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 September 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: 3,342,418 shares of Common Stock, par value $2.14 per share, were outstanding at November 9, 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	34
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	53
PART II – OTHER INFORMATION			53
	Item 1.	Legal Proceedings	53
	Item 1A.	Risk Factors	53
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 3.	Defaults Upon Senior Securities	53
	Item 4.	Mine Safety Disclosures	53
	Item 5.	Other Information	53
	Item 6.	Exhibits	54
SIGNATURES			55

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) 9/30/2012			(audited) 12/31/2011
Assets
Cash and due from banks	$	17,861		$	17,678
Federal funds sold		3,157			5,662
Total cash and cash equivalents		21,018			23,340
Securities held-to-maturity (fair value of $3,445 in 2012 and $8,533 in 2011)		3,081			8,133
Securities available-for-sale, at fair value		52,260			48,338
Restricted stock, at cost		1,899			1,977
Loans, net of allowance for loan losses of $5,693 in 2012 and $5,612 in 2011		318,712			318,754
Loans held for sale		4,163			434
Premises and equipment, net		8,479			8,735
Software, net		192			124
Interest receivable		1,466			1,583
Cash value - bank owned life insurance		8,853			8,609
Other real estate owned, net of valuation allowance		2,267			3,253
Income taxes receivable		869			675
Deferred tax asset		953			1,375
Other assets		1,865			2,106
Total assets	$	426,077		$	427,436
Liabilities and Stockholders’ Equity
Deposits
Noninterest bearing demand	$	62,311		$	55,569
NOW, money market and savings		229,306			230,386
Time		92,732			88,279
Total deposits		384,349			374,234
Repurchase agreements		—			8,379
FHLB borrowings		2,000			10,000
Capital notes		10,000			7,000
Interest payable		77			111
Other liabilities		642			907
Total liabilities	$	397,068		$	400,631
Stockholders’ equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,342,418 and 3,342,415 as of September 30, 2012 and December 31, 2011		7,152			7,152
Additional paid-in-capital		22,775			22,775
Accumulated other comprehensive income (loss)		765			(54	)
Retained deficit		(1,683	)		(3,068	)
Total stockholders’ equity	$	29,009		$	26,805
Total liabilities and stockholders’ equity	$	426,077		$	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 Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
Interest Income
Loans	$	4,332	$	4,355	$	12,734	$	13,212
Securities
US Government and agency obligations		219		239		740		681
Mortgage backed securities		2		94		22		357
Municipals		182		140		507		352
Dividends		4		3		33		29
Other (Corporates)		17		—		40		25
Federal Funds sold		7		5		18		18
Total interest income		4,763		4,836		14,094		14,674
Interest Expense
Deposits
NOW, money market savings		164		353		578		1,429
Time Deposits		373		436		1,186		1,293
FHLB borrowings		50		75		199		223
Reverse repurchase agreements		—		21		15		55
Capital notes		149		105		387		315
Total interest expense		736		990		2,365		3,315
Net interest income		4,027		3,846		11,729		11,359
Provision for loan losses		601		1,272		1,776		2,757
Net interest income after provision for loan losses		3,426		2,574		9,953		8,602
Other operating income
Mortgage fee income		402		250		917		779
Service charges, fees and commissions		317		320		911		875
Increase in cash value of life insurance		81		54		244		164
Other		11		10		83		46
Gain on sale of available-for-sale securities		241		566		411		766
Total other operating income		1,052		1,200		2,566		2,630
Other operating expenses
Salaries and employee benefits		1,608		1,462		4,657		4,280
Occupancy		280		272		857		820
Equipment		250		263		748		780
Supplies		78		91		294		288
Professional, data processing, and other outside expense		508		557		1,524		1,526
Marketing		99		119		348		306
Credit expense		62		44		174		187
Other real estate expenses		586		452		908		667
FDIC insurance expense		145		145		433		515
Other		167		301		683		711
Total other operating expenses		3,783		3,706		10,626		10,080
Income before income taxes		695		68		1,893		1,152
Income tax expense		156		4		508		334
Net Income	$	539	$	64	$	1,385	$	818
Weighted average shares outstanding - basic		3,342,418		3,323,743		3,342,416		3,323,743
Weighted average shares outstanding - diluted		3,342,771		3,327,757		3,342,812		3,331,239
Income per common share - basic	$	0.16	$	0.02	$	0.41	$	0.25
Income per common share - diluted	$	0.16	$	0.02	$	0.41	$	0.25

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 nine months ended September 30, 2012 and 2011

(dollar amounts in thousands) (unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2012			2011			2012			2011
Net Income	$	539		$	64		$	1,385		$	818
Other comprehensive income
Unrealized gains on securities available-for-sale net of deferred taxes of $170 and $358 for the three month periods and $561 and $800 for the nine month periods ended September 30, 2012 and 2011		330			696			1,090			1,552
Reclassification adjustment for gains included in net income, net of taxes of $82 and $192 for the three month periods and $140 and $260 for the nine month periods ended September 30, 2012 and 2011		(159	)		(374	)		(271	)		(506	)
Other comprehensive income, net of tax		171			322			819			1,046
Comprehensive income	$	710		$	386		$	2,204		$	1,864

See accompanying notes to these consolidated financial statements

3

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Nine Months ended September 30, 2012 and 2011

(dollar amounts in thousands) (unaudited)

	September 30,
	2012			2011
Cash flows from operating activities
Net Income	$	1,385		$	818
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		504			546
Net amortization and accretion of premiums and discounts on securities		426			529
(Gain) on sale of available for sale securities		(411	)		(766	)
Provision for loan losses		1,776			2,757
Loss on sale of other real estate owned		74			184
(Increase) in loans held-for-sale		(3,729	)		—
(Increase) in cash value of life insurance		(244	)		(164	)
(Increase) decrease in interest receivable		117			(55	)
(Increase) decrease in other assets		246			374
(Increase) in income taxes receivable		(194	)		(160	)
(Decrease) in interest payable		(34	)		(11	)
Increase (decrease) in other liabilities		(265	)		440
Writedown on other real estate owned		710			483
Net cash provided by operating activities	$	361		$	4,975
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			7,000
Purchases of securities available for sale		(34,930	)		(49,403	)
Proceeds from maturities, calls and paydowns of securities available for sale		16,696			13,524
Proceeds from sale of securities available for sale		15,585			31,267
Purchases of bank owned life insurance		—			(3,000	)
Redemption of Federal Home Loan Bank stock		78			150
Proceeds from sale of other real estate owned		2,307			1,346
Improvements to other real estate owned		(5	)		(18	)
Origination of loans, net of principal collected		(3,834	)		(5,039	)
Purchases of premises and equipment		(316	)		(610	)
Net cash used in investing activities	$	581		$	(5,783	)
Cash flows from financing activities
Net increase in deposits	$	10,115		$	7,157
Net increase (decrease) in repurchase agreements		(8,379	)		1,062
Net (decrease) in Federal Home Loan Bank advances		(8,000	)		—
Payoff of 6% senior capital notes due 4/1/2012		(7,000	)		—
Proceeds from sale of 6% senior capital notes due 4/1/2017		10,000			—
Net cash (used in) provided by financing activities	$	(3,264	)	$	8,219
Increase (decrease) in cash and cash equivalents		(2,322	)		7,411
Cash and cash equivalents at beginning of period	$	23,340		$	18,759
Cash and cash equivalents at end of period	$	21,018		$	26,170
Non cash transactions
Transfer of loans to foreclosed assets	$	2,100		$	3,682
Fair value adjustment for securities		1,236			1,586
Cash transactions
Cash paid for interest	$	2,399		$	3,326
Cash paid for taxes		702			495

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		—		—		—		818			—			818
Other Comprehensive Income		—		—		—		—			1,046			1,046
Balance at September 30, 2011		3,323,743	$	7,113	$	22,742	$	(2,850	)	$	354		$	27,359
Balance at December 31, 2011		3,342,415	$	7,152	$	22,775	$	(3,068	)	$	(54	)	$	26,805
Net Income		—		—		—		1,385			—			1,385
Additional shares issued for previous stock dividend rounding		3		—		—		—			—			—
Other Comprehensive Income		—		—		—		—			819			819
Balance at September 30, 2012		3,342,418	$	7,152	$	22,775	$	(1,683	)	$	765		$	29,009

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 nine months ended September 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 nine month periods ended September 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.

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 nine months ended September 30, 2012 and 2011.

6

Note 3 – Earnings Per Share (continued)

	Three months ended				Nine months ended
	September 30,				September 30,
	2012		2011		2012		2011
Net income	$	539,000	$	64,000	$	1,385,000	$	818,000
Weight average number of shares		3,342,418		3,323,743		3,342,416		3,323,743
Options affect of incremental shares		353		4,014		396		7,496
Weighted average diluted shares		3,342,771		3,327,757		3,342,812		3,331,239
Basic EPS (weighted avg shares)	$	0.16	$	0.02	$	0.41	$	0.25
Diluted EPS (Including Option Shares)	$	0.16	$	0.02	$	0.41	$	0.25

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				Nine months ended
	Sept 30,				Sept 30,
	2012		2011		2012		2011
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive		175,847		247,976		216,492		247,976

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 nine months ended September 30, 2012 is summarized below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Average Intrinsic Value
Options outstanding, January 1, 2012		216,886		$	8.83
Granted		—			—
Exercised		—			—
Forfeited		(394	)	$	10.82
Options outstanding, September 30, 2012		216,492			8.83		1.96	$	13,413
Options exercisable, September 30, 2012		216,492		$	8.83		1.96	$	13,413

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 September 30, 2012
Description	Balance as of Sept 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	$	24,193	$	—	$	24,193	$	—
Mortgage-backed securities		2,651		—		2,651		—
Municipals		22,669		—		22,669		—
Other (corporates)		2,747		—		2,747		—
Total available-for-sale securities	$	52,260	$	—	$	52,260	$	—
			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)

Loans held for sale

Loans held for sale are carried at estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended September 30, 2012. Gains and losses on the sale of loans are recorded within mortgage fee income 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 September 30, 2012
Description	Balance as of September 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*	$	5,162	$	—	$	732	$	4,430
Loans held for sale		4,163		—		4,163		—
Other real estate owned		2,267		—		2,267		—

* 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
Loans held for sale		434		—		434		—
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 September 30, 2012 (dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$	4,430	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 nine months of 2012:

Nine Months ended September 30, 2012

(dollars in thousands)

Balance as of December 31, 2011	$	7,945
Transfers to Level 3		2,298
Changes in loan balances due to payments		(107	)
Loans no longer considered impaired or transferred to Level 2		(5,706	)
Ending balance as of September 30, 2012	$	4,430

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.

Loans held for sale

The carrying amount is a reasonable estimate of fair value.

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 September 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 September 30, 2012 using
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Assets
Cash and due from banks	$	17,861	$	17,861	$	—	$	—	$	17,861
Federal funds sold		3,157		3,157		—		—		3,157
Securities
Available-for-sale		52,260		—		52,260		—		52,260
Held-to-maturity		3,081		—		3,445		—		3,445
Loans, net		318,712		—		326,234		4,430		330,664
Loans held for sale		4,163		—		4,163		—		4,163
Interest receivable		1,466		—		1,466		—		1,466
BOLI		8,853		—		8,853		—		8,853
Liabilities
Deposits	$	384,349	$	—	$	386,655	$	—	$	386,655
FHLB borrowings		2,000		—		1,966		—		1,966
Capital notes		10,000		—		9,831		—		9,831
Interest payable		77		—		77		—		77

14

Note 5 – Fair Value Measurements (continued)

			Fair Value Measurements at December 31, 2011 using
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (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 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.

15

Note 5 – Fair Value Measurements (continued)

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

During the third quarter, Financial closed the private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial issued $10,000,000 in principal ($373,000 of which was received in the third quarter) of notes (the “2012 Notes”). The 2012 Notes have not been and will not be 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 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 in April to pay on maturity the principal due on notes issued in 2009.

