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 March 31, 2015

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: 3,371,616 shares of Common Stock, par value $2.14 per share, were outstanding at May 13, 2015.

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	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II – OTHER INFORMATION		49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	50
Item 6.	Exhibits	51
SIGNATURES		52

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) (2015 unaudited)

	3/31/2015			12/31/2014
Assets
Cash and due from banks	$	17,595		$	12,743
Federal funds sold		12,700			—
Total cash and cash equivalents		30,295			12,743
Securities held-to-maturity (fair value of $2,699 in 2015 and $2,699 in 2014)		2,526			2,528
Securities available-for-sale, at fair value		24,103			24,395
Restricted stock, at cost		1,313			1,739
Loans, net of allowance for loan losses of $4,746 in 2015 and $4,790 in 2014		403,572			394,573
Loans held for sale		1,742			1,030
Premises and equipment, net		9,151			9,262
Interest receivable		1,164			1,246
Cash value - bank owned life insurance		9,579			9,512
Other real estate owned, net of valuation allowance		2,081			956
Income taxes receivable		508			945
Deferred tax assets, net		1,116			1,221
Other assets		857			715
Total assets	$	488,007		$	460,865
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest bearing demand	$	82,171		$	74,682
NOW, money market and savings		218,825			227,761
Time		137,810			97,054
Total deposits		438,806			399,497
Federal funds purchased		—			3,189
FHLB borrowings		2,000			12,000
Capital notes		10,000			10,000
Interest payable		82			58
Other liabilities		1,381			1,345
Total liabilities	$	452,269		$	426,089
Stockholders’ equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,371,616 as of March 31, 2015 and December 31, 2014	$	7,215		$	7,215
Preferred stock; authorized 1,000,000 shares; none issued and outstanding as of March 31, 2015 and December 31, 2014		—			—
Additional paid-in-capital		22,919			22,919
Retained earnings		5,789			5,031
Accumulated other comprehensive (loss)		(185	)		(389	)
Total stockholders’ equity	$	35,738		$	34,776
Total liabilities and stockholders’ equity	$	488,007		$	460,865

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 March 31,
	2015		2014
Interest Income
Loans	$	4,628	$	4,188
Securities
US Government and agency obligations		140		180
Mortgage backed securities		10		33
Municipals - taxable		25		73
Municipals - taxable exempt		10		47
Dividends		5		6
Other (Corporates)		1		15
Interest bearing deposits		2		—
Federal Funds sold		5		3
Total interest income		4,826		4,545
Interest Expense
Deposits
NOW, money market savings		122		118
Time Deposits		332		301
Federal Funds purchased		1		2
FHLB borrowings		25		19
Reverse repurchase agreements		—		1
Capital notes		150		150
Total interest expense		630		591
Net interest income		4,196		3,954
Provision for loan losses		100		55
Net interest income after provision for loan losses		4,096		3,899
Other operating income
Mortgage income		523		289
Service charges, fees and commissions		318		350
Increase in cash value of life insurance		67		71
Other		10		13
Gain (loss) on sales of available-for-sale securities, net		29		(6	)
Total other operating income		947		717
Other operating expenses
Salaries and employee benefits		2,083		1,885
Occupancy		289		313
Equipment		299		287
Supplies		96		105
Professional, data processing, and other outside expense		486		613
Marketing		76		97
Credit expense		73		37
Other real estate expenses		5		57
FDIC insurance expense		74		30
Other		199		185
Total other operating expenses		3,680		3,609
Income before income taxes		1,363		1,007
Income tax expense		436		302
Net Income	$	927	$	705
Weighted average common shares outstanding - basic		3,371,616		3,364,874
Weighted average common shares outstanding - diluted		3,371,616		3,364,874
Earnings per common share - basic	$	0.27	$	0.21
Earnings per common share - diluted	$	0.27	$	0.21

See accompanying notes to these consolidated financial statements

2

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Three months ended March 31, 2015 and 2014

(dollar amounts in thousands) (unaudited)

	For the Three Months Ended March 31,
	2015			2014
Net Income	$	927		$	705
Other comprehensive income:
Unrealized gains on securities available-for-sale		338			1,273
Tax effect		(115	)		(431	)
Reclassification adjustment for (gains) losses included in net income (1)		(29	)		6
Tax effect (2)		10			(2	)
Other comprehensive income, net of tax		204			846
Comprehensive income	$	1,131		$	1,551

(1) Gains (losses) are included in “gain (loss) on sale of available-for-sale securities, net” on the consolidated statements of income.

(2) The tax effect on these reclassifications is reflected in “income tax expense” on the consolidated statements of income.

See accompanying notes to these consolidated financial statements

3

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Three months ended March 31, 2015 and 2014

(dollar amounts in thousands) (unaudited)

	March 31,
	2015			2014
Cash flows from operating activities
Net Income	$	927		$	705
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		193			193
Net amortization and accretion of premiums and discounts on securities		12			84
(Gain) loss on sales of available-for-sale securities		(29	)		6
Provision for loan losses		100			55
(Gain) on sale of other real estate owned		—			(3	)
Impairment of other real estate owned		—			46
Decrease (increase) in loans held-for-sale		(712	)		90
(Increase) in cash value of life insurance		(67	)		(71	)
Decrease in interest receivable		82			4
(Increase) in other assets		(142	)		(64	)
Decrease in income taxes receivable		437			303
Increase in interest payable		24			2
Increase (decrease) in other liabilities		36			(100	)
Net cash provided by operating activities	$	861		$	1,250
Cash flows from investing activities
Proceeds from maturities and calls of securities held-to-maturity	$	—		$	1,000
Purchases of securities available-for-sale		(5,740	)		—
Proceeds from maturities, calls and paydowns of securities available-for-sale		1,000			60
Proceeds from sale of securities available-for-sale		5,360			1,886
Redemption of Federal Home Loan Bank stock		426			139
Origination of loans, net of principal collected		(10,224	)		(9,523	)
Purchases of premises and equipment		(82	)		(188	)
Net cash (used in) investing activities	$	(9,260	)	$	(6,626	)
Cash flows from financing activities
Net increase in deposits	$	39,309		$	10,728
Net (decrease) in federal funds purchased		(3,189	)		(4,108	)
Net (decrease) in Federal Home Loan Bank advances		(10,000	)		—
Dividends paid to common stockholders		(169	)		—
Net cash provided by financing activities	$	25,951		$	6,620
Increase in cash and cash equivalents		17,552			1,244
Cash and cash equivalents at beginning of period	$	12,743		$	16,671
Cash and cash equivalents at end of period	$	30,295		$	17,915
Non cash transactions
Transfer of loans to other real estate owned	$	1,125		$	384
Loans made to finance the sale of other real estate owned		—			78
Fair value adjustment for securities available-for-sale		309			1,279
Cash transactions
Cash paid for interest	$	606		$	589
Cash paid for taxes		—			—

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, except per share amounts) (unaudited)

	Total Common Stock Shares Outstanding		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss)			Total
Balance at December 31, 2013		3,364,874	$	7,201	$	22,868	$	2,124		$	(2,421	)	$	29,772
Net Income		—		—		—		705			—			705
Other Comprehensive Income		—		—		—		—			846			846
Balance at March 31, 2014		3,364,874	$	7,201	$	22,868	$	2,829		$	(1,575	)	$	31,323
Balance at December 31, 2014		3,371,616	$	7,215	$	22,919	$	5,031		$	(389	)	$	34,776
Net Income		—		—		—		927			—			927
Dividends paid on common stock ($0.05 per share)		—		—		—		(169	)		—			(169	)
Other Comprehensive Income		—		—		—		—			204			204
Balance at March 31, 2015		3,371,616	$	7,215	$	22,919	$	5,789		$	(185	)	$	35,738

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 months ended March 31, 2015 and 2014 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, 2014. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2014 included in Financial’s Annual Report on Form 10-K. Results for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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 Town 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, 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 Common Share (EPS)

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 in calculating dilutive earnings per share. The following is a summary of the earnings per share calculation for the three months ended March 31, 2015 and 2014.

6

Note 3 – Earnings Per Share (continued)

	Three Months Ended
	March 31,
	2015		2014
Net income	$	927,000	$	705,000
Basic EPS weighted average shares outstanding		3,371,616		3,364,874
Incremental shares attributable to stock options		—		—
Diluted EPS weighted average shares outstanding		3,371,616		3,364,874
Basic earnings per common share	$	0.27	$	0.21
Diluted earnings per common share	$	0.27	$	0.21

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
	March 31,
	2015		2014
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive		66,752		111,371

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 three months ended March 31, 2015 is summarized below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Intrinsic Value
Options outstanding, January 1, 2015		69,372		$	11.44
Exercised		—			—
Forfeited		(2,620	)		10.84
Options outstanding, March 31, 2015		66,752			11.46		0.75	$	—
Options exercisable, March 31, 2015		66,752		$	11.46		0.75	$	—

Intrinsic value is calculated by subtracting the exercise price of option shares from the market price of underlying shares as of March 31, 2015 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:

Fair Value on a Recurring Basis

Securities Available-for-Sale

Fair values of securities, excluding restricted investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, and Community Bankers’ Bank stock are based on quoted prices available in an active market. If quoted prices are available, these 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.

Restricted securities noted above are classified as such because their ownership is restricted to certain types of entities and there is no established market for their resale. When the stock is repurchased, the shares are repurchased at the stock’s book value; therefore, the carrying amount of restricted securities approximate fair value. Restricted securities are considered to be Level 2.

9

Note 5 – Fair Value Measurements (continued)

			Carrying Value at March 31, 2015 (in thousands)
Description	Balance as of March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US agency obligations	$	18,453	$	—	$	18,453	$	—
Mortgage-backed securities		2,027		—		2,027		—
Municipals		3,623		—		3,623		—
Total available-for-sale securities	$	24,103	$	—	$	24,103	$	—
			Carrying Value at December 31, 2014 (in thousands)
Description	Balance as of December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US agency obligations	$	13,498	$	—	$	13,498	$	—
Mortgage-backed securities		1,982		—		1,982		—
Municipals		7,899		—		7,899		—
Corporates		1,016		—		1,016		—
Total available-for-sale securities	$	24,395	$	—	$	24,395	$	—

Fair Value on a Non-recurring Basis

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 when due. 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 cost which approximates 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 March 31, 2015. 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.

Any fair value adjustments are recorded in the period incurred and expensed against current earnings. The carrying values of all OREO properties are considered to be Level 3.

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

			Carrying Value at March 31, 2015
Description	Balance as of March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	3,128	$	—	$	—	$	3,128
Loans held for sale		1,742		—		1,742		—
Other real estate owned		2,081		—		—		2,081

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

			Carrying Value at December 31, 2014
Description	Balance as of December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	3,045	$	—	$	—	$	3,045
Loans held for sale		1,030		—		1,030		—
Other real estate owned		956		—		—		956

* 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 March 31, 2015 (dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$	3,128	Discounted appraised value	Selling cost	5% - 10% (6%)
				Discount for lack of marketability and age of appraisal	0% - 25% (15%)
OREO		2,081	Discounted appraised value	Selling cost	5% - 10% (6%)
				Discount for lack of marketability and age of appraisal	0% - 25% (15%)

Financial Instruments

Cash, cash equivalents and Federal Funds sold

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

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 impaired loans are estimated as described above. The carrying values of all loans are considered to be Level 3.

Bank Owned Life Insurance (BOLI)

The carrying amount approximates fair value. The carrying values of all BOLI is considered to be Level 2.

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. The carrying values of all deposits are considered to be Level 2.

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. The carrying values of all FHLB borrowings are considered to be Level 2.

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. The carrying values of all short term borrowings are considered to be Level 2.

Capital notes

Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate characteristics. The carrying values of all capital notes are considered to be Level 2.

Accrued interest

The carrying amounts of accrued interest approximate fair value. The carrying values of all accrued interest is considered to be Level 2.

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 March 31, 2015 and December 31, 2014 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 March 31, 2015 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	$	17,595	$	17,595	$	—	$	—	$	17,595
Fed funds sold		12,700		12,700		—		—		12,700
Securities
Available-for-sale		24,103		—		24,103		—		24,103
Held-to-maturity		2,526		—		2,699		—		2,699
Restricted stock		1,313				1,313				1,313
Loans, net		403,572		—		—		409,666		409,666
Loans held for sale		1,742		—		1,742		—		1,742
Interest receivable		1,164		—		1,164		—		1,164
BOLI		9,579		—		9,579		—		9,579
Liabilities
Deposits	$	438,806	$	—	$	439,840	$	—	$	439,840
FHLB borrowings		2,000		—		2,001		—		2,001
Capital notes		10,000		—		10,003		—		10,003
Interest payable		82		—		82		—		82
			Fair Value Measurements at December 31, 2014 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	$	12,743	$	12,743	$	—	$	—	$	12,743
Securities
Available-for-sale		24,395		—		24,395		—		24,395
Held-to-maturity		2,528		—		2,699		—		2,699
Restricted stock		1,739		—		1,739				1,739
Loans, net		394,573		—		—		401,281		401,281
Loans held for sale		1,030		—		1,030		—		1,030
Interest receivable		1,246		—		1,246		—		1,246
BOLI		9,512		—		9,512		—		9,512
Liabilities
Deposits	$	399,497	$	—	$	400,351	$	—	$	400,351
FHLB borrowings		12,000		10,000		2,005		—		12,005
Federal funds purchased		3,189		3,189		—		—		3,189
Capital notes		10,000		—		10,023		—		10,023
Interest payable		58		—		58		—		58

14

Note 5 – Fair Value Measurements (continued)

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 Financial’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of Financial’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 Financial. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.

Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate Financial’s overall interest rate risk.

Note 6 – Capital Notes

During the third quarter of 2012, Financial closed the private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial issued $10,000,000 in principal 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 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 2012 to pay, on maturity, the principal due on notes issued in 2009.

15

Note 7 – Securities

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of March 31, 2015 and December 31, 2014 (amounts in thousands):

			March 31, 2015
	Amortized Costs		Gross Unrealized					Fair Value
			Gains		(Losses)
Held-to-Maturity
US agency obligations	$	2,526	$	173	$	—		$	2,699
Available-for-Sale
US agency obligations		18,827		11		(385	)		18,453
Mortgage-backed securities		2,041		—		(14	)		2,027
Municipals		3,515		118		(10	)		3,623
	$	24,383	$	129	$	(409	)	$	24,103
			December 31, 2014
	Amortized Costs		Gross Unrealized					Fair Value
			Gains		(Losses)
Held-to-Maturity
US agency obligations	$	2,528	$	171	$	—		$	2,699
Available-for-Sale
US agency obligations		14,090		—		(592	)		13,498
Mortgage-backed securities		2,042		—		(60	)		1,982
Municipals		7,832		114		(47	)		7,899
Corporates		1,020		—		(4	)		1,016
	$	24,984	$	114	$	(703	)	$	24,395

16

Note 7 – Securities (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 March 31, 2015 and December 31, 2014 (amounts in thousands):

	Less than 12 months				More than 12 months				Total
March 31, 2015	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Description of securities
U.S. agency obligations	$	5,639	$	99	$	11,811	$	286	$	17,450	$	385
Mortgage-backed securities		—		—		2,027		14		2,027		14
Municipals		773		10		—		—		773		10
Total	$	6,412	$	109	$	13,838	$	300	$	20,250	$	409
	Less than 12 months				More than 12 months				Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Description of securities
U.S. agency obligations	$	999	$	1	$	11,502	$	591	$	12,501	$	592
Mortgage-backed securities		—		—		1,982		60		1,982		60
Municipals		771		9		3,192		38		3,963		47
Corporates		—		—		1,016		4		1,016		4
Total	$	1,770	$	10	$	17,692	$	693	$	19,462	$	703

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 March 31, 2015, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved. As of March 31, 2015, the Bank owned 20 securities that were being evaluated for other than temporary impairment. One of these securities was S&P rated AAA and 19 were S&P rated AA. As of March 31, 2015, 18 of these securities were direct obligations of the U.S. government or government sponsored entities and 2 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.

