10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

Commission file no: 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, VIRGINIA 22482

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 804.435.1171

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock ($5.00 Par Value)

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  x

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

Indicate by check mark whether registrant has submitted electronically and posted on its corporate Website, 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).    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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 the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	x

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

The aggregate market value of voting stock held by non-affiliates of the registrant at June 30, 2014, based on the closing sale price of the registrant’s common stock on June 30, 2014, was $24,746,860.

The number of shares outstanding of the registrant’s common stock as of March 23, 2015 was 4,802,856.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 18, 2015 are incorporated by reference into Part III of this Form 10-K.

BAY BANKS OF VIRGINIA, INC.

INDEX

		Page
	PART I
Item 1:	Business		3
Item 1A:	Risk Factors		10
Item 1B:	Unresolved Staff Comments		10
Item 2:	Properties		10
Item 3:	Legal Proceedings		10
Item 4:	Mine Safety Disclosures		11
	PART II
Item 5:	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6:	Selected Financial Data		12
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk		24
Item 8:	Financial Statements and Supplementary Data		25
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		60
Item 9A:	Controls and Procedures		60
Item 9B:	Other Information		60
	PART III
Item 10:	Directors, Executive Officers and Corporate Governance		60
Item 11:	Executive Compensation		61
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		61
Item 13:	Certain Relationships and Related Transactions, and Director Independence		61
Item 14:	Principal Accounting Fees and Services		61
	PART IV
Item 15:	Exhibits, Financial Statement Schedules		61

2

PART I

ITEM 1: BUSINESS

GENERAL

Bay Banks of Virginia, Inc. (the “Company”) is a bank holding company that conducts substantially all of its operations through its subsidiaries, Bank of Lancaster (the “Bank”) and Bay Trust Company (the “Trust Company”). Bay Banks of Virginia, Inc. was incorporated under the laws of the Commonwealth of Virginia on June 30, 1997, in connection with the holding company reorganization of the Bank of Lancaster. The Bank opened for business in 1930 and has partnered with the communities it serves to ensure responsible growth and development since that time.

The Bank is a state-chartered bank, headquartered in Kilmarnock, Virginia, and a member of the Federal Reserve System. The Bank has offices in Virginia throughout the Northern Neck and Middle Peninsulas and in the Greater Richmond area of central Virginia. It serves businesses, professionals and consumers with a wide variety of financial services, including retail and commercial banking, investment services, and mortgage banking. Products include checking accounts, savings accounts, money market accounts, cash management accounts, certificates of deposit, individual retirement accounts, commercial and industrial loans, residential mortgages, commercial mortgages, home equity loans, consumer installment loans, investment accounts, insurance, credit cards, online banking, telephone banking, and mobile banking.

The Bank currently has two offices located in Kilmarnock, Virginia, two offices in Richmond, Virginia, and one office each in White Stone, Warsaw, Montross, Callao, Burgess, and Colonial Beach, Virginia. The Bank also has a residential mortgage loan production office in Hartfield, Virginia. The Bank expects to close one of the Kilmarnock offices and open a third office in Richmond, Virginia in 2015. A substantial amount of the Bank’s deposits are interest bearing, and the majority of the Bank’s loan portfolio is secured by real estate. Deposits of the Bank are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (the “FDIC”).

The Company’s primary marketplace is the Northern Neck Peninsula of Virginia, plus Middlesex County, which is located across the Rappahannock River from the Northern Neck. The Northern Neck includes the counties of Lancaster, Northumberland, Richmond, and Westmoreland. The main demographic in the Company’s primary market area is smaller, retired households with relatively high per capita incomes. Health care, tourism, and related services are the major employment sectors in the Northern Neck and Middlesex County. The Company expanded operations into the Richmond, Virginia market in 2014 with an eye toward higher density business and consumer demographics. The Company considers the city of Richmond and the counties of Henrico, Hanover and Chesterfield, Virginia to be its service area in the Greater Richmond area. The city of Richmond serves as the capital of Virginia and the economic center of the Richmond-Petersburg metropolitan statistical area. The area reflects a generally high quality of life as exemplified by relatively low cost of living, minimal traffic congestion, a physically attractive topography, and a diverse economy that experiences neither the highs nor the lows of national business cycles.

The Company had total assets of $390.5 million, deposits of $307.6 million, and shareholders’ equity of $39.2 million as of December 31, 2014. Its headquarters are located in Kilmarnock, Virginia and its telephone number is 804-435-1171 or 800-435-1140. The Company’s website is www.baybanks.com. Information contained on the Company’s website is not a part of or incorporated into this report or any other filing the Company makes with the Securities and Exchange Commission (“SEC”).

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(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder. The Company received gross proceeds of $9.35 million from such private placement.

Bay Services Company, Inc. The Bank has one wholly owned subsidiary, Bay Services Company, Inc., a Virginia corporation organized in 1994 (“Bay Services”). Bay Services owns an interest in a land title insurance agency, Bankers Title of Shenandoah, and an investment and insurance services company, Infinex Investments, Inc. Bankers Title of Shenandoah sells title insurance to mortgage loan customers, including customers of the Bank of Lancaster and the other financial institutions that have an ownership interest in the agency. Infinex Investments, Inc. provides the Bank’s non-deposit products department, Investment Advantage, with insurance and investment products for marketing within the Bank’s market areas.

Bay Trust Company. The Trust Company provides management services for personal and corporate trusts, including estate planning, estate settlement, and trust administration. Products include estate planning and settlement, revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment management accounts, and managed, as well as self-directed rollover Individual Retirement Accounts.

Through the Bank of Lancaster and Bay Trust Company, Bay Banks of Virginia provides a wide variety of financial services to its customers in its market areas. The primary products and services are summarized as follows.

Mortgage Loans on Real Estate. The Bank’s mortgage loans on real estate comprise the largest segment of its loan portfolio. The majority of the Bank’s real estate loans are mortgages on owner-occupied one-to-four family residential properties, including both fixed-rate and adjustable-rate structures. Residential mortgages are underwritten and documented within the guidelines of the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Home equity lines of credit are also offered. Construction loans with a twelve-month term are another component of the Bank’s portfolio. Underwritten at 80% loan to value, and to qualified builders and individuals, these loans are disbursed as construction progresses and verified by Bank inspection. The Bank also offers commercial loans that are secured by real estate. These mortgages are also typically written at a maximum of 80% loan to value.

3

The Company also offers secondary market residential loan origination. Through the Bank, customers may apply for home mortgages that are underwritten in accordance with the guidelines of either the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association (“FNMA” or “Fannie Mae”). These loans are then sold into the secondary market on a loan-by-loan basis, usually directly to FNMA. The Bank earns origination and servicing fees from this service.

Commercial and Industrial Loans. Commercial lending activities include small business loans, asset based loans, and other secured and unsecured loans and lines of credit. Commercial and industrial loans may entail greater risk than residential mortgage loans, and are therefore underwritten with strict risk management standards. Among the criteria for determining the borrower’s ability to repay is a cash flow analysis of the business and business collateral.

Consumer Loans. As part of its full range of services, the Bank’s consumer lending services include automobile and boat financing, home improvement loans, credit cards and unsecured personal loans. These consumer loans historically entail greater risk than loans secured by real estate, but also generate a higher return.

Consumer Deposit Services. Consumer deposit products include checking accounts, savings accounts, money market accounts, certificates of deposit, online banking, mobile banking and electronic statements. The Bank’s Golden Advantage program offers special products and services to customers age 55 and over.

Business Banking Services. The Bank offers a variety of services to commercial customers. These services include analysis checking, cash management deposit accounts, wire services, direct deposit payroll service, online banking, telephone banking, remote deposit, and a full line of commercial lending options. The Bank also offers Small Business Administration loan products under the 504 Program, which provides long term funding for commercial real estate and long-lived equipment. This allows commercial customers obtain favorable rate loans for the development of business opportunities, while providing the Bank with a partial guarantee of the outstanding loan balance.

COMPETITION

The Company’s marketplace is highly competitive. The Company is subject to competition from a variety of commercial banks and financial service companies, large national and regional financial institutions, large regional credit unions, mortgage companies, consumer finance companies, mutual funds and insurance companies. Competition for loans and deposits is affected by numerous factors, including interest rates, institutional reputation, and the economy.

SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both federal and state laws. The following description briefly addresses certain historic and current provisions of federal and state laws and certain regulations, proposed regulations and the potential impacts on the Company and the Bank. To the extent statutory or regulatory provisions or proposals are described in this report, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals.

The Company

General. As a bank holding company registered under the Bank Holding Company Act of 1956 (the “BHCA”), the Company is subject to supervision, regulation, and examination by the Federal Reserve. The Company is also registered under the bank holding company laws of Virginia and is subject to supervision, regulation, and examination by the Virginia State Corporation Commission (the “SCC”).

Permitted Activities. A bank holding company is limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.

Banking Acquisitions; Changes in Control. The BHCA requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless it already owns a majority of such voting shares), (ii) acquire all or substantially all of the assets of another bank or bank holding company, or (iii) merge or consolidate with any other bank holding company. In determining whether to approve a proposed bank acquisition, the Federal Reserve will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s performance under the Community Reinvestment Act of 1977 and its compliance with fair housing and other consumer protection laws.

4

Subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company’s acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered its securities with the Securities and Exchange Commission under Section 12 of the Securities Exchange Act of 1934 (the “Exchange Act”) or no other person will own a greater percentage of that class of voting securities immediately after the acquisition. The Company’s common stock is registered under Section 12 of the Exchange Act.

In addition, Virginia law requires the prior approval of the SCC for (i) the acquisition of more than 5% of the voting shares of a Virginia bank or any holding company that controls a Virginia bank, or (ii) the acquisition by a Virginia bank holding company of a bank or its holding company domiciled outside Virginia.

Source of Strength. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Safety and Soundness. There are a number of obligations and restrictions imposed on bank holding companies and their subsidiary banks by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance fund in the event of a depository institution default. For example, under the Federal Deposit Insurance Company Improvement Act of 1991, to avoid receivership of an insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any subsidiary bank that may become “undercapitalized” with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal bank regulatory agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.

Under the Federal Deposit Insurance Act (“FDIA”), the federal bank regulatory agencies have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.

Capital Requirements. The Federal Reserve imposes certain capital requirements on bank holding companies under the BHCA, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “The Bank – Capital Requirements – Basel III Capital Requirements.” Subject to its capital requirements and certain other restrictions, the Company is able to borrow money to make a capital contribution to the Bank, and such loans may be repaid from dividends paid by the Bank to the Company.

Limits on Dividends and Other Payments. The Company is a legal entity, separate and distinct from its subsidiaries. A portion of the revenues of the Company may result from dividends paid to it by the Bank. There are various legal limitations applicable to the payment of dividends by the Bank to the Company and to the payment of dividends by the Company to its shareholders. The Bank is subject to various statutory restrictions on its ability to pay dividends to the Company. Under current regulations, prior approval from the Federal Reserve is required if cash dividends declared in any given year exceed net income for that year, plus retained net profits of the two preceding years. The payment of dividends by the Bank or the Company may be limited by other factors, such as requirements to maintain capital above regulatory guidelines. Bank regulatory agencies have the authority to prohibit the Bank or the Company from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending on the financial condition of the Bank, or the Company, could be deemed to constitute such an unsafe or unsound practice.

Under the FDIA, insured depository institutions such as the Bank, are prohibited from making capital distributions, including the payment of dividends, if, after making such distributions, the institution would become “undercapitalized” (as such term is used in the statute). Based on the Bank’s current financial condition, the Company does not expect this provision will have any impact on its ability to receive dividends from the Bank. The Company’s non-bank subsidiary, Bay Trust Company, may pay dividends to the Company on a non-regulated basis.

In addition to dividends it may receive from the Bank, the Company receives management fees from its affiliated companies for expenses incurred related to external financial reporting and audit fees, investor relations expenses, board of directors fees and legal fees related to corporate actions. These fees are charged to each subsidiary based upon various specific allocation methods measuring the estimated usage of such services by that subsidiary. The fees are eliminated from the financial statements in the consolidation process.

5

The Bank

General. The Bank is supervised and regularly examined by the Federal Reserve and the SCC. The various laws and regulations administered by the bank regulatory agencies affect corporate practices, such as the payment of dividends, incurrence of debt and acquisition of financial institutions and other companies; they also affect business practices, such as the payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices. Certain of these law and regulations are referenced above under “The Company.”

Capital Requirements.

2014 Capital Requirements. The Federal Reserve and the other federal banking agencies have issued risk-based and leverage capital guidelines applicable to U.S. banking organizations. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. Under the risk-based capital requirements of the Federal Reserve that were effective through December 31, 2014, the Company and the Bank were required to maintain a minimum ratio of total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 8.0%. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, were multiplied by a risk-weight factor, assigned by the capital regulation, based on the risks believed inherent in the type of asset. At least half of the total capital was required to be “Tier 1 capital,” which consisted principally of common and certain qualifying preferred shareholders’ equity (including grandfathered trust preferred securities), less certain intangibles and other adjustments. The remainder (“Tier 2 capital”) consisted of cumulative preferred stock, long-term perpetual preferred stock, a limited amount of subordinated and other qualifying debt (including certain hybrid capital instruments), and a limited amount of the general loan loss allowance. The Tier 1 to risk-weighted assets ratio of the Company was 13.86% as of December 31, 2014, thus exceeding the minimum requirement. The Tier 1 and total capital to risk-weighted assets ratios of the Bank were 9.07% and 13.30%, respectively, as of December 31, 2014, also exceeding the minimum requirements.

Each of the federal bank regulatory agencies also established a minimum leverage capital ratio of Tier 1 capital to average adjusted assets (“Tier 1 leverage ratio”) that was effective through December 31, 2014. The guidelines required a minimum Tier 1 leverage ratio of 3.0% for bank holding companies and banking organizations with the highest supervisory rating. All other banking organizations were required to maintain a minimum Tier 1 leverage ratio of 4% unless a different minimum was specified by an appropriate regulatory authority. In addition, for a depository institution to have been considered “well capitalized” under the regulatory framework for prompt corrective action, its Tier 1 leverage ratio must have been at least 5.0%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions would have been expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve has not advised the Company or the Bank of any specific minimum leverage ratio applicable to either entity. As of December 31, 2014, the Tier 1 leverage ratio of the Company and the Bank were 10.35% and 9.07%, respectively, well above the minimum requirements.

Basel III Capital Requirements. On June 7, 2012, the Federal Reserve issued a series of proposed rules intended to revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. On July 2, 2013, the Federal Reserve approved certain revisions to the proposals and finalized new capital requirements for banking organizations.

Effective January 1, 2015, the final rules require the Company and the Bank to comply with the following new minimum capital ratios: (i) a new common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6% of risk-weighted assets (increased from the prior requirement of 4%); (iii) a total capital ratio of 8% of risk-weighted assets (unchanged from the prior requirement); and (iv) a leverage ratio of 4% of total assets (unchanged from the prior requirement). These are the initial capital requirements, which will be phased in over a four-year period. When fully phased in on January 1, 2019, the rules will require the Company and the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7% upon full implementation), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation), and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets.

The capital conservation buffer requirement will be phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

With respect to the Bank, the rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio

6

being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the prior requirement of 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized. These new thresholds were effective for the Bank as of January 1, 2015. The minimum total capital to risk-weighted assets ratio (10.0%) and minimum leverage ratio (5.0%) for well-capitalized status were unchanged by the final rules.

The new capital requirements also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on nonaccrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights (“MSRs”) and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.

Based on management’s understanding and interpretation of these new capital rules, it believes that, as of December 31, 2014, the Company and the Bank would meet all capital adequacy requirements under such rules on a fully phased-in basis as if such requirements were in effect as of such date.

Deposit Insurance. The deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and are subject to deposit insurance assessments to maintain the DIF. On April 1, 2011, the deposit insurance assessment base changed from total deposits to average total assets minus average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act.

The Federal Deposit Insurance Act (the “FDIA”), as amended by the Federal Deposit Insurance Reform Act and the Dodd-Frank Act, requires the FDIC to set a ratio of deposit insurance reserves to estimated insured deposits of at least 1.35%. The FDIC utilizes a risk-based assessment system that imposes insurance premiums based upon a risk matrix that takes into account a bank’s capital level and supervisory rating. On February 27, 2009, the FDIC introduced three possible adjustments to an institution’s initial base assessment rate: (i) a decrease of up to five basis points for long-term unsecured debt, including senior unsecured debt (other than debt guaranteed under the Temporary Liquidity Guarantee Program) and subordinated debt and, for small institutions, a portion of Tier 1 capital; (ii) an increase not to exceed 50% of an institution’s assessment rate before the increase for secured liabilities in excess of 25% of domestic deposits; and (iii) for non-Risk Category I institutions, an increase not to exceed 10 basis points for brokered deposits in excess of 10% of domestic deposits.

On May 22, 2009, the FDIC issued a final rule that levied a special assessment applicable to all insured depository institutions totaling 5 basis points of each institution’s total assets less Tier 1 capital as of June 30, 2009, not to exceed 10 basis points of domestic deposits. The special assessment was part of the FDIC’s efforts to rebuild the DIF. Deposit insurance expense during 2009 for the Company included an additional $152 thousand related to the special assessment. On November 12, 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. In the fourth quarter of 2009, the Company paid $1.6 million in prepaid risk-based assessments, all of which had been expensed in the appropriate periods through May 2013.

In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual rate of approximately one basis point of insured deposits to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2017 through 2019.

Transactions with Affiliates. Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of the Bank to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be collateralized and certain transactions between the Bank and its affiliates, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to the Bank, as those prevailing for comparable nonaffiliated transactions. In addition, the Bank generally may not purchase securities issued or underwritten by affiliates.

Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank (a “10% Shareholders”), are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed the Bank’s unimpaired capital and unimpaired surplus. Section 22(g) of the Federal Reserve Act identifies limited circumstances in which the Bank is permitted to extend credit to executive officers.

Prompt Corrective Action. Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their capital requirements. The federal bank regulatory agencies have additional enforcement authority with respect to undercapitalized depository institutions. “Well capitalized” institutions may generally operate without supervisory restriction.

7

With respect to “adequately capitalized” institutions, such banks cannot normally pay dividends or make any capital contributions that would leave it undercapitalized, they cannot pay a management fee to a controlling person if, after paying the fee, it would be undercapitalized, and they cannot accept, renew or roll over any brokered deposit unless the bank has applied for and been granted a waiver by the FDIC.

Immediately upon becoming “undercapitalized,” a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the DIF, subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. The Bank meets the definition of being “well capitalized” as of December 31, 2014.

As described above in “The Bank – Capital Requirements – Basel III Capital Requirements,” the new capital requirement rules issued by the Federal Reserve incorporate new requirements into the prompt corrective action framework.

Community Reinvestment Act (“CRA”). The Bank is subject to the requirements of the Community Reinvestment Act of 1977. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of the local communities they serve, including low and moderate income neighborhoods. The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting such credit needs. Furthermore, such assessment is also required of banks that have applied, among other things, to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch. In the case of a bank holding company applying for approval to acquire a bank or another bank holding company, the record of each subsidiary bank of the applicant bank holding company is subject to assessment in considering the application. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” The Bank received a “satisfactory” CRA rating in its most recent examination.

Privacy Legislation. Several recent laws, including the Right To Financial Privacy Act, and related regulations issued by the federal bank regulatory agencies, provide new protections against the transfer and use of customer information by financial institutions. A financial institution must provide to its customers information regarding its policies and procedures with respect to the handling of customers’ personal information. Each institution must conduct an internal risk assessment of its ability to protect customer information. These privacy provisions generally prohibit a financial institution from providing a customer’s personal financial information to unaffiliated parties without prior notice and approval from the customer.

USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 (“Patriot Act”) was enacted in response to the September 11, 2001 terrorist attacks in New York, Pennsylvania, and Northern Virginia. The Patriot Act is intended to strengthen U.S. law enforcement and the intelligence communities’ abilities to work cohesively to combat terrorism. The continuing impact on financial institutions of the Patriot Act and related regulations and policies is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws, and imposes various regulations, including standards for verifying customer identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities to identify persons who may be involved in terrorism or money laundering.

Volcker Rule. The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of 3% of Tier 1 capital in private equity and hedge funds (known as the “Volcker Rule”). On December 10, 2013, the federal bank regulatory agencies adopted final rules implementing the Volcker Rule. These final rules prohibit banking entities from (i) engaging in short-term proprietary trading for their own accounts, and (ii) having certain ownership interests in and relationships with hedge funds or private equity funds. The final rules are intended to provide greater clarity with respect to both the extent of those primary prohibitions and of the related exemptions and exclusions. The final rules also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators. Although the final rules provide some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Company and the Bank. The final rules were effective April 1, 2014, with full compliance being phased in over a period which will end on July 21, 2016. The Company has evaluated the implications of the final rules on its investments and does not expect any material financial implications.

Under the rules implementing the Volcker Rule, banking entities would have been prohibited from owning certain collateralized debt obligations (“CDOs”) backed by trust preferred securities (“TruPS”) as of July 21, 2015, which could have forced banking entities to recognize unrealized market losses based on the inability to hold any such investments to maturity. However, on January 14, 2014, the federal bank regulatory agencies issued an interim rule, effective April 1, 2014, exempting TruPS CDOs from the Volcker Rule if (i) the CDO was established prior to May 19, 2010, (ii) the banking entity reasonably believes that the offering proceeds of the CDO were used to invest primarily in TruPS issued by banks with less than $15 billion in assets, and (iii) the banking entity acquired the CDO on or before December 10, 2013. The regulators solicited comments on the interim final rule, and this exemption could change prior to its effective date.

8

The Company currently does not have any impermissible holdings of TruPS CDOs under the interim final rule and, therefore, will not be required to divest of any such investments or change their accounting treatment. The Company is continuously monitoring its investments to ensure compliance as the various provisions of the Volcker Rule regulations become effective.

Consumer Financial Protection. The Bank is subject to a number of federal and state consumer protection laws that extensively govern its relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act, laws governing flood insurance, federal and state laws prohibiting unfair and deceptive business practices, foreclosure laws, and various regulations that implement some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. If the Bank fails to comply with these laws and regulations, it may be subject to various penalties. Failure to comply with consumer protection requirements may also result in failure to obtain any required bank regulatory approval for merger or acquisition transactions the Bank may wish to pursue or being prohibited from engaging in such transactions even if approval is not required.

The Dodd-Frank Act centralized responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (the “CFPB”), and giving it responsibility for implementing, examining, and enforcing compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets., (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-depository companies that offer one or more consumer financial products or services.

The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.

Ability-to-Repay and Qualified Mortgage Rule. Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision: (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; (iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history. Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. The Company is predominantly an originator of compliant qualified mortgages.

Incentive Compensation. In June 2010, the federal bank regulatory agencies issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not undermine the safety and soundness of such institutions by encouraging excessive risk-taking. The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of financial institutions, such as the Company and the Bank, that are not “large, complex banking organizations.” These reviews will be tailored to each financial institution based on the scope and complexity of the institution’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a financial institution if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the institution’s safety and soundness and the financial institution is not taking prompt and effective measures to correct the deficiencies. At December 31, 2014, the Company and the Bank have not been made aware of any instances of non-compliance with the final guidance.

9

Effect of Governmental Monetary Policies

The Company’s operations are affected not only by general economic conditions but also by the policies of various regulatory authorities. In particular, the Federal Reserve regulates money and credit conditions and interest rates to influence general economic conditions. These policies have a significant impact on overall growth and distribution of loans, investments and deposits; they affect interest rates charged on loans or paid for time and savings deposits. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to do so in the future.

Reporting Obligations under Securities Laws

The Company is subject to the periodic and other reporting requirements of the Exchange Act, including the filing of annual, quarterly and other reports with the SEC. The Company provides access to its SEC filings through the “Regulatory Filings” section of the Company’s website at www.baybanks.com. The Company’s SEC filings are posted and available at no cost on its website as soon as reasonably practicable after the reports are filed electronically with the SEC. The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Employees

At December 31, 2014, the Company employed approximately 126 people of which 102 were considered full-time employees.

ITEM 1A: RISK FACTORS

Not required.

ITEM 1B: UNRESOLVED STAFF COMMENTS

Not required.

ITEM 2: PROPERTIES

The Company, through its subsidiaries, owns or leases buildings and office space that are used in the normal course of business. The headquarters of each of the Company, the Bank, and the Trust Company are located at 100 South Main Street, Kilmarnock, Virginia, in a building owned by the Bank.

Unless otherwise noted, the properties listed below are owned by the Company and its subsidiaries as of December 31, 2014.

Bank of Lancaster: 100 South Main Street, Kilmarnock, Virginia 708 Rappahannock Drive, White Stone, Virginia 432 North Main Street, Kilmarnock, Virginia (to be closed April 2015) 4935 Richmond Road, Warsaw, Virginia 15648 Kings Highway, Montross, Virginia 18 Sandy Street, Callao, Virginia 23 West Church Street, Kilmarnock, Virginia 15104 Northumberland Highway, Burgess, Virginia 680 McKenney Boulevard, Colonial Beach, Virginia 11450 Robious Road, North Chesterfield, Virginia 10880 General Puller Highway, Hartfield, Virginia (leased) 5711 Patterson Avenue, Richmond, Virginia (leased) One Paragon Place, 6800 Paragon Place, Suite 650, Richmond, Virginia (leased)

ITEM 3: 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.

10

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is quoted on the OTC Markets Group’s OTCQB tier under the symbol “BAYK” and transactions generally involve a small number of shares. There were 4,817,856 shares of the Company’s stock outstanding at the close of business on December 31, 2014, which were held by 631 shareholders of record.

The following table summarizes the high and low closing sales prices for the two years ended December 31, 2014. No dividends have been declared or paid in the last two years.

	Market Values
	2014				2013
	High		Low		High		Low
First Quarter	$	6.13	$	5.03	$	5.25	$	4.52
Second Quarter		6.13		5.70		5.04		4.77
Third Quarter		5.85		5.20		5.00		4.80
Fourth Quarter		5.50		5.05		5.20		4.92

A discussion of certain restrictions and limitations on the ability of the Bank to pay dividends to the Company, and the ability of the Company to pay dividends to shareholders of its common stock, is set forth in Part I, Item 1, Business, of this Form 10-K under the heading “Supervision and Regulation.”

The dividend type, amount and timing are established by the Board of Directors. In making its decisions regarding the payment of dividends on the Company’s common stock, the Board considers operating results, financial condition, capital adequacy, regulatory requirements, shareholder return, and other factors.

11

ITEM 6: SELECTED FINANCIAL DATA

(Dollars in thousand, except per share amounts)	As of and for the Year Ended December 31,
	2014			2013			2012			2011			2010
Operations:
Net interest income	$	11,935		$	10,614		$	10,454		$	10,323		$	10,062
Provision for loan losses		611			776			1,895			495			720
Noninterest income		3,681			4,726			4,492			2,965			2,956
Noninterest expense		12,618			12,943			12,143			12,467			11,967
Tax expense (benefit)		557			399			210			(24	)		(41	)
Net income	$	1,830		$	1,222		$	698		$	350		$	372
Share Data:
Basic income per share	$	0.38		$	0.25		$	0.27		$	0.13		$	0.14
Diluted income per share		0.38			0.25			0.27			0.13			0.14
Cash dividends per common share		—			—			—			—			—
Weighted average common shares:
Basic		4,818,377			4,816,859			2,610,856			2,607,034			2,605,855
Diluted		4,829,581			4,819,343			2,612,787			2,607,097			2,605,855
Balance Sheet:
Assets	$	390,486		$	331,135		$	334,798		$	315,212		$	327,086
Loans, net of allowance		295,242			247,912			235,746			233,501			243,943
Allowance for loan losses		3,205			2,925			3,094			3,189			3,231
Deposits		307,585			268,346			275,175			265,518			260,854
Total liabilities		351,248			293,999			298,213			287,197			299,743
Total stockholders’ equity(1)		39,238			37,136			36,585			28,015			27,342
Profitability Measures:
Return on average assets		0.53	%		0.37	%		0.22	%		0.11	%		0.11	%
Return on average equity		4.76	%		3.32	%		2.16	%		1.26	%		1.37	%
Net interest margin		3.85	%		3.53	%		3.61	%		3.46	%		3.32	%
Yield on earning assets		4.54	%		4.46	%		4.78	%		4.85	%		5.11	%
Cost of funds		0.72	%		0.96	%		1.18	%		1.41	%		1.81	%
Capital Ratios:
Total equity to assets		10.05	%		11.21	%		10.93	%		8.89	%		8.36	%
Tier 1 leverage ratio		10.35	%		10.93	%		10.93	%		7.97	%		7.54	%
Asset Quality:
Nonperforming assets to total assets		1.22	%		2.01	%		2.69	%		2.46	%		3.02	%
Net charge-offs to average loans		0.12	%		0.39	%		0.83	%		0.22	%		0.50	%
Allowance for loan losses to loans		1.07	%		1.17	%		1.29	%		1.35	%		1.31	%
Classified assets to Tier 1 capital plus allowance for loan losses		21.72	%		29.57	%		37.54	%		52.92	%		58.40	%

Note:

(1) In 2012, the Company raised $9.35 million gross in a private placement of 2,200,000 shares.

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the major components of the results of operations and financial condition, liquidity and capital resources of Bay Banks of Virginia, Inc., and its subsidiaries. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data, in this Form 10-K.

EXECUTIVE SUMMARY

Results for 2014 are highlighted by significant growth in assets and deposits, and continued improvements in earnings. Growth in loans drove the growth in assets. Earnings per share were $0.38 in 2014 compared to $0.25 in 2013. Return on average assets is up to 0.53% for 2014 compared to 0.37% in 2013. Return on average equity is up to 4.76% from 3.32% for the same time period comparison. Capital levels will support additional growth.

The Bank opened two branch offices in the Richmond, Virginia market in 2014. A third Richmond location is expected to be open by the second quarter of 2015.

In January 2015, the Company announced it would be consolidating the branch operations of its three Lancaster County, Virginia offices into two, effective April 30, 2015, with all Kilmarnock branch operations to be based in the main office of the Bank. The branch consolidation is expected to save the Company approximately $85 thousand annually. The branch building located at 432 North Main Street, Kilmarnock, Virginia is expected to be marketed for sale.

12

The in-house loan portfolio grew by $47.6 million, or 19.0%, in 2014. Loans originated and sold to Fannie Mae generated growth of $5.8 million in the portfolio of loans serviced for Fannie Mae during 2014. The servicing portfolio totaled $64.7 million as of December 31, 2014 compared to $58.9 million as of December 31, 2013. Total assets have grown by $59.4 million, or 17.9%, to $390.5 million, during 2014.

The net interest margin increased to 3.85% for 2014 compared to 3.53% for 2013. As this low interest rate climate continues, loan yields continue to decline, but increased loan balances have resulted in increased interest income. The average cost of Federal Home Loan Bank (“FHLB”) advances declined to 1.55% for 2014 compared to 3.00% for 2013. Four new $5 million advances, two acquired in June 2014 and two acquired in October 2014 during this low-rate environment will further reduce the average cost of FHLB advances and cost of funds going forward. Scheduled maturities of higher-cost time deposits during 2014 also helped to reduce both costs of funds and interest expense. Maturities of time deposits are typically renewed at lower interest rates, or such deposits leave the Bank or transfer into lower-cost checking or savings accounts.

Along with growth in the loan portfolio, these margin improvements were a major contributor to the 49.8% increase in earnings for 2014 compared to 2013. Net interest income improved by $1.3 million for 2014 compared to 2013.

Asset quality improved, with nonperforming assets down to 1.22% of total assets as of December 31, 2014 from 2.01% as of December 31, 2013. Other real estate owned (“OREO”) balances are down to $2.8 million as of December 31, 2014 compared to $3.9 million as of December 31, 2013. Non-accruing loan balances are down to $2.0 million as of December 31, 2014 as compared to $2.8 million at December 31, 2013.

Annualized net loan charge-offs against the allowance for loan losses (“ALL”) are down to 0.12% of average loans during 2014 compared to 0.39% during 2013.

During the first quarter of 2014, the Company sold a troubled investment for which an impairment loss of $288 thousand was recognized in 2013. In addition, during the first quarter of 2014, the Company sold its former Heathsville, Virginia, branch office recognizing a gain of approximately $138 thousand.

Finally, the Company’s core capital levels and regulatory ratios remain well above what is considered “well capitalized” by the Company’s regulators.

For more information, visit the Company’s website at www.baybanks.com. Information contained on the Company’s website is not a part of or incorporated into this report or any other filing the Company makes with the SEC.

CRITICAL ACCOUNTING POLICIES

GENERAL. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The financial information contained within its 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. The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and homogenous pools of loans analyzed on a segmented basis. Considerations include historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as additional information becomes available.

The ALL calculation methodology’s historical loss factor period is considered the length of a business cycle. The business cycle, upon which the historical loss factor is based, was believed to have begun in the fourth quarter of 2008. During the third quarter of 2013, management determined that the business cycle had ended given noticeable national economic improvement and local real estate market stabilization. The historical loss factor is now based on that business cycle of 19 quarters, compared to the previous averaging period that had been growing each quarter based on the business cycle that began in 2008. The change in methodology during the third quarter of 2013 produced an immaterial change in the ALL calculation.

Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. Loans assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures. 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. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows:

Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate.

13

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

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

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

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

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

The ALL consists of specific, general, and unallocated components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include: (1) non-accruing Special mention, Substandard and Doubtful loans in excess of $250,000; (2) Substandard and Doubtful loans in excess of $500,000; (3) Special Mention loans in excess of $500,000 if any of the loans in the relationship are more than 30 days past due or if the borrower has filed for bankruptcy; and (4) all troubled debt restructurings (“TDRs”). A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in the local and national economic outlook, including unemployment, interest rates, inflation rates and real estate trends; the level and trend of past due and nonaccrual loans; strength of policies and procedures; and oversight of credit risk and quality of underwriting. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Changes in the allowance for loan losses and the related provision expense can materially affect net income.

The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

The general component of the ALL calculation collectively evaluates groups of loans in segments or classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 19 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class.

Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans include credit cards which are unsecured.

14

The summation of the specific, general and unallocated components 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.

Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans.

MORTGAGE SERVICING RIGHTS (“MSRs”). MSRs are included on the consolidated balance sheet and recorded at fair value on an ongoing basis. Changes in the fair value of the MSRs are recorded in the results of operations. A fair value analysis of MSRs is performed on a quarterly basis. A valuation model, which utilizes a discounted cash flow analysis using interest rates and prepayment assumptions currently quoted for comparable instruments and a discount rate, is used to determine fair value.

For a number of years, the Bank retained the servicing for mortgages it had originated and sold to a third party. Prior to 2013, the Bank had not recorded the MSRs asset at the time of the sales of mortgages to the third party. The cumulative effect of the MSRs asset was recorded in the third quarter of 2013. The overstatement of income in 2013 of approximately $215,000 after tax ($325,000 pre-tax adjusted at a 34% tax rate) or approximately $0.04 per basic and diluted earnings per share represents the fair value of servicing rights retained prior to 2013.

GOODWILL. The Company has goodwill relating to the purchase of five branches during the years 1994 through 2000. Goodwill is tested annually for impairment. The test performed using financial information as of September 30, 2014 found no impairment. No events occurred between the date of our annual test and December 31, 2014 that would indicate the existence of impairment.

OVERVIEW

2014 Compared to 2013

Bay Banks of Virginia, Inc. recorded net income for 2014 of $1.8 million, or $0.38 per basic and diluted share, as compared to $1.2 million, or $0.25 per basic and diluted share in 2013. This is an increase in net income of $608 thousand. Net interest income for 2014 was $11.9 million, as compared to $10.6 million for 2013. Provision expense for loan losses was $611 thousand in 2014 compared to $776 thousand in 2013. Non-interest income decreased 22.1% to $3.7 million in 2014 from $4.7 million in 2013. Non-interest expense was $12.6 million in 2014 compared to $12.9 million in 2013.

Performance as measured by the Company’s return on average assets was 0.53% for 2014 compared to 0.37% for 2013. Performance as measured by return on average equity was 4.76% for 2014 compared to 3.32% for 2013. The table below details certain financial and statistical information for the Company.

Return on Equity & Assets
(Dollars in thousands, except per share amounts)
Years Ended December 31,	2014			2013			2012
Net Income	$	1,830		$	1,222		$	698
Average Total Assets		343,838			332,894			320,881
Return on Average Assets		0.53	%		0.37	%		0.22	%
Average Equity	$	38,418		$	36,861		$	32,300
Return on Average Equity		4.76	%		3.32	%		2.16	%
Cash Dividends declared per share	$	—		$	—		$	—
Average Shares Outstanding		4,818,377			4,816,859			2,610,856
Average Diluted Shares Outstanding		4,829,581			4,819,343			2,612,787
Net Income per Share	$	0.38		$	0.25		$	0.27
Net Income per Diluted Share		0.38			0.25			0.27
Cash Dividend Payout Ratio		0.0	%		0.0	%		0.0	%
Average Equity to Average Assets Ratio		11.17	%		11.07	%		10.07	%

RESULTS OF OPERATIONS

Net Interest Income

The principal source of earnings for the Company is net interest income. Net interest income is the amount by which interest income exceeds interest expense. The net interest margin is net interest income expressed as a percentage of interest earning assets. Changes in the volume and mix of interest earning assets and interest bearing liabilities, the associated yields and rates, and the volume of non-performing assets have a significant impact on net interest income, the net interest margin, and ultimately net income.

15

The following table shows details of yields on interest-earning assets (e.g. loans), costs of interest-bearing liabilities (e.g. deposits) and the resulting net interest margins for the years ended December 31, 2014 and 2013.