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 September 30, 2012 and December 31, 2011 (amounts in thousands):

	Amortized		September 30, 2012 Gross Unrealized					Fair Value
	Costs		Gains		(Losses)
Held-to-Maturity
US agency obligations	$	3,081	$	364	$	—		$	3,445
Available-for-Sale
US agency obligations	$	23,824	$	384	($	15	)	$	24,193
Mortgage-backed securities		2,639		12		—			2,651
Municipals		21,967		748		(46	)		22,669
Other		2,672		75		—			2,747
	$	51,102	$	1,219	($	61	)	$	52,260
	Amortized		December 31, 2011 Gross Unrealized					Fair Value
	Costs		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 September 30, 2012 and December 31, 2011 (amounts in thousands):

	Less than 12 months				More than 12 months				Total
September 30, 2012	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Description of securities
U.S. agency obligations	$	1,120	$	15	$	—	$	—	$	1,120	$	15
Municipals		1,236		46		—		—		1,236		46
Total	$	2,356	$	61	$	—	$	—	$	2,356	$	61
	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 September 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 September 30, 2012, the Bank owned 4 securities that were being evaluated for other than temporary impairment. One of these securities was S&P rated AAA and 3 were S&P rated AA. As of September 30, 2012, one of these securities was an obligation of a government sponsored entity and three were municipal issues.

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 the three and nine months ended September 30, 2012 and 2011 was as follows (dollars in thousands):

Business Segments

	Community Banking		Mortgage		Total
Nine months ended September 30, 2012
Net interest income	$	11,729	$	—	$	11,729
Provision for loan losses		1,776		—		1,776
Net interest income after provision for loan losses		9,953		—		9,953
Noninterest income		1,649		917		2,566
Noninterest expenses		9,898		728		10,626
Income before income taxes		1,704		189		1,893
Income tax expense		444		64		508
Net income	$	1,260	$	125	$	1,385
Total assets	$	421,830	$	4,247	$	426,077
Nine months ended September 30, 2011
Net interest income	$	11,359	$	—	$	11,359
Provision for loan losses		2,757		—		2,757
Net interest income after provision for loan losses		8,602		—		8,602
Noninterest income		1,851		779		2,630
Noninterest expenses		9,415		665		10,080
Income before income taxes		1,038		114		1,152
Income tax expense		295		39		334
Net income	$	743	$	75	$	818
Total assets	$	428,924	$	516	$	429,440

	Community Banking			Mortgage		Total
Three months ended September 30, 2012
Net interest income	$	4,027		$	—	$	4,027
Provision for loan losses		601			—		601
Net interest income after provision for loan losses		3,426			—		3,426
Noninterest income		650			402		1,052
Noninterest expenses		3,491			292		3,783
Income before income taxes		585			110		695
Income tax expense		119			37		156
Net income	$	466		$	73	$	539
Total assets	$	421,830		$	4,247	$	426,077
Three months ended September 30, 2011
Net interest income	$	3,846		$	—	$	3,846
Provision for loan losses		1,272			—		1,272
Net interest income after provision for loan losses		2,574			—		2,574
Noninterest income		950			250		1,200
Noninterest expenses		3,500			206		3,706
Income before income taxes		24			44		68
Income tax expense		(11	)		15		4
Net income	$	35		$	29	$	64
Total assets	$	428,924		$	516	$	429,440

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

21

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

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

	As of:
	Sept 30, 2012		December 31, 2011
Commercial	$	56,191	$	59,623
Commercial real estate		152,398		150,622
Consumer		71,063		72,488
Residential		44,753		41,633
Total loans		324,405		324,366
Less allowance for loan losses		5,693		5,612
Net loans	$	318,712	$	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.

22

Note 9 – Loans, 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.

• “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.

23

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

Financing Receivables on Non-Accrual Status

(dollars in thousands)

	As of
	September 30, 2012		December 31, 2011
Commercial	$	1,985	$	3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		582		1,610
Commercial Mortgages-Non-Owner Occupied		1,395		2,794
Commercial Construction		729		782
Consumer
Consumer Unsecured		—		—
Consumer Secured		126		415
Residential:
Residential Mortgages		936		1,205
Residential Consumer Construction		—		—
Totals	$	5,753	$	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 $2,267,000 on September 30, 2012 from $3,253,000 on December 31, 2011. The following table represents the changes in OREO balance during the Nine Months ended September 30, 2012.

OREO Changes

(dollars in thousands)

	Nine Months ended September  30, 2012
Balance at the beginning of the year (net)	$	3,253
Transfers from loans		2,100
Capitalized costs		5
Writedowns		(710	)
Sales proceeds		(2,307	)
(Loss) on disposition		(74	)
Balance at the end of the period (net)	$	2,267

24

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

	Impaired Loans (dollars in thousands)
	For the Nine Months Ended September 30, 2012
2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	2,279	$	2,538	$	—	$	2,818	$	11
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,703		2,801		—		2,457		143
Commercial Mortgage Non-Owner Occupied		5,261		5,456		—		5,071		172
Commercial Construction		950		950		—		1,027		38
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		652		713		—		473		37
Residential
Residential Mortgages		1,968		1,999		—		1,415		86
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	1,376	$	1,377	$	421	$	2,172	$	54
Commercial Real Estate
Commercial Mortgages-Owner Occupied		1,605		1,851		468		2,061		81
Commercial Mortgage Non-Owner Occupied		754		754		87		1,672		25
Commercial Construction		1,274		1,546		144		1,487		8
Consumer
Consumer Unsecured		1		1		1		1		—
Consumer Secured		564		741		426		753		18
Residential
Residential Mortgages		1,336		1,683		201		1,629		34
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	3,655	$	3,915	$	421	$	4,990	$	65
Commercial Real Estate
Commercial Mortgages-Owner Occupied		4,308		4,652		468		4,518		224
Commercial Mortgage Non-Owner Occupied		6,015		6,210		87		6,743		197
Commercial Construction		2,224		2,496		144		2,514		46
Consumer
Consumer Unsecured		1		1		1		1		—
Consumer Secured		1,216		1,454		426		1,226		55
Residential
Residential Mortgages		3,304		3,682		201		3,044		120
Residential Consumer Construction		—		—		—		—		—
	$	20,723	$	22,410	$	1,748	$	23,036	$	707

25

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

	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

26

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

Allowance for Credit Losses and Recorded Investment in Financing Receivables
(dollars in thousands)
For the Nine Months Ended September 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		(504	)		(816	)		(463	)		(67	)		(1,850	)
Recoveries		18			112			18			7			155
Provision		592			785			218			181			1,776
Ending Balance	$	998		$	2,758		$	1,259		$	678		$	5,693
Ending Balance: Individually evaluated for impairment	$	421		$	699		$	427		$	201		$	1,748
Ending Balance: Collectively evaluated for impairment		577			2,059			832			477			3,945
Totals:	$	998		$	2,758		$	1,259		$	678		$	5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment		3,655			12,546			1,217			3,305			20,723
Ending Balance: Collectively evaluated for impairment		52,536			139,852			69,846			41,448			303,682
Totals:	$	56,191		$	152,398		$	71,063		$	44,753		$	324,405

27

Note 9 – Loans, 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
2011	Commercial			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

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

	Age Analysis of Past Due Financing Receivables as of September 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	$	40	$	—	$	1,986	$	2,026	$	54,165	$	56,191	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		993		869		173		2,035		59,774		61,809		—
Commercial Mortgages-Non-Owner Occupied		291		—		1,396		1,687		80,390		82,077		—
Commercial Construction		—		—		320		320		8,192		8,512		—
Consumer:
Consumer Unsecured		16		1		—		17		3,451		3,468		—
Consumer Secured		261		365		172		798		66,797		67,595		—
Residential:
Residential Mortgages		548		298		810		1,656		38,815		40,471		—
Residential Consumer Construction		—		—		—		—		4,282		4,282		—
Total	$	2,149	$	1,533	$	4,857	$	8,539	$	315,866	$	324,405	$	—

	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	$	—

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

Credit Loss Disclosures Credit Quality Information - by Class
September 30, 2012
(dollars in thousands)
2012	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
Commercial	$	49,387	$	1,629	$	2,019	$	3,156	$	—	$	56,191
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		53,012		1,490		2,999		4,176		132		61,809
Commercial Mortgages-Non-Owner Occupied		69,622		2,178		4,262		6,015		—		82,077
Commercial Construction		6,289		—		—		2,223		—		8,512
Consumer
Consumer Unsecured		3,467		—		—		1		—		3,468
Consumer Secured		64,219		1,349		833		1,194		—		67,595
Residential:
Residential Mortgages		36,680		—		486		3,305		—		40,471
Residential Consumer Construction		4,282		—		—		—		—		4,282
Totals	$	286,958	$	6,646	$	10,599	$	20,070	$	132	$	324,405

Credit Loss Disclosures Credit Quality Information - by Class
December 31, 2011
(dollars in thousands)
2011	Pass		Monitor		Special 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

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

Troubled Debt Restructurings

There were no loan modifications classified as TDRs during the three and nine months ended September 30, 2012.

There were no loan modifications classified as TDRs during the three months ended September 30, 2011. The following table describes the loan modifications classified as TDRs during the nine months ended September 30, 2011:

For the Nine Months Ended September 30, 2011

(dollars in thousands)

Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		5	$	3,345,376	$	3,345,376

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three months ended September 30, 2012 and 2011.

The following table describes Troubled Debt Restructurings made within the last twelve months that defaulted during the nine months ended September 30, 2012 and 2011, respectively.

For the Nine Months Ended September 30, 2012

(dollars in thousands)

Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Recorded Investment
Commercial		4	$	798

For the Nine Months Ended September 30, 2011

(dollars in thousands)

Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts		Recorded Investment
Commercial		1	$	183
Consumer		1		30
Residential		2		482
Total		4		695

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.

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Note 11 – Recent accounting pronouncements (continued)

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.

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Note 11 – Recent accounting pronouncements (continued)

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.

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

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.” The amendments in this ASU clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. In addition, the amendments should resolve current diversity in practice on the subsequent measurement of these types of indemnification assets. The amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. The Company does not expect the adoption of ASU 2012-06 to have a material impact on 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”),

35

• 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 third 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:

	September 30, 2012 (in  thousands)
Commitments to extend credit	$	57,045
Letters of Credit		1,694
Total	$	58,739

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 September 30, 2012 and December 31, 2011 and the results of operations of Financial for the three month and nine month periods ended September 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.

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Financial Condition Summary

September 30, 2012 as Compared to December 31, 2011

Total assets were $426,077,000 on September 30, 2012 compared with $427,436,000 at December 31, 2011, a decrease of 0.32%. The decrease in total assets is due primarily to a decrease in Federal funds sold and a slight decrease in the Bank’s securities portfolio, both of which funded a pay-down in Federal Home Loan Bank borrowings.

Total deposits increased from $374,234,000 as of December 31, 2011 to $384,349,000 on September 30, 2012, an increase of 2.70%. 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. In addition, the Dodd-Frank Act repealed the federal prohibition on the payment of interest on commercial demand deposits. As a result, the Bank discontinued offering sweep accounts (repurchase agreements) to its commercial customers and these accounts were reclassified as interest-bearing checking accounts.

Total loans increased to $324,405,000 on September 30, 2012 from $324,366,000 on December 31, 2011. Loans, net of unearned income and allowance, decreased slightly to $318,712,000 on September 30, 2012 from $318,754,000 on December 31, 2011, a decrease of 0.01%. 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):

	September 30, 2012					December 31, 2011
	Amount		Percentage			Amount		Percentage
Commercial	$	56,191		17.33	%	$	59,623		18.39	%
Commercial Real Estate		152,398		46.98	%		150,622		46.43	%
Consumer		71,063		21.91	%		72,488		22.34	%
Residential		44,753		13.78	%		41,633		12.84	%
Total loans	$	324,405		100.00	%	$	324,366		100.00	%

Total nonperforming assets, which consist of non-accrual loans, loans past due 90 days or more and still accruing, and other real estate owned (“OREO”) decreased to $8,020,000 on September 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 44.55% to $5,753,000 on September 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, and the payment in full of certain non-accrual loans. 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 $485,000 and $1,233,000, as of September 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 Nine Months ended September 30, 2012, the Bank acquired 22 additional OREO properties and disposed of 22 OREO

38

properties, and as of September 30, 2012 the Bank is carrying 18 OREO properties at a value of $2,267,000. 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 September 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.

