10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2018

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.    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).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐  (do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ☐    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: 4,378,436 shares of Common Stock, par value $2.14 per share, were outstanding at August 8, 2018.

Table of Contents

PART I – FINANCIAL INFORMATION		1
Item 1.	Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II – OTHER INFORMATION		51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	52
Item 6.	Exhibits	52
SIGNATURES		54

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollar amounts in thousands, except per share amounts) (2018 unaudited)

	June 30,			December 31,
	2018			2017
Assets
Cash and due from banks	$	25,717		$	20,267
Federal funds sold		8,132			16,751
Total cash and cash equivalents		33,849			37,018
Securities held-to-maturity (fair value of $3,448 in 2018 and $5,619 in 2017)		3,706			5,713
Securities available-for-sale, at fair value		53,688			55,312
Restricted stock, at cost		1,462			1,505
Loans, net of allowance for loan losses of $4,688 in 2018 and 4,752 in 2017		523,730			491,022
Loans held for sale		5,815			2,626
Premises and equipment, net		11,995			12,055
Interest receivable		1,755			1,713
Cash value - bank owned life insurance		13,188			13,018
Other real estate owned		2,585			2,650
Income taxes receivable		1,339			1,366
Deferred tax asset, net		1,695			1,418
Other assets		1,059			925
Total assets	$	655,866		$	626,341
Liabilities and Stockholders’ Equity
Deposits
Noninterest bearing demand	$	86,757		$	74,102
NOW, money market and savings		328,082			307,987
Time		181,229			185,404
Total deposits		596,068			567,493
Capital notes		5,000			5,000
Interest payable		107			111
Other liabilities		2,167			2,072
Total liabilities	$	603,342		$	574,676
Commitments and Contingencies
Stockholders’ equity
Preferred stock; authorized 1,000,000 shares; none issued and outstanding	$	—		$	—
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of June 30, 2018 and December 31, 2017		9,370			9,370
Additional paid-in-capital		31,495			31,495
Retained earnings		14,167			12,269
Accumulated other comprehensive (loss)		(2,508	)		(1,469	)
Total stockholders’ equity	$	52,524		$	51,665
Total liabilities and stockholders’ equity	$	655,866		$	626,341

1

See accompanying notes to these consolidated financial statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Income

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

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017
Interest Income
Loans	$	6,195	$	5,465	$	11,869	$	10,653
Securities
US Government and agency obligations		186		121		384		234
Mortgage backed securities		66		77		134		143
Municipals - taxable		83		80		162		149
Municipals - tax exempt		—		10		3		21
Dividends		23		28		31		35
Other (Corporates)		24		30		47		57
Interest bearing deposits		56		17		91		32
Federal Funds sold		92		23		159		36
Total interest income		6,725		5,851		12,880		11,360
Interest Expense
Deposits
NOW, money market savings		231		175		423		344
Time Deposits		625		486		1,206		951
FHLB borrowings		16		—		17		—
Capital notes 4% due 1/24/2022		50		50		100		87
Total interest expense		922		711		1,746		1,382
Net interest income		5,803		5,140		11,134		9,978
Provision for loan losses		315		445		337		545
Net interest income after provision for loan losses		5,488		4,695		10,797		9,433
Noninterest income
Gain on sales of loans held for sale		873		598		1,493		969
Service charges, fees and commissions		465		443		929		828
Increase in cash value of life insurance		85		87		170		173
Other		18		24		35		33
Gain on sales and calls of securities, net		—		52		—		62
Total noninterest income		1,441		1,204		2,627		2,065
Noninterest expenses
Salaries and employee benefits		2,832		2,396		5,545		4,776
Occupancy		360		365		755		737
Equipment		398		438		777		786
Supplies		140		123		289		257
Professional, data processing, and other outside expenses		837		697		1,652		1,377
Marketing		187		236		327		384
Credit expense		112		137		237		231
Other real estate expenses		86		24		126		36
FDIC insurance expense		99		88		200		191
Other		255		252		495		478
Total noninterest expenses		5,306		4,756		10,403		9,253
Income before income taxes		1,623		1,143		3,021		2,245
Income tax expense		323		356		598		698
Net Income	$	1,300	$	787	$	2,423	$	1,547
Weighted average shares outstanding - basic		4,378,436		4,378,436		4,378,436		4,378,436
Weighted average shares outstanding - diluted		4,378,436		4,378,519		4,378,481		4,378,527
Earnings per common share - basic	$	0.30	$	0.18	$	0.55	$	0.35
Earnings per common share - diluted	$	0.30	$	0.18	$	0.55	$	0.35

2

See accompanying notes to these consolidated financial statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended June 30, 2018 and 2017

(dollar amounts in thousands) (unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2018			2017			2018			2017
Net Income	$	1,300		$	787		$	2,423		$	1,547
Other comprehensive (loss) income:
Unrealized (losses) gains on securities available-for-sale		(240	)		571			(1,316	)		994
Tax effect		51			(194	)		277			(338	)
Reclassification adjustment for gains included in net income (1)		—			(52	)		—			(62	)
Tax effect (2)		—			17			—			21
Other comprehensive (loss) income, net of tax		(189	)		342			(1,039	)		615
Comprehensive income	$	1,111		$	1,129		$	1,384		$	2,162

(1) Gains are included in “gain on sales and calls of 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.