Average Balances, Income and Expense, Yields and Rates
(Fully taxable equivalent basis)
Years ended December 31,	2014							2013							2012
(Dollars in Thousands)	Average Balance		Income/ Expense		Yield/ Cost			Average Balance		Income/ Expense		Yield/ Cost			Average Balance		Income/ Expense		Yield/ Cost
INTEREST EARNING ASSETS:
Taxable Investments	$	21,380	$	382		1.79	%	$	24,468	$	448		1.83	%	$	26,466	$	645		2.44	%
Tax-Exempt Investments (1)		18,129		568		3.13	%		16,238		494		3.04	%		10,641		361		3.39	%
Total Investments		39,509		950		2.40	%		40,706		942		2.31	%		37,107		1,006		2.71	%
Gross Loans (2)		266,016		13,352		5.02	%		240,964		12,617		5.24	%		240,557		12,973		5.39	%
Interest-bearing Deposits		9,569		23		0.24	%		22,925		57		0.25	%		13,778		32		0.23	%
Federal Funds Sold		319		—		—			599		1		0.17	%		1,457		3		0.21	%
Total Interest Earning Assets	$	315,413	$	14,325		4.54	%	$	305,194	$	13,617		4.46	%	$	292,899	$	14,014		4.78	%
INTEREST-BEARING LIABILITIES:
Savings Deposits	$	43,416	$	68		0.16	%	$	45,625	$	88		0.19	%	$	47,138	$	170		0.36	%
NOW Deposits		42,258		63		0.15	%		41,394		76		0.18	%		39,020		87		0.22	%
Time Deposits => $100,000		44,879		784		1.75	%		45,729		1,010		2.21	%		51,010		1,170		2.29	%
Time Deposits < $100,000		51,230		790		1.54	%		56,174		1,053		1.87	%		62,516		1,276		2.04	%
Time Deposits - Wholesale		2,154		9		0.44	%		—		—		0.00	%		—		—		0.00	%
Money Market Deposit Accounts		30,187		128		0.42	%		28,147		141		0.50	%		23,820		151		0.63	%
Total Deposits		214,124		1,842		0.86	%		217,069		2,368		1.09	%		223,504		2,854		1.28	%
Federal Funds Purchased		94		1		0.58	%		58		—		0.00	%		55		—		0.00	%
Securities Sold Under Repurchase Agreements		7,538		9		0.12	%		8,482		16		0.19	%		6,100		16		0.26	%
FHLB Advances		22,239		345		1.55	%		15,000		450		3.00	%		15,000		566		3.77	%
Total Interest-Bearing Liabilities	$	243,995	$	2,197		0.90	%	$	240,609	$	2,834		1.18	%	$	244,659	$	3,436		1.40	%
Net interest income and net interest margin			$	12,128		3.85	%			$	10,783		3.53	%			$	10,578		3.61	%
Non-interest-bearing deposits	$	59,551		—		0.00	%	$	54,012		—		0.00	%	$	46,530		—		0.00	%
Total cost of funds						0.72	%						0.96	%						1.18	%
Net interest spread						3.82	%						3.50	%						3.60	%

Notes:

(1) Income and yield is tax-equivalent assuming a federal tax rate of 34%.

(2) Includes Visa credit card program, nonaccrual loans, and fees.

Net interest income for 2014, on a tax-equivalent basis, was $12.1 million, an increase of $1.3 million from 2013 due mainly to increased loan balances. Interest expense for 2014 was $2.2 million, a decrease of $637 thousand compared to 2013, due mainly to reductions in both balances and costs of time deposits, but also from the reduced cost of FHLB advances. The annualized net interest margin was 3.85% and 3.53% for 2014 and 2013, respectively. As long as this low interest rate environment continues, loan yields are expected to continue to decline as higher yielding loans pay down and mature and new loans are made at lower rates.

The net interest spread, which is the difference between the annualized yield on earning assets and the total cost of funds, increased to 3.82% for 2014, compared to 3.50% for 2013.

The increase in average total earning assets is due mainly to the $25.1 million increase average loans. Investment yields increased 9 basis points in 2014 compared to 2013 while loan yields have declined 22 basis points. Loan growth offset the decline in loan yields. With the current low interest rate environment, any growth in net interest income would be generated from loan growth.

The increase in average interest bearing liabilities was due mainly to the increase in FHLB advances. Lower rates have reduced interest expense, lowering the cost of interest- bearing deposits to 0.86% in 2014 from 1.09% in 2013. The cost of FHLB advances was reduced to 1.55% in 2014 from 3.00% in 2013. Average non-interest-bearing deposits grew $5.5 million during 2014. As a result of all these improvements, total cost of funds declined to 0.72% in 2014 from 0.96% in 2013.

16

Volume and Rate Analysis of Changes in Net Interest Income
Years Ended December 31,	2014 vs. 2013									2013 vs. 2012
(Dollars in Thousands)	Increase (Decrease)									Increase (Decrease)
	Due to Changes in:									Due to Changes in:
	Volume (1)			Rate (1)			Total			Volume (1)			Rate (1)			Total
Earning Assets:
Taxable investments	$	(68	)	$	2		$	(66	)	$	(77	)	$	(120	)	$	(197	)
Tax-exempt investments (2)		59			15			74			206			(73	)		133
Gross Loans		1,403			(668	)		735			239			(595	)		(356	)
Interest-bearing deposits		(33	)		(1	)		(34	)		24			1			25
Federal funds sold		(1	)		—			(1	)		(1	)		(1	)		(2	)
Total interest earning assets	$	1,360		$	(652	)	$	708		$	391		$	(788	)	$	(397	)
Interest-Bearing Liabilities:
NOW checking	$	1		$	(14	)	$	(13	)	$	5		$	(16	)	$	(11	)
Savings deposits		(5	)		(15	)		(20	)		(6	)		(76	)		(82	)
Money market accounts		10			(23	)		(13	)		24			(34	)		(10	)
Time deposits < $100,000		(87	)		(176	)		(263	)		(123	)		(100	)		(223	)
Time deposits => $100,000		(21	)		(205	)		(226	)		(107	)		(53	)		(160	)
Time deposits - Wholesale		9			—			9			—			—			—
Federal funds purchased		1			—			1			—			—			—
Securities sold under repurchase agreements		(1	)		(6	)		(7	)		5			(5	)		—
FHLB advances		165			(270	)		(105	)		—			(116	)		(116	)
Total interest-bearing liabilities	$	72		$	(709	)	$	(637	)	$	(202	)	$	(400	)	$	(602	)
Change in net interest income	$	1,288		$	57		$	1,345		$	593		$	(388	)	$	205

Notes:

(1) Changes caused by the combination of rate and volume are allocated based on the percentage caused by each.

(2) Income and yields are reported on a tax-equivalent basis, assuming a federal tax rate of 34%.

As indicated in the volume and rate analysis, the growth in loans in 2014 was the primary driver of improved net interest income. The interest rate change component was managed to a neutral overall effect with lower cost of funds which offset lower loan yields.

Interest Sensitivity

The Company employs a variety of measurement techniques to identify and manage its exposure to changing interest rates and subsequent changes in liquidity. The Company utilizes simulation models that estimate the effect of interest rate changes on net interest income and the economic value of equity. Beginning in 2013, the Company engaged an asset-liability management consultant to assist with the management of interest rate risk, liquidity risk and balance sheet strategy. The Bank’s Asset Liability Committee (the “ALCO”) is responsible for monitoring interest rate risk and is composed of appointed members from management and the Board of Directors. Through the use of simulations, the ALCO reviews the overall magnitude of interest rate risk and then formulates policy with which to manage asset growth, funding sources, pricing, and off-balance sheet commitments. These decisions are based on management’s plans for growth, expectations regarding future interest rate movements, economic conditions both locally and nationally, and other business and risk factors.

The simulation models indicate that the Bank’s balance sheet is asset sensitive, which management believes is favorable in the current low interest rate environment. This means that as rates rise, interest-earning assets should reprice faster than interest-bearing liabilities, allowing interest income to rise faster than interest expense. Thus, net interest income and the net interest margin should grow.

Non-Interest Income

Non-interest income for 2014 decreased by $1.0 million, or 22.1% compared to 2013. The difference in non-interest income was primarily driven by the following changes:

Decreases:

• Net gains on sales of securities available-for-sale was $284 thousand in 2013 compared to a net loss of $25 thousand in 2014.

• Secondary market lending fees declined as a result of the initial recognition of MSRs in the cumulative amount of $535 thousand for the year ended December 31, 2013.

• Reduction in VISA-related fees of $575 thousand due to the assignment of merchant agreements to a third party, which was offset by a similar reduction in expense.

• A decline of $102 thousand related to service charges and fees on deposit accounts.

17

Increases:

• A loss of $288 thousand was recognized in 2013 related to an impaired security.

• Other real estate losses declined $236 thousand.

• Income from the fiduciary activities of the Trust Company increased by $133 thousand.

Non-Interest Expense

For 2014, non-interest expenses totaled $12.6 million, a decrease of $325 thousand, or 2.5%, compared to $12.9 million for 2013. The decrease in non-interest expense was primarily the result of the following changes:

Decreases:

• VISA-related expenses decreased $534 thousand due to the assignment of merchant agreements to a third party mentioned above.

• FDIC assessments declined $150 thousand due to the Bank achieving a higher regulatory rating.

Increases:

• $44 thousand in salary and benefits as a result of salaries for the new operations in Richmond, Virginia.

• $32 thousand in accounting and auditing expenses primarily due to outsourcing of internal audits.

• $107 thousand in consulting expense primarily due to accounting services.

• $68 thousand in lease expense related to the new branches in Richmond, Virginia.

Income Taxes

Income tax expense was $557 thousand in 2014 compared to $399 thousand in 2013. This is directly attributable to the Company’s improved earnings. Income tax expense corresponds to an effective rate of 23.3% and 24.6% for the years ended December 31, 2014 and 2013, respectively. This improvement relates to the increase in non-taxable income. Refer to Note 15 to the Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation between the amounts of income tax expense computed using the federal statutory income tax rate and actual income tax expense. Also included in Note 15 to the Consolidated Financial Statements in Item 8 of this Form 10-K is information regarding deferred taxes for 2014 and 2013.

FINANCIAL CONDITION

Loans

Per the following table, which does not include deferred loan costs and fees, the loan portfolio grew during 2014 with balances increasing by 19.1% to $298.1 million as of December 31, 2014, compared to December 31, 2013 balances of $250.3 million. Mortgage loans on real estate represent the largest category, comprising 86.8% of the loan portfolio at December 31, 2014. Of these balances, 1-4 family residential loans, which comprise the majority of real estate loan balances at $160.7 million, increased by $22.2 million, or 16.0%. Other loans secured by real estate, the majority of which are commercial in nature, increased by $5.1 million, or 10.4%, and represent 18.1% of the loan portfolio at year-end 2014 as compared to 19.5% at year-end 2013. Construction and land loans increased by $11.2 million, or 35.2%. Commercial and industrial loan balances increased by $10.1 million, or 42.0%, and represented 11.4% of total loans at year-end 2014 as compared to 9.6% at year-end 2013. Consumer and other loans decreased by $637 thousand, or 10.6% in 2014, and represented 1.8% of total loans at year-end 2014 as compared to 2.4% at year-end 2013.

Types of Loans
As of December 31,	2014					2013					2012					2011					2010
(Dollars in thousands)	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Mortgage loans on real estate:
Construction and land loans	$	43,048		14.4	%	$	31,839		12.7	%	$	29,024		12.2	%	$	27,642		11.7	%	$	30,620		12.4	%
Secured by farmland		1,128		0.4	%		1,262		0.5	%		1,443		0.6	%		1,526		0.6	%		1,604		0.7	%
Secured by 1-4 family residential		160,667		53.9	%		138,502		55.3	%		133,437		56.0	%		135,379		57.4	%		145,408		59.1	%
Other real estate loans		53,860		18.1	%		48,803		19.5	%		47,055		19.8	%		44,045		18.7	%		42,218		17.1	%
Commercial and industrial loans (not secured by real estate)		34,002		11.4	%		23,939		9.6	%		20,525		8.6	%		18,983		8.0	%		17,592		7.1	%
Consumer and other		5,349		1.8	%		5,986		2.4	%		6,653		2.8	%		8,329		3.6	%		8,866		3.6	%
Total	$	298,054		100.0	%	$	250,331		100.0	%	$	238,137		100.0	%	$	235,904		100.0	%	$	246,308		100.0	%

Notes:

Deferred loan costs and fees not included.

Allowance for loan losses not included.

18

Loan Maturity Schedule of Selected Loans As of December 31, 2014
(Dollars in thousands)	Commercial and Industrial		Construction, Land and Land Development
Within one year	$	10,853	$	17,706
Variable Rate
One to Five Years		—		—
After Five Years		—		—
Total Variable Rate		—		—
Fixed Rate
One to Five Years		11,237		18,686
After Five Years		11,912		6,656
Total Fixed Rate		23,149		25,342
Total Maturities	$	34,002	$	43,048

Asset Quality – Provision and Allowance for Loan Losses

The provision for loan losses is a charge against earnings that is necessary to maintain the allowance for loan losses at a level consistent with management’s evaluation of the loan portfolio’s inherent risk. For a detailed description of the ALL calculation, refer to Note 2 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

As shown in the following table, provision for loan losses was $611 thousand in 2014 compared to $776 thousand in 2013. After net charge-offs of $331 thousand, ALL is $3.2 million as of December 31, 2014 compared to $2.9 million as of December 31, 2013. This level of net charge-offs represents 0.12% of average loans compared to 0.39% in 2013. As of December 31, 2014, management considered the allowance for loan losses to be sufficient to cover estimated potential loss exposure inherent in the loan portfolio.

Allowance for Loan Losses
	Years Ended December 31,
	2014			2013			2012			2011			2010
(Dollars in thousands)
Balance, beginning of period	$	2,925		$	3,094		$	3,189		$	3,231		$	3,769
Loans charged off:
Mortgage Loans on Real Estate		(313	)		(879	)		(1,798	)		(349	)		(1,281	)
Commercial and industrial		—			(17	)		(388	)		(11	)		(22	)
Consumer and other (including Visa program)		(79	)		(132	)		(189	)		(217	)		(188	)
Total loans charged off		(392	)		(1,028	)		(2,375	)		(577	)		(1,491	)
Recoveries of loans previously charged off:
Mortgage Loans on Real Estate		36			68			289			1			105
Commercial and industrial		—			1			18			—			1
Consumer and other (including Visa program)		25			14			78			39			127
Total recoveries		61			83			385			40			233
Net charge offs		(331	)		(945	)		(1,990	)		(537	)		(1,258	)
Provision for loan losses		611			776			1,895			495			720
Balance, end of period	$	3,205		$	2,925		$	3,094		$	3,189		$	3,231
Average loans outstanding during the period	$	266,016		$	240,964		$	240,557		$	240,832		$	249,480
Ratio of net charge-offs during the period to average loans outstanding during the period		0.12	%		0.39	%		0.83	%		0.22	%		0.50	%

19

As of December 31, 2014, the ratio of the allowance for loan losses to total loans was 1.07% as compared to 1.17% as of December 31, 2013.

	Allocation of the Allowance for Loan Losses
Years Ended December 31,	2014				2013				2012				2011				2010
(Dollars in Thousands)
Mortgage Loans on Real Estate	$	2,778	0.93	%	$	2,466	0.98	%	$	2,572	1.08	%	$	2,714	1.15	%	$	2,241	0.91	%
Commercial and industrial		323	0.11	%		256	0.10	%		262	0.11	%		282	0.12	%		70	0.03	%
Consumer and other		104	0.03	%		203	0.09	%		252	0.11	%		185	0.08	%		211	0.08	%
Unallocated		—	0.00	%		—	0.00	%		8	0.00	%		8	0.00	%		709	0.29	%
Total	$	3,205	1.07	%	$	2,925	1.17	%	$	3,094	1.30	%	$	3,189	1.35	%	$	3,231	1.31	%

Non-Performing Assets

As of December 31, 2014, non-performing assets as a percentage of total loans and OREO was 1.6%, compared to 2.6% at year-end 2013. The coverage ratio of allowance to total non-performing loans increased to 162.9% at year-end 2014 from 105.5% at year-end 2013. OREO, including solely foreclosed properties, at year-end 2014 was $2.8 million compared to $3.9 million at year-end 2013. The year-end 2014 figure represents 10 residences, 13 lots, 2 former convenience stores, a former restaurant and a commercial business property. The Company sold six OREO properties with a total value of $1.1 million in 2014 for total losses of $92 thousand, and three properties with a total value of $197 thousand from two borrowers were added through foreclosure. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less estimated costs to sell. As a result, in addition to losses on sales, the Company wrote-down OREO property values by $235 thousand in 2014. Included in other assets is one residential property, with a value of $771 thousand. This property was not obtained as a result of a foreclosure and is being marketed for sale.

During 2014, non-accruing loan balances decreased by $806 thousand. Of the $2.0 million in non-accruing balances, $359 thousand are residential mortgages. The reduction in non-accruing loan balances from 2013 to 2014 was comprised of $223 thousand in charge-offs, $197 thousand of foreclosures, $663 thousand of upgrades, $193 thousand in paydowns and $470 thousand in new non-accruing loans. Components of non-performing assets and related ratios are shown in the following table.

Non-Performing Assets
	As of December 31,
(Dollars in Thousands)	2014			2013			2012			2011			2010
Loans past due 90 days or more and still accruing	$	14		$	18		$	126		$	60		$	203
Non-accruing loans		1,954			2,754			5,730			5,417			5,574
Total non-performing loans		1,968			2,772			5,856			5,477			5,777
Other real estate owned		2,791			3,897			3,151			2,280			4,086
Total non-performing assets	$	4,759		$	6,669		$	9,007		$	7,757		$	9,863
Allowance for loan losses	$	3,205		$	2,925		$	3,094		$	3,189		$	3,231
Allowance to non-performing loans		162.9	%		105.5	%		52.8	%		58.2	%		55.9	%
Non-performing assets to total assets		1.2	%		2.0	%		2.7	%		2.5	%		3.0	%

There were 14 TDRs with an aggregate balance of $2.5 million at December 31, 2014, 14 TDRs with an aggregate balance of $2.5 million at December 31, 2013 and eight TDRs with an aggregate balance of $3.3 million at December 31, 2012.

For more detailed information on non-accrual, past due and impaired loans and policies, refer to Note 2, Note 5 and Note 6 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

Securities

As of December 31, 2014, investment securities totaled $42.6 million, an increase of 10.6% as compared to 2013 year-end balances of $38.5 million.

20

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

(Dollars in thousands) Available-for-sale securities December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	16,969	$	33	$	(37	)	$	16,965
State and municipal obligations		23,335		226		(160	)		23,401
Certificates of deposits		2,232		8		(2	)		2,238
	$	42,536	$	267	$	(199	)	$	42,604

Available-for-sale securities December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,383	$	11	$	(86	)	$	9,308
State and municipal obligations		27,690		109		(1,242	)		26,557
Certificates of deposits		1,736		9		—			1,745
Auction rate security		912		—		—			912
	$	39,721	$	129	$	(1,328	)	$	38,522

Available-for-sale securities December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,412	$	78	$	(26	)	$	9,464
State and municipal obligations		23,481		413		(44	)		23,850
Certificates of deposits		1,985		3		(1	)		1,987
Auction rate security		1,400		—		—			1,400
	$	36,278	$	494	$	(71	)	$	36,701

The Company currently classifies the entire investment portfolio as available-for-sale in order that it may be considered a source of liquidity, if necessary. Securities available-for-sale are carried at fair market value, with after-tax unrealized gains or losses disclosed as a component of comprehensive income. The after-tax unrealized gains or losses are recorded as a portion of other comprehensive income in the equity of the Company, but have no impact on earnings until such time as the gain or loss is realized, typically at the time of sale. As of December 31, 2014, the Company had accumulated other comprehensive gains (losses) net of deferred tax related to securities available-for-sale of $45 thousand as compared to $(791) thousand at year-end 2013.

The investment portfolio shows a net unrealized gain of $68 thousand on December 31, 2014, compared to a net unrealized loss of $(1.2) million on December 31, 2013. The lower interest rate environment in 2014 compared to 2013 resulted in higher fair values, since bond prices are inversely proportional to bond rates.

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in net income if (i) there is evidence of credit related impairment; (ii) we intend to sell the security or (iii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. As a result, temporary impairment can occur with rising interest rates, since the market value of a fixed income investment will fall as interest rates rise. Conversely, market values will increase as interest rates fall.

As of December 31, 2013, the Company held one South Carolina Student Loan Corporation auction rate security with a face amount of $1.2 million. During the second quarter of 2013, the South Carolina Student Loan Corporation made a tender and exchange offer with regards to these auction rate securities with the provision that 50% of the security holders were required to accept the tender offer in order for it to be consummated. The tender offer was not accepted by the required 50% of security holders. As a result of the tender and exchange offer, the Company determined that the value of this auction rate security was other than temporarily impaired. The market value of the security was estimated based on Level 3 inputs (refer to Note 4 to the Consolidated Financial Statements in Item 8 of this Form 10-K). The Company recognized an other-than-temporary impairment charge of $288 thousand in income to reduce the carrying value to $912 thousand. In the first quarter of 2014, the Company sold the auction rate security for $912 thousand.

The Company seeks to diversify its assets to minimize risk by maintaining a large portion of its investment portfolio in securities issued by states and political subdivisions. Many of these types of securities also provide tax benefits. Mortgage-backed securities and collateralized mortgage obligations held in the investment portfolio are solely issued by agencies of the U.S. government. The Company owns no derivatives, and participates in no hedging activities.

For more information on the Company’s investment portfolio, please refer to Note 4 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

21

Investment Maturities and Average Yields As of December 31, 2014
(Dollars in Thousands)	One Year or Less or No Maturity			One to Five Years			Five to Ten Years			Over Ten Years
U.S. Government and Agencies:
Book Value	$	1,016		$	11,318		$	4,118		$	517
Market Value		1,015			11,309			4,124			517
Weighted average yield		0.80	%		1.37	%		2.03	%		2.62	%
States and Municipal Obligations:
Book Value	$	2,318		$	8,854		$	9,753		$	2,410
Market Value		2,327			8,912			9,765			2,397
Weighted average yield		2.20	%		2.01	%		3.40	%		3.90	%
Certificates of Deposit:
Book Value	$	744		$	1,488		$	—		$	—
Market Value		746			1,492			—			—
Weighted average yield		0.87	%		1.86	%		0.00	%		0.00	%
Restricted Securities:
Book Value	$	—		$	—		$	—		$	2,430
Market Value		—			—			—			2,430
Weighted average yield		0.00	%		0.00	%		0.00	%		1.07	%
Total Securities:
Book Value	$	4,078		$	21,660		$	13,871		$	5,357
Market Value		4,088			21,713			13,889			5,344
Weighted average yield		1.61	%		1.67	%		2.99	%		2.49	%

Notes:

Yields on tax-exempt securities have been computed on a tax-equivalent basis.

Deposits

During 2014, average total deposits increased 1.0% to $273.7 million as compared to average total 2013 deposits of $271.1 million. Average non-interest bearing demand deposits increased 10.3%, average NOW accounts increased 2.1%, average savings accounts decreased 4.8%, average money market deposits increased 7.2% and average time deposits decreased 3.6%. The decline in interest-bearing deposits and increase in non-interest-bearing deposits results in improved deposit mix to less costly funds.

Average Deposits and Rates
Years Ended December 31,	2014					2013					2012
(Dollars in thousands)	Average Balance		Yield/ Rate			Average Balance		Yield/ Rate			Average Balance		Yield/ Rate
Non-interest bearing Demand Deposits	$	59,551		0.00	%	$	54,012		0.00	%	$	46,530		0.00	%
Interest bearing Deposits:
NOW Accounts		42,258		0.15	%		41,394		0.18	%		39,020		0.22	%
Regular Savings		43,416		0.16	%		45,625		0.19	%		47,138		0.36	%
Money Market Deposit Accounts		30,187		0.42	%		28,147		0.50	%		23,820		0.63	%
Time Deposits - Retail
CD’s $100,000 or more		44,879		1.75	%		45,729		2.21	%		51,010		2.29	%
CD’s less than $100,000		51,230		1.54	%		56,174		1.87	%		62,516		2.04	%
Time Deposits - Wholesale		2,154		0.44	%		—		0.00	%		—		0.00	%
Total Interest bearing Deposits		214,124		0.86	%		217,069		1.09	%		223,504		1.28	%
Total Average Deposits	$	273,675		0.67	%	$	271,081		0.87	%	$	270,034		1.04	%

Maturity Schedule of Time Deposits of $100,000 and over
As of December 31,	2014		2013		2012
(In thousands)
3 months or less	$	6,429	$	4,277	$	2,192
3-6 months		2,481		2,457		1,246
6-12 months		17,005		8,869		4,627
Over 12 months		30,775		28,417		39,888
Totals	$	56,690	$	44,020	$	47,953

22

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 equity, is comprised mainly of outstanding stock and retained earnings. Capital can be increased with a variety of stock offerings or through earnings. Management believes the capital level at December 31, 2014, is sufficient to support growth and acquisition opportunities.

The parent company obtains its operating funds primarily through management fees paid by the Bank and Trust Company. The parent company could also receive dividends from its subsidiaries.

During 2014 and 2013, the Bank was required to maintain minimum amounts of capital per Federal Reserve capital guidelines. The minimum Total Capital to Risk Weighted Assets ratio was 8.0%, the minimum Tier 1 Capital to Risk Weighted Assets ratio was 4.0% and the minimum Tier 1 Capital to Adjusted Average Assets ratio (Leverage ratio) was 4.0%. As of December 31, 2014, the Bank maintained these ratios at 13.30%, 12.13%, and 9.07%, respectively. At year-end 2013, these ratios were 14.01%, 12.78%, and 9.20%, respectively. For more detailed information, refer to Note 16 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

Total capital, before accumulated other comprehensive income, grew by 4.8% to $40.2 million as of December 31, 2014 as compared to $38.3 million as of December 31, 2013. Accumulated other comprehensive loss was $921 thousand as of December 31, 2014 compared to accumulated other comprehensive loss of $1.2 million as of December 31, 2013, which is due primarily to an increase in unrealized gains on securities offset by a reduction in actuarial losses on the Company’s pension and post-retirement benefit plan assets.

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 is a factor in the management of liquidity. Management believes that the Company maintains overall liquidity that is more than sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

At December 31, 2014, liquid assets totaled $45.8 million or 11.7% of total assets, down from $42.8 million and 12.9% at December 31, 2013. Additional sources of liquidity available to the Company include its capacity to borrow additional funds when necessary. The Bank maintains federal funds lines with regional banks totaling approximately $20.3 million. In addition, the Bank has total borrowing capacity with the FHLB of $77.6 million, with $38.6 million immediately available as of December 31, 2014.

The table below presents selected information on short-term borrowings:

(Dollars in Thousands)
Years Ended December 31,	2014			2013			2012
Balance outstanding at year-end	$	6,012		$	9,118		$	6,460
Maximum balance at any month end during the year		9,164			11,355			9,269
Average balance for the year		7,538			8,482			6,100
Weighted average rate for the year		0.12	%		0.19	%		0.26	%
Weighted average rate on borrowings at year end		0.12	%		0.11	%		0.23	%
Estimated fair value at year end	$	6,012		$	9,118		$	6,460

The impact of contractual obligations includes six FHLB advances and time deposits. With regards to the FHLB advances, one is for $10.0 million, which was restructured during the second quarter of 2013 to extend the maturity and reduce the interest rate from 4.23% to a three month LIBOR-based hybrid floating rate advance, and matures in April 2020. Another adjustable rate advance is for $5.0 million and matures in May 2015. There are two $5.0 million fixed rate advances with a rate of 0.26% which mature in June 2015. The fifth is a fixed rate advance for $5.0 million at 0.30% which matures in October 2015, and the sixth is a fixed rate advance for $5.0 million at 0.47% which matures in April 2016. For details on these advances, please refer to Note 14 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

Time deposits mature as follows: 2015 - $56.7 million; 2016 - $45.3 million; 2017 - $8.8 million; 2018 - $4.4 million; and 2019 and thereafter - $6.6 million. Refer to Note 9 of the Consolidated Financial Statements in Item 8 of this Form 10-K.

23

The following table presents the Company’s contractual obligations and scheduled payment amounts, excluding interest, due at various intervals over the next five years and beyond as of December 31, 2014:

(Dollars in thousands)	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		Over 5 years
FHLB advances	$	35,000	$	30,000	$	5,000	$	—	$	—
Securities sold under repurchase agreements (1)		6,012		6,012		—		—		—
Operating leases		486		149		241		96		—
Total	$	41,498	$	36,161	$	5,241	$	96	$	—

Note:

(1) Refer to Note 2 to the Consolidated Financial Statements

As of December 31, 2014, the Company was not aware of any other known trends, events or uncertainties that have or are reasonably likely to have a material impact on our liquidity. As of December 31, 2014, the Company has no material commitments or long-term debt for capital expenditures.

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 frequently 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.

Off Balance Sheet Arrangements
	December 31, 2014		December 31, 2013		December 31, 2012
(In thousands)
Total Loan Commitments Outstanding	$	36,443	$	37,279	$	30,459
Standby-by Letters of Credit		355		329		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.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements concerning the Company’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, changes in: interest rates, general economic conditions, the legislative/regulatory climate, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve, 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 areas, acquisitions and dispositions, 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.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

24

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following information is included on the pages indicated:

Bay Banks of Virginia, Inc.

Report of Independent Registered Public Accounting Firm	26
Consolidated Balance Sheets Consolidated Statements of Income	27 28
Consolidated Statements of Comprehensive Income (Loss)	29
Consolidated Statements of Changes in Shareholders’ Equity	30
Consolidated Statements of Cash Flows	31
Notes to Consolidated Financial Statements	32

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Bay Banks of Virginia, Inc.

We have audited the accompanying consolidated balance sheets of Bay Banks of Virginia, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bay Banks of Virginia, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

March 25, 2015

26

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2014			December 31, 2013
(Dollars in thousands)
ASSETS
Cash and due from banks	$	6,181		$	6,789
Interest-bearing deposits		14,784			8,900
Federal funds sold		119			120
Securities available-for-sale, at fair value		42,604			38,522
Restricted securities		2,430			1,638
Loans receivable, net of allowance for loan losses of $3,205 and $2,925		295,242			247,912
Loans held for sale		—			196
Premises and equipment, net		11,882			10,620
Accrued interest receivable		1,197			1,124
Other real estate owned, net		2,791			3,897
Bank owned life insurance		7,348			5,129
Goodwill		2,808			2,808
Mortgage servicing rights		596			579
Other assets		2,504			2,901
Total assets	$	390,486		$	331,135
LIABILITIES
Noninterest-bearing deposits	$	63,308		$	57,805
Savings and interest-bearing demand deposits		122,502			114,056
Time deposits		121,775			96,486
Total deposits		307,585			268,347
Securities sold under repurchase agreements		6,012			9,118
Federal Home Loan Bank advances		35,000			15,000
Other liabilities		2,651			1,534
Total liabilities		351,248			293,999
SHAREHOLDERS’ EQUITY
Common stock ($5 par value; authorized - 10,000,000 shares; outstanding - 4,817,856 and 4,817,856 shares, respectively)		24,089			24,089
Additional paid-in capital		2,777			2,757
Retained earnings		13,293			11,463
Accumulated other comprehensive loss, net		(921	)		(1,173	)
Total shareholders’ equity		39,238			37,136
Total liabilities and shareholders’ equity	$	390,486		$	331,135

27

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF INCOME

	For the year ended December 31,
(Dollars in thousands, except share and per share amounts)	2014			2013
INTEREST INCOME
Loans, including fees	$	13,352		$	12,617
Securities:
Taxable		382			448
Tax-exempt		375			326
Federal funds sold		—			1
Interest-bearing deposit accounts		23			56
Total interest income		14,132			13,448
INTEREST EXPENSE
Deposits		1,842			2,368
Federal funds purchased		1			—
Securities sold under repurchase agreements		9			16
FHLB advances		345			450
Total interest expense		2,197			2,834
Net interest income		11,935			10,614
Provision for loan losses		611			776
Net interest income after provision for loan losses		11,324			9,838
NON-INTEREST INCOME
Income from fiduciary activities		831			698
Service charges and fees on deposit accounts		974			1,076
VISA-related fees		255			830
Other service charges and fees		1,100			1,130
Secondary market lending fees		451			1,164
Bank owned life insurance income		219			129
Net (losses) gains on sale of securities available for sale		(25	)		284
Loss on securities with other-than-temporary impairment		—			(288	)
Other real estate losses		(327	)		(563	)
Net gains on the sale of fixed assets		137			165
Other income		66			101
Total non-interest income		3,681			4,726
NON-INTEREST EXPENSES
Salaries and employee benefits		6,458			6,414
Occupancy expense		1,492			1,331
Software maintenance		524			505
Bank franchise tax		189			171
VISA expense		170			708
Telephone expense		210			196
FDIC assessments		247			397
Foreclosure property expense		131			124
Consulting expense		329			222
Other expense		2,868			2,875
Total non-interest expenses		12,618			12,943
Net income before income taxes		2,387			1,621
Income tax expense		557			399
Net income	$	1,830		$	1,222
Basic Earnings Per Share
Average basic shares outstanding		4,818,377			4,816,859
Earnings per share, basic	$	0.38		$	0.25
Diluted Earnings Per Share
Average diluted shares outstanding		4,829,581			4,819,343
Earnings per share, diluted	$	0.38		$	0.25

See Notes to Consolidated Financial Statements.

28

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	For the twelve months ended December 31,
(Dollars in thousands)	2014			2013
Net income	$	1,830		$	1,222
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		1,242			(1,618	)
Deferred tax (expense) benefit		(422	)		550
Reclassification of net securities losses (gains) and impairments recognized in net income		25			(4	)
Deferred tax (expense) benefit		(9	)		1
Unrealized gains (losses) adjustment, net of tax		836			(1,071	)
Defined benefit pension plan:
Net pension (loss) gain		(792	)		20
Deferred tax benefit (expense)		270			(7	)
Reclassification of pension expense		37			204
Deferred tax benefit		(13	)		(69	)
Defined benefit pension plan adjustment, net of tax		(498	)		148
Post retirement benefit plan:
Net postretirement (loss) gain		(130	)		190
Deferred tax benefit (expense)		44			(64	)
Reclassification of postretirement expense		—			7
Deferred tax benefit		—			(2	)
Post retirement benefit plan adjustment, net of tax		(86	)		131
Total other comprehensive income (loss)		252			(792	)
Comprehensive income	$	2,082		$	430

See Notes to Consolidated Financial Statements.

29

BAY BANKS OF VIRGINIA, INC.

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
(Dollars in thousands, except share data or amounts)
Balance January 1, 2013		4,810,856	$	24,054	$	2,670	$	10,241	$	(380	)	$	36,585
Net income		—		—		—		1,222		—			1,222
Other comprehensive loss		—		—		—		—		(793	)		(793	)
Stock compensation expense		7,000		35		87		—		—			122
Balance December 31, 2013		4,817,856		24,089		2,757		11,463		(1,173	)		37,136
Net income		—		—		—		1,830		—			1,830
Other comprehensive income		—		—		—		—		252			252
Stock compensation expense		—		—		20		—		—			20
Balance December 31, 2014		4,817,856	$	24,089	$	2,777	$	13,293	$	(921	)	$	39,238

See Notes to Consolidated Financial Statements.

30

BAY BANKS OF VIRGINIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(Dollars in thousands)	2014			2013
Cash Flows From Operating Activities
Net income	$	1,830		$	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		792			755
Net amortization and accretion of securities		363			391
Provision for loan losses		611			776
Stock compensation expense		20			122
Deferred income tax benefit		58			259
Loss (gain) on securities available-for-sale		25			(284	)
Loss on securities with other-than-temporary impairment		—			288
Increase in OREO valuation allowance		235			300
Loss on sale of other real estate		92			263
Gain on disposal of fixed assets		(137	)		(165	)
Mortgage servicing rights		(17	)		(579	)
Loan originations for sale to FNMA		(10,503	)		(21,431	)
Loan sales to FNMA		10,951			22,025
Gain on loans sold to FNMA		(252	)		(391	)
Increase in cash surrender value of life insurance		(219	)		(129	)
Decrease (increase) in accrued income and other assets		246			(67	)
(Decrease) increase in other liabilities		(92	)		377
Net cash provided by operating activities		4,003			3,732
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities		4,529			3,951
Proceeds from sales and calls of available-for-sale securities		3,810			9,433
Purchase of bank owned life insurance		(2,000	)		(5,000	)
Purchases of available-for-sale securities		(11,542	)		(17,224	)
Purchases of restricted securities		(792	)		(54	)
Decrease (increase) in federal funds sold		1			(72	)
Loan (originations) and principal collections, net		(47,533	)		(15,417	)
Purchase of other assets		—			(771	)
Proceeds from sale of other real estate		371			1,189
Improvements to other real estate		—			(22	)
Purchases of premises and equipment		(2,014	)		(538	)
Proceeds from the sale of premises and equipment		311			727
Net cash used in investing activities		(54,859	)		(23,798	)
Cash Flows From Financing Activities
Increase in demand, savings, and other interest-bearing deposits		13,949			3,438
Net increase (decrease) in time deposits		25,289			(10,266	)
Net (decrease) increase in securities sold under repurchase agreements		(3,106	)		2,659
Increase in Federal Home Loan Bank advances		20,000			—
Net cash provided by (used in) financing activities		56,132			(4,169	)
Net increase (decrease) in cash and due from banks		5,276			(24,235	)
Cash and due from banks at beginning of period		15,689			39,924
Cash and due from banks at end of period	$	20,965		$	15,689
Supplemental Schedule of Cash Flow Information
Cash paid for:
Interest	$	2,215		$	2,824
Income taxes		351			338
Non-cash investing and financing:
Unrealized gain (loss) on investment securities		1,268			(1,623	)
Change in fair value of pension and post-retirement obligation		(885	)		422
Loans transferred to other real estate owned		197			2,476
Loans originated to facilitate sale of OREO		605			328
Changes in deferred taxes resulting from OCI transactions		(130	)		408

See Notes to Consolidated Financial Statements.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Presentation

Organization. Bay Banks of Virginia, Inc. (the “Company”) is a bank holding company that conducts substantially all of its operations through its subsidiaries.

The Bank of Lancaster (the “Bank”) is a state-chartered bank and a member of the Federal Reserve System. It serves businesses, professionals and consumers on the Northern Neck and Middle Peninsulas of Virginia and the Greater Richmond, Virginia market. The Bank has branch offices in the Virginia counties of Chesterfield, Henrico, Lancaster, Northumberland, Richmond, Westmoreland, and in the City of Richmond, Virginia plus a residential mortgage loan production office in Middlesex County, Virginia. Each branch office offers a full range of deposit and loan products to its retail and commercial customers. A substantial amount of the Bank’s deposits are interest bearing. The majority of the Bank’s loan portfolio is secured by real estate.

Bay Trust Company (the “Trust Company”) provides management services for personal and corporate trusts, including estate planning, estate settlement, and trust administration from its main office in Kilmarnock, Virginia. Products include revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment management accounts and managed, as well as self-directed, rollover Individual Retirement Accounts.

Basis of Presentation. The consolidated financial statements of the Company include the accounts of Bay Banks of Virginia, Inc. and its subsidiaries, Bank of Lancaster and Bay Trust Company. All significant intercompany balances and transactions have been eliminated in consolidation.

Note 2. Significant Accounting Policies

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. The amounts recorded in the consolidated financial statements may be affected by those estimates and assumptions. Actual results may vary from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the measurement of fair value of foreclosed real estate, deferred taxes, impairment testing of goodwill, projected pension and post-retirement obligations and fair value measurements.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, all of which mature within ninety days.

Interest-bearing deposits in banks

Interest-bearing deposits in banks are carried at cost and include deposits with the Federal Reserve Bank of Richmond, which mature within one year.