Cash and cash equivalents decreased to $21,018,000 on September 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 decrease is in large part due to the Bank’s use of cash to repay Federal Home Loan Bank advances. The decrease was offset in part by an increase in deposits. 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 $3,081,000 on September 30, 2012 from $8,133,000 on December 31, 2011. During the nine months ended September 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 $52,260,000 on September 30, 2012, from $48,338,000 December 31, 2011. During the nine months ended September 30, 2012 the Bank received $16,696,000 in proceeds from maturities and/or calls of securities available-for-sale and $15,585,000 in proceeds from the sale of securities available-for-sale. The Bank purchased $34,930,000 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 and the reinvestment of the proceeds from the call of held-to-maturity securities in securities available-for-sale.

Financial’s investment in Federal Home Loan Bank of Atlanta (FHLBA) stock totaled $1,092,000 at September 30, 2012 and $1,170,000 at December 31, 2011, a decrease of $78,000. 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 September 30, 2012, Financial, on a consolidated basis, had liquid assets of $73,278,000 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 September 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.

During the third quarter, Financial closed the private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial issued $10,000,000 in principal ($373,000 of which was received in the third quarter) of notes (the “2012 Notes”). The 2012 Notes have not been and will not be 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 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

39

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 in April to pay on maturity the principal due on notes issued in 2009.

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.

At September 30, 2012, the Bank had a leverage ratio of 8.17%, a Tier 1 risk-based capital ratio of 10.97% and a total risk-based capital ratio of 12.23%. As of September 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 September 30, 2012 and December 31, 2011:

Bank Level Only Capital Ratios

	September 30,		December 31,
Analysis of Capital (in 000’s)	2012		2011
Tier 1 capital
Common Stock	$	3,742	$	3,742
Surplus		19,325		19,325
Retained earnings		12,097		10,394
Total Tier 1 capital	$	35,164	$	33,461
Tier 2 capital
Allowance for loan losses	$	4,031	$	3,991
Total Tier 2 capital:	$	4,031	$	3,991
Total risk-based capital	$	39,195	$	37,452
Risk weighted assets	$	320,595	$	317,684
Average total assets	$	430,582	$	427,680

	Actual						Regulatory Benchmarks
	September 30, 2012			December 31, 2011			For Capital Adequacy Purposes			For Well Capitalized Purposes
Capital Ratios:
Tier 1 capital to average total assets		8.17	%		7.82	%		4.00	%		5.00	%
Tier 1 risk-based capital ratio		10.97	%		10.53	%		4.00	%		6.00	%
Total risk-based capital ratio		12.23	%		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.

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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2012 and 2011

Earnings Summary

Financial had net income including all operating segments of $539,000 and $1,385,000 for the three and nine months ended September 30, 2012 compared to $64,000 and $818,000 for the for the comparable periods in 2011. The basic and diluted earnings per common share for the three and nine months ended September 30, 2012 were $0.16 and $0.41, compared to basic and diluted earnings per share of $0.02 and $0.25 for the three and nine months ended September 30, 2011.

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”) and a decrease in interest expense. The increase was partially offset by an increase in non-interest expense and a slight decrease in non-interest income.

These operating results represent an annualized return on stockholders’ equity of 7.73% and 6.78% for the three and nine months ended September 30, 2012, compared with 0.94% and 4.12% for the same periods in 2011. The Company had an annualized return on average assets for the three and nine months ended September 30, 2012 of 0.49% and 0.43%, compared with 0.06% and 0.26% for three and nine months ended September 30, 2011.

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

Interest Income, Interest Expense, and Net Interest Income

Interest income decreased to $4,763,000 and $14,094,000 for the three and nine months ended September 30, 2012 from $4,836,000 and $14,674,000 for the same periods in 2011, a decrease of 1.51% and 3.95%, respectively. Interest income decreased primarily because the average rate received on earning assets decreased to 4.80% and 4.79% for the three and nine months ended September 30, 2012 as compared with 4.84% and 4.97% 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 $736,000 and $2,365,000 for the three and nine months ended September 30, 2012 from $990,000 and $3,315,000 for the same periods in 2011, a decrease of 25.66% and 28.66%, 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 0.65% and 0.73% during the three and nine month periods ended September 30, 2012 as compared to 0.96% and 1.12% 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 nine months ended September 30, 2012 was $4,027,000 and $11,729,000 compared with $3,846,000 and $11,359,000 for the same periods in 2011. The increase in net interest income for the three and nine months ended September 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 4.06% and 3.98% for the three and nine months ended September 30, 2012, up from 3.85% and 3.84% for the same periods a year ago.

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Financial’s net interest margin analysis and average balance sheets are shown in Schedule I on page 49.

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 $811,000 and $2,155,000 for the three and nine months ended September 30, 2012 from $634,000 and $1,864,000 for the three and nine months ended September 30, 2011. This increase for the three and nine months ended September 30, 2012 as compared to the same periods last year was due primarily to increases in mortgage origination fees and the cash value of life insurance. Gain on sales of securities decreased to $241,000 and $411,000 for the three and nine months ended September 30, 2012 as compared to $566,000 and $766,000 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 and government-assisted programs such as Home Affordable Refinance Program (HARP) 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 and nine month periods ended September 30, 2012 as compared to the same periods 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 nine months ended September 30, 2012 increased to $3,783,000 and $10,626,000, or 2.08% and 5.42%, respectively, from $3,706,000 and $10,080,000 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.

42

Total personnel expense was $1,608,000 and $4,657,000 for the three and nine month periods ended September 30, 2012 as compared to $1,462,000 and $4,280,000 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 September 30, 2012, the FDIC premium expense was unchanged at $145,000 from the three months ended September 30, 2011. During the Nine Months ended September 30, 2012, the FDIC premium expense decreased to $433,000 from $515,000 for the nine months ended September 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.

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 $601,000 and $1,776,000 to the allowance for loan loss for the three and nine months ended September 30, 2012 compared to a provision of $1,272,000 and $2,757,000 for the comparable periods in 2011.

The decrease in the loan loss provision for the three and nine months ended September 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 September 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 September 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 September 30, 2012, as compared to $5,612,000 (or 1.73% of total loans) as of December 31, 2011, remains adequate.

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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 Nine Months Ended September 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		(504	)		(816	)		(463	)		(67	)		(1,850	)
Recoveries		18			112			18			7			155
Provision		592			785			218			181			1,776
Ending Balance		998			2,758			1,259			678			5,693
Ending Balance: Individually evaluated for impairment	$	421		$	699		$	427		$	201		$	1,748
Ending Balance: Collectively evaluated for impairment		577			2,059			832			477			3,945
Totals:	$	998		$	2,758		$	1,259		$	678		$	5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment		3,655			12,546			1,217			3,305			20,723
Ending Balance: Collectively evaluated for impairment		52,536			139,852			69,846			41,448			303,682
Totals:	$	56,191		$	152,398		$	71,063		$	44,753		$	324,405

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	Allowance for Credit Losses and Recorded Investment in Financing  Receivables (dollars in thousands) For the Year Ended December 31, 2011
2011	Commercial			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		$	324,336

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

	Three months ended Sept 30,						Nine Months ended Sept 30,
	(in thousands)						(in thousands)
	2012			2011			2012			2011
Balance, beginning of period	$	5,693		$	4,970		$	5,612		$	5,467
Provision for loan losses		601			1,272			1,776			2,757
Loans charged off		(619	)		(791	)		(1,850	)		(2,796	)
Recoveries of loans charged off		18			10			155			33
Net Charge Offs		(601	)		(781	)		(1,695	)		(2,763	)
Balance, end of period	$	5,693		$	5,461		$	5,693		$	5,461

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.

• “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.

46

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

Net charge offs decreased to $601,000 and $1,695,000 for the three and nine months ended September 30, 2012 from $781,000 and $2,763,000 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 nine months ended September 30, 2012, Financial had an income tax expense of $156,000 and $508,000, respectively. This represents an effective tax rate of 22.45% and 26.84% 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.

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• 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 September 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)	$	323,871		$	4,318		5.29	%	$	322,524		$	4,349		5.35	%
Loans held for sale		1,663			14		1.69	%		476			6		5.00	%
Federal funds sold		8,804			7		0.32	%		9,467			5		0.21	%
Securities (3)		57,489			451		3.11	%		61,937			473		3.03	%
Federal agency equities		1,792			4		0.89	%		1,947			3		0.61	%
CBB equity		116			—		—			116			—		—
Total earning assets		393,735			4,794		4.83	%		396,467			4,836		4.84	%
Allowance for loan losses		(5,766	)							(4,718	)
Non-earning assets		44,363								38,336
Total assets	$	432,332							$	430,085
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	85,186		$	56		0.26	%	$	65,466		$	86		0.52	%
Savings		147,880			108		0.29	%		172,748			266		0.61	%
Time deposits		93,766			373		1.58	%		86,888			437		2.00	%
Total interest bearing deposits		326,832			537		0.65	%		325,102			789		0.96	%
Other borrowed funds
Repurchase agreements		—			—		—			9,063			21		0.92	%
Other borrowings		6,207			50		3.20	%		10,000			75		2.98	%
Capital Notes		9,848			149		6.00	%		7,000			105		6.00	%
Total interest-bearing liabilities		342,887			736		0.85	%		351,165			990		1.12	%
Non-interest bearing deposits		61,703								51,796
Other liabilities		86								212
Total liabilities		404,676								403,173
Stockholders’ equity		27,656								26,912
Total liabilities and Stockholders’ equity	$	432,332							$	430,085
Net interest income				$	4,058							$	3,846
Net interest margin							4.09	%							3.85	%
Interest spread							3.98	%							3.72	%

49

(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.

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Net Interest Margin Analysis

Average Balance Sheets

For the Nine Months Ended September 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)	$	322,160		$	12,706		5.27	%	$	324,667		$	13,205		5.44	%
Loans held for sale		1,109			28		3.38	%		228			7		4.10	%
Federal funds sold		8,908			18		0.27	%		9,785			18		0.25	%
Securities (3)		59,409			1,388		3.12	%		58,281			1,415		3.25	%
Federal agency equities		1,827			33		2.41	%		2,006			29		1.93	%
CBB equity		116			—		—			116			—		—
Total earning assets		393,529			14,173		4.82	%		395,083			14,674		4.97	%
Allowance for loan losses		(5,805	)							(5,156	)
Non-earning assets		41,932								37,631
Total assets	$	429,656							$	427,558
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	79,113		$	181		0.31	%	$	63,757		$	287		0.60	%
Savings		153,485			397		0.35	%		178,748			1,142		0.85	%
Time deposits		92,293			1,186		1.72	%		83,682			1,294		2.07	%
Total interest bearing deposits		324,891			1,764		0.73	%		326,187			2,723		1.12	%
Other borrowed funds
Fed funds purchased		—			—		—			13			—		—
Repurchase agreements		2,188			15		0.92	%		8,149			55		0.90	%
Other borrowings		8,726			199		3.05	%		10,000			222		2.97	%
Capital Notes		8,002			387		6.00	%		7,000			315		6.00	%
Total interest-bearing liabilities		343,807			2,365		0.92	%		351,349			3,315		1.26	%
Non-interest bearing deposits		58,051								49,390
Other liabilities		575								260
Total liabilities		402,433								400,999
Stockholders’ equity		27,223								26,559
Total liabilities and Stockholders’ equity	$	429,656							$	427,558
Net interest income				$	11,808							$	11,359
Net interest margin							4.01	%							3.84	%
Interest spread							3.90	%							3.71	%

51

(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.

52

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 September 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

53

Item 6. 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 November 9, 2012
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 9, 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 November 9, 2012
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of September 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (unaudited) for the Three and nine Months ended September 30, 2012 and 2011; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three and nine Months ended September 30, 2012 and 2011 (iv) Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2012 and 2011 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months ended September 30, 2012 and the Nine Months Ended September 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.

54

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: November 9, 2012	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)
Date: November 9, 2012	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

55

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 November 9, 2012
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 9, 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 November 9, 2012
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of September 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Income (unaudited) for the Three and nine Months ended September 30, 2012 and 2011; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three and nine Months ended September 30, 2012 and 2011 (iv) Consolidated Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2012 and 2011 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months ended September 30, 2012 and the Nine Months Ended September 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.

