10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2012

BANK OF THE JAMES FINANCIAL GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Virginia	001-35402	20-0500300
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(I.R.S. Employer Identification No.)

828 Main Street, Lynchburg, VA	24504
(Address of principal executive offices)	(Zip Code)

(434) 846-2000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes     ¨  No

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 3,342,415 shares of Common Stock, par value $2.14 per share, were outstanding at August 8, 2012.

Table of Contents

PART I – FINANCIAL INFORMATION		1
Item 1.	Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 4.	Controls and Procedures	52
PART II – OTHER INFORMATION		52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
SIGNATURES		54

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollar amounts in thousands, except per share amounts)

	(unaudited)			(audited)
	6/30/2012			12/31/2011
Assets
Cash and due from banks	$	18,924		$	17,678
Federal funds sold		8,362			5,662
Total cash and cash equivalents		27,286			23,340
Securities held-to-maturity (fair value of $3,437 in 2012 and $8,533 in 2011)		3,087			8,133
Securities available-for-sale, at fair value		55,674			48,338
Restricted stock, at cost		1,916			1,977
Loans, net of allowance for loan losses of $5,693 in 2012 and $5,612 in 2011		319,216			318,754
Loans held for sale		1,164			434
Premises and equipment, net		8,785			8,859
Interest receivable		1,502			1,583
Cash value—bank owned life insurance		8,773			8,609
Other real estate owned, net of valuation allowance		2,263			3,253
Other assets		3,538			4,156
Total assets	$	433,204		$	427,436
Liabilities and Stockholders’ Equity
Deposits
Noninterest bearing demand	$	56,740		$	55,569
NOW, money market and savings		234,642			230,386
Time		93,207			88,279
Total deposits	$	384,589		$	374,234
Repurchase agreements		—			8,379
FHLB borrowings		10,000			10,000
Capital notes, 6%, due 4/1/2012		—			7,000
Capital notes, 6%, due 4/1/2017		9,627			—
Interest payable		107			111
Other liabilities		582			907
Total liabilities	$	404,905		$	400,631
Stockholders’ equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,342,415 as of June 30, 2012 and December 31, 2011		7,152			7,152
Additional paid-in-capital		22,775			22,775
Accumulated other comprehensive income (loss)		594			(54	)
Retained (deficit)		(2,222	)		(3,068	)
Total stockholders’ equity	$	28,299		$	26,805
Total liabilities and stockholders’ equity	$	433,204		$	427,436

See accompanying notes to these consolidated financial statements

1

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Income

(dollar amounts in thousands, except per share amounts) (unaudited)

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2012		2011		2012		2011
Interest and Dividend Income
Loans	$	4,178	$	4,384	$	8,402	$	8,857
Securities
US Government and agency obligations		241		204		521		442
Mortgage backed securities		7		147		20		263
Municipals		171		124		325		212
Dividends		25		23		29		26
Other (Corporates)		17		6		23		25
Federal Funds sold		6		8		11		13
Total interest and dividend income		4,645		4,896		9,331		9,838
Interest Expense
Deposits
NOW, money market savings		209		464		414		1,076
Time deposits		392		428		813		857
FHLB borrowings		75		75		149		148
Reverse repurchase agreements		—		18		15		34
Capital notes		133		105		238		210
Total interest expense		809		1,090		1,629		2,325
Net interest income		3,836		3,806		7,702		7,513
Provision for loan losses		425		906		1,175		1,485
Net interest income after provision for loan losses		3,411		2,900		6,527		6,028
Other Operating Income
Mortgage fee income		289		243		515		529
Service charges, fees and commissions		311		272		594		555
Increase in cash value of life insurance		82		55		164		110
Other		32		19		71		36
Gain on sale or call of securities		129		169		170		200
Total other operating income		843		758		1,514		1,430
Other operating expenses
Salaries and employee benefits		1,546		1,391		3,049		2,818
Occupancy		291		272		577		548
Equipment		245		256		498		517
Supplies		103		108		216		197
Professional, data processing, and other outside expense		518		496		1,016		969
Marketing		145		108		249		187
Credit expense		56		71		112		143
Other real estate expenses		274		38		322		215
FDIC insurance expense		144		141		288		370
Other		237		323		516		410
Total other operating expenses		3,559		3,204		6,843		6,374
Income before income taxes		695		454		1,198		1,084
Income tax expense		209		135		352		330
Net Income	$	486	$	319	$	846	$	754
Weighted average shares outstanding – basic		3,342,415		3,323,743		3,342,415		3,323,743
Weighted average shares outstanding – diluted		3,343,250		3,331,426		3,342,833		3,333,764
Income per common share – basic and diluted	$	0.15	$	0.10	$	0.25	$	0.23

See accompanying notes to these consolidated financial statements

2

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2012 and 2011

(dollar amounts in thousands) (unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Net Income	$	486		$	319		$	846		$	754
Other comprehensive income
Unrealized gains on securities available-for-sale net of deferred taxes of $444 and $254 for the three month periods and $389 and $441 for the six month periods ended June 30, 2012 and 2011		862			494			760			856
Reclassification adjustment for gains included in net income, net of taxes of $44 and $57 for the three month periods and $58 and $68 for the six month periods ended June 30, 2012 and 2011		(85	)		(112	)		(112	)		(132	)
Other comprehensive income, net of tax		777			382			648			724
Comprehensive income	$	1,263		$	701		$	1,494		$	1,478

See accompanying notes to these consolidated financial statements

3

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six months ended June 30, 2012 and 2011

(dollar amounts in thousands) (unaudited)

	June 30,
	2012			2011
Cash flows from operating activities
Net Income	$	846		$	754
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		334			367
Net amortization and accretion of premiums and discounts on securities		299			292
(Gain) on sale of available-for-sale securities		(170	)		(200	)
Provision for loan losses		1,175			1,485
Loss on sale of other real estate owned		81			215
Impairment of other real estate owned		200			—
Increase in loans held for sale		(730	)		(215	)
(Increase) in cash value of life insurance		(164	)		(110	)
Decrease in interest receivable		81			54
(Increase) decrease in other assets		309			565
(Increase) in income taxes receivable		(22	)		(45	)
(Decrease) in interest payable		(4	)		(1	)
(Decrease) in other liabilities		(325	)		(161	)
Net cash provided by operating activities	$	1,910		$	3,000
Cash flows from investing activities
Purchases of securities held-to-maturity	$	—		$	(1,000	)
Proceeds from maturities and calls of securities held-to-maturity		5,000			6,000
Purchases of securities available-for-sale		(25,400	)		(26,318	)
Proceeds from maturities, calls and paydowns of securities available-for-sale		10,488			4,911
Proceeds from sale of securities available-for-sale		8,472			11,928
Redemption of Federal Home Loan Bank stock		61			100
Proceeds from sale of other real estate owned		2,088			974
Improvements to other real estate owned		(5	)		(10	)
Origination of loans, net of principal collected		(3,011	)		(2,391	)
Purchases of premises and equipment		(260	)		(549	)
Net cash (used in) investing activities	$	(2,567	)	$	(6,355	)
Cash flows from financing activities
Net increase in deposits	$	10,355		$	8,161
Net increase (decrease) in repurchase agreements		(8,379	)		1,220
Payoff of 6% senior capital notes due 4/1/2012		(7,000	)		—
Proceeds from sale of 6% senior capital notes due 4/1/2017		9,627			—
Net cash provided by financing activities	$	4,603		$	9,381
Increase in cash and cash equivalents		3,946			6,026
Cash and cash equivalents at beginning of period	$	23,340		$	18,759
Cash and cash equivalents at end of period	$	27,286		$	24,785
Non cash transactions
Transfer of loans to foreclosed assets	$	1,434		$	2,020
Fair value adjustment for securities		979			1,097
Cash transactions
Cash paid for interest	$	1,633		$	2,326
Cash paid for taxes		370			375

See accompanying notes to these consolidated financial statements

4

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(dollars in thousands) (unaudited)

	Total Shares Outstanding		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2010		3,323,743	$	7,113	$	22,742	$	(3,668	)	$	(692	)	$	25,495
Net Income		—		—		—		754			—			754
Other Comprehensive Income		—		—		—		—			724			724
Balance at June 30, 2011		3,323,743	$	7,113	$	22,742	$	(2,914	)	$	32		$	26,973
Balance at December 31, 2011		3,342,415	$	7,152	$	22,775	$	(3,068	)	$	(54	)	$	26,805
Net Income		—		—		—		846			—			846
Other Comprehensive Income		—		—		—		—			648			648
Balance at June 30, 2012		3,342,415	$	7,152	$	22,775	$	(2,222	)	$	594		$	28,299

See accompanying notes to these consolidated financial statements

5

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

The unaudited consolidated financial statements have been prepared by Bank of the James Financial Group, Inc. (“Financial” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. In management’s opinion the accompanying financial statements, which unless otherwise noted are unaudited, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of and for the three and six months ended June 30, 2012 and 2011 in conformity with accounting principles generally accepted in the United States of America. Additional information concerning the organization and business of Financial, accounting policies followed, and other related information is contained in Financial’s Annual Report on Form 10-K for the year ended December 31, 2011. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2011 included in Financial’s Annual Report on Form 10-K. Results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The Company’s primary market area consists of the area commonly referred to as Region 2000 which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford County, Campbell County, and the City of Lynchburg.

Financial’s critical accounting policy relates to the evaluation of the allowance for loan losses which is based on management’s opinion of an amount that is adequate to absorb loss in the existing loan portfolio of Bank of the James (the “Bank”), Financial’s wholly-owned subsidiary. The allowance for loan losses is established through a provision for loan loss based on available information including the composition of the loan portfolio, historical loan losses (to the extent available due to limited history), specific impaired loans, availability and quality of collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the portfolio. Different assumptions used in evaluating the adequacy of the Bank’s allowance for loan losses could result in material changes in Financial’s financial condition and results of operations. The Bank’s policies with respect to the methodology for determining the allowance for loan losses involve a higher degree of complexity and require management to make subjective judgments that often require assumptions or estimates about uncertain matters. These critical policies and their assumptions are periodically reviewed with the Board of Directors.

Note 2 – Use of Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

6

Note 3 – Earnings Per Share

Currently, only the option shares granted to certain officers and other employees of Financial pursuant to the Amended and Restated Stock Option Plan of 1999 Financial (the “1999 Plan”) are considered dilutive. The following is a summary of the earnings per share calculation for the three and six months ended June 30, 2012 and 2011.

	Three months ended				Year to date,
	June 30,				June 30
	2012		2011		2012		2011
Net income	$	486,000	$	319,000	$	846,000	$	754,000
Weighted average number of shares		3,342,415		3,323,743		3,342,415		3,323,743
Options effect of incremental shares		835		7,683		418		10,021
Weighted average diluted shares		3,343,250		3,331,426		3,342,833		3,333,764
Basic EPS (weighted avg shares)	$	0.15	$	0.10	$	0.25	$	0.23
Diluted EPS (Including Option Shares)	$	0.15	$	0.10	$	0.25	$	0.23

The following table sets forth the incremental shares associated with option shares that were not included in calculating the diluted earnings because their effect was anti-dilutive:

	Three months ended				Year to date
	June 30,				June 30,
	2012		2011		2012		2011
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive		175,847		248,239		216,492		207,305

Note 4 – Stock Based Compensation

Accounting standards require 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.

7

Note 4 – Stock Based Compensation (continued)

Stock option plan activity for the six months ended June 30, 2012 is summarized below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Intrinsic Value
Options outstanding, January 1, 2012		216,886		$	8.83
Exercised		—			—
Forfeited		(394	)	$	10.82
Options outstanding, June 30, 2012		216,492		$	8.83		2.21	$	6,910
Options exercisable, June 30, 2012		216,492		$	8.83		2.21	$	6,910

Intrinsic value is calculated by subtracting exercise price of option shares from the market price of underlying shares and multiplying that amount by the number of options outstanding. No intrinsic value exists where the exercise price is greater than the market price on a given date.

All compensation expense related to the foregoing stock option plan has been recognized. The Company’s ability to grant additional options shares under the 1999 Plan has expired.

Note 5 – Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

8

Note 5 – Fair Value Measurements (continued)

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

• Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities available-for-sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company’s securities are considered to be Level 2 securities.

9

Note 5 – Fair Value Measurements (continued)

The following table summarizes the Company’s financial assets that were measured at fair value on a recurring basis during the period (in thousands):

			Carrying Value at June 30, 2012
Description	Balance as of June  30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US agency obligations	$	27,566	$	—	$	27,566	$	—
Mortgage-backed securities		2,799		—		2,799		—
Municipals		22,611		—		22,611		—
Other (corporates)		2,698		—		2,698		—
Total available-for-sale securities	$	55,674	$	—	$	55,674	$	—

			Carrying Value at December 31, 2011
Description	Balance as of December  31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US agency obligations	$	25,485	$	—	$	25,485	$	—
Mortgage-backed securities		3,939		—		3,939		—
Municipals		18,914		—		18,914		—
Total available-for-sale securities	$	48,338	$	—	$	48,338	$	—

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. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over one year old, 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 using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

10

Note 5 – Fair Value Measurements (continued)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.

Real estate acquired through foreclosure is transferred to OREO. The measurement of loss associated with OREO is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. The value of OREO collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate is over one year old, then the fair value is considered Level 3. Any fair value adjustments are recorded in the period incurred and expensed against current earnings.

The following table summarizes the Company’s impaired loans and OREO measured at fair value on a nonrecurring basis during the period (in thousands).

			Carrying Value at June 30, 2012
Description	Balance as of June  30, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	6,322	$	—	$	3,151	$	3,171
Other real estate owned	$	2,263	$	—	$	2,263	$	—

*   Includes loans charged down during the quarter to the net realizable value of the collateral.

			Carrying Value at December 31, 2011
Description	Balance as of  December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	10,655	$	—	$	2,710	$	7,945
Other real estate owned	$	3,253	$	—	$	3,253	$	—

*   Includes loans charged down during the quarter to the net realizable value of the collateral.

11

Note 5 – Fair Value Measurements (continued)

The following table sets forth information regarding the quantitative inputs used to value assets classified as Level 3:

	Quantitative information about Level 3 Fair Value Measurements  for June 30, 2012 (dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$	3,171	Discounted appraised value	Selling cost		5% - 10% (6%)
				Discount for lack of marketability and age of appraisal		0% - 25% (15%)

The following table summarizes activity at the Level 3 valuation for the first six months of 2012:

Six months ended June 30, 2012 (dollars in thousands)
Balance as of December 31, 2011	$	7,945
Transfers to Level 3		514
Changes in loan balances due to payments		(17	)
Loans no longer considered impaired or transferred to Level 2		(5,271	)
Ending balance as of June 30, 2012	$	3,171

Financial Instruments

Cash, cash equivalents and Federal Funds sold

The carrying amounts of cash and short-term instruments approximate fair values.

Securities

Fair values of securities, excluding Federal Reserve Bank stock, Federal Home Loan Bank stock, and Community Bankers’ Bank stock are based on quoted market prices.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain fixed rate loans are based on quoted market prices of similar loans adjusted for differences in loan characteristics. Fair values for other loans such as commercial real estate and commercial and industrial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Bank Owned Life Insurance (BOLI)

The carrying amount approximates fair value.

12

Note 5 – Fair Value Measurements (continued)

Deposits

Fair values disclosed for demand deposits (e.g., interest and noninterest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using discounted cash flow analyses that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

FHLB borrowings

The fair value of FHLB borrowings is estimated using discounted cash flow analysis based on the rates currently offered for borrowings of similar remaining maturities and collateral requirements.

Short-term borrowings

The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate fair value.

Capital notes

Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate characteristics.

Accrued interest

The carrying amounts of accrued interest approximate fair value.

Off-balance sheet credit-related instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Fair value of off-balance sheet credit-related instruments were deemed to be immaterial at June 30, 2012 and December 31, 2011 and therefore are not included in the table below.

13

Note 5 – Fair Value Measurements (continued)

The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments are as follows (in thousands):

			Fair Value Measurements at June 30, 2012 using
			Quoted
			Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash and due from banks	$	18,924	$	18,924	$	—	$	—	$	18,924
Federal funds sold		8,362		8,362		—		—		8,362
Securities
Available-for-sale		55,674		—		55,674		—		55,674
Held-to-maturity		3,087		—		3,437		—		3,437
Loans, net		319,216		—		326,005		3,171		329,176
Loans held for sale		1,164		—		1,164		—		1,164
Interest receivable		1,502		—		1,502		—		1,502
BOLI		8,773		—		8,773		—		8,773
Liabilities
Deposits	$	384,589	$	—	$	386,397	$	—	$	386,397
FHLB borrowings		10,000		—		9,774		—		9,774
Capital notes		9,627		—		9,409		—		9,409
Interest payable		107		—		107		—		107

14

Note 5 – Fair Value Measurements (continued)

			Fair Value Measurements at December 31, 2011 using
			Quoted
			Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash and due from banks	$	17,678	$	17,678	$	—	$	—	$	17,678
Federal funds sold		5,662		5,662		—		—		5,662
Securities
Available-for-sale		48,338		—		48,338		—		48,338
Held-to-maturity		8,133		—		8,533		—		8,533
Loans, net		318,754		—		320,658		7,945		328,603
Loans held for sale		434		—		434		—		434
Interest receivable		1,583		—		1,583		—		1,583
BOLI		8,609		—		8,609		—		8,609
Liabilities
Deposits	$	374,234	$	—	$	375,544	$	—	$	375,544
FHLB borrowings		10,000		—		9,752		—		9,752
Repurchase agreements		8,379		—		8,392		—		8,392
Capital notes		7,000		—		6,826		—		6,826
Interest payable		111		—		111		—		111

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-balance-sheet and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred income taxes and bank premises and equipment; a significant liability that is not considered a financial liability is accrued post-retirement benefits. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Financial 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 values of Financial’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest

15

Note 5 – Fair Value Measurements (continued)

rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling 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 Bank’s overall interest rate risk.

Note 6 – Capital Notes

In connection with a private placement of unregistered debt securities, Financial issued capital notes in the amount $7,000,000 (the “Notes”) in 2009. The Notes bore interest at the rate of 6% per year with interest payable quarterly in arrears. During the three months ended March 31, 2012, Financial made a final interest payment on the Notes totaling $105,000. No principal payments were due until the Notes matured on April 1, 2012. Financial paid the Notes in full on or about this date with proceeds from the 2012 Offering described below.

Financial currently is conducting a private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial is authorized to issue up to $12,000,000 in principal of notes (the “2012 Notes”). As of June 30, 2012, Financial had issued 2012 Notes in the amount $9,627,000. The 2012 Notes bear interest at the rate of 6% per year with interest payable quarterly in arrears. The first quarterly interest payment on the 2012 Notes was due on July 1, 2012 and paid on or about June 29, 2012. No principal payments are due until the Notes mature on April 1, 2017 unless the Notes are called in full or in part after April 1, 2013.

On the maturity date or a call date, the principal and all accrued but unpaid interest on the Notes will be due and payable. Although Financial is authorized to sell up to $12,000,000 in 2012 Notes, Financial has determined that it will close the 2012 Offering at such time as it has sold $10,000,000 in principal of 2012 Notes, or it terminates the offering, or, whichever occurs first.