Securities

Investments in debt and equity securities with readily determinable fair values are classified as either held to maturity, available-for-sale, or trading, based on management’s intent. Currently, all of the Company’s investment securities are classified as available-for-sale. Securities available-for-sale are carried at estimated fair value with the corresponding unrealized gains and losses excluded from earnings and reported in other comprehensive income. A gain or loss is recognized in earnings on the settlement date based on the amortized cost of the specific security sold. Purchase premiums and discounts are recognized in interest income via amortization or accretion, respectively, using the interest method over the terms of the securities.

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if (i) there is evidence of credit related impairment; (ii) the Company intends to sell the security or (iii) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that it will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is a credit loss, the loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on the Company’s ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. The Company regularly reviews each investment security for other-than-temporary impairment based

32

on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the Company’s best estimate of the present value of cash flows expected to be collected from debt securities, the Company’s intention with regard to holding the security to maturity and the likelihood that it would be required to sell the security before recovery.

Securities sold under repurchase agreements

Securities sold under repurchase agreements, which are classified as secured borrowings, generally mature within one year from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company is required to provide collateral based on the fair value of the underlying securities.

Loans

The Company grants mortgage loans on real estate; commercial and industrial loans; and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Company’s market areas.

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

The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans.

All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection.

Troubled debt restructuring (“TDR”)

In some situations, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to a borrower that it would not otherwise consider. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, the related loan is classified as a troubled debt restructuring. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. Management measures all TDRs for impairment as noted below for impaired loans.

Allowance for loan losses (“ALL”)

The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and homogenous pools of loans analyzed on a segmented basis. Considerations include historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as additional information becomes available.

The ALL calculation methodology’s historical loss factor period is considered the length of a business cycle. The business cycle, upon which the historical loss factor is based, was believed to have begun in the fourth quarter of 2008. During the third quarter of 2013, management determined that the business cycle had ended given noticeable national economic improvement and local real estate market stabilization. The historical loss factor is now based on that business cycle of 19 quarters, compared to the previous averaging period that had been growing each quarter based on the business cycle that began in 2008. The change in methodology during the third quarter of 2013 produced an immaterial change in the ALL calculation.

Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. Loans assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures. 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. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows:

Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate.

33

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

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

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

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

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

The ALL consists of specific, general, and unallocated components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include: (1) non-accruing Special mention, Substandard and Doubtful loans in excess of $250,000; (2) Substandard and Doubtful loans in excess of $500,000; (3) Special Mention loans in excess of $500,000 if any of the loans in the relationship are more than 30 days past due or if the borrower has filed for bankruptcy; and (4) all troubled debt restructurings (“TDRs”). A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in the local and national economic outlook, including unemployment, interest rates, inflation rates and real estate trends; the level and trend of past due and nonaccrual loans; strength of policies and procedures; and oversight of credit risk and quality of underwriting. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Changes in the allowance for loan losses and the related provision expense can materially affect net income.

The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

The general component of the ALL calculation collectively evaluates groups of loans in segments or classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 19 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class.

Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans include credit cards which are unsecured.

34

The summation of the specific, general and unallocated components 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.

Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans.

Mortgage servicing rights (“MSRs”)

MSRs are included on the consolidated balance sheet and recorded at fair value on an ongoing basis. Changes in the fair value of the MSRs are recorded in the results of operations. A fair value analysis of MSRs is performed on a quarterly basis.

For a number of years, the Bank retained the servicing for mortgages it had originated and sold to a third party. Prior to 2013, the Bank had not recorded the MSRs asset at the time of the sales of mortgages to the third party. The cumulative effect of the MSRs asset was recognized in the third quarter of 2013. The overstatement of income in 2013 of approximately $215,000 after tax ($325,000 pre-tax adjusted at a 34% tax rate) or approximately $0.04 per basic and diluted earnings per share represents the fair value of servicing rights retained prior to 2013.

The Company has evaluated this uncorrected misstatement in consideration and accordance with the guidance from Staff Accounting Bulletin 99 and 108, in order to determine whether it is material to the financial statements taken as a whole. The Company’s evaluation process included consideration of the nature, cause, amount and effect of the misstatement from both a quantitative and qualitative perspective.

It is management’s judgment that the adjustment to the 2013 financial statements for MSRs, related to 2012 and prior, was not material to the 2013 balance sheet, results of operations and cash flows taken as a whole.

Premises and equipment, net

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the premises and equipment. Estimated useful lives range from 10-40 years for buildings, and from 3-10 years for furniture, fixtures and equipment. Maintenance and repairs are charged to expense as incurred, and major improvements are capitalized.

Other real estate owned, net

Real estate properties acquired through, or in lieu of, loan foreclosure are marketed for sale and are initially recorded at fair value on the date of foreclosure less estimated selling costs, thereby establishing a new cost basis. After acquisition, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations are included in expenses from foreclosed assets and changes in the valuation allowance are included in other real estate gains (losses).

Goodwill

Goodwill is related to unidentifiable intangible assets arising from the acquisition of five branches during the years 1994 through 2000. Goodwill is tested annually for impairment. If impairment exists, the amount of impairment would result in a charge to expense.

Income taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any, associated with unrecognized tax benefits are classified as additional income taxes in the statements of income. The Company had no liabilities for recognized tax benefits at December 31, 2014 or 2013.

The Company evaluates its deferred tax assets quarterly to determine if those assets will be recovered and if a valuation allowance is needed. At December 31, 2014, the Company determined no valuation allowance related to its deferred tax assets was necessary.

35

Pension benefits

The Company has a non-contributory cash balance benefit pension plan which was frozen in 2012. The plan covers employees who had become vested in the plan by the date it was frozen. The balances for those employees in the plan receive interest credits.

Postretirement benefits

The Company provides certain health care benefits for all retired employees who meet eligibility requirements.

Trust assets and income

Customer assets held by the Trust Company, other than cash on deposit at the Bank, are not included in these financial statements, since such items are not assets of the Bank or the Trust Company. Trust fees are recorded on the accrual basis.

Earnings per share

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options. Refer to Note 19.

Off-balance-sheet financial instruments

In the ordinary course of business, the Company enters into off-balance-sheet financial instruments such as home equity lines of credit, overdraft protection lines of credit, unsecured lines of credit, commitments under credit card arrangements, construction loan commitments and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Significant group concentration of credit risk

Most of the Company’s business activity is with customers located in the counties of Lancaster, Northumberland, Richmond, Westmoreland, Middlesex and Henrico, Virginia. The Company makes residential, commercial and consumer loans and a significant amount of the loan portfolio is comprised of real estate mortgage loans, which are primarily secured by single-family residences. The adequacy of collateral on real estate mortgage loans is highly dependent on changes in real estate values.

Advertising

Advertising costs are expensed as incurred and totaled $237 thousand and $175 thousand for the years ended December 31, 2014 and 2013, respectively.

Comprehensive income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains or losses on securities available-for-sale and changes in the actuarial gain or loss of the pension and postretirement plans. The cumulative position of the items in comprehensive income resides in shareholders’ equity as accumulated other comprehensive income. Refer to Note 24.

Fair value of financial instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

36

Stock-based compensation plans

Authoritative accounting guidance requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. This cost is recognized over the vesting period of the respective awards.

Recent Accounting Pronouncements.

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-4): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendment clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, either upon (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendment also requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. Companies should apply this amendment for fiscal years and interim periods beginning after December 15, 2014. The Company adopted the new guidance during the first quarter of 2014. The adoption did not have a material impact on the Company’s consolidated financial statements. Disclosures are included in Note 6.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). The amendments in this ASU modify the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations. Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the guidance. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, with early adoption prohibited. The Company is evaluating the impact that ASU 2014-09 will have on its consolidated financial statements.

Note 3. Goodwill

The Company has goodwill relating to the purchase of five branches during the years 1994 through 2000. The balance of the goodwill at December 31, 2014 and 2013, as reflected on the consolidated balance sheets, was $2.8 million. Management determined that these purchases qualified as acquisitions of businesses and that the related unidentifiable intangibles were goodwill. Goodwill is tested annually for impairment. The test performed using financial information as of September 30, 2014 found no impairment. No events occurred between the date of our annual test and December 31, 2014 that would indicate the existence of impairment.

Note 4. Investment Securities

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

(Dollars in thousands)
Available-for-sale securities December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	16,969	$	33	$	(37	)	$	16,965
State and municipal obligations		23,335		226		(160	)		23,401
Certificates of deposits		2,232		8		(2	)		2,238
	$	42,536	$	267	$	(199	)	$	42,604
Available-for-sale securities December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,383	$	11	$	(86	)	$	9,308
State and municipal obligations		27,690		109		(1,242	)		26,557
Certificates of deposits		1,736		9		—			1,745
Auction rate security		912		—		—			912
	$	39,721	$	129	$	(1,328	)	$	38,522

37

The cost of securities sold is based on actual net cost. Gross realized gains and gross realized losses, as well as proceeds on sales and calls of securities, were as follows:

	For the years ended December 31,
(Dollars in thousands)	2014			2013
Gross realized gains	$	8		$	285
Gross realized losses		(33	)		(1	)
Net realized (losses) gains	$	(25	)	$	284
Aggregate proceeds	$	3,810		$	9,433

The aggregate amortized cost and market values of the investment securities portfolio by contractual maturity at December 31, 2014 are shown below:

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	4,078	$	4,087
Due after one year through five years		21,660		21,713
Due after five through ten years		13,871		13,889
Due after ten years		2,927		2,915
	$	42,536	$	42,604

Average yields (taxable equivalent) on securities were 2.40% and 2.31% for the years ended December 31, 2014 and 2013, respectively.

Securities with a market value of $8.5 million and $12.9 million at December 31, 2014 and 2013, respectively, were pledged as collateral for public deposits, repurchase agreements and for other purposes as required by law.

Securities in an unrealized loss position at December 31, 2014 and 2013, by duration of the unrealized loss, are shown below. With the exception of the auction rate security as of December 31, 2013, the unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All agency securities, states and municipal securities and certificates of deposit are investment grade or better and their losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. All amortized cost bases are expected to be recovered. Bonds with unrealized loss positions at December 31, 2014 included 29 municipals, 13 federal agencies and three certificates of deposit. Bonds with unrealized loss positions at December 31, 2013 included 50 municipal securities and 15 federal agency securities.

(Dollars in thousands)	Less than 12 months				12 months or more				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,499	$	4	$	3,532	$	33	$	5,031	$	37
States and municipal obligations		412		5		9,006		155		9,418		160
Certificates of deposit		742		2		—		—		742		2
Total temporarily impaired securities	$	2,653	$	11	$	12,538	$	188	$	15,191	$	199
	Less than 12 months				12 months or more				Total
December 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	4,808	$	66	$	1,462	$	20	$	6,270	$	86
States and municipal obligations		14,255		1,120		2,306		122		16,561		1,242
Total temporarily impaired securities	$	19,063	$	1,186	$	3,768	$	142	$	22,831	$	1,328

The following table summarizes cumulative credit-related other-than temporary impairment losses recognized on the one auction rate security held by the Company (no other-than-temporary-impairment was recognized for the years ended December 31, 2014):

(Dollars in thousands)	For the year ended December 31, 2014			For the year ended December 31, 2013
Balance, beginning of the period	$	288		$	—
Impairment losses recognized during the period		—			288
Realized losses from sales		(288	)		—
Balance, end of period	$	—		$	288

The Company held one South Carolina Student Loan Corporation auction rate security with a face amount of $1.2 million. During the second quarter of 2013, the South Carolina Student Loan Corporation made a tender and exchange offer with regards to these auction rate securities with the provision that 50% of the security holders were required to accept the tender offer in order for it to be consummated. The tender offer was not accepted by the required 50% of security holders. As a result of the tender and exchange offer, the Company determined that the value of this auction rate security was other than temporarily impaired. The market value of the security was estimated based on Level 3 inputs (refer to Note 21). The Company recognized an other-than-temporary impairment charge of $288 thousand in income related to this security during 2013. In the first quarter of 2014, the Company sold this auction rate security for $912 thousand.

38

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled $1.9 million and $1.1 million at December 31, 2014 and December 31, 2013, respectively. The Company also had an investment in Federal Reserve Bank of Richmond (“FRB”) stock which totaled $382 thousand at both December 31, 2014 and December 31, 2013. The investments in both FHLB and FRB stock are required investments related to the Bank’s membership with the FHLB and FRB. These securities do not have a readily determinable fair value as their ownership is restricted, and they lack an active market for trading. Additionally, per charter relations to the FHLB and FRB stock, all repurchase transactions of such stock must occur at par. Accordingly, these securities are carried at cost, and are periodically evaluated for impairment. The Company’s determination as to whether its investment in FHLB and FRB stock is impaired is based on management’s assessment of the ultimate recoverability of its par value rather than recognizing temporary declines in its value. The determination of whether the decline affects the ultimate recoverability of the investments is influenced by available information regarding various factors. These factors include, among others, the significance of the decline in net assets of the issuing banks as compared to the capital stock amount reported by these banks, and the length of time a decline has persisted; commitments by such banks to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuing bank; and the overall liquidity position of the issuing bank. Based on its most recent analysis of publicly available information regarding the financial condition of the issuing banks, management concluded that no impairment existed in the carrying value of FHLB and FRB stock.

Note 5. Loans

The following is a summary of the balances of loans:

(Dollars in thousands)	December 31, 2014			December 31, 2013
Mortgage loans on real estate:
Construction, Land and Land Development	$	43,048		$	31,839
Farmland		1,128			1,262
Commercial Mortgages (Non-Owner Occupied)		20,534			14,626
Commercial Mortgages (Owner Occupied)		33,326			34,177
Residential First Mortgages		135,267			114,458
Residential Revolving and Junior Mortgages		25,400			24,045
Commercial and Industrial loans		34,002			23,938
Consumer Loans		5,349			5,986
Total loans		298,054			250,331
Net unamortized deferred loans costs		393			506
Allowance for loan losses		(3,205	)		(2,925	)
Loans, net	$	295,242		$	247,912

39

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

(Dollars in thousands)	30-89 Days		90 Days or More Past Due and				Total Past Due and				Total
December 31, 2014	Past Due		Still Accruing		Nonaccruals		Nonaccruals		Current		Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	64	$	—	$	669	$	733	$	42,315	$	43,048
Farmland		—		—		—		—		1,128		1,128
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		20,534		20,534
Commercial Mortgages (Owner Occupied)		—		—		566		566		32,760		33,326
Residential First Mortgages		1,270		—		359		1,629		133,638		135,267
Residential Revolving and Junior Mortgages		6		—		31		37		25,363		25,400
Commercial and Industrial		96		—		228		324		33,678		34,002
Consumer Loans		66		14		101		181		5,168		5,349
Total	$	1,502	$	14	$	1,954	$	3,470	$	294,584	$	298,054
December 31, 2013	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	65	$	—	$	854	$	919	$	30,920	$	31,839
Farmland		—		—		—		—		1,262		1,262
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		14,626		14,626
Commercial Mortgages (Owner Occupied)		—		—		427		427		33,750		34,177
Residential First Mortgages		668		—		1,083		1,751		112,707		114,458
Residential Revolving and Junior Mortgages		108		—		76		184		23,861		24,045
Commercial and Industrial		16		—		311		327		23,611		23,938
Consumer Loans		60		19		3		82		5,904		5,986
Total	$	917	$	19	$	2,754	$	3,690	$	246,641	$	250,331

Note 6. Allowance for Loan Losses

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

(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
For the Twelve Months Ended December 31, 2014
Beginning Balance	$	2,465		$	256		$	204		$	2,925
(Charge-offs)		(313	)		—			(79	)		(392	)
Recoveries		36			—			25			61
Provision		590			67			(46	)		611
Ending Balance	$	2,778		$	323		$	104		$	3,205
Individually evaluated for impairment	$	665		$	—		$	11		$	676
Collectively evaluated for impairment		2,113			323			93			2,529
(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and other Loans			Total
For the Twelve Months Ended December 31, 2013
Beginning Balance	$	2,572		$	262		$	260		$	3,094
(Charge-offs)		(879	)		(17	)		(132	)		(1,028	)
Recoveries		68			1			14			83
Provision		704			10			62			776
Ending Balance	$	2,465		$	256		$	204		$	2,925
Individually evaluated for impairment	$	634		$	—		$	33		$	667
Collectively evaluated for impairment		1,831			256			171			2,258

40

Loan receivables evaluated for impairment individually and collectively by segment as of December 31, 2014 and 2013 are as follows:

(Dollars in thousands)	Mortgage Loans		Commercial and		Consumer
As of December 31, 2014	on Real Estate		Industrial		Loans		Total
Individually evaluated for impairment	$	6,842	$	—	$	16	$	6,858
Collectively evaluated for impairment		251,861		34,002		5,333		291,196
Total Gross Loans	$	258,703	$	34,002	$	5,349	$	298,054
As of December 31, 2013
Individually evaluated for impairment	$	6,306	$	311	$	39	$	6,656
Collectively evaluated for impairment		214,101		23,627		5,947		243,675
Total Gross Loans	$	220,407	$	23,938	$	5,986	$	250,331

Internal risk rating grades are shown in the following table.

(Dollars in thousands)	Construction, Land and Land				Commercial Mortgages (Non-Owner		Commercial Mortgages (Owner		Commercial and
As of December 31, 2014	Development		Farmland		Occupied)		Occupied)		Industrial		Total
Grade:
Pass	$	34,913	$	1,128	$	16,426	$	23,967	$	31,041	$	107,475
Watch		5,649		—		3,770		4,430		2,492		16,341
Special mention		1,403		—		—		2,789		154		4,346
Substandard		1,083		—		338		2,140		315		3,876
Doubtful		—		—		—		—		—		—
Total	$	43,048	$	1,128	$	20,534	$	33,326	$	34,002	$	132,038
As of December 31, 2013	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	25,616	$	1,262	$	9,083	$	23,984	$	20,309	$	80,254
Watch		3,493		—		5,204		7,429		2,743		18,869
Special mention		1,416		—		—		1,001		487		2,904
Substandard		1,314		—		339		1,763		399		3,815
Doubtful		—		—		—		—		—		—
Total	$	31,839	$	1,262	$	14,626	$	34,177	$	23,938	$	105,842

Loans not assigned internal risk rating grades are comprised of smaller residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. However, some of these loans are graded when the borrower’s total exposure to the Bank exceeds the limits noted above. Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.

(Dollars in thousands)	Residential		Residential Revolving
As of December 31, 2014	First		and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (1)		Mortgages (2)		Loans (3)		Total
Performing	$	134,908	$	25,369	$	5,234	$	165,511
Nonperforming		359		31		115		505
Total	$	135,267	$	25,400	$	5,349	$	166,016
As of December 31, 2013	Residential First		Residential Revolving and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (4)		Mortgages (5)		Loans (6)		Total
Performing	$	113,375	$	23,969	$	5,964	$	143,308
Nonperforming		1,083		76		22		1,181
Total	$	114,458	$	24,045	$	5,986	$	144,489

Notes:

(1) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.

(2) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.

(3) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

(4) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.6 million as of December 31, 2013.

41

(5) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of December 31, 2013.

(6) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $9 thousand as of December 31, 2013.

The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable, as of December 31, 2014 and 2013, along with the average recorded investment and interest income recognized for the years ended December 31, 2014 and 2013.

(Dollars in thousands)	As of December 31, 2014						As of December 31, 2013
IMPAIRED LOANS
	Recorded		Customers’ Unpaid		Related		Recorded		Customers’ Unpaid		Related
With no related allowance:	Investment		Principal Balance		Allowance		Investment		Principal Balance		Allowance
Construction, land and land development	$	450	$	452	$	—	$	453	$	453	$	—
Residential First Mortgages		1,568		1,584		—		1,053		1,057		—
Residential Revolving and Junior Mortgages (1)		50		50		—		—		—		—
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,831		1,840		—
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		5		5		—		—		—		—
		4,224		4,271		—		3,912		3,925		—
With an allowance recorded:
Construction, land and land development		277		292		144		151		156		51
Residential First Mortgages		2,173		2,173		437		2,198		2,198		409
Residential Revolving and Junior Mortgages (1)		173		173		84		251		879		173
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		—		105		105		1
Commercial and Industrial		—		—		—		—		—		—
Consumer (2)		11		11		11		39		39		33
		2,634		2,649		676		2,744		3,377		667
Total Impaired Loans:
Construction, land and land development		727		744		144		604		609		51
Residential First Mortgages		3,741		3,757		437		3,251		3,255		409
Residential Revolving and Junior Mortgages (1)		223		223		84		251		879		173
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,936		1,945		1
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		16		16		11		39		39		33
	$	6,858	$	6,920	$	676	$	6,656	$	7,302	$	667

Notes:

(1) Junior mortgages include equity lines.

(2) includes credit cards.

42

	For the Year Ended				For the Year Ended
	December 31, 2014				December 31, 2013
	Average Recorded		Interest Income		Average Recorded		Interest Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance:
Construction, land and land development	$	451	$	3	$	189	$	1
Residential First Mortgages		1,148		49		678		48
Residential Revolving and Junior Mortgages (1)		10		—		—		—
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,092		56
Commercial and Industrial		—		—		62		—
Consumer (2)		6		—		—		—
		3,790		147		2,127		113
With an allowance recorded:
Construction, land and land development		168		4		30		—
Residential First Mortgages		2,184		100		1,916		108
Residential Revolving and Junior Mortgages (1)		174		9		254		8
Commercial Mortgages (Non-owner occupied)		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		21		2
Commercial and Industrial		—		—		—		—
Consumer (2)		24		2		60		5
		2,550		115		2,281		123
Total
Construction, land and land development		619		7		219		1
Residential First Mortgages		3,332		149		2,594		156
Residential Revolving and Junior Mortgages (1)		184		9		254		8
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,113		58
Commercial and Industrial		—		—		62		—
Consumer (2)		30		2		60		5
	$	6,340	$	262	$	4,408	$	236

Notes:

(1) Junior mortgages include equity lines.

(2) Includes credit cards.

Smaller non-accruing loans and non-accruing loans that are not graded because they are included in homogenous pools generally do not meet the criteria for impairment testing, and are therefore excluded from impaired loan disclosures. At December 31, 2014 and 2013, non-accruing loans excluded from impaired loan disclosure totaled $663 thousand and $724 thousand, respectively. If interest on these non-accruing loans had been accrued, such income would have approximated $32 thousand and $23 thousand during the years ended December 31, 2014 and 2013, respectively.

Loans modified as TDRs are considered impaired and are individually evaluated for the amount of impairment in the ALL. The following table presents, by segments of loans, information related to loans modified as TDRs during the years ended December 31, 2014 and 2013.

	For the Year Ended December 31, 2014						For the Year Ended December 31, 2013
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
(Dollars in thousands)			Outstanding		Outstanding				Outstanding		Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment		Number of Loans		Recorded Investment		Recorded Investment
Construction, land and land development (1)		2	$	282	$	277		3	$	196	$	196
Residenital first mortages (2)		—		—		—		1		207		204
Residential revolving and junior mortgages (1)		1		50		50		—		—		—
Commercial mortgages (Owner occupied) (1)		—		—		—		2		263		263
Consumer (2)		—		—		—		1		8		7

Notes:

(1) Modifications were an extention of the loan terms.

(2) Modifications were capitalization of the interest.

	For the Year Ended December 31, 2014				For the Year Ended December 31, 2013
TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Residential first mortgages		—	$	—		1	$	106
Residential revolving and junior mortgages		1		75		—		—
Commerical mortgages (Owner occupied)		2		255		—		—

43

Of the TDRs restructured in 2014 and 2013 which did not subsequently default, all are performing. Of the three loans that defaulted, one loan in the amount of $75 thousand was charged-off in 2014. There were 14 TDRs with an aggregate balance of $2.5 million outstanding as of both December 31, 2014 and December 31, 2013.

Note 7. Other Real Estate Owned, Net

OREO is presented net of a valuation allowance for losses. An analysis of the valuation allowance on OREO is shown below.

	Years ended
(Dollars in thousands)	2014			2013
Balance, beginning of year	$	538		$	562
Provision for losses		235			300
Charge-offs		(147	)		(324	)
Balance, end of period	$	626		$	538

Expenses applicable to OREO include the following:

	Years ended
(Dollars in thousands)	2014		2013
Net loss on sales of real estate	$	92	$	263
Provision for losses		235		300
Operating expenses, net of income		131		124
Total expenses	$	458	$	687

The following table details the properties included in OREO as of December 31, 2014 and December 31, 2013. There was one collateralized consumer residential mortgage loan with a balance of $129 thousand in the process of foreclosure as of December 31, 2014. The Company accepted a deed in lieu of foreclosure on this property in January 2015.

	As of December 31, 2014				As of December 31, 2013
	No. of		Carrying		No. of		Carrying
(Dollars in thousands)	Properties		Value		Properties		Value
Residential		10	$	1,559		11	$	2,442
Land lots		13		587		14		684
Convenience store		2		234		2		239
Restaurant		1		107		1		107
Commerical properties		1		304		2		425
Total		27	$	2,791		30	$	3,897

Included in other assets as of December 31, 2014, is one residential property purchased in 2013 from a related party with a value of $771 thousand. Included in other assets as of December 31, 2013, were two properties with a total value of $983 thousand, a former branch office and one residential property, which was purchased from a related party. The branch was sold in 2014.

Note 8. Premises and Equipment, net

Components of premises and equipment included in the balance sheets at December 31, 2014 and 2013 were as follows:

	2014			2013
(Dollars in thousands)
Land and improvements	$	2,004		$	1,998
Buildings and improvements		13,032			11,764
Furniture and equipment		9,703			8,882
Total cost		24,739			22,644
Less accumulated depreciation		(12,857	)		(12,024	)
Premises and equipment, net	$	11,882		$	10,620

Depreciation expense for the years ended December 31, 2014 and 2013 totaled $792 thousand and $755 thousand, respectively.

44

Note 9. Deposits

The aggregate amount of time deposits in denominations of $250,000 or more at December 31, 2014 and 2013 was $16.5 million and $7.0 million, respectively.

At December 31, 2014, the scheduled maturities of time deposits are as follows (in thousands):

2015	$	56,739
2016		45,267
2017		8,843
2018		4,369
2019		6,543
Thereafter		14
	$	121,775

At December 31, 2014 and 2013, overdraft demand deposits reclassified to loans totaled $85 thousand and $91 thousand, respectively.

At December 31, 2014 and 2013, the Company had brokered deposits of $8.0 million and none, respectively.

Note 10. Employee Benefit Plans

The Company has a non-contributory, cash balance pension plan for employees who were vested in the plan as of December 31, 2012 when it was frozen. Each participant’s account balance grows 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 postretirement benefit plan provides coverage toward a retiree’s eligible medical and life insurance benefits expenses.

45

The following tables provide the reconciliation of changes in the benefit obligations and fair value of assets and a statement of funded status for the pension plan and postretirement plan of the Company. In 2014, the $755 thousand net loss related to pension benefits and the $130 thousand net loss related to post-retirement benefits was primarily due to the increase in the discount rate assumption to 5% in 2014 from 4% in 2013 and longer assumed lives of participants resulting from updated mortality tables for 2014.

	Pension Benefits						Postretirement Benefits
(Dollars in thousands)	2014			2013			2014			2013
Change in benefit obligation
Benefit obligation, beginning of year	$	2,737		$	2,854		$	607		$	759
Service cost		—			—			15			23
Interest cost		142			143			30			30
Actuarial loss (gain)		721			225			130			(190	)
Benefit payments		(54	)		(478	)		(11	)		(15	)
Settlement gain		—			(7	)		—			—
Benefit obligation, end of year		3,546			2,737			771			607
Change in plan assets
Fair value of plan assets, beginning of year		2,820			2,845			—			—
Actual return on plan assets		131			453			—			—
Employer contributions		—			—			11			15
Benefits payments		(54	)		(478	)		(11	)		(15	)
Fair value of plan assets, end of year		2,897			2,820			—			—
Funded status at the end of the year	$	(649	)	$	83		$	(771	)	$	(607	)
Amounts recognized in accumulated other comprehensive loss (income)
Net loss (gain)	$	1,380		$	625		$	83		$	(47	)
Prior service cost		—			—			—			—
Net obligation at transition		—			—			—			—
Amount recognized	$	1,380		$	625		$	83		$	(47	)
Components of net periodic benefit cost (gain)
Service cost	$	—		$	—		$	15		$	23
Interest cost		142			143			30			30
Expected (return) on plan assets		(202	)		(215	)		—			—
Amortization of prior service cost		—			—			—			—
Amortization of net obligation at transition		—			—			—			3
Recognized net loss due to settlement		—			114			—			—
Recognized net actuarial loss		37			90			—			4
Net periodic benefit (gain) cost		(23	)		132			45			60
Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss
Net loss (gain)		755			(224	)		130			(194	)
Amortization of prior service cost		—			—			—			—
Amortization of net obligation at transition		—			—			—			(3	)
Total recognized in other comprehensive loss/(income)		755			(224	)		130			(197	)
Total recognized in net periodic benefit cost and other comprehensive loss/(income)	$	732		$	(92	)	$	175		$	(137	)
	2014			2013			2014			2013
Weighted-average assumptions as of December 31:
Discount rate used for Net Periodic Pension Cost		5.00	%		4.00	%		5.00	%		4.00	%
Discount Rate used for Disclosure		4.00	%		5.00	%		4.00	%		5.00	%
Expected return on plan assets		7.50	%		8.00	%		N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A
Rate of compensation increase for net periodic pension cost		N/A			N/A			N/A			N/A
Expected future interest crediting rate		3.00	%		3.00	%		N/A			N/A

The accumulated benefit obligation for the cash balance pension plan was $3.5 million and $2.7 million at December 31, 2014 and 2013, respectively.

Estimated future benefit payments for the pension and postretirement plans are as follows (in thousands):

	Pension		Postretirement
2015	$	525	$	22
2016		50		24
2017		222		26
2018		38		28
2019		366		31
2020 and thereafter		1,502		190

Long-term rate of return. The pension plan sponsor selects the assumption for the expected long-term rate of return on assets in consultation with their investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of

46

inflation), for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience that may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plan is assumed to continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).

The fair value of the Company’s pension plan assets by asset category are as follows:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—

			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of 40% fixed income and 60% equities. The investment manager of the fund selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the plan’s investment strategy. The investment manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of the trustee to administer the investments of the trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the trust.

The Company expects to make no contributions to its pension plan for the 2015 plan year.

Postretirement benefits plan. For measurement purposes, the assumed annual rate of increase in per capita health care costs of covered benefits is 8.0% in 2015, 8.0% in 2016, 6.0% in 2017, 6.0% in 2018, and 5.0% in 2019 and thereafter. If assumed health care cost trend rates were increased by one percentage point each year, the accumulated postretirement benefit obligation at December 31, 2014 would be increased by $893 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2014 would be increased by $39. If assumed health care cost trend rates were decreased by one percentage point each year, the accumulated postretirement benefit obligation at December 31, 2014 would be decreased by $838 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2014 would be decreased by $36.

The Company expects to contribute $22,435 to its postretirement plan in 2015. In addition, as of December 31, 2014 and 2013, the Company paid approximately $11 thousand and $15 thousand, respectively, for employees who retired.

401(k) retirement plan. Substantially all employees are eligible to participate in the Company’s 401(k) retirement plan beginning the first of the month following their hire date. Prior to August 14, 2014, employees were eligible to participate in the plan after six months of service. Employees may contribute up to the maximum established by the Internal Revenue Service. The Company matches 100% of the first 2% and 25% of the next 4% of an employee’s contributions. Additional contributions can be made at the discretion of the Company’s Board of Directors. Contributions to this plan amounted to $110 thousand and $97 thousand for the years ended December 31, 2014 and 2013, respectively.

In January 2015, the Company’s Board of Directors approved an increase in the Company’s match. Effective March 9, 2015, the Company will match 100% of the first 3% and 50% of the next 3% of an employee’s contributions.

47

Note 11. Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Company, is based on credit evaluation of the customer.

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. At December 31, 2014 and 2013, the Company had outstanding loan commitments approximating $36.4 million and $37.3 million, respectively.

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. At December 31, 2014 and 2013, commitments under outstanding performance stand-by letters of credit aggregated $355 thousand and $329 thousand, respectively. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Note 12. Restrictions on Cash and Due from Banks

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) requires banks to maintain cash reserves against certain categories of deposit liabilities. At both December 31, 2014 and 2013, the aggregate amount of daily average required reserves for the final weekly reporting period was $25 thousand.

Note 13. Other Borrowings

Securities sold under agreements to repurchase are secured transactions with customers and generally mature the day following the day sold. During 2014 and 2013, the average rates of the repurchase agreements were 0.12% and 0.19%, respectively. Unused lines of credit with nonaffiliated banks, excluding FHLB, totaled $20.3 million as of both December 31, 2014 and 2013. Draws upon these lines have time limits varying from two to four consecutive weeks. The banks providing these lines can change the interest rates on these lines daily. The lines renew annually and are tested periodically each year.

Note 14. FHLB

On December 31, 2014, the Bank had FHLB debt consisting of six advances (see table below). The $10 million advance was restructured during the second quarter of 2013 to extend the maturity and reduce the interest rate from 4.23% to a three month LIBOR-based hybrid floating rate advance. A $5 million advance with an interest rate of 2.69% matured in May 2014 and was replaced with a new $5 million three month LIBOR-based floating rate advance. Two $5 million advances were drawn in June 2014 and two $5 million advances were drawn in October 2014, all of which were fixed rate advances.

The six advances are shown in the following table.

Description	Balance		Originated		Current Interest Rate			Maturity Date
Adjustable Rate Hybrid	$	10,000,000		4/12/2013		2.61000	%		4/13/2020
Adjustable Rate Credit		5,000,000		5/20/2014		0.23185	%		5/20/2015
Fixed Rate Credit		5,000,000		6/18/2014		0.26000	%		6/18/2015
Fixed Rate Credit		5,000,000		6/26/2014		0.26000	%		6/26/2015
Fixed Rate Credit		5,000,000		10/20/2014		0.47000	%		4/20/2016
Fixed Rate Credit		5,000,000		10/20/2014		0.30000	%		10/20/2015
	$	35,000,000

Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Immediate available credit, as of December 31, 2014, was $38.6 million against a total line of credit of $77.6 million.

As of December 31, 2013, the Company had $15.0 million in FHLB debt outstanding with an average interest rate of 2.48%.

48

Note 15. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and the Commonwealth of Virginia. The Commonwealth of Virginia does not charge an income tax for regulated banking institutions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2010.

The expense for income taxes consisted of the following (in thousands):

Year ended December 31,	2014		2013
Current	$	499	$	140
Deferred		58		259
	$	557	$	399

The reasons for the differences between the statutory Federal income tax rates and the effective tax rates are summarized as follows:

	2014			2013
Statutory rate		34.0	%		34.0	%
Increase (decrease) resulting from:
Tax exempt interest		-8.3	%		-8.5	%
Bank owned life insurance		-3.1	%		-2.7	%
Other, net		0.7	%		1.8	%
		23.3	%		24.6	%

The components of the net deferred tax assets and liabilities included in other liabilities are as follows (in thousands):

December 31,	2014			2013
Deferred tax assets
Allowance for loan losses	$	661		$	632
Interest on non-accrual loans		47			40
Mortgage servicing rights		—			197
Other real estate		397			477
Pension plan		222			—
Postretirement benefits		262			206
Deferred compensation		141			114
Stock-based compensation		25			18
Alternative minimum tax credit		—			96
Unrealized losses on available-for-sale securities		—			408
Other		11			3
Total deferred tax assets		1,766			2,191
Deferred tax liabilities
Unrealized gains on available-for-sale securities		(23	)		—
Pension plan		—			(27	)
Depreciation		(218	)		(276	)
Amortization of goodwill		(928	)		(896	)
Net deferred loan fees and costs		(134	)		(172	)
Other		(67	)		(64	)
Total deferred tax (liabilities)		(1,370	)		(1,435	)
Net deferred tax assets	$	396		$	756

Note 16. Regulatory Requirements and Restrictions

One source of funds available to the Company is the payment of dividends by the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval from the Bank’s regulators.

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the Commonwealth of Virginia and Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

49

Quantitative measures established by regulation to ensure capital adequacy required the Company and the Bank during 2014 to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that as of December 31, 2014 and 2013, the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2014, the most recent notification from the Federal Reserve categorized the Bank as well capitalized under the framework for prompt corrective action. To be categorized as well capitalized on such date, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2014 and 2013, are presented in the following tables:

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2014:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	41,445		15.02	%	$	22,074		8.00	%		N/A		N/A
Bank of Lancaster		36,446		13.30	%		21,927		8.00	%	$	27,409		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		38,240		13.86	%		11,037		4.00	%		N/A		N/A
Bank of Lancaster		33,241		12.13	%		10,964		4.00	%	$	16,445		6	%
Tier 1 Capital (to Average Assets)
Consolidated		38,240		10.35	%		14,770		4.00	%		N/A		N/A
Bank of Lancaster		33,241		9.07	%		14,664		4.00	%	$	18,329		5	%

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2013:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	39,322		16.38	%	$	19,211		8.00	%		N/A		N/A
Bank of Lancaster		33,419		14.01	%		19,089		8.00	%	$	23,861		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		36,397		15.16	%		9,605		4.00	%		N/A		N/A
Bank of Lancaster		30,494		12.78	%		9,545		4.00	%	$	14,317		6	%
Tier 1 Capital (to Average Assets)
Consolidated		36,397		10.93	%		13,319		4.00	%		N/A		N/A
Bank of Lancaster		30,494		9.20	%		13,259		4.00	%	$	16,573		5	%

Note 17. Employee Stock Ownership Plan

The Company has a noncontributory Employee Stock Ownership Plan (“ESOP”) for the benefit of all eligible employees who have completed twelve months of service and who have attained the age of 21 years. Contributions to the plan are at the discretion of the Company’s Board of Directors. Contributions are allocated in the ratio to which the covered compensation of each participant bears to the aggregate covered compensation of all participants for the plan year. Allocations are limited to 25% of eligible participant compensation. Participant accounts are 30% vested after two years, 40% vested after three years with vesting increasing 20% each year thereafter, until 100% vested. The plan had 126,540 allocated shares as of December 31, 2014. Contributions to the plan were $3 thousand in 2014 and zero in 2013. There were no dividends on the Company’s stock held by the ESOP in 2014 and 2013. Shares held by the ESOP are considered outstanding for purposes of computing earnings per share.

50

Note 18. Stock-Based Compensation Plans

On June 28, 2013, the Company registered a new stock-based compensation plan with the Securities and Exchange Commission, which suspended all other plans. There are 378,000 shares available for grant under this plan at December 31, 2014. Unissued shares are generally used for exercises of stock options and restricted stock grants.

Stock-based compensation expense related to stock awards during 2014 and 2013 was $20 thousand and $122 thousand, respectively. There was no unrecognized compensation expense related to stock options as of December 31, 2014. A total of 7,000 options and 89,500 options were granted and vested during 2014 and 2013, respectively. 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 expected volatility is based on historical volatility of the Company’s stock price. The risk-free interest rates for the periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The fair value of options granted during 2014 was $2.75. The fair value of options granted during 2013 was $1.03 and $1.08.