3

See accompanying notes to these consolidated financial statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2018 and 2017

(dollar amounts in thousands) (unaudited)

	For the Six Months Ended June 30,
	2018			2017
Cash flows from operating activities
Net Income	$	2,423		$	1,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		434			396
Net amortization and accretion of premiums and discounts on securities		205			185
(Gain) on sales of available-for-sale securities		—			(62	)
(Gain) on sales of loans held for sale		(1,493	)		(969	)
Proceeds from sales of loans held for sale		56,811			36,364
Origination of loans held for sale		(58,507	)		(34,076	)
Provision for loan losses		337			545
(Gain) loss on sale of other real estate owned		(5	)		17
Impairment of other real estate owned		110			—
(Increase) in cash value of life insurance		(170	)		(173	)
(Increase) decrease in interest receivable		(42	)		80
(Increase) decrease in other assets		(134	)		70
Decrease (increase) in income taxes receivable		27			(77	)
(Decrease) in interest payable		(4	)		(10	)
Increase in other liabilities		95			65
Net cash provided by operating activities	$	87		$	3,902
Cash flows from investing activities
Proceeds from calls of securities held-to-maturity	$	2,000		$	—
Purchases of securities available-for-sale		(998	)		(15,481	)
Proceeds from maturities, calls and paydowns of securities available-for-sale		1,108			2,013
Proceeds from sale of securities available-for-sale		—			5,749
(Purchase) of Federal Reserve Bank stock		—			(90	)
Redemption (purchase) of Federal Home Loan Bank stock		43			(42	)
Proceeds from sale of other real estate owned		525			253
Origination of loans, net of principal collected		(33,610	)		(20,115	)
Purchases of premises and equipment		(374	)		(865	)
Net cash (used in) investing activities	$	(31,306	)	$	(28,578	)
Cash flows from financing activities
Net increase in deposits	$	28,575		$	9,750
Net increase in repurchase agreements		—			5,000
Dividends paid to common stockholders		(525	)		(525	)
Proceeds fom sale of 4% capital notes due 1/24/2022		—			5,000
Net cash provided by financing activities	$	28,050		$	19,225
(Decrease) in cash and cash equivalents		(3,169	)		(5,451	)
Cash and cash equivalents at beginning of period	$	37,018		$	28,683
Cash and cash equivalents at end of period	$	33,849		$	23,232
Non cash transactions
Transfer of loans to other real estate owned	$	565		$	675
Fair value adjustment for securities available-for-sale		(1,316	)		932
Cash transactions
Cash paid for interest	$	1,750		$	1,392
Cash paid for income taxes		650			775

4

See accompanying notes to these consolidated financial statements

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended June 30, 2018 and 2017

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

										Accumulated
					Additional					Other
	Shares		Common		Paid-in		Retained			Comprehensive
	Outstanding		Stock		Capital		Earnings			(Loss)			Total
Balance at December 31, 2016		4,378,436	$	9,370	$	31,495	$	10,156		$	(1,600	)	$	49,421
Net Income		—		—		—		1,547			—			1,547
Dividends paid on common stock ($0.12 per share)		—		—		—		(525	)		—			(525	)
Other comprehensive income		—		—		—		—			615			615
Balance at June 30, 2017		4,378,436	$	9,370	$	31,495	$	11,178		$	(985	)	$	51,058
Balance at December 31, 2017		4,378,436	$	9,370	$	31,495	$	12,269		$	(1,469	)	$	51,665
Net Income		—		—		—		2,423			—			2,423
Dividends paid on common stock ($0.12 per share)		—		—		—		(525	)		—			(525	)
Other comprehensive loss		—		—		—		—			(1,039	)		(1,039	)
Balance at June 30, 2018		4,378,436	$	9,370	$	31,495	$	14,167		$	(2,508	)	$	52,524

5

See accompanying notes to these consolidated financial statements

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 June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 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, 2017. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2017 included in Financial’s Annual Report on Form 10-K. Results for the three and six month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Certain immaterial reclassifications have been made to prior period balances to conform to the current period presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

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. Recently, the Company has expanded into Charlottesville, Roanoke, and Harrisonburg.

Financial’s critical accounting policies include the evaluation of the allowance for loan losses which is based on management’s estimate of an amount that is adequate to absorb probable losses inherent in the 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 losses 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 policy with respect to the methodology for determining the allowance for loan losses involves a higher degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about uncertain matters. This critical policy and its assumptions are periodically reviewed with the Board of Directors.

Financial also considers valuation of other real estate owned (OREO) a critical accounting policy. OREO consists of properties acquired through foreclosure or deed in lieu of foreclosure. These properties are carried at fair value less estimated costs to sell at the date of foreclosure. Losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses. Subsequent write-downs, if any, are charged against expense. Gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale. Operating costs after acquisition are expensed.

6

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 diluted earnings per share. The following is a summary of the earnings per share calculation for the three and six months ended June 30, 2018 and 2017.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income	$	1,300,000	$	787,000	$	2,423,000	$	1,547,000
Weighted average number of shares		4,378,436		4,378,436		4,378,436		4,378,436
Options effect of incremental shares		—		83		45		91
Weighted average diluted shares		4,378,436		4,378,519		4,378,481		4,378,527
Basic EPS (weighted avg shares)	$	0.30	$	0.18	$	0.55	$	0.35
Diluted EPS (Including Option Shares)	$	0.30	$	0.18	$	0.55	$	0.35

No option shares were excluded in calculating diluted earnings per share for any of the periods presented.