56

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: November 9, 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: November 9, 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: November 9, 2012	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)
Date: November 9, 2012	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

XML

Business Segments (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 segment	Sep. 30, 2011	Dec. 31, 2011
Segment Reporting Information [Line Items]
Net interest income	$ 4,027,000	$ 3,846,000	$ 11,729,000	$ 11,359,000
Provision for loan losses	601,000	1,272,000	1,776,000	2,757,000	4,807,000
Net interest income after provision for loan losses	3,426,000	2,574,000	9,953,000	8,602,000
Noninterest income	1,052,000	1,200,000	2,566,000	2,630,000
Noninterest expense	3,783,000	3,706,000	10,626,000	10,080,000
Income before income taxes	695,000	68,000	1,893,000	1,152,000
Income tax expense	156,000	4,000	508,000	334,000
Net income	539,000	64,000	1,385,000	818,000
Total assets	426,077,000	429,440,000	426,077,000	429,440,000	427,436,000
Number of reportable segments			2
Community Banking [Member]
Segment Reporting Information [Line Items]
Net interest income	4,027,000	3,846,000	11,729,000	11,359,000
Provision for loan losses	601,000	1,272,000	1,776,000	2,757,000
Net interest income after provision for loan losses	3,426,000	2,574,000	9,953,000	8,602,000
Noninterest income	650,000	950,000	1,649,000	1,851,000
Noninterest expense	3,491,000	3,500,000	9,898,000	9,415,000
Income before income taxes	585,000	24,000	1,704,000	1,038,000
Income tax expense	119,000	(11,000)	444,000	295,000
Net income	466,000	35,000	1,260,000	743,000
Total assets	421,830,000	428,924,000	421,830,000	428,924,000
Mortgage [Member]
Segment Reporting Information [Line Items]
Noninterest income	402,000	250,000	917,000	779,000
Noninterest expense	292,000	206,000	728,000	665,000
Income before income taxes	110,000	44,000	189,000	114,000
Income tax expense	37,000	15,000	64,000	39,000
Net income	73,000	29,000	125,000	75,000
Total assets	$ 4,247,000	$ 516,000	$ 4,247,000	$ 516,000

XML

Loans, Allowance For Loan Losses And OREO (Schedule Of Defaults During Stated Period Of Troubled Debt Restructurings) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 contract	Sep. 30, 2011 contract
Financing Receivable, Modifications [Line Items]
Number of Contracts		4
Recorded Investment		$ 695
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	4	1
Recorded Investment	798	183
Consumer [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		1
Recorded Investment		30
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		2
Recorded Investment		$ 482

XML

Loans, Allowance For Loan Losses And OREO (Credit Quality Information) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 324,405	$ 324,366
Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	56,191	59,623
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	61,809	60,754
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	82,077	77,889
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	8,512	11,979
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,468	3,237
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	67,595	69,251
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	40,471	38,998
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,282	2,635
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	286,958	276,853
Pass [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	49,387	47,021
Pass [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	53,012	48,622
Pass [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	69,622	63,934
Pass [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,289	9,000
Pass [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,467	3,237
Pass [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	64,219	67,295
Pass [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	36,680	35,109
Pass [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,282	2,635
Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,646	11,528
Monitor [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,629	3,978
Monitor [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,490	3,003
Monitor [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,178	3,326
Monitor [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		176
Monitor [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,349	488
Monitor [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		557
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	10,599	11,608
Special Mention [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,019	2,901
Special Mention [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,999	4,696
Special Mention [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,262	3,159
Special Mention [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	833	304
Special Mention [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	486	548
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	20,070	24,227
Substandard [Member] | Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,156	5,723
Substandard [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,176	4,283
Substandard [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,015	7,470
Substandard [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,223	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	1,194	1,164
Substandard [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,305	2,784
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	132	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	132	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	9 Months Ended
	Sep. 30, 2012
Fair Value Measurements [Abstract]
Balance as of December 31, 2011	$ 7,945
Transfers to Level 3	2,298
Changes in loan balances due to payments	(107)
Loans no longer considered impaired or transferred to Level 2	(5,706)
Ending balance as of September 30, 2012	$ 4,430

XML

Business Segments (Tables)

9 Months Ended

Sep. 30, 2012

Business Segments [Abstract]

Schedule Of Segment Reporting Information, By Segment

Business Segments
	Community
	Banking	Mortgage	Total
Nine months ended September 30, 2012
Net interest income	$       11,729	$            -	$     11,729
Provision for loan losses	1,776	-	1,776
Net interest income after provision for loan losses	9,953	-	9,953
Noninterest income	1,649	917	2,566
Noninterest expenses	9,898	728	10,626
Income before income taxes	1,704	189	1,893
Income tax expense	444	64	508
Net income	$         1,260	$       125	$       1,385
Total assets	$     421,830	$    4,247	$   426,077
Nine months ended September 30, 2011
Net interest income	$       11,359	$            -	$     11,359
Provision for loan losses	2,757	-	2,757
Net interest income after provision for loan losses	8,602	-	8,602
Noninterest income	1,851	779	2,630
Noninterest expenses	9,415	665	10,080
Income before income taxes	1,038	114	1,152
Income tax expense	295	39	334
Net income	$            743	$         75	$          818
Total assets	$     428,924	$       516	$   429,440
	Community
	Banking	Mortgage	Total
Three months ended September 30, 2012
Net interest income	$         4,027	$            -	$       4,027
Provision for loan losses	601	-	601
Net interest income after provision for loan losses	3,426	-	3,426
Noninterest income	650	402	1,052
Noninterest expenses	3,491	292	3,783
Income before income taxes	585	110	695
Income tax expense	119	37	156
Net income	$            466	$         73	$          539
Total assets	$     421,830	$    4,247	$   426,077
Three months ended September 30, 2011
Net interest income	$         3,846	$            -	$       3,846
Provision for loan losses	1,272	-	1,272
Net interest income after provision for loan losses	2,574	-	2,574
Noninterest income	950	250	1,200
Noninterest expenses	3,500	206	3,706
Income before income taxes	24	44	68
Income tax expense	(11)	15	4
Net income	$              35	$         29	$            64
Total assets	$     428,924	$       516	$   429,440

XML

Loans, Allowance For Loan Losses And OREO (Changes In OREO Balance) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Loans, Allowance For Loan Losses And OREO [Abstract]
Balance at the beginning of the year (net)	$ 3,253
Transfers from loans	2,100	3,682
Capitalized costs	5
Writedowns	(710)
Sales proceeds	(2,307)	(1,346)
(Loss) on disposition	(74)	(184)
Balance at the end of the period (net)	$ 2,267

XML

Investments (Summary Of Securities Held-To-Maturity And Securities Available-For-Sale) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Fair Value	$ 3,445	$ 8,533
Available-for-Sale, Amortized Costs	51,102	48,416
Available-for-Sale, Gross Unrealized Gains	1,219	363
Available-for-Sale, Gross Unrealized (Losses)	(61)	(441)
Available-for-sale, Fair Value	52,260	48,338
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	23,824	25,416
Available-for-Sale, Gross Unrealized Gains	384	117
Available-for-Sale, Gross Unrealized (Losses)	(15)	(48)
Available-for-sale, Fair Value	24,193	25,485
Mortgage-Backed Securities [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	2,639	3,938
Available-for-Sale, Gross Unrealized Gains	12	5
Available-for-Sale, Gross Unrealized (Losses)		(4)
Available-for-sale, Fair Value	2,651	3,939
Municipals [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	21,967	19,062
Available-for-Sale, Gross Unrealized Gains	748	241
Available-for-Sale, Gross Unrealized (Losses)	(46)	(389)
Available-for-sale, Fair Value	22,669	18,914
Other [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	2,672
Available-for-Sale, Gross Unrealized Gains	75
Available-for-sale, Fair Value	2,747
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Amortized Costs	3,081	8,133
Held-to-Maturity, Gross Unrealized Gains	364	400
Held-to-Maturity, Fair Value	$ 3,445	$ 8,533

XML

Loans, Allowance For Loan Losses And OREO (Schedule Of Loan Modifications Classified As TDRs) (Details) (Commercial [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2011 contract
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	5
Pre-Modifications Outstanding Recorded Investment	$ 3,345,376
Post-Modifications Outstanding Recorded Investment	$ 3,345,376

XML

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 Gain (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			818		818
Other Comprehensive Income				1,046	1,046
Balance at Sep. 30, 2011	7,113	22,742	(2,850)	354	27,359
Balance, shares at Sep. 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				3,342,415
Net Income			1,385		1,385
Additional shares issued for previous stock dividend rounding	3
Other Comprehensive Income				819	819
Balance at Sep. 30, 2012	$ 7,152	$ 22,775	$ (1,683)	$ 765	$ 29,009
Balance, shares at Sep. 30, 2012	3,342,418				3,342,418

XML

Loans, Allowance For Loan Losses And OREO (Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Totals: Recorded Investment	$ 20,723	$ 25,344
Totals: Unpaid Principal Balance	22,410	28,632
Totals: Related Allowance	1,748	1,983
Totals: Average Recorded Investment	23,036	31,960
Totals: Interest Income Recognized	707	1,068
Commercial Loan [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	2,279	3,357
With No Related Allowance Recorded: Unpaid Principal Balance	2,538	3,570
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	2,818	8,978
With No Related Allowance Recorded: Interest Income Recognized while impaired	11	118
With An Allowance Recorded: Recorded Investment	1,376	2,968
With An Allowance Recorded: Unpaid Principal Balance	1,377	3,052
With An Allowance Recorded: Related Allowance	421	440
With An Allowance Recorded: Average Recorded Investment	2,172	2,170
With An Allowance Recorded: Interest Income Recognized	54	106
Totals: Recorded Investment	3,655	6,325
Totals: Unpaid Principal Balance	3,915	6,622
Totals: Related Allowance	421	440
Totals: Average Recorded Investment	4,990	11,147
Totals: Interest Income Recognized	65	224
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	2,703	2,211
With No Related Allowance Recorded: Unpaid Principal Balance	2,801	3,108
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	2,457	2,457
With No Related Allowance Recorded: Interest Income Recognized while impaired	143	124
With An Allowance Recorded: Recorded Investment	1,605	2,516
With An Allowance Recorded: Unpaid Principal Balance	1,851	2,686
With An Allowance Recorded: Related Allowance	468	555
With An Allowance Recorded: Average Recorded Investment	2,061	3,815
With An Allowance Recorded: Interest Income Recognized	81	137
Totals: Recorded Investment	4,308	4,727
Totals: Unpaid Principal Balance	4,652	5,794
Totals: Related Allowance	468	555
Totals: Average Recorded Investment	4,518	6,272
Totals: Interest Income Recognized	224	261
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	5,261	4,880
With No Related Allowance Recorded: Unpaid Principal Balance	5,456	5,170
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	5,071	5,418
With No Related Allowance Recorded: Interest Income Recognized while impaired	172	227
With An Allowance Recorded: Recorded Investment	754	2,590
With An Allowance Recorded: Unpaid Principal Balance	754	3,129
With An Allowance Recorded: Related Allowance	87	228
With An Allowance Recorded: Average Recorded Investment	1,672	1,858
With An Allowance Recorded: Interest Income Recognized	25	117
Totals: Recorded Investment	6,015	7,470
Totals: Unpaid Principal Balance	6,210	8,299
Totals: Related Allowance	87	228
Totals: Average Recorded Investment	6,743	7,275
Totals: Interest Income Recognized	197	344
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	950	1,103
With No Related Allowance Recorded: Unpaid Principal Balance	950	1,103
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	1,027	984
With No Related Allowance Recorded: Interest Income Recognized while impaired	38	38
With An Allowance Recorded: Recorded Investment	1,274	1,700
With An Allowance Recorded: Unpaid Principal Balance	1,546	1,964
With An Allowance Recorded: Related Allowance	144	275
With An Allowance Recorded: Average Recorded Investment	1,487	2,454
With An Allowance Recorded: Interest Income Recognized	8	42
Totals: Recorded Investment	2,224	2,803
Totals: Unpaid Principal Balance	2,496	3,067
Totals: Related Allowance	144	275
Totals: Average Recorded Investment	2,514	3,438
Totals: Interest Income Recognized	46	80
Consumer Unsecured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Related Allowance
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
Totals: Recorded Investment	1
Totals: Unpaid Principal Balance	1
Totals: Related Allowance	1
Totals: Average Recorded Investment	1	286
Consumer Secured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	652	293
With No Related Allowance Recorded: Unpaid Principal Balance	713	642
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	473	330
With No Related Allowance Recorded: Interest Income Recognized while impaired	37	6
With An Allowance Recorded: Recorded Investment	564	942
With An Allowance Recorded: Unpaid Principal Balance	741	1,021
With An Allowance Recorded: Related Allowance	426	357
With An Allowance Recorded: Average Recorded Investment	753	699
With An Allowance Recorded: Interest Income Recognized	18	49
Totals: Recorded Investment	1,216	1,235
Totals: Unpaid Principal Balance	1,454	1,663
Totals: Related Allowance	426	357
Totals: Average Recorded Investment	1,226	1,029
Totals: Interest Income Recognized	55	55
Residential Mortgages [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	1,968	862
With No Related Allowance Recorded: Unpaid Principal Balance	1,999	1,007
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment	1,415	633
With No Related Allowance Recorded: Interest Income Recognized while impaired	86	15
With An Allowance Recorded: Recorded Investment	1,336	1,922
With An Allowance Recorded: Unpaid Principal Balance	1,683	2,180
With An Allowance Recorded: Related Allowance	201	128
With An Allowance Recorded: Average Recorded Investment	1,629	1,847
With An Allowance Recorded: Interest Income Recognized	34	89
Totals: Recorded Investment	3,304	2,784
Totals: Unpaid Principal Balance	3,682	3,187
Totals: Related Allowance	201	128
Totals: Average Recorded Investment	3,044	2,480
Totals: Interest Income Recognized	120	104
Residential Consumer Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Related Allowance
With No Related Allowance Recorded: Average Recorded Investment		33
With An Allowance Recorded: Related Allowance
Totals: Related Allowance
Totals: Average Recorded Investment		$ 33