The variables used in these calculations of the fair value of the options are as follows:

	For the twelve months ended December 31,
	2014			2013
Risk free interest rate (5 year Treasury)		1.74	%		0.86	%
Expected dividend yield		0	%		3.6	%
Expected term (years)		5			5
Expected volatility		51.4	%		33.8	%

Stock option plan activity for 2014 and 2013 is summarized below:

				Weighted Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
	Shares			Price		Life (in years)		Value (1)
Options outstanding, January 1, 2013		120,617		$	9.51		5.4
Granted		89,500			5.25
Forfeited		(11,519	)		9.42
Exercised		—			—
Expired		(7,596	)		13.80
Options outstanding, December 31, 2013		191,002			7.35		6.8	$	14,146
Granted		7,000			5.99
Forfeited		(344	)		5.90
Exercised		—			—
Expired		(7,239	)		14.65
Options outstanding, December 31, 2014		190,419		$	7.02		6.2	$	32,718
Options exercisable, December 31, 2014		190,419		$	7.02		6.2	$	32,718

(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 December 31, 2014. 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 were 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 was recognized on that date.

51

Note 19. 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.

	For the Years Ended
	December 31, 2014				December 31, 2013
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,818,377	$	0.38		4,816,859	$	0.25
Effect of dilutive securities:
Stock options		11,204				2,484
Diluted earnings per share		4,829,581	$	0.38		4,819,343	$	0.25

For the years ended 2014 and 2013, options on 68,707 and 167,762 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive.

Note 20. Related Parties

The Company has entered into transactions with its directors and principal officers of the Company, their immediate families and affiliated companies in which they are the principal stockholders (related parties). The aggregate amount of loans to such related parties was $2.9 million and $2.6 million at December 31, 2014 and 2013, respectively. All such loans, in the opinion of management, were made in the normal course of business on the same terms, including interest rate, collectability and collateral, as those prevailing at the time for comparable transactions.

(Dollars in thousands
Balance, January 1, 2014	$	2,606
New loans and extensions to existing loans		573
Repayments and other reductions		(305	)
Balance, December 31, 2014	$	2,874

Unfunded commitments to extend credit to directors and their related interests were $1.5 million and $2.0 million at December 31, 2014 and 2013, respectively.

The Company also maintains deposit accounts with some of its executive officers, directors and their affiliated entities. The aggregate amount of these deposit accounts at December 31, 2014 and 2013 amounted to $374 thousand and $428 thousand, respectively.

Note 21. 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

52

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.

Defined benefit plan assets: Defined benefit plan assets are recorded at fair value on an annual basis at year end. Fair value measurement is based upon quoted market prices, when available (Level 1).

Mortgage servicing rights: MSRs are recorded at fair value on a recurring basis, with changes in fair value recorded in the result of operations. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each pool. Loans are segregated into 14 pools based on each loan’s term and seasoning (age). All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Service costs were assumed to be $5.75 per loan as of December 31, 2014 and $6.00 per loan as of December 31, 2013. Prepayment speeds are determined primarily based on the average interest rate of the loans in each pool. The prepayment scale used is the Public Securities Association (“PSA”) model, where “100% PSA” means prepayments are zero in the first month, then increase by 0.2% of the loan balance each month until reaching 6.0% in month 30. Thereafter, the 100% PSA model assumes an annual prepayment of 6.0% of the remaining loan balance. The average PSA speed assumption in the fair value model is 184% as of December 31, 2014 and 162% as of December 31, 2013. A discount rate of 10.0% was then applied to each pool as of both December 31, 2014 and 2013. This discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. MSRs are classified as Level 3.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	16,965	$	845	$	16,120	$	—
State and municipal obligations		23,401		—		23,401		—
Certificates of deposit		2,238		—		2,238		—
Total securities available-for-sale	$	42,604	$	845	$	41,759	$	—
Mortgage servicing rights	$	596	$	—	$	—	$	596
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—
			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	9,308	$	—	$	9,308	$	—
State and municipal obligations		26,557		—		26,557		—
Certificates of deposit		1,745		—		1,745		—
Auction rate securities		912		—		—		912
Total securities available-for-sale	$	38,522	$	—	$	37,610	$	912
Mortgage servicing rights	$	579	$	—	$	—	$	579
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

53

The reconciliation of items using Level 3 inputs is as follows:

(Dollars in thousands)	Auction Rate Security			MSRs
Balance, January 1, 2014	$	912		$	579
Purchases		—			—
Fair value adjustments		—			17
Sales		(912	)		—
Balance, December 31, 2014	$	—		$	596

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. Any given loan may have multiple types of collateral. 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 ALL 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: OREO is measured at fair value less estimated costs 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. The initial fair value of OREO is based on an appraisal done at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest income on the Consolidated Statements of Income.

54

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

			Fair Value Measurements at December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Impaired Loans, net	$	1,958	$	—	$	—	$	1,958
Other real estate owned, net		2,791		—		—		2,791

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Level 1		Level 2		Level 3
Impaired Loans, net	$	2,077	$	—	$	—	$	2,077
Other real estate owned, net		3,897		—		—		3,897

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2014:

(Dollars in thousands)	Balance as of December 31, 2014		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	1,958		Discounted appraised value		Selling Cost	10% 20% (10%)
						Lack of Marketability	25% - 75% (53%)
Other real estate owned, net		2,791		Discounted appraised value		Selling Cost	3% - 13% (5%)
						Lack of Marketability	7% - 20% (11%)

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2013:

(Dollars in thousands)	Balance as of December 31, 2013		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	2,077		Discounted appraised value		Selling Cost	10% - 20% (10%)
						Lack of Marketability	25% - 100% (54%)
Other real estate owned, net		3,897		Discounted appraised value		Selling Cost	3% - 13% (6%)
						Lack of Marketability	7% - 30% (15%)

55

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 December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,181	$	6,181	$	—	$	—
Interest-bearing deposits		14,784		14,784		—		—
Federal funds sold		119		119		—		—
Securities available-for-sale		42,604		845		41,759		—
Restricted securities		2,430		—		—		2,430
Loans, net		295,242		—		—		300,481
Accrued interest receivable		1,197		—		1,197		—
Mortgage servicing rights		596		—		—		596
Financial Liabilities:
Non-interest-bearing liabilities	$	63,308	$	63,308	$	—	$	—
Savings and other interest-bearing deposits		122,502		—		122,502		—
Time deposits		121,775		—		—		122,662
Securities sold under repurchase agreements		6,012		—		6,012		—
FHLB advances		35,000		—		35,951		—
Accrued interest payable		149		—		149		—

			Fair Value Measurements at December 31, 2013 Using
	Balance as of
Description	December 31,2013		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,789	$	6,789	$	—	$	—
Interest-bearing deposits		8,900		8,900		—		—
Federal funds sold		120		120		—		—
Securities available-for-sale		38,522		—		37,610		912
Restricted securities		1,638		—		—		1,638
Loans, net		247,912		—		—		253,139
Loans held for sale		196		—		—		196
Accrued interest receivable		1,124		—		1,124		—
Mortgage servicing rights		579		—		—		579
Financial Liabilities:
Non-interest-bearing liabilities	$	57,805	$	57,805	$	—	$	—
Savings and other interest-bearing deposits		114,056		—		114,056		—
Time deposits		96,486		—		—		98,049
Securities sold under repurchase agreements		9,118		—		9,118		—
FHLB advances		15,000		—		15,923		—
Accrued interest payable		167		—		167		—

The carrying amounts of cash and due from banks, interest-bearing deposits, federal funds sold or purchased, accrued interest, loans held for sale and non-interest-bearing deposits, are payable on demand, or are of such short duration that carrying value approximates market value.

Securities available-for-sale are carried at quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The carrying value of restricted securities approximates fair value based on the redemption provisions of the issuer.

MSRs are carried at fair value. As described above, a valuation model is used to determine fair value. This model utilizes a discounted cash flow analysis with servicing costs and prepayment assumptions based on comparable instruments and a discount rate.

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. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation.

56

Time deposits are presented at estimated fair value by discounting the future cash flows 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 current interest rates 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 December 31, 2014 and December 31, 2013, the fair value of loan commitments and standby letters of credit was immaterial and 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.

Note 22. Leases

The Company has long-term leases for two retail branches, one loan production office and office equipment. Lease expense for 2014 and 2013 was $103 thousand and $32 thousand, respectively. Pursuant to the terms of these leases, the following is a schedule, by year, of future minimum lease payments required under the long-term non-cancelable lease agreements (in thousands).

2015	$	149
2016		149
2017		93
2018		68
2019		28
Thereafter		—
	$	487

Note 23. Condensed Financial Information of Parent Company

Financial information pertaining only to Bay Banks of Virginia, Inc. is as follows:

(Dollars in thousands)
Condensed Balance Sheets	December 31, 2014		December 31, 2013
Assets
Cash and due from non-affiliated banks	$	2,445	$	3,884
Investments in subsidiaries		35,625		32,456
Premises and equipment, net		—		1
Other assets		1,732		1,266
Total assets	$	39,802	$	37,607
Liabilities and Shareholders’ Equity
Liabilities
Deferred directors’ compensation	$	414	$	337
Other liabilities		150		134
Total liabilities		564		471
Total shareholders’ equity		39,238		37,136
Total liabilities and shareholders’ equity	$	39,802	$	37,607

57

(Dollars in thousands)
Condensed Income Statements	Years ended December 31,
	2014		2013
Non-interest income	$	641	$	600
Non-interest expense		622		829
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries		19		(229	)
Income tax expense (benefit)		5		(27	)
Income (loss) before equity in undistributed earnings of subsidiaries		14		(202	)
Equity in undistributed earnings of subsidiaries		1,816		1,424
Net income	$	1,830	$	1,222

(Dollars in thousands)
Condensed Statements of Cash Flows	Years ended December 31,
	2014			2013
Cash Flows from Operating Activities:
Net income	$	1,830		$	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			1
Stock-based compensation		20			122
Equity in undistributed earnings of subsidiaries		(1,816	)		(1,424	)
Increase in other assets		(467	)		(186	)
Net change in deferred directors’ compensation		77			87
Increase (decrease) in other liabilities		17			(3,720	)
Net cash used in operating activities		(339	)		(3,898	)
Cash Flows from Investing Activities:
Purchase of other assets		—			(771	)
Investment in subsidiaries		(1,100	)		(500	)
Net cash used in investing activities		(1,100	)		(1,271	)
Cash Flows from Financing Activities:
Net cash provided by financing activities		—			—
Net decrease in cash and due from banks		(1,439	)		(5,169	)
Cash and due from banks at January 1		3,884			9,053
Cash and due from banks at December 31	$	2,445		$	3,884

Note 24. Accumulated Other Comprehensive Income

The balances in accumulated other comprehensive income (loss) are shown in the following table (dollars in thousands):

	Net Unrealized			Pension and			Accumulated Other
	Gains (Losses)			Post-retirement			Comprehensive
	on Securities			Benefit Plans			Income (Loss)
Balance January 1, 2013	$	280		$	(661	)	$	(381	)
Change in net unrealized holding losses on securities, before reclassification, net of tax benefit of $550		(1,068	)		—			(1,068	)
Reclassification for previously unrealized net gains recognized in income, net of tax benefit of $1		(3	)		—			(3	)
Net gain on pension and postretirement plans, net of tax expense of $143		—			277			277
Net postretirement plan transition cost, net of tax expense of $1		—			2			2
Balance December 31, 2013		(791	)		(382	)		(1,173	)
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $422		820			—			820
Reclassification for previously unrealized net losses recognized in income, net of tax benefit of $9		16			—			16
Net loss on pension and postretirement plans, net of tax benefit of $301		—			(584	)		(584	)
Balance at December 31, 2014	$	45		$	(966	)	$	(921	)

58

Reclassification for previously unrealized gains and impairments on securities and pension and postemployment related costs are reported in the consolidated statements of income as follows:

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2014
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net losses on sale of securities available-for-securities	$	(25	)	$	—
Salaries and employee benefits		—			(37	)
Tax (expense) benefit		9			13
Impact on net income	$	(16	)	$	(24	)

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2013
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net gains on sale of securities available-for-securities	$	284		$	—
Loss on security with other-than- temporary impairment		(288	)		—
Salaries and employee benefits		—			(211	)
Tax (expense) benefit		1			71
Impact on net income	$	(3	)	$	(140	)

59

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Effective May 20, 2013, the Company dismissed Yount, Hyde & Barbour, P.C. (“YHB”) as the Company’s independent registered public accounting firm. During the two fiscal years ended December 31, 2012 and 2011 and from January 1, 2013 through May 20, 2013, (i) there were no disagreements with YHB on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures that, if not resolved to YHB’s satisfaction, would have caused YHB to make reference in connection to their opinion to a subject matter of the disagreement and (ii) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

ITEM 9A: 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 Exchange Act. In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the disclosure controls and procedures are met. The design of any disclosure 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 SEC filings as of December 31, 2014.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations, a.k.a. COSO (2013). Based on the assessment using those criteria, management concluded that the internal control over financial reporting was effective as of December 31, 2014.

This Annual Report on Form 10-K does not include an attestation report from the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

ITEM 9B: OTHER INFORMATION

None.

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

All required information is detailed in the Company’s 2015 definitive proxy statement for the annual meeting of shareholders (“Definitive Proxy Statement”), which is expected to be filed with the SEC within the required time period, and is incorporated herein by reference.

The Company has adopted a Chief Executive Officer and Chief Financial Officer Code of Ethics applicable to the Company’s Chief Executive Officer and Chief Financial Officer. A copy of the code is filed as Exhibit 14.0 to this report and may be obtained without charge by written request to the Company’s Corporate Secretary.

60

ITEM 11: EXECUTIVE COMPENSATION

Information on executive and director compensation is provided in the Definitive Proxy Statement and is incorporated herein by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information on security ownership of certain beneficial owners and management and related stockholder matters is provided in the Definitive Proxy Statement, and is incorporated herein by reference.

The following table summarizes information, as of December 31, 2014, relating to the Company’s stock-based compensation plans, pursuant to which grants of options to acquire shares of common stock have been and may be granted from time to time.

At December 31, 2014	Number of Shares To be Issued Upon Exercise Of Outstanding Options, Warrants and Rights (1)			Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Shares Remaining Available fur Future Issuance Under Equity Compensation Plan
Equity compensation plans approved by shareholders		190,419	(1)	$	7.02		385,903
Equity compensation plans not approved by shareholders		—			—		—
Total		190,419		$	7.02		385,903

(1) Consists entirely of shares of common stock underlying previously granted stock options that have not been exercised. All of these options were granted pursuant to the Company’s stock-based compensation plans.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information on certain relationships and related transactions, and director independence, are detailed in the Definitive Proxy Statement and incorporated herein by reference.

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

Information on principal accounting fees and services is provided in the Definitive Proxy Statement and is incorporated herein by reference.

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)1. Financial Statements are included in Part II, Item 8, Financial Statements and Supplementary Data

(a)2. All required tables are included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations

(a)3. Exhibits:

No.	Description
3.1	Articles of Incorporation, as amended, of Bay Banks of Virginia, Inc. (Incorporated by reference to previously filed Form 10-K for the year ended December 31, 2002).
3.2	Bylaws, as amended, of Bay Banks of Virginia, Inc. (Incorporated by reference to previously filed Form 8-K filed on March 28, 2014).

61

10.1	Employment Agreement dated October 6, 2011, among Bay Banks of Virginia, Inc., Bank of Lancaster and Randal R. Greene (Incorporated by reference to previously filed Form 8-K filed on October 10, 2011).
10.2	Management Continuity Agreement, dated as of January 10, 2014, by and between Bay Banks of Virginia, Inc. and Deborah M. Evans (Incorporated by reference to previously filed Form 8-K filed on January 15, 2014).
10.3	Management Continuity Agreement, dated as of January 10, 2014, by and between Bay Banks of Virginia, Inc. and Douglas F. Jenkins, Jr. (Incorporated by reference to previously filed Form 8-K filed on January 15, 2014).
10.4	1998 Non-Employee Directors Stock Option Plan (Incorporated by reference to previously filed Form 10-K for the year ended December 31, 1999).
10.5	2003 Incentive Stock Option Plan (Incorporated by reference to previously filed Form S-8, Commission File Number 333-112947, previously filed on February 19, 2004).
10.6	2008 Non-Employee Directors Stock Option Plan (incorporated by reference to previously filed Form S-8, Commission File Number 333-155370, previously filed on November 14, 2008).
10.7	Bay Banks of Virginia, Inc. 2013 Stock Incentive Plan (Incorporated by reference to previously filed Form S-8 filed on June 28, 2013).
11.0	Statement re: Computation of per share earnings. (Incorporated by reference to Note 19 of the 2014 Consolidated Financial Statements included herein).
14.0	Code of Ethics (filed herewith).
21.0	Subsidiaries of the Company (filed herewith).
23.1	Consent of Dixon Hughes Goodman LLP (filed herewith).
31.1	Section 302 Certification (filed herewith).
31.2	Section 302 Certification (filed herewith).
32.0	Section 906 Certification (filed herewith).
101	The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of December 31, 2014 and 2013, (ii) Consolidated Statements of Income for the years ended December 31, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014 and 2013; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2014 and 2013, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013, and (vi) Notes to Consolidated Financial Statements.

62

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 25th day of March, 2015.

Bay Banks of Virginia, Inc.
(registrant)
By:	/s/ Randal R. Greene
Randal R. Greene
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities indicated, on the 25th day of March, 2015.

PRINCIPAL EXECUTIVE OFFICER:

/s/ Randal R. Greene

Randal R. Greene

Director, President and Chief Executive Officer

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/ Deborah M. Evans

Deborah M. Evans

Senior Vice President and Chief Financial Officer

DIRECTORS:

/s/ Robert F. Hurliman

Robert F. Hurliman

Chairman, Board of Directors

Director

/s/ Kenneth O. Bransford, Jr.

Kenneth O. Bransford, Jr.

Director

/s/ C. Dwight Clarke

C. Dwight Clarke

Director

/s/ Elizabeth H. Crowther, Ed.D.

Elizabeth H. Crowther, Ed.D.

Director

/s/ Richard A. Farmar, III

Richard A. Farmar, III

Director

/s/ Julien G. Patterson

Julien G. Patterson

Director

63

EX-14.0

Exhibit 14.0

CODE OF ETHICS

Chief Executive Officer/Chief Financial Officer

For the Chief Executive Officer and the Chief Financial Officer, adherence to a Code of Ethics is anticipated not only for themselves, but, also, of all the members of the Bay Banks of Virginia, Inc. (the “Company”) family. To this end, the Chief Executive Officer and the Chief Financial Officer will:

• Act with honesty and integrity in their professional and personal life, including avoiding conflicts of interest in professional and personal relationships.

• Actively participate in the financial and accounting activities of the Company to ensure accurate, complete, relevant, timely and understandable disclosure in reports the Company files with, or submits to Stockholders and regulatory and governmental bodies.

• Manage diligently to ensure compliance with applicable governmental laws, rules and regulations.

• Create readily available and confidential lines of communication to promote prompt internal reporting to the appropriate person or persons of violations of this Code. Further, that the reporting of violations will come with no recrimination or prejudice as to the full and complete resolution of the reported incident.

• Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one’s independent judgment to be subordinated.

• Adhere to ethical standards to remain fully aware that the positions of Chief Executive Officer and Chief Financial Officer are accountable for adherence to this Code and for the continued trust that the Stockholders, Directors, Officers and Employees enjoy in this Company.

/s/ Randal R. Greene	/s/ Deborah M. Evans
Randal R. Greene	Deborah M. Evans
President and CEO	Chief Financial Officer
Bay Banks of Virginia, Inc.	Bay Banks of Virginia, Inc.

EX-21.0

Exhibit 21.0

Subsidiaries of Bay Banks of Virginia, Inc.

Subsidiary	State of Incorporation
Bank of Lancaster	Virginia
Bay Trust Company	Virginia
Steptoes Holdings, LLC (inactive)	Virginia

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Bay Banks of Virginia, Inc.

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-112947, 333-155370 and 333-189688) and Form S-3 (No. 333-139895) of Bay Banks of Virginia, Inc. and subsidiaries, which report appears in Bay Banks of Virginia, Inc.’s 2014 Annual Report on Form 10-K.

/s/ Dixon Hughes Goodman LLP

Asheville, North Carolina

March 25, 2015

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Randal R. Greene, certify that:

1. I have reviewed this Annual Report on Form 10-K 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 am 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 we 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 principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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 function):

(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.

Date: March 25, 2015

/s/ Randal R. Greene

Randal R. Greene

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Deborah M. Evans, certify that:

1. I have reviewed this Annual Report on Form 10-K 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 am 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 we 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 principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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 function):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control 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 controls.

Date: March 25, 2015

/s/ Deborah M. Evans

Deborah M. Evans

Senior Vice President and Chief Financial Officer

EX-32.0

Exhibit 32.0

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 Annual Report on Form 10-K for the year ended December 31, 2014 of Bay Banks of Virginia, Inc. (the “Company”), 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 certify, 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, Senior Vice President and Chief Financial Officer

March 25, 2015

XML

Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2014

Change in Benefit Obligation

	Pension Benefits						Postretirement Benefits
(Dollars in thousands)	2014			2013			2014			2013
Change in benefit obligation
Benefit obligation, beginning of year	$	2,737		$	2,854		$	607		$	759
Service cost		—			—			15			23
Interest cost		142			143			30			30
Actuarial loss (gain)		721			225			130			(190	)
Benefit payments		(54	)		(478	)		(11	)		(15	)
Settlement gain		—			(7	)		—			—
Benefit obligation, end of year		3,546			2,737			771			607

Change in Plan Assets

Change in plan assets
Fair value of plan assets, beginning of year		2,820			2,845			—			—
Actual return on plan assets		131			453			—			—
Employer contributions		—			—			11			15
Benefits payments		(54	)		(478	)		(11	)		(15	)
Fair value of plan assets, end of year		2,897			2,820			—			—
Funded status at the end of the year	$	(649	)	$	83		$	(771	)	$	(607	)

Defined Benefit Plan Funded Status

Funded status at the end of the year $ (649 )  $ 83 $ (771 )  $ (607 ) 

Amounts Recognized in Accumulated Other Comprehensive Loss (Income)

Amounts recognized in accumulated other comprehensive loss (income)
Net loss (gain)	$	1,380	$	625	$	83	$	(47	)
Prior service cost		—		—		—		—
Net obligation at transition		—		—		—		—
Amount recognized	$	1,380	$	625	$	83	$	(47	)

Components of Net Periodic Benefit Cost (Gain)

Components of net periodic benefit cost (gain)
Service cost	$	—		$	—		$	15	$	23
Interest cost		142			143			30		30
Expected (return) on plan assets		(202	)		(215	)		—		—
Amortization of prior service cost		—			—			—		—
Amortization of net obligation at transition		—			—			—		3
Recognized net loss due to settlement		—			114			—		—
Recognized net actuarial loss		37			90			—		4
Net periodic benefit (gain) cost		(23	)		132			45		60

Other Changes in Plan Assets and Benefit Obligations Recognized in Accumulated Other Comprehensive (Income) Loss

Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss
Net loss (gain)		755		(224	)		130		(194	)
Amortization of prior service cost		—		—			—		—
Amortization of net obligation at transition		—		—			—		(3	)
Total recognized in other comprehensive loss/(income)		755		(224	)		130		(197	)
Total recognized in net periodic benefit cost and other comprehensive loss/(income)	$	732	$	(92	)	$	175	$	(137	)

Weighted-average Assumptions

2014		2013		2014		2013
Weighted-average assumptions as of December 31:
Discount rate used for Net Periodic Pension Cost	5.00	%	4.00	%	5.00	%	4.00	%
Discount Rate used for Disclosure	4.00	%	5.00	%	4.00	%	5.00	%
Expected return on plan assets	7.50	%	8.00	%	N/A		N/A
Rate of compensation increase	N/A		N/A		N/A		N/A
Rate of compensation increase for net periodic pension cost	N/A		N/A		N/A		N/A
Expected future interest crediting rate	3.00	%	3.00	%	N/A		N/A

 

Estimated Future Benefit Payments for Pension and Postretirement Plans

Estimated future benefit payments for the pension and postretirement plans are as follows (in thousands):

	Pension		Postretirement
2015	$	525	$	22
2016		50		24
2017		222		26
2018		38		28
2019		366		31
2020 and thereafter		1,502		190

Fair Value of Pension Plan Assets by Asset Category

The fair value of the Company’s pension plan assets by asset category are as follows:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—

			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

XML

Future Minimum Lease payments for Long-term Non-cancelable Lease agreements (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Operating Leased Assets [Line Items]
2015	$ 149
2016	149
2017	93
2018	68
2019	28
Thereafter	0
Operating Leases, Future Minimum Payments Due, Total	$ 487

XML

Investment Securities - Aggregate Amortized Cost and Market Values of Investment Securities Portfolio by Contractual Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Due in one year or less, Amortized Cost	$ 4,078
Due after one year through five years, Amortized Cost	21,660
Due after five through ten years, Amortized Cost	13,871
Due after ten years, Amortized Cost	2,927
Amortized Cost	42,536	39,721
Due in one year or less, Fair Value	4,087
Due after one year through five years, Fair Value	21,713
Due after five through ten years, Fair Value	13,889
Due after ten years, Fair Value	2,915
Fair Value	$ 42,604	$ 38,522

XML

Condensed Financial Information of Parent Company (Tables)

12 Months Ended

Dec. 31, 2014

Condensed Balance Sheets

(Dollars in thousands)
Condensed Balance Sheets	December 31, 2014		December 31, 2013
Assets
Cash and due from non-affiliated banks	$	2,445	$	3,884
Investments in subsidiaries		35,625		32,456
Premises and equipment, net		—		1
Other assets		1,732		1,266
Total assets	$	39,802	$	37,607
Liabilities and Shareholders’ Equity
Liabilities
Deferred directors’ compensation	$	414	$	337
Other liabilities		150		134
Total liabilities		564		471
Total shareholders’ equity		39,238		37,136
Total liabilities and shareholders’ equity	$	39,802	$	37,607

Condensed Income Statements

(Dollars in thousands)
Condensed Income Statements	Years ended December 31,
	2014		2013
Non-interest income	$	641	$	600
Non-interest expense		622		829
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries		19		(229	)
Income tax expense (benefit)		5		(27	)
Income (loss) before equity in undistributed earnings of subsidiaries		14		(202	)
Equity in undistributed earnings of subsidiaries		1,816		1,424
Net income	$	1,830	$	1,222

Condensed Statements of Cash Flows

(Dollars in thousands)
Condensed Statements of Cash Flows	Years ended December 31,
	2014			2013
Cash Flows from Operating Activities:
Net income	$	1,830		$	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			1
Stock-based compensation		20			122
Equity in undistributed earnings of subsidiaries		(1,816	)		(1,424	)
Increase in other assets		(467	)		(186	)
Net change in deferred directors’ compensation		77			87
Increase (decrease) in other liabilities		17			(3,720	)
Net cash used in operating activities		(339	)		(3,898	)
Cash Flows from Investing Activities:
Purchase of other assets		—			(771	)
Investment in subsidiaries		(1,100	)		(500	)
Net cash used in investing activities		(1,100	)		(1,271	)
Cash Flows from Financing Activities:
Net cash provided by financing activities		—			—
Net decrease in cash and due from banks		(1,439	)		(5,169	)
Cash and due from banks at January 1		3,884			9,053
Cash and due from banks at December 31	$	2,445		$	3,884

XML

Other Real Estate Owned Net - Components of Expenses Applicable to Foreclosed Assets (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Real Estate Acquired Through Foreclosure Or Similar Procedures [Line Items]
Net loss on sales of real estate	$ 92	$ 263
Provision for losses	235	300
Operating expenses, net of income	131	124
Total expenses	$ 458	$ 687

XML

Securities - Additional Information (Detail) (USD $)	12 Months Ended		3 Months Ended	6 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Mar. 31, 2014	Jun. 30, 2013
Schedule of Available-for-sale Securities [Line Items]
Average yields (taxable equivalent) on securities	2.40%	2.31%
Market value of securities	$ 8,500,000	$ 12,900,000
Other-than-temporary impairment charge		288,000
Proceed from disposal of auction rate securities	3,810,000	9,433,000
Company's investment in Federal Home Loan Bank stock	1,900,000	1,100,000
Company's investment in Federal Reserve Bank stock	382,000	382,000
Municipal Securities
Schedule of Available-for-sale Securities [Line Items]
Bonds with unrealized loss positions	29	50
US Government Agencies
Schedule of Available-for-sale Securities [Line Items]
Bonds with unrealized loss positions	13	15
Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Bonds with unrealized loss positions	3
Auction Rate Security
Schedule of Available-for-sale Securities [Line Items]
Face amount of security sold				1,200,000
Percentage of Auction rate securities with provision				50.00%
Proceed from disposal of auction rate securities			$ 912,000

XML

Employee Benefit Plans - Change in Benefit Obligation (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Benefit obligation, beginning of year	$ 2,737	$ 2,854
Interest cost	142	143
Actuarial loss (gain)	721	225
Benefit payments	(54)	(478)
Settlement gain		(7)
Benefit obligation, end of year	3,546	2,737
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Benefit obligation, beginning of year	607	759
Service cost	15	23
Interest cost	30	30
Actuarial loss (gain)	130	(190)
Benefit payments	(11)	(15)
Benefit obligation, end of year	$ 771	$ 607

XML

Related Parties - Related Parties (Detail) (key Employees, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014
key Employees
Related Party Transaction [Line Items]
Beginning Balance	$ 2,606
New loans and extensions to existing loans	573
Repayments and other reductions	(305)
Ending Balance	$ 2,874

XML

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2014

Schedule of Balances of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	16,965	$	845	$	16,120	$	—
State and municipal obligations		23,401		—		23,401		—
Certificates of deposit		2,238		—		2,238		—
Total securities available-for-sale	$	42,604	$	845	$	41,759	$	—
Mortgage servicing rights	$	596	$	—	$	—	$	596
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—
			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	9,308	$	—	$	9,308	$	—
State and municipal obligations		26,557		—		26,557		—
Certificates of deposit		1,745		—		1,745		—
Auction rate securities		912		—		—		912
Total securities available-for-sale	$	38,522	$	—	$	37,610	$	912
Mortgage servicing rights	$	579	$	—	$	—	$	579
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

Reconciliation of Items Using Level Three Inputs

The reconciliation of items using Level 3 inputs is as follows:

(Dollars in thousands)	Auction Rate Security			MSRs
Balance, January 1, 2014	$	912		$	579
Purchases		—			—
Fair value adjustments		—			17
Sales		(912	)		—
Balance, December 31, 2014	$	—		$	596

Summary of Assets Measured at Fair Value on Nonrecurring Basis

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

			Fair Value Measurements at December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Impaired Loans, net	$	1,958	$	—	$	—	$	1,958
Other real estate owned, net		2,791		—		—		2,791

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Level 1		Level 2		Level 3
Impaired Loans, net	$	2,077	$	—	$	—	$	2,077
Other real estate owned, net		3,897		—		—		3,897

Summary of Quantitative Fair Value Measurements for Level 3

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2014:

(Dollars in thousands)	Balance as of December 31, 2014		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	1,958		Discounted appraised value		Selling Cost	10% 20% (10%)
						Lack of Marketability	25% - 75% (53%)
Other real estate owned, net		2,791		Discounted appraised value		Selling Cost	3% - 13% (5%)
						Lack of Marketability	7% - 20% (11%)

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2013:

(Dollars in thousands)	Balance as of December 31, 2013		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	2,077		Discounted appraised value		Selling Cost	10% - 20% (10%)
						Lack of Marketability	25% - 100% (54%)
Other real estate owned, net		3,897		Discounted appraised value		Selling Cost	3% - 13% (6%)
						Lack of Marketability	7% - 30% (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 December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,181	$	6,181	$	—	$	—
Interest-bearing deposits		14,784		14,784		—		—
Federal funds sold		119		119		—		—
Securities available-for-sale		42,604		845		41,759		—
Restricted securities		2,430		—		—		2,430
Loans, net		295,242		—		—		300,481
Accrued interest receivable		1,197		—		1,197		—
Mortgage servicing rights		596		—		—		596
Financial Liabilities:
Non-interest-bearing liabilities	$	63,308	$	63,308	$	—	$	—
Savings and other interest-bearing deposits		122,502		—		122,502		—
Time deposits		121,775		—		—		122,662
Securities sold under repurchase agreements		6,012		—		6,012		—
FHLB advances		35,000		—		35,951		—
Accrued interest payable		149		—		149		—

			Fair Value Measurements at December 31, 2013 Using
	Balance as of
Description	December 31,2013		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,789	$	6,789	$	—	$	—
Interest-bearing deposits		8,900		8,900		—		—
Federal funds sold		120		120		—		—
Securities available-for-sale		38,522		—		37,610		912
Restricted securities		1,638		—		—		1,638
Loans, net		247,912		—		—		253,139
Loans held for sale		196		—		—		196
Accrued interest receivable		1,124		—		1,124		—
Mortgage servicing rights		579		—		—		579
Financial Liabilities:
Non-interest-bearing liabilities	$	57,805	$	57,805	$	—	$	—
Savings and other interest-bearing deposits		114,056		—		114,056		—
Time deposits		96,486		—		—		98,049
Securities sold under repurchase agreements		9,118		—		9,118		—
FHLB advances		15,000		—		15,923		—
Accrued interest payable		167		—		167		—

XML

Investment Securities (Tables)

12 Months Ended

Dec. 31, 2014

Aggregate Amortized Costs and Fair Values of Available-for-Sale Securities Portfolio

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

(Dollars in thousands)
Available-for-sale securities December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	16,969	$	33	$	(37	)	$	16,965
State and municipal obligations		23,335		226		(160	)		23,401
Certificates of deposits		2,232		8		(2	)		2,238
	$	42,536	$	267	$	(199	)	$	42,604
Available-for-sale securities December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,383	$	11	$	(86	)	$	9,308
State and municipal obligations		27,690		109		(1,242	)		26,557
Certificates of deposits		1,736		9		—			1,745
Auction rate security		912		—		—			912
	$	39,721	$	129	$	(1,328	)	$	38,522

Gross Realized Gains and Gross Realized Losses on Sales of Securities

The cost of securities sold is based on actual net cost. Gross realized gains and gross realized losses, as well as proceeds on sales and calls of securities, were as follows:

	For the years ended December 31,
(Dollars in thousands)	2014			2013
Gross realized gains	$	8		$	285
Gross realized losses		(33	)		(1	)
Net realized (losses) gains	$	(25	)	$	284
Aggregate proceeds	$	3,810		$	9,433

Aggregate Amortized Cost and Market Values of Investment Securities Portfolio by Contractual Maturity

The aggregate amortized cost and market values of the investment securities portfolio by contractual maturity at December 31, 2014 are shown below:

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	4,078	$	4,087
Due after one year through five years		21,660		21,713
Due after five through ten years		13,871		13,889
Due after ten years		2,927		2,915
	$	42,536	$	42,604

Unrealized Loss Positions

Bonds with unrealized loss positions at December 31, 2013 included 50 municipal securities and 15 federal agency securities.