Note 4 – Stock Based Compensation

Accounting standards require companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant.

7

Note 4 – Stock Based Compensation (continued)

Stock option plan activity for the six months ended June 30, 2018 is summarized below:

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual		Intrinsic
	Shares			Price		Life (in years)		Value
Options outstanding, January 1, 2018		636		$	12.79
Granted		—			—
Exercised		—			—
Forfeited		(636	)		12.79
Options outstanding, June 30, 2018		—		$	—		—	$	—
Options exercisable, June 30, 2018		—		$	—		—	$	—

Intrinsic value is calculated by subtracting the exercise price of option shares from the market price of underlying shares as of June 30, 2018 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 and no outstanding options remain outstanding from the 1999 Plan.

At the annual meeting of shareholders held on May 15, 2018, the shareholders approved the Bank of the James Financial Group, Inc. 2018 Equity Incentive Plan (the “2018 Incentive Plan”). The 2018 Incentive Plan permits the issuance of up to 250,000 shares of common stock for awards to key employees of the Company and its subsidiaries in the form of stock options, restricted stock, restricted stock units, stock awards and performance units. To date the Company has not awarded any equity compensation under the 2018 Incentive Plan.

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

8

Note 5 – Fair Value Measurements (continued)

participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

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

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

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

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

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

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.

9

Note 5 – Fair Value Measurements (continued)

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

			Carrying Value at June 30, 2018 (in thousands)
Description	Balance as of June 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US Treasuries	$	1,810	$	—	$	1,810	$	—
US agency obligations		23,078		—		23,078		—
Mortgage-backed securities		12,996		—		12,996		—
Municipals		12,028		—		12,028		—
Corporates		3,776		—		3,776		—
Total available-for-sale securities	$	53,688	$	—	$	53,688	$	—
			Carrying Value at December 31, 2017 (in thousands)
Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
US Treasuries	$	1,858	$		$	1,858	$
US agency obligations		23,850		—		23,850		—
Mortgage-backed securities		13,388		—		13,388		—
Municipals		12,274		—		12,274		—
Corporates		3,942		—		3,942		—
Total available-for-sale securities	$	55,312	$	—	$	55,312	$	—

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, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputs, the 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 June 30, 2018. Gains and losses on the sale of loans are recorded within gains on sales of loans held for sale, net 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 property 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).

Any fair value adjustments are recorded in the period incurred and expensed against current earnings. However, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputes, the value is considered 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 June 30, 2018
Description	Balance as of June 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	2,241	$	—	$	—	$	2,241
Loans held for sale		5,815		—		5,815		—
Other real estate owned		2,585		—		—		2,585

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

			Carrying Value at December 31, 2017
Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans*	$	2,523	$	—	$	—	$	2,523
Loans held for sale		2,626		—		2,626		—
Other real estate owned		2,650		—		—		2,650

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

11

Note 5 – Fair Value Measurements (continued)

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

	Quantitative information about Level 3 Fair Value Measurements for June 30, 2018 (dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$	2,241	Discounted appraised value	Selling cost	0% - 10% (8%)
				Discount for lack of marketability and age of appraisal	0% - 20% (6%)
OREO		2,585	Discounted appraised value	Selling cost	0% - 10% (6%)
				Discount for lack of marketability and age of appraisal	0% - 25% (15%)
	Quantitative information about Level 3 Fair Value Measurements for December 31, 2017 (dollars in thousands)
	Fair Value		Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$	2,523	Discounted appraised value	Selling cost	0% - 10% (8%)
				Discount for lack of marketability and age of appraisal	0% - 20% (6%)
OREO		2,650	Discounted appraised value	Selling cost	0% - 10% (6%)
				Discount for lack of marketability and age of appraisal	0% - 25% (15%)

12

Note 5 – Fair Value Measurements (continued)

The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments and their placement in the fair value hierarchy at June 30, 2018 and December 31, 2017 was as follows (in thousands):

			Fair Value Measurements at June 30, 2018 using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash and due from banks	$	25,717	$	25,717	$	—	$	—	$	25,717
Fed funds sold		8,132		8,132		—		—		8,132
Securities
Available-for-sale		53,688		—		53,688		—		53,688
Held-to-maturity		3,706		—		3,448		—		3,448
Restricted stock		1,462				1,462		—		1,462
Loans, net (1)		523,730		—		—		511,265		511,265
Loans held for sale		5,815		—		5,815		—		5,815
Interest receivable		1,755		—		1,755		—		1,755
BOLI		13,188		—		13,188		—		13,188
Liabilities
Deposits	$	596,068	$	—	$	596,664	$	—	$	599,664
Capital notes		5,000		—		4,670		—		4,670
Interest payable		107		—		107		—		107

			Fair Value Measurements at December 31, 2017 using
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Carrying		Identical Assets		Inputs		Inputs
	Amounts		(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash and due from banks	$	20,267	$	20,267	$	—	$	—	$	20,267
Fed funds sold		16,751		16,751						16,751
Securities
Available-for-sale		55,312		—		55,312		—		55,312
Held-to-maturity		5,713		—		5,619		—		5,619
Restricted stock		1,505		—		1,505				1,505
Loans, net (1)		491,022		—		—		492,397		492,397
Loans held for sale		2,626		—		2,626		—		2,626
Interest receivable		1,713		—		1,713		—		1,713
BOLI		13,018		—		13,018		—		13,018
Liabilities
Deposits	$	567,493	$	—	$	568,224	$	—	$	568,224
Capital notes		5,000		—		5,310				5,310
Interest payable		111		—		111		—		111

(1) Carrying amount is net of unearned income and the Allowance. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of June 30, 2018 was measured using an exit price notion. The fair value of loans as of December 31, 2017 was measured using an entry price notion.