16

Note 7—Investments

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of June 30, 2012 and December 31, 2011 (amounts in thousands):

	June 30, 2012
	Amortized Costs		Gross Unrealized					Fair Value
			Gains		(Losses)
Held-to-Maturity
US agency obligations	$	3,087	$	350	$	—		$	3,437
Available-for-Sale
US agency obligations	$	27,172	$	404	$	(10	)	$	27,566
Mortgage-backed securities		2,860		—		(61	)		2,799
Municipals		22,063		559		(11	)		22,611
Other		2,678		27		(7	)		2,698
	$	54,773	$	990	$	(89	)	$	55,674

	December 31, 2011
	Amortized Costs		Gross Unrealized					Fair Value
			Gains		(Losses)
Held-to-Maturity
US agency obligations	$	8,133	$	400	$	—		$	8,533
Available-for-Sale
US agency obligations	$	25,416	$	117	$	(48	)	$	25,485
Mortgage-backed securities		3,938		5		(4	)		3,939
Municipals		19,062		241		(389	)		18,914
	$	48,416	$	363	$	(441	)	$	48,338

17

Note 7 – Investments (continued)

The following tables show the gross unrealized losses and fair value of the Bank’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011 (amounts in thousands):

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2012	Value		Losses		Value		Losses		Value		Losses
Description of securities
U.S. agency obligations	$	4,045	$	10	$	—	$	—	$	4,045	$	10
Mortgage-backed securities		2,799		61		—		—		2,799		61
Municipals		1,728		11		—		—		1,728		11
Other (corporates)		1,647		7		—		—		1,647		7
Total	$	10,219	$	89	$	—	$	—	$	10,219	$	89

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2011	Value		Losses		Value		Losses		Value		Losses
Description of securities
U.S. agency obligations	$	13,593	$	48	$	—	$	—	$	13,593	$	48
Mortgage-backed securities		985		4		—		—		985		4
Municipals		12,852		389		—		—		12,852		389
Total	$	27,430	$	441	$	—	$	—	$	27,430	$	441

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and may do so more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent of Financial, if any, to sell the security; (4) whether Financial more likely than not will be required to sell the security before recovering its cost; and (5) whether Financial does not expect to recover the security’s entire amortized cost basis (even if Financial does not intend to sell the security).

At June 30, 2012, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved. As of June 30, 2012, the Bank owned 9 securities that were being evaluated for other than temporary impairment. Two of these securities were S&P rated AAA and 7 were S&P rated AA. As of June 30, 2012, 5 of these securities were obligations of government sponsored entities, 2 were municipal issues and 2 were issued by publicly traded US corporations.

Based on the analysis performed by management as mandated by the Bank’s investment policy, management believes the default risk to be minimal. Because the Bank expects to recover the entire amortized cost basis, no declines currently are deemed to be other-than-temporary.

18

Note 8 – Business Segments

The Company has two reportable business segments: (i) a traditional full service community banking segment and, (ii) a mortgage loan origination business. The community banking business segment includes Bank of the James which provides loans, deposits, investments and insurance to retail and commercial customers throughout Region 2000. The mortgage segment provides a variety of mortgage loan products principally within Region 2000. Mortgage loans are originated and sold in the secondary market through purchase commitments from investors. Because of the pre-arranged purchase commitments, there is minimal risk to the Company.

Both of the Company’s reportable segments are service based. The mortgage business is a fee-based business while the Bank’s primary source of revenue is net interest income. The Bank also provides a referral network for the mortgage origination business. The mortgage business may also be in a position to refer its customers to the Bank for banking services when appropriate.

19

Note 8 – Business Segments (continued)

Information about reportable business segments and reconciliation of such information to the consolidated financial statements for six months ended June 30, 2012 and 2011 was as follows (dollars in thousands):

Business Segments

	Community
	Banking		Mortgage		Total
Three months ended June 30, 2012
Net interest income	$	3,836	$	—	$	3,836
Provision for loan losses		425		—		425
Net interest income after provision for loan losses		3,411		—		3,411
Noninterest income		554		289		843
Noninterest expenses		3,318		241		3,559
Income before income taxes		647		48		695
Income tax expense		193		16		209
Net income	$	454	$	32	$	486
Total assets	$	431,967	$	1,237	$	433,204
Six months ended June 30, 2012
Net interest income	$	7,702	$	—	$	7,702
Provision for loan losses		1,175		—		1,175
Net interest income after provision for loan losses		6,527		—		6,527
Noninterest income		999		515		1,514
Noninterest expenses		6,407		436		6,843
Income before income taxes		1,119		79		1,198
Income tax expense		325		27		352
Net income	$	794	$	52	$	846
Total assets	$	431,967	$	1,237	$	433,204
Three months ended June 30, 2011
Net interest income	$	3,806	$	—	$	3,806
Provision for loan losses		906		—		906
Net interest income after provision for loan losses		2,900		—		2,900
Noninterest income		515		243		758
Noninterest expenses		2,990		214		3,204
Income before income taxes		425		29		454
Income tax expense		125		10		135
Net income	$	300	$	19	$	319
Total assets	$	429,122	$	503	$	429,625
Six months ended June 30, 2011
Net interest income	$	7,513	$	—	$	7,513
Provision for loan losses		1,485		—		1,485
Net interest income after provision for loan losses		6,028		—		6,028
Noninterest income		901		529		1,430
Noninterest expenses		5,915		459		6,374
Income before income taxes		1,014		70		1,084
Income tax expense		306		24		330
Net income	$	708	$	46	$	754
Total assets	$	429,122	$	503	$	429,625

20

Note 9 – Loans, allowance for loan losses and OREO

Management has an established methodology used to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Bank has segmented certain loans in the portfolio by product type. Within these segments, the Bank has sub-segmented its portfolio by classes within the segments, based on the associated risks within these classes. The classifications set forth below do not correspond directly to the classifications set forth in the call report (Form FFIEC 041). Management has determined that the classifications set forth below are more appropriate for use in identifying and managing risk in the loan portfolio.

Loan Segments:	Loan Classes:
Commercial	Commercial and industrial loans
Commercial real estate	Commercial mortgages – owner occupied
	Commercial mortgages – non-owner occupied
	Commercial construction
Consumer	Consumer unsecured
	Consumer secured
Residential	Residential mortgages
	Residential consumer construction

A summary of loans, net is as follows (dollars in thousands):

	As of:
	June 30, 2012		December 31, 2011
Commercial	$	56,846	$	59,623
Commercial real estate		151,937		150,622
Consumer		71,283		72,488
Residential		44,843		41,633
Total loans		324,909		324,366
Less allowance for loan losses		5,693		5,612
Net loans	$	319,216	$	318,754

The Bank’s internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower’s individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis.

21

Note 9 – Loans and allowance for loan losses and OREO (continued)

Below is a summary and definition of the Bank’s risk rating categories:

RATING 1	Excellent
RATING 2	Above Average
RATING 3	Satisfactory
RATING 4	Acceptable / Low Satisfactory
RATING 5	Monitor
RATING 6	Special Mention
RATING 7	Substandard
RATING 8	Doubtful
RATING 9	Loss

We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows:

• “Pass.” These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

• “Monitor.” These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may currently or in the future be characterized by late payments. The Bank’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

• “Special Mention.” These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.

• “Substandard.” These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due.

• “Doubtful.” These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

22

Note 9 – Loans and allowance for loan losses and OREO (continued)

• “Loss.” These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

Financing Receivables on Non-Accrual Status

(dollars in thousands)

	As of
	June 30, 2012		December 31, 2011
Commercial	$	2,257	$	3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		909		1,610
Commercial Mortgages-Non-Owner Occupied		1,600		2,793
Commercial Construction		1,352		782
Consumer
Consumer Unsecured		—		—
Consumer Secured		133		415
Residential:
Residential Mortgages		939		1,205
Residential Consumer Construction		—		—
Totals	$	7,190	$	10,375

We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank either through purchase at foreclosure or received from the borrower through a deed in lieu of foreclosure. OREO decreased to $2,263,000 on June 30, 2012 from $3,253,000 on December 31, 2011. The following table represents the changes in OREO balance during the six months ended June 30, 2012.

OREO Changes

(dollars in thousands)

	Six months ended June 30, 2012
Balance at the beginning of the year (gross)	$	3,253
Transfers from loans		1,374
Capitalized costs		5
Charge-Offs		(200	)
Sales proceeds		(2,088	)
(Loss) on disposition		(81	)
Balance at the end of the period (gross)		2,263
Less valuation allowance		—
Balance at the end of the period (net)	$	2,263

23

Note 9 – Loans and allowance for loan losses and OREO (continued)

	Impaired Loans (dollars in thousands)
	For the Year Ended June 30, 2012
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2012
With No Related Allowance Recorded:
Commercial	$	3,467	$	3,575	$	—	$	3,412	$	42
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,305		2,360		—		2,258		93
Commercial Mortgage Non-Owner Occupied		5,908		6,080		—		5,394		131
Commercial Construction		1,202		1,312		—		1,153		27
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		133		364		—		213		5
Residential
Residential Mortgages		1,873		2,027		—		1,368		43
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	1,685	$	1,698	$	428	$	2,327	$	34
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,225		2,515		613		2,371		63
Commercial Mortgage Non-Owner Occupied		690		866		88		1,640		16
Commercial Construction		1,797		2,072		315		1,749		—
Consumer
Consumer Unsecured		1		1		1		1		—
Consumer Secured		856		858		486		899		5
Residential
Residential Mortgages		1,132		1,404		133		1,527		20
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	5,152	$	5,273	$	428	$	5,739	$	76
Commercial Real Estate
Commercial Mortgages-Owner Occupied		4,530		4,875		613		4,629		156
Commercial Mortgage Non-Owner Occupied		6,598		6,946		88		7,034		147
Commercial Construction		2,999		3,384		315		2,902		27
Consumer
Consumer Unsecured		1		1		1		1		—
Consumer Secured		989		1,222		486		1,112		10
Residential
Residential Mortgages		3,005		3,431		133		2,895		63
Residential Consumer Construction		—		—		—		—		—
	$	23,274	$	25,132	$	2,064	$	24,312	$	479

24

Note 9 – Loans and allowance for loan losses and OREO (continued)

	Impaired Loans (dollars in thousands)
	For the Year Ended December 31, 2011
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2011
With No Related Allowance Recorded:
Commercial	$	3,357	$	3,570	$	—	$	8,978	$	118
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,211		3,108		—		2,457		124
Commercial Mortgage Non-Owner Occupied		4,880		5,170		—		5,418		227
Commercial Construction		1,103		1,103		—		984		38
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		293		642		—		330		6
Residential
Residential Mortgages		862		1,007		—		633		15
Residential Consumer Construction		—		—		—		33		—
With An Allowance Recorded:
Commercial	$	2,968	$	3,052	$	440	$	2,170	$	106
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,516		2,686		555		3,815		137
Commercial Mortgage Non-Owner Occupied		2,590		3,129		228		1,858		117
Commercial Construction		1,700		1,964		275		2,454		42
Consumer
Consumer Unsecured		—		—		—		286		—
Consumer Secured		942		1,021		357		699		49
Residential
Residential Mortgages		1,922		2,180		128		1,847		89
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	6,325	$	6,622	$	440	$	11,147	$	224
Commercial Real Estate
Commercial Mortgages-Owner Occupied		4,727		5,794		555		6,272		261
Commercial Mortgage Non-Owner Occupied		7,470		8,299		228		7,275		344
Commercial Construction		2,803		3,067		275		3,438		80
Consumer
Consumer Unsecured		—		—		—		286		—
Consumer Secured		1,235		1,663		357		1,029		55
Residential
Residential Mortgages		2,784		3,187		128		2,480		104
Residential Consumer Construction		—		—		—		33		—
	$	25,344	$	28,632	$	1,983	$	31,960	$	1,068

25

Note 9 – Loans and allowance for loan losses and OREO (continued)

	Allowance for Credit Losses and Recorded Investment in  Financing Receivables (dollars in thousands) For the Six months Ended June 30, 2012
	Commercial			Commercial Real Estate			Consumer			Residential			Total
2012
Allowance for Credit Losses:
Beginning Balance	$	892		$	2,677		$	1,486		$	557		$	5,612
Charge-offs		(175	)		(631	)		(413	)		(12	)		(1,231	)
Recoveries		13			109			9			6			137
Provision		131			761			197			86			1,175
Ending Balance		861			2,916			1,279			637			5,693
Ending Balance: Individually evaluated for impairment	$	428		$	1,016		$	487		$	133		$	2,064
Ending Balance: Collectively evaluated for impairment		433			1,900			792			504			3,629
Totals:	$	861		$	2,916		$	1,279		$	637		$	5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment		5,152			14,127			990			3,005			23,274
Ending Balance: Collectively evaluated for impairment		51,694			137,810			70,293			41,838			301,635
Totals:	$	56,846		$	151,937		$	71,283		$	44,843		$	324,909

26

Note 9 – Loans and allowance for loan losses and OREO (continued)

	Allowance for Credit Losses and Recorded Investment in Financing  Receivables (dollars in thousands)
	For the Year Ended December 31, 2011
	Commercial			Commercial Real Estate			Consumer			Residential			Total
2011
Allowance for Credit Losses:
Beginning Balance	$	473		$	2,897		$	1,207		$	890		$	5,467
Charge-offs		(702	)		(2,738	)		(817	)		(459	)		(4,716	)
Recoveries		16			3			31			4			54
Provision		1,105			2,515			1,065			122			4,807
Ending Balance		892			2,677			1,486			557			5,612
Ending Balance: Individually evaluated for impairment	$	440		$	1,058		$	357		$	128		$	1,983
Ending Balance: Collectively evaluated for impairment		452			1,619			1,129			429			3,629
Totals:	$	892		$	2,677		$	1,486		$	557		$	5,612
Financing Receivables:
Ending Balance: Individually evaluated for impairment		6,325			15,000			1,235			2,784			25,344
Ending Balance: Collectively evaluated for impairment		53,298			135,622			71,253			38,849			299,022
Totals:	$	59,623		$	150,622		$	72,488		$	41,633		$	324,366

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Note 9 – Loans and allowance for loan losses and OREO (continued)

	Age Analysis of Past Due Financing Receivables as of June 30, 2012 (dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days  & Accruing
2012
Commercial	$	550	$	167	$	2,257	$	2,974	$	53,872	$	56,846	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		513		5		909		1,427		60,024		61,451		—
Commercial Mortgages-Non-Owner Occupied		1,450		8		299		1,757		78,996		80,753		—
Commercial Construction		492		638		279		1,409		8,324		9,733		—
Consumer:
Consumer Unsecured		286		—		—		286		2,977		3,263		—
Consumer Secured		282		32		133		447		67,573		68,020		—
Residential:
Residential Mortgages		207		130		809		1,146		38,729		39,875		—
Residential Consumer Construction		—		—		—		—		4,968		4,968		—
Total	$	3,780	$	980	$	4,686	$	9,446	$	315,463	$	324,909	$	—

	Age Analysis of Past Due Financing Receivables as of December 31, 2011 (dollars in thousands)
	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Financing Receivables		Recorded Investment > 90 Days  & Accruing
2011
Commercial	$	532	$	26	$	3,570	$	4,128	$	55,495	$	59,623	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		2,614		130		1,610		4,354		56,400		60,754		—
Commercial Mortgages-Non-Owner Occupied		504		72		2,793		3,369		74,520		77,889		—
Commercial Construction		782		—		424		1,206		10,773		11,979		—
Consumer:
Consumer Unsecured		6		—		—		6		3,231		3,237		—
Consumer Secured		202		277		415		894		68,357		69,251		—
Residential:
Residential Mortgages		523		162		863		1,548		37,450		38,998		—
Residential Consumer Construction		—		—		—		—		2,635		2,635		—
Total	$	5,163	$	667	$	9,675	$	15,505	$	308,861	$	324,366	$	—

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Note 9 – Loans and allowance for loan losses and OREO (continued)

	Credit Loss Disclosures Credit Quality Information - by Class June 30, 2012 (dollars in thousands)
	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
2012
Commercial	$	47,529	$	2,573	$	2,074	$	4,670	$	—	$	56,846
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		49,184		3,447		4,290		4,410		120		61,451
Commercial Mortgages-Non-Owner Occupied		69,130		2,661		2,364		6,598		—		80,753
Commercial Construction		6,734		—		—		2,999		—		9,733
Consumer
Consumer Unsecured		3,262		—		—		1		—		3,263
Consumer Secured		64,556		1,594		903		967		—		68,020
Residential:
Residential Mortgages		35,848		603		419		3,005		—		39,875
Residential Consumer Construction		4,968		—		—		—		—		4,968
Totals	$	281,211	$	10,878	$	10,050	$	22,650	$	120	$	324,909

	Credit Loss Disclosures Credit Quality Information - by Class December 31, 2011 (dollars in thousands)
	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
2011
Commercial	$	47,021	$	3,978	$	2,901	$	5,723	$	—	$	59,623
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		48,622		3,003		4,696		4,283		150		60,754
Commercial Mortgages-Non-Owner Occupied		63,934		3,326		3,159		7,470		—		77,889
Commercial Construction		9,000		176		—		2,803		—		11,979
Consumer
Consumer Unsecured		3,237		—		—		—		—		3,237
Consumer Secured		67,295		488		304		1,164		—		69,251
Residential:
Residential Mortgages		35,109		557		548		2,784		—		38,998
Residential Consumer Construction		2,635		—		—		—		—		2,635
Totals	$	276,853	$	11,528	$	11,608	$	24,227	$	150	$	324,366

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Note 9 – Loans and allowance for loan losses and OREO (continued)

Troubled Debt Restructurings

There were no loan modifications during the three and six months ended June 30, 2012.

The following table describes Troubled Debt Restructurings made within the last twelve months that defaulted during the three and six months ended June 30, 2012.

	For the Three Months Ended June 30, 2012 (dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Recorded Investment
Commercial		2	$	208

	For the Six Months Ended June 30, 2012 (dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Recorded Investment
Commercial		4	$	798

Note 10 – Subsequent Events

In preparing these financial statements, Financial has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Note 11 – Recent accounting pronouncements

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application. Early application is not permitted. The Company has included the required disclosures in its consolidated financial statements.

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Note 11 – Recent accounting pronouncements (continued)

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures. The Company has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangible – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.” The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

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

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income

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Note 11 – Recent accounting pronouncements (continued)

consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan” and similar expressions and variations thereof identify certain of such forward-looking statements which speak only as of the dates on which they were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which we operate); competition for our customers from other providers of financial services; government legislation and regulation relating to the banking industry (which changes from time to time and over which we have no control) including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act; changes in the value of real estate securing loans made by the Bank; changes in interest rates; and material unforeseen changes in the liquidity, results of operations, or financial condition of our customers. Other risks, uncertainties and factors could cause our actual results to differ materially from those projected in any forward-looking statements we make.

GENERAL

Critical Accounting Policies

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

The allowance for loan losses is management’s estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) ASC 450 “Contingencies”, which requires that losses be accrued when they are probable of occurring and are reasonably estimable and (ii) ASC 310 “Impairment of a Loan”, which requires that losses on impaired loans be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. Guidelines for determining allowances for loan losses are also provided in the SEC Staff Accounting Bulletin No. 102 – “Selected Loan Loss Allowance Methodology and Documentation Issues” and the Federal Financial Institutions Examination Council’s interagency guidance, “Interagency Policy Statement on the Allowance for Loan and Lease Losses” (the “FFIEC Policy Statement”). See “Management Discussion and Analysis Results of Operations – Allowance for Loan Losses and Loan Loss Reserve” below for further discussion of the allowance for loan losses.

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Overview

Financial is a bank holding company headquartered in Lynchburg, Virginia. Our primary business is retail banking which we conduct through our wholly-owned subsidiary, Bank of the James (which we refer to as the “Bank”). We conduct three other business activities, mortgage banking through the Bank’s Mortgage division (which we refer to as “Mortgage”), investment services through the Bank’s Investment division (which we refer to as “Investment”), and insurance activities through BOTJ Insurance, Inc., a subsidiary of the Bank, (which we refer to as “Insurance”).

The Bank is a Virginia banking corporation headquartered in Lynchburg, Virginia. The Bank was incorporated under the laws of the Commonwealth of Virginia as a state chartered bank in 1998 and began banking operations in July 1999. The Bank was organized to engage in general retail and commercial banking business. The Bank is a community-oriented financial institution that provides varied banking services to individuals, small and medium-sized businesses, and professional concerns in the Central Virginia, Region 2000 area, which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford County, Campbell County, and the City of Lynchburg. The Bank strives to provide its customers with products comparable to statewide regional banks located in its market area, while maintaining the prompt response time and level of service of a community bank. Management believes this operating strategy has particular appeal in the Bank’s market area.

The Bank’s principal office is located at 828 Main Street, Lynchburg, Virginia 24504 and its telephone number is (434) 846-2000. The Bank also maintains a website at www.bankofthejames.com.

Our operating results depend primarily upon the Bank’s net interest income, which is determined by the difference between (i) interest and dividend income on earning assets, which consist primarily of loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits and other borrowings. The Bank’s net income also is affected by its provision for loan losses, as well as the level of its non-interest income, including loan fees and service charges, and its non-interest expenses, including salaries and employee benefits, occupancy expense, data processing expenses, Federal Deposit Insurance Corporation premiums, expense in complying with the Sarbanes-Oxley Act of 2002, miscellaneous other expenses, franchise taxes, and income taxes.