(Dollars in thousands)	Less than 12 months				12 months or more				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,499	$	4	$	3,532	$	33	$	5,031	$	37
States and municipal obligations		412		5		9,006		155		9,418		160
Certificates of deposit		742		2		—		—		742		2
Total temporarily impaired securities	$	2,653	$	11	$	12,538	$	188	$	15,191	$	199
	Less than 12 months				12 months or more				Total
December 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	4,808	$	66	$	1,462	$	20	$	6,270	$	86
States and municipal obligations		14,255		1,120		2,306		122		16,561		1,242
Total temporarily impaired securities	$	19,063	$	1,186	$	3,768	$	142	$	22,831	$	1,328

Cumulative Credit Related Other-Than Temporary Impairment Losses Recognized on One Debt Security

The following table summarizes cumulative credit-related other-than temporary impairment losses recognized on the one auction rate security held by the Company (no other-than-temporary-impairment was recognized for the years ended December 31, 2014):

(Dollars in thousands)	For the year ended December 31, 2014			For the year ended December 31, 2013
Balance, beginning of the period	$	288		$	—
Impairment losses recognized during the period		—			288
Realized losses from sales		(288	)		—
Balance, end of period	$	—		$	288

XML

Employee Benefit Plans - Change in Plan Assets (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Fair value of plan assets, end of year	$ 2,897	$ 2,820
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Fair value of plan assets, beginning of year	2,820	2,845
Actual return on plan assets	131	453
Benefits payments	(54)	(478)
Fair value of plan assets, end of year	2,897	2,820
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Employer contributions	11	15
Benefits payments	$ (11)	$ (15)

XML

Accumulated Other Comprehensive Income - Reclassification for unrealized gains and impairments on securities and pension and postemployment related costs (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net (losses) gains on sale of securities available-for-securities	$ (25)	$ 284
Loss on security with other-than- temporary impairment		(288)
Salaries and employee benefits	(6,458)	(6,414)
Tax (expense) benefit	(557)	(399)
Net income	1,830	1,222
Holding gains (losses) on securities | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net (losses) gains on sale of securities available-for-securities	(25)	284
Loss on security with other-than- temporary impairment		(288)
Tax (expense) benefit	9	1
Net income	(16)	(3)
Pension and Post employment costs | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	(37)	(211)
Tax (expense) benefit	13	71
Net income	$ (24)	$ (140)

XML

Premises and Equipment Net - Components of Premises and Equipment Included in Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 24,739	$ 22,644
Less accumulated depreciation	(12,857)	(12,024)
Premises and equipment, net	11,882	10,620
Land and Improvements
Property, Plant and Equipment [Line Items]
Premises and equipment	2,004	1,998
Buildings and Improvements
Property, Plant and Equipment [Line Items]
Premises and equipment	13,032	11,764
Furniture and Equipment
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 9,703	$ 8,882

XML

Other Borrowings - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Short-term Debt [Line Items]
Securities sold under agreements to repurchase, average rates	0.12%	0.19%
Unused lines of Credit
Short-term Debt [Line Items]
Unused lines of credit	20.3	20.3

XML

Investment Securities - Cumulative Credit Related Other-Than Temporary Impairment Losses Recognized on One Debt Security (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Balance, beginning of the period	$ 288
Impairment losses recognized during the period		288
Realized losses from sales	(288)
Balance, end of period		$ 288

XML

Fair Value Measurements - Summary of Quantitative Fair Value Measurements for Level 3 (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired Loans, net	1,958	2,077
Other real estate owned, net	2,791	3,897
Impaired Loans
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired Loans, net	1,958	2,077
Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Other real estate owned, net	2,791	3,897
Minimum | Impaired Loans
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	10.00%	10.00%
Unobservable Input, Lack of Marketability	25.00%	25.00%
Minimum | Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	3.00%	3.00%
Unobservable Input, Lack of Marketability	7.00%	7.00%
Maximum | Impaired Loans
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	20.00%	20.00%
Unobservable Input, Lack of Marketability	75.00%	100.00%
Maximum | Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	13.00%	13.00%
Unobservable Input, Lack of Marketability	20.00%	30.00%
Weighted Average | Impaired Loans
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	10.00%	10.00%
Unobservable Input, Lack of Marketability	53.00%	54.00%
Weighted Average | Other Real Estate Owned
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input, Selling Cost	5.00%	6.00%
Unobservable Input, Lack of Marketability	11.00%	15.00%

XML

Deposits - Schedule of Time Deposits Maturities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Investments [Line Items]
2015	$ 56,739
2016	45,267
2017	8,843
2018	4,369
2019	6,543
Thereafter	14
Time deposits	$ 121,775	$ 96,486

XML

Employee Benefit Plans - Fair Value of Pension Plan Assets by Asset Category (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	$ 2,897	$ 2,820
Cash and Cash Equivalents
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	4	3
Fixed Income Funds
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	1,139	1,070
Equity Funds
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	1,754	1,747
Fair Value, Inputs, Level 1
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	2,897	2,820
Fair Value, Inputs, Level 1 | Cash and Cash Equivalents
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	4	3
Fair Value, Inputs, Level 1 | Fixed Income Funds
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	1,139	1,070
Fair Value, Inputs, Level 1 | Equity Funds
Defined Benefit Plan Disclosure [Line Items]
Cash and cash equivalents	$ 1,754	$ 1,747

XML

Employee Benefit Plans - Amounts Recognized in Accumulated Other Comprehensive Loss (Income) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net loss (gain)	$ 1,380	$ 625
Prior service cost	0	0
Net obligation at transition	0	0
Amount recognized	1,380	625
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net loss (gain)	83	(47)
Prior service cost	0	0
Net obligation at transition	0	0
Amount recognized	$ 83	$ (47)

XML

Financial Instruments With Off-Balance Sheet Risk - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Loan Purchase Commitments
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Outstanding loan commitment under financial instrument off balance sheet risk	$ 36,400	$ 37,300
Unused lines of Credit
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Outstanding loan commitment under financial instrument off balance sheet risk	$ 355	$ 329

XML

Employee Benefit Plans - Additional Information (Detail) (USD $)	12 Months Ended	0 Months Ended	12 Months Ended
	Dec. 31, 2014 Age	Mar. 09, 2015	Dec. 31, 2013
Defined Contribution Plan Disclosure [Line Items]
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
Discount rate assumption	5.00%		4.00%
Subsequent Event | First 3% of Each Participant's Contributions
Defined Contribution Plan Disclosure [Line Items]
Matching contribution to defined contribution plan		100.00%
Percentage of employee's contributions		3.00%
Subsequent Event | Second 3% of Each Participant's Contributions
Defined Contribution Plan Disclosure [Line Items]
Matching contribution to defined contribution plan		50.00%
Percentage of employee's contributions		3.00%
Fixed Income Funds
Defined Contribution Plan Disclosure [Line Items]
Targeted asset allocation percentage	40.00%
Equity Funds
Defined Contribution Plan Disclosure [Line Items]
Targeted asset allocation percentage	60.00%
Four Zero One Retirement Plan
Defined Contribution Plan Disclosure [Line Items]
Employer contributions	110,000		$ 97,000
Conditional period of service for availing plan	6 months
Four Zero One Retirement Plan | First 2% of Each Participant's Contributions
Defined Contribution Plan Disclosure [Line Items]
Matching contribution to defined contribution plan	100.00%
Percentage of employee's contributions	2.00%
Four Zero One Retirement Plan | Second 4% of Each Participant's Contributions
Defined Contribution Plan Disclosure [Line Items]
Matching contribution to defined contribution plan	25.00%
Percentage of employee's contributions	4.00%
Pension Plan, Defined Benefit
Defined Contribution Plan Disclosure [Line Items]
Net loss	(755,000)		224,000
Accumulated benefit obligation	3,500,000		2,700,000
Expected employer contribution	0
Other Postretirement Benefit Plan, Defined Benefit
Defined Contribution Plan Disclosure [Line Items]
Net loss	(130,000)		194,000
Expected employer contribution	22,435
Assumed annual rate of increase in per capita health care costs in 2015	8.00%
Assumed annual rate of increase in per capita health care costs in 2016	8.00%
Assumed annual rate of increase in per capita health care costs in 2017	6.00%
Assumed annual rate of increase in per capita health care costs in 2018	6.00%
Assumed annual rate of increase in per capita health care costs,2019 and thereafter	5.00%
Accumulated postretirement benefit obligation at assumed health care cost trend rates increased by 1 percentage	893
Aggregate of the service and interest cost components at assumed health care cost trend rates increased by 1 percentage	39
Accumulated postretirement benefit obligation at assumed health care cost trend rates decreased by 1 percentage	838
Aggregate of the service and interest cost components at assumed health care cost trend rates decreased by 1 percentage	36
Employer contributions	11,000		$ 15,000

XML

Other Real Estate Owned, Net - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014 Property	Dec. 31, 2013 Property
Other Real Estate [Line Items]
Other assets	2,504	$ 2,901
Number of property	27	30
Residential
Other Real Estate [Line Items]
Residential properties collateralized with loan	1
Residential | Collateralized Mortgage Obligations
Other Real Estate [Line Items]
Consumer residential mortgage loan collateralized	129
Residential and Branch Office
Other Real Estate [Line Items]
Other assets	771	$ 983
Branch Office
Other Real Estate [Line Items]
Number of property		1
Residential Property
Other Real Estate [Line Items]
Number of property	1	1

XML

Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2014

Stock-Based Compensation Plans

Note 18. Stock-Based Compensation Plans

On June 28, 2013, the Company registered a new stock-based compensation plan with the Securities and Exchange Commission, which suspended all other plans. There are 378,000 shares available for grant under this plan at December 31, 2014. Unissued shares are generally used for exercises of stock options and restricted stock grants.

Stock-based compensation expense related to stock awards during 2014 and 2013 was $20 thousand and $122 thousand, respectively. There was no unrecognized compensation expense related to stock options as of December 31, 2014. A total of 7,000 options and 89,500 options were granted and vested during 2014 and 2013, respectively. 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 expected volatility is based on historical volatility of the Company’s stock price. The risk-free interest rates for the periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts. The fair value of options granted during 2014 was $2.75. The fair value of options granted during 2013 was $1.03 and $1.08.

The variables used in these calculations of the fair value of the options are as follows:

	For the twelve months ended December 31,
	2014			2013
Risk free interest rate (5 year Treasury)		1.74	%		0.86	%
Expected dividend yield		0	%		3.6	%
Expected term (years)		5			5
Expected volatility		51.4	%		33.8	%

Stock option plan activity for 2014 and 2013 is summarized below:

				Weighted Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
	Shares			Price		Life (in years)		Value (1)
Options outstanding, January 1, 2013		120,617		$	9.51		5.4
Granted		89,500			5.25
Forfeited		(11,519	)		9.42
Exercised		—			—
Expired		(7,596	)		13.80
Options outstanding, December 31, 2013		191,002			7.35		6.8	$	14,146
Granted		7,000			5.99
Forfeited		(344	)		5.90
Exercised		—			—
Expired		(7,239	)		14.65
Options outstanding, December 31, 2014		190,419		$	7.02		6.2	$	32,718
Options exercisable, December 31, 2014		190,419		$	7.02		6.2	$	32,718

(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 December 31, 2014. 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 were 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 was recognized on that date.

XML

Significant Accounting Policies - Additional Information (Detail) (USD $)	3 Months Ended	12 Months Ended
	Sep. 30, 2013 Quarter	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2000 Branch
Significant Accounting Policies [Line Items]
Interest-Bearing Deposits in Banks, maturity period		1 year
Secured borrowings maturity period under repurchase agreements		1 year
Credit card and other personal loans charged off period no later than period		180 days
Number of Quarters	19
Percentage of excess loan balance for watch category		90.00%
Impaired loans measurement		Impaired loans measured for impairment generally include: (1) non-accruing Special mention, Substandard and Doubtful loans in excess of $250,000; (2) Substandard and Doubtful loans in excess of $500,000; (3) Special Mention loans in excess of $500,000 if any of the loans in the relationship are more than 30 days past due or if the borrower has filed for bankruptcy; and (4) all troubled debt restructurings (“TDRs”).
Loan Receivables		$ 132,038,000	$ 105,842,000
Overstatement of income, after tax			215,000
Overstatement of income, pre-tax			325,000
Pre-tax adjusted		34.00%	34.00%
Basic and diluted earnings per share			$ 0.04
Number of branches purchased during the years 1994 through 2000				5
Liabilities for recognized tax benefits		0	0
Deferred tax assets valuation allowance		0
Advertising expense		237,000	175,000
Special Mention
Significant Accounting Policies [Line Items]
Loan Receivables		4,346,000	2,904,000
Loan due days		30 days
Residential First Mortgages
Significant Accounting Policies [Line Items]
Minimum balance in order to assign a risk rating grade		1,000,000
Consumer Loans
Significant Accounting Policies [Line Items]
Minimum balance in order to assign a risk rating grade		250,000
Minimum
Significant Accounting Policies [Line Items]
Number of days past due for a loan to remain on accrual status		90 days
Minimum | Building
Significant Accounting Policies [Line Items]
Estimated useful lives		10 years
Minimum | Furniture and Equipment
Significant Accounting Policies [Line Items]
Estimated useful lives		3 years
Minimum | Non-accruing Special mention, Substandard and Doubtful loans
Significant Accounting Policies [Line Items]
Loan Receivables		250,000
Minimum | Substandard and Doubtful loans
Significant Accounting Policies [Line Items]
Loan Receivables		500,000
Minimum | Special Mention
Significant Accounting Policies [Line Items]
Loan Receivables		$ 500,000
Maximum | Building
Significant Accounting Policies [Line Items]
Estimated useful lives		40 years
Maximum | Furniture and Equipment
Significant Accounting Policies [Line Items]
Estimated useful lives		10 years

XML

Regulatory Requirements and Restrictions (Tables)

12 Months Ended

Dec. 31, 2014

Schedule of Bank's Actual Capital Amounts and Ratios

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2014 and 2013, are presented in the following tables:

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2014:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	41,445		15.02	%	$	22,074		8.00	%		N/A		N/A
Bank of Lancaster		36,446		13.30	%		21,927		8.00	%	$	27,409		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		38,240		13.86	%		11,037		4.00	%		N/A		N/A
Bank of Lancaster		33,241		12.13	%		10,964		4.00	%	$	16,445		6	%
Tier 1 Capital (to Average Assets)
Consolidated		38,240		10.35	%		14,770		4.00	%		N/A		N/A
Bank of Lancaster		33,241		9.07	%		14,664		4.00	%	$	18,329		5	%

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2013:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	39,322		16.38	%	$	19,211		8.00	%		N/A		N/A
Bank of Lancaster		33,419		14.01	%		19,089		8.00	%	$	23,861		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		36,397		15.16	%		9,605		4.00	%		N/A		N/A
Bank of Lancaster		30,494		12.78	%		9,545		4.00	%	$	14,317		6	%
Tier 1 Capital (to Average Assets)
Consolidated		36,397		10.93	%		13,319		4.00	%		N/A		N/A
Bank of Lancaster		30,494		9.20	%		13,259		4.00	%	$	16,573		5	%

XML

Deposits - Additional Information (Detail) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Cash And Short Term Investments [Line Items]
Aggregate amount of time deposits in denominations of $250000 or more	$ 16,500,000	$ 7,000,000
Overdraft demand deposits reclassified to loans	85,000	91,000
Brokered deposits	$ 8,000,000	$ 0

XML

Stock-Based Compensation Plans - Additional Information (Detail) (USD $)	0 Months Ended	12 Months Ended
	Feb. 21, 2013	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for grant		378,000
Stock-based compensation expense		$ 20,000	$ 122,000
Unrecognized compensation expenses related to stock award		0
Additional options granted under plan		7,000	89,500
Options vested		7,000	89,500
Fair value of options granted during the period		$ 2.75
Stock-based compensation expense	$ 36,750
Chief Executive Officer, Executive Vice President And Chief Financial Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional options granted under plan	7,000
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options granted during the period			$ 1.03
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options granted during the period			$ 1.08

XML

Premises and Equipment, net (Tables)

12 Months Ended

Dec. 31, 2014

Components of Premises and Equipment Included in Balance Sheets

Components of premises and equipment included in the balance sheets at December 31, 2014 and 2013 were as follows:

	2014			2013
(Dollars in thousands)
Land and improvements	$	2,004		$	1,998
Buildings and improvements		13,032			11,764
Furniture and equipment		9,703			8,882
Total cost		24,739			22,644
Less accumulated depreciation		(12,857	)		(12,024	)
Premises and equipment, net	$	11,882		$	10,620

XML

Securities - Aggregate Amortized Costs and Fair Values of Available-for-Sale Securities Portfolio (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 42,536	$ 39,721
Gross Unrealized Gains	267	129
Gross Unrealized (Losses)	(199)	(1,328)
Fair Value	42,604	38,522
Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,232	1,736
Gross Unrealized Gains	8	9
Gross Unrealized (Losses)	(2)
Fair Value	2,238	1,745
US Government Agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	16,969	9,383
Gross Unrealized Gains	33	11
Gross Unrealized (Losses)	(37)	(86)
Fair Value	16,965	9,308
State and Municipal Obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	23,335	27,690
Gross Unrealized Gains	226	109
Gross Unrealized (Losses)	(160)	(1,242)
Fair Value	23,401	26,557
Auction Rate Security
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		912
Fair Value		$ 912

XML

Allowance for Loan Losses - Company's Recorded Investment and Customers' Unpaid Principal Balances for Impaired Loans, with Associated Allowance Amount (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	$ 4,224		$ 3,912
With no related allowance, Customers' Unpaid Principal Balance	4,271		3,925
With no related allowance, Related Allowance	0		0
With an allowance recorded, Recorded Investment	2,634		2,744
With an allowance recorded, Customers' Unpaid Principal Balance	2,649		3,377
With an allowance recorded, Related Allowance	676		667
Total Impaired Loans, Recorded Investment	6,858		6,656
Total Impaired Loans, Customers' Unpaid Principal Balance	6,920		7,302
Total Impaired Loans, Related Allowance	676		667
With no related allowance, Average Recorded Investment	3,790		2,127
With no related allowance, Interest Income Recognized	147		113
With an allowance recorded, Average Recorded Investment	2,550		2,281
With an allowance recorded, Interest Income Recognized	115		123
Total, Average Recorded Investment	6,340		4,408
Total, Interest Income Recognized	262		236
Construction, Land and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	450		453
With no related allowance, Customers' Unpaid Principal Balance	452		453
With no related allowance, Related Allowance	0		0
With an allowance recorded, Recorded Investment	277		151
With an allowance recorded, Customers' Unpaid Principal Balance	292		156
With an allowance recorded, Related Allowance	144		51
Total Impaired Loans, Recorded Investment	727		604
Total Impaired Loans, Customers' Unpaid Principal Balance	744		609
Total Impaired Loans, Related Allowance	144		51
With no related allowance, Average Recorded Investment	451		189
With no related allowance, Interest Income Recognized	3		1
With an allowance recorded, Average Recorded Investment	168		30
With an allowance recorded, Interest Income Recognized	4
Total, Average Recorded Investment	619		219
Total, Interest Income Recognized	7		1
Residential First Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	1,568		1,053
With no related allowance, Customers' Unpaid Principal Balance	1,584		1,057
With no related allowance, Related Allowance	0		0
With an allowance recorded, Recorded Investment	2,173		2,198
With an allowance recorded, Customers' Unpaid Principal Balance	2,173		2,198
With an allowance recorded, Related Allowance	437		409
Total Impaired Loans, Recorded Investment	3,741		3,251
Total Impaired Loans, Customers' Unpaid Principal Balance	3,757		3,255
Total Impaired Loans, Related Allowance	437		409
With no related allowance, Average Recorded Investment	1,148		678
With no related allowance, Interest Income Recognized	49		48
With an allowance recorded, Average Recorded Investment	2,184		1,916
With an allowance recorded, Interest Income Recognized	100		108
Total, Average Recorded Investment	3,332		2,594
Total, Interest Income Recognized	149		156
Residential Revolving and Junior Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	50	[1]
With no related allowance, Customers' Unpaid Principal Balance	50	[1]
With no related allowance, Related Allowance	0	[1]	0	[1]
With an allowance recorded, Recorded Investment	173	[1]	251	[1]
With an allowance recorded, Customers' Unpaid Principal Balance	173	[1]	879	[1]
With an allowance recorded, Related Allowance	84	[1]	173	[1]
Total Impaired Loans, Recorded Investment	223	[1]	251	[1]
Total Impaired Loans, Customers' Unpaid Principal Balance	223	[1]	879	[1]
Total Impaired Loans, Related Allowance	84	[1]	173	[1]
With no related allowance, Average Recorded Investment	10	[1]
With an allowance recorded, Average Recorded Investment	174	[1]	254	[1]
With an allowance recorded, Interest Income Recognized	9	[1]	8	[1]
Total, Average Recorded Investment	184	[1]	254	[1]
Total, Interest Income Recognized	9	[1]	8	[1]
Commercial Mortgages (Non-Owner Occupied)
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	264		264
With no related allowance, Customers' Unpaid Principal Balance	264		264
With no related allowance, Related Allowance	0		0
Total Impaired Loans, Recorded Investment	264		264
Total Impaired Loans, Customers' Unpaid Principal Balance	264		264
With no related allowance, Average Recorded Investment	264		106
With no related allowance, Interest Income Recognized	16		8
Total, Average Recorded Investment	264		106
Total, Interest Income Recognized	16		8
Commercial Mortgages (Owner Occupied)
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	1,887		1,831
With no related allowance, Customers' Unpaid Principal Balance	1,916		1,840
With no related allowance, Related Allowance	0		0
With an allowance recorded, Recorded Investment			105
With an allowance recorded, Customers' Unpaid Principal Balance			105
With an allowance recorded, Related Allowance			1
Total Impaired Loans, Recorded Investment	1,887		1,936
Total Impaired Loans, Customers' Unpaid Principal Balance	1,916		1,945
Total Impaired Loans, Related Allowance			1
With no related allowance, Average Recorded Investment	1,911		1,092
With no related allowance, Interest Income Recognized	79		56
With an allowance recorded, Average Recorded Investment			21
With an allowance recorded, Interest Income Recognized			2
Total, Average Recorded Investment	1,911		1,113
Total, Interest Income Recognized	79		58
Commercial and Industrial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment			311
With no related allowance, Customers' Unpaid Principal Balance			311
With no related allowance, Related Allowance	0		0
Total Impaired Loans, Recorded Investment			311
Total Impaired Loans, Customers' Unpaid Principal Balance			311
With no related allowance, Average Recorded Investment			62
Total, Average Recorded Investment			62
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
With no related allowance, Recorded Investment	5	[2]
With no related allowance, Customers' Unpaid Principal Balance	5	[2]
With no related allowance, Related Allowance	0	[2]	0	[2]
With an allowance recorded, Recorded Investment	11	[2]	39	[2]
With an allowance recorded, Customers' Unpaid Principal Balance	11	[2]	39	[2]
With an allowance recorded, Related Allowance	11	[2]	33	[2]
Total Impaired Loans, Recorded Investment	16	[2]	39	[2]
Total Impaired Loans, Customers' Unpaid Principal Balance	16	[2]	39	[2]
Total Impaired Loans, Related Allowance	11	[2]	33	[2]
With no related allowance, Average Recorded Investment	6	[2]
With an allowance recorded, Average Recorded Investment	24	[2]	60	[2]
With an allowance recorded, Interest Income Recognized	2	[2]	5	[2]
Total, Average Recorded Investment	30	[2]	60	[2]
Total, Interest Income Recognized	$ 2	[2]	$ 5	[2]

[1] Junior mortgages include equity lines.

[2] includes credit cards.

XML

Leases - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014 Office Branch	Dec. 31, 2013
Operating Leased Assets [Line Items]
Number of retail branches	2
Loan production office and office equipment	1
Lease expense	$ 103	$ 32

XML

Allowance for Loan Losses - Allowance for Loan Losses by Portfolio Segment (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	$ 2,925	$ 3,094
(Charge-offs)	(392)	(1,028)
Recoveries	61	83
Provision	611	776
Ending Balance	3,205	2,925
Individually evaluated for impairment	676	667
Collectively evaluated for impairment	2,529	2,258
Mortgage Loans on Real Estate
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	2,465	2,572
(Charge-offs)	(313)	(879)
Recoveries	36	68
Provision	590	704
Ending Balance	2,778	2,465
Individually evaluated for impairment	665	634
Collectively evaluated for impairment	2,113	1,831
Commercial and Industrial loans
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	256	262
(Charge-offs)		(17)
Recoveries		1
Provision	67	10
Ending Balance	323	256
Collectively evaluated for impairment	323	256
Consumer and Other Loans
ALLOWANCE FOR LOAN LOSSES:
Beginning Balance	204	260
(Charge-offs)	(79)	(132)
Recoveries	25	14
Provision	(46)	62
Ending Balance	104	204
Individually evaluated for impairment	11	33
Collectively evaluated for impairment	$ 93	$ 171

XML

Leases (Tables)

12 Months Ended

Dec. 31, 2014

Future Minimum Lease payments for Long-term Non-cancelable Lease agreements

the following is a schedule, by year, of future minimum lease payments required under the long-term non-cancelable lease agreements (in thousands).

2015	$	149
2016		149
2017		93
2018		68
2019		28
Thereafter		—
	$	487

XML

Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Significant Accounting Policies

Note 2. Significant Accounting Policies

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. The amounts recorded in the consolidated financial statements may be affected by those estimates and assumptions. Actual results may vary from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the measurement of fair value of foreclosed real estate, deferred taxes, impairment testing of goodwill, projected pension and post-retirement obligations and fair value measurements.

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, all of which mature within ninety days.

Interest-bearing deposits in banks

Interest-bearing deposits in banks are carried at cost and include deposits with the Federal Reserve Bank of Richmond, which mature within one year.

Securities

Investments in debt and equity securities with readily determinable fair values are classified as either held to maturity, available-for-sale, or trading, based on management’s intent. Currently, all of the Company’s investment securities are classified as available-for-sale. Securities available-for-sale are carried at estimated fair value with the corresponding unrealized gains and losses excluded from earnings and reported in other comprehensive income. A gain or loss is recognized in earnings on the settlement date based on the amortized cost of the specific security sold. Purchase premiums and discounts are recognized in interest income via amortization or accretion, respectively, using the interest method over the terms of the securities.

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if (i) there is evidence of credit related impairment; (ii) the Company intends to sell the security or (iii) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that it will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is a credit loss, the loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on the Company’s ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. The Company regularly reviews each investment security for other-than-temporary impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the Company’s best estimate of the present value of cash flows expected to be collected from debt securities, the Company’s intention with regard to holding the security to maturity and the likelihood that it would be required to sell the security before recovery.

Securities sold under repurchase agreements

Securities sold under repurchase agreements, which are classified as secured borrowings, generally mature within one year from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company is required to provide collateral based on the fair value of the underlying securities.

Loans

The Company grants mortgage loans on real estate; commercial and industrial loans; and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Company’s market areas.

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

The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans.

All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection.

Troubled debt restructuring (“TDR”)

In some situations, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to a borrower that it would not otherwise consider. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, the related loan is classified as a troubled debt restructuring. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. Management measures all TDRs for impairment as noted below for impaired loans.

Allowance for loan losses (“ALL”)

The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and homogenous pools of loans analyzed on a segmented basis. Considerations include historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as additional information becomes available.

The ALL calculation methodology’s historical loss factor period is considered the length of a business cycle. The business cycle, upon which the historical loss factor is based, was believed to have begun in the fourth quarter of 2008. During the third quarter of 2013, management determined that the business cycle had ended given noticeable national economic improvement and local real estate market stabilization. The historical loss factor is now based on that business cycle of 19 quarters, compared to the previous averaging period that had been growing each quarter based on the business cycle that began in 2008. The change in methodology during the third quarter of 2013 produced an immaterial change in the ALL calculation.

Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. Loans assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures. 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. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows:

Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate.

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

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

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

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

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

The ALL consists of specific, general, and unallocated components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include: (1) non-accruing Special mention, Substandard and Doubtful loans in excess of $250,000; (2) Substandard and Doubtful loans in excess of $500,000; (3) Special Mention loans in excess of $500,000 if any of the loans in the relationship are more than 30 days past due or if the borrower has filed for bankruptcy; and (4) all troubled debt restructurings (“TDRs”). A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in the local and national economic outlook, including unemployment, interest rates, inflation rates and real estate trends; the level and trend of past due and nonaccrual loans; strength of policies and procedures; and oversight of credit risk and quality of underwriting. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Changes in the allowance for loan losses and the related provision expense can materially affect net income.

The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

The general component of the ALL calculation collectively evaluates groups of loans in segments or classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 19 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class.

Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans include credit cards which are unsecured.

The summation of the specific, general and unallocated components 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.

Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans.

Mortgage servicing rights (“MSRs”)

MSRs are included on the consolidated balance sheet and recorded at fair value on an ongoing basis. Changes in the fair value of the MSRs are recorded in the results of operations. A fair value analysis of MSRs is performed on a quarterly basis.

For a number of years, the Bank retained the servicing for mortgages it had originated and sold to a third party. Prior to 2013, the Bank had not recorded the MSRs asset at the time of the sales of mortgages to the third party. The cumulative effect of the MSRs asset was recognized in the third quarter of 2013. The overstatement of income in 2013 of approximately $215,000 after tax ($325,000 pre-tax adjusted at a 34% tax rate) or approximately $0.04 per basic and diluted earnings per share represents the fair value of servicing rights retained prior to 2013.

The Company has evaluated this uncorrected misstatement in consideration and accordance with the guidance from Staff Accounting Bulletin 99 and 108, in order to determine whether it is material to the financial statements taken as a whole. The Company’s evaluation process included consideration of the nature, cause, amount and effect of the misstatement from both a quantitative and qualitative perspective.

It is management’s judgment that the adjustment to the 2013 financial statements for MSRs, related to 2012 and prior, was not material to the 2013 balance sheet, results of operations and cash flows taken as a whole.

Premises and equipment, net

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the premises and equipment. Estimated useful lives range from 10-40 years for buildings, and from 3-10 years for furniture, fixtures and equipment. Maintenance and repairs are charged to expense as incurred, and major improvements are capitalized.

Other real estate owned, net

Real estate properties acquired through, or in lieu of, loan foreclosure are marketed for sale and are initially recorded at fair value on the date of foreclosure less estimated selling costs, thereby establishing a new cost basis. After acquisition, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations are included in expenses from foreclosed assets and changes in the valuation allowance are included in other real estate gains (losses).

Goodwill

Goodwill is related to unidentifiable intangible assets arising from the acquisition of five branches during the years 1994 through 2000. Goodwill is tested annually for impairment. If impairment exists, the amount of impairment would result in a charge to expense.

Income taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any, associated with unrecognized tax benefits are classified as additional income taxes in the statements of income. The Company had no liabilities for recognized tax benefits at December 31, 2014 or 2013.

The Company evaluates its deferred tax assets quarterly to determine if those assets will be recovered and if a valuation allowance is needed. At December 31, 2014, the Company determined no valuation allowance related to its deferred tax assets was necessary.

Pension benefits

The Company has a non-contributory cash balance benefit pension plan which was frozen in 2012. The plan covers employees who had become vested in the plan by the date it was frozen. The balances for those employees in the plan receive interest credits.

Postretirement benefits

The Company provides certain health care benefits for all retired employees who meet eligibility requirements.

Trust assets and income

Customer assets held by the Trust Company, other than cash on deposit at the Bank, are not included in these financial statements, since such items are not assets of the Bank or the Trust Company. Trust fees are recorded on the accrual basis.

Earnings per share

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options. Refer to Note 19.

Off-balance-sheet financial instruments

In the ordinary course of business, the Company enters into off-balance-sheet financial instruments such as home equity lines of credit, overdraft protection lines of credit, unsecured lines of credit, commitments under credit card arrangements, construction loan commitments and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Significant group concentration of credit risk

Most of the Company’s business activity is with customers located in the counties of Lancaster, Northumberland, Richmond, Westmoreland, Middlesex and Henrico, Virginia. The Company makes residential, commercial and consumer loans and a significant amount of the loan portfolio is comprised of real estate mortgage loans, which are primarily secured by single-family residences. The adequacy of collateral on real estate mortgage loans is highly dependent on changes in real estate values.

Advertising

Advertising costs are expensed as incurred and totaled $237 thousand and $175 thousand for the years ended December 31, 2014 and 2013, respectively.

Comprehensive income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains or losses on securities available-for-sale and changes in the actuarial gain or loss of the pension and postretirement plans. The cumulative position of the items in comprehensive income resides in shareholders’ equity as accumulated other comprehensive income. Refer to Note 24.

Fair value of financial instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Stock-based compensation plans

Authoritative accounting guidance requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. This cost is recognized over the vesting period of the respective awards.

Recent Accounting Pronouncements.

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-4): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendment clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, either upon (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendment also requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. Companies should apply this amendment for fiscal years and interim periods beginning after December 15, 2014. The Company adopted the new guidance during the first quarter of 2014. The adoption did not have a material impact on the Company’s consolidated financial statements. Disclosures are included in Note 6.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). The amendments in this ASU modify the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations. Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the guidance. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, with early adoption prohibited. The Company is evaluating the impact that ASU 2014-09 will have on its consolidated financial statements.

XML

Accumulated Other Comprehensive Income - Balances in Accumulated Other Comprehensive Income (Loss) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Beginning balance	$ (1,173)	$ (381)
Change in net unrealized holding gains (losses) on securities, before reclassification, net of tax expense (benefit)	820	(1,068)
Reclassification for previously unrealized net (gains) losses recognized in income, net of tax benefit	16	(3)
Net gain (loss) on pension and postretirement plans, net of tax expense	(584)	277
Net postretirement plan transition cost, net of tax expense		2
Ending Balance	(921)	(1,173)
Holding gains (losses) on securities
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Beginning balance	(791)	280
Change in net unrealized holding gains (losses) on securities, before reclassification, net of tax expense (benefit)	820	(1,068)
Reclassification for previously unrealized net (gains) losses recognized in income, net of tax benefit	16	(3)
Ending Balance	45	(791)
Pension and Post employment costs
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Beginning balance	(382)	(661)
Net gain (loss) on pension and postretirement plans, net of tax expense	(584)	277
Net postretirement plan transition cost, net of tax expense		2
Ending Balance	$ (966)	$ (382)

XML

Allowance for Loan Losses - Loan Receivables Evaluated for Impairment Individually and Collectively by Segment (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 6,858	$ 6,656
Collectively evaluated for impairment	291,196	243,675
Total Gross Loans	298,054	250,331
Mortgage Loans on Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	6,842	6,306
Collectively evaluated for impairment	251,861	214,101
Total Gross Loans	258,703	220,407
Commercial and Industrial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment		311
Collectively evaluated for impairment	34,002	23,627
Total Gross Loans	34,002	23,938
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	16	39
Collectively evaluated for impairment	5,333	5,947
Total Gross Loans	$ 5,349	$ 5,986

XML

Stock-Based Compensation Plans (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value of Options

The variables used in these calculations of the fair value of the options are as follows:

	For the twelve months ended December 31,
	2014			2013
Risk free interest rate (5 year Treasury)		1.74	%		0.86	%
Expected dividend yield		0	%		3.6	%
Expected term (years)		5			5
Expected volatility		51.4	%		33.8	%

Summary of Stock Option Activity

Stock option plan activity for 2014 and 2013 is summarized below:

				Weighted Average Exercise		Weighted Average Remaining Contractual		Aggregate Intrinsic
	Shares			Price		Life (in years)		Value (1)
Options outstanding, January 1, 2013		120,617		$	9.51		5.4
Granted		89,500			5.25
Forfeited		(11,519	)		9.42
Exercised		—			—
Expired		(7,596	)		13.80
Options outstanding, December 31, 2013		191,002			7.35		6.8	$	14,146
Granted		7,000			5.99
Forfeited		(344	)		5.90
Exercised		—			—
Expired		(7,239	)		14.65
Options outstanding, December 31, 2014		190,419		$	7.02		6.2	$	32,718
Options exercisable, December 31, 2014		190,419		$	7.02		6.2	$	32,718

(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 December 31, 2014. This amount changes based on changes in the market value of the Company’s common stock.

XML

Leases

12 Months Ended

Dec. 31, 2014

Leases

Note 22. Leases

The Company has long-term leases for two retail branches, one loan production office and office equipment. Lease expense for 2014 and 2013 was $103 thousand and $32 thousand, respectively. Pursuant to the terms of these leases, the following is a schedule, by year, of future minimum lease payments required under the long-term non-cancelable lease agreements (in thousands).

2015	$	149
2016		149
2017		93
2018		68
2019		28
Thereafter		—
	$	487

XML

Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Measurements

Note 21. 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.

Defined benefit plan assets: Defined benefit plan assets are recorded at fair value on an annual basis at year end. Fair value measurement is based upon quoted market prices, when available (Level 1).

Mortgage servicing rights: MSRs are recorded at fair value on a recurring basis, with changes in fair value recorded in the result of operations. A model is used to determine fair value, which establishes pools of performing loans, calculates cash flows for each pool and applies a discount rate to each pool. Loans are segregated into 14 pools based on each loan’s term and seasoning (age). All loans have fixed interest rates. Cash flows are then estimated by utilizing assumed service costs and prepayment speeds. Service costs were assumed to be $5.75 per loan as of December 31, 2014 and $6.00 per loan as of December 31, 2013. Prepayment speeds are determined primarily based on the average interest rate of the loans in each pool. The prepayment scale used is the Public Securities Association (“PSA”) model, where “100% PSA” means prepayments are zero in the first month, then increase by 0.2% of the loan balance each month until reaching 6.0% in month 30. Thereafter, the 100% PSA model assumes an annual prepayment of 6.0% of the remaining loan balance. The average PSA speed assumption in the fair value model is 184% as of December 31, 2014 and 162% as of December 31, 2013. A discount rate of 10.0% was then applied to each pool as of both December 31, 2014 and 2013. This discount rate is intended to represent the estimated market yield for the highest quality grade of comparable servicing. MSRs are classified as Level 3.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	16,965	$	845	$	16,120	$	—
State and municipal obligations		23,401		—		23,401		—
Certificates of deposit		2,238		—		2,238		—
Total securities available-for-sale	$	42,604	$	845	$	41,759	$	—
Mortgage servicing rights	$	596	$	—	$	—	$	596
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—
			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Securities available-for-sale:
U. S. Government agencies	$	9,308	$	—	$	9,308	$	—
State and municipal obligations		26,557		—		26,557		—
Certificates of deposit		1,745		—		1,745		—
Auction rate securities		912		—		—		912
Total securities available-for-sale	$	38,522	$	—	$	37,610	$	912
Mortgage servicing rights	$	579	$	—	$	—	$	579
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

The reconciliation of items using Level 3 inputs is as follows:

(Dollars in thousands)	Auction Rate Security			MSRs
Balance, January 1, 2014	$	912		$	579
Purchases		—			—
Fair value adjustments		—			17
Sales		(912	)		—
Balance, December 31, 2014	$	—		$	596

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. Any given loan may have multiple types of collateral. 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 ALL 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: OREO is measured at fair value less estimated costs 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. The initial fair value of OREO is based on an appraisal done at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest income on the Consolidated Statements of Income.

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

			Fair Value Measurements at December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Impaired Loans, net	$	1,958	$	—	$	—	$	1,958
Other real estate owned, net		2,791		—		—		2,791

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Level 1		Level 2		Level 3
Impaired Loans, net	$	2,077	$	—	$	—	$	2,077
Other real estate owned, net		3,897		—		—		3,897

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2014:

(Dollars in thousands)	Balance as of December 31, 2014		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	1,958		Discounted appraised value		Selling Cost	10% 20% (10%)
						Lack of Marketability	25% - 75% (53%)
Other real estate owned, net		2,791		Discounted appraised value		Selling Cost	3% - 13% (5%)
						Lack of Marketability	7% - 20% (11%)

The following table displays quantitative information about Level 3 Fair Value Measurements as of December 31, 2013:

(Dollars in thousands)	Balance as of December 31, 2013		Valuation Technique		Unobservable Input		Range (Weighted Average)
Impaired Loans, net	$	2,077		Discounted appraised value		Selling Cost	10% - 20% (10%)
						Lack of Marketability	25% - 100% (54%)
Other real estate owned, net		3,897		Discounted appraised value		Selling Cost	3% - 13% (6%)
						Lack of Marketability	7% - 30% (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 December 31, 2014 Using
(Dollars in thousands)	Balance as of
Description	December 31, 2014		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,181	$	6,181	$	—	$	—
Interest-bearing deposits		14,784		14,784		—		—
Federal funds sold		119		119		—		—
Securities available-for-sale		42,604		845		41,759		—
Restricted securities		2,430		—		—		2,430
Loans, net		295,242		—		—		300,481
Accrued interest receivable		1,197		—		1,197		—
Mortgage servicing rights		596		—		—		596
Financial Liabilities:
Non-interest-bearing liabilities	$	63,308	$	63,308	$	—	$	—
Savings and other interest-bearing deposits		122,502		—		122,502		—
Time deposits		121,775		—		—		122,662
Securities sold under repurchase agreements		6,012		—		6,012		—
FHLB advances		35,000		—		35,951		—
Accrued interest payable		149		—		149		—

			Fair Value Measurements at December 31, 2013 Using
	Balance as of
Description	December 31,2013		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	6,789	$	6,789	$	—	$	—
Interest-bearing deposits		8,900		8,900		—		—
Federal funds sold		120		120		—		—
Securities available-for-sale		38,522		—		37,610		912
Restricted securities		1,638		—		—		1,638
Loans, net		247,912		—		—		253,139
Loans held for sale		196		—		—		196
Accrued interest receivable		1,124		—		1,124		—
Mortgage servicing rights		579		—		—		579
Financial Liabilities:
Non-interest-bearing liabilities	$	57,805	$	57,805	$	—	$	—
Savings and other interest-bearing deposits		114,056		—		114,056		—
Time deposits		96,486		—		—		98,049
Securities sold under repurchase agreements		9,118		—		9,118		—
FHLB advances		15,000		—		15,923		—
Accrued interest payable		167		—		167		—

The carrying amounts of cash and due from banks, interest-bearing deposits, federal funds sold or purchased, accrued interest, loans held for sale and non-interest-bearing deposits, are payable on demand, or are of such short duration that carrying value approximates market value.

Securities available-for-sale are carried at quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The carrying value of restricted securities approximates fair value based on the redemption provisions of the issuer.

MSRs are carried at fair value. As described above, a valuation model is used to determine fair value. This model utilizes a discounted cash flow analysis with servicing costs and prepayment assumptions based on comparable instruments and a discount rate.