13

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

On January 25, 2017, Financial closed a private placement of unregistered debt securities (the “2017 Offering”) pursuant to which Financial issued $5,000,000 in principal of notes (the “2017 Notes”). The 2017 Notes bear interest at the rate of 4% per year with interest payable quarterly in arrears. The 2017 Notes are to mature on January 24, 2022, but are subject to prepayment in whole or in part on or after January 24, 2018 at Financial’s sole discretion on 30 days written notice to the holders. Of the proceeds, $3,000,000 was injected into the Bank as equity capital in March 2017. It is anticipated the remaining $2,000,000 will remain at the holding company level for debt service on the 2017 Notes.

14

Note 7 - Securities

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of June 30, 2018 and December 31, 2017 (amounts in thousands):

	June 30, 2018
	Amortized		Gross Unrealized					Fair Value
	Costs		Gains		(Losses)
Held-to-Maturity
US agency obligations	$	3,706	$	—	$	(258	)	$	3,448
Available-for-Sale
US Treasuries		1,959		—		(149	)		1,810
US agency obligations		24,792		5		(1,719	)		23,078
Mortgage-backed securities		13,519		3		(526	)		12,996
Municipals		12,485		1		(458	)		12,028
Corporates		4,109		—		(333	)		3,776
	$	56,684	$	9	$	(3,185	)	$	53,688
	December 31, 2017
	Amortized		Gross Unrealized					Fair Value
	Costs		Gains		(Losses)
Held-to-Maturity
US agency obligations	$	5,713	$	8	$	(102	)	$	5,619
Available-for-Sale
US Treasuries		1,956		—		(98	)		1,858
US agency obligations		24,881		5		(1,036	)		23,850
Mortgage-backed securities		13,662		2		(276	)		13,388
Municipals		12,556		16		(298	)		12,274
Corporates		4,117		—		(175	)		3,942
	$	57,172	$	23	$	(1,883	)	$	55,312

15

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 June 30, 2018 and December 31, 2017 (amounts in thousands):

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2018	Value		Losses		Value		Losses		Value		Losses
Description of securities
Held-to-maturity
US agency obligations	$	2,436	$	167	$	1,270	$	91	$	3,706	$	258
Available-for-sale
US Treasuries		—		—		1,810		149		1,810		149
US agency obligations		11,086		567		11,995		1,152		23,081		1,719
Mortgage-backed securities		963		31		11,236		495		12,199		526
Municipals		213		10		11,305		448		11,518		458
Corporates		—		—		3,776		333		3,776		333
Total	$	12,262	$	608	$	40,122	$	2,577	$	52,384	$	3,185
	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2017	Value		Losses		Value		Losses		Value		Losses
Description of securities
Held-to-maturity
US agency obligations	$	2,367	$	70	$	1,243	$	32	$	3,610	$	102
Available-for-sale
US Treasuries		—		—		1,858		98		1,858		98
US agency obligations		11,465		215		12,379		821		23,844		1,036
Mortgage-backed securities		2,802		26		9,712		250		12,514		276
Municipals		4,823		41		5,644		257		10,467		298
Corporates		—		—		3,942		175		3,942		175
Total	$	19,090	$	282	$	33,535	$	1,601	$	52,625	$	1,883

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).

16

Note 7 – Securities (continued)

At June 30, 2018, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved. As of June 30, 2018, the Bank owned 60 securities in an unrealized loss position that were being evaluated for other than temporary impairment. Eleven of these securities were S&P rated AAA, 46 were rated AA and three were rated A. As of June 30, 2018, 33 of these securities were direct obligations of the U.S. government or government sponsored entities, 22 were municipal issues, and five were investments in domestic corporate issued securities.

Based on the analysis performed by management as mandated by the Bank’s investment policy, management believes the default risk to be minimal. Because management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to change in interest rates and other market conditions, no declines currently are deemed to be other-than-temporary.

There were no gross gains on available-for-sale securities during the three and six month periods ended June 30, 2018 compared to $52 and $62 for the same respective periods in 2017. There were no losses on sales of available-for-sale securities and no sales of held-to-maturity securities during the three and six month periods ended June 30, 2018 and 2017.

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 gain on sale 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.