17

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 and other areas within Central Virginia. 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 with servicing released. 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 months ended March 31, 2015 and 2014 was as follows (dollars in thousands):

Business Segments

	Community Banking		Mortgage		Total
For the three months ended March 31, 2015
Net interest income	$	4,196	$	—	$	4,196
Provision for loan losses		100		—		100
Net interest income after provision for loan losses		4,096		—		4,096
Noninterest income		413		534		947
Noninterest expenses		3,293		387		3,680
Income before income taxes		1,216		147		1,363
Income tax expense		386		50		436
Net income	$	830	$	97	$	927
Total assets	$	486,184	$	1,823	$	488,007
For the three months ended March 31, 2014
Net interest income	$	3,954	$	—	$	3,954
Provision for loan losses		55		—		55
Net interest income after provision for loan losses		3,899		—		3,899
Noninterest income		428		289		717
Noninterest expenses		3,350		259		3,609
Income before income taxes		977		30		1,007
Income tax expense		292		10		302
Net income	$	685	$	20	$	705
Total assets	$	440,610	$	1,974	$	442,584

18

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 into classes, based on the associated risks. 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:
	March 31, 2015		December 31, 2014
Commercial	$	63,396	$	63,259
Commercial real estate		214,426		207,262
Consumer		77,724		76,380
Residential		52,772		52,462
Total loans		408,318		399,363
Less allowance for loan losses		4,746		4,790
Net loans	$	403,572	$	394,573

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.

19

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.

20

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

Loans on Non-Accrual Status

(dollars in thousands)

	As of
	March 31, 2015		December 31, 2014
Commercial	$	679	$	1,965
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		—		212
Commercial Mortgages-Non-Owner Occupied		137		70
Commercial Construction		460		460
Consumer
Consumer Unsecured		—		—
Consumer Secured		19		20
Residential:
Residential Mortgages		718		689
Residential Consumer Construction		89		90
Totals	$	2,102	$	3,506

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 increased to $2,081,000 on March 31, 2015 from $956,000 on December 31, 2014. The following table represents the changes in OREO balance during the three months ended March 31, 2015 and year-end December 31, 2014.

OREO Changes

(dollars in thousands)

	Three Months ended		Year ended
	March 31, 2015		December 31, 2014
Balance at the beginning of the year (net)	$	956	$	1,451
Transfers from loans		1,125		473
Capitalized costs		—		—
Writedowns		—		(167	)
Sales proceeds		—		(780	)
(Loss) on disposition		—		(21	)
Balance at the end of the period (net)	$	2,081	$	956

21

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

At March 31, 2015 and December 31, 2014, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. The Company held $65,000 of residential real estate in other real estate owned at both March 31, 2015 and December 31, 2014.

	Impaired Loans
	(dollars in thousands)
	As of and For the Three Months Ended March 31, 2015
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
2015	Investment		Balance		Allowance		Investment		Recognized
With No Related Allowance Recorded:
Commercial	$	50	$	463	$	—	$	1,034	$	—
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,803		2,803		—		2,819		41
Commercial Mortgage Non-Owner Occupied		1,030		1,030		—		1,054		13
Commercial Construction		84		548		—		272		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		129		129		—		75		1
Residential
Residential Mortgages		922		1,049		—		928		18
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	1,027	$	1,085	$	435	$	1,217	$	7
Commercial Real Estate
Commercial Mortgages-Owner Occupied		639		639		40		746		7
Commercial Mortgage Non-Owner Occupied		498		549		83		312		7
Commercial Construction		376		666		91		188		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		119		119		119		119		2
Residential
Residential Mortgages		821		961		123		825		11
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	1,077	$	1,548	$	435	$	2,251	$	7
Commercial Real Estate
Commercial Mortgages-Owner Occupied		3,442		3,442		40		3,565		48
Commercial Mortgage Non-Owner Occupied		1,528		1,579		83		1,366		20
Commercial Construction		460		1,214		91		460		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		248		248		119		194		3
Residential
Residential Mortgages		1,743		2,010		123		1,753		29
Residential Consumer Construction		—		—		—		—		—
	$	8,498	$	10,041	$	891	$	9,589	$	107

22

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2014
2014	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With No Related Allowance Recorded:
Commercial	$	2,017	$	2,280	$	—	$	2,641	$	63
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,835		2,835		—		1,687		152
Commercial Mortgage Non-Owner Occupied		1,078		1,128		—		1,041		75
Commercial Construction		460		1,194		—		606		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		21		21		—		21		1
Residential
Residential Mortgages		934		1,058		—		702		58
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	1,406	$	1,861	$	713	$	990	$	29
Commercial Real Estate
Commercial Mortgages-Owner Occupied		852		1,029		63		1,636		36
Commercial Mortgage Non-Owner Occupied		126		126		32		173		7
Commercial Construction		—		—		—		—		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		119		119		119		80		7
Residential
Residential Mortgages		829		968		131		1,257		52
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	3,423	$	4,141	$	713	$	3,631	$	92
Commercial Real Estate
Commercial Mortgages-Owner Occupied		3,687		3,864		63		3,323		188
Commercial Mortgage Non-Owner Occupied		1,204		1,254		32		1,214		82
Commercial Construction		460		1,194		—		606		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		140		140		119		101		8
Residential
Residential Mortgages		1,763		2,026		131		1,959		110
Residential Consumer Construction		—		—		—		—		—
	$	10,677	$	12,619	$	1,058	$	10,834	$	480

23

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Three Months Ended March 31, 2015
2015	Commercial			Commercial Real Estate			Consumer			Residential		Total
Allowance for Loan Losses:
Beginning Balance	$	1,235		$	2,194		$	812		$	549	$	4,790
Charge-offs		(80	)		(14	)		(107	)		—		(201	)
Recoveries		2			43			12			—		57
Provision		(150	)		190			59			1		100
Ending Balance	$	1,007		$	2,413		$	776		$	550	$	4,746
Ending Balance: Individually evaluated for impairment	$	435		$	214		$	119		$	123	$	891
Ending Balance: Collectively evaluated for impairment		572			2,199			657			427		3,855
Totals:	$	1,007		$	2,413		$	776		$	550	$	4,746
Loans:
Ending Balance: Individually evaluated for impairment	$	1,077		$	5,430		$	248		$	1,743	$	8,498
Ending Balance: Collectively evaluated for impairment		62,319			208,996			77,476			51,029		399,820
Totals:	$	63,396		$	214,426		$	77,724		$	52,772	$	408,318

24

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Year Ended December 31, 2014
2014	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	1,015		$	2,631		$	935		$	605		$	5,186
Charge-offs		(165	)		(187	)		(79	)		(120	)		(551	)
Recoveries		51			10			39			—			100
Provision		334			(260	)		(83	)		64			55
Ending Balance	$	1,235		$	2,194		$	812		$	549		$	4,790
Ending Balance: Individually evaluated for impairment	$	713		$	95		$	119		$	131		$	1,058
Ending Balance: Collectively evaluated for impairment		522			2,099			693			418			3,732
Totals:	$	1,235		$	2,194		$	812		$	549		$	4,790
Loans:
Ending Balance: Individually evaluated for impairment	$	3,423		$	5,351		$	140		$	1,763		$	10,677
Ending Balance: Collectively evaluated for impairment		59,836			201,911			76,240			50,699			388,686
Totals:	$	63,259		$	207,262		$	76,380		$	52,462		$	399,363

25

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

	Age Analysis of Past Due Loans as of
	March 31, 2015
	(dollars in thousands)
2015	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days & Accruing
Commercial	$	168	$	—	$	679	$	847	$	62,549	$	63,396	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		19		—		—		19		79,006		79,025		—
Commercial Mortgages-Non-Owner Occupied		229		—		137		366		121,301		121,667		—
Commercial Construction		—		—		460		460		13,274		13,734		—
Consumer:
Consumer Unsecured		—		23		—		23		5,064		5,087		—
Consumer Secured		178		296		—		474		72,163		72,637		—
Residential:
Residential Mortgages		544		209		509		1,262		44,488		45,750		—
Residential Consumer Construction		89		—		—		89		6,933		7,022		—
Total	$	1,227	$	528	$	1,785	$	3,540	$	404,778	$	408,318	$	—
	Age Analysis of Past Due Loans as of
	December 31, 2014
	(dollars in thousands)
2014	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days & Accruing
Commercial	$	21	$	80	$	1,965	$	2,066	$	61,193	$	63,259	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		192		—		212		404		77,304		77,708		—
Commercial Mortgages-Non-Owner Occupied		86		—		70		156		119,019		119,175		—
Commercial Construction		—		—		460		460		9,919		10,379		—
Consumer:
Consumer Unsecured		11		—		—		11		5,749		5,760		—
Consumer Secured		15		—		—		15		70,605		70,620		—
Residential:
Residential Mortgages		626		48		525		1,199		43,745		44,944		—
Residential Consumer Construction		29		—		—		29		7,489		7,518		—
Total	$	980	$	128	$	3,232	$	4,340	$	395,023	$	399,363	$	—

26

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

	Credit Quality Information - by Class March 31, 2015 (dollars in thousands)
2015	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
Commercial	$	60,888	$	676	$	737	$	1,095	$	—	$	63,396
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		72,558		1,732		1,209		3,526		—		79,025
Commercial Mortgages-Non Owner Occupied		113,064		3,095		4,059		1,449		—		121,667
Commercial Construction		13,274		—		—		460		—		13,734
Consumer
Consumer Unsecured		5,087		—		—		—		—		5,087
Consumer Secured		71,433		550		127		527		—		72,637
Residential:
Residential Mortgages		42,500		1,252		106		1,892		—		45,750
Residential Consumer Construction		6,933		—		—		89		—		7,022
Totals	$	385,737	$	7,305	$	6,238	$	9,038	$	—	$	408,318

	Credit Quality Information - by Class December 31, 2014 (dollars in thousands)
2014	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
Commercial	$	58,745	$	725	$	224	$	3,565	$	—	$	63,259
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		71,087		1,718		1,216		3,687		—		77,708
Commercial Mortgages-Non Owner Occupied		112,560		1,586		3,971		1,058		—		119,175
Commercial Construction		9,919		—		—		460		—		10,379
Consumer
Consumer Unsecured		5,673		—		—		87		—		5,760
Consumer Secured		69,527		554		136		403		—		70,620
Residential:
Residential Mortgages		41,578		1,258		120		1,988		—		44,944
Residential Consumer Construction		7,428		—		—		90		—		7,518
Totals	$	376,517	$	5,841	$	5,667	$	11,338	$	—	$	399,363

27

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

There was one loan modification in the amount of $20,000 that was classified as a Troubled Debt Restructuring (TDR) during the three months ended March 31, 2015.

There were no loan modifications that would have been classified as TDRs during the three months ended March 31, 2014.

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three months ended March 31, 2015 and 2014.

Note 10 – Recent accounting pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU applies to any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition, most industry-specific guidance, and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The core principle of the guidance is that an entity should recognize revenue to depict the

28

Note 10 – Recent accounting pronouncements (continued)

transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To be in alignment with the core principle, an entity must apply a five step process including: identification of the contract(s) with a customer, identification of performance obligations in the contract(s), determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue when (or as) the entity satisfies a performance obligation. Additionally, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer have also been amended to be consistent with the guidance on recognition and measurement. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. In April 2015, the FASB voted in favor of a one year deferral of the effective date of this amendment. An exposure draft is expected with a 30 day comment period. The Company is currently assessing the impact that ASU 2014-09 will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. The new guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The amendments in the ASU also require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for the first interim or annual period beginning after December 15, 2014; however, the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-14, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” The amendments in this ASU apply to creditors that hold government-guaranteed mortgage loans and are intended to eliminate the diversity in practice related to the classification of these guaranteed loans upon foreclosure. The new guidance stipulates that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if (1) the loan has a government guarantee that is not separable from the loan prior to foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the other receivable should be measured on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. Entities may adopt the amendments on a prospective basis or modified retrospective basis as of the beginning of the annual period of adoption; however, the entity must apply the same method of transition as elected under ASU 2014-04. Early adoption is permitted provided the entity has already adopted ASU 2014-04. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

29

Note 10 – Recent accounting pronouncements (continued)

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” The amendments in this ASU eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have a material impact on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. The Company does not expect the adoption of ASU 2015-02 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU are intended to simplify the presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement

30

Note 10 – Recent accounting pronouncements (continued)

guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments in this ASU are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU 2015-03 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendments in this ASU are effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2)  retrospectively. The Company is currently assessing the impact that ASU 2015-05 will have on its consolidated financial statements.

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.

31

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.

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 Town 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

32

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”),

• 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 Town of Bedford, Virginia, located off of Independence Boulevard (opened October 2008) (the “Bedford Branch”),

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

The Bank also has opened a limited-service branch located in the Westminster-Canterbury facilities located at 501 VES Road, Lynchburg, Virginia and a limited service branch and commercial loan production office located at Luxor Office Park LLC, 1430 Rolkin Court Suite 203, Charlottesville, Virginia.

The Bank anticipates opening the following branches in 2015:

• A full service branch located at 1391 South High Street, Harrisonburg, VA in the third or fourth quarter of 2015.

• A limited service branch located in the Westminster-Canterbury facilities located at 250 Pantops Mountain Road, Charlottesville, Virginia in the second or third quarter of 2015.

33

In addition, the Bank, through its Mortgage division, originates residential mortgage loans for sale to investors through three offices—one located at the Forest Branch, one located at 2404 Electric Road, Suite B, Roanoke, Virginia, and the third located at 133 Salem Avenue, NW, in Roanoke, 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 locations 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 has not determined when it will open a branch at this location. 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 has not determined when it will open a branch at this location.

Appomattox, Virginia. In July, 2013 the Bank purchased certain real property located near the intersection of Confederate Boulevard and Moses Avenue for future branch expansion. The Bank has not determined when it will open a branch at this location.

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.

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.

34

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:

	March 31, 2015 (in thousands)
Commitments to extend credit	$	83,973
Letters of Credit		4,133
Total	$	88,106

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 March 31, 2015 and December 31, 2014 and the results of operations of Financial for the three month periods ended March 31, 2015 and 2014. This discussion should be read in conjunction with the financial statements included elsewhere herein.