XML

Stock Based Compensation (Summary Of Stock Option Activity) (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Stock Based Compensation [Abstract]
Options outstanding, January 1, 2012, Shares	216,886
Granted, Shares
Exercised, Shares
Forfeited, Shares	(394)
Options outstanding, September 30, 2012, Shares	216,492
Options exercisable, September30, 2012, Shares	216,492
Options outstanding, January 1, 2012, Weighted Average Exercise Price	$ 8.83
Granted, Weighted Average Exercise Price
Exercised, Weighted Average Exercise Price
Forfeited, Weighted Average Exercise Price	$ 10.82
Options outstanding, September 30, 2012, Weighted Average Exercise Price	$ 8.83
Options exercisable, September 30, 2012, Weighted Average Exercise Price	$ 8.83
Options outstanding, September 30, 2012, Weighted Average Remaining Contractual Life (in years)	1 year 11 months 16 days
Options exercisable, September 30, 2012, Weighted Average Remaining Contractual Life (in years)	1 year 11 months 16 days
Options outstanding, September 30, 2012, Intrinsic Value	$ 13,413
Options exercisable, September 30, 2012, Intrinsic Value	$ 13,413

XML

Earnings Per Share (Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Abstract]
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	175,847	247,976	216,492	247,976

XML

Loans, Allowance For Loan Losses And OREO (Allowance For Credit Losses And Recorded Investment In Financing Receivables) (Details) (USD $)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			$ 5,612,000	$ 5,467,000	$ 5,467,000
Allowance for Credit Losses: Charge-offs			(1,850,000)		(4,716,000)
Allowance for Credit Losses: Recoveries			155,000		54,000
Allowance for credit losses: Provision	601,000	1,272,000	1,776,000	2,757,000	4,807,000
Allowance for Credit Losses: Ending Balance	5,693,000		5,693,000		5,612,000
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	1,748,000		1,748,000		1,983,000
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	3,945,000		3,945,000		3,629,000
Allowance for Credit Losses: Totals	5,693,000		5,693,000		5,612,000
Financing Receivables: Ending Balance: Individually evaluated for impairment	20,723,000		20,723,000		25,344,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	303,682,000		303,682,000		299,022,000
Total Financing Receivables	324,405,000		324,405,000		324,366,000
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			892,000	473,000	473,000
Allowance for Credit Losses: Charge-offs			(504,000)		(702,000)
Allowance for Credit Losses: Recoveries			18,000		16,000
Allowance for credit losses: Provision			592,000		1,105,000
Allowance for Credit Losses: Ending Balance	998,000		998,000		892,000
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	421,000		421,000		440,000
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	577,000		577,000		452,000
Allowance for Credit Losses: Totals	998,000		998,000		892,000
Financing Receivables: Ending Balance: Individually evaluated for impairment	3,655,000		3,655,000		6,325,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	52,536,000		52,536,000		53,298,000
Total Financing Receivables	56,191,000		56,191,000		59,623,000
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			2,677,000	2,897,000	2,897,000
Allowance for Credit Losses: Charge-offs			(816,000)		(2,738,000)
Allowance for Credit Losses: Recoveries			112,000		3,000
Allowance for credit losses: Provision			785,000		2,515,000
Allowance for Credit Losses: Ending Balance	2,758,000		2,758,000		2,677,000
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	699,000		699,000		1,058,000
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	2,059,000		2,059,000		1,619,000
Allowance for Credit Losses: Totals	2,758,000		2,758,000		2,677,000
Financing Receivables: Ending Balance: Individually evaluated for impairment	12,546,000		12,546,000		15,000,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	139,852,000		139,852,000		135,622,000
Total Financing Receivables	152,398,000		152,398,000		150,622,000
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			1,486,000	1,207,000	1,207,000
Allowance for Credit Losses: Charge-offs			(463,000)		(817,000)
Allowance for Credit Losses: Recoveries			18,000		31,000
Allowance for credit losses: Provision			218,000		1,065,000
Allowance for Credit Losses: Ending Balance	1,259,000		1,259,000		1,486,000
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	427,000		427,000		357,000
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	832,000		832,000		1,129,000
Allowance for Credit Losses: Totals	1,259,000		1,259,000		1,486,000
Financing Receivables: Ending Balance: Individually evaluated for impairment	1,217,000		1,217,000		1,235,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	69,846,000		69,846,000		71,253,000
Total Financing Receivables	71,063,000		71,063,000		72,488,000
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance			557,000	890,000	890,000
Allowance for Credit Losses: Charge-offs			(67,000)		(459,000)
Allowance for Credit Losses: Recoveries			7,000		4,000
Allowance for credit losses: Provision			181,000		122,000
Allowance for Credit Losses: Ending Balance	678,000		678,000		557,000
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	201,000		201,000		128,000
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	477,000		477,000		429,000
Allowance for Credit Losses: Totals	678,000		678,000		557,000
Financing Receivables: Ending Balance: Individually evaluated for impairment	3,305,000		3,305,000		2,784,000
Financing Receivables: Ending Balance: Collectively evaluated for impairment	41,448,000		41,448,000		38,849,000
Total Financing Receivables	$ 44,753,000		$ 44,753,000		$ 41,633,000

XML

Fair Value Measurements (Fair Value Assets Measured On Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities	$ 52,260	$ 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	52,260	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	24,193	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	24,193	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	2,651	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	2,651	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	22,669	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	22,669	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	2,747
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	2,747
Other (Corporates) [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Total available-for-sale securities

XML

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	Sep. 30, 2012		Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	$ 5,162	[1]	$ 10,655	[1]
Loans held for sale	4,163		434
Other real estate owned	2,267		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]
Loans held for sale
Other real estate owned
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	732	[1]	2,710	[1]
Loans held for sale	4,163		434
Other real estate owned	2,267		3,253
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	4,430	[1]	7,945	[1]
Loans held for sale
Other real estate owned

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

XML

Consolidated Statements Of Cash Flows (Parenthetical)	9 Months Ended
	Sep. 30, 2012
Senior capital notes, interest rate	6.00%
Capital Notes, 6%, Due 4/1/2012 [Member]
Senior capital notes, interest rate	6.00%
Senior capital notes, maturity date	Apr. 01, 2012
Capital Notes, 6%, Due 4/1/2017 [Member]
Senior capital notes, interest rate	6.00%
Senior capital notes, maturity date	Apr. 01, 2017

XML

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	9 Months Ended
	Sep. 30, 2012
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	4,430
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	Sep. 30, 2012	Dec. 31, 2011
Loans, Allowance For Loan Losses And OREO [Abstract]
Commercial	$ 56,191	$ 59,623
Commercial real estate	152,398	150,622
Consumer	71,063	72,488
Residential	44,753	41,633
Total Financing Receivables	324,405	324,366
Less allowance for loan losses	5,693	5,612
Net loans	$ 318,712	$ 318,754

XML

Consolidated Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 17,861,000	$ 17,678,000
Federal funds sold	3,157,000	5,662,000
Total cash and cash equivalents	21,018,000	23,340,000
Securities held-to-maturity (fair value of $3,445 in 2012 and $8,533 in 2011)	3,081,000	8,133,000
Securities available-for-sale, at fair value	52,260,000	48,338,000
Restricted stock, at cost	1,899,000	1,977,000
Loans, net of allowance for loan losses of $5,693 in 2012 and $5,612 in 2011	318,712,000	318,754,000
Loans held for sale	4,163,000	434,000
Premises and equipment, net	8,479,000	8,735,000
Software, net	192,000	124,000
Interest receivable	1,466,000	1,583,000
Cash value - bank owned life insurance	8,853,000	8,609,000
Other real estate owned, net of valuation allowance	2,267,000	3,253,000
Income taxes receivable	869,000	675,000
Deferred tax asset	953,000	1,375,000
Other assets	1,865,000	2,106,000
Total assets	426,077,000	427,436,000
Deposits
Noninterest bearing demand	62,311,000	55,569,000
NOW, money market and savings	229,306,000	230,386,000
Time	92,732,000	88,279,000
Total deposits	384,349,000	374,234,000
Repurchase agreements		8,379,000
FHLB borrowings	2,000,000	10,000,000
Capital notes	10,000,000	7,000,000
Interest payable	77,000	111,000
Other liabilities	642,000	907,000
Total liabilities	397,068,000	400,631,000
Stockholders' equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,342,418 as of September 30, 2012 and December 31, 2011	7,152,000	7,152,000
Additional paid-in-capital	22,775,000	22,775,000
Accumulated other comprehensive income (loss)	765,000	(54,000)
Retained deficit	(1,683,000)	(3,068,000)
Total stockholders' equity	29,009,000	26,805,000
Total liabilities and stockholders' equity	$ 426,077,000	$ 427,436,000

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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	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	$ 2,149	$ 5,163
60 - 89 Days Past Due	1,533	667
Greater than 90 Days	4,857	9,675
Total Past Due	8,539	15,505
Current	315,866	308,861
Total Financing Receivables	324,405	324,366
Recorded Investment > 90 Days & Accruing
Commercial Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	40	532
60 - 89 Days Past Due		26
Greater than 90 Days	1,986	3,570
Total Past Due	2,026	4,128
Current	54,165	55,495
Total Financing Receivables	56,191	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	993	2,614
60 - 89 Days Past Due	869	130
Greater than 90 Days	173	1,610
Total Past Due	2,035	4,354
Current	59,774	56,400
Total Financing Receivables	61,809	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	291	504
60 - 89 Days Past Due		72
Greater than 90 Days	1,396	2,793
Total Past Due	1,687	3,369
Current	80,390	74,520
Total Financing Receivables	82,077	77,889
Recorded Investment > 90 Days & Accruing
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due		782
Greater than 90 Days	320	424
Total Past Due	320	1,206
Current	8,192	10,773
Total Financing Receivables	8,512	11,979
Recorded Investment > 90 Days & Accruing
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	16	6
60 - 89 Days Past Due	1
Total Past Due	17	6
Current	3,451	3,231
Total Financing Receivables	3,468	3,237
Recorded Investment > 90 Days & Accruing
Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	261	202
60 - 89 Days Past Due	365	277
Greater than 90 Days	172	415
Total Past Due	798	894
Current	66,797	68,357
Total Financing Receivables	67,595	69,251
Recorded Investment > 90 Days & Accruing
Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	548	523
60 - 89 Days Past Due	298	162
Greater than 90 Days	810	863
Total Past Due	1,656	1,548
Current	38,815	37,450
Total Financing Receivables	40,471	38,998
Recorded Investment > 90 Days & Accruing
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	4,282	2,635
Total Financing Receivables	4,282	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		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements Of Comprehensive Income [Abstract]
Unrealized gains on securities available-for-sale, deferred tax	$ 170	$ 358	$ 561	$ 800
Reclassification adjustment for gains included in net income, tax	$ 82	$ 192	$ 140	$ 260