17

Note 8 – Business Segments (continued)

Information about reportable business segments and reconciliation of such information to the consolidated financial statements for the three and six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):

Business Segments

	Community
	Banking		Mortgage		Total
Six months ended June 30, 2018
Net interest income	$	11,134	$	—	$	11,134
Provision for loan losses		337		—		337
Net interest income after provision for loan losses		10,797		—		10,797
Noninterest income		1,132		1,495		2,627
Noninterest expenses		9,207		1,196		10,403
Income before income taxes		2,722		299		3,021
Income tax expense		546		52		598
Net income	$	2,176	$	247	$	2,423
Total assets	$	649,809	$	6,057	$	655,866
Six months ended June 30, 2017
Net interest income	$	9,978	$	—	$	9,978
Provision for loan losses		545		—		545
Net interest income after provision for loan losses		9,433		—		9,433
Noninterest income		1,096		969		2,065
Noninterest expenses		8,489		764		9,253
Income before income taxes		2,040		205		2,245
Income tax expense		630		68		698
Net income	$	1,410	$	137	$	1,547
Total assets	$	592,998	$	2,639	$	595,637
	Community
	Banking		Mortgage		Total
Three months ended June 30, 2018
Net interest income	$	5,803	$	—	$	5,803
Provision for loan losses		315		—		315
Net interest income after provision for loan losses		5,488		—		5,488
Noninterest income		566		875		1,441
Noninterest expenses		4,603		703		5,306
Income before income taxes		1,451		172		1,623
Income tax expense		298		25		323
Net income	$	1,153	$	147	$	1,300
Total assets	$	649,809	$	6,057	$	655,866
Three months ended June 30, 2017
Net interest income	$	5,140	$	—	$	5,140
Provision for loan losses		445		—		445
Net interest income after provision for loan losses		4,695		—		4,695
Noninterest income		606		598		1,204
Noninterest expenses		4,361		395		4,756
Income before income taxes		940		203		1,143
Income tax expense		289		67		356
Net income	$	651	$	136	$	787
Total assets	$	592,998	$	2,639	$	595,637

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		Loan Classes:
Segments:
	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

19

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

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

	As of:
	June 30,		December 31,
	2018		2017
Commercial	$	102,618	$	96,127
Commercial real estate		278,494		251,807
Consumer		84,195		83,746
Residential		63,111		64,094
Total loans (1)		528,418		495,774
Less allowance for loan losses		4,688		4,752
Net loans	$	523,730	$	491,022

(1) Includes net deferred costs and premiums of $674 and $940 as of June 30, 2018 and December 31, 2017, respectively.

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.

20

• “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.

21

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

Loans on Non-Accrual Status

(dollars in thousands)

	As of
	June 30, 2018		December 31, 2017
Commercial	$	763	$	727
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		1,495		1,465
Commercial Mortgages-Non-Owner Occupied		210		468
Commercial Construction		30		—
Consumer
Consumer Unsecured		1		—
Consumer Secured		390		566
Residential:
Residential Mortgages		252		1,025
Residential Consumer Construction		54		58
Totals	$	3,195	$	4,309

We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank either through purchase at foreclosure or received from the borrower through a deed in lieu of foreclosure. OREO decreased to $2,585 on June 30, 2018 from $2,650 on December 31, 2017. The following table represents the changes in OREO balance during the six months ended June 30, 2018 and year ended December 31, 2017.

OREO Changes

(dollars in thousands)

	Six months ended			Year ended
	June 30, 2018			December 31, 2017
Balance at the beginning of the year (net)	$	2,650		$	2,370
Transfers from loans		565			815
Capitalized costs		—			40
Valuation adjustments		(110	)		(60	)
Sales proceeds		(525	)		(514	)
Gain (loss) on disposition		5			(1	)
Balance at the end of the period (net)	$	2,585		$	2,650

At June 30, 2018 and December 31, 2017, the Company had $0 of consumer mortgage loans secured by residential real estate for which foreclosure was in process. The Company held seven residential real estate properties carried on the books in other real estate owned at a value of $545 as of June 30, 2018 and three residential real estate properties carried on the books at a value of $520 in other real estate owned as of December 31, 2017.

22

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Six months Ended June 30, 2018
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
2018	Investment		Balance		Allowance		Investment		Recognized
With No Related Allowance Recorded:
Commercial	$	755	$	866	$	—	$	840	$	7
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,308		2,408		—		2,368		72
Commercial Mortgage Non-Owner Occupied		171		171		—		423		8
Commercial Construction		30		713		—		15		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		160		161		—		220		7
Residential
Residential Mortgages		1,443		1,513		—		1,512		37
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	353	$	749	$	168	$	335	$	6
Commercial Real Estate
Commercial Mortgages-Owner Occupied		508		508		72		587		15
Commercial Mortgage Non-Owner Occupied		205		205		48		139		6
Commercial Construction		—		—		—		85		—
Consumer
Consumer Unsecured		2		2		2		2		—
Consumer Secured		323		330		132		375		6
Residential
Residential Mortgages		—		—		—		76		—
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	1,108	$	1,615	$	168	$	1,175	$	13
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,816		2,916		72		2,955		87
Commercial Mortgage Non-Owner Occupied		376		376		48		562		14
Commercial Construction		30		713		—		100		—
Consumer
Consumer Unsecured		2		2		2		2		—
Consumer Secured		483		491		132		595		13
Residential
Residential Mortgages		1,443		1,513		—		1,588		37
Residential Consumer Construction		—		—		—		—		—
	$	6,258	$	7,626	$	422	$	6,977	$	164