The Bank intends to enhance its profitability by increasing its market share in the Region 2000 area, providing additional services to its customers, and controlling costs.

The Bank now services its banking customers through the following nine full service branch locations in the Region 2000 area.

• The main office located at 828 Main Street in Lynchburg (opened October 2004) (the “Main Street Office”),

• A branch located at 615 Church Street in Lynchburg (opened July 1999) (the “Church Street Branch”),

• A branch located at 5204 Fort Avenue in Lynchburg (opened November 2000) (the “Fort Avenue Branch”),

• A branch located on South Amherst Highway in Amherst County (opened June 2002) (the “Madison Heights Branch”),

• A branch located at 17000 Forest Road in Forest (opened February 2005) (the “Forest Branch”),

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• A branch located at 4935 Boonsboro Road, Suites C and D in Lynchburg (opened April 2006) (the “Boonsboro Branch”),

• A branch located at 164 South Main Street, Amherst, Virginia (opened January 2007) (the “Amherst Branch”),

• A branch located at 1405 Ole Dominion Boulevard in the City of Bedford, Virginia, located off of Independence Boulevard (opened October 2008) (the “Bedford Branch”), and

• A branch located at 1110 Main Street, Altavista, Virginia (relocated from temporary branch in June 2009) (the “Altavista Branch”).

The Bank also has opened a limited-service branch located in the Westminster-Canterbury facilities located at 501 VES Road, Lynchburg, Virginia 24503.

In addition, the Bank, through its Mortgage division, originates residential mortgage loans through two offices—one located at the Forest Branch and the other located at 1152 Hendricks Store Road, Moneta, Virginia.

The Investment division operates primarily out of its office located at the Church Street Branch.

The Bank continuously evaluates areas located within Region 2000 to identify additional viable branch locations. Based on this ongoing evaluation, the Bank may acquire one or more additional suitable sites.

Subject to regulatory approval, the Bank anticipates opening additional branches during the next two fiscal years. Although numerous factors could influence the Bank’s expansion plans, the following discussion provides a general overview of the additional branch location that the Bank currently is considering.

Timberlake Road Area, Campbell County (Lynchburg), Virginia. As previously disclosed, the Bank has purchased certain real property located at the intersection of Turnpike and Timberlake Roads, Campbell County, Virginia. The Bank does not anticipate opening a branch at this location prior to 2013. The Bank has determined that the existing structure is not suitable for use as a bank branch.

Rustburg, Virginia. In March, 2011 the Bank purchased certain real property near the intersection of Routes 501 and 24 in Rustburg, Virginia. The structure on the property is being demolished and removed. The Bank does not anticipate opening a branch at this location prior to the first quarter of 2013. The Bank has installed an ATM in a local municipal building in order to establish a presence in this market until the branch has been established.

The Bank estimates that the cost of improvements, furniture, fixtures, and equipment necessary to upfit the property will be between $900,000 and $1,500,000 per location.

Although the Bank cannot predict with certainty the financial impact of each new branch, management generally anticipates that each new branch will become profitable within 12 to 18 months of operation.

Except as set forth herein, the Bank does not expect to purchase any significant property or equipment in the upcoming 12 months. Future branch openings are subject to regulatory approval.

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OFF-BALANCE SHEET ARRANGEMENTS

The Bank is a party to various financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets and could impact the overall liquidity and capital resources to the extent customers accept and/or use these commitments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank’s commitments is as follows:

	June 30, 2012 (in  thousands)
Commitments to extend credit	$	55,724
Letters of Credit		1,719
Total	$	57,443

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on the Bank’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances that the Bank deems necessary.

SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion represents management’s discussion and analysis of the financial condition of Financial as of June 30, 2012 and December 31, 2011 and the results of operations of Financial for the three month and six month periods ended June 30, 2012 and 2011. This discussion should be read in conjunction with the financial statements included elsewhere herein.

All financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Financial Condition Summary

June 30, 2012 as Compared to December 31, 2011

Total assets were $433,204,000 on June 30, 2012 compared with $427,436,000 at December 31, 2011, an increase of 1.34%. The increase in total assets is due primarily to an increase in Federal funds sold and securities available-for-sale resulting from an increase in deposits, as explained in the following paragraph.

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Total deposits increased from $374,234,000 as of December 31, 2011 to $384,589,000 on June 30, 2012, an increase of 2.77%. This increase occurred because of the Bank’s increased efforts to obtain lower cost demand deposits and the Bank’s increased presence in the market.

Total loans increased to $324,909,000 on June 30, 2012 from $324,366,000 on December 31, 2011. Loans, net of unearned income and allowance, increased to $319,216,000 on June 30, 2012 from $318,754,000 on December 31, 2011, an increase of 0.14%. The following summarizes the position of the Bank’s loan portfolio as of the dates indicated by dollar amount and percentages (dollar amounts in thousands):

	June 30, 2012					December 31, 2011
	Amount		Percentage			Amount		Percentage
Commercial	$	56,846		17.50	%	$	59,623		18.39	%
Commercial Real Estate		151,937		46.76	%		150,622		46.43	%
Consumer		71,283		21.94	%		72,488		22.34	%
Residential		44,843		13.80	%		41,633		12.84	%
Total loans	$	324,909		100.00	%	$	324,366		100.00	%

Total nonperforming assets, which consist of non-accrual loans and other real estate owned (“OREO”) decreased to $9,453,000 on June 30, 2012 from $13,628,000 on December 31, 2011. This decrease was primarily due to a decrease in non-accrual (or nonperforming) loans. Non-accrual loans decreased 30.72% to $7,190,000 on June 30, 2012 from $10,375,000 on December 31, 2011. The decrease primarily resulted from the liquidation of real estate collateral associated with several relationships, including one large commercial relationship. The proceeds from the liquidations were used to curtail principal on a non-accrual loan. As discussed in more detail below under “Results of Operations—Allowance for Loan Losses”, management has provided for the anticipated losses on these loans in the loan loss reserve. If interest on non-accrual loans had been accrued, such interest on a cumulative basis would have approximated $864,000 and $1,233,000, as of June 30, 2012 and December 31, 2011, respectively. Loan payments received on non-accrual loans are first applied to principal. When a loan is placed on non-accrual status there are several negative implications. First, all interest accrued but unpaid at the time of the classification is reversed and deducted from the interest income totals for the Bank. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Third, there may be actual losses that necessitate additional provisions for credit losses charged against earnings. These loans were included in the non-performing loan totals listed above.

OREO represents real property acquired by the Bank for debts previously contracted, including through foreclosure, deeds in lieu of foreclosure or repossession. On December 31, 2011, the Bank was carrying 18 OREO properties on its books at a value of $3,253,000. During the six months ended June 30, 2012, the Bank acquired 16 additional OREO properties and disposed of 20 OREO properties, and as of June 30, 2012 the Bank is carrying 14 OREO properties at a value of $2,263,000. The OREO properties are available for sale and are being actively marketed on the Bank’s website and through other means.

The Bank had loans in the amount of $187,000 at June 30, 2012 classified as performing Troubled Debt Restructurings (“TDRs”) as compared to $783,000 at December 31, 2011. This decrease was due entirely to the liquidation of collateral associated with one commercial relationship with the proceeds from the liquidation being used to pay off the TDR loans. None of these TDRs were included in non-accrual loans. These loans have had their original terms modified to facilitate payment by the borrower. The loans have been classified as TDRs primarily due to a change to interest only payments and the maturity of these modified loans is primarily less than one year.

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Cash and cash equivalents increased to $27,286,000 on June 30, 2012 from $23,340,000 on December 31, 2011. Cash and cash equivalents consist of cash due from correspondents, cash in vault, and overnight investments (including federal funds sold). This increase is in large part due to an increase in deposits in excess of loans. The Bank invested a majority of the increase in deposits in fed funds. Cash and cash equivalents can vary due to routine fluctuations in deposits, including fluctuations in transactional accounts and professional settlement accounts, both of which are subject to fluctuations.

Securities held-to-maturity decreased to $3,087,000 on June 30, 2012 from $8,133,000 on December 31, 2011. During the six months ended June 30, 2012, the Bank received $5,000,000 in proceeds from maturities and calls of securities-held-to-maturity. Securities available-for-sale increased to $55,674,000 on June 30, 2012, from $48,338,000 December 31, 2011. During the six months ended June 30, 2012 the Bank received $10,488,000 in proceeds from maturities and/or calls of securities available-for-sale and $8,472,000 in proceeds from the sale of securities available-for-sale. The Bank purchased $25,400,000 in securities available-for sale during the same period. The increase from December 31, 2011 in securities available-for-sale was primarily due to the investment of funds received from an increase in deposit accounts.

Financial’s investment in Federal Home Loan Bank of Atlanta (FHLBA) stock totaled $1,109,000 at June 30, 2012 and $1,170,000 at December 31, 2011, a non-material decrease of $61,000. FHLBA stock is generally viewed as a long-term investment and because there is no market for the stock other than other Federal Home Loan Banks or member institutions, FHLBA stock is viewed as a restricted security. Therefore, when evaluating FHLBA stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Liquidity and Capital

At June 30, 2012, Financial, on a consolidated basis, had liquid assets of $82,960,000 in the form of cash, interest-bearing and noninterest-bearing deposits with banks, federal funds sold and available-for-sale investments. Management believes that liquid assets were adequate at June 30, 2012. Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments at the Bank. In addition, the Bank has the ability to purchase federal funds on the open market and borrow from the Federal Reserve Bank’s discount window, if necessary.

Financial currently is conducting a private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial is authorized to issue up to $12,000,000 in principal of notes (the “2012 Notes”). As of June 30, 2012, Financial had issued 2012 Notes in the amount $9,627,000. Although Financial is authorized to sell up to $12,000,000 in 2012 Notes, Financial has determined that it will close the 2012 Offering at such time as it has sold $10,000,000 in principal of 2012 Notes, or it terminates the offering, or, whichever occurs first.

The 2012 Notes will not be and have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The 2012 Notes will bear interest at the rate of 6% per year with interest payable quarterly in arrears. The first interest payment of $133,000 was due on July 1, 2012 and paid on or about June 29, 2012. The notes mature on April 1, 2017, but are subject to prepayment in whole or in part on or after April 1, 2013 at Financial’s sole discretion on 30 days written notice to the holders. Financial used $7,000,000 of the proceeds from the 2012 Offering to pay the 2009 Notes on their maturity.

Management is not aware of any trends, events or uncertainties that are reasonably likely to have a material negative impact on Financial’s short-term or long-term liquidity.

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At June 30, 2012, the Bank had a leverage ratio of 8.04%, a Tier 1 risk-based capital ratio of 10.78% and a total risk-based capital ratio of 12.03%. As of June 30, 2012 and December 31, 2011 the Bank’s regulatory capital levels exceeded those established for well-capitalized institutions. The following table sets forth the minimum capital requirements and the Bank’s capital position as of June 30, 2012 and December 31, 2011:

Bank Level Only Capital Ratios

	June 30, 2012		December 31, 2011
Analysis of Capital (in 000’s)
Tier 1 Capital:
Common stock	$	3,742	$	3,742
Surplus		19,325		19,325
Retained earnings		11,449		10,394
Total Tier 1 capital	$	34,516	$	33,461
Tier 2 Capital:
Allowance for loan losses	$	4,024	$	3,991
Total Tier 2 Capital:	$	4,024	$	3,991
Total risk-based capital	$	38,540	$	37,452
Risk weighted assets	$	320,288	$	317,684
Average total assets	$	429,382	$	427,680

	Actual						Regulatory Benchmarks
	June 30, 2012			December 31, 2011			For Capital Adequacy Purposes			For Well Capitalized Purposes
Capital Ratios:
Tier 1 capital to average total assets ratio (leverage ratio)		8.04	%		7.82	%		4.00	%		5.00	%
Tier 1 risk based capital ratio		10.78	%		10.53	%		4.00	%		6.00	%
Total risk-based capital ratio		12.03	%		11.79	%		8.00	%		10.00	%

The above tables set forth the capital position and analysis for the Bank only. Because total assets on a consolidated basis are less than $500,000,000, Financial is not subject to the consolidated capital requirements imposed by the Bank Holding Company Act. Consequently, Financial does not calculate its financial ratios on a consolidated basis. If calculated, the capital ratios for the Company on a consolidated basis would no longer be comparable to the capital ratios of the Bank because the proceeds from the private placement of the 6% capital notes due on April 1, 2017 do not qualify as equity capital on a consolidated basis.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2012 and 2011

Earnings Summary

Financial had net income including all operating segments of $486,000 and $846,000 for the three and six months ended June 30, 2012 compared to $319,000 and $754,000 for the for the comparable periods in 2011. The basic and diluted earnings per common share for the three and six months ended June 30, 2012 were $0.15 and $0.25, compared to basic and diluted earnings per share of $0.10 and $0.23 for the three and six months ended June 30, 2011.

39

The increase in net income was due in large part to a decreased provision to the allowance for loan loss reserve as discussed in more detail below (See “Allowance for Loan Losses”), a decrease in interest expense, and an increase in non-interest income. The increase was partially offset by an increase in non-interest expense.

These operating results represent an annualized return on stockholders’ equity of 7.18% and 6.28% for the three and six months ended June 30, 2012, compared with 4.81% and 5.76% for the same periods in 2011. The Company had an annualized return on average assets for the three and six months ended June 30, 2012 of 0.45% and 0.40%, compared with 0.30% and 0.36% for three and six months ended June 30, 2011.

See Non-Interest Income below for mortgage business segment discussion.

Interest Income, Interest Expense, and Net Interest Income

Interest income decreased to $4,645,000 and $9,331,000 for the three and six months ended June 30, 2012 from $4,896,000 and $9,838,000 for the same periods in 2011, a decrease of 5.13% and 5.15%, respectively. Interest income decreased primarily because a) the average principal balance of the loan portfolio (net of allowance for loan losses) decreased as compared to the comparable periods in 2011; and b) the average rate received on earning assets decreased to 4.73% and 4.76% for the three and six months ended June 30, 2012 as compared with 4.95% and 5.03% for the comparable periods in 2011. The rate on total average earning assets decreased largely because of a decrease in market rates of interest. Although management cannot be certain, management expects that interest rates will remain near historic lows for the remainder of 2012 and may continue to negatively impact our interest income.

Interest expense decreased to $809,000 and $1,629,000 for the three and six months ended June 30, 2012 from $1,090,000 and $2,325,000 for the same periods in 2011, a decrease of 25.78% and 29.94%, respectively. This significant decrease in interest expense resulted in large part from a decrease in the rate paid on balances on deposits. The Bank’s average rate paid on deposits was 0.74% and 0.76% during the three and six month periods ended June 30, 2012 as compared to 1.09% and 1.19% for the same periods in 2011. This resulted from management’s efforts to minimize the Bank’s interest expense and maximize its net interest margin.

The fundamental source of the Bank’s revenue is net interest income, which is determined by the difference between (i) interest and dividend income on interest earning assets, which consist primarily of loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits and other borrowings. Net interest income for the three and six months ended June 30, 2012 was $3,836,000 and $7,702,000 compared with $3,806,000 and $7,513,000 for the same periods in 2011. The increase in net interest income for the three and six months ended June 30, 2012 as compared with the comparable periods in 2011 was due the fact that the rate paid on deposit accounts has decreased from the comparable periods in 2011. The net interest margin was 3.91% and 3.95% for the three and six months ended June 30, 2012, up from 3.85% and 3.84% for the same periods a year ago.

Financial’s net interest margin analysis and average balance sheets are shown in Schedule I on page 48.

Non-Interest Income

Non-interest income is comprised primarily of fees and charges on transactional deposit accounts, mortgage loan origination fees, commissions on sales of investments and the Bank’s ownership interest in a title insurance agency. Non-interest income exclusive of gains on sales of securities increased to $714,000 and $1,344,000 for the three and six months ended June 30, 2012 from $589,000 and $1,230,000 for the three and six months ended June 30, 2011. This increase for the three and six months

40

ended June 30, 2012 as compared to the same periods last year was due primarily to increases in all categories of non-operating income, including increases in mortgage origination fees and service charges, fees, and commissions. Gains on sales of securities decreased to $129,000 and $170,000 for the three and six months ended June 30, 2012 as compared to $169,000 and $200,000 for the comparable periods in 2011.

The Bank, through the Mortgage division, originates both conforming and non-conforming consumer residential mortgage loans in the Region 2000 area. As part of the Bank’s overall risk management strategy, all of the loans originated and closed by the Mortgage division are presold to major national mortgage banking or financial institutions. The Mortgage division assumes no credit or interest rate risk on these mortgages.

Management anticipates that residential mortgage rates will remain near the current historic lows for the remainder of 2012. Management expects that low rates coupled with the Mortgage division’s reputation in Region 2000 will allow us to maintain revenue at the Mortgage division. Revenue from mortgage origination fees increased in the three month period ended June 30, 2012 as compared to the same period for 2011. Revenue from mortgage origination fees decreased in the six month period ended June 30, 2012 as compared to the same period for 2011. Management believes that regulatory pressure may result in a decreased number of competitors to the Mortgage division and this could result in an increase in market share.

Our Investment division provides brokerage services through an agreement with a third-party broker-dealer. Pursuant to this arrangement, the third party broker-dealer operates a service center adjacent to one of the branches of the Bank. The center is staffed by dual employees of the Bank and the broker-dealer. Investment receives commissions on transactions generated and in some cases ongoing management fees such as mutual fund 12b-1 fees. The Investment division’s financial impact on our consolidated revenue has been immaterial. Although management cannot predict the financial impact of Investment with certainty, management anticipates the Investment division’s impact on noninterest income will remain immaterial in 2012.

In the third quarter of 2008, we began providing insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary. The Bank has one full-time and one part-time employee that are dedicated to selling insurance products through Insurance. Insurance generates minimal revenue and its financial impact on our consolidated revenue has been immaterial. Management anticipates that Insurance’s impact on noninterest income will remain immaterial in 2012.

Non-Interest Expense

Non-interest expense for the three and six months ended June 30, 2012 increased to $3,559,000 and $6,843,000, or 11.08% and 7.36%, respectively, from $3,204,000 and $6,374,000 for the comparable periods in 2011. This increase in non-interest expense from the comparable period in 2011 can be attributed in large part to an increase in compensation expense, discussed in more detail in the following paragraph, and other real estate expenses. Other real estate expenses consist primarily of insurance, maintenance, real estate taxes, and other expenses related to property ownership.

Total personnel expense was $1,546,000 and $3,049,000 for the three and six month periods ended June 30, 2012 as compared to $1,391,000 and $2,818,000 for the same periods in 2011. Compensation for some employees of the Mortgage division and the Investment division is commission-based and therefore subject to fluctuation.

During the three months ended June 30, 2012, the FDIC premium expense increased to $144,000 from $141,000 for the three months ended June 30, 2011. During the six months ended June 30, 2012, the FDIC premium expense decreased to $288,000 from $370,000 for the three months ended June 30, 2011. FDIC assessment payments have decreased in large part because the FDIC changed the formula used to calculate the assessment in a way that favors banks whose liabilities consist primarily of deposits.

41

Allowance for Loan Losses

The allowance for loan losses represents an amount that, in our judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. The provision for loan losses increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The provision to the allowance for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon many factors, including calculations of specific impairment of certain loans, general economic conditions, actual and expected credit losses, loan performance measures, historical trends and specific conditions of the individual borrower. Based on the application of the loan loss calculation, the Bank provided $425,000 and $1,175,000 to the allowance for loan loss for the three and six months ended June 30, 2012 compared to a provision of $906,000 and $1,485,000 for the comparable periods in 2011.

The decrease in the loan loss provision for the three and six months ended June 30, 2012 as compared to the same periods in 2011 was due to the following factors:

• The Bank’s asset quality has improved as problem assets, including certain commercial development loans and residential speculative housing construction loans have decreased as the collateral for those loans has been liquidated. Management’s evaluation of these asset classes resulted in the decreased provision in the quarter ended June 30, 2012.

• In light of the current economic environment, management continues its ongoing assessment of specific impairment in the Bank’s loan portfolio. The analysis resulted in a decrease in the provision for the quarter ended June 30, 2012 as compared to the same quarter in 2011.

• General reserves related to consumer loans collectively evaluated for impairment have also decreased as a result of a decrease in historical charge-offs associated with this loan segment.