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

Financial Condition Summary

March 31, 2015 as Compared to December 31, 2014

Total assets were $488,007,000 on March 31, 2015 compared with $460,865,000 at December 31, 2014, an increase of 5.89%. The increase as of March 31, 2015 resulted largely from an increase in total deposits.

Total deposits increased from $399,497,000 as of December 31, 2014 to $438,806,000 on March 31, 2015, an increase of 9.84%. The increase largely resulted from an increase in time deposits from $97,054,000 on December 31, 2014 to $137,810,000 on March 31, 2015. $10,000,000 of this increase in time deposits, resulted from management’s decision to lock in attractive rates by accepting a brokered certificate of deposit. The balance of the increase in time deposits was raised through a local offering of certificates of deposit. The cash provided from the increase in time deposits from which funds have and will be used to fund loan growth.

35

Total loans, excluding loans held for sale, increased to $408,318,000 on March 31, 2015 from $399,363,000 on December 31, 2014. Loans, excluding loans held for sale and net of unearned income and allowance, increased to $403,572,000 on March 31, 2015 from $394,573,000 on December 31, 2014, an increase of 2.28%. 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):

	March 31, 2015					December 31, 2014
	Amount		Percentage			Amount		Percentage
Commercial	$	63,396		15.53	%	$	63,259		15.84	%
Commercial Real Estate		214,426		52.51	%		207,262		51.89	%
Consumer		77,724		19.04	%		76,380		19.13	%
Residential		52,772		12.92	%		52,462		13.14	%
Total loans	$	408,318		100.00	%	$	399,363		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 $4,183,000 on March 31, 2015 from $4,462,000 on December 31, 2014. Although OREO increased to $2,081,000 on March 31, 2015 from $956,000 on December 31, 2014, the increase was due the Bank’s foreclosure on real estate that secured a loan that had been categorized as a non-performing loan. Following the foreclosure and subsequent re-categorization, non-performing loans decreased from $3,506,000 at December 31, 2014 to $2,102,000 at March 31, 2015. 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 cumulatively would have approximated $378,000 and $915,000 as of March 31, 2015 and December 31, 2014, 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, 2014, the Bank was carrying 4 OREO properties on its books at a value of $956,000. During the three months ended March 31, 2015, the Bank acquired 1 additional OREO property and disposed of no OREO properties, and as of March 31, 2015 the Bank is carrying 5 OREO properties at a value of $2,081,000. 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 $394,000 at March 31, 2015 classified as performing Troubled Debt Restructurings (“TDRs”) as compared to $376,000 at December 31, 2014. 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 increased to $30,295,000 on March 31, 2015 from $12,743,000 on December 31, 2014. Cash and cash equivalents consist of cash due from correspondents, cash in vault, and overnight investments (including federal funds sold). This increase is in large part due to the increase in time deposits and non-interest bearing demand deposits which was partially offset by a decrease in NOW, money market and savings accounts. The increase in time deposits will be used to fund loans and investments. Cash and cash equivalents also 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 slightly to $2,526,000 on March 31, 2015 from $2,528,000 on December 31, 2014. Securities available-for-sale also decreased slightly to $24,103,000 on March 31,

36

2015, from $24,395,000 December 31, 2014. During the three months ended March 31, 2015 the Bank received $1,000,000 in proceeds from calls of securities available-for-sale and $5,360,000 in proceeds from the sale of securities available-for-sale. The Bank purchased no securities held-to-maturity and $5,740,000 in securities available-for sale during the same period. The slight decrease from December 31, 2014 in securities available-for-sale was primarily due to the liquidation of securities in funding loan growth and anticipating future loan growth.

Financial’s investment in Federal Home Loan Bank of Atlanta (FHLBA) stock totaled $505,000 at March 31, 2015 and $931,000 at December 31, 2014, a decrease of $426,000. This decrease is attributable to the Bank’s decision to payoff $10,000,000 in FHLBA advances during the quarter and the subsequent repurchase of stock necessary to support that advance by the FHLBA from the Bank. 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 March 31, 2015, Financial, on a consolidated basis, had liquid assets of $54,398,000 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 March 31, 2015. Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments at the Bank. In addition, the Bank has the ability to purchase federal funds on the open market and borrow from the Federal Reserve Bank’s discount window, if necessary.

Financial has $12,000,000 categorized as “Other borrowings” which as of March 31, 2015 consisted of the following: i) $2,000,000, on which the Bank pays a fixed rate of 3.785%, from a Federal Home Loan Bank Advance that matures in April 2015; and ii) $10,000,000 from the private placement of unregistered debt securities as previously disclosed (the “2012 Notes”). The 2012 Notes bear interest at the rate of 6% per year with interest payable quarterly in arrears. 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. The Bank elected to pay off the $2,000,000 borrowing from the FHLBA mentioned above in April 2015.

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. Based in part on recent loan growth, the Bank is monitoring liquidity to ensure it is able to fund future loans.

37

At March 31, 2015, the Bank had a leverage ratio of approximately 9.40%, a Tier 1 risk-based capital ratio of approximately 10.50% and a total risk-based capital ratio of approximately 11.62%. As of March 31, 2015 and December 31, 2014 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 March 31, 2015 and December 31, 2014:

Bank Level Only Capital Ratios

Analysis of Capital (in 000’s)	March 31, 2015		December 31, 2014
Tier 1 capital
Common Stock	$	3,742	$	3,742
Surplus		19,325		19,325
Retained earnings		21,527		20,479
Total Tier 1 capital	$	44,594	$	43,546
Common Equity Tier 1 capital	$	44,594		N/A
Tier 2 capital
Allowance for loan losses	$	4,746	$	4,619
Total Tier 2 capital:	$	4,746	$	4,619
Total risk-based capital	$	49,340	$	48,165
Risk weighted assets	$	424,707	$	369,348
Average total assets	$	474,282	$	452,276

	Actual						Regulatory Benchmarks
	March 31, 2015			December 31, 2014			For Capital Adequacy Purposes			For Well Capitalized Purposes
Capital Ratios:
Tier 1 capital to average total assets		9.40	%		9.63	%		4.00	%		5.00	%
Common Equity Tier 1 capital		10.50	%		N/A			4.50	%		6.50	%
Tier 1 risk-based capital ratio		10.50	%		11.79	%		6.00	%		8.00	%
Total risk-based capital ratio		11.62	%		13.04	%		8.00	%		10.00	%

The capital ratios and minimums for 2015 have been updated to conform with the Basel III requirements.

The above tables set forth the capital position and analysis for the Bank only. Because total assets on a consolidated basis are less than $1,000,000,000, 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, while remaining “well capitalized,” would be lower than the comparable 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.

In July 2013, the Federal Reserve Board approved a final rule establishing a regulatory capital framework for smaller, less complex financial institutions. The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. The rule includes a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of Tier 1

38

capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. The phase-in period for this rule began in January 2015. We are currently evaluating the impact of the implementation of the new capital standards.

Results of Operations

Comparison of the Three months Ended March 31, 2015 and 2014

Earnings Summary

Financial had net income including all operating segments of $927,000 for the three months ended March 31, 2015 compared to $705,000 for the comparable period in 2014. The basic and diluted earnings per common share for the three months ended March 31, 2015 were $0.27, compared to basic and diluted earnings per share of $0.21 for the three months ended March 31, 2014.

The increase in net income for the three months ended March 31, 2015 as compared to the prior year was due primarily to an increase in interest received due to an increase in interest earning assets, and was partially offset by an increase in non-interest expense and an increase in the provision for loan losses. Non-interest income increased for the three months ended March 31, 2015 due to an increase in fees related to an increase in mortgage origination volume from the same period in 2014.

These operating results represent an annualized return on stockholders’ equity of 10.71% for the three months ended March 31, 2015, compared with 8.90% for the same period in 2014. The Company had an annualized return on average assets for the three months ended March 31, 2015 of 0.79% compared with 0.65% for the same period in 2014.

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

Interest Income, Interest Expense, and Net Interest Income

Interest income increased to $4,826,000 for the three months ended March 31, 2015 from $4,545,000 for the same period in 2014, an increase of 6.18%. Interest income increased primarily because of increased balances in the loan portfolio. The average rate received on earning assets decreased to 4.38% for the three months ended March 31, 2015 as compared with 4.60% for the comparable period in 2014. The rate on total average earning assets decreased primarily because of a decrease in market rates of interest resulting from a competitive banking environment. Management expects that competition will continue to pressure the rates we receive on loans and therefore may negatively impact our interest income.

Interest expense increased to $630,000 for the three months ended March 31, 2015 from $591,000 for the same period in 2014, an increase of 6.60%. This increase in interest expense resulted in large part from an increased balance in time deposits which typically pay depositors a higher rate of interest than do demand, money market, and savings accounts. The Bank’s average rate paid on interest earning deposits was 0.55% during the three month period ended March 31, 2015 as compared to 0.52% for the same period in 2014.

The fundamental source of the Bank’s net 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 months ended March 31, 2015 was $4,196,000 compared to $3,954,000 for the same period in 2014. The change in net interest income for the three months ended March 31, 2015 as compared with the comparable period in 2014 primarily is attributable to the increase in loan balances previously discussed.

39

The net interest margin was 3.81% for the three months ended March 31, 2015, as compared to 4.01% for the same period a year ago.

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

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 $918,000 for the three months ended March 31, 2015 from $723,000 for the three months ended March 31, 2014. This increase for the three months ended March 31, 2015 as compared to the same period last year was due primarily to an increase in mortgage fee income to $523,000 for the three months ended March 31, 2015 as compared to $289,000 for the comparable period last year. The increase in mortgage fee income is directly attributable to the production in the Bank’s Roanoke mortgage office in 2015. For the three months ended March 31, 2015, service charges, fees, and commissions decreased by $32,000 as compared to the three months ended March 31, 2014.

Purchase mortgage originations totaled $10,941,000 or 63% of the total mortgage loans originated in the three months ended March 31, 2015 as compared to $7,165,000 or 70% of the total mortgage loans originated in the same period in 2014. The increase in amount of purchase mortgage originations resulted from an increased market presence in Roanoke as well as an increase in home purchase activity. Refinancing activity also increased because rates remained at historically low levels. Despite the increase in refinancing, management anticipates that purchase mortgage originations will continue to represent a majority of mortgage originations. Management expects revenue from the mortgage segment will be under pressure during the rising interest rate environment. In addition, 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.

Net gain on sales of securities increased to $29,000 for the three months ended March 31, 2015 from a loss of $6,000 for the same period in 2014.

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.

Despite the recent increase in rates, management anticipates that residential mortgage rates will remain near the current historic lows for the remainder of 2015. Management expects that attractive rates coupled with the Mortgage division’s reputation in Region 2000 will allow us to maintain or increase revenue at the Mortgage division. Because many people able to refinance mortgages have already done so, management expects refinancing activity to continue to decrease. As a result of the rising interest rates, management expects that loans for home purchases (as opposed to refinances) will constitute the majority of mortgage originations.

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 2015.

40

The Bank provides insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary. The Bank has two 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 2015.

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2015 increased to $3,680,000 from $3,609,000, an increase of 1.97% for the comparable period in 2014. This resulted from increases for compensation and employee benefit expense, credit expense, and equipment, primarily related to the expansion into Roanoke and Charlottesville. These increases were offset in part by a decrease in data processing fees resulting from a renegotiated contract with a core processing provider and other outside expense from $613,000 for the three months ended March 31, 2014 to $486,000 for the same period in 2015 and a decrease in OREO expense from $57,000 for the three months ended March 31, 2014 to $5,000 for the same period in 2015. Total personnel expense was $2,083,000 for the three month period ended March 31, 2015 as compared to $1,885,000 for the same period in 2014.

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 two components – specific impairment and general reserves. As discussed below, loans having a risk rating of 7 or below that are significantly past due, and the borrower’s performance and financial condition provide evidence that it is probable that the Bank will be unable to collect all amounts due, are evaluated for specific impairment. The general reserve component is based on an evaluation of general economic conditions, actual and expected credit losses, loan performance measures. Based on the application of the loan loss calculation, the Bank provided $100,000 to the allowance for loan losses for the three month period ended March 31, 2015. This compares to a provision of $55,000 for the comparable period in 2014, representing an increase of 81.82%.

General reserves have trended downward for several quarters. This downward trend is directly attributable to the Bank’s charge-off history through the most recent negative credit cycle. A significant part of the general reserve calculation incorporates how a particular loan class performs over a period of time (that is, its charge-off history). Following the financial crisis in 2008 and beyond that disrupted the banking and financial systems, the Bank’s asset quality deteriorated. This deterioration resulted in a significant increase in charge-offs against the Bank’s loan portfolio. The elevated charge-offs continued through 2011. During this period, the Bank’s loan loss methodology, which is based in part on the Bank’s charge-off history, dictated an increase in the amount allocated to the general reserve component of the loan loss reserve. Beginning in 2011, asset quality began to rapidly improve. Because the Bank used a three year charge-off history in calculating general reserves, the general reserves remained elevated (relative to our historical norms) through 2013.

Charged-off loans, which are loans that management deems uncollectible, are charged against the allowance for loan losses and constitute a realized loss. Charged-off loans increased to $201,000 for the three months ended March 31, 2015 from $4,000 for the comparable period in 2014. While a charged off loan may subsequently be collected, such recoveries generally are realized over an extended period of time. In the three months ended March 31, 2015, the Bank had recoveries of charged off loans of $57,000 as compared with $24,000 for the comparable period in 2014.

41

In 2014, general reserves would have decreased significantly because, based on the three year charge off history, 2011 charge-off experience would no longer be reflected in the calculation. Management was concerned that this decrease would not accurately reflect the increased risk related to expansion in Charlottesville and Harrisonburg and the related loan growth, as well as continuing economic conditions. Throughout the fourth quarter of 2014, management and the Bank’s board of directors had numerous discussions to address this concern regarding the adequacy of the allowance for loan losses going forward. To ensure that the general reserves accurately incorporated the additional risks noted above, management recommended to the board that the historical loss history be expanded from 3 years to 4 years within the ALLL calculation. We believe the expanded four year charge-off history more closely reflects the ongoing economic cycle and the Bank’s current operations in the new markets. This recommendation to replace the three year history with the four year history was approved by the board.

In light of the current economic environment, management continues its ongoing assessment of specific impairment in the Bank’s loan portfolio. As set forth in the tables below, the Bank’s allowance arising from the specific impairment evaluation for the three months ended March 31, 2015 decreased as compared to the same period in 2014. That decrease was offset by an increase to the general reserves component of the reserve for the reasons discussed above.

The decrease in the percentage of the allowance for loan losses to total loans as of March 31, 2015 to 1.16% from 1.20% as of December 31, 2014 resulted from a decline in historical charge offs as discussed above. The overall balance in the allowance for loan losses decreased from $4,790,000 as of December 31, 2014 to $4,746,000 as of March 31, 2015. Management believes that the current allowance for loan losses is adequate.