23

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2017
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
2017	Investment		Balance		Allowance		Investment		Recognized
With No Related Allowance Recorded:
Commercial	$	925	$	1,505	$	—	$	812	$	54
Commercial Real Estate
Commercial Mortgages-Owner Occupied		2,427		2,539		—		2,723		179
Commercial Mortgage Non-Owner Occupied		675		690		—		512		30
Commercial Construction		—		—		—		—		—
Consumer
Consumer Unsecured		—		—		—		—		—
Consumer Secured		279		283		—		149		11
Residential
Residential Mortgages		1,580		1,673		—		1,568		63
Residential Consumer Construction		—		—		—		—		—
With An Allowance Recorded:
Commercial	$	317	$	323	$	112	$	919	$	16
Commercial Real Estate
Commercial Mortgages-Owner Occupied		665		665		93		1,126		39
Commercial Mortgage Non-Owner Occupied		73		73		18		74		5
Commercial Construction		169		695		79		169		—
Consumer
Consumer Unsecured		2		2		2		1		—
Consumer Secured		427		445		255		269		11
Residential
Residential Mortgages		151		178		4		425		3
Residential Consumer Construction		—		—		—		—		—
Totals:
Commercial	$	1,242	$	1,828	$	112	$	1,731	$	70
Commercial Real Estate
Commercial Mortgages-Owner Occupied		3,092		3,204		93		3,849		218
Commercial Mortgage Non-Owner Occupied		748		763		18		586		35
Commercial Construction		169		695		79		169		—
Consumer
Consumer Unsecured		2		2		2		1		—
Consumer Secured		706		728		255		418		22
Residential
Residential Mortgages		1,731		1,851		4		1,993		66
Residential Consumer Construction		—		—		—		—		—
	$	7,690	$	9,071	$	563	$	8,747	$	411

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Six months Ended June 30, 2018
				Commercial
2018	Commercial			Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Charge-offs		(215	)		(142	)		(186	)		(12	)		(555	)
Recoveries		101			3			50			—			154
Provision		356			105			(130	)		6			337
Ending Balance	$	1,506		$	1,704		$	906		$	572		$	4,688
Ending Balance: Individually evaluated for impairment	$	168		$	120		$	134		$	—		$	422
Ending Balance: Collectively evaluated for impairment		1,338			1,584			772			572			4,266
Totals:	$	1,506		$	1,704		$	906		$	572		$	4,688
Loans:
Ending Balance: Individually evaluated for impairment	$	1,108		$	3,222		$	485		$	1,443		$	6,258
Ending Balance: Collectively evaluated for impairment		101,510			275,272			83,710			61,668			522,160
Totals:	$	102,618		$	278,494		$	84,195		$	63,111		$	528,418

25

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Year Ended December 31, 2017
				Commercial
2017	Commercial			Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	2,192		$	2,109		$	954		$	461		$	5,716
Charge-offs		(1,652	)		(91	)		(246	)		(105	)		(2,094	)
Recoveries		6			41			51			39			137
Provision		718			(321	)		413			183			993
Ending Balance	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Ending Balance: Individually evaluated for impairment	$	112		$	190		$	257		$	4		$	563
Ending Balance: Collectively evaluated for impairment		1,152			1,548			915			574			4,189
Totals:	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Loans:
Ending Balance: Individually evaluated for impairment	$	1,242		$	4,009		$	708		$	1,731		$	7,690
Ending Balance: Collectively evaluated for impairment		94,885			247,798			83,038			62,363			488,084
Totals:	$	96,127		$	251,807		$	83,746		$	64,094		$	495,774

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

	Age Analysis of Past Due Loans as of
	June 30, 2018
	(dollars in thousands)
					Greater								Recorded Investment
	30-59 Days		60-89 Days		than		Total Past				Total		> 90 Days &
2018	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
Commercial	$	114	$	161	$	395	$	670	$	101,948	$	102,618	$	—
Commercial Real Estate:
Commercial Mortgages- Owner Occupied		493		—		597		1,090		101,027		102,117		—
Commercial Mortgages-Non-Owner Occupied		145		130		—		275		162,660		162,935		—
Commercial Construction		253		296		30		579		12,863		13,442		—
Consumer:
Consumer Unsecured		1		1		—		2		7,619		7,621		—
Consumer Secured		307		101		216		624		75,950		76,574		—
Residential:
Residential Mortgages		649		127		213		989		54,059		55,048		—
Residential Consumer Construction		—		—		54		54		8,009		8,063		—
Total	$	1,962	$	816	$	1,505	$	4,283	$	524,135	$	528,418	$	—

	Age Analysis of Past Due Loans as of
	December 31, 2017
	(dollars in thousands)
					Greater								Recorded Investment
	30-59 Days		60-89 Days		than		Total Past				Total		> 90 Days &
2017	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
Commercial	$	320	$	—	$	250	$	570	$	95,557	$	96,127	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		904		64		177		1,145		92,504		93,649		—
Commercial Mortgages-Non-Owner Occupied		—		361		299		660		138,101		138,761		—
Commercial Construction		—		—		169		169		19,228		19,397		—
Consumer:
Consumer Unsecured		3		—		—		3		6,977		6,980		—
Consumer Secured		245		139		462		846		75,920		76,766		—
Residential:
Residential Mortgages		706		414		532		1,652		51,545		53,197		—
Residential Consumer Construction		—		—		58		58		10,839		10,897		—
Total	$	2,178	$	978	$	1,947	$	5,103	$	490,671	$	495,774	$	—