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. The fair value of loans does not consider the lack of liquidity and uncertainty in the market that would affect the valuation.

Time deposits are presented at estimated fair value by discounting the future cash flows 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 current interest rates 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 December 31, 2014 and December 31, 2013, the fair value of loan commitments and standby letters of credit was immaterial and 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.

XML

Stock-Based Compensation - Summary of Stock Option Plan Activity (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding, beginning	191,002		120,617
Granted, shares	7,000		89,500
Forfeited, shares	(344)		(11,519)
Exercised, shares	0		0
Expired, shares	(7,239)		(7,596)
Options outstanding, ending	190,419		191,002		120,617
Options outstanding, beginning, Weighted Average Exercise Price	$ 7.35		$ 9.51
Options exercisable, ending	190,419
Granted, Weighted Average Exercise Price	$ 5.99		$ 5.25
Forfeited, Weighted Average Exercise Price	$ 5.90		$ 9.42
Exercised, Weighted Average Exercise Price	$ 0		$ 0
Expired, Weighted Average Exercise Price	$ 14.65		$ 13.80
Options outstanding, ending, Weighted Average Exercise Price	$ 7.02		$ 7.35		$ 9.51
Options exercisable, ending, Weighted Average Exercise Price	$ 7.02
Options outstanding, ending, Weighted Average Remaining Contractual Life	6 years 2 months 12 days		6 years 9 months 18 days		5 years 4 months 24 days
Options exercisable, ending, Weighted Average Remaining Contractual Life	6 years 2 months 12 days
Options outstanding, ending, Aggregate Intrinsic Value	$ 32,718	[1]	$ 14,146	[1]
Options exercisable, ending, Aggregate Intrinsic Value	$ 32,718	[1]

[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 December 31, 2014. This amount changes based on changes in the market value of the Company's common stock.

XML

Securities - Unrealized Loss Positions (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	$ 2,653	$ 19,063
Less than 12 months, Unrealized Loss	11	1,186
12 months or more, Fair Value	12,538	3,768
12 months or more, Unrealized Loss	188	142
Fair Value, Total	15,191	22,831
Total Unrealized Loss	199	1,328
Certificates of Deposit
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	742
Less than 12 months, Unrealized Loss	2
Fair Value, Total	742
Total Unrealized Loss	2
US Government Agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	1,499	4,808
Less than 12 months, Unrealized Loss	4	66
12 months or more, Fair Value	3,532	1,462
12 months or more, Unrealized Loss	33	20
Fair Value, Total	5,031	6,270
Total Unrealized Loss	37	86
State and Municipal Obligations
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	412	14,255
Less than 12 months, Unrealized Loss	5	1,120
12 months or more, Fair Value	9,006	2,306
12 months or more, Unrealized Loss	155	122
Fair Value, Total	9,418	16,561
Total Unrealized Loss	$ 160	$ 1,242

XML

Earnings per Share (Tables)

12 Months Ended

Dec. 31, 2014

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.

	For the Years Ended
	December 31, 2014				December 31, 2013
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,818,377	$	0.38		4,816,859	$	0.25
Effect of dilutive securities:
Stock options		11,204				2,484
Diluted earnings per share		4,829,581	$	0.38		4,819,343	$	0.25

XML

Condensed Financial Information of Parent Company

12 Months Ended

Dec. 31, 2014

Condensed Financial Information of Parent Company

Note 23. Condensed Financial Information of Parent Company

Financial information pertaining only to Bay Banks of Virginia, Inc. is as follows:

(Dollars in thousands)
Condensed Balance Sheets	December 31, 2014		December 31, 2013
Assets
Cash and due from non-affiliated banks	$	2,445	$	3,884
Investments in subsidiaries		35,625		32,456
Premises and equipment, net		—		1
Other assets		1,732		1,266
Total assets	$	39,802	$	37,607
Liabilities and Shareholders’ Equity
Liabilities
Deferred directors’ compensation	$	414	$	337
Other liabilities		150		134
Total liabilities		564		471
Total shareholders’ equity		39,238		37,136
Total liabilities and shareholders’ equity	$	39,802	$	37,607

(Dollars in thousands)
Condensed Income Statements	Years ended December 31,
	2014		2013
Non-interest income	$	641	$	600
Non-interest expense		622		829
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries		19		(229	)
Income tax expense (benefit)		5		(27	)
Income (loss) before equity in undistributed earnings of subsidiaries		14		(202	)
Equity in undistributed earnings of subsidiaries		1,816		1,424
Net income	$	1,830	$	1,222

(Dollars in thousands)
Condensed Statements of Cash Flows	Years ended December 31,
	2014			2013
Cash Flows from Operating Activities:
Net income	$	1,830		$	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		—			1
Stock-based compensation		20			122
Equity in undistributed earnings of subsidiaries		(1,816	)		(1,424	)
Increase in other assets		(467	)		(186	)
Net change in deferred directors’ compensation		77			87
Increase (decrease) in other liabilities		17			(3,720	)
Net cash used in operating activities		(339	)		(3,898	)
Cash Flows from Investing Activities:
Purchase of other assets		—			(771	)
Investment in subsidiaries		(1,100	)		(500	)
Net cash used in investing activities		(1,100	)		(1,271	)
Cash Flows from Financing Activities:
Net cash provided by financing activities		—			—
Net decrease in cash and due from banks		(1,439	)		(5,169	)
Cash and due from banks at January 1		3,884			9,053
Cash and due from banks at December 31	$	2,445		$	3,884

XML

Accumulated Other Comprehensive Income

12 Months Ended

Dec. 31, 2014

Accumulated Other Comprehensive Income

Note 24. Accumulated Other Comprehensive Income

The balances in accumulated other comprehensive income (loss) are shown in the following table (dollars in thousands):

	Net Unrealized			Pension and			Accumulated Other
	Gains (Losses)			Post-retirement			Comprehensive
	on Securities			Benefit Plans			Income (Loss)
Balance January 1, 2013	$	280		$	(661	)	$	(381	)
Change in net unrealized holding losses on securities, before reclassification, net of tax benefit of $550		(1,068	)		—			(1,068	)
Reclassification for previously unrealized net gains recognized in income, net of tax benefit of $1		(3	)		—			(3	)
Net gain on pension and postretirement plans, net of tax expense of $143		—			277			277
Net postretirement plan transition cost, net of tax expense of $1		—			2			2
Balance December 31, 2013		(791	)		(382	)		(1,173	)
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $422		820			—			820
Reclassification for previously unrealized net losses recognized in income, net of tax benefit of $9		16			—			16
Net loss on pension and postretirement plans, net of tax benefit of $301		—			(584	)		(584	)
Balance at December 31, 2014	$	45		$	(966	)	$	(921	)

Reclassification for previously unrealized gains and impairments on securities and pension and postemployment related costs are reported in the consolidated statements of income as follows:

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2014
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net losses on sale of securities available-for-securities	$	(25	)	$	—
Salaries and employee benefits		—			(37	)
Tax (expense) benefit		9			13
Impact on net income	$	(16	)	$	(24	)

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2013
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net gains on sale of securities available-for-securities	$	284		$	—
Loss on security with other-than- temporary impairment		(288	)		—
Salaries and employee benefits		—			(211	)
Tax (expense) benefit		1			71
Impact on net income	$	(3	)	$	(140	)

XML

Organization and Presentation

12 Months Ended

Dec. 31, 2014

Organization and Presentation

Note 1. Organization and Presentation

Organization. Bay Banks of Virginia, Inc. (the “Company”) is a bank holding company that conducts substantially all of its operations through its subsidiaries.

The Bank of Lancaster (the “Bank”) is a state-chartered bank and a member of the Federal Reserve System. It serves businesses, professionals and consumers on the Northern Neck and Middle Peninsulas of Virginia and the Greater Richmond, Virginia market. The Bank has branch offices in the Virginia counties of Chesterfield, Henrico, Lancaster, Northumberland, Richmond, Westmoreland, and in the City of Richmond, Virginia plus a residential mortgage loan production office in Middlesex County, Virginia. Each branch office offers a full range of deposit and loan products to its retail and commercial customers. A substantial amount of the Bank’s deposits are interest bearing. The majority of the Bank’s loan portfolio is secured by real estate.

Bay Trust Company (the “Trust Company”) provides management services for personal and corporate trusts, including estate planning, estate settlement, and trust administration from its main office in Kilmarnock, Virginia. Products include revocable and irrevocable living trusts, testamentary trusts, custodial accounts, investment management accounts and managed, as well as self-directed, rollover Individual Retirement Accounts.

Basis of Presentation. The consolidated financial statements of the Company include the accounts of Bay Banks of Virginia, Inc. and its subsidiaries, Bank of Lancaster and Bay Trust Company. All significant intercompany balances and transactions have been eliminated in consolidation.

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

Use of estimates

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions. The amounts recorded in the consolidated financial statements may be affected by those estimates and assumptions. Actual results may vary from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the measurement of fair value of foreclosed real estate, deferred taxes, impairment testing of goodwill, projected pension and post-retirement obligations and fair value measurements.

Cash and cash equivalents

Cash and cash equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, all of which mature within ninety days.

Interest-bearing deposits in banks

Interest-bearing deposits in banks

Interest-bearing deposits in banks are carried at cost and include deposits with the Federal Reserve Bank of Richmond, which mature within one year.

Securities

Securities

Investments in debt and equity securities with readily determinable fair values are classified as either held to maturity, available-for-sale, or trading, based on management’s intent. Currently, all of the Company’s investment securities are classified as available-for-sale. Securities available-for-sale are carried at estimated fair value with the corresponding unrealized gains and losses excluded from earnings and reported in other comprehensive income. A gain or loss is recognized in earnings on the settlement date based on the amortized cost of the specific security sold. Purchase premiums and discounts are recognized in interest income via amortization or accretion, respectively, using the interest method over the terms of the securities.

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if (i) there is evidence of credit related impairment; (ii) the Company intends to sell the security or (iii) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that it will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is a credit loss, the loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on the Company’s ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. The Company regularly reviews each investment security for other-than-temporary impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the Company’s best estimate of the present value of cash flows expected to be collected from debt securities, the Company’s intention with regard to holding the security to maturity and the likelihood that it would be required to sell the security before recovery.

Securities sold under repurchase agreements

Securities sold under repurchase agreements

Securities sold under repurchase agreements, which are classified as secured borrowings, generally mature within one year from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company is required to provide collateral based on the fair value of the underlying securities.

Loans

Loans

The Company grants mortgage loans on real estate; commercial and industrial loans; and consumer and other loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans on real estate. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the Company’s market areas.

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

The accrual of interest is generally discontinued at the time a loan is 90 days or more past due, or earlier, if collection is uncertain based on an evaluation of the net realizable value of the collateral and the financial strength of the borrower. Payments received for loans no longer accruing interest are applied to the unpaid principal balance. Loans greater than 90 days past due may remain on accrual status if the credit is well-secured and in process of collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are charged off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual and past due policies are materially the same for all types of loans.

All interest accrued but not collected for loans that are placed on non-accrual or charged off are reversed against interest income. Any interest received on these loans is accounted for on the cash basis or cost recovery method until qualifying for return to accrual. Generally, a loan is returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured, or it becomes well secured and in the process of collection.

Troubled debt restructuring ("TDR")

Troubled debt restructuring (“TDR”)

In some situations, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to a borrower that it would not otherwise consider. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, the related loan is classified as a troubled debt restructuring. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. Management measures all TDRs for impairment as noted below for impaired loans.

Allowance for loan losses ("ALL")

Allowance for loan losses (“ALL”)

The ALL reflects management’s judgment of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to establish the ALL each quarter. To determine the total ALL, the Company estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and homogenous pools of loans analyzed on a segmented basis. Considerations include historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing local and national economic conditions, and internal policies and procedures including credit risk management and underwriting. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as additional information becomes available.

The ALL calculation methodology’s historical loss factor period is considered the length of a business cycle. The business cycle, upon which the historical loss factor is based, was believed to have begun in the fourth quarter of 2008. During the third quarter of 2013, management determined that the business cycle had ended given noticeable national economic improvement and local real estate market stabilization. The historical loss factor is now based on that business cycle of 19 quarters, compared to the previous averaging period that had been growing each quarter based on the business cycle that began in 2008. The change in methodology during the third quarter of 2013 produced an immaterial change in the ALL calculation.

Management employs a risk rating system to evaluate and consistently categorize loan portfolio credit risk. Loans assigned risk rating grades include all commercial loans not secured by real estate, commercial mortgages, residential mortgages greater than $1 million, smaller residential mortgages which are impaired, loans to real estate developers and contractors, consumer loans greater than $250 thousand with chronic delinquency, and troubled debt restructures. 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. All other loans not specifically assigned a risk rating grade are monitored as a discrete pool of loans generally based on delinquency status. Risk rating categories are as follows:

Pass – Borrower is strong or sound and collateral securing the loan, if any, is adequate.

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

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

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

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

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

The ALL consists of specific, general, and unallocated components. The specific component is determined by identifying impaired loans (as described below) then evaluating each one to calculate the amount of impairment. Impaired loans measured for impairment generally include: (1) non-accruing Special mention, Substandard and Doubtful loans in excess of $250,000; (2) Substandard and Doubtful loans in excess of $500,000; (3) Special Mention loans in excess of $500,000 if any of the loans in the relationship are more than 30 days past due or if the borrower has filed for bankruptcy; and (4) all troubled debt restructurings (“TDRs”). A specific allowance arises when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component collectively evaluates smaller commercial loans, residential mortgages and consumer loans, grouped into segments and classes. Historical loss experience is calculated and applied to each segment or class, then adjusted for qualitative factors. Qualitative factors include changes in the local and national economic outlook, including unemployment, interest rates, inflation rates and real estate trends; the level and trend of past due and nonaccrual loans; strength of policies and procedures; and oversight of credit risk and quality of underwriting. These qualitative adjustments reflect management’s judgment of risks inherent in the segments. An unallocated component is maintained if needed to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Changes in the allowance for loan losses and the related provision expense can materially affect net income.

The specific component of the ALL calculation accounts for the loan loss reserve necessary on impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not considered impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Accrual of interest may or may not be discontinued for any given impaired loan. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Because large groups of smaller balance homogeneous loans are collectively evaluated for impairment, the Company does not generally separately identify smaller balance individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

The general component of the ALL calculation collectively evaluates groups of loans in segments or classes, as noted above. The segments are: (1) Mortgage loans on real estate; (2) Commercial and industrial loans; and (3) Consumer and other loans. The segment for Mortgage loans on real estate is disaggregated into the following classes: (1) Construction, land and land development; (2) Farmland; (3) Residential first mortgages; (4) Residential revolving and junior mortgages; (5) Commercial mortgages (non-owner-occupied); and (6) Commercial mortgages (owner-occupied). Loans in segment 1 are secured by real estate. Loans in segments 2 and 3 are secured by other types of collateral or are unsecured. A given segment or class may not reflect the purpose of a loan. For example, a business owner may provide his residence as collateral for a loan to his company, in which case the loan would be grouped in a residential mortgage class. Historical loss factors are calculated for the prior 19 quarters by segment and class, and then applied to the current balances in each segment and class. Finally, qualitative factors are applied to each segment and class.

Construction and development loans carry risks that the project will not be finished according to schedule or according to budget and the value of the collateral, at any point in time, may be less than the principal amount of the loan. These loans also bear the risk that the general contractor may face financial pressure unrelated to the project. Loans secured by land, farmland and residential mortgages carry the risk of continued credit-worthiness of the borrower and changes in value of the underlying real estate collateral. Commercial mortgages and commercial and industrial loans carry risks associated with the profitable operation of a business and its related cash flows. Additionally, commercial and industrial loans carry risks associated with the value of collateral other than real estate which may depreciate over time. Consumer loans carry risks associated with the continuing credit-worthiness of the borrower and are more likely than real estate loans to be adversely affected by divorce, unemployment, personal illness or bankruptcy of an individual. Consumer loans secured by automobiles carry risks associated with rapidly depreciating collateral. Consumer loans include credit cards which are unsecured.

The summation of the specific, general and unallocated components 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.

Additions to the ALL are made by charges to earnings through the provision for loan losses. Charge-offs result from credit exposures deemed to be uncollectible and the ALL is reduced by these. Recoveries of previously charged off amounts are credited back to the ALL. Charge-off policies are materially the same for all types of loans.

Mortgage servicing rights ("MSRs")

Mortgage servicing rights (“MSRs”)

MSRs are included on the consolidated balance sheet and recorded at fair value on an ongoing basis. Changes in the fair value of the MSRs are recorded in the results of operations. A fair value analysis of MSRs is performed on a quarterly basis.

For a number of years, the Bank retained the servicing for mortgages it had originated and sold to a third party. Prior to 2013, the Bank had not recorded the MSRs asset at the time of the sales of mortgages to the third party. The cumulative effect of the MSRs asset was recognized in the third quarter of 2013. The overstatement of income in 2013 of approximately $215,000 after tax ($325,000 pre-tax adjusted at a 34% tax rate) or approximately $0.04 per basic and diluted earnings per share represents the fair value of servicing rights retained prior to 2013.

The Company has evaluated this uncorrected misstatement in consideration and accordance with the guidance from Staff Accounting Bulletin 99 and 108, in order to determine whether it is material to the financial statements taken as a whole. The Company’s evaluation process included consideration of the nature, cause, amount and effect of the misstatement from both a quantitative and qualitative perspective.

It is management’s judgment that the adjustment to the 2013 financial statements for MSRs, related to 2012 and prior, was not material to the 2013 balance sheet, results of operations and cash flows taken as a whole.

Premises and equipment, net

Premises and equipment, net

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the premises and equipment. Estimated useful lives range from 10-40 years for buildings, and from 3-10 years for furniture, fixtures and equipment. Maintenance and repairs are charged to expense as incurred, and major improvements are capitalized.

Other real estate owned, net

Other real estate owned, net

Real estate properties acquired through, or in lieu of, loan foreclosure are marketed for sale and are initially recorded at fair value on the date of foreclosure less estimated selling costs, thereby establishing a new cost basis. After acquisition, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations are included in expenses from foreclosed assets and changes in the valuation allowance are included in other real estate gains (losses).

Goodwill

Goodwill

Goodwill is related to unidentifiable intangible assets arising from the acquisition of five branches during the years 1994 through 2000. Goodwill is tested annually for impairment. If impairment exists, the amount of impairment would result in a charge to expense.

Income taxes

Income taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties, if any, associated with unrecognized tax benefits are classified as additional income taxes in the statements of income. The Company had no liabilities for recognized tax benefits at December 31, 2014 or 2013.

The Company evaluates its deferred tax assets quarterly to determine if those assets will be recovered and if a valuation allowance is needed. At December 31, 2014, the Company determined no valuation allowance related to its deferred tax assets was necessary.

Pension benefits

Pension benefits

The Company has a non-contributory cash balance benefit pension plan which was frozen in 2012. The plan covers employees who had become vested in the plan by the date it was frozen. The balances for those employees in the plan receive interest credits.

Postretirement benefits

Postretirement benefits

The Company provides certain health care benefits for all retired employees who meet eligibility requirements.

Trust assets and income

Trust assets and income

Customer assets held by the Trust Company, other than cash on deposit at the Bank, are not included in these financial statements, since such items are not assets of the Bank or the Trust Company. Trust fees are recorded on the accrual basis.

Earnings per share

Earnings per share

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate solely to outstanding stock options. Refer to Note 19.

Off-balance-sheet financial instruments

Off-balance-sheet financial instruments

In the ordinary course of business, the Company enters into off-balance-sheet financial instruments such as home equity lines of credit, overdraft protection lines of credit, unsecured lines of credit, commitments under credit card arrangements, construction loan commitments and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

Significant group concentration of credit risk

Significant group concentration of credit risk

Most of the Company’s business activity is with customers located in the counties of Lancaster, Northumberland, Richmond, Westmoreland, Middlesex and Henrico, Virginia. The Company makes residential, commercial and consumer loans and a significant amount of the loan portfolio is comprised of real estate mortgage loans, which are primarily secured by single-family residences. The adequacy of collateral on real estate mortgage loans is highly dependent on changes in real estate values.

Advertising

Advertising

Advertising costs are expensed as incurred and totaled $237 thousand and $175 thousand for the years ended December 31, 2014 and 2013, respectively.

Comprehensive income

Comprehensive income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains or losses on securities available-for-sale and changes in the actuarial gain or loss of the pension and postretirement plans. The cumulative position of the items in comprehensive income resides in shareholders’ equity as accumulated other comprehensive income. Refer to Note 24.

Fair value of financial instruments

Fair value of financial instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 21. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.

Transfers of financial assets

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership; (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.

Stock-based compensation plans

Stock-based compensation plans

Authoritative accounting guidance requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. This cost is recognized over the vesting period of the respective awards.

Recent Accounting Pronouncements

Recent Accounting Pronouncements.

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-04, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-4): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The amendment clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, either upon (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendment also requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. Companies should apply this amendment for fiscal years and interim periods beginning after December 15, 2014. The Company adopted the new guidance during the first quarter of 2014. The adoption did not have a material impact on the Company’s consolidated financial statements. Disclosures are included in Note 6.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606). The amendments in this ASU modify the guidance companies use to recognize revenue from contracts with customers for transfers of goods or services and transfers of nonfinancial assets, unless those contracts are within the scope of other standards. The ASU requires that entities apply a specific method to recognize revenue reflecting the consideration expected from customers in exchange for the transfer of goods and services. The guidance also requires new qualitative and quantitative disclosures, including information about contract balances and performance obligations. Entities are also required to disclose significant judgments and changes in judgments for determining the satisfaction of performance obligations. Most revenue associated with financial instruments, including interest and loan origination fees, is outside the scope of the guidance. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2016, with early adoption prohibited. The Company is evaluating the impact that ASU 2014-09 will have on its consolidated financial statements.

XML

Employee Benefit Plans - Other Changes in Plan Assets and Benefit Obligations Recognized in Accumulated Other Comprehensive (Income) Loss (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net loss (gain)	$ 755	$ (224)
Amortization of prior service cost	0	0
Total recognized in other comprehensive loss/(income)	755	(224)
Total recognized in net periodic benefit cost and other comprehensive loss/(income)	732	(92)
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Net loss (gain)	130	(194)
Amortization of prior service cost	0	0
Amortization of net obligation at transition		(3)
Total recognized in other comprehensive loss/(income)	130	(197)
Total recognized in net periodic benefit cost and other comprehensive loss/(income)	$ 175	$ (137)

XML

Condensed Financial Information of Parent Company - Condensed Income Statements (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Condensed Financial Statements, Captions [Line Items]
Non-interest income	$ 3,681	$ 4,726
Non-interest expense	12,618	12,943
Income tax expense (benefit)	557	399
Net income	1,830	1,222
Parent Company
Condensed Financial Statements, Captions [Line Items]
Non-interest income	641	600
Non-interest expense	622	829
Income (loss) before income taxes and equity in undistributed earnings of subsidiaries	19	(229)
Income tax expense (benefit)	5	(27)
Income (loss) before equity in undistributed earnings of subsidiaries	14	(202)
Equity in undistributed earnings of subsidiaries	1,816	1,424
Net income	$ 1,830	$ 1,222

XML

FHLB (Tables)

12 Months Ended

Dec. 31, 2014

Advances of FHLB

The six advances are shown in the following table.

Description	Balance		Originated		Current Interest Rate			Maturity Date
Adjustable Rate Hybrid	$	10,000,000		4/12/2013		2.61000	%		4/13/2020
Adjustable Rate Credit		5,000,000		5/20/2014		0.23185	%		5/20/2015
Fixed Rate Credit		5,000,000		6/18/2014		0.26000	%		6/18/2015
Fixed Rate Credit		5,000,000		6/26/2014		0.26000	%		6/26/2015
Fixed Rate Credit		5,000,000		10/20/2014		0.47000	%		4/20/2016
Fixed Rate Credit		5,000,000		10/20/2014		0.30000	%		10/20/2015
	$	35,000,000

XML

Securities - Gross Realized Gains and Gross Realized Losses on Sales of Securities (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Gross realized gains	$ 8	$ 285
Gross realized losses	(33)	(1)
Net realized (losses) gains	(25)	284
Aggregate proceeds	$ 3,810	$ 9,433

XML

Other Real Estate Owned Net - Summary of Properties Included in Other Real Estate Owned (OREO) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014 Property	Dec. 31, 2013 Property
Real Estate Properties [Line Items]
No. of Properties	27	30
Carrying Value	$ 2,791	$ 3,897
Residential
Real Estate Properties [Line Items]
No. of Properties	10	11
Carrying Value	1,559	2,442
Land lots
Real Estate Properties [Line Items]
No. of Properties	13	14
Carrying Value	587	684
Convenience Store
Real Estate Properties [Line Items]
No. of Properties	2	2
Carrying Value	234	239
Restaurant
Real Estate Properties [Line Items]
No. of Properties	1	1
Carrying Value	107	107
Commercial properties
Real Estate Properties [Line Items]
No. of Properties	1	2
Carrying Value	$ 304	$ 425

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
ASSETS
Cash and due from banks	$ 6,181	$ 6,789
Interest-bearing deposits	14,784	8,900
Federal funds sold	119	120
Securities available-for-sale, at fair value	42,604	38,522
Restricted securities	2,430	1,638
Loans receivable, net of allowance for loan losses of $3,205 and $2,925	295,242	247,912
Loans held for sale		196
Premises and equipment, net	11,882	10,620
Accrued interest receivable	1,197	1,124
Other real estate owned, net	2,791	3,897
Bank owned life insurance	7,348	5,129
Goodwill	2,808	2,808
Mortgage servicing rights	596	579
Other assets	2,504	2,901
Total assets	390,486	331,135
LIABILITIES
Noninterest-bearing deposits	63,308	57,805
Savings and interest-bearing demand deposits	122,502	114,056
Time deposits	121,775	96,486
Total deposits	307,585	268,347
Securities sold under repurchase agreements	6,012	9,118
Federal Home Loan Bank advances	35,000	15,000
Other liabilities	2,651	1,534
Total liabilities	351,248	293,999
SHAREHOLDERS' EQUITY
Common stock ($5 par value; authorized - 10,000,000 shares; outstanding - 4,817,856 and 4,817,856 shares, respectively)	24,089	24,089
Additional paid-in capital	2,777	2,757
Retained earnings	13,293	11,463
Accumulated other comprehensive loss, net	(921)	(1,173)
Total shareholders' equity	39,238	37,136
Total liabilities and shareholders' equity	$ 390,486	$ 331,135

XML

Related Parties (Tables)

12 Months Ended

Dec. 31, 2014

Summary of Related Party Transactions

(Dollars in thousands
Balance, January 1, 2014	$	2,606
New loans and extensions to existing loans		573
Repayments and other reductions		(305	)
Balance, December 31, 2014	$	2,874

XML

Employee Stock Ownership Plan - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014 Age	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Noncontributory employee stock ownership plan, service period eligibility	12 months
Noncontributory employee stock ownership plan, age eligibility	21
Allocations, as a percentage of eligible participant compensation	25.00%
Participant accounts vested after two years	30.00%
Participant accounts vested after three years	40.00%
Participant accounts vested each year, from fourth year till 100% vested	20.00%
Participant accounts, total vested	100.00%
Allocated shares	126,540
Contributions to the plan	$ 3,000	$ 0
Dividends on the company's stock held by the ESOP	$ 0	$ 0

XML

Condensed Financial Information of Parent Company - Condensed Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
ASSETS
Cash and due from non-affiliated banks	$ 6,181	$ 6,789
Premises and equipment, net	11,882	10,620
Other assets	2,504	2,901
Total assets	390,486	331,135
LIABILITIES
Other liabilities	2,651	1,534
Total liabilities	351,248	293,999
Total shareholders' equity	39,238	37,136	36,585
Total liabilities and shareholders' equity	390,486	331,135
Parent Company
ASSETS
Cash and due from non-affiliated banks	2,445	3,884	9,053
Investments in subsidiaries	35,625	32,456
Premises and equipment, net		1
Other assets	1,732	1,266
Total assets	39,802	37,607
LIABILITIES
Deferred directors' compensation	414	337
Other liabilities	150	134
Total liabilities	564	471
Total shareholders' equity	39,238	37,136
Total liabilities and shareholders' equity	$ 39,802	$ 37,607

XML

Consolidated Statements of Changes in Shareholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Balance at beginning of period at Dec. 31, 2012	$ 36,585	$ 24,054	$ 2,670	$ 10,241	$ (380)
Balance at beginning of period, Shares at Dec. 31, 2012		4,810,856
Net income	1,222			1,222
Other comprehensive income (loss)	(793)				(793)
Stock compensation expense	122	35	87
Stock compensation expense, Shares		7,000
Balance at end of period at Dec. 31, 2013	37,136	24,089	2,757	11,463	(1,173)
Balance at end of period, Shares at Dec. 31, 2013	4,817,856	4,817,856
Net income	1,830			1,830
Other comprehensive income (loss)	252				252
Stock compensation expense	20		20
Balance at end of period at Dec. 31, 2014	$ 39,238	$ 24,089	$ 2,777	$ 13,293	$ (921)
Balance at end of period, Shares at Dec. 31, 2014	4,817,856	4,817,856

XML

Income Taxes - Components of Net Deferred Tax Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Deferred tax assets
Allowance for loan losses	$ 661	$ 632
Interest on non-accrual loans	47	40
Mortgage servicing rights		197
Other real estate	397	477
Pension plan	222
Postretirement benefits	262	206
Deferred compensation	141	114
Stock-based compensation	25	18
Alternative minimum tax credit		96
Unrealized losses on available-for-sale securities		408
Other	11	3
Total deferred tax assets	1,766	2,191
Deferred tax liabilities
Unrealized gains on available-for-sale securities	(23)
Pension plan		(27)
Depreciation	(218)	(276)
Amortization of goodwill	(928)	(896)
Net deferred loan fees and costs	(134)	(172)
Other	(67)	(64)
Total deferred tax (liabilities)	(1,370)	(1,435)
Net deferred tax assets	$ 396	$ 756

XML

Loans - Additional Informations (Detail) (Minimum)	12 Months Ended
	Dec. 31, 2014
Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of days past due for a loan to remain on accrual status	90 days

XML

Stock-Based Compensation - Fair Value of Options (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock price volatility, risk free interest period	5 years	5 years

XML

Allowance for Loan Losses (Tables)

12 Months Ended

Dec. 31, 2014

Allowance for Loan Losses by Portfolio Segment

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

(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
For the Twelve Months Ended December 31, 2014
Beginning Balance	$	2,465		$	256		$	204		$	2,925
(Charge-offs)		(313	)		—			(79	)		(392	)
Recoveries		36			—			25			61
Provision		590			67			(46	)		611
Ending Balance	$	2,778		$	323		$	104		$	3,205
Individually evaluated for impairment	$	665		$	—		$	11		$	676
Collectively evaluated for impairment		2,113			323			93			2,529
(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and other Loans			Total
For the Twelve Months Ended December 31, 2013
Beginning Balance	$	2,572		$	262		$	260		$	3,094
(Charge-offs)		(879	)		(17	)		(132	)		(1,028	)
Recoveries		68			1			14			83
Provision		704			10			62			776
Ending Balance	$	2,465		$	256		$	204		$	2,925
Individually evaluated for impairment	$	634		$	—		$	33		$	667
Collectively evaluated for impairment		1,831			256			171			2,258

Loan Receivables Evaluated for Impairment Individually and Collectively by Segment

Loan receivables evaluated for impairment individually and collectively by segment as of December 31, 2014 and 2013 are as follows:

(Dollars in thousands)	Mortgage Loans		Commercial and		Consumer
As of December 31, 2014	on Real Estate		Industrial		Loans		Total
Individually evaluated for impairment	$	6,842	$	—	$	16	$	6,858
Collectively evaluated for impairment		251,861		34,002		5,333		291,196
Total Gross Loans	$	258,703	$	34,002	$	5,349	$	298,054
As of December 31, 2013
Individually evaluated for impairment	$	6,306	$	311	$	39	$	6,656
Collectively evaluated for impairment		214,101		23,627		5,947		243,675
Total Gross Loans	$	220,407	$	23,938	$	5,986	$	250,331

Internal Risk Rating Grades

Internal risk rating grades are shown in the following table.

(Dollars in thousands)	Construction, Land and Land				Commercial Mortgages (Non-Owner		Commercial Mortgages (Owner		Commercial and
As of December 31, 2014	Development		Farmland		Occupied)		Occupied)		Industrial		Total
Grade:
Pass	$	34,913	$	1,128	$	16,426	$	23,967	$	31,041	$	107,475
Watch		5,649		—		3,770		4,430		2,492		16,341
Special mention		1,403		—		—		2,789		154		4,346
Substandard		1,083		—		338		2,140		315		3,876
Doubtful		—		—		—		—		—		—
Total	$	43,048	$	1,128	$	20,534	$	33,326	$	34,002	$	132,038
As of December 31, 2013	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	25,616	$	1,262	$	9,083	$	23,984	$	20,309	$	80,254
Watch		3,493		—		5,204		7,429		2,743		18,869
Special mention		1,416		—		—		1,001		487		2,904
Substandard		1,314		—		339		1,763		399		3,815
Doubtful		—		—		—		—		—		—
Total	$	31,839	$	1,262	$	14,626	$	34,177	$	23,938	$	105,842

Performing and Non Performing Loans

Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.

(Dollars in thousands)	Residential		Residential Revolving
As of December 31, 2014	First		and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (1)		Mortgages (2)		Loans (3)		Total
Performing	$	134,908	$	25,369	$	5,234	$	165,511
Nonperforming		359		31		115		505
Total	$	135,267	$	25,400	$	5,349	$	166,016
As of December 31, 2013	Residential First		Residential Revolving and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (4)		Mortgages (5)		Loans (6)		Total
Performing	$	113,375	$	23,969	$	5,964	$	143,308
Nonperforming		1,083		76		22		1,181
Total	$	114,458	$	24,045	$	5,986	$	144,489

Notes:

(1) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.

(2) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.

(3) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

(4) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.6 million as of December 31, 2013.

(5) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of December 31, 2013.

(6) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $9 thousand as of December 31, 2013.

Company's Recorded Investment and Customers Unpaid Principal Balances for Impaired Loans, with Associated Allowance Amount

The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable, as of December 31, 2014 and 2013, along with the average recorded investment and interest income recognized for the years ended December 31, 2014 and 2013.

(Dollars in thousands)	As of December 31, 2014						As of December 31, 2013
IMPAIRED LOANS
	Recorded		Customers’ Unpaid		Related		Recorded		Customers’ Unpaid		Related
With no related allowance:	Investment		Principal Balance		Allowance		Investment		Principal Balance		Allowance
Construction, land and land development	$	450	$	452	$	—	$	453	$	453	$	—
Residential First Mortgages		1,568		1,584		—		1,053		1,057		—
Residential Revolving and Junior Mortgages (1)		50		50		—		—		—		—
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,831		1,840		—
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		5		5		—		—		—		—
		4,224		4,271		—		3,912		3,925		—
With an allowance recorded:
Construction, land and land development		277		292		144		151		156		51
Residential First Mortgages		2,173		2,173		437		2,198		2,198		409
Residential Revolving and Junior Mortgages (1)		173		173		84		251		879		173
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		—		105		105		1
Commercial and Industrial		—		—		—		—		—		—
Consumer (2)		11		11		11		39		39		33
		2,634		2,649		676		2,744		3,377		667
Total Impaired Loans:
Construction, land and land development		727		744		144		604		609		51
Residential First Mortgages		3,741		3,757		437		3,251		3,255		409
Residential Revolving and Junior Mortgages (1)		223		223		84		251		879		173
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,936		1,945		1
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		16		16		11		39		39		33
	$	6,858	$	6,920	$	676	$	6,656	$	7,302	$	667

Notes:

(1) Junior mortgages include equity lines.

(2) includes credit cards.

	For the Year Ended				For the Year Ended
	December 31, 2014				December 31, 2013
	Average Recorded		Interest Income		Average Recorded		Interest Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance:
Construction, land and land development	$	451	$	3	$	189	$	1
Residential First Mortgages		1,148		49		678		48
Residential Revolving and Junior Mortgages (1)		10		—		—		—
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,092		56
Commercial and Industrial		—		—		62		—
Consumer (2)		6		—		—		—
		3,790		147		2,127		113
With an allowance recorded:
Construction, land and land development		168		4		30		—
Residential First Mortgages		2,184		100		1,916		108
Residential Revolving and Junior Mortgages (1)		174		9		254		8
Commercial Mortgages (Non-owner occupied)		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		21		2
Commercial and Industrial		—		—		—		—
Consumer (2)		24		2		60		5
		2,550		115		2,281		123
Total
Construction, land and land development		619		7		219		1
Residential First Mortgages		3,332		149		2,594		156
Residential Revolving and Junior Mortgages (1)		184		9		254		8
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,113		58
Commercial and Industrial		—		—		62		—
Consumer (2)		30		2		60		5
	$	6,340	$	262	$	4,408	$	236

Notes:

(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 TDRs during the years ended December 31, 2014 and 2013.

	For the Year Ended December 31, 2014						For the Year Ended December 31, 2013
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
(Dollars in thousands)			Outstanding		Outstanding				Outstanding		Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment		Number of Loans		Recorded Investment		Recorded Investment
Construction, land and land development (1)		2	$	282	$	277		3	$	196	$	196
Residenital first mortages (2)		—		—		—		1		207		204
Residential revolving and junior mortgages (1)		1		50		50		—		—		—
Commercial mortgages (Owner occupied) (1)		—		—		—		2		263		263
Consumer (2)		—		—		—		1		8		7

Notes:

(1) Modifications were an extention of the loan terms.

(2) Modifications were capitalization of the interest.

	For the Year Ended December 31, 2014				For the Year Ended December 31, 2013
TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Residential first mortgages		—	$	—		1	$	106
Residential revolving and junior mortgages		1		75		—		—
Commerical mortgages (Owner occupied)		2		255		—		—

XML

Allowance for Loan Losses - Performing and Non Performing Loans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
Performing and non performing loans
Loan receivables	$ 166,016		$ 144,489
Performing
Performing and non performing loans
Loan receivables	165,511		143,308
Nonperforming
Performing and non performing loans
Loan receivables	505		1,181
Residential First Mortgages
Performing and non performing loans
Loan receivables	135,267	[1]	114,458	[2]
Residential First Mortgages | Performing
Performing and non performing loans
Loan receivables	134,908	[1]	113,375	[2]
Residential First Mortgages | Nonperforming
Performing and non performing loans
Loan receivables	359	[1]	1,083	[2]
Residential Revolving and Junior Mortgages
Performing and non performing loans
Loan receivables	25,400	[3]	24,045	[4]
Residential Revolving and Junior Mortgages | Performing
Performing and non performing loans
Loan receivables	25,369	[3]	23,969	[4]
Residential Revolving and Junior Mortgages | Nonperforming
Performing and non performing loans
Loan receivables	31	[3]	76	[4]
Consumer Loans
Performing and non performing loans
Loan receivables	5,349	[5]	5,986	[6]
Consumer Loans | Performing
Performing and non performing loans
Loan receivables	5,234	[5]	5,964	[6]
Consumer Loans | Nonperforming
Performing and non performing loans
Loan receivables	$ 115	[5]	$ 22	[6]

[1] Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.

