Total Impaired Loans:
Recorded Investment	1,224,588
Customers' Unpaid Principal Balance	2,035,121
Related Allowance	321,493
Average Recorded Investment	1,138,879
Interest Income Recognized	1,756
Interest Income Collected	1,547
Residential Junior Mortgages [Member]
With no related allowance:
Recorded Investment		971,654
Customers' Unpaid Principal Balance		1,785,259
Related Allowance
Average Recorded Investment		1,380,596
Interest Income Recognized		3,750
Interest Income Collected		2,488
With an allowance recorded:
Recorded Investment		365,107
Customers' Unpaid Principal Balance		381,452
Related Allowance		101,253
Average Recorded Investment		310,726
Interest Income Recognized		1,953
Interest Income Collected		1,205
Total Impaired Loans:
Recorded Investment		1,336,761
Customers' Unpaid Principal Balance		2,166,711
Related Allowance		101,253
Average Recorded Investment		1,691,321
Interest Income Recognized		5,703
Interest Income Collected		3,693
Commercial Mortgages (Non-Owner-Occupied) [Member]
With no related allowance:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
With an allowance recorded:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Total Impaired Loans:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Commercial Mortgages (Owner-Occupied) [Member]
With no related allowance:
Recorded Investment	752,170	758,391
Customers' Unpaid Principal Balance	757,329	758,391
Related Allowance
Average Recorded Investment	755,281	429,600
Interest Income Recognized	6,934	30,518
Interest Income Collected	4,547	34,754
With an allowance recorded:
Recorded Investment	530,154	858,610
Customers' Unpaid Principal Balance	538,307	858,610
Related Allowance	115,859	165,084
Average Recorded Investment	535,173	863,479
Interest Income Recognized		15,900
Interest Income Collected		11,961
Total Impaired Loans:
Recorded Investment	1,282,324	1,617,001
Customers' Unpaid Principal Balance	1,295,636	1,617,001
Related Allowance	115,859	165,084
Average Recorded Investment	1,290,454	1,293,079
Interest Income Recognized	6,934	46,418
Interest Income Collected	4,547	46,715
Commercial and industrial [Member]
With no related allowance:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
With an allowance recorded:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Total Impaired Loans:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
Consumer [Member]
With no related allowance:
Recorded Investment
Customers' Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Interest Income Collected
With an allowance recorded:
Recorded Investment	73,130	73,978
Customers' Unpaid Principal Balance	73,130	73,978
Related Allowance	74,210	74,210
Average Recorded Investment	73,554	67,322
Interest Income Recognized	1,369	8,385
Interest Income Collected	892	8,678
Total Impaired Loans:
Recorded Investment	73,130	73,978
Customers' Unpaid Principal Balance	73,130	73,978
Related Allowance	74,210	74,210
Average Recorded Investment	73,554	67,322
Interest Income Recognized	1,369	8,385
Interest Income Collected	$ 892	$ 8,678

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Securities (Tables)

3 Months Ended

Mar. 31, 2013

Securities [Abstract]

Aggregate amortized costs and fair values of the available-for-sale securities portfolio

The aggregate amortized costs and fair values of the available-for-sale securities portfolio are as follows:

Available-for-sale securities (unaudited) March 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,579,421	$	71,095	$	(59,590	)	$	9,590,926
State and municipal obligations		26,395,112		399,547		(63,451	)		26,731,208
Certificates of deposits		1,985,000		775		(1,957	)		1,983,818
	$	37,959,533	$	471,417	$	(124,998	)	$	38,305,952
Available-for-sale securities December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,411,627	$	78,178	$	(25,990	)	$	9,463,815
State and municipal obligations		24,880,871		412,759		(44,102	)		25,249,528
Certificates of deposits		1,985,000		3,271		(1,094	)		1,987,177
	$	36,277,498	$	494,208	$	(71,186	)	$	36,700,520

Unrealized loss positions

Bonds with unrealized loss positions at December 31, 2012 included three certificates of deposit, ten municipals and two federal agencies. The tables are shown below.

	Less than 12 months				12 months or more				Total
March 31, 2013 (unaudited)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	2,359,185	$	59,590	$	—	$	—	$	2,359,185	$	59,590
States and municipal obligations		4,148,137		61,062		1,037,800		2,389		5,185,937		63,451
Certificates of deposits		1,486,043		1,957		—		—		1,486,043		1,957
Total temporarily impaired securities	$	7,993,365	$	122,609	$	1,037,800	$	2,389	$	9,031,165	$	124,998
	Less than 12 months				12 months or more				Total
December 31, 2012	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,080,438	$	25,990	$	—	$	—	$	1,080,438	$	25,990
States and municipal obligations		2,863,106		37,731		1,037,825		6,371		3,900,931		44,102
Certificates of deposits		742,906		1,094		—		—		742,906		1,094
Total temporarily impaired securities	$	4,686,450	$	64,815	$	1,037,825	$	6,371	$	5,724,275	$	71,186