Management believes that the current allowance for loan loss of $5,693,000 (or 1.75% of total loans) at June 30, 2012, as compared to $5,612,000 (or 1.73% of total loans) as of December 31, 2011 remains adequate.

42

The following tables summarize the allowance activity for the periods indicated:

	Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands)
	For the Six months Ended June 30, 2012
	Commercial			Commercial Real Estate			Consumer			Residential			Total
2012
Allowance for Credit Losses:
Beginning Balance	$	892		$	2,677		$	1,486		$	557		$	5,612
Charge-offs		(175	)		(631	)		(413	)		(12	)		(1,231	)
Recoveries		13			109			9			6			137
Provision		131			761			197			86			1,175
Ending Balance		861			2,916			1,279			637			5,693
Ending Balance: Individually evaluated for impairment	$	428		$	1,016		$	487		$	133		$	2,064
Ending Balance: Collectively evaluated for impairment		433			1,900			792			504			3,629
Totals:	$	861		$	2,916		$	1,279		$	637		$	5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment		5,152			14,127			990			3,005			23,274
Ending Balance: Collectively evaluated for impairment		51,694			137,810			70,293			41,838			301,635
Totals:	$	56,846		$	151,937		$	71,283		$	44,843		$	324,909

43

	Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands)
	For the Year Ended December 31, 2011
	Commercial			Commercial Real Estate			Consumer			Residential			Total
2011
Allowance for Credit Losses:
Beginning Balance	$	473		$	2,897		$	1,207		$	890		$	5,467
Charge-offs		(702	)		(2,738	)		(817	)		(459	)		(4,716	)
Recoveries		16			3			31			4			54
Provision		1,105			2,515			1,065			122			4,807
Ending Balance		892			2,677			1,486			557			5,612
Ending Balance: Individually evaluated for impairment	$	440		$	1,058		$	357		$	128		$	1,983
Ending Balance: Collectively evaluated for impairment		452			1,619			1,129			429			3,629
Totals:	$	892		$	2,677		$	1,486		$	557		$	5,612
Financing Receivables:
Ending Balance: Individually evaluated for impairment		6,325			15,000			1,235			2,784			25,344
Ending Balance: Collectively evaluated for impairment		53,298			135,622			71,253			38,849			299,022
Totals:	$	59,623		$	150,622		$	72,488		$	41,633		$	324,336

The following sets forth the reconciliation of the allowance for loan loss:

	Three months ended June  30, (in thousands)						Six months ended June 30, (in thousands)
	2012			2011			2012			2011
Balance, beginning of period	$	6,006		$	5,318		$	5,612		$	5,467
Provision for loan losses		425			906			1,175			1,485
Loans charged off		(847	)		(1,266	)		(1,231	)		(2,005	)
Recoveries of loans charged off		109			12			137			23
Net Charge Offs		(738	)		(1,254	)		(1,094	)		(1,982	)
Balance, end of period	$	5,693		$	4,970		$	5,693		$	4,970

The Bank’s internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower’s individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis.

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Below is a summary and definition of the Bank’s risk rating categories:

RATING 1	Excellent
RATING 2	Above Average
RATING 3	Satisfactory
RATING 4	Acceptable / Low Satisfactory
RATING 5	Monitor
RATING 6	Special Mention
RATING 7	Substandard
RATING 8	Doubtful
RATING 9	Loss

We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows:

• “Pass.” These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

• “Monitor.” These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may currently or in the future be characterized by late payments. The Bank’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

• “Special Mention.” These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.

• “Substandard.” These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due.

• “Doubtful.” These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

45

• “Loss.” These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

The increase in the balance in the allowance for loan loss reserve as of June 30, 2012 as compared to December 31, 2011 resulted from provisions being higher than the net charge-offs during the first six months of 2012. The loan loss reserve is determined as discussed above.

Net charge offs decreased to $738,000 and $1,094,000 for the three and six months ended June 30, 2012 from $1,254,000 and $1,982,000 for the same periods in 2011. Charged off loans, which are loans that management deems uncollectible, are written against the loan loss reserve and constitute a realized loss. While a charged off loan may subsequently be collected, such recoveries generally are realized over an extended period of time.

Income Taxes

For the three and six months ended June 30, 2012, Financial had an income tax expense of $209,000 and $352,000, respectively. This represents an effective tax rate of 30.10% and 29.90% for the respective periods.

Legislation

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Reform Act”) was signed into law. The Dodd-Frank Reform Act represents a significant overhaul of many aspects of the regulation of the financial services industry, although many of its provisions (e.g., the interchange and trust preferred capital limitations) apply to companies that are significantly larger than Financial. The Dodd-Frank Reform Act directs applicable regulatory authorities to promulgate regulations implementing its provisions, and its effect on Financial and on the financial services industry as a whole will be clarified as those regulations are issued. Major elements of the Dodd-Frank Reform Act include:

• A permanent increase in deposit insurance coverage to $250,000 per account, permanent unlimited deposit insurance on noninterest-bearing transaction accounts, and an increase in the minimum Deposit Insurance Fund reserve requirement for banks having consolidated assets in excess of $10 billion from 1.15% to 1.35%, with assessments to be based on assets as opposed to deposits.

• New disclosure and other requirements relating to executive compensation and corporate governance.

• Amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations.

• The establishment of the Financial Stability Oversight Council, which will be responsible for identifying and monitoring systemic risks posed by financial firms, activities, and practices.

• The development of regulations to limit debit card interchange fees.

• The future elimination of trust preferred securities as a permitted element of Tier 1 capital.

46

• The creation of a special regime to allow for the orderly liquidation of systemically important financial companies, including the establishment of an orderly liquidation fund.

• The development of regulations to address derivatives markets, including clearing and exchange trading requirements and a framework for regulating derivatives-market participants.

• Enhanced supervision of credit rating agencies through the Office of Credit Ratings within the SEC.

• Increased regulation of asset-backed securities, including a requirement that issuers of asset-backed securities retain at least 5% of the risk of the asset-backed securities.

• The establishment of a Bureau of Consumer Financial Protection, within the Federal Reserve, to serve as a dedicated consumer-protection regulatory body.

• On February 7, 2011, the FDIC issued a final rule redefining the assessment base as required by Dodd-Frank. The final rule adopted a separate risk-based assessment system for large insured depository institutions (institutions with greater than $10 billion in assets). The final rule applies to all insured depository institutions and is effective on April 1, 2011.

Financial continues to evaluate the potential impact of the Dodd-Frank Reform Act.

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Schedule I

Net Interest Margin Analysis

Average Balance Sheets

For the Quarter Ended June 30, 2012 and 2011

	2012								2011
	Average Balance Sheet			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance Sheet			Interest Income/ Expense		Average Rates Earned/ Paid
ASSETS
Loans, including fees (1) (2)	$	320,588		$	4,170		5.22	%	$	325,460		$	4,382		5.40	%
Loans held for sale		878			8		3.65	%		202			2		3.97	%
Federal funds sold		10,497			6		0.23	%		12,203			8		0.26	%
Securities (3)		59,741			432		2.90	%		56,951			481		3.39	%
Federal agency equities		1,829			29		6.36	%		2,007			23		4.60	%
CBB equity		116			—		0.00	%		116			—		0.00	%
Total earning assets		393,649			4,645		4.73	%		396,939			4,896		4.95	%
Allowance for loan losses		(5,901	)							(5,325	)
Non-earning assets		44,499								37,700
Total assets	$	432,247							$	429,314
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	81,765		$	65		0.32	%	$	63,851		$	90		0.57	%
Savings		153,241			144		0.38	%		180,879			374		0.83	%
Time deposits		92,196			392		1.71	%		83,125			428		2.07	%
Total interest bearing deposits		327,202			601		0.74	%		327,855			892		1.09	%
Other borrowed funds
Repurchase agreements		28			—		0.00	%		8,156			18		0.89	%
Other borrowings		10,000			75		3.01	%		10,000			75		3.01	%
Capital Notes		8,865			133		6.00	%		7,000			105		6.00	%
Total interest-bearing liabilities		346,095			809		0.94	%		353,011			1,090		1.24	%
Non-interest bearing deposits		57,593								49,198
Other liabilities		1,393								515
Total liabilities		405,081								402,724

48

Stockholders’ equity		27,166						26,590
Total liabilities and Stockholders’ equity	$	432,247					$	429,314
Net interest income			$	3,836					$	3,806
Net interest margin					3.91	%					3.85	%
Interest spread					3.79	%					3.71	%

(1) Net deferred loan fees and costs are included in interest income.

(2) Nonperforming loans are included in the average balances. However, interest income and yields calculated do not reflect any accrued interest associated with non-accrual loans.

(3) The interest income and yields calculated on securities have been tax affected to reflect any tax exempt interest on municipal securities. Currently all municipals in the Bank’s portfolio are taxable.

49

Net Interest Margin Analysis

Average Balance Sheets

For the Six Months Ended June 30, 2012 and 2011

	2012								2011
	Average Balance Sheet			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance Sheet			Interest Income/ Expense		Average Rates Earned/ Paid
ASSETS
Loans, including fees (1) (2)	$	321,295		$	8,388		5.24	%	$	325,727		$	8,855		5.48	%
Loans held for sale		825			14		3.40	%		102			2		3.95	%
Federal funds sold		8,960			11		0.25	%		10,203			13		0.26	%
Securities (3)		60,379			889		2.95	%		56,422			942		3.37	%
Federal agency equities		1,845			29		3.15	%		2,036			26		2.58	%
CBB equity		116			—		0.00	%		116			—		0.00	%
Total earning assets		393,420			9,331		4.76	%		394,636			9,838		5.03	%
Allowance for loan losses		(5,825	)							(5,373	)
Non-earning assets		41,582								37,263
Total assets	$	429,177							$	426,526
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	76,051		$	125		0.33	%	$	62,896		$	201		0.64	%
Savings		156,318			289		0.37	%		181,798			875		0.97	%
Time deposits		91,549			813		1.78	%		82,052			857		2.11	%
Total interest bearing deposits		323,918			1,227		0.76	%		326,746			1,933		1.19	%
Other borrowed funds
Repurchase agreements		3,294			15		0.91	%		7,684			34		0.89	%
Other borrowings		10,000			149		2.99	%		10,000			148		2.96	%
Capital Notes		7,950			238		6.00	%		7,000			210		6.00	%
Total interest-bearing liabilities		345,162			1,629		0.95	%		351,430			2,325		1.33	%
Non-interest bearing deposits		56,197								48,129
Other liabilities		821								590
Total liabilities		402,180								400,149
Stockholders’ equity		26,997								26,377

50

Total liabilities and Stockholders’ equity	$	429,177					$	426,526
Net interest income			$	7,702					$	7,513
Net interest margin					3.95	%					3.84	%
Interest spread					3.81	%					3.70	%

(1) Net deferred loan fees and costs are included in interest income.

(2) Nonperforming loans are included in the average balances. However, interest income and yields calculated do not reflect any accrued interest associated with non-accrual loans.

(3) The interest income and yields calculated on securities have been tax affected to reflect any tax exempt interest on municipal securities. Currently all municipals in the Bank’s portfolio are taxable.

51

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Financial’s management, including Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that Financial files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes during the quarter ended June 30, 2012, in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) or in other factors that could have significantly affected those controls subsequent to the date of our most recent evaluation of internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings at this time, other than routine litigation incidental to its business.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 20, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

52

Item 6. Exhibits

The following are filed as Exhibits to this Form 10-Q:

Exhibit No.	Description of Exhibit
31.1	Certification of Robert R. Chapman III Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2012
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2012
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated August 8, 2012
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (unaudited) for the Three and Six Months ended June 30, 2012 and 2011; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months ended June 30, 2012 and 2011 (iv) Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2012 and 2011 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Six Months ended June 30, 2012 and the Six Months Ended June 30, 2011; (vi) Notes to Unaudited Consolidated Financial Statements.*

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

53

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BANK OF THE JAMES FINANCIAL GROUP, INC.
Date: August 8, 2012	By /S/ Robert R. Chapman III                          Robert R. Chapman III, President      (Principal Executive Officer)
Date: August 8, 2012	By /S/ J. Todd Scruggs                                      J. Todd Scruggs, Secretary and Treasurer      (Principal Financial Officer and Principal Accounting Officer)

54

Index of Exhibits

Exhibit No.	Description of Exhibit
31.1	Certification of Robert R. Chapman III Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2012
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2012
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated August 8, 2012
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (unaudited) for the Three and Six Months ended June 30, 2012 and 2011; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months ended June 30, 2012 and 2011 (iv) Consolidated Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2012 and 2011 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Six Months ended June 30, 2012 and the Six Months Ended June 30, 2011; (vi) Notes to Unaudited Consolidated Financial Statements.*

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

55

EX-31.1

Exhibit 31.1

Certification—Principal Executive Officer

I, Robert R. Chapman III, President of Bank of the James Financial Group, Inc. certify that:

(1) I have reviewed this Form 10-Q of Bank of the James Financial Group, 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 issuer as of, and for, the periods presented in this report;

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

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, 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 issuer’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 issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter (the issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’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 issuer’s internal control over financial reporting.

Date: August 8, 2012 By /S/ Robert R. Chapman III Robert R. Chapman III, President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification—Principal Financial Officer and Principal Accounting Officer

I, J. Todd Scruggs, Secretary and Treasurer of Bank of the James Financial Group, Inc., certify that:

(1) I have reviewed this Form 10-Q of Bank of the James Financial Group, 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 issuer as of, and for, the periods presented in this report;

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

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, 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 issuer’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 issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter (the issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’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 issuer’s internal control over financial reporting.

Date: August 8, 2012 By /S/ J. Todd Scruggs J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies that this Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Bank of the James Financial Group, Inc.

	BANK OF THE JAMES FINANCIAL GROUP, INC.
Date: August 8, 2012	By	/S/ Robert R. Chapman III Robert R. Chapman III, President (Principal Executive Officer)
Date: August 8, 2012	By	/S/ J. Todd Scruggs J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)

XML

Business Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Segment Reporting Information [Line Items]
Net interest income	$ 3,836	$ 3,806	$ 7,702	$ 7,513
Provision for loan losses	425	906	1,175	1,485	4,807
Net interest income after provision for loan losses	3,411	2,900	6,527	6,028
Noninterest income	843	758	1,514	1,430
Noninterest expense	3,559	3,204	6,843	6,374
Income before income taxes	695	454	1,198	1,084
Income tax expense	209	135	352	330
Net income	486	319	846	754
Total assets	433,204	429,625	433,204	429,625	427,436
Number of reportable segments			2
Community Banking [Member]
Segment Reporting Information [Line Items]
Net interest income	3,836	3,806	7,702	7,513
Provision for loan losses	425	906	1,175	1,485
Net interest income after provision for loan losses	3,411	2,900	6,527	6,028
Noninterest income	554	515	999	901
Noninterest expense	3,318	2,990	6,407	5,915
Income before income taxes	647	425	1,119	1,014
Income tax expense	193	125	325	306
Net income	454	300	794	708
Total assets	431,967	429,122	431,967	429,122
Mortgage [Member]
Segment Reporting Information [Line Items]
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income	289	243	515	529
Noninterest expense	241	214	436	459
Income before income taxes	48	29	79	70
Income tax expense	16	10	27	24
Net income	32	19	52	46
Total assets	$ 1,237	$ 503	$ 1,237	$ 503

XML

Loans, Allowance For Loan Losses And OREO (Credit Quality Information) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 324,909	$ 324,366
Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	56,846	59,623
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	61,451	60,754
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	80,753	77,889
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	9,733	11,979
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,263	3,237
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	68,020	69,251
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	39,875	38,998
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,968	2,635
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	281,211	276,853
Pass [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	47,529	47,021
Pass [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	49,184	48,622
Pass [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	69,130	63,934
Pass [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,734	9,000
Pass [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,262	3,237
Pass [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	64,556	67,295
Pass [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	35,848	35,109
Pass [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,968	2,635
Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	10,878	11,528
Monitor [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,573	3,978
Monitor [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,447	3,003
Monitor [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,661	3,326
Monitor [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		176
Monitor [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Monitor [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,594	488
Monitor [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	603	557
Monitor [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	10,050	11,608
Special Mention [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,074	2,901
Special Mention [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,290	4,696
Special Mention [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,364	3,159
Special Mention [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Special Mention [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Special Mention [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	903	304
Special Mention [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	419	548
Special Mention [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	22,650	24,227
Substandard [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,670	5,723
Substandard [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,410	4,283
Substandard [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,598	7,470
Substandard [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,999	2,803
Substandard [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1
Substandard [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	967	1,164
Substandard [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,005	2,784
Substandard [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	120	150
Doubtful [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	120	150
Doubtful [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Doubtful [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables

XML

Fair Value Measurements (Summary Of Activity At The Level 3 Valuation) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Fair Value Measurements [Abstract]
Balance as of December 31, 2011	$ 7,945
Transfers to Level 3	514
Changes in loan balances due to payments	(17)
Loans no longer considered impaired or transferred to Level 2	(5,271)
Ending balance as of June 30, 2012	$ 3,171

XML

Business Segments (Tables)

6 Months Ended

Jun. 30, 2012

Business Segments [Abstract]

Schedule Of Segment Reporting Information, By Segment

		Community
		Banking			Mortgage			Total
Three months ended June 30, 2012
Net interest income	$	3,836		$	-		$	3,836
Provision for loan losses		425			-			425
Net interest income after provision for loan losses		3,411			-			3,411
Noninterest income		554			289			843
Noninterest expenses		3,318			241			3,559
Income before income taxes		647			48			695
Income tax expense		193			16			209
Net income	$	454	$		32		$	486
Total assets	$	431,967	$		1,237	$	$	433,204

Six months ended June 30, 2012
Net interest income	$	7,702		$	-		$	7,702
Provision for loan losses		1,175			-			1,175
Net interest income after provision for loan losses		6,527			-			6,527
Noninterest income		999			515			1,514
Noninterest expenses		6,407			436			6,843
Income before income taxes		1,119			79			1,198
Income tax expense		325			27			352
Net income	$	794	$		52		$	846
Total assets	$	431,967	$		1,237	$	$	433,204

Three months ended June 30, 2011
Net interest income	$	3,806		$	-		$	3,806
Provision for loan losses		906			-			906
Net interest income after provision for loan losses		2,900			-			2,900
Noninterest income		515			243			758
Noninterest expenses		2,990			214			3,204
Income before income taxes		425			29			454
Income tax expense		125			10			135
Net income	$	300	$		19		$	319
Total assets		429,122	$		503	$	$	429,625

Six months ended June 30, 2011
Net interest income	$	7,513		$	-		$	7,513
Provision for loan losses		1,485			-			1,485
Net interest income after provision for loan losses		6,028			-			6,028
Noninterest income		901			529			1,430
Noninterest expenses		5,915			459			6,374
Income before income taxes		1,014			70			1,084
Income tax expense		306			24			330
Net income	$	708	$		46		$	754
Total assets	$	429,122	$		503	$	$	429,625

XML

Loans, Allowance For Loan Losses And OREO (Changes In OREO Balance) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Loans, Allowance For Loan Losses And OREO [Abstract]
Balance at the beginning of the year (gross)	$ 3,253
Transfers from loans	1,374	1,434	2,020
Capitalized costs	5
Charge-Offs	(200)
Sales proceeds	(2,088)	(2,088)	(974)
(Loss) on disposition	(81)	(81)	(215)
Balance at the end of the period (gross)	2,263	2,263
Less valuation allowance
Balance at the end of the period (net)	$ 2,263	$ 2,263		$ 3,253