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

	Credit Quality Information - by Class
	June 30, 2018
	(dollars in thousands)
2018	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
Commercial	$	100,317	$	723	$	382	$	1,196	$	—	$	102,618
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		92,813		2,799		3,634		2,871		—		102,117
Commercial Mortgages-Non Owner Occupied		159,790		1,577		1,092		476		—		162,935
Commercial Construction		13,412		—		—		30		—		13,442
Consumer
Consumer Unsecured		7,606		—		13		2		—		7,621
Consumer Secured		75,843		66		89		576		—		76,574
Residential:
Residential Mortgages		53,033		—		239		1,776		—		55,048
Residential Consumer Construction		8,009		—		—		54		—		8,063
Totals	$	510,823	$	5,165	$	5,449	$	6,981	$	—	$	528,418
	Credit Quality Information - by Class
	December 31, 2017
	(dollars in thousands)
2017	Pass		Monitor		Special Mention		Substandard		Doubtful		Totals
Commercial	$	93,571	$	1,217	$	4	$	1,335	$	—		96,127
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		83,834		2,926		3,734		3,155		—		93,649
Commercial Mortgages-Non Owner Occupied		135,855		1,898		152		856		—		138,761
Commercial Construction		18,423		—		805		169		—		19,397
Consumer
Consumer Unsecured		6,978		—		—		2		—		6,980
Consumer Secured		75,774		90		—		902		—		76,766
Residential:
Residential Mortgages		50,816		—		241		2,140		—		53,197
Residential Consumer Construction		10,839		—		—		58		—		10,897
Totals	$	476,090	$	6,131	$	4,936	$	8,617	$	—	$	495,774

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

Troubled Debt Restructurings (TDR)

There were no loan modifications that would have been classified as TDRs during the three and six months ended June 30, 2018 and 2017.

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three and six months ended June 30, 2018 and 2017.

At June 30, 2018 and December 31, 2017, the Bank had no outstanding commitments to disburse additional funds on loans classified as TDRs.

Note 10 – Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts.

Fees, Exchange, and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, treasury services income and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Treasury services income primarily represents fees charged to customers for sweep, positive pay and lockbox services. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s

29

Note 10 – Revenue Recognition (continued)

performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or at the end of the month.

Other

Other noninterest income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, safety deposit box rental fees, and other miscellaneous revenue streams. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Note 11 – Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements. The Company has gathered and is in the process of analyzing lease data to determine the impact that ASU 2016-02 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements. The Company has been in discussions with its core processor to coordinate its plans for implementation.

30

Note 11 – Recent accounting pronouncements (continued)

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017-08 will have on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes. Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of ASU 2017-12 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments provide targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the amendments include clarifications related to: measurement elections, transition requirements, and adjustments associated with equity securities without readily determinable fair values; fair value measurement requirements for forward contracts and purchased options on equity securities; presentation requirements for hybrid financial liabilities for which the fair value option has been elected; and measurement requirements for liabilities denominated in a foreign currency for which the fair value option has been elected. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-03 to have a material impact on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The amendments expand the scope

31

Note 11 – Recent accounting pronouncements (continued)

of Topic 718 to include share-based payments issued to nonemployees for goods or services and supersedes Subtopic 505-50. As a result, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

GENERAL

Critical Accounting Policies

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

Financial’s critical accounting policies include the evaluation of the allowance for loan losses which is based on management’s estimate of an amount that is adequate to absorb probable losses inherent in the loan portfolio of the Bank. 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 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

33

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”).

The Bank’s policy with respect to the methodology for determining the allowance for loan losses involves a higher degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about uncertain matters. This critical policy and its assumptions are periodically reviewed with the Board of Directors.

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.

Financial also considers valuation of other real estate owned (OREO) a critical accounting policy. OREO consists of properties acquired through foreclosure or deed in lieu of foreclosure. These properties are carried at fair value less estimated costs to sell at the date of foreclosure. Losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses. Subsequent write-downs, if any, are charged against expense. Gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale. Operating costs after acquisition are expensed.

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 division”), investment services through the Bank’s Investment division (which we refer to as “Investment division”), and insurance activities through BOTJ Insurance, Inc., a subsidiary of the Bank, (which we refer to as “Insurance business”). Of these three other business activities, only the Mortgage division is material to the Bank’s results and operations.

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. Historically, our primary market area has been 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. Within the past three years, the Bank has begun to expand to other areas in Virginia, specifically Roanoke, Charlottesville, and Harrisonburg. 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 areas.

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.bank.

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

34

The Bank intends to enhance its profitability by increasing its market share in our service areas, providing additional services to its customers, and controlling costs.

The Bank services its banking customers through the following locations in Virginia:

Full Service Branches

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

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

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

• A branch located at 4698 South Amherst Highway in Amherst County (the “Madison Heights Branch”),

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

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

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

• A branch located at 1405 Ole Dominion Boulevard in the Town of Bedford, Virginia, located off of Independence Boulevard (the “Bedford Branch”),

• A branch located at 1110 Main Street, Altavista, Virginia (the “Altavista Branch”),

• A branch located at 1391 South High Street, Harrisonburg, VA (the “Harrisonburg Branch”),

• A branch located at 1745 Confederate Blvd, Appomattox, VA (the “Appomattox Branch”),

• A branch located at 225 Merchant Walk Avenue, Charlottesville, VA (the “5^th Street Station Branch”), and

• A branch located at 3562 Electric Road, Roanoke, VA (the “Roanoke Branch”).

Limited Service Branches

• Westminster-Canterbury facilities located at 501 VES Road, Lynchburg, Virginia,

• Westminster-Canterbury facilities located at 250 Pantops Mountain Road, Charlottesville, Virginia,

• Luxor Office Park LLC, 1430 Rolkin Court Suite 203, Charlottesville, Virginia (the “Charlottesville Branch”).