42

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands)
	For the Three months Ended March 31, 2015
2015	Commercial			Commercial Real Estate			Consumer			Residential		Total
Allowance for Loan Losses:
Beginning Balance	$	1,235		$	2,194		$	812		$	549	$	4,790
Charge-offs		(80	)		(14	)		(107	)		—		(201	)
Recoveries		2			43			12			—		57
Provision		(150	)(1)		190			59			1		100
Ending Balance	$	1,007		$	2,413		$	776		$	550	$	4,746
Ending Balance: Individually evaluated for impairment	$	435		$	214		$	119		$	123	$	891
Ending Balance: Collectively evaluated for impairment		572			2,199			657			427		3,855
Totals:	$	1,007		$	2,413		$	776		$	550	$	4,746
Loans:
Ending Balance: Individually evaluated for impairment	$	1,077		$	5,430		$	248		$	1,743	$	8,498
Ending Balance: Collectively evaluated for impairment		62,319			208,996			77,476			51,029		399,820
Totals:	$	63,396		$	214,426		$	77,724		$	52,772	$	408,318

(1) The experience within the historical charge-off period used to calculate the allowance has improved which reduced the need for a provision relating to these segments.

43

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands)
	For the Year Ended December 31, 2014
2014	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	1,015		$	2,631		$	935		$	605		$	5,186
Charge-offs		(165	)		(187	)		(79	)		(120	)		(551	)
Recoveries		51			10			39			—			100
Provision		334			(260	)(1)		(83	)(1)		64			55
Ending Balance		1,235			2,194			812			549			4,790
Ending Balance: Individually evaluated for impairment	$	713		$	95		$	119		$	131		$	1,058
Ending Balance: Collectively evaluated for impairment		522			2,099			693			418			3,732
Totals:	$	1,235		$	2,194		$	812		$	549		$	4,790
Loans:
Ending Balance: Individually evaluated for impairment	$	3,423		$	5,351		$	140		$	1,763		$	10,677
Ending Balance: Collectively evaluated for impairment		59,836			201,911			76,240			50,699			388,686
Totals:	$	63,259		$	207,262		$	76,380		$	52,462		$	399,363

(1) The experience within the historical charge-off period used to calculate the allowance has improved which reduced the need for a provision relating to these segments.

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

	Three months ended March 31, (in thousands)
	2015			2014
Balance, beginning of period	$	4,790		$	5,186
Provision for loan losses		100			55
Loans charged off		(201	)		(4	)
Recoveries of loans charged off		57			24
Net (charge offs) recoveries		(144	)		20
Balance, end of period	$	4,746		$	5,261

No nonaccrual loans were excluded from impaired loan disclosure under current accounting rules at March 31, 2015 and December 31, 2014. If interest on these loans had been accrued, such income cumulatively would have approximated $915,000 and $1,173,000 for 2015 and 2014, respectively. Loan

44

payments received on nonaccrual loans are applied to principal. When a loan is placed on nonaccrual status there are several negative implications. First, all interest accrued but unpaid at the time of the classification is 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.

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

45

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.

Income Taxes

For the three months ended March 31, 2015, Financial had an income tax expense of $436,000 as compared to $302,000 for the three months ended March 31, 2014. This represents an effective tax rate of 31.99% for the three months ended March 31, 2015 as compared with 29.99% for the three months ended March 31, 2014.

46

Schedule I

Net Interest Margin Analysis

Average Balance Sheets

For the Quarter Ended March 31, 2015 and 2014

	2015								2014
	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)	$	401,983		$	4,613		4.65	%	$	348,611		$	4,180		4.86	%
Loans held for sale		1,565			15		3.89	%		634			8		5.12	%
Fed funds sold		10,059			5		0.20	%		922			3		1.32	%
Interest bearing bank balances		5,000			2		0.16	%		—			—		—
Securities (3)		27,046			196		2.94	%		51,287			373		2.94	%
Federal agency equities		1,486			5		1.36	%		1,295			6		1.88	%
CBB equity		116			—		—			116			—		—
Total earning assets		447,255			4,836		4.39	%		402,865			4,570		4.60	%
Allowance for loan losses		(4,762	)							(5,219	)
Non-earning assets		32,973								42,178
Total assets	$	475,466							$	439,824
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	103,875		$	56		0.22	%	$	96,660		$	52		0.22	%
Savings		118,413			66		0.23	%		129,925			66		0.21	%
Time deposits		110,710			332		1.22	%		98,166			301		1.24	%
Total interest bearing deposits		332,998			454		0.55	%		324,751			419		0.52	%
Other borrowed funds
Fed funds purchased		435			1		0.93	%		766			2		1.06	%
Repurchase agreements		—			—		—			900			1		0.45	%
Other borrowings		18,445			25		0.55	%		2,000			19		3.65	%
Capital Notes		10,000			150		6.00	%		10,000			150		6.00	%
Total interest-bearing liabilities		361,878			630		0.71	%		338,417			591		0.71	%
Non-interest bearing deposits		77,870								68,422
Other liabilities		619								843
Total liabilities		440,367								407,682
Stockholders’ equity		35,099								32,142
Total liabilities and Stockholders’ equity	$	475,466							$	439,824
Net interest income				$	4,206							$	3,979
Net interest margin							3.81	%							4.01	%
Interest spread							3.68	%							3.89	%

47

(1) Net accretion or amortization of 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.

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 three months ended March 31, 2015, 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.

48

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

Not applicable

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

Stock Repurchases

In October, 2014, Financial’s board of directors authorized a share repurchase program. The plan, which expires in October, 2015, authorizes Financial to buy back up to 100,000 shares of its common stock. The shares reported in the table as shares that may be repurchased under the plan represent shares eligible through the term of the plan. The repurchases are to be made from time to time in the open market as conditions allow and will be structured to comply with Commission Rule 10b-18. Management reports monthly to the Board of Directors on the status of the repurchase program. The Board of Directors has reserved the right to suspend, terminate, modify or cancel this repurchase program at any time for any reason. The following table lists shares repurchased during the quarter ended March 31, 2015 and the maximum amount available to repurchase under the repurchase plan.

Period	Total Number of Shares Purchased		Average Price Paid Per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
Month # 1 January 1 through January 31, 2015		0		N/A		0		100,000
Month # 2 February 1 through February 28, 2015		0		N/A		0		100,000
Month # 3 March 1 through March 31, 2015		0		N/A		0		100,000
Total		0		N/A		0		100,000

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

49

Item 5. Other Information

Not applicable

50

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 May 13, 2015
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 13, 2015
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 May 13, 2015
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income (unaudited) for the Three months Ended March 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three months Ended March 31, 2015 and 2014 (iv) Consolidated Statements of Cash Flows (unaudited) for the Three months Ended March 31, 2015 and 2014 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Three months Ended March 31, 2015 and 2014; (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.

51

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: May 13, 2015	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)
Date: May 13, 2015	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

52

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 May 13, 2015
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 13, 2015
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 May 13, 2015
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of March 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Income (unaudited) for the Three months Ended March 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the Three months Ended March 31, 2015 and 2014 (iv) Consolidated Statements of Cash Flows (unaudited) for the Three months Ended March 31, 2015 and 2014 (v) Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the Three months Ended March 31, 2015 and 2014; (vi) Notes to Unaudited Consolidated Financial Statements.*

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

53

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: May 13, 2015	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: May 13, 2015	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: May 13, 2015	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)
Date: May 13, 2015	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

XML

Loans, Allowance For Loan Losses and OREO And OREO (Changes In OREO Balance) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Loans, Allowance For Loan Losses and OREO [Abstract]
Balance at the beginning of the year (net)	$ 956	$ 1,451	$ 1,451
Transfers from loans	1,125		473
Capitalized costs
Writedowns			(167)
Sales proceeds			(780)
(Loss) on disposition		3	(21)
Balance at the end of the period (net)	$ 2,081		$ 956

XML

Securities (Summary Of Securities Held-To-Maturity And Securities Available-For-Sale) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Fair Value	$ 2,699	$ 2,699
Available-for-Sale, Amortized Costs	24,383	24,984
Available-for-Sale, Gross Unrealized Gains	129	114
Available-for-Sale, Gross Unrealized (Losses)	(409)	(703)
Available-for-sale, Fair Value	24,103	24,395
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	18,827	14,090
Available-for-Sale, Gross Unrealized Gains	11
Available-for-Sale, Gross Unrealized (Losses)	(385)	(592)
Available-for-sale, Fair Value	18,453	13,498
Mortgage-Backed Securities [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	2,041	2,042
Available-for-Sale, Gross Unrealized (Losses)	(14)	(60)
Available-for-sale, Fair Value	2,027	1,982
Municipals [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	3,515	7,832
Available-for-Sale, Gross Unrealized Gains	118	114
Available-for-Sale, Gross Unrealized (Losses)	(10)	(47)
Available-for-sale, Fair Value	3,623	7,899
Other Debt Securities [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs		1,020
Available-for-Sale, Gross Unrealized (Losses)		(4)
Available-for-sale, Fair Value		1,016
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-Maturity, Amortized Costs	2,526	2,528
Held-to-Maturity, Gross Unrealized Gains	173	171
Held-to-Maturity, Fair Value	$ 2,699	$ 2,699

XML

Earnings Per Common Share (EPS) (Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share) (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Common Share (EPS) [Abstract]
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	66,752	111,371

XML

Loans, Allowance For Loan Losses and OREO (Age Analysis Of Past Due Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	$ 1,227	$ 980
60 - 89 Days Past Due	528	128
Greater than 90 Days	1,785	3,232
Total Past Due	3,540	4,340
Current	404,778	395,023
Total loans	408,318	399,363
Recorded Investment > 90 Days & Accruing
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	168	21
60 - 89 Days Past Due		80
Greater than 90 Days	679	1,965
Total Past Due	847	2,066
Current	62,549	61,193
Total loans	63,396	63,259
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	19	192
Greater than 90 Days		212
Total Past Due	19	404
Current	79,006	77,304
Total loans	79,025	77,708
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	229	86
Greater than 90 Days	137	70
Total Past Due	366	156
Current	121,301	119,019
Total loans	121,667	119,175
Recorded Investment > 90 Days & Accruing
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	460	460
Total Past Due	460	460
Current	13,274	9,919
Total loans	13,734	10,379
Recorded Investment > 90 Days & Accruing
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due		11
60 - 89 Days Past Due	23
Total Past Due	23	11
Current	5,064	5,749
Total loans	5,087	5,760
Recorded Investment > 90 Days & Accruing
Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	178	15
60 - 89 Days Past Due	296
Total Past Due	474	15
Current	72,163	70,605
Total loans	72,637	70,620
Recorded Investment > 90 Days & Accruing
Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	544	626
60 - 89 Days Past Due	209	48
Greater than 90 Days	509	525
Total Past Due	1,262	1,199
Current	44,488	43,745
Total loans	45,750	44,944
Recorded Investment > 90 Days & Accruing
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	89	29
Total Past Due	89	29
Current	6,933	7,489
Total loans	7,022	7,518
Recorded Investment > 90 Days & Accruing

XML

Loans, Allowance For Loan Losses and OREO (Summary Of Loans, Net) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Loans, Allowance For Loan Losses and OREO [Abstract]
Commercial	$ 63,396	$ 63,259
Commercial real estate	214,426	207,262
Consumer	77,724	76,380
Residential	52,772	52,462
Total loans	408,318	399,363
Less allowance for loan losses	4,746	4,790
Net loans	$ 403,572	$ 394,573

XML

Use Of Estimates

3 Months Ended

Mar. 31, 2015

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.

XML

Loans, Allowance For Loan Losses and OREO (Credit Quality Information-By Class) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 408,318	$ 399,363
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	385,737	376,517
Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	7,305	5,841
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,238	5,667
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	9,038	11,338
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	63,396	63,259
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	60,888	58,745
Commercial [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	676	725
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	737	224
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,095	3,565
Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	79,025	77,708
Commercial Mortgages-Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	72,558	71,087
Commercial Mortgages-Owner Occupied [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,732	1,718
Commercial Mortgages-Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,209	1,216
Commercial Mortgages-Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,526	3,687
Commercial Mortgages-Owner Occupied [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	121,667	119,175
Commercial Mortgages-Non-Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	113,064	112,560
Commercial Mortgages-Non-Owner Occupied [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,095	1,586
Commercial Mortgages-Non-Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	4,059	3,971
Commercial Mortgages-Non-Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,449	1,058
Commercial Mortgages-Non-Owner Occupied [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	13,734	10,379
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	13,274	9,919
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	460	460
Commercial Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	5,087	5,760
Consumer Unsecured [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	5,087	5,673
Consumer Unsecured [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		87
Consumer Unsecured [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	72,637	70,620
Consumer Secured [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	71,433	69,527
Consumer Secured [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	550	554
Consumer Secured [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	127	136
Consumer Secured [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	527	403
Consumer Secured [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	45,750	44,944
Residential Mortgages [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	42,500	41,578
Residential Mortgages [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,252	1,258
Residential Mortgages [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	106	120
Residential Mortgages [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,892	1,988
Residential Mortgages [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	7,022	7,518
Residential Consumer Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,933	7,428
Residential Consumer Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	89	90
Residential Consumer Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables

XML

Fair Value Measurements (Information Regarding Quantitative Inputs Used To Value Assets Classified As Level 3) (Details) (Significant Unobservable Inputs (Level 3) [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	3,128
Impaired Loans [Member] | Maximum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	10.00%
Discount for lack of marketability and age of appraisal	25.00%
Impaired Loans [Member] | Minimum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	5.00%
Discount for lack of marketability and age of appraisal	0.00%
Impaired Loans [Member] | Weighted Average [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	6.00%
Discount for lack of marketability and age of appraisal	15.00%
OREO [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	2,081
OREO [Member] | Maximum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	10.00%
Discount for lack of marketability and age of appraisal	25.00%
OREO [Member] | Minimum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	5.00%
Discount for lack of marketability and age of appraisal	0.00%
OREO [Member] | Weighted Average [Member] | Discounted Appraised Value [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

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	Mar. 31, 2015		Dec. 31, 2014		Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	$ 3,128	[1]	$ 3,045	[1]
Loans held for sale	1,742		1,030
Other real estate owned	2,081		956		1,451
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]
Loans held for sale	1,742		1,030
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	3,128	[1]	3,045	[1]
Loans held for sale
Other real estate owned	$ 2,081		$ 956

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

XML

Fair Value Measurements (Fair Value Carrying And Notional Amounts) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	$ 17,595	$ 12,743
Federal funds sold	12,700
Available-for-sale Securities	24,103	24,395
Held-to-maturity Securities	2,526	2,528
Restricted stock	1,313	1,739
Interest receivable	1,164	1,246
BOLI	9,579	9,512
Federal funds purchased		3,189
Interest payable	82	58
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	17,595	12,743
Federal funds sold	12,700
Available-for-sale Securities
FHLB borrowings		10,000
Federal funds purchased		3,189
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities	24,103	24,395
Held-to-maturity Securities	2,699	2,699
Restricted stock	1,313	1,739
Loans held for sale	1,742	1,030
Interest receivable	1,164	1,246
BOLI	9,579	9,512
Deposits	439,840	400,351
FHLB borrowings	2,001	2,005
Capital notes	10,003	10,023
Interest payable	82	58
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities
Loans, net	409,666	401,281
Carrying Amounts [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	17,595	12,743
Federal funds sold	12,700
Available-for-sale Securities	24,103	24,395
Held-to-maturity Securities	2,526	2,528
Restricted stock	1,313	1,739
Loans, net	403,572	394,573
Loans held for sale	1,742	1,030
Interest receivable	1,164	1,246
BOLI	9,579	9,512
Deposits	438,806	399,497
FHLB borrowings	2,000	12,000
Federal funds purchased		3,189
Capital notes	10,000	10,000
Interest payable	82	58
Fair Values [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	17,595	12,743
Federal funds sold	12,700
Available-for-sale Securities	24,103	24,395
Held-to-maturity Securities	2,699	2,699
Restricted stock	1,313	1,739
Loans, net	409,666	401,281
Loans held for sale	1,742	1,030
Interest receivable	1,164	1,246
BOLI	9,579	9,512
Deposits	439,840	400,351
FHLB borrowings	2,001	12,005
Federal funds purchased		3,189
Capital notes	10,003	10,023
Interest payable	$ 82	$ 58

XML

Capital Notes (Details) (USD $)	1 Months Ended	3 Months Ended
	Apr. 30, 2012	Mar. 31, 2015	Sep. 30, 2012
Capital Notes [Abstract]
Capital notes issued			$ 10,000,000
Debt instrument, interest rate, stated percentage		6.00%
Debt instrument, maturity date		Apr. 01, 2017
Duration of written notice to holders		30 days
Payment on maturity principal	$ 7,000,000

XML

Basis Of Presentation

3 Months Ended

Mar. 31, 2015

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 months ended March 31, 2015 and 2014 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, 2014.  These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2014 included in Financial’s Annual Report on Form 10-K.  Results for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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 Town 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, 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.