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Capital Notes (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Capital Notes [Line Items]
Capital notes issued	$ 10,000,000
Amount of issued notes received	373,000
Debt instrument, interest rate, stated percentage	6.00%	6.00%
Interest payment on notes		133,000
Duration of written notice to holders		30 days
Payment on maturity principal		$ 7,000,000
Capital Notes, 6%, Due 4/1/2012 [Member]
Capital Notes [Line Items]
Debt instrument, interest rate, stated percentage	6.00%	6.00%
Debt instrument, maturity date		Apr. 01, 2012
Capital Notes, 6%, Due 4/1/2017 [Member]
Capital Notes [Line Items]
Debt instrument, interest rate, stated percentage	6.00%	6.00%
Debt instrument, maturity date		Apr. 01, 2017

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Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Stock Based Compensation [Abstract]

Summary Of Stock Option Activity

			Weighted
		Weighted	Average
		Average	Remaining	Average
		Exercise	Contractual	Intrinsic
	Shares	Price	Life (in years)	Value
Options outstanding, January 1, 2012	216,886	$         8.83
Granted	-	-
Exercised	-	-
Forfeited	(394)	$       10.82
Options outstanding, September 30, 2012	216,492	8.83	1.96	$     13,413
Options exercisable, September 30, 2012	216,492	$         8.83	1.96	$     13,413

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Investments (Narrative) (Details)	9 Months Ended
	Sep. 30, 2012 security
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	4
S&P Rated AAA [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	1
S&P Rated AA [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	3
US Agency Obligations [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	1
Municipals [Member]
Schedule of Investments [Line Items]
Securities evaluated for other than temporary impairment	3

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Investments (Tables)

9 Months Ended

Sep. 30, 2012

Investments [Abstract]

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

		September 30, 2012
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 3,081	$ 364	$      -	$ 3,445
Available-for-Sale
US agency obligations	$ 23,824	$ 384	($15)	$ 24,193
Mortgage-backed securities	2,639	12	-	2,651
Municipals	21,967	748	(46)	22,669
Other	2,672	75	-	2,747
	$ 51,102	$ 1,219	($61)	$ 52,260
		December 31, 2011
	Amortized	Gross Unrealized		Fair Value
	Costs	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

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

	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
September 30, 2012	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 1,120	$ 15	$  -	$   -	$ 1,120	$ 15
Municipals	1,236	46	-	-	1,236	46
Total	$ 2,356	$ 61	$  -	$   -	$ 2,356	$ 61
	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

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Consolidated Statements Of Cash Flows (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Cash flows from operating activities
Net Income	$ 1,385,000	$ 818,000
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	504,000	546,000
Net amortization and accretion of premiums and discounts on securities	426,000	529,000
(Gain) on sale of available for sale securities	(411,000)	(766,000)
Provision for loan losses	1,776,000	2,757,000	4,807,000
Loss on sale of other real estate owned	74,000	184,000
(Increase) in loans held-for-sale	(3,729,000)
(Increase) in cash value of life insurance	(244,000)	(164,000)
(Increase) decrease in interest receivable	117,000	(55,000)
(Increase) decrease in other assets	246,000	374,000
(Increase) in income taxes receivable	(194,000)	(160,000)
(Decrease) in interest payable	(34,000)	(11,000)
Increase (decrease) in other liabilities	(265,000)	440,000
Writedown on other real estate owned	710,000	483,000
Net cash provided by operating activities	361,000	4,975,000
Cash flows from investing activities
Purchases of securities held to maturity		(1,000,000)
Proceeds from maturities and calls of securities held to maturity	5,000,000	7,000,000
Purchases of securities available for sale	(34,930,000)	(49,403,000)
Proceeds from maturities, calls and paydowns of securities available-for-sale	16,696,000	13,524,000
Proceeds from sale of securities available for sale	15,585,000	31,267,000
Purchase of bank owned life insurance		(3,000,000)
Redemption of Federal Home Loan Bank stock	78,000	150,000
Proceeds from sale of other real estate owned	2,307,000	1,346,000
Improvements to other real estate owned	(5,000)	(18,000)
Origination of loans, net of principal collected	(3,834,000)	(5,039,000)
Purchases of premises and equipment	(316,000)	(610,000)
Net cash used in investing activities	581,000	(5,783,000)
Cash flows from financing activities
Net increase in deposits	10,115,000	7,157,000
Net increase (decrease) in repurchase agreements	(8,379,000)	1,062,000
Net (decrease) in Federal Home Loan Bank advances	(8,000,000)
Payoff of 6% senior capital notes due 4/1/2012	(7,000,000)
Proceeds from sale of 6% senior capital notes due 4/1/2017	10,000,000
Net cash (used in) provided by financing activities	(3,264,000)	8,219,000
Increase (decrease) in cash and cash equivalents	(2,322,000)	7,411,000
Cash and cash equivalents at beginning of period	23,340,000	18,759,000	18,759,000
Cash and cash equivalents at end of period	21,018,000	26,170,000	23,340,000
Non cash transactions
Transfer of loans to foreclosed assets	2,100,000	3,682,000
Fair value adjustment for securities	1,236,000	1,586,000
Cash transactions
Cash paid for interest	2,399,000	3,326,000
Cash paid for taxes	$ 702,000	$ 495,000

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Securities held-to-maturity	$ 3,445	$ 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	3,342,418	3,342,415
Common stock, shares outstanding	3,342,418	3,342,415

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Business Segments

9 Months Ended

Sep. 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 the three and nine months ended September 30, 2012 and 2011 was as follows (dollars in thousands):

Business Segments
	Community
	Banking	Mortgage	Total
Nine months ended September 30, 2012
Net interest income	$       11,729	$            -	$     11,729
Provision for loan losses	1,776	-	1,776
Net interest income after provision for loan losses	9,953	-	9,953
Noninterest income	1,649	917	2,566
Noninterest expenses	9,898	728	10,626
Income before income taxes	1,704	189	1,893
Income tax expense	444	64	508
Net income	$         1,260	$       125	$       1,385
Total assets	$     421,830	$    4,247	$   426,077
Nine months ended September 30, 2011
Net interest income	$       11,359	$            -	$     11,359
Provision for loan losses	2,757	-	2,757
Net interest income after provision for loan losses	8,602	-	8,602
Noninterest income	1,851	779	2,630
Noninterest expenses	9,415	665	10,080
Income before income taxes	1,038	114	1,152
Income tax expense	295	39	334
Net income	$            743	$         75	$          818
Total assets	$     428,924	$       516	$   429,440
	Community
	Banking	Mortgage	Total
Three months ended September 30, 2012
Net interest income	$         4,027	$            -	$       4,027
Provision for loan losses	601	-	601
Net interest income after provision for loan losses	3,426	-	3,426
Noninterest income	650	402	1,052
Noninterest expenses	3,491	292	3,783
Income before income taxes	585	110	695
Income tax expense	119	37	156
Net income	$            466	$         73	$          539
Total assets	$     421,830	$    4,247	$   426,077
Three months ended September 30, 2011
Net interest income	$         3,846	$            -	$       3,846
Provision for loan losses	1,272	-	1,272
Net interest income after provision for loan losses	2,574	-	2,574
Noninterest income	950	250	1,200
Noninterest expenses	3,500	206	3,706
Income before income taxes	24	44	68
Income tax expense	(11)	15	4
Net income	$              35	$         29	$            64
Total assets	$     428,924	$       516	$   429,440

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 09, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
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		3,342,418

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Loans, Allowance For Loan Losses And OREO

9 Months Ended

Sep. 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:
	Sept 30,	December 31,
	2012	2011
Commercial	$ 56,191	$ 59,623
Commercial real estate	152,398	150,622
Consumer	71,063	72,488
Residential	44,753	41,633
Total loans	324,405	324,366
Less allowance for loan losses	5,693	5,612
Net loans	$ 318,712	$ 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
	September 30, 2012	December 31, 2011
Commercial	$ 1,985	$ 3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	582	1,610
Commercial Mortgages-Non-Owner Occupied	1,395	2,794
Commercial Construction	729	782
Consumer
Consumer Unsecured	-	-
Consumer Secured	126	415
Residential:
Residential Mortgages	936	1,205
Residential Consumer Construction	-	-
Totals	$ 5,753	$ 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 $2,267,000 on September 30, 2012 from $3,253,000 on December 31, 2011.   The following table represents the changes in OREO balance during the Nine Months ended September 30, 2012.

OREO Changes (dollars in thousands)
	Nine Months ended September 30, 2012
Balance at the beginning of the year (net)	$ 3,253
Transfers from loans	2,100
Capitalized costs	5
Writedowns	(710)
Sales proceeds	(2,307)
(Loss) on disposition	(74)
Balance at the end of the period (net)	$ 2,267

		Impaired Loans (dollars in thousands)
		For the Nine Months Ended September 30, 2012
2012		Recorded Investment	Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
With No Related Allowance Recorded:
	Commercial	$ 2,279	$ 2,538	$      -	$ 2,818	$ 11
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	2,703	2,801	-	2,457	143
	Commercial Mortgage Non-Owner Occupied	5,261	5,456	-	5,071	172
	Commercial Construction	950	950	-	1,027	38
	Consumer
	Consumer Unsecured	-	-	-	-	-
	Consumer Secured	652	713	-	473	37
	Residential
	Residential Mortgages	1,968	1,999	-	1,415	86
	Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
	Commercial	$ 1,376	$ 1,377	$ 421	$ 2,172	$ 54
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	1,605	1,851	468	2,061	81
	Commercial Mortgage Non-Owner Occupied	754	754	87	1,672	25
	Commercial Construction	1,274	1,546	144	1,487	8
	Consumer
	Consumer Unsecured	1	1	1	1	-
	Consumer Secured	564	741	426	753	18
	Residential
	Residential Mortgages	1,336	1,683	201	1,629	34
	Residential Consumer Construction	-	-	-	-	-
Totals:
	Commercial	$ 3,655	$ 3,915	$ 421	$ 4,990	$ 65
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	4,308	4,652	468	4,518	224
	Commercial Mortgage Non-Owner Occupied	6,015	6,210	87	6,743	197
	Commercial Construction	2,224	2,496	144	2,514	46
	Consumer
	Consumer Unsecured	1	1	1	1	-
	Consumer Secured	1,216	1,454	426	1,226	55
	Residential
	Residential Mortgages	3,304	3,682	201	3,044	120
	Residential Consumer Construction	-	-	-	-	-
		$ 20,723	$ 22,410	$ 1,748	$ 23,036	$ 707

		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
(dollars in thousands)
For the Nine Months Ended September 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	(504)	(816)	(463)	(67)	(1,850)
Recoveries	18	112	18	7	155
Provision	592	785	218	181	1,776
Ending Balance	$ 998	$ 2,758	$ 1,259	$ 678	$ 5,693
Ending Balance: Individually evaluated for impairment	$ 421	$ 699	$ 427	$ 201	$ 1,748
Ending Balance: Collectively evaluated for impairment	577	2,059	832	477	3,945
Totals:	$ 998	$ 2,758	$ 1,259	$ 678	$ 5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment	3,655	12,546	1,217	3,305	20,723
Ending Balance: Collectively evaluated for impairment	52,536	139,852	69,846	41,448	303,682
Totals:	$ 56,191	$ 152,398	$ 71,063	$ 44,753	$ 324,405

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 September 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	$ 40	$    -	$ 1,986	$ 2,026	$ 54,165	$ 56,191	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	993	869	173	2,035	59,774	61,809	-
Commercial Mortgages-Non-Owner Occupied	291	-	1,396	1,687	80,390	82,077	-
Commercial Construction	-	-	320	320	8,192	8,512	-
Consumer:
Consumer Unsecured	16	1	-	17	3,451	3,468	-
Consumer Secured	261	365	172	798	66,797	67,595	-
Residential:
Residential Mortgages	548	298	810	1,656	38,815	40,471	-
Residential Consumer Construction	-	-	-	-	4,282	4,282	-
Total	$ 2,149	$ 1,533	$ 4,857	$ 8,539	$ 315,866	$ 324,405	$   -

	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 Loss Disclosures
Credit Quality Information - by Class
September 30, 2012
(dollars in thousands)
2012	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 49,387	$ 1,629	$ 2,019	$ 3,156	$   -	$ 56,191
Commercial Real Estate:
Commercial Mortgages0Owner Occupied	53,012	1,490	2,999	4,176	132	61,809
Commercial Mortgages0Non0Owner Occupied	69,622	2,178	4,262	6,015	-	82,077
Commercial Construction	6,289	-	-	2,223	-	8,512
Consumer
Consumer Unsecured	3,467	-	-	1	-	3,468
Consumer Secured	64,219	1,349	833	1,194	-	67,595
Residential:
Residential Mortgages	36,680	-	486	3,305	-	40,471
Residential Consumer Construction	4,282	-	-	-	-	4,282
Totals	$ 286,958	$ 6,646	$ 10,599	$ 20,070	$ 132	$ 324,405

Credit Loss Disclosures
Credit Quality Information - by Class
December 31, 2011
(dollars in thousands)
2011	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
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 classified as TDRs during the three and nine months ended September 30, 2012.