XML

Investments (Summary Of Securities Held-To-Maturity And Securities Available-For-Sale) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Fair Value	$ 3,437	$ 8,533
Available-for-Sale, Amortized Costs	54,773	48,416
Available-for-Sale, Gross Unrealized Gains	990	363
Available-for-Sale, Gross Unrealized (Losses)	(89)	(441)
Securities available-for-sale	55,674	48,338
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	27,172	25,416
Available-for-Sale, Gross Unrealized Gains	404	117
Available-for-Sale, Gross Unrealized (Losses)	(10)	(48)
Securities available-for-sale	27,566	25,485
Mortgage-Backed Securities [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	2,860	3,938
Available-for-Sale, Gross Unrealized Gains		5
Available-for-Sale, Gross Unrealized (Losses)	(61)	(4)
Securities available-for-sale	2,799	3,939
Municipals [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	22,063	19,062
Available-for-Sale, Gross Unrealized Gains	559	241
Available-for-Sale, Gross Unrealized (Losses)	(11)	(389)
Securities available-for-sale	22,611	18,914
Other [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	2,678
Available-for-Sale, Gross Unrealized Gains	27
Available-for-Sale, Gross Unrealized (Losses)	(7)
Securities available-for-sale	2,698
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Amortized Costs	3,087	8,133
Held-to-Maturity, Gross Unrealized Gains	350	400
Held-to-Maturity, Gross Unrealized (Losses)
Held-to-Maturity, Fair Value	$ 3,437	$ 8,533

XML

Loans, Allowance For Loan Losses And OREO (Schedule Of Defaults During Stated Period Of Troubled Debt Restructurings) (Details) (Commercial Loan [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Commercial Loan [Member]
Number of Contracts	2	4
Recorded Investment	$ 208	$ 798

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Consolidated Statements Of Changes In Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings (Deficit) [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2010	$ 7,113	$ 22,742	$ (3,668)	$ (692)	$ 25,495
Balance, shares at Dec. 31, 2010					3,323,743
Net Income			754		754
Other Comprehensive Income				724	724
Balance at Jun. 30, 2011	7,113	22,742	(2,914)	32	26,973
Balance, shares at Jun. 30, 2011					3,323,743
Balance at Dec. 31, 2011	7,152	22,775	(3,068)	(54)	26,805
Balance, shares at Dec. 31, 2011					3,342,415
Net Income			846		846
Other Comprehensive Income				648	648
Balance at Jun. 30, 2012	$ 7,152	$ 22,775	$ (2,222)	$ 594	$ 28,299
Balance, shares at Jun. 30, 2012					3,342,415

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Loans, Allowance For Loan Losses And OREO (Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Totals: Recorded Investment	$ 23,274	$ 25,344
Totals: Unpaid Principal Balance	25,132	28,632
Totals: Related Allowance	2,064	1,983
Totals: Average Recorded Investment	24,312	31,960
Totals: Interest Income Recognized	479	1,068
Commercial Loan [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	3,467	3,357
With No Related Allowance Recorded: Unpaid Principal Balance	3,575	3,570
With No Related Allowance Recorded: Average Recorded Investment	3,412	8,978
With No Related Allowance Recorded: Interest Income Recognized while impaired	42	118
With An Allowance Recorded: Recorded Investment	1,685	2,968
With An Allowance Recorded: Unpaid Principal Balance	1,698	3,052
With An Allowance Recorded: Related Allowance	428	440
With An Allowance Recorded: Average Recorded Investment	2,327	2,170
With An Allowance Recorded: Interest Income Recognized	34	106
Totals: Recorded Investment	5,152	6,325
Totals: Unpaid Principal Balance	5,273	6,622
Totals: Related Allowance	428	440
Totals: Average Recorded Investment	5,739	11,147
Totals: Interest Income Recognized	76	224
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	2,305	2,211
With No Related Allowance Recorded: Unpaid Principal Balance	2,360	3,108
With No Related Allowance Recorded: Average Recorded Investment	2,258	2,457
With No Related Allowance Recorded: Interest Income Recognized while impaired	93	124
With An Allowance Recorded: Recorded Investment	2,225	2,516
With An Allowance Recorded: Unpaid Principal Balance	2,515	2,686
With An Allowance Recorded: Related Allowance	613	555
With An Allowance Recorded: Average Recorded Investment	2,371	3,815
With An Allowance Recorded: Interest Income Recognized	63	137
Totals: Recorded Investment	4,530	4,727
Totals: Unpaid Principal Balance	4,875	5,794
Totals: Related Allowance	613	555
Totals: Average Recorded Investment	4,629	6,272
Totals: Interest Income Recognized	156	261
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	5,908	4,880
With No Related Allowance Recorded: Unpaid Principal Balance	6,080	5,170
With No Related Allowance Recorded: Average Recorded Investment	5,394	5,418
With No Related Allowance Recorded: Interest Income Recognized while impaired	131	227
With An Allowance Recorded: Recorded Investment	690	2,590
With An Allowance Recorded: Unpaid Principal Balance	866	3,129
With An Allowance Recorded: Related Allowance	88	228
With An Allowance Recorded: Average Recorded Investment	1,640	1,858
With An Allowance Recorded: Interest Income Recognized	16	117
Totals: Recorded Investment	6,598	7,470
Totals: Unpaid Principal Balance	6,946	8,299
Totals: Related Allowance	88	228
Totals: Average Recorded Investment	7,034	7,275
Totals: Interest Income Recognized	147	344
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	1,202	1,103
With No Related Allowance Recorded: Unpaid Principal Balance	1,312	1,103
With No Related Allowance Recorded: Average Recorded Investment	1,153	984
With No Related Allowance Recorded: Interest Income Recognized while impaired	27	38
With An Allowance Recorded: Recorded Investment	1,797	1,700
With An Allowance Recorded: Unpaid Principal Balance	2,072	1,964
With An Allowance Recorded: Related Allowance	315	275
With An Allowance Recorded: Average Recorded Investment	1,749	2,454
With An Allowance Recorded: Interest Income Recognized		42
Totals: Recorded Investment	2,999	2,803
Totals: Unpaid Principal Balance	3,384	3,067
Totals: Related Allowance	315	275
Totals: Average Recorded Investment	2,902	3,438
Totals: Interest Income Recognized	27	80
Consumer Unsecured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment
With No Related Allowance Recorded: Unpaid Principal Balance
With No Related Allowance Recorded: Average Recorded Investment
With No Related Allowance Recorded: Interest Income Recognized while impaired
With An Allowance Recorded: Recorded Investment	1
With An Allowance Recorded: Unpaid Principal Balance	1
With An Allowance Recorded: Related Allowance	1
With An Allowance Recorded: Average Recorded Investment	1	286
With An Allowance Recorded: Interest Income Recognized
Totals: Recorded Investment	1
Totals: Unpaid Principal Balance	1
Totals: Related Allowance	1
Totals: Average Recorded Investment	1	286
Totals: Interest Income Recognized
Consumer Secured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	133	293
With No Related Allowance Recorded: Unpaid Principal Balance	364	642
With No Related Allowance Recorded: Average Recorded Investment	213	330
With No Related Allowance Recorded: Interest Income Recognized while impaired	5	6
With An Allowance Recorded: Recorded Investment	856	942
With An Allowance Recorded: Unpaid Principal Balance	858	1,021
With An Allowance Recorded: Related Allowance	486	357
With An Allowance Recorded: Average Recorded Investment	899	699
With An Allowance Recorded: Interest Income Recognized	5	49
Totals: Recorded Investment	989	1,235
Totals: Unpaid Principal Balance	1,222	1,663
Totals: Related Allowance	486	357
Totals: Average Recorded Investment	1,112	1,029
Totals: Interest Income Recognized	10	55
Residential Mortgages [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	1,873	862
With No Related Allowance Recorded: Unpaid Principal Balance	2,027	1,007
With No Related Allowance Recorded: Average Recorded Investment	1,368	633
With No Related Allowance Recorded: Interest Income Recognized while impaired	43	15
With An Allowance Recorded: Recorded Investment	1,132	1,922
With An Allowance Recorded: Unpaid Principal Balance	1,404	2,180
With An Allowance Recorded: Related Allowance	133	128
With An Allowance Recorded: Average Recorded Investment	1,527	1,847
With An Allowance Recorded: Interest Income Recognized	20	89
Totals: Recorded Investment	3,005	2,784
Totals: Unpaid Principal Balance	3,431	3,187
Totals: Related Allowance	133	128
Totals: Average Recorded Investment	2,895	2,480
Totals: Interest Income Recognized	63	104
Residential Consumer Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment
With No Related Allowance Recorded: Unpaid Principal Balance
With No Related Allowance Recorded: Average Recorded Investment		33
With No Related Allowance Recorded: Interest Income Recognized while impaired
With An Allowance Recorded: Recorded Investment
With An Allowance Recorded: Unpaid Principal Balance
With An Allowance Recorded: Related Allowance
With An Allowance Recorded: Average Recorded Investment
With An Allowance Recorded: Interest Income Recognized
Totals: Recorded Investment
Totals: Unpaid Principal Balance
Totals: Average Recorded Investment		33
Totals: Interest Income Recognized

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Stock Based Compensation (Summary Of Stock Option Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Stock Based Compensation [Abstract]
Options outstanding, Beginning Balance, Shares	216,886
Exercised, Shares
Forfeited, Shares	(394)
Options outstanding, Ending Balance, Shares	216,492
Options exercisable, Ending Balance, Shares	216,492
Options outstanding, Beginning Balance, Weighted Average Exercise Price	$ 8.83
Exercised, Weighted Average Exercise Price
Forfeited, Weighted Average Exercise Price	$ 10.82
Options outstanding, Ending Balance, Weighted Average Exercise Price	$ 8.83
Options exercisable, Ending Balance, Weighted Average Exercise Price	$ 8.83
Options outstanding, Ending Balance, Weighted Average Remaining Contractual Life (in years)	2 years 2 months 16 days
Options exercisable, Ending Balance, Weighted Average Remaining Contractual Life (in years)	2 years 2 months 16 days
Options outstanding, Ending Balance, Intrinsic Value	$ 6,910
Options exercisable, Ending Balance, Intrinsic Value	$ 6,910

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Earnings Per Share (Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share [Abstract]
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	175,847	248,239	216,492	207,305

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Loans, Allowance For Loan Losses And OREO (Allowance For Credit Losses And Recorded Investment In Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			$ 5,612	$ 5,467	$ 5,467
Allowance for Credit Losses: Charge-offs			(1,231)		(4,716)
Allowance for Credit Losses: Recoveries			137		54
Provision for loan losses	425	906	1,175	1,485	4,807
Allowance for Credit Losses: Ending Balance	5,693		5,693		5,612
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	2,064		2,064		1,983
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	3,629		3,629		3,629
Allowance for Credit Losses: Totals	5,693		5,693		5,612
Financing Receivables: Ending Balance: Individually evaluated for impairment	23,274		23,274		25,344
Financing Receivables: Ending Balance: Collectively evaluated for impairment	301,635		301,635		299,022
Total Financing Receivables	324,909		324,909		324,366
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			892	473	473
Allowance for Credit Losses: Charge-offs			(175)		(702)
Allowance for Credit Losses: Recoveries			13		16
Provision for loan losses			131		1,105
Allowance for Credit Losses: Ending Balance	861		861		892
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	428		428		440
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	433		433		452
Allowance for Credit Losses: Totals	861		861		892
Financing Receivables: Ending Balance: Individually evaluated for impairment	5,152		5,152		6,325
Financing Receivables: Ending Balance: Collectively evaluated for impairment	51,694		51,694		53,298
Total Financing Receivables	56,846		56,846		59,623
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			2,677	2,897	2,897
Allowance for Credit Losses: Charge-offs			(631)		(2,738)
Allowance for Credit Losses: Recoveries			109		3
Provision for loan losses			761		2,515
Allowance for Credit Losses: Ending Balance	2,916		2,916		2,677
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	1,016		1,016		1,058
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	1,900		1,900		1,619
Allowance for Credit Losses: Totals	2,916		2,916		2,677
Financing Receivables: Ending Balance: Individually evaluated for impairment	14,127		14,127		15,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	137,810		137,810		135,622
Total Financing Receivables	151,937		151,937		150,622
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			1,486	1,207	1,207
Allowance for Credit Losses: Charge-offs			(413)		(817)
Allowance for Credit Losses: Recoveries			9		31
Provision for loan losses			197		1,065
Allowance for Credit Losses: Ending Balance	1,279		1,279		1,486
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	487		487		357
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	792		792		1,129
Allowance for Credit Losses: Totals	1,279		1,279		1,486
Financing Receivables: Ending Balance: Individually evaluated for impairment	990		990		1,235
Financing Receivables: Ending Balance: Collectively evaluated for impairment	70,293		70,293		71,253
Total Financing Receivables	71,283		71,283		72,488
Residential [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			557	890	890
Allowance for Credit Losses: Charge-offs			(12)		(459)
Allowance for Credit Losses: Recoveries			6		4
Provision for loan losses			86		122
Allowance for Credit Losses: Ending Balance	637		637		557
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	133		133		128
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	504		504		429
Allowance for Credit Losses: Totals	637		637		557
Financing Receivables: Ending Balance: Individually evaluated for impairment	3,005		3,005		2,784
Financing Receivables: Ending Balance: Collectively evaluated for impairment	41,838		41,838		38,849
Total Financing Receivables	$ 44,843		$ 44,843		$ 41,633

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Fair Value Measurements (Fair Value Assets Measured On Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	$ 55,674	$ 48,338
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	55,674	48,338
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
US Agency Obligations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	27,566	25,485
US Agency Obligations [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
US Agency Obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	27,566	25,485
US Agency Obligations [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	2,799	3,939
Mortgage-Backed Securities [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Mortgage-Backed Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	2,799	3,939
Mortgage-Backed Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Municipals [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	22,611	18,914
Municipals [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Municipals [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	22,611	18,914
Municipals [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Other (Corporates) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	2,698
Other (Corporates) [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities
Other (Corporates) [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	2,698
Other (Corporates) [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities

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Fair Value Measurements (Impaired Loans And Other Real Estate Owned Measured At Fair Value On A Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	$ 6,322	[1]	$ 10,655	[1]
Other real estate owned	2,263		3,253
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans		[1]		[1]
Other real estate owned
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	3,151	[1]	2,710	[1]
Other real estate owned	2,263		3,253
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	3,171	[1]	7,945	[1]
Other real estate owned

[1] Includes loans charged down during the quarter to the net realizable value of the collateral.

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Consolidated Statements Of Cash Flows (Parenthetical)			6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2011	Dec. 31, 2009	Jun. 30, 2012 Capital Notes, 6%, Due 4/1/2012 [Member]	Dec. 31, 2011 Capital Notes, 6%, Due 4/1/2012 [Member]	Jun. 30, 2012 Capital Notes, 6%, Due 4/1/2017 [Member]	Dec. 31, 2011 Capital Notes, 6%, Due 4/1/2017 [Member]
Senior capital notes, interest rate	6.00%	6.00%	6.00%	6.00%	6.00%	6.00%
Senior capital notes, maturity date			Apr. 01, 2012	Apr. 01, 2012	Apr. 01, 2017	Apr. 01, 2017

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Fair Value Measurements (Information Regarding Quantitative Inputs Used To Value Assets Classified As Level 3 ) (Details) (Impaired Loans [Member], Discounted Appraised Value [Member], Significant Unobservable Inputs (Level 3) [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	3,171
Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	10.00%
Discount for lack of marketability and age of appraisal	25.00%
Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	5.00%
Discount for lack of marketability and age of appraisal	0.00%
Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	6.00%
Discount for lack of marketability and age of appraisal	15.00%

XML

Loans, Allowance For Loan Losses And OREO (Summary Of Loans, Net) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Loans, Allowance For Loan Losses And OREO [Abstract]
Commercial	$ 56,846	$ 59,623
Commercial real estate	151,937	150,622
Consumer	71,283	72,488
Residential	44,843	41,633
Total Financing Receivables	324,909	324,366
Less allowance for loan losses	5,693	5,612
Net loans	$ 319,216	$ 318,754

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 18,924	$ 17,678
Federal funds sold	8,362	5,662
Total cash and cash equivalents	27,286	23,340
Securities held-to-maturity (fair value of $3,437 in 2012 and $8,533 in 2011)	3,087	8,133
Securities available-for-sale, at fair value	55,674	48,338
Restricted stock, at cost	1,916	1,977
Loans, net of allowance for loan losses of $5,693 in 2012 and $5,612 in 2011	319,216	318,754
Loans held for sale	1,164	434
Premises and equipment, net	8,785	8,859
Interest receivable	1,502	1,583
Cash value - bank owned life insurance	8,773	8,609
Other real estate owned, net of valuation allowance	2,263	3,253
Other assets	3,538	4,156
Total assets	433,204	427,436
Deposits
Noninterest bearing demand	56,740	55,569
NOW, money market and savings	234,642	230,386
Time	93,207	88,279
Total deposits	384,589	374,234
Repurchase agreements		8,379
FHLB borrowings	10,000	10,000
Interest payable	107	111
Other liabilities	582	907
Total liabilities	404,905	400,631
Stockholders' equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,342,415 as of June 30, 2012 and December 31, 2011	7,152	7,152
Additional paid-in-capital	22,775	22,775
Accumulated other comprehensive income (loss)	594	(54)
Retained (deficit)	(2,222)	(3,068)
Total stockholders' equity	28,299	26,805
Total liabilities and stockholders' equity	433,204	427,436
Capital Notes, 6%, Due 4/1/2012 [Member]
Deposits
Capital notes		7,000
Capital Notes, 6%, Due 4/1/2017 [Member]
Deposits
Capital notes	$ 9,627

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Loans, Allowance For Loan Losses And OREO (Age Analysis Of Past Due Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	$ 3,780	$ 5,163
60 - 89 Days Past Due	980	667
Greater than 90 Days	4,686	9,675
Total Past Due	9,446	15,505
Current	315,463	308,861
Total Financing Receivables	324,909	324,366
Recorded Investment > 90 Days & Accruing
Commercial Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	550	532
60 - 89 Days Past Due	167	26
Greater than 90 Days	2,257	3,570
Total Past Due	2,974	4,128
Current	53,872	55,495
Total Financing Receivables	56,846	59,623
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	513	2,614
60 - 89 Days Past Due	5	130
Greater than 90 Days	909	1,610
Total Past Due	1,427	4,354
Current	60,024	56,400
Total Financing Receivables	61,451	60,754
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	1,450	504
60 - 89 Days Past Due	8	72
Greater than 90 Days	299	2,793
Total Past Due	1,757	3,369
Current	78,996	74,520
Total Financing Receivables	80,753	77,889
Recorded Investment > 90 Days & Accruing
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	492	782
60 - 89 Days Past Due	638
Greater than 90 Days	279	424
Total Past Due	1,409	1,206
Current	8,324	10,773
Total Financing Receivables	9,733	11,979
Recorded Investment > 90 Days & Accruing
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	286	6
60 - 89 Days Past Due
Greater than 90 Days
Total Past Due	286	6
Current	2,977	3,231
Total Financing Receivables	3,263	3,237
Recorded Investment > 90 Days & Accruing
Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	282	202
60 - 89 Days Past Due	32	277
Greater than 90 Days	133	415
Total Past Due	447	894
Current	67,573	68,357
Total Financing Receivables	68,020	69,251
Recorded Investment > 90 Days & Accruing
Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	207	523
60 - 89 Days Past Due	130	162
Greater than 90 Days	809	863
Total Past Due	1,146	1,548
Current	38,729	37,450
Total Financing Receivables	39,875	38,998
Recorded Investment > 90 Days & Accruing
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due
60 - 89 Days Past Due
Greater than 90 Days
Total Past Due
Current	4,968	2,635
Total Financing Receivables	4,968	2,635
Recorded Investment > 90 Days & Accruing

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Consolidated Statements Of Comprehensive Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements Of Comprehensive Income [Abstract]
Unrealized gains on securities available-for-sale, deferred tax	$ 444	$ 254	$ 389	$ 441
Reclassification adjustment for gains included in net income, tax	$ 44	$ 57	$ 58	$ 68

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Capital Notes (Details) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended		6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended
	Mar. 31, 2012	Jun. 30, 2012	Dec. 31, 2009	Jun. 30, 2011	Jun. 30, 2012 Capital Notes, 6%, Due 4/1/2012 [Member]	Dec. 31, 2011 Capital Notes, 6%, Due 4/1/2012 [Member]	Jun. 30, 2012 Capital Notes, 6%, Due 4/1/2017 [Member]	Dec. 31, 2011 Capital Notes, 6%, Due 4/1/2017 [Member]
Capital Notes [Line Items]
Capital notes issued		$ 9,627,000	$ 7,000,000
Debt instrument, interest rate, stated percentage			6.00%	6.00%	6.00%	6.00%	6.00%	6.00%
Interest payment on notes	105,000
Debt instrument, maturity date					Apr. 01, 2012	Apr. 01, 2012	Apr. 01, 2017	Apr. 01, 2017
Debt instrument, maximum principal authorized for issuance		12,000,000
Debt instrument, maximum principal offered at the Company's discretion		$ 10,000,000