[2] Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.6 million as of December 31, 2013.

[3] Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.

[4] Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of December 31, 2013.

[5] Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

[6] Consumer Loans which have been assigned a risk rating grade of Substandard totaled $9 thousand as of December 31, 2013.

XML

Income Taxes

12 Months Ended

Dec. 31, 2014

Income Taxes

Note 15. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and the Commonwealth of Virginia. The Commonwealth of Virginia does not charge an income tax for regulated banking institutions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2010.

The expense for income taxes consisted of the following (in thousands):

Year ended December 31,	2014		2013
Current	$	499	$	140
Deferred		58		259
	$	557	$	399

The reasons for the differences between the statutory Federal income tax rates and the effective tax rates are summarized as follows:

	2014			2013
Statutory rate		34.0	%		34.0	%
Increase (decrease) resulting from:
Tax exempt interest		-8.3	%		-8.5	%
Bank owned life insurance		-3.1	%		-2.7	%
Other, net		0.7	%		1.8	%
		23.3	%		24.6	%

The components of the net deferred tax assets and liabilities included in other liabilities are as follows (in thousands):

December 31,	2014			2013
Deferred tax assets
Allowance for loan losses	$	661		$	632
Interest on non-accrual loans		47			40
Mortgage servicing rights		—			197
Other real estate		397			477
Pension plan		222			—
Postretirement benefits		262			206
Deferred compensation		141			114
Stock-based compensation		25			18
Alternative minimum tax credit		—			96
Unrealized losses on available-for-sale securities		—			408
Other		11			3
Total deferred tax assets		1,766			2,191
Deferred tax liabilities
Unrealized gains on available-for-sale securities		(23	)		—
Pension plan		—			(27	)
Depreciation		(218	)		(276	)
Amortization of goodwill		(928	)		(896	)
Net deferred loan fees and costs		(134	)		(172	)
Other		(67	)		(64	)
Total deferred tax (liabilities)		(1,370	)		(1,435	)
Net deferred tax assets	$	396		$	756

XML

Other Real Estate Owned, Net (Tables)

12 Months Ended

Dec. 31, 2014

Net of Valuation Allowances for Losses on Other Real Estate Owned

OREO is presented net of a valuation allowance for losses. An analysis of the valuation allowance on OREO is shown below.

	Years ended
(Dollars in thousands)	2014			2013
Balance, beginning of year	$	538		$	562
Provision for losses		235			300
Charge-offs		(147	)		(324	)
Balance, end of period	$	626		$	538

Components of Expenses Applicable to Foreclosed Assets

Expenses applicable to OREO include the following:

	Years ended
(Dollars in thousands)	2014		2013
Net loss on sales of real estate	$	92	$	263
Provision for losses		235		300
Operating expenses, net of income		131		124
Total expenses	$	458	$	687

Summary of Properties Included in Other Real Estate Owned (OREO)

The following table details the properties included in OREO as of December 31, 2014 and December 31, 2013. There was one collateralized consumer residential mortgage loan with a balance of $129 thousand in the process of foreclosure as of December 31, 2014. The Company accepted a deed in lieu of foreclosure on this property in January 2015.

	As of December 31, 2014				As of December 31, 2013
	No. of		Carrying		No. of		Carrying
(Dollars in thousands)	Properties		Value		Properties		Value
Residential		10	$	1,559		11	$	2,442
Land lots		13		587		14		684
Convenience store		2		234		2		239
Restaurant		1		107		1		107
Commerical properties		1		304		2		425
Total		27	$	2,791		30	$	3,897

XML

Stock-Based Compensation - Fair Value of Options (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate (5 year Treasury)	1.74%	0.86%
Expected dividend yield	0.00%	3.60%
Expected term (years)	5 years	5 years
Expected volatility	51.40%	33.80%

XML

Employee Stock Ownership Plan

12 Months Ended

Dec. 31, 2014

Employee Stock Ownership Plan

Note 17. Employee Stock Ownership Plan

The Company has a noncontributory Employee Stock Ownership Plan (“ESOP”) for the benefit of all eligible employees who have completed twelve months of service and who have attained the age of 21 years. Contributions to the plan are at the discretion of the Company’s Board of Directors. Contributions are allocated in the ratio to which the covered compensation of each participant bears to the aggregate covered compensation of all participants for the plan year. Allocations are limited to 25% of eligible participant compensation. Participant accounts are 30% vested after two years, 40% vested after three years with vesting increasing 20% each year thereafter, until 100% vested. The plan had 126,540 allocated shares as of December 31, 2014. Contributions to the plan were $3 thousand in 2014 and zero in 2013. There were no dividends on the Company’s stock held by the ESOP in 2014 and 2013. Shares held by the ESOP are considered outstanding for purposes of computing earnings per share.

XML

Allowance for Loan Losses - Summary of Troubled Debt Restructurings (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014 Loan		Dec. 31, 2013 Loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Subsequently defaulted number of loans	3
Construction, Land and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Loans	2	[1]	3	[1]
Pre-Modification Outstanding Recorded Investment	$ 282	[1]	$ 196	[1]
Post-Modification Outstanding Recorded Investment	277	[1]	196	[1]
Residential First Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Loans			1	[2]
Pre-Modification Outstanding Recorded Investment			207	[2]
Post-Modification Outstanding Recorded Investment			204	[2]
Subsequently defaulted number of loans			1
Subsequently defaulted recorded investment			106
Residential Revolving and Junior Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Loans	1	[1]
Pre-Modification Outstanding Recorded Investment	50	[1]
Post-Modification Outstanding Recorded Investment	50	[1]
Subsequently defaulted number of loans	1
Subsequently defaulted recorded investment	75
Commercial Mortgages (Owner Occupied)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Loans			2	[1]
Pre-Modification Outstanding Recorded Investment			263	[1]
Post-Modification Outstanding Recorded Investment			263	[1]
Subsequently defaulted number of loans	2
Subsequently defaulted recorded investment	255
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Loans			1	[2]
Pre-Modification Outstanding Recorded Investment			8	[2]
Post-Modification Outstanding Recorded Investment			$ 7	[2]

[1] Modifications were an extention of the loan terms.

[2] Modifications were capitalization of the interest.

XML

Fair Value Measurements - Summary of Assets Measured at Fair Value on Nonrecurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans, net	$ 1,958	$ 2,077
Other real estate owned, net	2,791	3,897
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans, net	1,958	2,077
Other real estate owned, net	$ 2,791	$ 3,897

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash Flows From Operating Activities
Net income	$ 1,830	$ 1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	792	755
Net amortization and accretion of securities	363	391
Provision for loan losses	611	776
Stock compensation expense	20	122
Deferred income tax benefit	58	259
Loss (gain) on securities available-for-sale	25	(284)
Loss on securities with other-than-temporary impairment		288
Increase in OREO valuation allowance	235	300
Loss on sale of other real estate	92	263
Gain on disposal of fixed assets	(137)	(165)
Mortgage servicing rights	(17)	(579)
Loan originations for sale to FNMA	(10,503)	(21,431)
Loan sales to FNMA	10,951	22,025
Gain on loans sold to FNMA	(252)	(391)
Increase in cash surrender value of life insurance	(219)	(129)
Decrease (increase) in accrued income and other assets	246	(67)
(Decrease) increase in other liabilities	(92)	377
Net cash provided by operating activities	4,003	3,732
Cash Flows From Investing Activities
Proceeds from maturities and principal paydowns of available-for-sale securities	4,529	3,951
Proceeds from sales and calls of available-for-sale securities	3,810	9,433
Purchase of bank owned life insurance	(2,000)	(5,000)
Purchases of available-for-sale securities	(11,542)	(17,224)
Purchases of restricted securities	(792)	(54)
Decrease (increase) in federal funds sold	1	(72)
Loan (originations) and principal collections, net	(47,533)	(15,417)
Purchase of other assets		(771)
Proceeds from sale of other real estate	371	1,189
Improvements to other real estate		(22)
Purchases of premises and equipment	(2,014)	(538)
Proceeds from the sale of premises and equipment	311	727
Net cash used in investing activities	(54,859)	(23,798)
Cash Flows From Financing Activities
Increase in demand, savings, and other interest-bearing deposits	13,949	3,438
Net increase (decrease) in time deposits	25,289	(10,266)
Net (decrease) increase in securities sold under repurchase agreements	(3,106)	2,659
Increase in Federal Home Loan Bank advances	20,000
Net cash provided by (used in) financing activities	56,132	(4,169)
Net decrease in cash and due from banks	5,276	(24,235)
Cash and due from banks at beginning of period	15,689	39,924
Cash and due from banks at end of period	20,965	15,689
Cash paid for:
Interest	2,215	2,824
Income taxes	351	338
Non-cash investing and financing:
Unrealized gain (loss) on investment securities	1,268	(1,623)
Change in fair value of pension and post-retirement obligation	(885)	422
Loans transferred to other real estate owned	197	2,476
Loans originated to facilitate sale of OREO	605	328
Changes in deferred taxes resulting from OCI transactions	$ (130)	$ 408

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Loans, allowance for loan losses	$ 3,205	$ 2,925
Common stock, par value	$ 5	$ 5
Common stock, authorized shares	10,000,000	10,000,000
Common stock, outstanding shares	4,817,856	4,817,856

XML

Employee Benefit Plans

12 Months Ended

Dec. 31, 2014

Employee Benefit Plans

Note 10. Employee Benefit Plans

The Company has a non-contributory, cash balance pension plan for employees who were vested in the plan as of December 31, 2012 when it was frozen. Each participant’s account balance grows 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 postretirement benefit plan provides coverage toward a retiree’s eligible medical and life insurance benefits expenses.

The following tables provide the reconciliation of changes in the benefit obligations and fair value of assets and a statement of funded status for the pension plan and postretirement plan of the Company. In 2014, the $755 thousand net loss related to pension benefits and the $130 thousand net loss related to post-retirement benefits was primarily due to the increase in the discount rate assumption to 5% in 2014 from 4% in 2013 and longer assumed lives of participants resulting from updated mortality tables for 2014.

	Pension Benefits						Postretirement Benefits
(Dollars in thousands)	2014			2013			2014			2013
Change in benefit obligation
Benefit obligation, beginning of year	$	2,737		$	2,854		$	607		$	759
Service cost		—			—			15			23
Interest cost		142			143			30			30
Actuarial loss (gain)		721			225			130			(190	)
Benefit payments		(54	)		(478	)		(11	)		(15	)
Settlement gain		—			(7	)		—			—
Benefit obligation, end of year		3,546			2,737			771			607
Change in plan assets
Fair value of plan assets, beginning of year		2,820			2,845			—			—
Actual return on plan assets		131			453			—			—
Employer contributions		—			—			11			15
Benefits payments		(54	)		(478	)		(11	)		(15	)
Fair value of plan assets, end of year		2,897			2,820			—			—
Funded status at the end of the year	$	(649	)	$	83		$	(771	)	$	(607	)
Amounts recognized in accumulated other comprehensive loss (income)
Net loss (gain)	$	1,380		$	625		$	83		$	(47	)
Prior service cost		—			—			—			—
Net obligation at transition		—			—			—			—
Amount recognized	$	1,380		$	625		$	83		$	(47	)
Components of net periodic benefit cost (gain)
Service cost	$	—		$	—		$	15		$	23
Interest cost		142			143			30			30
Expected (return) on plan assets		(202	)		(215	)		—			—
Amortization of prior service cost		—			—			—			—
Amortization of net obligation at transition		—			—			—			3
Recognized net loss due to settlement		—			114			—			—
Recognized net actuarial loss		37			90			—			4
Net periodic benefit (gain) cost		(23	)		132			45			60
Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive (income) loss
Net loss (gain)		755			(224	)		130			(194	)
Amortization of prior service cost		—			—			—			—
Amortization of net obligation at transition		—			—			—			(3	)
Total recognized in other comprehensive loss/(income)		755			(224	)		130			(197	)
Total recognized in net periodic benefit cost and other comprehensive loss/(income)	$	732		$	(92	)	$	175		$	(137	)
	2014			2013			2014			2013
Weighted-average assumptions as of December 31:
Discount rate used for Net Periodic Pension Cost		5.00	%		4.00	%		5.00	%		4.00	%
Discount Rate used for Disclosure		4.00	%		5.00	%		4.00	%		5.00	%
Expected return on plan assets		7.50	%		8.00	%		N/A			N/A
Rate of compensation increase		N/A			N/A			N/A			N/A
Rate of compensation increase for net periodic pension cost		N/A			N/A			N/A			N/A
Expected future interest crediting rate		3.00	%		3.00	%		N/A			N/A

The accumulated benefit obligation for the cash balance pension plan was $3.5 million and $2.7 million at December 31, 2014 and 2013, respectively.

Estimated future benefit payments for the pension and postretirement plans are as follows (in thousands):

	Pension		Postretirement
2015	$	525	$	22
2016		50		24
2017		222		26
2018		38		28
2019		366		31
2020 and thereafter		1,502		190

Long-term rate of return. The pension plan sponsor selects the assumption for the expected long-term rate of return on assets in consultation with their investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience that may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plan is assumed to continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).

The fair value of the Company’s pension plan assets by asset category are as follows:

(Dollars in thousands)			Fair Value Measurements at December 31, 2014 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	4	$	4	$	—	$	—
Mutual funds - fixed income		1,139		1,139		—		—
Mutual funds - equity		1,754		1,754		—		—
Total defined benefit plan assets	$	2,897	$	2,897	$	—	$	—

			Fair Value Measurements at December 31, 2013 Using
Description	Balance		Level 1		Level 2		Level 3
Defined benefit plan assets:
Cash and cash equivalents	$	3	$	3	$	—	$	—
Mutual funds - fixed income		1,070		1,070		—		—
Mutual funds - equity		1,747		1,747		—		—
Total defined benefit plan assets	$	2,820	$	2,820	$	—	$	—

The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with a targeted asset allocation of 40% fixed income and 60% equities. The investment manager of the fund selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the plan’s investment strategy. The investment manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of the trustee to administer the investments of the trust within reasonable costs, being careful to avoid sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the trust.

The Company expects to make no contributions to its pension plan for the 2015 plan year.

Postretirement benefits plan. For measurement purposes, the assumed annual rate of increase in per capita health care costs of covered benefits is 8.0% in 2015, 8.0% in 2016, 6.0% in 2017, 6.0% in 2018, and 5.0% in 2019 and thereafter. If assumed health care cost trend rates were increased by one percentage point each year, the accumulated postretirement benefit obligation at December 31, 2014 would be increased by $893 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2014 would be increased by $39. If assumed health care cost trend rates were decreased by one percentage point each year, the accumulated postretirement benefit obligation at December 31, 2014 would be decreased by $838 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2014 would be decreased by $36.

The Company expects to contribute $22,435 to its postretirement plan in 2015. In addition, as of December 31, 2014 and 2013, the Company paid approximately $11 thousand and $15 thousand, respectively, for employees who retired.

401(k) retirement plan. Substantially all employees are eligible to participate in the Company’s 401(k) retirement plan beginning the first of the month following their hire date. Prior to August 14, 2014, employees were eligible to participate in the plan after six months of service. Employees may contribute up to the maximum established by the Internal Revenue Service. The Company matches 100% of the first 2% and 25% of the next 4% of an employee’s contributions. Additional contributions can be made at the discretion of the Company’s Board of Directors. Contributions to this plan amounted to $110 thousand and $97 thousand for the years ended December 31, 2014 and 2013, respectively.

In January 2015, the Company’s Board of Directors approved an increase in the Company’s match. Effective March 9, 2015, the Company will match 100% of the first 3% and 50% of the next 3% of an employee’s contributions.

XML

Related Parties - Additional Information (Detail) (key Employees, USD $)	Dec. 31, 2014	Dec. 31, 2013
key Employees
Related Party Transaction [Line Items]
Loans and Leases Receivable Related Parties	$ 2,874,000	$ 2,606,000
Unfunded commitments to extend credit and related interest	1,500,000	2,000,000
Aggregate amount of deposit accounts	$ 374,000	$ 428,000

XML

Income Taxes - Summary of Reasons for Differences Between Statutory Federal Income Tax Rates and Effective Tax Rates (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Reconciliation of Statutory Federal Tax Rate [Line Items]
Statutory rate	34.00%	34.00%
Increase (decrease) resulting from:
Tax exempt interest	(8.30%)	(8.50%)
Bank owned life insurance	(3.10%)	(2.70%)
Other, net	0.70%	1.80%
Effective Income Tax Rate, Total	23.30%	24.60%

XML

FHLB - Advances of FHLB (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	May 31, 2014
Debt Instrument [Line Items]
Federal Home Loan Bank advances	$ 35,000,000	$ 15,000,000
Federal Home Loan Bank Advances One
Debt Instrument [Line Items]
Federal Home Loan Bank advances	10,000,000
Federal Home Loan Bank Advances Two
Debt Instrument [Line Items]
Federal Home Loan Bank advances			5,000,000
Federal Home Loan Bank Advances Three
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Federal Home Loan Bank Advances Four
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Federal Home Loan Bank Advances Five
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Federal Home Loan Bank Advances Six
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Adjustable Rate Hybrid | Federal Home Loan Bank Advances One
Debt Instrument [Line Items]
Federal Home Loan Bank advances	10,000,000
Originated	Apr. 12, 2013
Current Interest Rate	2.61%
Maturity Date	Apr. 13, 2020
Adjustable Rate Credit | Federal Home Loan Bank Advances Two
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Originated	May 20, 2014
Current Interest Rate	0.23185%
Maturity Date	May 20, 2015
Fixed Rate Credit | Federal Home Loan Bank Advances Three
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Originated	Jun. 18, 2014
Current Interest Rate	0.26%
Maturity Date	Jun. 18, 2015
Fixed Rate Credit | Federal Home Loan Bank Advances Four
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Originated	Jun. 26, 2014
Current Interest Rate	0.26%
Maturity Date	Jun. 26, 2015
Fixed Rate Credit | Federal Home Loan Bank Advances Five
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Originated	Oct. 20, 2014
Current Interest Rate	0.47%
Maturity Date	Apr. 20, 2016
Fixed Rate Credit | Federal Home Loan Bank Advances Six
Debt Instrument [Line Items]
Federal Home Loan Bank advances	$ 5,000,000
Originated	Oct. 20, 2014
Current Interest Rate	0.30%
Maturity Date	Oct. 20, 2015

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Mar. 23, 2015	Jun. 30, 2014
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Trading Symbol	BAYK
Entity Registrant Name	BAY BANKS OF VIRGINIA INC
Entity Central Index Key	0001034594
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,802,856
Entity Public Float			$ 24,746,860

XML

Financial Instruments with Off-Balance Sheet Risk

12 Months Ended

Dec. 31, 2014

Financial Instruments with Off-Balance Sheet Risk

Note 11. Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company offers various financial products to its customers to meet their credit and liquidity needs. These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit written is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Company, is based on credit evaluation of the customer.

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. At December 31, 2014 and 2013, the Company had outstanding loan commitments approximating $36.4 million and $37.3 million, respectively.

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. At December 31, 2014 and 2013, commitments under outstanding performance stand-by letters of credit aggregated $355 thousand and $329 thousand, respectively. The credit risk of issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

XML

Employee Benefit Plans - Defined Benefit Plan (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Funded status at the end of the year	$ (649)	$ 83
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Funded status at the end of the year	$ (771)	$ (607)

XML

FHLB - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	May 31, 2014
Debt Instrument [Line Items]
Number of FHLB debt advances	6
Federal Home Loan Bank advances	$ 35,000,000	$ 15,000,000
Immediate available credit	38,600,000
Total line of credit	77,600,000
Average interest rate		2.48%
Federal Home Loan Bank Advances One
Debt Instrument [Line Items]
Federal Home Loan Bank advances	10,000,000
Advances, Variable rate description	Three month LIBOR-based hybrid floating rate advance
Interest rate LIBOR-based floating rate advance			4.23%
Federal Home Loan Bank Advances Two
Debt Instrument [Line Items]
Federal Home Loan Bank advances				5,000,000
Interest rate LIBOR-based floating rate advance				2.69%
Federal Home Loan Bank Advances Three
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Advances, Variable rate description	Three month LIBOR-based floating rate advance
Federal Home Loan Bank Advances Four
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Advances, Variable rate description	Fixed rate advances
Federal Home Loan Bank Advances Five
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Advances, Variable rate description	Fixed rate advances
Federal Home Loan Bank Advances Six
Debt Instrument [Line Items]
Federal Home Loan Bank advances	5,000,000
Advances, Variable rate description	Fixed rate advances
Federal Home Loan Bank Advances Seven
Debt Instrument [Line Items]
Federal Home Loan Bank advances	$ 5,000,000
Advances, Variable rate description	Fixed rate advances

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
INTEREST INCOME
Loans, including fees	$ 13,352	$ 12,617
Securities:
Taxable	382	448
Tax-exempt	375	326
Federal funds sold		1
Interest-bearing deposit accounts	23	56
Total interest income	14,132	13,448
INTEREST EXPENSE
Deposits	1,842	2,368
Federal funds purchased	1
Securities sold under repurchase agreements	9	16
FHLB advances	345	450
Total interest expense	2,197	2,834
Net interest income	11,935	10,614
Provision for loan losses	611	776
Net interest income after provision for loan losses	11,324	9,838
NON-INTEREST INCOME
Income from fiduciary activities	831	698
Service charges and fees on deposit accounts	974	1,076
VISA-related fees	255	830
Other service charges and fees	1,100	1,130
Secondary market lending fees	451	1,164
Bank owned life insurance income	219	129
Net (losses) gains on sale of securities available for sale	(25)	284
Loss on securities with other-than-temporary impairment		(288)
Other real estate losses	(327)	(563)
Net gains on the sale of fixed assets	137	165
Other income	66	101
Total non-interest income	3,681	4,726
NON-INTEREST EXPENSES
Salaries and employee benefits	6,458	6,414
Occupancy expense	1,492	1,331
Software maintenance	524	505
Bank franchise tax	189	171
VISA expense	170	708
Telephone expense	210	196
FDIC assessments	247	397
Foreclosure property expense	131	124
Consulting expense	329	222
Other expense	2,868	2,875
Total non-interest expenses	12,618	12,943
Net income before income taxes	2,387	1,621
Income tax expense	557	399
Net income	$ 1,830	$ 1,222
Basic Earnings Per Share
Average basic shares outstanding	4,818,377	4,816,859
Earnings per share, basic	$ 0.38	$ 0.25
Diluted Earnings Per Share
Average diluted shares outstanding	4,829,581	4,819,343
Earnings per share, diluted	$ 0.38	$ 0.25

XML

Loans

12 Months Ended

Dec. 31, 2014

Loans

Note 5. Loans

The following is a summary of the balances of loans:

(Dollars in thousands)	December 31, 2014			December 31, 2013
Mortgage loans on real estate:
Construction, Land and Land Development	$	43,048		$	31,839
Farmland		1,128			1,262
Commercial Mortgages (Non-Owner Occupied)		20,534			14,626
Commercial Mortgages (Owner Occupied)		33,326			34,177
Residential First Mortgages		135,267			114,458
Residential Revolving and Junior Mortgages		25,400			24,045
Commercial and Industrial loans		34,002			23,938
Consumer Loans		5,349			5,986
Total loans		298,054			250,331
Net unamortized deferred loans costs		393			506
Allowance for loan losses		(3,205	)		(2,925	)
Loans, net	$	295,242		$	247,912

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

(Dollars in thousands)	30-89 Days		90 Days or More Past Due and				Total Past Due and				Total
December 31, 2014	Past Due		Still Accruing		Nonaccruals		Nonaccruals		Current		Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	64	$	—	$	669	$	733	$	42,315	$	43,048
Farmland		—		—		—		—		1,128		1,128
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		20,534		20,534
Commercial Mortgages (Owner Occupied)		—		—		566		566		32,760		33,326
Residential First Mortgages		1,270		—		359		1,629		133,638		135,267
Residential Revolving and Junior Mortgages		6		—		31		37		25,363		25,400
Commercial and Industrial		96		—		228		324		33,678		34,002
Consumer Loans		66		14		101		181		5,168		5,349
Total	$	1,502	$	14	$	1,954	$	3,470	$	294,584	$	298,054
December 31, 2013	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	65	$	—	$	854	$	919	$	30,920	$	31,839
Farmland		—		—		—		—		1,262		1,262
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		14,626		14,626
Commercial Mortgages (Owner Occupied)		—		—		427		427		33,750		34,177
Residential First Mortgages		668		—		1,083		1,751		112,707		114,458
Residential Revolving and Junior Mortgages		108		—		76		184		23,861		24,045
Commercial and Industrial		16		—		311		327		23,611		23,938
Consumer Loans		60		19		3		82		5,904		5,986
Total	$	917	$	19	$	2,754	$	3,690	$	246,641	$	250,331

XML

Investment Securities

12 Months Ended

Dec. 31, 2014

Investment Securities

Note 4. Investment Securities

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

(Dollars in thousands)
Available-for-sale securities December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	16,969	$	33	$	(37	)	$	16,965
State and municipal obligations		23,335		226		(160	)		23,401
Certificates of deposits		2,232		8		(2	)		2,238
	$	42,536	$	267	$	(199	)	$	42,604
Available-for-sale securities December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government agencies	$	9,383	$	11	$	(86	)	$	9,308
State and municipal obligations		27,690		109		(1,242	)		26,557
Certificates of deposits		1,736		9		—			1,745
Auction rate security		912		—		—			912
	$	39,721	$	129	$	(1,328	)	$	38,522

The cost of securities sold is based on actual net cost. Gross realized gains and gross realized losses, as well as proceeds on sales and calls of securities, were as follows:

	For the years ended December 31,
(Dollars in thousands)	2014			2013
Gross realized gains	$	8		$	285
Gross realized losses		(33	)		(1	)
Net realized (losses) gains	$	(25	)	$	284
Aggregate proceeds	$	3,810		$	9,433

The aggregate amortized cost and market values of the investment securities portfolio by contractual maturity at December 31, 2014 are shown below:

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	4,078	$	4,087
Due after one year through five years		21,660		21,713
Due after five through ten years		13,871		13,889
Due after ten years		2,927		2,915
	$	42,536	$	42,604

Average yields (taxable equivalent) on securities were 2.40% and 2.31% for the years ended December 31, 2014 and 2013, respectively.

Securities with a market value of $8.5 million and $12.9 million at December 31, 2014 and 2013, respectively, were pledged as collateral for public deposits, repurchase agreements and for other purposes as required by law.

Securities in an unrealized loss position at December 31, 2014 and 2013, by duration of the unrealized loss, are shown below. With the exception of the auction rate security as of December 31, 2013, the unrealized loss positions were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All agency securities, states and municipal securities and certificates of deposit are investment grade or better and their losses are considered temporary. Management does not intend to sell the securities and does not expect to be required to sell the securities. All amortized cost bases are expected to be recovered. Bonds with unrealized loss positions at December 31, 2014 included 29 municipals, 13 federal agencies and three certificates of deposit. Bonds with unrealized loss positions at December 31, 2013 included 50 municipal securities and 15 federal agency securities.

(Dollars in thousands)	Less than 12 months				12 months or more				Total
December 31, 2014	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	1,499	$	4	$	3,532	$	33	$	5,031	$	37
States and municipal obligations		412		5		9,006		155		9,418		160
Certificates of deposit		742		2		—		—		742		2
Total temporarily impaired securities	$	2,653	$	11	$	12,538	$	188	$	15,191	$	199
	Less than 12 months				12 months or more				Total
December 31, 2013	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government agencies	$	4,808	$	66	$	1,462	$	20	$	6,270	$	86
States and municipal obligations		14,255		1,120		2,306		122		16,561		1,242
Total temporarily impaired securities	$	19,063	$	1,186	$	3,768	$	142	$	22,831	$	1,328

The following table summarizes cumulative credit-related other-than temporary impairment losses recognized on the one auction rate security held by the Company (no other-than-temporary-impairment was recognized for the years ended December 31, 2014):

(Dollars in thousands)	For the year ended December 31, 2014			For the year ended December 31, 2013
Balance, beginning of the period	$	288		$	—
Impairment losses recognized during the period		—			288
Realized losses from sales		(288	)		—
Balance, end of period	$	—		$	288

The Company held one South Carolina Student Loan Corporation auction rate security with a face amount of $1.2 million. During the second quarter of 2013, the South Carolina Student Loan Corporation made a tender and exchange offer with regards to these auction rate securities with the provision that 50% of the security holders were required to accept the tender offer in order for it to be consummated. The tender offer was not accepted by the required 50% of security holders. As a result of the tender and exchange offer, the Company determined that the value of this auction rate security was other than temporarily impaired. The market value of the security was estimated based on Level 3 inputs (refer to Note 21). The Company recognized an other-than-temporary impairment charge of $288 thousand in income related to this security during 2013. In the first quarter of 2014, the Company sold this auction rate security for $912 thousand.

The Company’s investment in Federal Home Loan Bank of Atlanta (“FHLB”) stock totaled $1.9 million and $1.1 million at December 31, 2014 and December 31, 2013, respectively. The Company also had an investment in Federal Reserve Bank of Richmond (“FRB”) stock which totaled $382 thousand at both December 31, 2014 and December 31, 2013. The investments in both FHLB and FRB stock are required investments related to the Bank’s membership with the FHLB and FRB. These securities do not have a readily determinable fair value as their ownership is restricted, and they lack an active market for trading. Additionally, per charter relations to the FHLB and FRB stock, all repurchase transactions of such stock must occur at par. Accordingly, these securities are carried at cost, and are periodically evaluated for impairment. The Company’s determination as to whether its investment in FHLB and FRB stock is impaired is based on management’s assessment of the ultimate recoverability of its par value rather than recognizing temporary declines in its value. The determination of whether the decline affects the ultimate recoverability of the investments is influenced by available information regarding various factors. These factors include, among others, the significance of the decline in net assets of the issuing banks as compared to the capital stock amount reported by these banks, and the length of time a decline has persisted; commitments by such banks to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuing bank; and the overall liquidity position of the issuing bank. Based on its most recent analysis of publicly available information regarding the financial condition of the issuing banks, management concluded that no impairment existed in the carrying value of FHLB and FRB stock.

XML

Regulatory Requirements and Restrictions

12 Months Ended

Dec. 31, 2014

Regulatory Requirements and Restrictions

Note 16. Regulatory Requirements and Restrictions

One source of funds available to the Company is the payment of dividends by the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval from the Bank’s regulators.

The Company (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the Commonwealth of Virginia and Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy required the Company and the Bank during 2014 to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that as of December 31, 2014 and 2013, the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2014, the most recent notification from the Federal Reserve categorized the Bank as well capitalized under the framework for prompt corrective action. To be categorized as well capitalized on such date, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2014 and 2013, are presented in the following tables:

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2014:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	41,445		15.02	%	$	22,074		8.00	%		N/A		N/A
Bank of Lancaster		36,446		13.30	%		21,927		8.00	%	$	27,409		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		38,240		13.86	%		11,037		4.00	%		N/A		N/A
Bank of Lancaster		33,241		12.13	%		10,964		4.00	%	$	16,445		6	%
Tier 1 Capital (to Average Assets)
Consolidated		38,240		10.35	%		14,770		4.00	%		N/A		N/A
Bank of Lancaster		33,241		9.07	%		14,664		4.00	%	$	18,329		5	%

	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2013:
Total Risk Based Capital (to Risk Weighted Assets)
Consolidated	$	39,322		16.38	%	$	19,211		8.00	%		N/A		N/A
Bank of Lancaster		33,419		14.01	%		19,089		8.00	%	$	23,861		10	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated		36,397		15.16	%		9,605		4.00	%		N/A		N/A
Bank of Lancaster		30,494		12.78	%		9,545		4.00	%	$	14,317		6	%
Tier 1 Capital (to Average Assets)
Consolidated		36,397		10.93	%		13,319		4.00	%		N/A		N/A
Bank of Lancaster		30,494		9.20	%		13,259		4.00	%	$	16,573		5	%

XML

Restrictions on Cash and Due from Banks

12 Months Ended

Dec. 31, 2014

Restrictions on Cash and Due from Banks

Note 12. Restrictions on Cash and Due from Banks

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) requires banks to maintain cash reserves against certain categories of deposit liabilities. At both December 31, 2014 and 2013, the aggregate amount of daily average required reserves for the final weekly reporting period was $25 thousand.

XML

Employee Benefit Plans - Weighted-average Assumptions (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Discount rate used for Net Periodic Pension Cost	5.00%	4.00%
Discount Rate used for Disclosure	4.00%	5.00%
Expected return on plan assets	7.50%	8.00%
Rate of compensation increase	0.00%	0.00%
Rate of compensation increase for net periodic pension cost	0.00%	0.00%
Expected future interest crediting rate	3.00%	3.00%
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Discount rate used for Net Periodic Pension Cost	5.00%	4.00%
Discount Rate used for Disclosure	4.00%	5.00%
Rate of compensation increase	0.00%	0.00%
Rate of compensation increase for net periodic pension cost	0.00%	0.00%

XML

Premises and Equipment, net

12 Months Ended

Dec. 31, 2014

Premises and Equipment, net

Note 8. Premises and Equipment, net

Components of premises and equipment included in the balance sheets at December 31, 2014 and 2013 were as follows:

	2014			2013
(Dollars in thousands)
Land and improvements	$	2,004		$	1,998
Buildings and improvements		13,032			11,764
Furniture and equipment		9,703			8,882
Total cost		24,739			22,644
Less accumulated depreciation		(12,857	)		(12,024	)
Premises and equipment, net	$	11,882		$	10,620

Depreciation expense for the years ended December 31, 2014 and 2013 totaled $792 thousand and $755 thousand, respectively.

XML

Loans - Recorded Investment in Past Due and Non-accruing Loans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	$ 1,502	$ 917
90 Days or More Past Due and Still Accruing	14	19
Nonaccruals	1,954	2,754
Total Past Due and Nonaccruals	3,470	3,690
Current	294,584	246,641
Total Gross Loans	298,054	250,331
Construction, Land and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	64	65
Nonaccruals	669	854
Total Past Due and Nonaccruals	733	919
Current	42,315	30,920
Total Gross Loans	43,048	31,839
Farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	1,128	1,262
Total Gross Loans	1,128	1,262
Commercial Mortgages (Non-Owner Occupied)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Current	20,534	14,626
Total Gross Loans	20,534	14,626
Commercial Mortgages (Owner Occupied)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Nonaccruals	566	427
Total Past Due and Nonaccruals	566	427
Current	32,760	33,750
Total Gross Loans	33,326	34,177
Residential First Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	1,270	668
Nonaccruals	359	1,083
Total Past Due and Nonaccruals	1,629	1,751
Current	133,638	112,707
Total Gross Loans	135,267	114,458
Residential Revolving and Junior Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	6	108
Nonaccruals	31	76
Total Past Due and Nonaccruals	37	184
Current	25,363	23,861
Total Gross Loans	25,400	24,045
Commercial and Industrial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	96	16
Nonaccruals	228	311
Total Past Due and Nonaccruals	324	327
Current	33,678	23,611
Total Gross Loans	34,002	23,938
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
30-89 Days Past Due	66	60
90 Days or More Past Due and Still Accruing	14	19
Nonaccruals	101	3
Total Past Due and Nonaccruals	181	82
Current	5,168	5,904
Total Gross Loans	$ 5,349	$ 5,986

XML

Fair Value Measurements - Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Financial Assets:
Cash and due from banks	$ 6,181	$ 6,789
Interest-bearing deposits	14,784	8,900
Federal funds sold	119	120
Securities available-for-sale	42,604	38,522
Restricted securities	2,430	1,638
Loans, net	295,242	247,912
Loans held for sale		196
Accrued interest receivable	1,197	1,124
Mortgage servicing rights	596	579
Financial Liabilities:
Non-interest-bearing liabilities	63,308	57,805
Savings and other interest-bearing deposits	122,502	114,056
Time deposits	121,775	96,486
Securities sold under repurchase agreements	6,012	9,118
FHLB advances	35,000	15,000
Accrued interest payable	149	167
Fair Value, Inputs, Level 1
Financial Assets:
Cash and due from banks	6,181	6,789
Interest-bearing deposits	14,784	8,900
Federal funds sold	119	120
Securities available-for-sale	845
Financial Liabilities:
Non-interest-bearing liabilities	63,308	57,805
Fair Value, Inputs, Level 2
Financial Assets:
Securities available-for-sale	41,759	37,610
Accrued interest receivable	1,197	1,124
Financial Liabilities:
Savings and other interest-bearing deposits	122,502	114,056
Securities sold under repurchase agreements	6,012	9,118
FHLB advances	35,951	15,923
Accrued interest payable	149	167
Fair Value, Inputs, Level 3
Financial Assets:
Securities available-for-sale		912
Restricted securities	2,430	1,638
Loans, net	300,481	253,139
Loans held for sale		196
Mortgage servicing rights	596	579
Financial Liabilities:
Time deposits	$ 122,662	$ 98,049

XML

Allowance for Loan Losses

12 Months Ended

Dec. 31, 2014

Allowance for Loan Losses

Note 6. Allowance for Loan Losses

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

(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
For the Twelve Months Ended December 31, 2014
Beginning Balance	$	2,465		$	256		$	204		$	2,925
(Charge-offs)		(313	)		—			(79	)		(392	)
Recoveries		36			—			25			61
Provision		590			67			(46	)		611
Ending Balance	$	2,778		$	323		$	104		$	3,205
Individually evaluated for impairment	$	665		$	—		$	11		$	676
Collectively evaluated for impairment		2,113			323			93			2,529
(Dollars in thousands)	Mortgage Loans on Real Estate			Commercial and Industrial			Consumer and other Loans			Total
For the Twelve Months Ended December 31, 2013
Beginning Balance	$	2,572		$	262		$	260		$	3,094
(Charge-offs)		(879	)		(17	)		(132	)		(1,028	)
Recoveries		68			1			14			83
Provision		704			10			62			776
Ending Balance	$	2,465		$	256		$	204		$	2,925
Individually evaluated for impairment	$	634		$	—		$	33		$	667
Collectively evaluated for impairment		1,831			256			171			2,258

Loan receivables evaluated for impairment individually and collectively by segment as of December 31, 2014 and 2013 are as follows:

(Dollars in thousands)	Mortgage Loans		Commercial and		Consumer
As of December 31, 2014	on Real Estate		Industrial		Loans		Total
Individually evaluated for impairment	$	6,842	$	—	$	16	$	6,858
Collectively evaluated for impairment		251,861		34,002		5,333		291,196
Total Gross Loans	$	258,703	$	34,002	$	5,349	$	298,054
As of December 31, 2013
Individually evaluated for impairment	$	6,306	$	311	$	39	$	6,656
Collectively evaluated for impairment		214,101		23,627		5,947		243,675
Total Gross Loans	$	220,407	$	23,938	$	5,986	$	250,331

Internal risk rating grades are shown in the following table.