There were no loan modifications classified as TDRs during the three months ended September 30, 2011.  The following table describes the loan modifications classified as TDRs during the nine months ended September 30, 2011:

For the Nine Months Ended September 30, 2011
(dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Commercial	5	$ 3,345,376	$ 3,345,376

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three months ended September 30, 2012 and 2011.

The following table describes Troubled Debt Restructurings made within the last twelve months that defaulted during the nine months ended September 30, 2012 and 2011, respectively.

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

For the Nine Months Ended September 30, 2011
(dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts	Recorded Investment
Commercial	1	$ 183
Consumer	1	30
Residential	2	482
Total	4	695

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Consolidated Statements Of Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest Income
Loans	$ 4,332,000	$ 4,355,000	$ 12,734,000	$ 13,212,000
Securities
US Government and agency obligations	219,000	239,000	740,000	681,000
Mortgage backed securities	2,000	94,000	22,000	357,000
Municipals	182,000	140,000	507,000	352,000
Dividends	4,000	3,000	33,000	29,000
Other (Corporates)	17,000		40,000	25,000
Federal Funds sold	7,000	5,000	18,000	18,000
Total interest income	4,763,000	4,836,000	14,094,000	14,674,000
Deposits
NOW, money market savings	164,000	353,000	578,000	1,429,000
Time deposits	373,000	436,000	1,186,000	1,293,000
FHLB borrowings	50,000	75,000	199,000	223,000
Reverse repurchase agreements		21,000	15,000	55,000
Capital notes	149,000	105,000	387,000	315,000
Total interest expense	736,000	990,000	2,365,000	3,315,000
Net interest income	4,027,000	3,846,000	11,729,000	11,359,000
Provision for loan losses	601,000	1,272,000	1,776,000	2,757,000
Net interest income after provision for loan losses	3,426,000	2,574,000	9,953,000	8,602,000
Other Operating Income
Mortgage fee income	402,000	250,000	917,000	779,000
Service charges, fees and commissions	317,000	320,000	911,000	875,000
Increase in cash value of life insurance	81,000	54,000	244,000	164,000
Other	11,000	10,000	83,000	46,000
Gain on sale of available-for-sale securities	241,000	566,000	411,000	766,000
Total other operating income	1,052,000	1,200,000	2,566,000	2,630,000
Other operating expenses
Salaries and employee benefits	1,608,000	1,462,000	4,657,000	4,280,000
Occupancy	280,000	272,000	857,000	820,000
Equipment	250,000	263,000	748,000	780,000
Supplies	78,000	91,000	294,000	288,000
Professional, data processing, and other outside expense	508,000	557,000	1,524,000	1,526,000
Marketing	99,000	119,000	348,000	306,000
Credit expense	62,000	44,000	174,000	187,000
Other real estate expenses	586,000	452,000	908,000	667,000
FDIC insurance expense	145,000	145,000	433,000	515,000
Other	167,000	301,000	683,000	711,000
Total other operating expenses	3,783,000	3,706,000	10,626,000	10,080,000
Income before income taxes	695,000	68,000	1,893,000	1,152,000
Income tax expense	156,000	4,000	508,000	334,000
Net Income	$ 539,000	$ 64,000	$ 1,385,000	$ 818,000
Weighted average shares outstanding - basic	3,342,418	3,323,743	3,342,416	3,323,743
Weighted average shares outstanding- diluted	3,342,771	3,327,757	3,342,812	3,331,239
Income per common share - basic	$ 0.16	$ 0.02	$ 0.41	$ 0.25
Income per common share - diluted	$ 0.16	$ 0.02	$ 0.41	$ 0.25

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Earnings Per Share

9 Months Ended

Sep. 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 nine months ended September 30, 2012 and 2011.

	Three months ended		Nine months ended
	September 30,		September 30,
	2012	2011	2012	2011
Net income	$      539,000	$        64,000	$   1,385,000	$      818,000
Weight average number of shares	3,342,418	3,323,743	3,342,416	3,323,743
Options affect of incremental shares	353	4,014	396	7,496
Weighted average diluted shares	3,342,771	3,327,757	3,342,812	3,331,239
Basic EPS (weighted avg shares)	$            0.16	$            0.02	$            0.41	$            0.25
Diluted EPS (Including Option Shares)	$            0.16	$            0.02	$            0.41	$            0.25

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		Nine months ended
	Sept 30,		Sept 30,
	2012	2011	2012	2011
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	175,847	247,976	216,492	247,976

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Use Of Estimates

9 Months Ended

Sep. 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)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Assets Measured On Recurring Basis

		Carrying Value at September 30, 2012
Description	Balance as of Sept 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	$ 24,193	$       -	$ 24,193	$       -
Mortgage-backed securities	2,651	-	2,651	-
Municipals	22,669	-	22,669	-
Other (corporates)	2,747	-	2,747	-
Total available-for-sale securities	$ 52,260	$       -	$ 52,260	$       -
		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 And Other Real Estate Owned Measured At Fair Value On A Nonrecurring Basis

		Carrying Value at September 30, 2012
Description	Balance as of September 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*	$ 5,162	$     -	$ 732	$ 4,430
Loans held for sale	4,163	-	4,163	-
Other real estate owned	2,267	-	2,267	-

*  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
Loans held for sale	434	-	434	-
Other real estate owned	3,253	-	3,253	-

*  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 September 30, 2012 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$ 4,430	Discounted appraised 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

Nine Months ended September 30, 2012 (dollars in thousands)
Balance as of December 31, 2011	$ 7,945
Transfers to Level 3	2,298
Changes in loan balances due to payments	(107)
Loans no longer considered impaired or transferred to Level 2	(5,706)
Ending balance as of September 30, 2012	$ 4,430

Fair Value Carrying And Notional Amounts

		Fair Value Measurements at September 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	$ 17,861	$ 17,861	$      -	$      -	$ 17,861
Federal funds sold	3,157	3,157	-	-	3,157
Securities
Available-for-sale	52,260	-	52,260	-	52,260
Held-to-maturity	3,081	-	3,445	-	3,445
Loans, net	318,712	-	326,234	4,430	330,664
Loans held for sale	4,163	-	4,163	-	4,163
Interest receivable	1,466	-	1,466	-	1,466
BOLI	8,853	-	8,853	-	8,853
Liabilities
Deposits	$ 384,349	$      -	$ 386,655	$      -	$ 386,655
FHLB borrowings	2,000	-	1,966	-	1,966
Capital notes	10,000	-	9,831	-	9,831
Interest payable	77	-	77	-	77

		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

9 Months Ended

Sep. 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

9 Months Ended

Sep. 30, 2012

Capital Notes [Abstract]

Capital Notes

Note 6 – Capital Notes

During the third quarter, Financial closed the private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial issued $10,000,000 in principal ($373,000 of which was received in the third quarter) of notes (the “2012 Notes”).The 2012 Notes have not been and will not be 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 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 in April to pay on maturity the principal due on notes issued in 2009.

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Stock Based Compensation

9 Months Ended

Sep. 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 nine months ended September 30, 2012 is summarized below:

			Weighted
		Weighted	Average
		Average	Remaining	Average
		Exercise	Contractual	Intrinsic
	Shares	Price	Life (in years)	Value
Options outstanding, January 1, 2012	216,886	$         8.83
Granted	-	-
Exercised	-	-
Forfeited	(394)	$       10.82
Options outstanding, September 30, 2012	216,492	8.83	1.96	$     13,413
Options exercisable, September 30, 2012	216,492	$         8.83	1.96	$     13,413

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

9 Months Ended

Sep. 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 September 30, 2012
Description	Balance as of Sept 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	$ 24,193	$       -	$ 24,193	$       -
Mortgage-backed securities	2,651	-	2,651	-
Municipals	22,669	-	22,669	-
Other (corporates)	2,747	-	2,747	-
Total available-for-sale securities	$ 52,260	$       -	$ 52,260	$       -
		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.

Loans held for sale

Loans held for sale are carried at estimated fair value.  These loans currently consist of one-to-four family residential loans originated for sale in the secondary market.  Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2).  As such, the Company records fair value adjustments on a nonrecurring basis.  No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended September 30, 2012.  Gains and losses on the sale of loans are recorded within mortgage fee income 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 September 30, 2012
Description	Balance as of September 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*	$ 5,162	$     -	$ 732	$ 4,430
Loans held for sale	4,163	-	4,163	-
Other real estate owned	2,267	-	2,267	-

*  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
Loans held for sale	434	-	434	-
Other real estate owned	3,253	-	3,253	-

*  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 September 30, 2012 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$ 4,430	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 nine months of 2012:

Nine Months ended September 30, 2012 (dollars in thousands)
Balance as of December 31, 2011	$ 7,945
Transfers to Level 3	2,298
Changes in loan balances due to payments	(107)
Loans no longer considered impaired or transferred to Level 2	(5,706)
Ending balance as of September 30, 2012	$ 4,430

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.

Loans held for sale

The carrying amount is a reasonable estimate of fair value.

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 September 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 September 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	$ 17,861	$ 17,861	$      -	$      -	$ 17,861
Federal funds sold	3,157	3,157	-	-	3,157
Securities
Available-for-sale	52,260	-	52,260	-	52,260
Held-to-maturity	3,081	-	3,445	-	3,445
Loans, net	318,712	-	326,234	4,430	330,664
Loans held for sale	4,163	-	4,163	-	4,163
Interest receivable	1,466	-	1,466	-	1,466
BOLI	8,853	-	8,853	-	8,853
Liabilities
Deposits	$ 384,349	$      -	$ 386,655	$      -	$ 386,655
FHLB borrowings	2,000	-	1,966	-	1,966
Capital notes	10,000	-	9,831	-	9,831
Interest payable	77	-	77	-	77

		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, depositorswho 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

9 Months Ended

Sep. 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 September 30, 2012 and December 31, 2011 (amounts in thousands):

		September 30, 2012
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 3,081	$ 364	$      -	$ 3,445
Available-for-Sale
US agency obligations	$ 23,824	$ 384	($15)	$ 24,193
Mortgage-backed securities	2,639	12	-	2,651
Municipals	21,967	748	(46)	22,669
Other	2,672	75	-	2,747
	$ 51,102	$ 1,219	($61)	$ 52,260
		December 31, 2011
	Amortized	Gross Unrealized		Fair Value
	Costs	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

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 September 30, 2012 and December 31, 2011 (amounts in thousands):

	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
September 30, 2012	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 1,120	$ 15	$  -	$   -	$ 1,120	$ 15
Municipals	1,236	46	-	-	1,236	46
Total	$ 2,356	$ 61	$  -	$   -	$ 2,356	$ 61
	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 September 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 September 30, 2012, the Bank owned 4 securities that were being evaluated for other than temporary impairment.  One of these securities was S&P rated AAA and 3 were S&P rated AA.  As of September 30, 2012, one of these securities was an obligation of a government sponsored entity and three were municipal issues.