XML

Securities (Narrative) (Details)	Mar. 31, 2015 security
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	20
US Agency Obligations [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	18
Municipals [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	2
S&P Rated AAA [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	1
S&P Rated AA [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	19

XML

Loans, Allowance For Loan Losses and OREO (Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable, Impaired [Line Items]
Totals: Recorded Investment	$ 8,498	$ 10,677
Totals: Unpaid Principal Balance	10,041	12,619
Related Allowance	891	1,058
Totals: Average Recorded Investment	9,589	10,834
Totals: Interest Income Recognized	107	480
Commercial [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	50	2,017
With No Related Allowance Recorded: Unpaid Principal Balance	463	2,280
With No Related Allowance Recorded: Average Recorded Investment	1,034	2,641
With No Related Allowance Recorded: Interest Income Recognized		63
With An Allowance Recorded: Recorded Investment	1,027	1,406
With An Allowance Recorded: Unpaid Principal Balance	1,085	1,861
With An Allowance Recorded: Average Recorded Investment	1,217	990
With An Allowance Recorded: Interest Income Recognized	7	29
Totals: Recorded Investment	1,077	3,423
Totals: Unpaid Principal Balance	1,548	4,141
Related Allowance	435	713
Totals: Average Recorded Investment	2,251	3,631
Totals: Interest Income Recognized	7	92
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	2,803	2,835
With No Related Allowance Recorded: Unpaid Principal Balance	2,803	2,835
With No Related Allowance Recorded: Average Recorded Investment	2,819	1,687
With No Related Allowance Recorded: Interest Income Recognized	41	152
With An Allowance Recorded: Recorded Investment	639	852
With An Allowance Recorded: Unpaid Principal Balance	639	1,029
With An Allowance Recorded: Average Recorded Investment	746	1,636
With An Allowance Recorded: Interest Income Recognized	7	36
Totals: Recorded Investment	3,442	3,687
Totals: Unpaid Principal Balance	3,442	3,864
Related Allowance	40	63
Totals: Average Recorded Investment	3,565	3,323
Totals: Interest Income Recognized	48	188
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	1,030	1,078
With No Related Allowance Recorded: Unpaid Principal Balance	1,030	1,128
With No Related Allowance Recorded: Average Recorded Investment	1,054	1,041
With No Related Allowance Recorded: Interest Income Recognized	13	75
With An Allowance Recorded: Recorded Investment	498	126
With An Allowance Recorded: Unpaid Principal Balance	549	126
With An Allowance Recorded: Average Recorded Investment	312	173
With An Allowance Recorded: Interest Income Recognized	7	7
Totals: Recorded Investment	1,528	1,204
Totals: Unpaid Principal Balance	1,579	1,254
Related Allowance	83	32
Totals: Average Recorded Investment	1,366	1,214
Totals: Interest Income Recognized	20	82
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	84	460
With No Related Allowance Recorded: Unpaid Principal Balance	548	1,194
With No Related Allowance Recorded: Average Recorded Investment	272	606
With An Allowance Recorded: Recorded Investment	376
With An Allowance Recorded: Unpaid Principal Balance	666
With An Allowance Recorded: Average Recorded Investment	188
Totals: Recorded Investment	460	460
Totals: Unpaid Principal Balance	1,214	1,194
Related Allowance	91
Totals: Average Recorded Investment	460	606
Consumer Unsecured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment
With No Related Allowance Recorded: Unpaid Principal Balance
With No Related Allowance Recorded: Average Recorded Investment
With No Related Allowance Recorded: Interest Income Recognized
Consumer Secured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	129	21
With No Related Allowance Recorded: Unpaid Principal Balance	129	21
With No Related Allowance Recorded: Average Recorded Investment	75	21
With No Related Allowance Recorded: Interest Income Recognized	1	1
With An Allowance Recorded: Recorded Investment	119	119
With An Allowance Recorded: Unpaid Principal Balance	119	119
With An Allowance Recorded: Average Recorded Investment	119	80
With An Allowance Recorded: Interest Income Recognized	2	7
Totals: Recorded Investment	248	140
Totals: Unpaid Principal Balance	248	140
Related Allowance	119	119
Totals: Average Recorded Investment	194	101
Totals: Interest Income Recognized	3	8
Residential Mortgages [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	922	934
With No Related Allowance Recorded: Unpaid Principal Balance	1,049	1,058
With No Related Allowance Recorded: Average Recorded Investment	928	702
With No Related Allowance Recorded: Interest Income Recognized	18	58
With An Allowance Recorded: Recorded Investment	821	829
With An Allowance Recorded: Unpaid Principal Balance	961	968
With An Allowance Recorded: Average Recorded Investment	825	1,257
With An Allowance Recorded: Interest Income Recognized	11	52
Totals: Recorded Investment	1,743	1,763
Totals: Unpaid Principal Balance	2,010	2,026
Related Allowance	123	131
Totals: Average Recorded Investment	1,753	1,959
Totals: Interest Income Recognized	29	110
Residential Consumer Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment
With No Related Allowance Recorded: Unpaid Principal Balance
With No Related Allowance Recorded: Average Recorded Investment
With No Related Allowance Recorded: Interest Income Recognized
With An Allowance Recorded: Recorded Investment
With An Allowance Recorded: Unpaid Principal Balance
With An Allowance Recorded: Average Recorded Investment
With An Allowance Recorded: Interest Income Recognized
Totals: Recorded Investment
Totals: Unpaid Principal Balance
Related Allowance
Totals: Average Recorded Investment
Totals: Interest Income Recognized

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 17,595	$ 12,743
Federal Funds Sold	12,700
Total cash and cash equivalents	30,295	12,743
Securities held-to-maturity (fair value of $2,699 in 2015 and $2,699 in 2014)	2,526	2,528
Securities available-for-sale, at fair value	24,103	24,395
Restricted stock, at cost	1,313	1,739
Loans, net of allowance for loan losses of $4,746 in 2015 and $4,790 in 2014	403,572	394,573
Loans held for sale	1,742	1,030
Premises and equipment, net	9,151	9,262
Interest receivable	1,164	1,246
Cash value - bank owned life insurance	9,579	9,512
Other real estate owned, net of valuation allowance	2,081	956
Income taxes receivable	508	945
Deferred tax assets, net	1,116	1,221
Other assets	857	715
Total assets	488,007	460,865
Deposits
Noninterest bearing demand	82,171	74,682
NOW, money market and savings	218,825	227,761
Time	137,810	97,054
Total deposits	438,806	399,497
Federal funds purchased		3,189
FHLB borrowings	2,000	12,000
Capital notes	10,000	10,000
Interest payable	82	58
Other liabilities	1,381	1,345
Total liabilities	452,269	426,089
Stockholders' equity
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 3,371,616 as of March 31, 2015 and December 31, 2014	7,215	7,215
Preferred stock; authorized 1,000,000 shares; none issued and outstanding as of March 31, 2015 and December 31, 2014
Additional paid-in-capital	22,919	22,919
Retained earnings	5,789	5,031
Accumulated other comprehensive (loss)	(185)	(389)
Total stockholders' equity	35,738	34,776
Total liabilities and stockholders' equity	$ 488,007	$ 460,865

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Cash flows from operating activities
Net Income	$ 927	$ 705
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	193	193
Net amortization and accretion of premiums and discounts on securities	12	84
(Gain) loss on sales of available for-sale-securities	(29)	6
Provision for loan losses	100	55	55
(Gain) on sale of other real estate owned		(3)	21
Impairment of other real estate owned		46
Decrease (increase) in loans held-for-sale	(712)	90
(Increase) in cash value of life insurance	(67)	(71)
Decrease in interest receivable	82	4
(Increase) in other assets	(142)	(64)
Decrease in income taxes receivable	437	303
Increase in interest payable	24	2
Increase (decrease) in other liabilities	36	(100)
Net cash provided by operating activities	861	1,250
Cash flows from investing activities
Proceeds from maturities and calls of securities held-to-maturity		1,000
Purchases of securities available-for-sale	(5,740)
Proceeds from maturities, calls and paydowns of securities available-for-sale	1,000	60
Proceeds from sale of securities available-for-sale	5,360	1,886
Redemption of Federal Home Loan Bank stock	426	139
Origination of loans, net of principal collected	(10,224)	(9,523)
Purchases of premises and equipment	(82)	(188)
Net cash (used in) investing activities	(9,260)	(6,626)
Cash flows from financing activities
Net increase in deposits	39,309	10,728
Net (decrease) in federal funds purchased	(3,189)	(4,108)
Net (decrease) in Federal Home Loan Bank advances	(10,000)
Dividends paid to common stockholders	(169)
Net cash provided by financing activities	25,951	6,620
Increase in cash and cash equivalents	17,552	1,244
Cash and cash equivalents at beginning of period	12,743	16,671	16,671
Cash and cash equivalents at end of period	30,295	17,915	12,743
Non cash transactions
Transfer of loans to other real estate owned	1,125	384
Loans made to finance the sale of other real estate owned		78
Fair value adjustment for securities available-for-sale	309	1,279
Cash transactions
Cash paid for interest	606	589
Cash paid for taxes

XML

Business Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015 segment	Mar. 31, 2014	Dec. 31, 2014
Segment Reporting Information [Line Items]
Number of reportable segments	2
Net interest income	$ 4,196	$ 3,954
Provision for loan losses	100	55	55
Net interest income after provision for loan losses	4,096	3,899
Noninterest income	947	717
Noninterest expenses	3,680	3,609
Income before income taxes	1,363	1,007
Income tax expense	436	302
Net Income	927	705
Total assets	488,007	442,584	460,865
Community Banking [Member]
Segment Reporting Information [Line Items]
Net interest income	4,196	3,954
Provision for loan losses	100	55
Net interest income after provision for loan losses	4,096	3,899
Noninterest income	413	428
Noninterest expenses	3,293	3,350
Income before income taxes	1,216	977
Income tax expense	386	292
Net Income	830	685
Total assets	486,184	440,610
Mortgage [Member]
Segment Reporting Information [Line Items]
Noninterest income	534	289
Noninterest expenses	387	259
Income before income taxes	147	30
Income tax expense	50	10
Net Income	97	20
Total assets	$ 1,823	$ 1,974

XML

Business Segments (Tables)

3 Months Ended

Mar. 31, 2015

Business Segments [Abstract]

Schedule Of Segment Reporting Information, By Segment

Business Segments
	Community
	Banking	Mortgage	Total
For the three months ended March 31, 2015
Net interest income	$        4,196	$            -	$        4,196
Provision for loan losses	100	-	100
Net interest income after provision for loan losses	4,096	-	4,096
Noninterest income	413	534	947
Noninterest expenses	3,293	387	3,680
Income before income taxes	1,216	147	1,363
Income tax expense	386	50	436
Net income	$           830	$          97	$           927
Total assets	$    486,184	$     1,823	$    488,007
For the three months ended March 31, 2014
Net interest income	$        3,954	$            -	$        3,954
Provision for loan losses	55	-	55
Net interest income after provision for loan losses	3,899	-	3,899
Noninterest income	428	289	717
Noninterest expenses	3,350	259	3,609
Income before income taxes	977	30	1,007
Income tax expense	292	10	302
Net income	$           685	$          20	$           705
Total assets	$    440,610	$     1,974	$    442,584

XML

Loans, Allowance For Loan Losses and OREO (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015 contract	Mar. 31, 2014 contract	Dec. 31, 2014
Loans, Allowance For Loan Losses and OREO [Abstract]
Amount of Loan Modification	$ 20,000
Number of loans classified as TDRs		0
Number of Contracts (That Subsequently Defaulted)	0	0
Other real estate owned	$ 65,000		$ 65,000

XML

Earnings Per Common Share (EPS) (Earnings Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Earnings Per Common Share (EPS) [Abstract]
Net income	$ 927	$ 705
Basic EPS weighted average shares outstanding	3,371,616	3,364,874
Diluted EPS weighted average shares outstanding	3,371,616	3,364,874
Basic earnings per common share	$ 0.27	$ 0.21
Diluted earnings per common share	$ 0.27	$ 0.21

XML

Consolidated Statements Of Changes In Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) [Member]	Total
Balance at Dec. 31, 2013	$ 7,201	$ 22,868	$ 2,124	$ (2,421)	$ 29,772
Balance, shares at Dec. 31, 2013	3,364,874
Net Income			705		705
Other Comprehensive Income (Loss)				846	846
Balance at Mar. 31, 2014	7,201	22,868	2,829	(1,575)	31,323
Balance, shares at Mar. 31, 2014	3,364,874
Balance at Dec. 31, 2014	7,215	22,919	5,031	(389)	34,776
Balance, shares at Dec. 31, 2014	3,371,616
Net Income			927		927
Dividends paid on common stock ($0.05 per share)			(169)		(169)
Other Comprehensive Income (Loss)				204	204
Balance at Mar. 31, 2015	$ 7,215	$ 22,919	$ 5,789	$ (185)	$ 35,738
Balance, shares at Mar. 31, 2015	3,371,616

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Consolidated Balance Sheets [Abstract]
Securities held-to-maturity	$ 2,699	$ 2,699
Loans, allowance for loan losses	$ 4,746	$ 4,790
Common stock, par value	$ 2.14	$ 2.14
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	3,371,616	3,371,616
Common stock, shares outstanding	3,371,616	3,371,616
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2015

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 10– Recent accounting pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).”  The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).  The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted.   The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).”  The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU applies to any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition, most industry-specific guidance, and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts.” The core principle of the guidance is that an entity should recognize revenue to depict the

Note 10 – Recent accounting pronouncements (continued)

transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To be in alignment with the core principle, an entity must apply a five step process including: identification of the contract(s) with a customer, identification of performance obligations in the contract(s), determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue when (or as) the entity satisfies a performance obligation.  Additionally, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer have also been amended to be consistent with the guidance on recognition and measurement.  The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. In April 2015, the FASB voted in favor of a one year deferral of the effective date of this amendment.  An exposure draft is expected with a 30 day comment period. The Company is currently assessing the impact that ASU 2014-09 will have on its consolidated financial statements.  