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Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock Based Compensation [Abstract]

Summary Of Stock Option Activity

					Weighted
				Weighted	Average
				Average	Remaining
				Exercise	Contractual		Intrinsic
	Shares			Price	Life (in years)		Value
Options outstanding, January 1, 2012	216,886		$	8.83
Exercised	-
Forfeited	(394	)	$	10.82
Options outstanding, June 30, 2012	216,492		$	8.83	2.21	$	6,910
Options exercisable, June 30, 2012	216,492		$	8.83	2.21	$	6,910

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Investments (Narrative) (Details)	6 Months Ended
	Jun. 30, 2012
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	9
S&P Rated AAA [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	2
S&P Rated AA [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	7
US Agency Obligations [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	5
Municipals [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	2
US Corporation [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	2

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Investments (Tables)

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Summary Of Securities Held-To-Maturity And Securities Available-For-Sale

		Amortized	June 30, 2012 Gross Unrealized
		Costs			Gains		(Losses)				Fair Value
Held-to-Maturity
US agency obligations	$	3,087		$	350		$	-		$	3,437
Available-for-Sale
US agency obligations	$	27,172		$	404		$	(10	)	$	27,566
Mortgage-backed securities		2,860			-			(61	)		2,799
Municipals		22,063			559			(11	)		22,611
Other		2,678			27			(7	)		2,698
	$	54,773	$		990	$	(89		)	$	55,674

			December 31, 2011 Gross Unrealized
		Amortized
		Costs		Gains	(Losses)						Fair Value
Held-to-Maturity
US agency obligations	$	8,133	$	400			$	-		$	8,533
Available-for-Sale
US agency obligations	$	25,416	$	117		$	(48		)	$	25,485
Mortgage-backed securities		3,938		5				(4	)		3,939
Municipals		19,062		241			(389		)		18,914
	$	48,416	$	363	$		(441		)	$	48,338

Gross Unrealized Losses And Fair Value Of The Bank's Investments

		Less than 12 months				More than 12 months			Total
June 30, 2012		Fair Value	Unrealized Losses			Fair Value	Unrealized Losses		Fair Value			Unrealized Losses
Description of securities
U.S. agency obligations	$	4,045		$	10	$ -	$	-	$	4,045	$	10
Mortgage-backed securities		2,799			61	-		-		2,799		61
Municipals		1,728			11	-		-		1,728		11
Other (corporates)		1,647			7	-		-		1,647		7
Total	$	10,219	$		89	$ -	$	-	$	10,219	$	89

		Less than 12 months			More than 12 months			Total
December 31, 2011		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses		Fair Value			Unrealized Losses
Description of securities
U.S. agency obligations	$	13,593	$	48	$ -	$	-	$	13,593	$	48
Mortgage-backed securities		985		4	-		-		985		4
Municipals		12,852		389	-		-		12,852		389
Total	$	27,430	$	441	$ -	$	-	$	27,430	$	441

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Cash flows from operating activities
Net Income	$ 846	$ 754
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	334	367
Net amortization and accretion of premiums and discounts on securities	299	292
(Gain) on sale of available-for-sale securities	(170)	(200)
Provision for loan losses	1,175	1,485	4,807
Loss on sale of other real estate owned	81	215
Impairment of other real estate owned	200
Increase in loans held for sale	(730)	(215)
(Increase) in cash value of life insurance	(164)	(110)
Decrease in interest receivable	81	54
(Increase) decrease in other assets	309	565
(Increase) in income taxes receivable	(22)	(45)
(Decrease) in interest payable	(4)	(1)
(Decrease) in other liabilities	(325)	(161)
Net cash provided by operating activities	1,910	3,000
Cash flows from investing activities
Purchases of securities held-to-maturity		(1,000)
Proceeds from maturities and calls of securities held-to-maturity	5,000	6,000
Purchases of securities available-for-sale	(25,400)	(26,318)
Proceeds from maturities, calls and paydowns of securities available-for-sale	10,488	4,911
Proceeds from sale of securities available-for-sale	8,472	11,928
Redemption of Federal Home Loan Bank stock	61	100
Proceeds from sale of other real estate owned	2,088	974
Improvements to other real estate owned	(5)	(10)
Origination of loans, net of principal collected	(3,011)	(2,391)
Purchases of premises and equipment	(260)	(549)
Net cash (used in) investing activities	(2,567)	(6,355)
Cash flows from financing activities
Net increase in deposits	10,355	8,161
Net increase (decrease) in repurchase agreements	(8,379)	1,220
Payoff of 6% senior capital notes due 4/1/2012	(7,000)
Proceeds from sale of 6% senior capital notes due 4/1/2017	9,627
Net cash provided by financing activities	4,603	9,381
Increase in cash and cash equivalents	3,946	6,026
Cash and cash equivalents at beginning of period	23,340	18,759	18,759
Cash and cash equivalents at end of period	27,286	24,785	23,340
Non cash transactions
Transfer of loans to foreclosed assets	1,434	2,020
Fair value adjustment for securities	979	1,097
Cash transactions
Cash paid for interest	1,633	2,326
Cash paid for taxes	$ 370	$ 375

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Securities held-to-maturity	$ 3,437	$ 8,533
Loans, allowance for loan losses	$ 5,693	$ 5,612
Common stock, par value	$ 2.14	$ 2.14
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,342,415	3,342,415
Common stock, shares outstanding	3,342,415	3,342,415

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Business Segments

6 Months Ended

Jun. 30, 2012

Business Segments [Abstract]

Business Segments

Note 8 – Business Segments

The Company has two reportable business segments: (i) a traditional full service community banking segment and, (ii) a mortgage loan origination business. The community banking business segment includes Bank of the James which provides loans, deposits, investments and insurance to retail and commercial customers throughout Region 2000. The mortgage segment provides a variety of mortgage loan products principally within Region 2000. Mortgage loans are originated and sold in the secondary market through purchase commitments from investors. Because of the pre-arranged purchase commitments, there is minimal risk to the Company.

Both of the Company's reportable segments are service based. The mortgage business is a fee-based business while the Bank's primary source of revenue is net interest income. The Bank also provides a referral network for the mortgage origination business. The mortgage business may also be in a position to refer its customers to the Bank for banking services when appropriate.

Information about reportable business segments and reconciliation of such information to the consolidated financial statements for six months ended June 30, 2012 and 2011 was as follows (dollars in thousands):

Business Segments

		Community
		Banking			Mortgage			Total
Three months ended June 30, 2012
Net interest income	$	3,836		$	-		$	3,836
Provision for loan losses		425			-			425
Net interest income after provision for loan losses		3,411			-			3,411
Noninterest income		554			289			843
Noninterest expenses		3,318			241			3,559
Income before income taxes		647			48			695
Income tax expense		193			16			209
Net income	$	454	$		32		$	486
Total assets	$	431,967	$		1,237	$	$	433,204

Six months ended June 30, 2012
Net interest income	$	7,702		$	-		$	7,702
Provision for loan losses		1,175			-			1,175
Net interest income after provision for loan losses		6,527			-			6,527
Noninterest income		999			515			1,514
Noninterest expenses		6,407			436			6,843
Income before income taxes		1,119			79			1,198
Income tax expense		325			27			352
Net income	$	794	$		52		$	846
Total assets	$	431,967	$		1,237	$	$	433,204

Three months ended June 30, 2011
Net interest income	$	3,806		$	-		$	3,806
Provision for loan losses		906			-			906
Net interest income after provision for loan losses		2,900			-			2,900
Noninterest income		515			243			758
Noninterest expenses		2,990			214			3,204
Income before income taxes		425			29			454
Income tax expense		125			10			135
Net income	$	300	$		19		$	319
Total assets		429,122	$		503	$	$	429,625

Six months ended June 30, 2011
Net interest income	$	7,513		$	-		$	7,513
Provision for loan losses		1,485			-			1,485
Net interest income after provision for loan losses		6,028			-			6,028
Noninterest income		901			529			1,430
Noninterest expenses		5,915			459			6,374
Income before income taxes		1,014			70			1,084
Income tax expense		306			24			330
Net income	$	708	$		46		$	754
Total assets	$	429,122	$		503	$	$	429,625

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Document And Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 08, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012
Entity Registrant Name	BANK OF THE JAMES FINANCIAL GROUP INC
Entity Central Index Key	0001275101
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,342,415

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Loans, Allowance For Loan Losses And OREO

6 Months Ended

Jun. 30, 2012

Loans, Allowance For Loan Losses And OREO [Abstract]

Loans, Allowance For Loan Losses And OREO

Note 9 – Loans, allowance for loan losses and OREO

Management has an established methodology used to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Bank has segmented certain loans in the portfolio by product type. Within these segments, the Bank has sub-segmented its portfolio by classes within the segments, based on the associated risks within these classes. The classifications set forth below do not correspond directly to the classifications set forth in the call report (Form FFIEC 041). Management has determined that the classifications set forth below are more appropriate for use in identifying and managing risk in the loan portfolio.

 

Loan Segments:	Loan Classes:
Commercial	Commercial and industrial loans
Commercial real estate	Commercial mortgages – owner occupied
	Commercial mortgages – non-owner occupied
	Commercial construction
Consumer	Consumer unsecured
	Consumer secured
Residential	Residential mortgages
	Residential consumer construction

A summary of loans, net is as follows (dollars in thousands):

		As of:
		June 30,		December 31,
		2012		2011
Commercial	$	56,846	$	59,623
Commercial real estate		151,937		150,622
Consumer		71,283		72,488
Residential		44,843		41,633
Total loans		324,909		324,366
Less allowance for loan losses		5,693		5,612
Net loans	$	319,216	$	318,754

The Bank's internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower's individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis.

Below is a summary and definition of the Bank's risk rating categories:

RATING 1	Excellent
RATING 2	Above Average
RATING 3	Satisfactory
RATING 4	Acceptable / Low Satisfactory
RATING 5	Monitor
RATING 6	Special Mention
RATING 7	Substandard
RATING 8	Doubtful
RATING 9	Loss

We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows:

• "Pass." These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.
• "Monitor." These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower's operations and the borrower's ability to generate positive cash flow on a sustained basis. The borrower's recent payment history may currently or in the future be characterized by late payments. The Bank's risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.
• "Special Mention." These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank's credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.
• "Substandard." These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank's credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank.
  There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower's performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due.
• "Doubtful." These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.
  
• "Loss." These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan.
  Loss rated loans are fully charged off.

Financing Receivables on Non-Accrual Status (dollars in thousands)

	As of
		June 30, 2012		December 31, 2011
Commercial	$	2,257	$	3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		909		1,610
Commercial Mortgages-Non-Owner Occupied		1,600		2,793
Commercial Construction		1,352		782
Consumer
Consumer Unsecured		-		-
Consumer Secured		133		415
Residential:
Residential Mortgages		939		1,205
Residential Consumer Construction		-		-
Totals	$	7,190	$	10,375

     We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank either through purchase at foreclosure or received from the borrower through a deed in lieu of foreclosure. OREO decreased to $2,263,000 on June 30, 2012 from $3,253,000 on December 31, 2011. The following table represents the changes in OREO balance during the six months ended June 30, 2012.

     OREO Changes (Dollars in Thousands)

		Six months ended
		June 30, 2012
Balance at the beginning of the year (gross)	$	3,253
Transfers from loans		1,374
Capitalized costs		5
Charge-Offs		(200	)
Sales proceeds		(2,088	)
(Loss) on disposition		(81	)
Balance at the end of the period (gross)		2,263
Less valuation allowance		-
Balance at the end of the period (net)	$	2,263

		Impaired Loans (dollars in thousands) For the Year Ended June 30, 2012
				Unpaid			Average			Interest
		Recorded		Principal	Related		Recorded			Income
2012		Investment		Balance	Allowance		Investment			Recognized
With No Related Allowance Recorded:
Commercial	$	3,467	$	3,575	$	-	$	3,412	$	42
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,305		2,360		-		2,258		93
Commercial Mortgage Non-Owner
Occupied		5,908		6,080		-		5,394		131
Commercial Construction		1,202		1,312		-		1,153		27
Consumer
Consumer Unsecured		-		-		-		-		-
Consumer Secured		133		364		-		213		5
Residential
Residential Mortgages		1,873		2,027		-		1,368		43
Residential Consumer Construction		-		-		-		-		-
With An Allowance Recorded:
Commercial	$	1,685	$	1,698	$	428	$	2,327	$	34
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,225		2,515		613		2,371		63
Commercial Mortgage Non-Owner
Occupied		690		866		88		1,640		16
Commercial Construction		1,797		2,072		315		1,749		-
Consumer
Consumer Unsecured		1		1		1		1		-
Consumer Secured		856		858		486		899		5
Residential
Residential Mortgages		1,132		1,404		133		1,527		20
Residential Consumer Construction		-		-		-		-		-
Totals:
Commercial	$	5,152	$	5,273	$	428	$	5,739	$	76
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		4,530		4,875		613		4,629		156
Commercial Mortgage Non-Owner
Occupied		6,598		6,946		88		7,034		147
Commercial Construction		2,999		3,384		315		2,902		27
Consumer
Consumer Unsecured		1		1		1		1		-
Consumer Secured		989		1,222		486		1,112		10
Residential
Residential Mortgages		3,005		3,431		133		2,895		63
Residential Consumer Construction		-		-		-		-		-
	$	23,274	$	25,132	$	2,064	$	24,312	$	479

	Impaired Loans
	(dollars in thousands)
	For the Year Ended December 31, 2011
				Unpaid			Average			Interest
		Recorded		Principal	Related		Recorded			Income
2011		Investment		Balance	Allowance		Investment			Recognized
With No Related Allowance Recorded:
Commercial	$	3,357	$	3,570	$	-	$	8,978	$	118
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,211		3,108		-		2,457		124
Commercial Mortgage Non-Owner
Occupied		4,880		5,170		-		5,418		227
Commercial Construction		1,103		1,103		-		984		38
Consumer
Consumer Unsecured		-		-		-		-		-
Consumer Secured		293		642		-		330		6
Residential
Residential Mortgages		862		1,007		-		633		15
Residential Consumer Construction		-		-		-		33		-
With An Allowance Recorded:
Commercial	$	2,968	$	3,052	$	440	$	2,170	$	106
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,516		2,686		555		3,815		137
Commercial Mortgage Non-Owner
Occupied		2,590		3,129		228		1,858		117
Commercial Construction		1,700		1,964		275		2,454		42
Consumer
Consumer Unsecured		-		-		-		286		-
Consumer Secured		942		1,021		357		699		49
Residential
Residential Mortgages		1,922		2,180		128		1,847		89
Residential Consumer Construction		-		-		-		-		-
Totals:
Commercial	$	6,325	$	6,622	$	440	$	11,147	$	224
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		4,727		5,794		555		6,272		261
Commercial Mortgage Non-Owner
Occupied		7,470		8,299		228		7,275		344
Commercial Construction		2,803		3,067		275		3,438		80
Consumer
Consumer Unsecured		-		-		-		286		-
Consumer Secured		1,235		1,663		357		1,029		55
Residential
Residential Mortgages		2,784		3,187		128		2,480		104
Residential Consumer Construction		-		-		-		33		-
	$	25,344	$	28,632	$	1,983	$	31,960	$	1,068

	Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands) For the Six months Ended June 30, 2012
					Commercial
2012		Commercial			Real Estate			Consumer			Residential			Total
Allowance for Credit Losses:
Beginning Balance	$	892		$	2,677		$	1,486		$	557		$	5,612
Charge-offs		(175	)		(631	)		(413	)		(12	)		(1,231	)
Recoveries		13			109			9			6			137
Provision		131			761			197			86			1,175
Ending Balance		861			2,916			1,279			637			5,693
Ending Balance: Individually
evaluated for impairment	$	428		$	1,016		$	487		$	133		$	2,064
Ending Balance: Collectively
evaluated for impairment		433		$	1,900			792			504			3,629
Totals:	$	861		$	2,916		$	1,279		$	637		$	5,693
Financing Receivables:
Ending Balance: Individually
evaluated for impairment		5,152			14,127			990			3,005			23,274
Ending Balance: Collectively
evaluated for impairment		51,694			137,810			70,293			41,838			301,635
Totals:	$	56,846		$	151,937		$	71,283		$	44,843		$	324,909

	Allowance for Credit Losses and Recorded Investment in Financing Receivables
	(dollars in thousands)
	For the Year Ended December 31, 2011
					Commercial
2011		Commercial			Real Estate			Consumer			Residential			Total
Allowance for Credit Losses:
Beginning Balance	$	473		$	2,897		$	1,207		$	890		$	5,467
Charge-offs		(702	)		(2,738	)		(817	)		(459	)		(4,716	)
Recoveries		16			3			31			4			54
Provision		1,105			2,515			1,065			122			4,807
Ending Balance		892			2,677			1,486			557			5,612
Ending Balance: Individually
evaluated for impairment	$	440		$	1,058		$	357		$	128		$	1,983
Ending Balance: Collectively
evaluated for impairment		452			1,619			1,129			429			3,629
Totals:	$	892		$	2,677		$	1,486		$	557		$	5,612
Financing Receivables:
Ending Balance: Individually
evaluated for impairment		6,325			15,000			1,235			2,784			25,344
Ending Balance: Collectively
evaluated for impairment		53,298			135,622			71,253			38,849			299,022
Totals:	$	59,623		$	150,622		$	72,488		$	41,633		$	324,366

	Age Analysis of Past Due Financing Receivables as of
	June 30, 2012
	(dollars in thousands)
													Recorded
						Greater						Total	Investment
		30-59 Days		60-89 Days		than	Total Past					Financing	> 90 Days &
2012		Past Due		Past Due		90 Days	Due			Current		Receivables	Accruing
Commercial	$	550	$	167	$	2,257	$	2,974	$	53,872	$	56,846	$	-
Commercial Real Estate:
Commercial Mortgages-Owner
Occupied		513		5		909		1,427		60,024		61,451		-
Commercial Mortgages-Non-
Owner Occupied		1,450		8		299		1,757		78,996		80,753		-
Commercial Construction		492		638		279		1,409		8,324		9,733		-
Consumer:
Consumer Unsecured		286		-		-		286		2,977		3,263		-
Consumer Secured		282		32		133		447		67,573		68,020		-
Residential:
Residential Mortgages		207		130		809		1,146		38,729		39,875		-
Residential Consumer
Construction		-		-		-		-		4,968		4,968		-
Total	$	3,780	$	980	$	4,686	$	9,446	$	315,463	$	324,909	$	-

	Age Analysis of Past Due Financing Receivables as of
	December 31, 2011
	(dollars in thousands)
													Recorded
		30-59			Greater							Total	Investment
		Days		60-89 Days	than		Total Past					Financing	> 90 Days &
2011		Past Due		Past Due	90 Days		Due			Current		Receivables	Accruing
Commercial	$	532	$	26	$	3,570	$	4,128	$	55,495	$	59,623	$	-
Commercial Real Estate:
Commercial Mortgages-Owner
Occupied		2,614		130		1,610		4,354		56,400		60,754		-
Commercial Mortgages-Non-
Owner Occupied		504		72		2,793		3,369		74,520		77,889		-
Commercial Construction		782		-		424		1,206		10,773		11,979		-
Consumer:
Consumer Unsecured		6		-		-		6		3,231		3,237		-
Consumer Secured		202		277		415		894		68,357		69,251		-
Residential:
Residential Mortgages		523		162		863		1,548		37,450		38,998		-
Residential Consumer
Construction		-		-		-		-		2,635		2,635		-
Total	$	5,163	$	667	$	9,675	$	15,505	$	308,861	$	324,366	$	-

	Credit Loss Disclosures
	Credit Quality Information - by Class
	June 30, 2012
	(dollars in thousands)
2012					Special
		Pass		Monitor	Mention		Substandard			Doubtful		Totals
Commercial	$	47,529	$	2,573	$	2,074	$	4,670	$	-	$	56,846
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		49,184		3,447		4,290		4,410		120		61,451
Commercial Mortgages-Non0Owner
Occupied		69,130		2,661		2,364		6,598		-		80,753
Commercial Construction		6,734		-		-		2,999		-		9,733
Consumer
Consumer Unsecured		3,262		-		-		1		-		3,263
Consumer Secured		64,556		1,594		903		967		-		68,020
Residential:
Residential Mortgages		35,848		603		419		3,005		-		39,875
Residential Consumer Construction		4,968		-		-		-		-		4,968
Totals	$	281,211	$	10,878	$	10,050	$	22,650	$	120	$	324,909

	Credit Loss Disclosures
	Credit Quality Information - by Class
	December 31, 2011
	(dollars in thousands)
2011						Special
		Pass		Monitor		Mention	Substandard		Doubtful			Totals
Commercial	$	47,021	$	3,978	$	2,901	$	5,723	$	-	$	59,623
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		48,622		3,003		4,696		4,283		150		60,754
Commercial Mortgages-Non Owner
Occupied		63,934		3,326		3,159		7,470		-		77,889
Commercial Construction		9,000		176		-		2,803		-		11,979
Consumer
Consumer Unsecured		3,237		-		-		-		-		3,237
Consumer Secured		67,295		488		304		1,164		-		69,251
Residential:
Residential Mortgages		35,109		557		548		2,784		-		38,998
Residential Consumer Construction		2,635		-		-		-		-		2,635
Totals	$	276,853	$	11,528	$	11,608	$	24,227	$	150	$	324,366

Troubled Debt Restructurings

There were no loan modifications during the three and six months ended June 30, 2012.