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	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities, Available-for-sale	$ 52,260	$ 48,338
Carrying Amounts [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	17,861	17,678
Federal funds sold	3,157	5,662
Securities, Available-for-sale	52,260	48,338
Securities, Held-to-maturity	3,081	8,133
Loans, net	318,712	318,754
Loans held for sale	4,163	434
Interest receivable	1,466	1,583
BOLI	8,853	8,609
Deposits	384,349	374,234
FHLB borrowings	2,000	10,000
Repurchase agreements		8,379
Capital notes	10,000	7,000
Interest payable	77	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	17,861	17,678
Federal funds sold	3,157	5,662
Securities, Available-for-sale
Securities, Held-to-maturity
Loans, net
Loans held for sale
Interest receivable
BOLI
Deposits
FHLB borrowings
Repurchase agreements
Capital notes
Interest payable
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities, Available-for-sale	52,260	48,338
Securities, Held-to-maturity	3,445	8,533
Loans, net	326,234	320,658
Loans held for sale	4,163	434
Interest receivable	1,466	1,583
BOLI	8,853	8,609
Deposits	386,655	375,544
FHLB borrowings	1,966	9,752
Repurchase agreements		8,392
Capital notes	9,831	6,826
Interest payable	77	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	4,430	7,945
Loans held for sale
Interest receivable
BOLI
Deposits
FHLB borrowings
Repurchase agreements
Capital notes
Interest payable
Approximate Fair Values [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	17,861	17,678
Federal funds sold	3,157	5,662
Securities, Available-for-sale	52,260	48,338
Securities, Held-to-maturity	3,445	8,533
Loans, net	330,664	328,603
Loans held for sale	4,163	434
Interest receivable	1,466	1,583
BOLI	8,853	8,609
Deposits	386,655	375,544
FHLB borrowings	1,966	9,752
Repurchase agreements		8,392
Capital notes	9,831	6,826
Interest payable	$ 77	$ 111

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

	Three months ended		Nine months ended
	September 30,		September 30,
	2012	2011	2012	2011
Net income	$      539,000	$        64,000	$   1,385,000	$      818,000
Weight average number of shares	3,342,418	3,323,743	3,342,416	3,323,743
Options affect of incremental shares	353	4,014	396	7,496
Weighted average diluted shares	3,342,771	3,327,757	3,342,812	3,331,239
Basic EPS (weighted avg shares)	$            0.16	$            0.02	$            0.41	$            0.25
Diluted EPS (Including Option Shares)	$            0.16	$            0.02	$            0.41	$            0.25

Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share

	Three months ended		Nine months ended
	Sept 30,		Sept 30,
	2012	2011	2012	2011
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	175,847	247,976	216,492	247,976

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Loans, Allowance For Loan Losses And OREO (Tables)

9 Months Ended

Sep. 30, 2012

Loans, Allowance For Loan Losses And OREO [Abstract]

Summary Of Loans, Net

	As of:
	Sept 30,	December 31,
	2012	2011
Commercial	$ 56,191	$ 59,623
Commercial real estate	152,398	150,622
Consumer	71,063	72,488
Residential	44,753	41,633
Total loans	324,405	324,366
Less allowance for loan losses	5,693	5,612
Net loans	$ 318,712	$ 318,754

Financing Receivables On Non- Accrual Status

Financing Receivables on Non-Accrual Status (dollars in thousands)
	As of
	September 30, 2012	December 31, 2011
Commercial	$ 1,985	$ 3,570
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	582	1,610
Commercial Mortgages-Non-Owner Occupied	1,395	2,794
Commercial Construction	729	782
Consumer
Consumer Unsecured	-	-
Consumer Secured	126	415
Residential:
Residential Mortgages	936	1,205
Residential Consumer Construction	-	-
Totals	$ 5,753	$ 10,375

Changes In OREO Balance

OREO Changes (dollars in thousands)
	Nine Months ended September 30, 2012
Balance at the beginning of the year (net)	$ 3,253
Transfers from loans	2,100
Capitalized costs	5
Writedowns	(710)
Sales proceeds	(2,307)
(Loss) on disposition	(74)
Balance at the end of the period (net)	$ 2,267

Impaired Loans

		Impaired Loans (dollars in thousands)
		For the Nine Months Ended September 30, 2012
2012		Recorded Investment	Unpaid Principal Balance	Related Allowance	Average Recorded Investment	Interest Income Recognized
With No Related Allowance Recorded:
	Commercial	$ 2,279	$ 2,538	$      -	$ 2,818	$ 11
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	2,703	2,801	-	2,457	143
	Commercial Mortgage Non-Owner Occupied	5,261	5,456	-	5,071	172
	Commercial Construction	950	950	-	1,027	38
	Consumer
	Consumer Unsecured	-	-	-	-	-
	Consumer Secured	652	713	-	473	37
	Residential
	Residential Mortgages	1,968	1,999	-	1,415	86
	Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
	Commercial	$ 1,376	$ 1,377	$ 421	$ 2,172	$ 54
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	1,605	1,851	468	2,061	81
	Commercial Mortgage Non-Owner Occupied	754	754	87	1,672	25
	Commercial Construction	1,274	1,546	144	1,487	8
	Consumer
	Consumer Unsecured	1	1	1	1	-
	Consumer Secured	564	741	426	753	18
	Residential
	Residential Mortgages	1,336	1,683	201	1,629	34
	Residential Consumer Construction	-	-	-	-	-
Totals:
	Commercial	$ 3,655	$ 3,915	$ 421	$ 4,990	$ 65
	Commercial Real Estate
	Commercial Mortgages-Owner Occupied	4,308	4,652	468	4,518	224
	Commercial Mortgage Non-Owner Occupied	6,015	6,210	87	6,743	197
	Commercial Construction	2,224	2,496	144	2,514	46
	Consumer
	Consumer Unsecured	1	1	1	1	-
	Consumer Secured	1,216	1,454	426	1,226	55
	Residential
	Residential Mortgages	3,304	3,682	201	3,044	120
	Residential Consumer Construction	-	-	-	-	-
		$ 20,723	$ 22,410	$ 1,748	$ 23,036	$ 707

		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 Nine Months Ended September 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	(504)	(816)	(463)	(67)	(1,850)
Recoveries	18	112	18	7	155
Provision	592	785	218	181	1,776
Ending Balance	$ 998	$ 2,758	$ 1,259	$ 678	$ 5,693
Ending Balance: Individually evaluated for impairment	$ 421	$ 699	$ 427	$ 201	$ 1,748
Ending Balance: Collectively evaluated for impairment	577	2,059	832	477	3,945
Totals:	$ 998	$ 2,758	$ 1,259	$ 678	$ 5,693
Financing Receivables:
Ending Balance: Individually evaluated for impairment	3,655	12,546	1,217	3,305	20,723
Ending Balance: Collectively evaluated for impairment	52,536	139,852	69,846	41,448	303,682
Totals:	$ 56,191	$ 152,398	$ 71,063	$ 44,753	$ 324,405

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

	Age Analysis of Past Due Financing Receivables as of September 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	$ 40	$    -	$ 1,986	$ 2,026	$ 54,165	$ 56,191	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	993	869	173	2,035	59,774	61,809	-
Commercial Mortgages-Non-Owner Occupied	291	-	1,396	1,687	80,390	82,077	-
Commercial Construction	-	-	320	320	8,192	8,512	-
Consumer:
Consumer Unsecured	16	1	-	17	3,451	3,468	-
Consumer Secured	261	365	172	798	66,797	67,595	-
Residential:
Residential Mortgages	548	298	810	1,656	38,815	40,471	-
Residential Consumer Construction	-	-	-	-	4,282	4,282	-
Total	$ 2,149	$ 1,533	$ 4,857	$ 8,539	$ 315,866	$ 324,405	$   -

	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
September 30, 2012
(dollars in thousands)
2012	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 49,387	$ 1,629	$ 2,019	$ 3,156	$   -	$ 56,191
Commercial Real Estate:
Commercial Mortgages0Owner Occupied	53,012	1,490	2,999	4,176	132	61,809
Commercial Mortgages0Non0Owner Occupied	69,622	2,178	4,262	6,015	-	82,077
Commercial Construction	6,289	-	-	2,223	-	8,512
Consumer
Consumer Unsecured	3,467	-	-	1	-	3,468
Consumer Secured	64,219	1,349	833	1,194	-	67,595
Residential:
Residential Mortgages	36,680	-	486	3,305	-	40,471
Residential Consumer Construction	4,282	-	-	-	-	4,282
Totals	$ 286,958	$ 6,646	$ 10,599	$ 20,070	$ 132	$ 324,405

Credit Loss Disclosures
Credit Quality Information - by Class
December 31, 2011
(dollars in thousands)
2011	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
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 Loan Modifications Classified As TDRs

For the Nine Months Ended September 30, 2011
(dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Commercial	5	$ 3,345,376	$ 3,345,376

Schedule Of Defaults During Stated Period Of Troubled Debt Restructurings

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

For the Nine Months Ended September 30, 2011
(dollars in thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Contracts	Recorded Investment
Commercial	1	$ 183
Consumer	1	30
Residential	2	482
Total	4	695

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Loans, Allowance For Loan Losses And OREO (Financing Receivables On Non Accrual Status) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 5,753	$ 10,375
Commercial Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1,985	3,570
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	582	1,610
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1,395	2,794
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	729	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	126	415
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	936	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		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements Of Comprehensive Income [Abstract]
Net Income	$ 539	$ 64	$ 1,385	$ 818
Other comprehensive income
Unrealized gains on securities available-for-sale net of deferred taxes of $170 and $358 for the three month periods and $561 and $800 for the nine month periods ended September 30, 2012 and 2011	330	696	1,090	1,552
Reclassification adjustment for gains included in net income, net of taxes of $82 and $192 for the three month periods and $140 and $260 for the nine month periods ended September 30, 2012 and 2011	(159)	(374)	(271)	(506)
Other comprehensive income, net of tax	171	322	819	1,046
Comprehensive income	$ 710	$ 386	$ 2,204	$ 1,864

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Basis Of Presentation

9 Months Ended

Sep. 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 nine months ended September 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 nine month periods ended September 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.

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Earnings Per Share (Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Abstract]
Net income	$ 539	$ 64	$ 1,385	$ 818
Weighted average number of shares	3,342,418	3,323,743	3,342,416	3,323,743
Options affect of incremental shares	353	4,014	396	7,496
Weighted average diluted shares	3,342,771	3,327,757	3,342,812	3,331,239
Basic EPS (weighted avg shares)	$ 0.16	$ 0.02	$ 0.41	$ 0.25
Diluted EPS (Including Option Shares)	$ 0.16	$ 0.02	$ 0.41	$ 0.25

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Investments (Gross Unrealized Losses And Fair Value Of The Bank's Investments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	$ 2,356	$ 27,430
Unrealized Losses, Less than 12 months	61	441
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	2,356	27,430
Unrealized Losses, Total	61	441
US Agency Obligations [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	1,120	13,593
Unrealized Losses, Less than 12 months	15	48
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	1,120	13,593
Unrealized Losses, Total	15	48
Mortgage-Backed Securities [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months		985
Unrealized Losses, Less than 12 months		4
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total		985
Unrealized Losses, Total		4
Municipals [Member]
Gain (Loss) on Investments [Line Items]
Fair Value, Less than 12 months	1,236	12,852
Unrealized Losses, Less than 12 months	46	389
Fair Value, More than 12 months
Unrealized Losses, More than 12 months
Fair Value, Total	1,236	12,852
Unrealized Losses, Total	$ 46	$ 389

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Recent Accounting Pronouncements

9 Months Ended

Sep. 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 orinterim 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.

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

In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution.”  The amendments in this ASU clarify the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution.  In addition, the amendments should resolve current diversity in practice on the subsequent measurement of these types of indemnification assets.  The amendments are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012.  Early adoption is permitted. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution.  The Company does not expect the adoption of ASU 2012-06 to have a material impact on its consolidated financial statements.