(Dollars in thousands)	Construction, Land and Land				Commercial Mortgages (Non-Owner		Commercial Mortgages (Owner		Commercial and
As of December 31, 2014	Development		Farmland		Occupied)		Occupied)		Industrial		Total
Grade:
Pass	$	34,913	$	1,128	$	16,426	$	23,967	$	31,041	$	107,475
Watch		5,649		—		3,770		4,430		2,492		16,341
Special mention		1,403		—		—		2,789		154		4,346
Substandard		1,083		—		338		2,140		315		3,876
Doubtful		—		—		—		—		—		—
Total	$	43,048	$	1,128	$	20,534	$	33,326	$	34,002	$	132,038
As of December 31, 2013	Construction, Land and Land Development		Farmland		Commercial Mortgages (Non-Owner Occupied)		Commercial Mortgages (Owner Occupied)		Commercial and Industrial		Total
Grade:
Pass	$	25,616	$	1,262	$	9,083	$	23,984	$	20,309	$	80,254
Watch		3,493		—		5,204		7,429		2,743		18,869
Special mention		1,416		—		—		1,001		487		2,904
Substandard		1,314		—		339		1,763		399		3,815
Doubtful		—		—		—		—		—		—
Total	$	31,839	$	1,262	$	14,626	$	34,177	$	23,938	$	105,842

Loans not assigned internal risk rating grades are comprised of smaller residential mortgages and smaller consumer loans. Payment activity of these loans is reviewed monthly by management. However, some of these loans are graded when the borrower’s total exposure to the Bank exceeds the limits noted above. Loans are considered to be nonperforming when they are delinquent by 90 days or more or non-accruing and credit risk is primarily evaluated by delinquency status, as shown in the table below.

(Dollars in thousands)	Residential		Residential Revolving
As of December 31, 2014	First		and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (1)		Mortgages (2)		Loans (3)		Total
Performing	$	134,908	$	25,369	$	5,234	$	165,511
Nonperforming		359		31		115		505
Total	$	135,267	$	25,400	$	5,349	$	166,016
As of December 31, 2013	Residential First		Residential Revolving and Junior		Consumer
PAYMENT ACTIVITY STATUS	Mortgages (4)		Mortgages (5)		Loans (6)		Total
Performing	$	113,375	$	23,969	$	5,964	$	143,308
Nonperforming		1,083		76		22		1,181
Total	$	114,458	$	24,045	$	5,986	$	144,489

Notes:

(1) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.

(2) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.

(3) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

(4) Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.6 million as of December 31, 2013.

(5) Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of December 31, 2013.

(6) Consumer Loans which have been assigned a risk rating grade of Substandard totaled $9 thousand as of December 31, 2013.

The following tables show the Company’s recorded investment and the customers’ unpaid principal balances for impaired loans, with the associated allowance amount, if applicable, as of December 31, 2014 and 2013, along with the average recorded investment and interest income recognized for the years ended December 31, 2014 and 2013.

(Dollars in thousands)	As of December 31, 2014						As of December 31, 2013
IMPAIRED LOANS
	Recorded		Customers’ Unpaid		Related		Recorded		Customers’ Unpaid		Related
With no related allowance:	Investment		Principal Balance		Allowance		Investment		Principal Balance		Allowance
Construction, land and land development	$	450	$	452	$	—	$	453	$	453	$	—
Residential First Mortgages		1,568		1,584		—		1,053		1,057		—
Residential Revolving and Junior Mortgages (1)		50		50		—		—		—		—
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,831		1,840		—
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		5		5		—		—		—		—
		4,224		4,271		—		3,912		3,925		—
With an allowance recorded:
Construction, land and land development		277		292		144		151		156		51
Residential First Mortgages		2,173		2,173		437		2,198		2,198		409
Residential Revolving and Junior Mortgages (1)		173		173		84		251		879		173
Commercial Mortgages (Non-owner occupied)		—		—		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		—		105		105		1
Commercial and Industrial		—		—		—		—		—		—
Consumer (2)		11		11		11		39		39		33
		2,634		2,649		676		2,744		3,377		667
Total Impaired Loans:
Construction, land and land development		727		744		144		604		609		51
Residential First Mortgages		3,741		3,757		437		3,251		3,255		409
Residential Revolving and Junior Mortgages (1)		223		223		84		251		879		173
Commercial Mortgages (Non-owner occupied)		264		264		—		264		264		—
Commercial Mortgages (Owner occupied)		1,887		1,916		—		1,936		1,945		1
Commercial and Industrial		—		—		—		311		311		—
Consumer (2)		16		16		11		39		39		33
	$	6,858	$	6,920	$	676	$	6,656	$	7,302	$	667

Notes:

(1) Junior mortgages include equity lines.

(2) includes credit cards.

	For the Year Ended				For the Year Ended
	December 31, 2014				December 31, 2013
	Average Recorded		Interest Income		Average Recorded		Interest Income
(Dollars in thousands)	Investment		Recognized		Investment		Recognized
With no related allowance:
Construction, land and land development	$	451	$	3	$	189	$	1
Residential First Mortgages		1,148		49		678		48
Residential Revolving and Junior Mortgages (1)		10		—		—		—
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,092		56
Commercial and Industrial		—		—		62		—
Consumer (2)		6		—		—		—
		3,790		147		2,127		113
With an allowance recorded:
Construction, land and land development		168		4		30		—
Residential First Mortgages		2,184		100		1,916		108
Residential Revolving and Junior Mortgages (1)		174		9		254		8
Commercial Mortgages (Non-owner occupied)		—		—		—		—
Commercial Mortgages (Owner occupied)		—		—		21		2
Commercial and Industrial		—		—		—		—
Consumer (2)		24		2		60		5
		2,550		115		2,281		123
Total
Construction, land and land development		619		7		219		1
Residential First Mortgages		3,332		149		2,594		156
Residential Revolving and Junior Mortgages (1)		184		9		254		8
Commercial Mortgages (Non-owner occupied)		264		16		106		8
Commercial Mortgages (Owner occupied)		1,911		79		1,113		58
Commercial and Industrial		—		—		62		—
Consumer (2)		30		2		60		5
	$	6,340	$	262	$	4,408	$	236

Notes:

(1) Junior mortgages include equity lines.

(2) Includes credit cards.

Smaller non-accruing loans and non-accruing loans that are not graded because they are included in homogenous pools generally do not meet the criteria for impairment testing, and are therefore excluded from impaired loan disclosures. At December 31, 2014 and 2013, non-accruing loans excluded from impaired loan disclosure totaled $663 thousand and $724 thousand, respectively. If interest on these non-accruing loans had been accrued, such income would have approximated $32 thousand and $23 thousand during the years ended December 31, 2014 and 2013, respectively.

Loans modified as TDRs are considered impaired and are individually evaluated for the amount of impairment in the ALL. The following table presents, by segments of loans, information related to loans modified as TDRs during the years ended December 31, 2014 and 2013.

	For the Year Ended December 31, 2014						For the Year Ended December 31, 2013
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
(Dollars in thousands)			Outstanding		Outstanding				Outstanding		Outstanding
TROUBLED DEBT RESTRUCTURINGS	Number of Loans		Recorded Investment		Recorded Investment		Number of Loans		Recorded Investment		Recorded Investment
Construction, land and land development (1)		2	$	282	$	277		3	$	196	$	196
Residenital first mortages (2)		—		—		—		1		207		204
Residential revolving and junior mortgages (1)		1		50		50		—		—		—
Commercial mortgages (Owner occupied) (1)		—		—		—		2		263		263
Consumer (2)		—		—		—		1		8		7

Notes:

(1) Modifications were an extention of the loan terms.

(2) Modifications were capitalization of the interest.

	For the Year Ended December 31, 2014				For the Year Ended December 31, 2013
TROUBLED DEBT RESTRUCTURINGS THAT SUBSEQUENTLY DEFAULTED	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Residential first mortgages		—	$	—		1	$	106
Residential revolving and junior mortgages		1		75		—		—
Commerical mortgages (Owner occupied)		2		255		—		—

Of the TDRs restructured in 2014 and 2013 which did not subsequently default, all are performing. Of the three loans that defaulted, one loan in the amount of $75 thousand was charged-off in 2014. There were 14 TDRs with an aggregate balance of $2.5 million outstanding as of both December 31, 2014 and December 31, 2013.

XML

Other Real Estate Owned, Net

12 Months Ended

Dec. 31, 2014

Other Real Estate Owned, Net

Note 7. Other Real Estate Owned, Net

OREO is presented net of a valuation allowance for losses. An analysis of the valuation allowance on OREO is shown below.

	Years ended
(Dollars in thousands)	2014			2013
Balance, beginning of year	$	538		$	562
Provision for losses		235			300
Charge-offs		(147	)		(324	)
Balance, end of period	$	626		$	538

Expenses applicable to OREO include the following:

	Years ended
(Dollars in thousands)	2014		2013
Net loss on sales of real estate	$	92	$	263
Provision for losses		235		300
Operating expenses, net of income		131		124
Total expenses	$	458	$	687

The following table details the properties included in OREO as of December 31, 2014 and December 31, 2013. There was one collateralized consumer residential mortgage loan with a balance of $129 thousand in the process of foreclosure as of December 31, 2014. The Company accepted a deed in lieu of foreclosure on this property in January 2015.

	As of December 31, 2014				As of December 31, 2013
	No. of		Carrying		No. of		Carrying
(Dollars in thousands)	Properties		Value		Properties		Value
Residential		10	$	1,559		11	$	2,442
Land lots		13		587		14		684
Convenience store		2		234		2		239
Restaurant		1		107		1		107
Commerical properties		1		304		2		425
Total		27	$	2,791		30	$	3,897

Included in other assets as of December 31, 2014, is one residential property purchased in 2013 from a related party with a value of $771 thousand. Included in other assets as of December 31, 2013, were two properties with a total value of $983 thousand, a former branch office and one residential property, which was purchased from a related party. The branch was sold in 2014.

XML

Deposits

12 Months Ended

Dec. 31, 2014

Deposits

Note 9. Deposits

The aggregate amount of time deposits in denominations of $250,000 or more at December 31, 2014 and 2013 was $16.5 million and $7.0 million, respectively.

At December 31, 2014, the scheduled maturities of time deposits are as follows (in thousands):

2015	$	56,739
2016		45,267
2017		8,843
2018		4,369
2019		6,543
Thereafter		14
	$	121,775

At December 31, 2014 and 2013, overdraft demand deposits reclassified to loans totaled $85 thousand and $91 thousand, respectively.

At December 31, 2014 and 2013, the Company had brokered deposits of $8.0 million and none, respectively.

XML

Allowance for Loan Losses - Additional Information (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014 Loan Contract	Dec. 31, 2013 Contract
Accounts, Notes, Loans and Financing Receivable [Line Items]
Period of nonperforming loans	90 days
Non-accruing loans excluded from impaired loan	$ 663,000	$ 724,000
Non-accruing loans accrued interest	32,000	23,000
Subsequently defaulted number of loans	3
Number of trouble debt restructurings	14	14
Aggregate balance of trouble debt restructuring	2,500,000	2,500,000
Charge off of loan default	$ 75,000

XML

Employee Benefit Plans - Estimated Future Benefit Payments for Pension and Postretirement Plans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2015	$ 525
2016	50
2017	222
2018	38
2019	366
2020 and thereafter	1,502
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
2015	22
2016	24
2017	26
2018	28
2019	31
2020 and thereafter	$ 190

XML

Allowance for Loan Losses - Performing and Non Performing Loans (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	$ 166,016		$ 144,489
Residential First Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	135,267	[1]	114,458	[2]
Residential Revolving and Junior Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	25,400	[3]	24,045	[4]
Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	5,349	[5]	5,986	[6]
Substandard | Residential First Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	2,100		2,600
Substandard | Residential Revolving and Junior Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	219		216
Substandard | Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Risk rating grade totaled	$ 1		$ 9

[1] Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.1 million as of December 31, 2014.

[2] Residential First Mortgages which have been assigned a risk rating grade of Substandard totaled $2.6 million as of December 31, 2013.

[3] Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $219 thousand as of December 31, 2014.

[4] Residential Revolving and Junior Mortgages which have been assigned a risk rating grade of Substandard totaled $216 thousand as of December 31, 2013.

[5] Consumer Loans which have been assigned a risk rating grade of Substandard totaled $1 thousand as of December 31, 2014.

[6] Consumer Loans which have been assigned a risk rating grade of Substandard totaled $9 thousand as of December 31, 2013.

XML

Earnings Per Share - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Computation Of Earnings Per Share Line Items
Shares not included in computing diluted earnings per share because effects were anti-dilutive	68,707	167,762

XML

Allowance for Loan Losses - Internal Risk Rating Grades (Detail) (USD $)	Dec. 31, 2014	Dec. 31, 2013
INTERNAL RISK RATING GRADES
Loan Receivables	$ 132,038,000	$ 105,842,000
Pass
INTERNAL RISK RATING GRADES
Loan Receivables	107,475,000	80,254,000
Watch
INTERNAL RISK RATING GRADES
Loan Receivables	16,341,000	18,869,000
Special Mention
INTERNAL RISK RATING GRADES
Loan Receivables	4,346,000	2,904,000
Substandard
INTERNAL RISK RATING GRADES
Loan Receivables	3,876,000	3,815,000
Construction, Land and Land Development
INTERNAL RISK RATING GRADES
Loan Receivables	43,048,000	31,839,000
Construction, Land and Land Development | Pass
INTERNAL RISK RATING GRADES
Loan Receivables	34,913,000	25,616,000
Construction, Land and Land Development | Watch
INTERNAL RISK RATING GRADES
Loan Receivables	5,649,000	3,493,000
Construction, Land and Land Development | Special Mention
INTERNAL RISK RATING GRADES
Loan Receivables	1,403,000	1,416,000
Construction, Land and Land Development | Substandard
INTERNAL RISK RATING GRADES
Loan Receivables	1,083,000	1,314,000
Farmland
INTERNAL RISK RATING GRADES
Loan Receivables	1,128,000	1,262,000
Farmland | Pass
INTERNAL RISK RATING GRADES
Loan Receivables	1,128,000	1,262,000
Commercial Mortgages (Non-Owner Occupied)
INTERNAL RISK RATING GRADES
Loan Receivables	20,534,000	14,626,000
Commercial Mortgages (Non-Owner Occupied) | Pass
INTERNAL RISK RATING GRADES
Loan Receivables	16,426,000	9,083,000
Commercial Mortgages (Non-Owner Occupied) | Watch
INTERNAL RISK RATING GRADES
Loan Receivables	3,770,000	5,204,000
Commercial Mortgages (Non-Owner Occupied) | Substandard
INTERNAL RISK RATING GRADES
Loan Receivables	338,000	339,000
Commercial Mortgages (Owner Occupied)
INTERNAL RISK RATING GRADES
Loan Receivables	33,326,000	34,177,000
Commercial Mortgages (Owner Occupied) | Pass
INTERNAL RISK RATING GRADES
Loan Receivables	23,967,000	23,984,000
Commercial Mortgages (Owner Occupied) | Watch
INTERNAL RISK RATING GRADES
Loan Receivables	4,430,000	7,429,000
Commercial Mortgages (Owner Occupied) | Special Mention
INTERNAL RISK RATING GRADES
Loan Receivables	2,789,000	1,001,000
Commercial Mortgages (Owner Occupied) | Substandard
INTERNAL RISK RATING GRADES
Loan Receivables	2,140,000	1,763,000
Commercial and Industrial loans
INTERNAL RISK RATING GRADES
Loan Receivables	34,002,000	23,938,000
Commercial and Industrial loans | Pass
INTERNAL RISK RATING GRADES
Loan Receivables	31,041,000	20,309,000
Commercial and Industrial loans | Watch
INTERNAL RISK RATING GRADES
Loan Receivables	2,492,000	2,743,000
Commercial and Industrial loans | Special Mention
INTERNAL RISK RATING GRADES
Loan Receivables	154,000	487,000
Commercial and Industrial loans | Substandard
INTERNAL RISK RATING GRADES
Loan Receivables	$ 315,000	$ 399,000

XML

Income Taxes - Expense for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Income Tax Expenses [Line Items]
Current	$ 499	$ 140
Deferred	58	259
Income Tax Expense (Benefit), Total	$ 557	$ 399

XML

Loans (Tables)

12 Months Ended

Dec. 31, 2014

Summary of Balances of Loans

The following is a summary of the balances of loans:

(Dollars in thousands)	December 31, 2014			December 31, 2013
Mortgage loans on real estate:
Construction, Land and Land Development	$	43,048		$	31,839
Farmland		1,128			1,262
Commercial Mortgages (Non-Owner Occupied)		20,534			14,626
Commercial Mortgages (Owner Occupied)		33,326			34,177
Residential First Mortgages		135,267			114,458
Residential Revolving and Junior Mortgages		25,400			24,045
Commercial and Industrial loans		34,002			23,938
Consumer Loans		5,349			5,986
Total loans		298,054			250,331
Net unamortized deferred loans costs		393			506
Allowance for loan losses		(3,205	)		(2,925	)
Loans, net	$	295,242		$	247,912

Recorded Investment in Past Due and Non-accruing Loans

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

(Dollars in thousands)	30-89 Days		90 Days or More Past Due and				Total Past Due and				Total
December 31, 2014	Past Due		Still Accruing		Nonaccruals		Nonaccruals		Current		Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	64	$	—	$	669	$	733	$	42,315	$	43,048
Farmland		—		—		—		—		1,128		1,128
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		20,534		20,534
Commercial Mortgages (Owner Occupied)		—		—		566		566		32,760		33,326
Residential First Mortgages		1,270		—		359		1,629		133,638		135,267
Residential Revolving and Junior Mortgages		6		—		31		37		25,363		25,400
Commercial and Industrial		96		—		228		324		33,678		34,002
Consumer Loans		66		14		101		181		5,168		5,349
Total	$	1,502	$	14	$	1,954	$	3,470	$	294,584	$	298,054
December 31, 2013	30-89 Days Past Due		90 Days or More Past Due and Still Accruing		Nonaccruals		Total Past Due and Nonaccruals		Current		Total Loans
Mortgage Loans on Real Estate:
Construction, Land and Land Development	$	65	$	—	$	854	$	919	$	30,920	$	31,839
Farmland		—		—		—		—		1,262		1,262
Commercial Mortgages (Non-Owner Occupied)		—		—		—		—		14,626		14,626
Commercial Mortgages (Owner Occupied)		—		—		427		427		33,750		34,177
Residential First Mortgages		668		—		1,083		1,751		112,707		114,458
Residential Revolving and Junior Mortgages		108		—		76		184		23,861		24,045
Commercial and Industrial		16		—		311		327		23,611		23,938
Consumer Loans		60		19		3		82		5,904		5,986
Total	$	917	$	19	$	2,754	$	3,690	$	246,641	$	250,331

XML

Goodwill - Additional Information (Detail) (USD $)	0 Months Ended
	Sep. 30, 2014	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2000 Branch
Goodwill And Other Intangible Assets [Line Items]
Goodwill		$ 2,808,000	$ 2,808,000
Number of branches purchased during the years 1994 through 2000				5
Impairment of goodwill	$ 0

XML

FHLB

12 Months Ended

Dec. 31, 2014

FHLB

Note 14. FHLB

On December 31, 2014, the Bank had FHLB debt consisting of six advances (see table below). The $10 million advance was restructured during the second quarter of 2013 to extend the maturity and reduce the interest rate from 4.23% to a three month LIBOR-based hybrid floating rate advance. A $5 million advance with an interest rate of 2.69% matured in May 2014 and was replaced with a new $5 million three month LIBOR-based floating rate advance. Two $5 million advances were drawn in June 2014 and two $5 million advances were drawn in October 2014, all of which were fixed rate advances.

The six advances are shown in the following table.

Description	Balance		Originated		Current Interest Rate			Maturity Date
Adjustable Rate Hybrid	$	10,000,000		4/12/2013		2.61000	%		4/13/2020
Adjustable Rate Credit		5,000,000		5/20/2014		0.23185	%		5/20/2015
Fixed Rate Credit		5,000,000		6/18/2014		0.26000	%		6/18/2015
Fixed Rate Credit		5,000,000		6/26/2014		0.26000	%		6/26/2015
Fixed Rate Credit		5,000,000		10/20/2014		0.47000	%		4/20/2016
Fixed Rate Credit		5,000,000		10/20/2014		0.30000	%		10/20/2015
	$	35,000,000

Advances on the FHLB lines are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Immediate available credit, as of December 31, 2014, was $38.6 million against a total line of credit of $77.6 million.

As of December 31, 2013, the Company had $15.0 million in FHLB debt outstanding with an average interest rate of 2.48%.

XML

Condensed Financial Information of Parent Company - Condensed Statements of Cash Flows (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash Flows from Operating Activities:
Net income	$ 1,830	$ 1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	20	122
Increase (decrease) in other liabilities	(92)	377
Cash Flows from Investing Activities:
Purchase of other assets		(771)
Cash Flows from Financing Activities:
Net decrease in cash and due from banks	5,276	(24,235)
Cash and due from banks at January 1	6,789
Cash and due from banks at December 31	6,181	6,789
Parent Company
Cash Flows from Operating Activities:
Net income	1,830	1,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1
Stock-based compensation	20	122
Equity in undistributed earnings of subsidiaries	(1,816)	(1,424)
Increase in other assets	(467)	(186)
Net change in deferred directors' compensation	77	87
Increase (decrease) in other liabilities	17	(3,720)
Net cash used in operating activities	(339)	(3,898)
Cash Flows from Investing Activities:
Purchase of other assets		(771)
Investment in subsidiaries	(1,100)	(500)
Net cash used in investing activities	(1,100)	(1,271)
Cash Flows from Financing Activities:
Net cash provided by financing activities	0	0
Net decrease in cash and due from banks	(1,439)	(5,169)
Cash and due from banks at January 1	3,884	9,053
Cash and due from banks at December 31	$ 2,445	$ 3,884

XML

Earnings per Share

12 Months Ended

Dec. 31, 2014

Earnings per Share

Note 19. 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.

	For the Years Ended
	December 31, 2014				December 31, 2013
	Average		Per share		Average		Per share
	Shares		Amount		Shares		Amount
Basic earnings per share		4,818,377	$	0.38		4,816,859	$	0.25
Effect of dilutive securities:
Stock options		11,204				2,484
Diluted earnings per share		4,829,581	$	0.38		4,819,343	$	0.25

For the years ended 2014 and 2013, options on 68,707 and 167,762 shares, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive.

XML

Regulatory Requirements and Restrictions - Schedule of Bank's Actual Capital Amounts and Ratios (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Consolidated Entities
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk Based Capital (to Risk Weighted Assets), Actual Amount	$ 41,445	$ 39,322
Total Risk Based Capital (to Risk Weighted Assets), Actual Ratio	15.02%	16.38%
Total Risk Based Capital (to Risk Weighted Assets), Minimum Capital Requirement Amount	22,074	19,211
Total Risk Based Capital (to Risk Weighted Assets), Minimum Capital Requirement Ratio	8.00%	8.00%
Tier 1 Capital (to Risk Weighted Assets), Actual Amount	38,240	36,397
Tier 1 Capital (to Risk Weighted Assets), Actual Ratio	13.86%	15.16%
Tier 1 Capital (to Risk Weighted Assets), Minimum Capital Requirement Amount	11,037	9,605
Tier 1 Capital (to Risk Weighted Assets), Minimum Capital Requirement Ratio	4.00%	4.00%
Tier 1 Capital (to Average Assets), Actual Amount	38,240	36,397
Tier 1 Capital (to Average Assets), Actual Ratio	10.35%	10.93%
Tier 1 Capital (to Average Assets), Minimum Capital Requirement Amount	14,770	13,319
Tier 1 Capital (to Average Assets), Minimum Capital Requirement Ratio	4.00%	4.00%
Subsidiaries
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Total Risk Based Capital (to Risk Weighted Assets), Actual Amount	36,446	33,419
Total Risk Based Capital (to Risk Weighted Assets), Actual Ratio	13.30%	14.01%
Total Risk Based Capital (to Risk Weighted Assets), Minimum Capital Requirement Amount	21,927	19,089
Total Risk Based Capital (to Risk Weighted Assets), Minimum Capital Requirement Ratio	8.00%	8.00%
Total Risk Based Capital (to Risk Weighted Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	27,409	23,861
Total Risk Based Capital (to Risk Weighted Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	10.00%	10.00%
Tier 1 Capital (to Risk Weighted Assets), Actual Amount	33,241	30,494
Tier 1 Capital (to Risk Weighted Assets), Actual Ratio	12.13%	12.78%
Tier 1 Capital (to Risk Weighted Assets), Minimum Capital Requirement Amount	10,964	9,545
Tier 1 Capital (to Risk Weighted Assets), Minimum Capital Requirement Ratio	4.00%	4.00%
Tier 1 Capital (to Risk Weighted Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	16,445	14,317
Tier 1 Capital (to Risk Weighted Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	6.00%	6.00%
Tier 1 Capital (to Average Assets), Actual Amount	33,241	30,494
Tier 1 Capital (to Average Assets), Actual Ratio	9.07%	9.20%
Tier 1 Capital (to Average Assets), Minimum Capital Requirement Amount	14,664	13,259
Tier 1 Capital (to Average Assets), Minimum Capital Requirement Ratio	4.00%	4.00%
Tier 1 Capital (to Average Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Amount	$ 18,329	$ 16,573
Tier 1 Capital (to Average Assets), Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions Ratio	5.00%	5.00%

XML

Accumulated Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2014

Balances in Accumulated Other Comprehensive Income (Loss)

The balances in accumulated other comprehensive income (loss) are shown in the following table (dollars in thousands):

	Net Unrealized			Pension and			Accumulated Other
	Gains (Losses)			Post-retirement			Comprehensive
	on Securities			Benefit Plans			Income (Loss)
Balance January 1, 2013	$	280		$	(661	)	$	(381	)
Change in net unrealized holding losses on securities, before reclassification, net of tax benefit of $550		(1,068	)		—			(1,068	)
Reclassification for previously unrealized net gains recognized in income, net of tax benefit of $1		(3	)		—			(3	)
Net gain on pension and postretirement plans, net of tax expense of $143		—			277			277
Net postretirement plan transition cost, net of tax expense of $1		—			2			2
Balance December 31, 2013		(791	)		(382	)		(1,173	)
Change in net unrealized holding gains on securities, before reclassification, net of tax expense of $422		820			—			820
Reclassification for previously unrealized net losses recognized in income, net of tax benefit of $9		16			—			16
Net loss on pension and postretirement plans, net of tax benefit of $301		—			(584	)		(584	)
Balance at December 31, 2014	$	45		$	(966	)	$	(921	)

Reclassification of Unrealized Gains and Impairments on Securities and Pension and Postemployment Related Costs

Reclassification for previously unrealized gains and impairments on securities and pension and postemployment related costs are reported in the consolidated statements of income as follows:

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2014
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net losses on sale of securities available-for-securities	$	(25	)	$	—
Salaries and employee benefits		—			(37	)
Tax (expense) benefit		9			13
Impact on net income	$	(16	)	$	(24	)

	Accumulated Other Comprehensive Income (Loss) Reclassification for the Year Ended December 31, 2013
	Holding gains (losses)			Pension and
(Dollars in thousands)	on securities			postemployment costs
Net gains on sale of securities available-for-securities	$	284		$	—
Loss on security with other-than- temporary impairment		(288	)		—
Salaries and employee benefits		—			(211	)
Tax (expense) benefit		1			71
Impact on net income	$	(3	)	$	(140	)

XML

Fair Value Measurements - Additional Information (Detail) (Fair Value, Measurements, Recurring [Member], Fair Value, Inputs, Level 3, Mortgage Servicing Rights)	12 Months Ended
	Dec. 31, 2014 Loan	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Loan segregated, number of pools	14
Service costs assumed, per loan	5.75	6.00
Average PSA assumed rate	184.00%	162.00%
Discount rate	10.00%	10.00%
100% PSA | First Month
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Prepayment rate	0.00%
100% PSA | Between First Month and Month 30
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Prepayment rate increase, each month	0.20%
100% PSA | Month 30
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Prepayment rate	6.00%
100% PSA | Thereafter
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Prepayment rate	6.00%

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Expense for Income Taxes

The expense for income taxes consisted of the following (in thousands):

Year ended December 31,	2014		2013
Current	$	499	$	140
Deferred		58		259
	$	557	$	399

Summary of Reasons for Differences Between Statutory Federal Income Tax Rates and Effective Tax Rates

The reasons for the differences between the statutory Federal income tax rates and the effective tax rates are summarized as follows:

	2014			2013
Statutory rate		34.0	%		34.0	%
Increase (decrease) resulting from:
Tax exempt interest		-8.3	%		-8.5	%
Bank owned life insurance		-3.1	%		-2.7	%
Other, net		0.7	%		1.8	%
		23.3	%		24.6	%

Components of Net Deferred Tax Assets and Liabilities

The components of the net deferred tax assets and liabilities included in other liabilities are as follows (in thousands):

December 31,	2014			2013
Deferred tax assets
Allowance for loan losses	$	661		$	632
Interest on non-accrual loans		47			40
Mortgage servicing rights		—			197
Other real estate		397			477
Pension plan		222			—
Postretirement benefits		262			206
Deferred compensation		141			114
Stock-based compensation		25			18
Alternative minimum tax credit		—			96
Unrealized losses on available-for-sale securities		—			408
Other		11			3
Total deferred tax assets		1,766			2,191
Deferred tax liabilities
Unrealized gains on available-for-sale securities		(23	)		—
Pension plan		—			(27	)
Depreciation		(218	)		(276	)
Amortization of goodwill		(928	)		(896	)
Net deferred loan fees and costs		(134	)		(172	)
Other		(67	)		(64	)
Total deferred tax (liabilities)		(1,370	)		(1,435	)
Net deferred tax assets	$	396		$	756

XML

Fair Value Measurements - Reconciliation of Items Using Level Three Inputs (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014
Auction Rate Security
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 912
Purchases	0
Sales	(912)
Mortgage Servicing Rights
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	579
Purchases	0
Fair value adjustments	17
Ending balance	$ 596

XML

Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Net income	$ 1,830	$ 1,222
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period	1,242	(1,618)
Deferred tax (expense) benefit	(422)	550
Reclassification of net securities losses (gains) and impairments recognized in net income	25	(4)
Deferred tax (expense) benefit	(9)	1
Unrealized gains (losses) adjustment, net of tax	836	(1,071)
Defined benefit plan:
Total other comprehensive income (loss)	252	(792)
Comprehensive income	2,082	430
Pension Plan, Defined Benefit
Defined benefit plan:
Net (loss) gain	(792)	20
Deferred tax benefit (expense)	270	(7)
Reclassification expense	37	204
Deferred tax benefit	(13)	(69)
Defined benefit plan adjustment, net of tax	(498)	148
Other Postretirement Benefit Plan, Defined Benefit
Defined benefit plan:
Net (loss) gain	(130)	190
Deferred tax benefit (expense)	44	(64)
Reclassification expense		7
Deferred tax benefit		(2)
Defined benefit plan adjustment, net of tax	$ (86)	$ 131

XML

Restrictions on Cash Due From Banks - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Restricted Cash and Cash Equivalents Items [Line Items]
Federal Reserve	$ 25	$ 25

XML

Goodwill

12 Months Ended

Dec. 31, 2014

Goodwill

Note 3. Goodwill

The Company has goodwill relating to the purchase of five branches during the years 1994 through 2000. The balance of the goodwill at December 31, 2014 and 2013, as reflected on the consolidated balance sheets, was $2.8 million. Management determined that these purchases qualified as acquisitions of businesses and that the related unidentifiable intangibles were goodwill. Goodwill is tested annually for impairment. The test performed using financial information as of September 30, 2014 found no impairment. No events occurred between the date of our annual test and December 31, 2014 that would indicate the existence of impairment.

XML

Loans - Summary of Balances of Loans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Summary of balances of loans
Total loans	$ 298,054	$ 250,331
Net unamortized deferred loans costs	393	506
Allowance for loan losses	(3,205)	(2,925)
Loans, net	295,242	247,912
Construction, Land and Land Development
Summary of balances of loans
Total loans	43,048	31,839
Farmland
Summary of balances of loans
Total loans	1,128	1,262
Commercial Mortgages (Non-Owner Occupied)
Summary of balances of loans
Total loans	20,534	14,626
Commercial Mortgages (Owner Occupied)
Summary of balances of loans
Total loans	33,326	34,177
Residential First Mortgages
Summary of balances of loans
Total loans	135,267	114,458
Residential Revolving and Junior Mortgages
Summary of balances of loans
Total loans	25,400	24,045
Commercial and Industrial loans
Summary of balances of loans
Total loans	34,002	23,938
Consumer Loans
Summary of balances of loans
Total loans	$ 5,349	$ 5,986

XML

Employee Benefit Plans - Components of Net Periodic Benefit Cost (Gain) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Pension Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Interest cost	$ 142	$ 143
Expected (return) on plan assets	(202)	(215)
Amortization of prior service cost	0	0
Recognized net loss due to settlement		114
Recognized net actuarial loss	37	90
Net periodic benefit (gain) cost	(23)	132
Other Postretirement Benefit Plan, Defined Benefit
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost	15	23
Interest cost	30	30
Amortization of prior service cost	0	0
Amortization of net obligation at transition		3
Recognized net actuarial loss		4
Net periodic benefit (gain) cost	$ 45	$ 60

XML

Fair Value Measurements - Schedule of Balances of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Securities available for sale:
Securities available-for-sale	$ 42,604	$ 38,522
Mortgage servicing rights	596	579
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	2,897	2,820
US Government Agencies
Securities available for sale:
Securities available-for-sale	16,965	9,308
State and Municipal Obligations
Securities available for sale:
Securities available-for-sale	23,401	26,557
Auction Rate Security
Securities available for sale:
Securities available-for-sale		912
Certificates of Deposit
Securities available for sale:
Securities available-for-sale	2,238	1,745
Cash and Cash Equivalents
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	4	3
Fixed Income Funds
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	1,139	1,070
Equity Funds
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	1,754	1,747
Fair Value, Inputs, Level 1
Securities available for sale:
Securities available-for-sale	845
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	2,897	2,820
Fair Value, Inputs, Level 1 | US Government Agencies
Securities available for sale:
Securities available-for-sale	845
Fair Value, Inputs, Level 1 | Cash and Cash Equivalents
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	4	3
Fair Value, Inputs, Level 1 | Fixed Income Funds
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	1,139	1,070
Fair Value, Inputs, Level 1 | Equity Funds
Defined benefit plan assets:
Defined Benefit Plan Fair Value Of Plan Assets	1,754	1,747
Fair Value, Inputs, Level 2
Securities available for sale:
Securities available-for-sale	41,759	37,610
Fair Value, Inputs, Level 2 | US Government Agencies
Securities available for sale:
Securities available-for-sale	16,120	9,308
Fair Value, Inputs, Level 2 | State and Municipal Obligations
Securities available for sale:
Securities available-for-sale	23,401	26,557
Fair Value, Inputs, Level 2 | Certificates of Deposit
Securities available for sale:
Securities available-for-sale	2,238	1,745
Fair Value, Inputs, Level 3
Securities available for sale:
Securities available-for-sale		912
Mortgage servicing rights	596	579
Fair Value, Inputs, Level 3 | Auction Rate Security
Securities available for sale:
Securities available-for-sale		$ 912

XML

Other Real Estate Owned Net - Net of Valuation Allowances for Losses on Foreclosed Assets (Detail) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Real Estate Owned And Other Repossessed Assets [Line Items]
Balance, beginning of year	$ 538	$ 562
Provision for losses	235	300
Charge-offs	(147)	(324)
Balance, end of period	$ 626	$ 538

XML

Related Parties

12 Months Ended

Dec. 31, 2014

Related Parties

Note 20. Related Parties

The Company has entered into transactions with its directors and principal officers of the Company, their immediate families and affiliated companies in which they are the principal stockholders (related parties). The aggregate amount of loans to such related parties was $2.9 million and $2.6 million at December 31, 2014 and 2013, respectively. All such loans, in the opinion of management, were made in the normal course of business on the same terms, including interest rate, collectability and collateral, as those prevailing at the time for comparable transactions.

(Dollars in thousands
Balance, January 1, 2014	$	2,606
New loans and extensions to existing loans		573
Repayments and other reductions		(305	)
Balance, December 31, 2014	$	2,874

Unfunded commitments to extend credit to directors and their related interests were $1.5 million and $2.0 million at December 31, 2014 and 2013, respectively.

The Company also maintains deposit accounts with some of its executive officers, directors and their affiliated entities. The aggregate amount of these deposit accounts at December 31, 2014 and 2013 amounted to $374 thousand and $428 thousand, respectively.

XML

Accumulated Other Comprehensive Income - Balances in Accumulated Other Comprehensive Income (Loss) (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Unrealized holding gains arising during the period, tax expense (benefit)	$ 422	$ (550)
Reclassification for previously unrealized net (gains) losses recognized in income, tax benefit	(9)	1
Net gain (loss) pension and postretirement plans, tax expense	301	143
Net postretirement plan transition cost, tax expense		1
Holding gains (losses) on securities
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Unrealized holding gains arising during the period, tax expense (benefit)	422	(550)
Reclassification for previously unrealized net (gains) losses recognized in income, tax benefit	(9)	1
Pension and Post employment costs
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain (loss) pension and postretirement plans, tax expense	301	143
Net postretirement plan transition cost, tax expense		$ 1

XML

Premises and Equipment Net - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Depreciation expense	$ 792	$ 755

XML

Deposits (Tables)

12 Months Ended

Dec. 31, 2014

Schedule of Time Deposits Maturities

At December 31, 2014, the scheduled maturities of time deposits are as follows (in thousands):

2015	$	56,739
2016		45,267
2017		8,843
2018		4,369
2019		6,543
Thereafter		14
	$	121,775

XML

Other Borrowings

12 Months Ended

Dec. 31, 2014

Other Borrowings

Note 13. Other Borrowings

Securities sold under agreements to repurchase are secured transactions with customers and generally mature the day following the day sold. During 2014 and 2013, the average rates of the repurchase agreements were 0.12% and 0.19%, respectively. Unused lines of credit with nonaffiliated banks, excluding FHLB, totaled $20.3 million as of both December 31, 2014 and 2013. Draws upon these lines have time limits varying from two to four consecutive weeks. The banks providing these lines can change the interest rates on these lines daily. The lines renew annually and are tested periodically each year.

XML

Earnings per share - Weighted Average Number of Shares Used in Computing Earnings Per Share (Detail) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Basic earnings per share	4,818,377	4,816,859
Effect of dilutive securities:
Stock options	11,204	2,484
Diluted earnings per share	4,829,581	4,819,343
Basic earnings per share	$ 0.38	$ 0.25
Diluted earnings per share	$ 0.38	$ 0.25