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.”  This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. The new guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The amendments in the ASU also require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.  The amendments in this ASU are effective for the first interim or annual period beginning after December 15, 2014; however, the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted.  The adoption of the new guidance did not have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-14, “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.”  The amendments in this ASU apply to creditors that hold government-guaranteed mortgage loans and are intended to eliminate the diversity in practice related to the classification of these guaranteed loans upon foreclosure.  The new guidance stipulates that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if (1) the loan has a government guarantee that is not separable from the loan prior to foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the other receivable should be measured on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014. Entities may adopt the amendments on a prospective basis or modified retrospective basis as of the beginning of the annual period of adoption; however, the entity must apply the same method of transition as elected under ASU 2014-04. Early adoption is permitted provided the entity has already adopted ASU 2014-04.  The adoption of the new guidance did not have a material impact on our consolidated financial statements.

Note 10 – Recent accounting pronouncements (continued)

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”  This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period.  If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice.  The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted.  The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.  

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”  The amendments in this ASU eliminate from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions.  Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.  If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.  The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  The Company does not expect the adoption of ASU 2015-01 to have a material impact on its consolidated financial statements.  

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.”  The amendments in this ASU are intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions).  In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification™ and improves current GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (VIE), and changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.  The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption is permitted, including adoption in an interim period. ASU 2015-02 may be applied retrospectively in previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated.  The Company does not expect the adoption of ASU 2015-02 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.”  The amendments in this ASU are intended to simplify the presentation of debt issuance costs.  These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement

Note 10 – Recent accounting pronouncements (continued)

guidance for debt issuance costs are not affected by the amendments in this ASU.  The amendments in this ASU are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU 2015-03 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”  The amendments in this ASU provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments do not change the accounting for a customer’s accounting for service contracts. As a result of the amendments, all software licenses within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets.  The amendments in this ASU are effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted. An entity can elect to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively.  The Company is currently assessing the impact that ASU 2015-05 will have on its consolidated financial statements.  

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2015	May 13, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015
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		3,371,616

XML

Earnings Per Common Share (EPS) (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Common Share (EPS) [Abstract]

Earnings Per Share

	Three Months Ended
	March 31,
	2015	2014
Net income	$        927,000	$        705,000
Basic EPS weighted average shares outstanding	3,371,616	3,364,874
Incremental shares attributable to stock options	-	-
Diluted EPS weighted average shares outstanding	3,371,616	3,364,874
Basic earnings per common share	$              0.27	$              0.21
Diluted earnings per common share	$              0.27	$              0.21

Schedule Of Antidilutive Securities Excluded From Computation Of Earnings Per Share

	Three months ended
	March 31,
	2015	2014
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	66,752	111,371

XML

Consolidated Statements Of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Interest Income
Loans	$ 4,628	$ 4,188
Securities
US Government and agency obligations	140	180
Mortgage backed securities	10	33
Municipals - taxable	25	73
Municipals - taxable exempt	10	47
Dividends	5	6
Other (Corporates)	1	15
Interest bearing deposits	2
Federal Funds sold	5	3
Total interest income	4,826	4,545
Deposits
NOW, money market savings	122	118
Time Deposits	332	301
Federal Funds purchased	1	2
FHLB borrowings	25	19
Reverse repurchase agreements		1
Capital notes	150	150
Total interest expense	630	591
Net interest income	4,196	3,954
Provision for loan losses	100	55
Net interest income after provision for loan losses	4,096	3,899
Other Operating Income
Mortgage income	523	289
Service charges, fees and commissions	318	350
Increase in cash value of life insurance	67	71
Other	10	13
Gain (loss) on sales of available-for-sale securities, net	29	(6)
Total other operating income	947	717
Other operating expenses
Salaries and employee benefits	2,083	1,885
Occupancy	289	313
Equipment	299	287
Supplies	96	105
Professional, data processing, and other outside expense	486	613
Marketing	76	97
Credit expense	73	37
Other real estate expenses	5	57
FDIC insurance expense	74	30
Other	199	185
Total other operating expenses	3,680	3,609
Income before income taxes	1,363	1,007
Income tax expense	436	302
Net Income	$ 927	$ 705
Weighted average common shares outstanding - basic	3,371,616	3,364,874
Weighted average common shares outstanding- diluted	3,371,616	3,364,874
Earnings per common share - basic	$ 0.27	$ 0.21
Earnings per common share - diluted	$ 0.27	$ 0.21

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2015

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.

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:

Fair Value on a Recurring Basis

Securities Available-for-Sale

Fair values of securities, excluding restricted investments in Federal Reserve Bank stock, Federal Home Loan Bank stock, and Community Bankers’ Bank stock are based on quoted prices available in an active market. If quoted prices are available, these 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.

Restricted securities noted above are classified as such because their ownership is restricted to certain types of entities and there is no established market for their resale. When the stock is repurchased, the shares are repurchased at the stock’s book value; therefore, the carrying amount of restricted securities approximate fair value. Restricted securities are considered to be Level 2.

Note 5 – Fair Value Measurements (continued)

		Carrying Value at March 31, 2015 (in thousands)
Description	Balance as of March 31, 2015	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US agency obligations	$ 18,453	$       -	$ 18,453	$       -
Mortgage-backed securities	2,027	-	2,027	-
Municipals	3,623	-	3,623	-
Total available-for-sale securities	$ 24,103	$       -	$ 24,103	$       -
		Carrying Value at December 31, 2014 (in thousands)
Description	Balance as of December 31, 2014	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US agency obligations	$ 13,498	$       -	$ 13,498	$       -
Mortgage-backed securities	1,982	-	1,982	-
Municipals	7,899	-	7,899	-
Corporates	1,016	-	1,016	-
Total available-for-sale securities	$ 24,395	$       -	$ 24,395	$       -

Fair Value on a Non-recurring Basis

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 when due. 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.

Note 5 – Fair Value Measurements (continued)

Loans held for sale

Loans held for sale are carried at cost which approximates 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 March 31, 2015.  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.

Any fair value adjustments are recorded in the period incurred and expensed against current earnings.  The carrying values of all OREO properties are considered to be Level 3.

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

		Carrying Value at March 31, 2015
Description	Balance as of March 31, 2015	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$ 3,128	$     -	$          -	$ 3,128
Loans held for sale	1,742	-	1,742	-
Other real estate owned	2,081	-	-	2,081

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

		Carrying Value at December 31, 2014
Description	Balance as of December 31, 2014	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$ 3,045	$      -	$       -	$ 3,045
Loans held for sale	1,030	-	1,030	-
Other real estate owned	956	-	-	956

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

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 March 31, 2015 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$ 3,128	Discounted appraised value	Selling cost	5% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)
OREO	2,081	Discounted appraised value	Selling cost	5% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)

Financial Instruments

Cash, cash equivalents and Federal Funds sold

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

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 impaired loans are estimated as described above.  The carrying values of all loans are considered to be Level 3.

Bank Owned Life Insurance (BOLI)

The carrying amount approximates fair value.  The carrying values of all BOLI is considered to be Level 2.

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.  The carrying values of all deposits are considered to be Level 2.

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.  The carrying values of all FHLB borrowings are considered to be Level 2.

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.  The carrying values of all short term borrowings are considered to be Level 2.

Capital notes

Fair values of capital notes are based on market prices for debt securities having similar maturity and interest rate characteristics.  The carrying values of all capital notes are considered to be Level 2.

Accrued interest

The carrying amounts of accrued interest approximate fair value.  The carrying values of all accrued interest is considered to be Level 2.

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 March 31, 2015 and December 31, 2014 and therefore are not included in the table below.

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 March 31, 2015 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	$ 17,595		$ 17,595	$      -	$      -	$ 17,595
Fed funds sold	12,700		12,700	-	-	12,700
Securities
Available-for-sale	24,103		-	24,103	-	24,103
Held-to-maturity	2,526		-	2,699	-	2,699
Restricted stock	1,313			1,313		1,313
Loans, net	403,572		-	-	409,666	409,666
Loans held for sale	1,742		-	1,742	-	1,742
Interest receivable	1,164		-	1,164	-	1,164
BOLI	9,579		-	9,579	-	9,579
Liabilities
Deposits	$ 438,806		$      -	$ 439,840	$      -	$ 439,840
FHLB borrowings	2,000		-	2,001	-	2,001
Capital notes	10,000		-	10,003	-	10,003
Interest payable	82		-	82	-	82

		Fair Value Measurements at December 31, 2014 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	$ 12,743	$ 12,743	$      -	$      -	$ 12,743
Securities
Available-for-sale	24,395	-	24,395	-	24,395
Held-to-maturity	2,528	-	2,699	-	2,699
Restricted stock	1,739	-	1,739		1,739
Loans, net	394,573	-	-	401,281	401,281
Loans held for sale	1,030	-	1,030	-	1,030
Interest receivable	1,246	-	1,246	-	1,246
BOLI	9,512	-	9,512	-	9,512
Liabilities
Deposits	$ 399,497	$      -	$ 400,351	$      -	$ 400,351
FHLB borrowings	12,000	10,000	2,005	-	12,005
Federal funds purchased	3,189	3,189	-	-	3,189
Capital notes	10,000	-	10,023	-	10,023
Interest payable	58	-	58	-	58

Note 5 – Fair Value Measurements (continued)

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 Financial’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of Financial’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 Financial. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest  rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.

Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate Financial’s overall interest rate risk.

XML

Stock Based Compensation

3 Months Ended

Mar. 31, 2015

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.

Note 4 – Stock Based Compensation (continued)

Stock option plan activity for the three months ended March 31, 2015 is summarized below:

			Weighted
		Weighted	Average
		Average	Remaining
		Exercise	Contractual	Intrinsic
	Shares	Price	Life (in years)	Value
Options outstanding, January 1, 2015	69,372	$      11.44
Exercised	-	-
Forfeited	(2,620)	10.84
Options outstanding, March 31, 2015	66,752	11.46	0.75	$              -
Options exercisable, March 31, 2015	66,752	$      11.46	0.75	$              -

Intrinsic value is calculated by subtracting the exercise price of option shares from the market price of underlying shares as of March 31, 2015 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.

XML

Loans, Allowance For Loan Losses and OREO (Tables)

3 Months Ended

Mar. 31, 2015

Loans, Allowance For Loan Losses and OREO [Abstract]

Summary Of Loans, Net

	As of:
	March 31,	December 31,
	2015	2014
Commercial	$ 63,396	$ 63,259
Commercial real estate	214,426	207,262
Consumer	77,724	76,380
Residential	52,772	52,462
Total loans	408,318	399,363
Less allowance for loan losses	4,746	4,790
Net loans	$ 403,572	$ 394,573

Loans On Non-Accrual Status

Loans on Non-Accrual Status
(dollars in thousands)
	As of
	March 31, 2015	December 31, 2014
Commercial	$ 679	$ 1,965
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	-	212
Commercial Mortgages-Non-Owner Occupied	137	70
Commercial Construction	460	460
Consumer
Consumer Unsecured	-	-
Consumer Secured	19	20
Residential:
Residential Mortgages	718	689
Residential Consumer Construction	89	90
Totals	$ 2,102	$ 3,506

Changes In OREO Balance

OREO Changes
(dollars in thousands)
	Three Months ended	Year ended
	March 31, 2015	December 31, 2014
Balance at the beginning of the year (net)	$ 956	$ 1,451
Transfers from loans	1,125	473
Capitalized costs	-	-
Writedowns	-	(167)
Sales proceeds	-	(780)
(Loss) on disposition	-	(21)
Balance at the end of the period (net)	$ 2,081	$ 956

Impaired Loans

	Impaired Loans
	(dollars in thousands)
	As of and For the Three Months Ended March 31, 2015
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2015	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$ 50	$ 463	$      -	$ 1,034	$    -
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,803	2,803	-	2,819	41
Commercial Mortgage Non-Owner Occupied	1,030	1,030	-	1,054	13
Commercial Construction	84	548	-	272	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	129	129	-	75	1
Residential
Residential Mortgages	922	1,049	-	928	18
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$ 1,027	$ 1,085	$ 435	$ 1,217	$ 7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	639	639	40	746	7
Commercial Mortgage Non-Owner Occupied	498	549	83	312	7
Commercial Construction	376	666	91	188	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	119	119	119	119	2
Residential
Residential Mortgages	821	961	123	825	11
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$ 1,077	$ 1,548	$ 435	$ 2,251	$ 7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,442	3,442	40	3,565	48
Commercial Mortgage Non-Owner Occupied	1,528	1,579	83	1,366	20
Commercial Construction	460	1,214	91	460	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	248	248	119	194	3
Residential
Residential Mortgages	1,743	2,010	123	1,753	29
Residential Consumer Construction	-	-	-	-	-
	$ 8,498	$ 10,041	$ 891	$ 9,589	$ 107

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2014
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2014	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$ 2,017	$ 2,280	$     -	$ 2,641	$ 63
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,835	2,835	-	1,687	152
Commercial Mortgage Non-Owner Occupied	1,078	1,128	-	1,041	75
Commercial Construction	460	1,194	-	606	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	21	21	-	21	1
Residential
Residential Mortgages	934	1,058	-	702	58
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$ 1,406	$ 1,861	$ 713	$ 990	$ 29
Commercial Real Estate
Commercial Mortgages-Owner Occupied	852	1,029	63	1,636	36
Commercial Mortgage Non-Owner Occupied	126	126	32	173	7
Commercial Construction	-	-	-	-	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	119	119	119	80	7
Residential
Residential Mortgages	829	968	131	1,257	52
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$ 3,423	$ 4,141	$ 713	$ 3,631	$ 92
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,687	3,864	63	3,323	188
Commercial Mortgage Non-Owner Occupied	1,204	1,254	32	1,214	82
Commercial Construction	460	1,194	-	606	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	140	140	119	101	8
Residential
Residential Mortgages	1,763	2,026	131	1,959	110
Residential Consumer Construction	-	-	-	-	-
	$ 10,677	$ 12,619	$ 1,058	$ 10,834	$ 480

Allowance For Loan Losses And Recorded Investment In Loans

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Three Months Ended March 31, 2015
		Commercial
2015	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Charge-offs	(80)	(14)	(107)	-	(201)
Recoveries	2	43	12	-	57
Provision	(150)	190	59	1	100
Ending Balance	$ 1,007	$ 2,413	$ 776	$ 550	$ 4,746
Ending Balance: Individually evaluated for impairment	$ 435	$ 214	$ 119	$ 123	$ 891
Ending Balance: Collectively evaluated for impairment	572	2,199	657	427	3,855
Totals:	$ 1,007	$ 2,413	$ 776	$ 550	$ 4,746
Loans:
Ending Balance: Individually evaluated for impairment	$ 1,077	$ 5,430	$ 248	$ 1,743	$ 8,498
Ending Balance: Collectively evaluated for impairment	62,319	208,996	77,476	51,029	399,820
Totals:	$ 63,396	$ 214,426	$ 77,724	$ 52,772	$ 408,318