The following table describes Troubled Debt Restructurings made within the last twelve months that defaulted during the three and six months ended June 30, 2012.

For the Three Months Ended June 30, 2012
(dollars in thousands)
Troubled Debt	Number
Restructurings That	of		Recorded
Subsequently Defaulted	Contracts		Investment
Commercial	2	$	208

For the Six Months Ended June 30, 2012
(dollars in thousands)
Troubled Debt	Number
Restructurings That	of		Recorded
Subsequently Defaulted	Contracts		Investment
Commercial	4	$	798

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Consolidated Statements Of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest and Dividend Income
Loans	$ 4,178	$ 4,384	$ 8,402	$ 8,857
Securities
US Government and agency obligations	241	204	521	442
Mortgage backed securities	7	147	20	263
Municipals	171	124	325	212
Dividends	25	23	29	26
Other (Corporates)	17	6	23	25
Federal Funds sold	6	8	11	13
Total interest and dividend income	4,645	4,896	9,331	9,838
Deposits
NOW, money market savings	209	464	414	1,076
Time deposits	392	428	813	857
FHLB borrowings	75	75	149	148
Reverse repurchase agreements		18	15	34
Capital notes	133	105	238	210
Total interest expense	809	1,090	1,629	2,325
Net interest income	3,836	3,806	7,702	7,513
Provision for loan losses	425	906	1,175	1,485
Net interest income after provision for loan losses	3,411	2,900	6,527	6,028
Other Operating Income
Mortgage fee income	289	243	515	529
Service charges, fees and commissions	311	272	594	555
Increase in cash value of life insurance	82	55	164	110
Other	32	19	71	36
Gain on sale or call of securities	129	169	170	200
Total other operating income	843	758	1,514	1,430
Other operating expenses
Salaries and employee benefits	1,546	1,391	3,049	2,818
Occupancy	291	272	577	548
Equipment	245	256	498	517
Supplies	103	108	216	197
Professional, data processing, and other outside expense	518	496	1,016	969
Marketing	145	108	249	187
Credit expense	56	71	112	143
Other real estate expenses	274	38	322	215
FDIC insurance expense	144	141	288	370
Other	237	323	516	410
Total other operating expenses	3,559	3,204	6,843	6,374
Income before income taxes	695	454	1,198	1,084
Income tax expense	209	135	352	330
Net Income	$ 486	$ 319	$ 846	$ 754
Weighted average shares outstanding - basic	3,342,415	3,323,743	3,342,415	3,323,743
Weighted average shares outstanding- diluted	3,343,250	3,331,426	3,342,833	3,333,764
Income per common share - basic and diluted	$ 0.15	$ 0.10	$ 0.25	$ 0.23

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 3 – Earnings Per Share

Currently, only the option shares granted to certain officers and other employees of Financial pursuant to the Amended and Restated Stock Option Plan of 1999 Financial (the "1999 Plan") are considered dilutive. The following is a summary of the earnings per share calculation for the three and six months ended June 30, 2012 and 2011.

	Three months ended June 30,				Year to date, June 30
	2012		2011		2012		2011
Net income	$	486,000	$	319,000	$	846,000	$	754,000
Weighted average number of shares		3,342,415		3,323,743		3,342,415		3,323,743
Options effect of incremental shares		835		7,683		418		10,021
Weighted average diluted shares		3,343,250		3,331,426		3,342,833		3,333,764
Basic EPS (weighted avg shares)	$	0.15	$	0.10	$	0.25	$	0.23
Diluted EPS (Including Option Shares)	$	0.15	$	0.10	$	0.25	$	0.23

The following table sets forth the incremental shares associated with option shares that were not included in calculating the diluted earnings because their effect was anti-dilutive:

	Three months ended June 30,		Year to date June 30,
	2012	2011	2012	2011
Incremental shares excluded from
calculating diluted EPS because their
effect was anti-dilutive	175,847	248,239	216,492	207,305

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Use Of Estimates

6 Months Ended

Jun. 30, 2012

Use Of Estimates [Abstract]

Use Of Estimates

Note 2 – Use of Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Assets Measured On Recurring Basis

			Carrying Value at June 30, 2012
			Quoted Prices		Significant
			in Active		Other		Significant
		Balance as of	Markets for		Observable		Unobservable
		June 30,	Identical Assets		Inputs		Inputs
Description		2012	(Level 1)		(Level 2)		(Level 3)
US agency obligations	$	27,566	$	-	$	27,566	$	-
Mortgage-backed securities		2,799		-		2,799		-
Municipals		22,611		-		22,611		-
Other (corporates)		2,698		-		2,698		-
Total available-for-sale securities	$	55,674	$	-	$	55,674	$	-

			Carrying Value at December 31, 2011
			Quoted Prices		Significant
			in Active		Other		Significant
		Balance as of	Markets for		Observable		Unobservable
		December 31,	Identical Assets		Inputs		Inputs
Description		2011	(Level 1)		(Level 2)		(Level 3)
US agency obligations	$	25,485	$	-	$	25,485	$	-
Mortgage-backed securities		3,939		-		3,939		-
Municipals		18,914		-		18,914		-
Total available-for-sale securities	$	48,338	$	-	$	48,338	$	-

Impaired Loans And Other Real Estate Owned Measured At Fair Value On A Nonrecurring Basis

			Carrying Value at June 30, 2012
Description		Balance as of June 30, 2012	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	6,322	$-	$	3,151	$	3,171
Other real estate
owned	$	2,263	$-	$	2,263	$	-

* Includes loans charged down during the quarter to the net realizable value of the collateral.

			Carrying Value at December 31, 2011
Description		Balance as of December 31, 2011	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Impaired loans*	$	10,655	$-	$	2,710	$	7,945
Other real estate	$	3,253	$-	$	3,253	$	-
owned

* Includes loans charged down during the quarter to the net realizable value of the collateral.

Information Regarding Quantitative Inputs Used To Value Assets Classified As Level 3

		Quantitative information about Level 3 Fair Value Measurements for June 30, 2012
			(dollars in thousands)
		Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
			Discounted appraised
Impaired loans	$	3,171	value	Selling cost	5% - 10% (6%)
				Discount for lack of
				marketability and age
				of appraisal	0% - 25% (15%)

Summary Of Activity At The Level 3 Valuation

Six months ended June 30, 2012
(dollars in thousands)
Balance as of December 31, 2011	$	7,945
Transfers to Level 3		514
Changes in loan balances due to payments		(17	)
Loans no longer considered impaired or transferred to Level 2*		(5,271	)
Ending balance as of June 30, 2012	$	3,171

Fair Value Carrying And Notional Amounts

				Fair Value Measurements at June 30, 2012 using
				Quoted Prices		Significant
				in Active		Other	Significant
				Markets for		Observable	Unobservable
		Carrying		Identical Assets		Inputs	Inputs
Assets		Amounts		(Level 1)		(Level 2)	(Level 3)			Balance
Cash and due from
banks	$	18,924	$	18,924	$	-	$	-	$	18,924
Federal funds sold		8,362		8,362		-		-		8,362
Securities
Available-for-sale		55,674		-		55,674		-		55,674
Held-to-maturity		3,087		-		3,437		-		3,437
Loans, net		319,216		-		326,005		3,171		329,176
Loans held for sale		1,164		-		1,164		-		1,164
Interest receivable		1,502		-		1,502		-		1,502
BOLI		8,773		-		8,773		-		8,773
Liabilities
Deposits	$	384,589	$	-	$	386,397	$	-	$	386,397
FHLB borrowings		10,000		-		9,774		-		9,774
Capital notes		9,627		-		9,409		-		9,409
Interest payable		107		-		107		-		107

				Fair Value Measurements at December 31, 2011 using
				Quoted Prices		Significant
				in Active		Other	Significant
				Markets for		Observable	Unobservable
		Carrying		Identical Assets		Inputs	Inputs
Assets		Amounts		(Level 1)		(Level 2)	(Level 3)			Balance
Cash and due from
banks	$	17,678	$	17,678	$	-	$	-	$	17,678
Federal funds sold		5,662		5,662		-		-		5,662
Securities
Available-for-sale		48,338		-		48,338		-		48,338
Held-to-maturity		8,133		-		8,533		-		8,533
Loans, net		318,754		-		320,658		7,945		328,603
Loans held for sale		434		-		434		-		434
Interest receivable		1,583		-		1,583		-		1,583
BOLI		8,609		-		8,609		-		8,609
Liabilities
Deposits	$	374,234	$	-	$	375,544	$	-	$	375,544
FHLB borrowings		10,000		-		9,752		-		9,752
Repurchase
agreements		8,379		-		8,392		-		8,392
Capital notes		7,000		-		6,826		-		6,826
Interest payable		111		-		111		-		111

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Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

Note 10 – Subsequent Events

In preparing these financial statements, Financial has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

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Capital Notes

6 Months Ended

Jun. 30, 2012

Capital Notes [Abstract]

Capital Notes

Note 6 – Capital Notes

In connection with a private placement of unregistered debt securities, Financial issued capital notes in the amount $7,000,000 (the "Notes") in 2009. The Notes bore interest at the rate of 6% per year with interest payable quarterly in arrears. During the three months ended March 31, 2012, Financial made a final interest payment on the Notes totaling $105,000. No principal payments were due until the Notes matured on April 1, 2012. Financial paid the Notes in full on or about this date with proceeds from the 2012 Offering described below.

Financial currently is conducting a private placement of unregistered debt securities (the "2012 Offering") pursuant to which Financial is authorized to issue up to $12,000,000 in principal of notes (the "2012 Notes"). As of June 30, 2012, Financial had issued 2012 Notes in the amount $9,627,000. The 2012 Notes bear interest at the rate of 6% per year with interest payable quarterly in arrears. The first quarterly interest payment on the 2012 Notes was due on July 1, 2012 and paid on or about June 29, 2012. No principal payments are due until the Notes mature on April 1, 2017 unless the Notes are called in full or in part after April 1, 2013.

On the maturity date or a call date, the principal and all accrued but unpaid interest on the Notes will be due and payable. Although Financial is authorized to sell up to $12,000,000 in 2012 Notes, Financial has determined that it will close the 2012 Offering at such time as it has sold $10,000,000 in principal of 2012 Notes, or it terminates the offering, or, whichever occurs first.

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Stock Based Compensation

6 Months Ended

Jun. 30, 2012

Stock Based Compensation [Abstract]

Stock Based Compensation

Note 4 – Stock Based Compensation

Accounting standards require 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.

Stock option plan activity for the six months ended June 30, 2012 is summarized below:

					Weighted
				Weighted	Average
				Average	Remaining
				Exercise	Contractual		Intrinsic
	Shares			Price	Life (in years)		Value
Options outstanding, January 1, 2012	216,886		$	8.83
Exercised	-
Forfeited	(394	)	$	10.82
Options outstanding, June 30, 2012	216,492		$	8.83	2.21	$	6,910
Options exercisable, June 30, 2012	216,492		$	8.83	2.21	$	6,910

Intrinsic value is calculated by subtracting exercise price of option shares from the market price of underlying shares and multiplying that amount by the number of options outstanding. No intrinsic value exists where the exercise price is greater than the market price on a given date.

All compensation expense related to the foregoing stock option plan has been recognized. The Company's ability to grant additional options shares under the 1999 Plan has expired.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the

measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

• Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities available-for-sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company's securities are considered to be Level 2 securities.

The following table summarizes the Company's financial assets that were measured at fair value on a recurring basis during the period (in thousands):

			Carrying Value at June 30, 2012
			Quoted Prices		Significant
			in Active		Other		Significant
		Balance as of	Markets for		Observable		Unobservable
		June 30,	Identical Assets		Inputs		Inputs
Description		2012	(Level 1)		(Level 2)		(Level 3)
US agency obligations	$	27,566	$	-	$	27,566	$	-
Mortgage-backed securities		2,799		-		2,799		-
Municipals		22,611		-		22,611		-
Other (corporates)		2,698		-		2,698		-
Total available-for-sale securities	$	55,674	$	-	$	55,674	$	-

			Carrying Value at December 31, 2011
			Quoted Prices		Significant
			in Active		Other		Significant
		Balance as of	Markets for		Observable		Unobservable
		December 31,	Identical Assets		Inputs		Inputs
Description		2011	(Level 1)		(Level 2)		(Level 3)
US agency obligations	$	25,485	$	-	$	25,485	$	-
Mortgage-backed securities		3,939		-		3,939		-
Municipals		18,914		-		18,914		-
Total available-for-sale securities	$	48,338	$	-	$	48,338	$	-

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. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over one year old, 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 using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). 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

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.

Real estate acquired through foreclosure is transferred to OREO. The measurement of loss associated with OREO is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. The value of OREO collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Bank using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate is over one year old, then the fair value is considered Level 3. Any fair value adjustments are recorded in the period incurred and expensed against current earnings.

The following table summarizes the Company's impaired loans and OREO measured at fair value on a nonrecurring basis during the period (in thousands).

			Carrying Value at June 30, 2012
Description		Balance as of June 30, 2012	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	6,322	$-	$	3,151	$	3,171
Other real estate
owned	$	2,263	$-	$	2,263	$	-

* Includes loans charged down during the quarter to the net realizable value of the collateral.

			Carrying Value at December 31, 2011
Description		Balance as of December 31, 2011	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Impaired loans*	$	10,655	$-	$	2,710	$	7,945
Other real estate	$	3,253	$-	$	3,253	$	-
owned

* Includes loans charged down during the quarter to the net realizable value of the collateral.

The following table sets forth information regarding the quantitative inputs used to value assets classified as Level 3:

		Quantitative information about Level 3 Fair Value Measurements for June 30, 2012
			(dollars in thousands)
		Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
			Discounted appraised
Impaired loans	$	3,171	value	Selling cost	5% - 10% (6%)
				Discount for lack of
				marketability and age
				of appraisal	0% - 25% (15%)

The following table summarizes activity at the Level 3 valuation for the first six months of 2012:

Six months ended June 30, 2012
(dollars in thousands)
Balance as of December 31, 2011	$	7,945
Transfers to Level 3		514
Changes in loan balances due to payments		(17	)
Loans no longer considered impaired or transferred to Level 2*		(5,271	)
Ending balance as of June 30, 2012	$	3,171

Financial Instruments

Cash, cash equivalents and Federal Funds sold

The carrying amounts of cash and short-term instruments approximate fair values.

Securities

Fair values of securities, excluding Federal Reserve Bank stock, Federal Home Loan Bank stock, and Community Bankers' Bank stock are based on quoted market prices.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for certain fixed rate loans are based on quoted market prices of similar loans adjusted for differences in loan characteristics. Fair values for other loans such as commercial real estate and commercial and industrial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values of nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Bank Owned Life Insurance (BOLI)

The carrying amount approximates fair value.

Deposits

Fair values disclosed for demand deposits (e.g., interest and noninterest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using discounted cash flow analyses that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

FHLB borrowings

The fair value of FHLB borrowings is estimated using discounted cash flow analysis based on the rates currently offered for borrowings of similar remaining maturities and collateral requirements.

Short-term borrowings

The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate fair value.

Capital notes

Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate characteristics.

Accrued interest

The carrying amounts of accrued interest approximate fair value.

Off-balance sheet credit-related instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. Fair value of off-balance sheet credit-related instruments were deemed to be immaterial at June 30, 2012 and December 31, 2011 and therefore are not included in the table below.

The estimated fair values, and related carrying or notional amounts, of Financial's financial instruments are as follows (in thousands):

				Fair Value Measurements at June 30, 2012 using
				Quoted Prices		Significant
				in Active		Other	Significant
				Markets for		Observable	Unobservable
		Carrying		Identical Assets		Inputs	Inputs
Assets		Amounts		(Level 1)		(Level 2)	(Level 3)			Balance
Cash and due from
banks	$	18,924	$	18,924	$	-	$	-	$	18,924
Federal funds sold		8,362		8,362		-		-		8,362
Securities
Available-for-sale		55,674		-		55,674		-		55,674
Held-to-maturity		3,087		-		3,437		-		3,437
Loans, net		319,216		-		326,005		3,171		329,176
Loans held for sale		1,164		-		1,164		-		1,164
Interest receivable		1,502		-		1,502		-		1,502
BOLI		8,773		-		8,773		-		8,773
Liabilities
Deposits	$	384,589	$	-	$	386,397	$	-	$	386,397
FHLB borrowings		10,000		-		9,774		-		9,774
Capital notes		9,627		-		9,409		-		9,409
Interest payable		107		-		107		-		107

				Fair Value Measurements at December 31, 2011 using
				Quoted Prices		Significant
				in Active		Other	Significant
				Markets for		Observable	Unobservable
		Carrying		Identical Assets		Inputs	Inputs
Assets		Amounts		(Level 1)		(Level 2)	(Level 3)			Balance
Cash and due from
banks	$	17,678	$	17,678	$	-	$	-	$	17,678
Federal funds sold		5,662		5,662		-		-		5,662
Securities
Available-for-sale		48,338		-		48,338		-		48,338
Held-to-maturity		8,133		-		8,533		-		8,533
Loans, net		318,754		-		320,658		7,945		328,603
Loans held for sale		434		-		434		-		434
Interest receivable		1,583		-		1,583		-		1,583
BOLI		8,609		-		8,609		-		8,609
Liabilities
Deposits	$	374,234	$	-	$	375,544	$	-	$	375,544
FHLB borrowings		10,000		-		9,752		-		9,752
Repurchase
agreements		8,379		-		8,392		-		8,392
Capital notes		7,000		-		6,826		-		6,826
Interest payable		111		-		111		-		111

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-balance-sheet and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets that are not considered financial assets include deferred income taxes and bank premises and equipment; a significant liability that is not considered a financial liability is accrued post-retirement benefits. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Financial 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 values of Financial's financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Bank. 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 and more likely to prepay in a falling 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 Bank's overall interest rate risk.

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Investments

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Investments

Note 7 - Investments

The following tables summarize the Bank's holdings for both securities held-to-maturity and securities available-for-sale as of June 30, 2012 and December 31, 2011 (amounts in thousands):

		Amortized	June 30, 2012 Gross Unrealized
		Costs			Gains		(Losses)				Fair Value
Held-to-Maturity
US agency obligations	$	3,087		$	350		$	-		$	3,437
Available-for-Sale
US agency obligations	$	27,172		$	404		$	(10	)	$	27,566
Mortgage-backed securities		2,860			-			(61	)		2,799
Municipals		22,063			559			(11	)		22,611
Other		2,678			27			(7	)		2,698
	$	54,773	$		990	$	(89		)	$	55,674

			December 31, 2011 Gross Unrealized
		Amortized
		Costs		Gains	(Losses)						Fair Value
Held-to-Maturity
US agency obligations	$	8,133	$	400			$	-		$	8,533
Available-for-Sale
US agency obligations	$	25,416	$	117		$	(48		)	$	25,485
Mortgage-backed securities		3,938		5				(4	)		3,939
Municipals		19,062		241			(389		)		18,914
	$	48,416	$	363	$		(441		)	$	48,338

The following tables show the gross unrealized losses and fair value of the Bank's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012 and December 31, 2011 (amounts in thousands):

		Less than 12 months				More than 12 months			Total
June 30, 2012		Fair Value	Unrealized Losses			Fair Value	Unrealized Losses		Fair Value			Unrealized Losses
Description of securities
U.S. agency obligations	$	4,045		$	10	$ -	$	-	$	4,045	$	10
Mortgage-backed securities		2,799			61	-		-		2,799		61
Municipals		1,728			11	-		-		1,728		11
Other (corporates)		1,647			7	-		-		1,647		7
Total	$	10,219	$		89	$ -	$	-	$	10,219	$	89

		Less than 12 months			More than 12 months			Total
December 31, 2011		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses		Fair Value			Unrealized Losses
Description of securities
U.S. agency obligations	$	13,593	$	48	$ -	$	-	$	13,593	$	48
Mortgage-backed securities		985		4	-		-		985		4
Municipals		12,852		389	-		-		12,852		389
Total	$	27,430	$	441	$ -	$	-	$	27,430	$	441

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and may do so more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the intent of Financial, if any, to sell the security; (4) whether Financial more likely than not will be required to sell the security before recovering its cost; and (5) whether Financial does not expect to recover the security's entire amortized cost basis (even if Financial does not intend to sell the security).