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Year Ended December 31, 2014
		Commercial
2014	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$ 1,015	$ 2,631	$ 935	$ 605	$ 5,186
Charge-offs	(165)	(187)	(79)	(120)	(551)
Recoveries	51	10	39	-	100
Provision	334	(260)	(83)	64	55
Ending Balance	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Ending Balance: Individually evaluated for impairment	$ 713	$ 95	$ 119	$ 131	$ 1,058
Ending Balance: Collectively evaluated for impairment	522	2,099	693	418	3,732
Totals:	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Loans:
Ending Balance: Individually evaluated for impairment	$ 3,423	$ 5,351	$ 140	$ 1,763	$ 10,677
Ending Balance: Collectively evaluated for impairment	59,836	201,911	76,240	50,699	388,686
Totals:	$ 63,259	$ 207,262	$ 76,380	$ 52,462	$ 399,363

Age Analysis Of Past Due Financing Receivables

	Age Analysis of Past Due Loans as of
	March 31, 2015
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2015	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$ 168	$   -	$ 679	$ 847	$ 62,549	$ 63,396	$     -
Commercial Real Estate:
Commercial Mortgages-   Owner Occupied	19	-	-	19	79,006	79,025	-
Commercial Mortgages-Non-Owner Occupied	229	-	137	366	121,301	121,667	-
Commercial Construction	-	-	460	460	13,274	13,734	-
Consumer:
Consumer Unsecured	-	23	-	23	5,064	5,087	-
Consumer Secured	178	296	-	474	72,163	72,637	-
Residential:
Residential Mortgages	544	209	509	1,262	44,488	45,750	-
Residential Consumer Construction	89	-	-	89	6,933	7,022	-
Total	$ 1,227	$ 528	$ 1,785	$ 3,540	$ 404,778	$ 408,318	$  -

	Age Analysis of Past Due Loans as of
	December 31, 2014
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2014	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$ 21	$ 80	$ 1,965	$ 2,066	$ 61,193	$ 63,259	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	192	-	212	404	77,304	77,708	-
Commercial Mortgages-Non-Owner Occupied	86	-	70	156	119,019	119,175	-
Commercial Construction	-	-	460	460	9,919	10,379	-
Consumer:
Consumer Unsecured	11	-	-	11	5,749	5,760	-
Consumer Secured	15	-	-	15	70,605	70,620	-
Residential:
Residential Mortgages	626	48	525	1,199	43,745	44,944	-
Residential Consumer Construction	29	-	-	29	7,489	7,518	-
Total	$ 980	$ 128	$ 3,232	$ 4,340	$ 395,023	$ 399,363	$    -

Credit Quality Information-By Class

	Credit Quality Information - by Class
	March 31, 2015
	(dollars in thousands)
2015	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 60,888	$ 676	$ 737	$ 1,095	$   -	$ 63,396
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	72,558	1,732	1,209	3,526	-	79,025
Commercial Mortgages-Non Owner Occupied	113,064	3,095	4,059	1,449	-	121,667
Commercial Construction	13,274	-	-	460	-	13,734
Consumer
Consumer Unsecured	5,087	-	-	-	-	5,087
Consumer Secured	71,433	550	127	527	-	72,637
Residential:
Residential Mortgages	42,500	1,252	106	1,892	-	45,750
Residential Consumer Construction	6,933	-	-	89	-	7,022
Totals	$ 385,737	$ 7,305	$ 6,238	$ 9,038	$    -	$ 408,318

	Credit Quality Information - by Class
	December 31, 2014
	(dollars in thousands)
2014	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 58,745	$ 725	$ 224	$ 3,565	$     -	$ 63,259
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	71,087	1,718	1,216	3,687	-	77,708
Commercial Mortgages-Non Owner Occupied	112,560	1,586	3,971	1,058	-	119,175
Commercial Construction	9,919	-	-	460	-	10,379
Consumer
Consumer Unsecured	5,673	-	-	87	-	5,760
Consumer Secured	69,527	554	136	403	-	70,620
Residential:
Residential Mortgages	41,578	1,258	120	1,988	-	44,944
Residential Consumer Construction	7,428	-	-	90	-	7,518
Totals	$ 376,517	$ 5,841	$ 5,667	$ 11,338	$    -	$ 399,363

XML

Stock Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Stock Based Compensation [Abstract]

Summary Of Stock Option Activity

			Weighted
		Weighted	Average
		Average	Remaining
		Exercise	Contractual	Intrinsic
	Shares	Price	Life (in years)	Value
Options outstanding, January 1, 2015	69,372	$      11.44
Exercised	-	-
Forfeited	(2,620)	10.84
Options outstanding, March 31, 2015	66,752	11.46	0.75	$              -
Options exercisable, March 31, 2015	66,752	$      11.46	0.75	$              -

XML

Business Segments

3 Months Ended

Mar. 31, 2015

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 and other areas within Central Virginia.  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 with servicing released.  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 months ended March 31, 2015 and 2014 was as follows (dollars in thousands):

Business Segments
	Community
	Banking	Mortgage	Total
For the three months ended March 31, 2015
Net interest income	$        4,196	$            -	$        4,196
Provision for loan losses	100	-	100
Net interest income after provision for loan losses	4,096	-	4,096
Noninterest income	413	534	947
Noninterest expenses	3,293	387	3,680
Income before income taxes	1,216	147	1,363
Income tax expense	386	50	436
Net income	$           830	$          97	$           927
Total assets	$    486,184	$     1,823	$    488,007
For the three months ended March 31, 2014
Net interest income	$        3,954	$            -	$        3,954
Provision for loan losses	55	-	55
Net interest income after provision for loan losses	3,899	-	3,899
Noninterest income	428	289	717
Noninterest expenses	3,350	259	3,609
Income before income taxes	977	30	1,007
Income tax expense	292	10	302
Net income	$           685	$          20	$           705
Total assets	$    440,610	$     1,974	$    442,584

XML

Capital Notes

3 Months Ended

Mar. 31, 2015

Capital Notes [Abstract]

Capitol Notes

Note 6 – Capital Notes

During the third quarter of 2012, Financial closed the private placement of unregistered debt securities (the “2012 Offering”) pursuant to which Financial issued $10,000,000 in principal 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 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 2012 to pay, on maturity, the principal due on notes issued in 2009.

XML

Securities

3 Months Ended

Mar. 31, 2015

Securities [Abstract]

Investments

Note 7 - Securities

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of March 31, 2015 and December 31, 2014 (amounts in thousands):

		March 31, 2015
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 2,526	$ 173	$      -	$ 2,699
Available-for-Sale
US agency obligations	18,827	11	(385)	18,453
Mortgage-backed securities	2,041	-	(14)	2,027
Municipals	3,515	118	(10)	3,623
	$ 24,383	$ 129	$ (409)	$ 24,103
		December 31, 2014
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 2,528	$ 171	$         -	$ 2,699
Available-for-Sale
US agency obligations	14,090	-	(592)	13,498
Mortgage-backed securities	2,042	-	(60)	1,982
Municipals	7,832	114	(47)	7,899
Corporates	1,020	-	(4)	1,016
	$ 24,984	$ 114	$ (703)	$ 24,395

Note 7 – Securities (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 March 31, 2015 and December 31, 2014 (amounts in thousands):

	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
March 31, 2015	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 5,639	$ 99	$ 11,811	$ 286	$ 17,450	$ 385
Mortgage-backed securities	-	-	2,027	14	2,027	14
Municipals	773	10	-	-	773	10
Total	$ 6,412	$ 109	$ 13,838	$ 300	$ 20,250	$ 409
	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
December 31, 2014	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 999	$ 1	$ 11,502	$ 591	$ 12,501	$ 592
Mortgage-backed securities	-	-	1,982	60	1,982	60
Municipals	771	9	3,192	38	3,963	47
Corporates	-	-	1,016	4	1,016	4
Total	$ 1,770	$ 10	$ 17,692	$ 693	$ 19,462	$ 703

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 March 31, 2015, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved.  As of March 31, 2015, the Bank owned 20securities that were being evaluated for other than temporary impairment.  One of these securities was S&P rated AAA and 19 were S&P rated AA.  As of March 31, 2015, 18 of these securities were direct obligations of the U.S. government or government sponsored entities and 2 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.

XML

Loans, Allowance For Loan Losses and OREO

3 Months Ended

Mar. 31, 2015

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 into classes, based on the associated risks.  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:
	March 31,	December 31,
	2015	2014
Commercial	$ 63,396	$ 63,259
Commercial real estate	214,426	207,262
Consumer	77,724	76,380
Residential	52,772	52,462
Total loans	408,318	399,363
Less allowance for loan losses	4,746	4,790
Net loans	$ 403,572	$ 394,573

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. 

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.

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

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

Loans on Non-Accrual Status
(dollars in thousands)
	As of
	March 31, 2015	December 31, 2014
Commercial	$ 679	$ 1,965
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	-	212
Commercial Mortgages-Non-Owner Occupied	137	70
Commercial Construction	460	460
Consumer
Consumer Unsecured	-	-
Consumer Secured	19	20
Residential:
Residential Mortgages	718	689
Residential Consumer Construction	89	90
Totals	$ 2,102	$ 3,506

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 increased to $2,081,000 on March 31, 2015 from $956,000 on December 31, 2014.   The following table represents the changes in OREO balance during the three months ended March 31, 2015 and year-end December 31, 2014.

OREO Changes
(dollars in thousands)
	Three Months ended	Year ended
	March 31, 2015	December 31, 2014
Balance at the beginning of the year (net)	$ 956	$ 1,451
Transfers from loans	1,125	473
Capitalized costs	-	-
Writedowns	-	(167)
Sales proceeds	-	(780)
(Loss) on disposition	-	(21)
Balance at the end of the period (net)	$ 2,081	$ 956

At March 31, 2015 and December 31, 2014, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process.  The Company held $65,000 of residential real estate in other real estate owned at both March 31, 2015 and December 31, 2014.

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Three Months Ended March 31, 2015
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2015	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$ 50	$ 463	$      -	$ 1,034	$    -
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,803	2,803	-	2,819	41
Commercial Mortgage Non-Owner Occupied	1,030	1,030	-	1,054	13
Commercial Construction	84	548	-	272	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	129	129	-	75	1
Residential
Residential Mortgages	922	1,049	-	928	18
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$ 1,027	$ 1,085	$ 435	$ 1,217	$ 7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	639	639	40	746	7
Commercial Mortgage Non-Owner Occupied	498	549	83	312	7
Commercial Construction	376	666	91	188	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	119	119	119	119	2
Residential
Residential Mortgages	821	961	123	825	11
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$ 1,077	$ 1,548	$ 435	$ 2,251	$ 7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,442	3,442	40	3,565	48
Commercial Mortgage Non-Owner Occupied	1,528	1,579	83	1,366	20
Commercial Construction	460	1,214	91	460	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	248	248	119	194	3
Residential
Residential Mortgages	1,743	2,010	123	1,753	29
Residential Consumer Construction	-	-	-	-	-
	$ 8,498	$ 10,041	$ 891	$ 9,589	$ 107

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2014
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2014	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$ 2,017	$ 2,280	$     -	$ 2,641	$ 63
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,835	2,835	-	1,687	152
Commercial Mortgage Non-Owner Occupied	1,078	1,128	-	1,041	75
Commercial Construction	460	1,194	-	606	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	21	21	-	21	1
Residential
Residential Mortgages	934	1,058	-	702	58
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$ 1,406	$ 1,861	$ 713	$ 990	$ 29
Commercial Real Estate
Commercial Mortgages-Owner Occupied	852	1,029	63	1,636	36
Commercial Mortgage Non-Owner Occupied	126	126	32	173	7
Commercial Construction	-	-	-	-	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	119	119	119	80	7
Residential
Residential Mortgages	829	968	131	1,257	52
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$ 3,423	$ 4,141	$ 713	$ 3,631	$ 92
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,687	3,864	63	3,323	188
Commercial Mortgage Non-Owner Occupied	1,204	1,254	32	1,214	82
Commercial Construction	460	1,194	-	606	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	140	140	119	101	8
Residential
Residential Mortgages	1,763	2,026	131	1,959	110
Residential Consumer Construction	-	-	-	-	-
	$ 10,677	$ 12,619	$ 1,058	$ 10,834	$ 480

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Three Months Ended March 31, 2015
		Commercial
2015	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Charge-offs	(80)	(14)	(107)	-	(201)
Recoveries	2	43	12	-	57
Provision	(150)	190	59	1	100
Ending Balance	$ 1,007	$ 2,413	$ 776	$ 550	$ 4,746
Ending Balance: Individually evaluated for impairment	$ 435	$ 214	$ 119	$ 123	$ 891
Ending Balance: Collectively evaluated for impairment	572	2,199	657	427	3,855
Totals:	$ 1,007	$ 2,413	$ 776	$ 550	$ 4,746
Loans:
Ending Balance: Individually evaluated for impairment	$ 1,077	$ 5,430	$ 248	$ 1,743	$ 8,498
Ending Balance: Collectively evaluated for impairment	62,319	208,996	77,476	51,029	399,820
Totals:	$ 63,396	$ 214,426	$ 77,724	$ 52,772	$ 408,318

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) For the Year Ended December 31, 2014
		Commercial
2014	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$ 1,015	$ 2,631	$ 935	$ 605	$ 5,186
Charge-offs	(165)	(187)	(79)	(120)	(551)
Recoveries	51	10	39	-	100
Provision	334	(260)	(83)	64	55
Ending Balance	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Ending Balance: Individually evaluated for impairment	$ 713	$ 95	$ 119	$ 131	$ 1,058
Ending Balance: Collectively evaluated for impairment	522	2,099	693	418	3,732
Totals:	$ 1,235	$ 2,194	$ 812	$ 549	$ 4,790
Loans:
Ending Balance: Individually evaluated for impairment	$ 3,423	$ 5,351	$ 140	$ 1,763	$ 10,677
Ending Balance: Collectively evaluated for impairment	59,836	201,911	76,240	50,699	388,686
Totals:	$ 63,259	$ 207,262	$ 76,380	$ 52,462	$ 399,363

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

	Age Analysis of Past Due Loans as of
	March 31, 2015
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2015	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$ 168	$   -	$ 679	$ 847	$ 62,549	$ 63,396	$     -
Commercial Real Estate:
Commercial Mortgages-   Owner Occupied	19	-	-	19	79,006	79,025	-
Commercial Mortgages-Non-Owner Occupied	229	-	137	366	121,301	121,667	-
Commercial Construction	-	-	460	460	13,274	13,734	-
Consumer:
Consumer Unsecured	-	23	-	23	5,064	5,087	-
Consumer Secured	178	296	-	474	72,163	72,637	-
Residential:
Residential Mortgages	544	209	509	1,262	44,488	45,750	-
Residential Consumer Construction	89	-	-	89	6,933	7,022	-
Total	$ 1,227	$ 528	$ 1,785	$ 3,540	$ 404,778	$ 408,318	$  -