At June 30, 2012, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved. As of June 30, 2012, the Bank owned 9 securities that were being evaluated for other than temporary impairment. Two of these securities were S&P rated AAA and 7 were S&P rated AA. As of June 30, 2012, 5 of these securities were obligations of government sponsored entities, 2 were municipal issues and 2 were issued by publicly traded US corporations.

Based on the analysis performed by management as mandated by the Bank's investment policy, management believes the default risk to be minimal. Because the Bank expects to recover the entire amortized cost basis, no declines currently are deemed to be other-than-temporary.

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Fair Value Measurements (Fair Value Carrying And Notional Amounts) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities, Available-for-sale	$ 55,674	$ 48,338
Carrying Amounts [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	18,924	17,678
Federal funds sold	8,362	5,662
Securities, Available-for-sale	55,674	48,338
Securities, Held-to-maturity	3,087	8,133
Loans, net	319,216	318,754
Loans held for sale	1,164	434
Interest receivable	1,502	1,583
BOLI	8,773	8,609
Deposits	384,589	374,234
FHLB borrowings	10,000	10,000
Repurchase agreements		8,379
Capital notes	9,627	7,000
Interest payable	107	111
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	18,924	17,678
Federal funds sold	8,362	5,662
Securities, Available-for-sale
Securities, Held-to-maturity
Loans, net
Loans held for sale
Interest receivable
BOLI
Deposits
FHLB borrowings
Capital notes
Interest payable
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks
Federal funds sold
Securities, Available-for-sale	55,674	48,338
Securities, Held-to-maturity	3,437	8,533
Loans, net	326,005	320,658
Loans held for sale	1,164	434
Interest receivable	1,502	1,583
BOLI	8,773	8,609
Deposits	386,397	375,544
FHLB borrowings	9,774	9,752
Repurchase agreements		8,392
Capital notes	9,409	6,826
Interest payable	107	111
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks
Federal funds sold
Securities, Available-for-sale
Securities, Held-to-maturity
Loans, net	3,171	7,945
Loans held for sale
Interest receivable
BOLI
Deposits
FHLB borrowings
Capital notes
Interest payable
Approximate Fair Values [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	18,924	17,678
Federal funds sold	8,362	5,662
Securities, Available-for-sale	55,674	48,338
Securities, Held-to-maturity	3,437	8,533
Loans, net	329,176	328,603
Loans held for sale	1,164	434
Interest receivable	1,502	1,583
BOLI	8,773	8,609
Deposits	386,397	375,544
FHLB borrowings	9,774	9,752
Repurchase agreements		8,392
Capital notes	9,409	6,826
Interest payable	$ 107	$ 111

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

	Three months ended June 30,				Year to date, June 30
	2012		2011		2012		2011
Net income	$	486,000	$	319,000	$	846,000	$	754,000
Weighted average number of shares		3,342,415		3,323,743		3,342,415		3,323,743
Options effect of incremental shares		835		7,683		418		10,021
Weighted average diluted shares		3,343,250		3,331,426		3,342,833		3,333,764
Basic EPS (weighted avg shares)	$	0.15	$	0.10	$	0.25	$	0.23
Diluted EPS (Including Option Shares)	$	0.15	$	0.10	$	0.25	$	0.23

Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share

	Three months ended June 30,		Year to date June 30,
	2012	2011	2012	2011
Incremental shares excluded from
calculating diluted EPS because their
effect was anti-dilutive	175,847	248,239	216,492	207,305

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Loans, Allowance For Loan Losses And OREO (Tables)

6 Months Ended

Jun. 30, 2012

Loans, Allowance For Loan Losses And OREO [Abstract]

Summary Of Loans, Net

		As of:
		June 30,		December 31,
		2012		2011
Commercial	$	56,846	$	59,623
Commercial real estate		151,937		150,622
Consumer		71,283		72,488
Residential		44,843		41,633
Total loans		324,909		324,366
Less allowance for loan losses		5,693		5,612
Net loans	$	319,216	$	318,754

Financing Receivables On Non- Accrual Status

	As of
		June 30, 2012		December 31, 2011
Commercial	$	2,257	$	3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		909		1,610
Commercial Mortgages-Non-Owner Occupied		1,600		2,793
Commercial Construction		1,352		782
Consumer
Consumer Unsecured		-		-
Consumer Secured		133		415
Residential:
Residential Mortgages		939		1,205
Residential Consumer Construction		-		-
Totals	$	7,190	$	10,375

Changes In OREO Balance

		Six months ended
		June 30, 2012
Balance at the beginning of the year (gross)	$	3,253
Transfers from loans		1,374
Capitalized costs		5
Charge-Offs		(200	)
Sales proceeds		(2,088	)
(Loss) on disposition		(81	)
Balance at the end of the period (gross)		2,263
Less valuation allowance		-
Balance at the end of the period (net)	$	2,263

Impaired Loans

	Impaired Loans (dollars in thousands) For the Year Ended June 30, 2012
2012		Recorded Investment		Unpaid Principal Balance	Related Allowance			Average Recorded Investment			Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	3,467	$	3,575		$	-	$	3,412	$	42
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,305		2,360			-		2,258		93
Commercial Mortgage Non-Owner
Occupied		5,908		6,080			-		5,394		131
Commercial Construction		1,202		1,312			-		1,153		27
Consumer
Consumer Unsecured		-		-			-		-		-
Consumer Secured		133		364			-		213		5
Residential
Residential Mortgages		1,873		2,027			-		1,368		43
Residential Consumer Construction		-		-			-		-		-
With An Allowance Recorded:
Commercial	$	1,685	$	1,698	$		428	$	2,327	$	34
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,225		2,515			613		2,371		63
Commercial Mortgage Non-Owner
Occupied		690		866			88		1,640		16
Commercial Construction		1,797		2,072			315		1,749		-
Consumer
Consumer Unsecured		1		1			1		1		-
Consumer Secured		856		858			486		899		5
Residential
Residential Mortgages		1,132		1,404			133		1,527		20
Residential Consumer Construction		-		-			-		-		-
Totals:
Commercial	$	5,152	$	5,273	$		428	$	5,739	$	76
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		4,530		4,875			613		4,629		156
Commercial Mortgage Non-Owner
Occupied		6,598		6,946			88		7,034		147
Commercial Construction		2,999		3,384			315		2,902		27
Consumer
Consumer Unsecured		1		1			1		1		-
Consumer Secured		989		1,222			486		1,112		10
Residential
Residential Mortgages		3,005		3,431			133		2,895		63
Residential Consumer Construction		-		-			-		-		-
	$	23,274	$	25,132	$		2,064	$	24,312	$	479

	Impaired Loans (dollars in thousands) For the Year Ended December 31, 2011
2011		Recorded Investment		Unpaid Principal Balance		Related Allowance	Average Recorded Investment				Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	3,357	$	3,570	$	-	$	8,978	$		118
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,211		3,108		-		2,457			124
Commercial Mortgage Non-Owner
Occupied		4,880		5,170		-		5,418			227
Commercial Construction		1,103		1,103		-		984			38
Consumer
Consumer Unsecured		-		-		-		-			-
Consumer Secured		293		642		-		330			6
Residential
Residential Mortgages		862		1,007		-		633			15
Residential Consumer Construction		-		-		-		33			-
With An Allowance Recorded:
Commercial	$	2,968	$	3,052	$	440	$	2,170		$	106
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		2,516		2,686		555		3,815			137
Commercial Mortgage Non-Owner
Occupied		2,590		3,129		228		1,858			117
Commercial Construction		1,700		1,964		275		2,454			42
Consumer
Consumer Unsecured		-		-		-		286			-
Consumer Secured		942		1,021		357		699			49
Residential
Residential Mortgages		1,922		2,180		128		1,847			89
Residential Consumer Construction		-		-		-		-			-
Totals:
Commercial	$	6,325	$	6,622	$	440	$	11,147		$	224
Commercial Real Estate
Commercial Mortgages-Owner
Occupied		4,727		5,794		555		6,272			261
Commercial Mortgage Non-Owner
Occupied		7,470		8,299		228		7,275			344
Commercial Construction		2,803		3,067		275		3,438			80
Consumer
Consumer Unsecured		-		-		-		286			-
Consumer Secured		1,235		1,663		357		1,029			55
Residential
Residential Mortgages		2,784		3,187		128		2,480			104
Residential Consumer Construction		-		-		-		33			-
	$	25,344	$	28,632	$	1,983	$	31,960	$		1,068

Allowance For Credit Losses And Recorded Investment In Financing Receivables

Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands) For the Six months Ended June 30, 2012
2012		Commercial			Commercial Real Estate				Consumer				Residential				Total
Allowance for Credit Losses:
Beginning Balance	$	892			$	2,677			$	1,486			$	557			$	5,612
Charge-offs		(175	)			(631	)			(413	)			(12	)			(1,231	)
Recoveries		13				109				9				6				137
Provision		131				761				197				86				1,175
Ending Balance		861				2,916				1,279				637				5,693
Ending Balance: Individually
evaluated for impairment	$	428			$	1,016			$	487			$	133			$	2,064
Ending Balance: Collectively
evaluated for impairment		433				1,900				792				504				3,629
Totals:	$	861			$	2,916			$	1,279			$	637			$	5,693
Financing Receivables:
Ending Balance: Individually
evaluated for impairment		5,152				14,127				990				3,005				23,274
Ending Balance: Collectively
evaluated for impairment		51,694			137,810					70,293			41,838				301,635
Totals:	$	56,846		$	151,937			$	71,283			$	44,843			$	324,909

	Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands) For the Year Ended December 31, 2011
					Commercial Real Estate
2011		Commercial							Consumer				Residential				Total
Allowance for Credit Losses:
Beginning Balance	$	473			$	2,897			$	1,207			$	890			$	5,467
Charge-offs		(702	)			(2,738	)			(817	)			(459	)			(4,716	)
Recoveries		16				3				31				4				54
Provision		1,105				2,515				1,065				122				4,807
Ending Balance		892				2,677				1,486				557				5,612
Ending Balance: Individually
evaluated for impairment	$	440			$	1,058			$	357			$	128			$	1,983
Ending Balance: Collectively
evaluated for impairment		452				1,619				1,129				429				3,629
Totals:	$	892			$	2,677			$	1,486			$	557			$	5,612
Financing Receivables:
Ending Balance: Individually
evaluated for impairment		6,325				15,000				1,235				2,784				25,344
Ending Balance: Collectively
evaluated for impairment		53,298			135,622					71,253			38,849				299,022
Totals:	$	59,623		$	150,622			$	72,488			$	41,633			$	324,366

Age Analysis Of Past Due Financing Receivables

Age Analysis of Past Due Financing Receivables as of June 30, 2012 (dollars in thousands)
2012		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days	Total Past Due			Current		Total Financing Receivables	Recorded Investment > 90 Days & Accruing
Commercial	$	550	$	167	$	2,257	$	2,974	$	53,872	$	56,846	$
Commercial Real Estate:
Commercial Mortgages-Owner													-
Occupied		513		5		909		1,427		60,024		61,451	-
-Commercial Mortgages-Non-													-
Owner Occupied		1,450		8		299		1,757		78,996		80,753	-
Commercial Construction		492		638		279		1,409		8,324		9,733	-
Consumer:
Consumer Unsecured		286		-		-		286		2,977		3,263	-
Consumer Secured		282		32		133		447		67,573		68,020	-
Residential:
Residential Mortgages		207		130		809		1,146		38,729		39,875	-
Residential Consumer													-
Construction		-		-		-		-		4,968		4,968	-
Total	$	3,780	$	980	$	4,686	$	9,446	$	315,463	$	324,909	$

	Age Analysis of Past Due Financing Receivables as of December 31, 2011 (dollars in thousands)
2011		30-59 Days Past Due		60-89 Days Past Due	Greater than 90 Days		Total Past Due			Current		Total Financing Receivables	Recorded Investment > 90 Days & Accruing
Commercial	$	532	$	26	$	3,570	$	4,128	$	55,495	$	59,623	$	-
Commercial Real Estate:
Commercial Mortgages-Owner
Occupied		2,614		130		1,610		4,354		56,400		60,754		-
Commercial Mortgages-Non-
Owner Occupied		504		72		2,793		3,369		74,520		77,889		-
Commercial Construction		782		-		424		1,206		10,773		11,979		-
Consumer:
Consumer Unsecured		6		-		-		6		3,231		3,237		-
Consumer Secured		202		277		415		894		68,357		69,251		-
Residential:
Residential Mortgages		523		162		863		1,548		37,450		38,998		-
Residential Consumer
Construction		-		-		-		-		2,635		2,635		-
Total	$	5,163	$	667	$	9,675	$	15,505	$	308,861	$	324,366	$	-

Credit Quality Information

Credit Loss Disclosures Credit Quality Information - by Class June 30, 2012 (dollars in thousands)
2012					Special Mention
		Pass		Monitor			Substandard			Doubtful		Totals
Commercial	$	47,529	$	2,573	$	2,074	$	4,670	$	-	$	56,846
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		49,184		3,447		4,290		4,410		120		61,451
Commercial Mortgages-Non0Owner
Occupied		69,130		2,661		2,364		6,598		-		80,753
Commercial Construction		6,734		-		-		2,999		-		9,733
Consumer
Consumer Unsecured		3,262		-		-		1		-		3,263
Consumer Secured		64,556		1,594		903		967		-		68,020
Residential:
Residential Mortgages		35,848		603		419		3,005		-		39,875
Residential Consumer Construction		4,968		-		-		-		-		4,968
Totals	$	281,211	$	10,878	$	10,050	$	22,650	$	120	$	324,909

	Credit Loss Disclosures Credit Quality Information - by Class December 31, 2011 (dollars in thousands)
2011						Special Mention
		Pass		Monitor			Substandard		Doubtful			Totals
Commercial	$	47,021	$	3,978	$	2,901	$	5,723	$	-	$	59,623
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		48,622		3,003		4,696		4,283		150		60,754
Commercial Mortgages-Non Owner
Occupied		63,934		3,326		3,159		7,470		-		77,889
Commercial Construction		9,000		176		-		2,803		-		11,979
Consumer
Consumer Unsecured		3,237		-		-		-		-		3,237
Consumer Secured		67,295		488		304		1,164		-		69,251
Residential:
Residential Mortgages		35,109		557		548		2,784		-		38,998
Residential Consumer Construction		2,635		-		-		-		-		2,635
Totals	$	276,853	$	11,528	$	11,608	$	24,227	$	150	$	324,366

Schedule Of Defaults During Stated Period Of Troubled Debt Restructurings

For the Three Months Ended June 30, 2012
(dollars in thousands)
Troubled Debt	Number
Restructurings That	of		Recorded
Subsequently Defaulted	Contracts		Investment
Commercial	2	$	208

For the Six Months Ended June 30, 2012
(dollars in thousands)
Troubled Debt	Number
Restructurings That	of		Recorded
Subsequently Defaulted	Contracts		Investment
Commercial	4	$	798

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Loans, Allowance For Loan Losses And OREO (Financing Receivables On Non Accrual Status) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 7,190	$ 10,375
Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	2,257	3,570
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	909	1,610
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1,600	2,793
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1,352	782
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	133	415
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	939	1,205
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status

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Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements Of Comprehensive Income [Abstract]
Net Income	$ 486	$ 319	$ 846	$ 754
Other comprehensive income
Unrealized gains on securities available-for-sale net of deferred taxes of $444 and $254 for the three month periods and $389 and $441 for the six month periods ended June 30, 2012 and 2011	862	494	760	856
Reclassification adjustment for gains included in net income, net of taxes of $44 and $57 for the three month periods and $58 and $68 for the six month periods ended June 30, 2012 and 2011	(85)	(112)	(112)	(132)
Other comprehensive income, net of tax	777	382	648	724
Comprehensive income	$ 1,263	$ 701	$ 1,494	$ 1,478

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Basis Of Presentation

6 Months Ended

Jun. 30, 2012

Basis Of Presentation [Abstract]

Basis Of Presentation

Note 1 – Basis of Presentation

The unaudited consolidated financial statements have been prepared by Bank of the James Financial Group, Inc. ("Financial" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. In management's opinion the accompanying financial statements, which unless otherwise noted are unaudited, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of and for the three and six months ended June 30, 2012 and 2011 in conformity with accounting principles generally accepted in the United States of America. Additional information concerning the organization and business of Financial, accounting policies followed, and other related information is contained in Financial's Annual Report on Form 10-K for the year ended December 31, 2011. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2011 included in Financial's Annual Report on Form 10-K. Results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The Company's primary market area consists of the area commonly referred as Region 2000 which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford County, Campbell County, and the City of Lynchburg.

Financial's critical accounting policy relates to the evaluation of the allowance for loan losses which is based on management's opinion of an amount that is adequate to absorb loss in the existing loan portfolio of Bank of the James (the "Bank"), Financial's wholly-owned subsidiary. The allowance for loan losses is established through a provision for loan loss based on available information including the composition of the loan portfolio, historical loan losses (to the extent available due to limited history), specific impaired loans, availability and quality of collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the portfolio. Different assumptions used in evaluating the adequacy of the Bank's allowance for loan losses could result in material changes in Financial's financial condition and results of operations. The Bank's policies with respect to the methodology for determining the allowance for loan losses involve a higher degree of complexity and require management to make subjective judgments that often require assumptions or estimates about uncertain matters. These critical policies and their assumptions are periodically reviewed with the Board of Directors.

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Earnings Per Share (Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share [Abstract]
Net income	$ 486	$ 319	$ 846	$ 754
Weighted average number of shares	3,342,415	3,323,743	3,342,415	3,323,743
Options effect of incremental shares	835	7,683	418	10,021
Weighted average diluted shares	3,343,250	3,331,426	3,342,833	3,333,764
Basic EPS (weighted avg shares)	$ 0.15	$ 0.10	$ 0.25	$ 0.23
Diluted EPS (Including Option Shares)	$ 0.15	$ 0.10	$ 0.25	$ 0.23

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Investments (Gross Unrealized Losses And Fair Value Of The Bank's Investments) (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	$ 10,219	$ 27,430
Unrealized Losses, Less than 12 months	89	441
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	10,219	27,430
Unrealized Losses, Total	89	441
US Agency Obligations [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	4,045	13,593
Unrealized Losses, Less than 12 months	10	48
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	4,045	13,593
Unrealized Losses, Total	10	48
Mortgage-Backed Securities [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	2,799	985
Unrealized Losses, Less than 12 months	61	4
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	2,799	985
Unrealized Losses, Total	61	4
Municipals [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	1,728	12,852
Unrealized Losses, Less than 12 months	11	389
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	1,728	12,852
Unrealized Losses, Total	11	389
Other (Corporates) [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	1,647
Unrealized Losses, Less than 12 months	7
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	1,647
Unrealized Losses, Total	$ 7

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11 – Recent accounting pronouncements

In April 2011, the FASB issued ASU 2011-03, "Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements." The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application. Early application is not permitted. The Company has included the required disclosures in its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) – Presentation of Comprehensive Income." The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures. The Company has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, "Intangible – Goodwill and Other (Topic 350) –Testing Goodwill for Impairment." The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

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

In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The amendments are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.