	Age Analysis of Past Due Loans as of
	December 31, 2014
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2014	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$ 21	$ 80	$ 1,965	$ 2,066	$ 61,193	$ 63,259	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	192	-	212	404	77,304	77,708	-
Commercial Mortgages-Non-Owner Occupied	86	-	70	156	119,019	119,175	-
Commercial Construction	-	-	460	460	9,919	10,379	-
Consumer:
Consumer Unsecured	11	-	-	11	5,749	5,760	-
Consumer Secured	15	-	-	15	70,605	70,620	-
Residential:
Residential Mortgages	626	48	525	1,199	43,745	44,944	-
Residential Consumer Construction	29	-	-	29	7,489	7,518	-
Total	$ 980	$ 128	$ 3,232	$ 4,340	$ 395,023	$ 399,363	$    -

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

	Credit Quality Information - by Class
	March 31, 2015
	(dollars in thousands)
2015	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 60,888	$ 676	$ 737	$ 1,095	$   -	$ 63,396
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	72,558	1,732	1,209	3,526	-	79,025
Commercial Mortgages-Non Owner Occupied	113,064	3,095	4,059	1,449	-	121,667
Commercial Construction	13,274	-	-	460	-	13,734
Consumer
Consumer Unsecured	5,087	-	-	-	-	5,087
Consumer Secured	71,433	550	127	527	-	72,637
Residential:
Residential Mortgages	42,500	1,252	106	1,892	-	45,750
Residential Consumer Construction	6,933	-	-	89	-	7,022
Totals	$ 385,737	$ 7,305	$ 6,238	$ 9,038	$    -	$ 408,318

	Credit Quality Information - by Class
	December 31, 2014
	(dollars in thousands)
2014	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$ 58,745	$ 725	$ 224	$ 3,565	$     -	$ 63,259
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	71,087	1,718	1,216	3,687	-	77,708
Commercial Mortgages-Non Owner Occupied	112,560	1,586	3,971	1,058	-	119,175
Commercial Construction	9,919	-	-	460	-	10,379
Consumer
Consumer Unsecured	5,673	-	-	87	-	5,760
Consumer Secured	69,527	554	136	403	-	70,620
Residential:
Residential Mortgages	41,578	1,258	120	1,988	-	44,944
Residential Consumer Construction	7,428	-	-	90	-	7,518
Totals	$ 376,517	$ 5,841	$ 5,667	$ 11,338	$    -	$ 399,363

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

There was one loan modification in the amount of $20,000 that was classified as a Troubled Debt Restructuring (TDR) during the three months ended March 31, 2015.

There were no loan modifications that would have been classified as TDRs during the three months ended March 31, 2014.

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three months ended March 31, 2015 and 2014.

XML

Securities (Gross Unrealized Losses And Fair Value Of The Bank's Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	$ 6,412	$ 1,770
Unrealized Losses, Less than 12 months	109	10
Fair Value, More than 12 months	13,838	17,692
Unrealized Losses, More than 12 months	300	693
Fair Value, Total	20,250	19,462
Unrealized Losses, Total	409	703
US Agency Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	5,639	999
Unrealized Losses, Less than 12 months	99	1
Fair Value, More than 12 months	11,811	11,502
Unrealized Losses, More than 12 months	286	591
Fair Value, Total	17,450	12,501
Unrealized Losses, Total	385	592
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, More than 12 months	2,027	1,982
Unrealized Losses, More than 12 months	14	60
Fair Value, Total	2,027	1,982
Unrealized Losses, Total	14	60
Corporates [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, More than 12 months		1,016
Unrealized Losses, More than 12 months		4
Fair Value, Total		1,016
Unrealized Losses, Total		4
Municipals [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	773	771
Unrealized Losses, Less than 12 months	10	9
Fair Value, More than 12 months		3,192
Unrealized Losses, More than 12 months		38
Fair Value, Total	773	3,963
Unrealized Losses, Total	$ 10	$ 47

XML

Securities (Tables)

3 Months Ended

Mar. 31, 2015

Securities [Abstract]

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

		March 31, 2015
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 2,526	$ 173	$      -	$ 2,699
Available-for-Sale
US agency obligations	18,827	11	(385)	18,453
Mortgage-backed securities	2,041	-	(14)	2,027
Municipals	3,515	118	(10)	3,623
	$ 24,383	$ 129	$ (409)	$ 24,103
		December 31, 2014
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$ 2,528	$ 171	$         -	$ 2,699
Available-for-Sale
US agency obligations	14,090	-	(592)	13,498
Mortgage-backed securities	2,042	-	(60)	1,982
Municipals	7,832	114	(47)	7,899
Corporates	1,020	-	(4)	1,016
	$ 24,984	$ 114	$ (703)	$ 24,395

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
March 31, 2015	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 5,639	$ 99	$ 11,811	$ 286	$ 17,450	$ 385
Mortgage-backed securities	-	-	2,027	14	2,027	14
Municipals	773	10	-	-	773	10
Total	$ 6,412	$ 109	$ 13,838	$ 300	$ 20,250	$ 409
	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
December 31, 2014	Value	Losses	Value	Losses	Value	Losses
Description of securities
U.S. agency obligations	$ 999	$ 1	$ 11,502	$ 591	$ 12,501	$ 592
Mortgage-backed securities	-	-	1,982	60	1,982	60
Municipals	771	9	3,192	38	3,963	47
Corporates	-	-	1,016	4	1,016	4
Total	$ 1,770	$ 10	$ 17,692	$ 693	$ 19,462	$ 703

XML

Stock Based Compensation (Details) (USD $)	3 Months Ended
	Mar. 31, 2015
Stock Based Compensation [Abstract]
Options outstanding, January 1, 2015, Shares	69,372
Exercised, Shares
Forfeited, Shares	(2,620)
Options outstanding, March 31, 2015, Shares	66,752
Options exercisable, March 31, 2015, Shares	66,752
Options outstanding, January 1, 2015, Weighted Average Exercise Price	$ 11.44
Exercised, Weighted Average Exercise Price
Forfeited, Weighted Average Exercise Price	$ 10.84
Options outstanding, March 31, 2015, Weighted Average Exercise Price	$ 11.46
Options exercisable, March 31, 2015, Weighted Average Exercise Price	$ 11.46
Options outstanding, March 31, 2015, Weighted Average Remaining Contractual Life (in years)	9 months
Options exercisable, March 31, 2015, Weighted Average Remaining Contractual Life (in years)	9 months

XML

Loans, Allowance For Loan Losses and OREO (Allowance For Loan Losses And Recorded Investment In Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance	$ 4,790	$ 5,186	$ 5,186
Allowance for Credit Losses: Charge-offs	(201)		(551)
Allowance for Credit Losses: Recoveries	57		100
Allowance for credit losses: Provision	100	55	55
Allowance for Credit Losses: Ending Balance	4,746		4,790
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	891		1,058
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	3,855		3,732
Allowance for Credit Losses: Totals	4,746		4,790
Financing Receivables: Ending Balance: Individually evaluated for impairment	8,498		10,677
Financing Receivables: Ending Balance: Collectively evaluated for impairment	399,820		388,686
Total loans	408,318		399,363
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance	1,235	1,015	1,015
Allowance for Credit Losses: Charge-offs	(80)		(165)
Allowance for Credit Losses: Recoveries	2		51
Allowance for credit losses: Provision	(150)		334
Allowance for Credit Losses: Ending Balance	1,007		1,235
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	435		713
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	572		522
Allowance for Credit Losses: Totals	1,007		1,235
Financing Receivables: Ending Balance: Individually evaluated for impairment	1,077		3,423
Financing Receivables: Ending Balance: Collectively evaluated for impairment	62,319		59,836
Total loans	63,396		63,259
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance	2,194	2,631	2,631
Allowance for Credit Losses: Charge-offs	(14)		(187)
Allowance for Credit Losses: Recoveries	43		10
Allowance for credit losses: Provision	190		(260)
Allowance for Credit Losses: Ending Balance	2,413		2,194
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	214		95
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	2,199		2,099
Allowance for Credit Losses: Totals	2,413		2,194
Financing Receivables: Ending Balance: Individually evaluated for impairment	5,430		5,351
Financing Receivables: Ending Balance: Collectively evaluated for impairment	208,996		201,911
Total loans	214,426		207,262
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance	812	935	935
Allowance for Credit Losses: Charge-offs	(107)		(79)
Allowance for Credit Losses: Recoveries	12		39
Allowance for credit losses: Provision	59		(83)
Allowance for Credit Losses: Ending Balance	776		812
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	119		119
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	657		693
Allowance for Credit Losses: Totals	776		812
Financing Receivables: Ending Balance: Individually evaluated for impairment	248		140
Financing Receivables: Ending Balance: Collectively evaluated for impairment	77,476		76,240
Total loans	77,724		76,380
Residential [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance	549	605	605
Allowance for Credit Losses: Charge-offs			(120)
Allowance for credit losses: Provision	1		64
Allowance for Credit Losses: Ending Balance	550		549
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment	123		131
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment	427		418
Allowance for Credit Losses: Totals	550		549
Financing Receivables: Ending Balance: Individually evaluated for impairment	1,743		1,763
Financing Receivables: Ending Balance: Collectively evaluated for impairment	51,029		50,699
Total loans	$ 52,772		$ 52,462

XML

Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015		Mar. 31, 2014
Consolidated Statements Of Comprehensive Income [Abstract]
Net Income	$ 927		$ 705
Other comprehensive income:
Unrealized gains on securities available-for-sale	338		1,273
Unrealized gains on securities available-for-sale, Tax effect	(115)		(431)
Reclassification adjustment for (gains) losses included in net income	(29)	[1]	6	[1]
Reclassification adjustment for gains included in net income, Tax effect	10	[2]	(2)	[2]
Other comprehensive income, net of tax	204		846
Comprehensive income	$ 1,131		$ 1,551

[1] Gains (losses) are included in “gain (loss) on sale of available-for-sale securities, net” on the consolidated statements of income.

[2] The tax effect on these reclassifications is reflected in “income tax expense” on the consolidated statements of income

XML

Earnings Per Common Share (EPS)

3 Months Ended

Mar. 31, 2015

Earnings Per Common Share (EPS) [Abstract]

Earnings Per Common Share (EPS)

Note 3 – Earnings Per Common Share (EPS)

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 in calculating dilutive earnings per share.  The following is a summary of the earnings per share calculation for the three months ended March 31, 2015 and 2014.

Note 3 – Earnings Per Share (continued)

	Three Months Ended
	March 31,
	2015	2014
Net income	$        927,000	$        705,000
Basic EPS weighted average shares outstanding	3,371,616	3,364,874
Incremental shares attributable to stock options	-	-
Diluted EPS weighted average shares outstanding	3,371,616	3,364,874
Basic earnings per common share	$              0.27	$              0.21
Diluted earnings per common share	$              0.27	$              0.21

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
	March 31,
	2015	2014
Incremental shares excluded from calculating diluted EPS because their effect was anti-dilutive	66,752	111,371

XML

Fair Value Measurements (Fair Value Assets Measured On Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	$ 24,103	$ 24,395
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	24,103	24,395
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
US Agency Obligations [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	18,453	13,498
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]
Securities available-for-sale, at fair value
US Agency Obligations [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	18,453	13,498
US Agency Obligations [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Mortgage-Backed Securities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	2,027	1,982
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]
Securities available-for-sale, at fair value
Mortgage-Backed Securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	2,027	1,982
Mortgage-Backed Securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Municipals [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	3,623	7,899
Municipals [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Municipals [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	3,623	7,899
Municipals [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Corporates [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value		1,016
Corporates [Member] | Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
Corporates [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value		1,016
Corporates [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value

XML

Loans, Allowance For Loan Losses and OREO (Loans On Non-Accrual Status) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 2,102	$ 3,506
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	679	1,965
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status		212
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	137	70
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	460	460
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	19	20
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	718	689
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 89	$ 90

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

Fair Value Measurements [Abstract]

Fair Value Assets Measured On Recurring Basis

		Carrying Value at March 31, 2015 (in thousands)
Description	Balance as of March 31, 2015	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US agency obligations	$ 18,453	$       -	$ 18,453	$       -
Mortgage-backed securities	2,027	-	2,027	-
Municipals	3,623	-	3,623	-
Total available-for-sale securities	$ 24,103	$       -	$ 24,103	$       -
		Carrying Value at December 31, 2014 (in thousands)
Description	Balance as of December 31, 2014	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US agency obligations	$ 13,498	$       -	$ 13,498	$       -
Mortgage-backed securities	1,982	-	1,982	-
Municipals	7,899	-	7,899	-
Corporates	1,016	-	1,016	-
Total available-for-sale securities	$ 24,395	$       -	$ 24,395	$       -

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

		Carrying Value at March 31, 2015
Description	Balance as of March 31, 2015	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$ 3,128	$     -	$          -	$ 3,128
Loans held for sale	1,742	-	1,742	-
Other real estate owned	2,081	-	-	2,081

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

		Carrying Value at December 31, 2014
Description	Balance as of December 31, 2014	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$ 3,045	$      -	$       -	$ 3,045
Loans held for sale	1,030	-	1,030	-
Other real estate owned	956	-	-	956

*  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 March 31, 2015 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$ 3,128	Discounted appraised value	Selling cost	5% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)
OREO	2,081	Discounted appraised value	Selling cost	5% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)

Fair Value Carrying And Notional Amounts

		Fair Value Measurements at March 31, 2015 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	$ 17,595		$ 17,595	$      -	$      -	$ 17,595
Fed funds sold	12,700		12,700	-	-	12,700
Securities
Available-for-sale	24,103		-	24,103	-	24,103
Held-to-maturity	2,526		-	2,699	-	2,699
Restricted stock	1,313			1,313		1,313
Loans, net	403,572		-	-	409,666	409,666
Loans held for sale	1,742		-	1,742	-	1,742
Interest receivable	1,164		-	1,164	-	1,164
BOLI	9,579		-	9,579	-	9,579
Liabilities
Deposits	$ 438,806		$      -	$ 439,840	$      -	$ 439,840
FHLB borrowings	2,000		-	2,001	-	2,001
Capital notes	10,000		-	10,003	-	10,003
Interest payable	82		-	82	-	82

		Fair Value Measurements at December 31, 2014 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	$ 12,743	$ 12,743	$      -	$      -	$ 12,743
Securities
Available-for-sale	24,395	-	24,395	-	24,395
Held-to-maturity	2,528	-	2,699	-	2,699
Restricted stock	1,739	-	1,739		1,739
Loans, net	394,573	-	-	401,281	401,281
Loans held for sale	1,030	-	1,030	-	1,030
Interest receivable	1,246	-	1,246	-	1,246
BOLI	9,512	-	9,512	-	9,512
Liabilities
Deposits	$ 399,497	$      -	$ 400,351	$      -	$ 400,351
FHLB borrowings	12,000	10,000	2,005	-	12,005
Federal funds purchased	3,189	3,189	-	-	3,189
Capital notes	10,000	-	10,023	-	10,023
Interest payable	58	-	58	-	58