35

Loan Production Offices

• Residential mortgage loan production office located at the Forest Branch,

• Commercial, consumer and mortgage loan production office located at the Charlottesville Branch.

The Investment division and the Insurance business operate primarily out of offices located at the Church Street Branch.

The Bank continuously evaluates areas located within our service areas 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, including the following properties that we own and are holding for expansion:

• Real property located in the Timberlake Road area of Campbell County (Lynchburg), Virginia. The Timberlake property is not suitable for its intended use as a branch bank. Management anticipates that it will be necessary to raze the current structures and replace it with appropriate new construction.

• Real property located at 5 Village Highway (near the intersection of Routes 501 and 24) in Rustburg, Virginia. The structure on the property has been demolished and removed. The Bank does not anticipate opening a branch at this location prior to 2019.

• Real property located at 45 South Main Street, Lexington, Virginia. The bank does not anticipate opening a branch at this location prior to 2019.

The Bank estimates that the cost of improvements, furniture, fixtures, and equipment necessary to upfit each 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.

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

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and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank’s commitments is as follows:

	June 30, 2018 (in thousands)
Commitments to extend credit	$	127,019
Letters of Credit		3,034
Total	$	130,053

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. 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.

The Bank has rate lock commitments to originate mortgage loans through its Mortgage Division. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close. No other obligation exists. As a result of these contractual relationships with these investors, the Bank is not exposed to losses nor will it realize gains related to its rate lock commitments due to changes in interest rates.

SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion represents management’s discussion and analysis of the financial condition of Financial as of June 30, 2018 and December 31, 2017 and the results of operations of Financial for the three and six month periods ended June 30, 2018 and 2017. This discussion should be read in conjunction with the financial statements included elsewhere herein.

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

Financial Condition Summary

June 30, 2018 as Compared to December 31, 2017

Total assets were $655,866,000 on June 30, 2018 compared with $626,341,000 at December 31, 2017, an increase of 4.71%. The increase in total assets was primarily due to growth in the loan portfolio which was funded primarily by the increase in deposits.

Total deposits increased from $567,493,000 as of December 31, 2017 to $596,068,000 on June 30, 2018, an increase of 5.04%. The increase resulted in large part from increases in non-interest bearing demand deposits and an increase in NOW, money market, and savings accounts. NOW, money market, and savings deposits increased from $307,987,000 on December 31, 2017 to $328,082,000 on June 30, 2018. Noninterest bearing demand deposits increased from $74,102,000 on December 31, 2017 to $86,757,000 on June 30, 2018. Time deposits decreased from $185,404,000 on December 31, 2017 to $181,229,000 on June 30, 2018.

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Total loans, excluding loans held for sale, increased to $528,418,000 on June 30, 2018 from $495,774,000 on December 31, 2017. Loans, excluding loans held for sale and net of deferred fees and costs and the allowance for loan losses, increased to $523,730,000 on June 30, 2018 from $491,022,000 on December 31, 2017, an increase of 6.66%. The following summarizes the position of the Bank’s loan portfolio as of the dates indicated by dollar amount and percentages (dollar amounts in thousands):

	June 30, 2018					December 31, 2017
	Amount		Percentage			Amount		Percentage
Commercial	$	102,618		19.42	%	$	96,127		19.39	%
Commercial Real Estate		278,494		52.71	%		251,807		50.79	%
Consumer		84,195		15.93	%		83,746		16.89	%
Residential		63,111		11.94	%		64,094		12.93	%
Total loans	$	528,418		100.00	%	$	495,774		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 $5,780,000 on June 30, 2018 from $6,959,000 on December 31, 2017. OREO decreased to $2,585,000 on June 30, 2018 from $2,650,000 on December 31, 2017. This decrease was due in large part to a downward adjustment of the carrying value of certain OREO resulting from a change in appraised value and the Bank’s ability to sell OREO properties during the six months ended June 30, 2018 and was offset in part by new foreclosures during the period. Non-performing loans decreased from $4,309,000 at December 31, 2017 to $3,195,000 at June 30, 2018. 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 allowance for loan losses. 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 loan losses charged against earnings.

OREO represents real property acquired by the Bank for debts previously contracted, including through foreclosure or deeds in lieu of foreclosure. On December 31, 2017, the Bank was carrying seven OREO properties on its books at a value of $2,650,000. During the six months ended June 30, 2018, the Bank acquired seven additional OREO properties and disposed of three OREO properties, and as of June 30, 2018 the Bank is carrying eleven OREO properties at a value of $2,585,000. The OREO properties are available for sale and are being actively marketed.

The Bank had loans in the amount of $432,000 at June 30, 2018 classified as performing Troubled Debt Restructurings (“TDRs”) as compared to $440,000 at December 31, 2017. None of these TDRs were included in non-accrual loans. These loans have had their original terms modified to facilitate payment by the borrower. The loans have been classified as TDRs primarily due to a change to interest only payments and the maturity of these modified loans is primarily less than one year.

Cash and cash equivalents decreased to $33,849,000 on June 30, 2018 from $37,018,000 on December 31, 2017. Cash and cash equivalents consist of cash due from correspondents, cash in vault, and overnight investments (including federal funds sold). The decrease in cash and cash equivalents was due primarily to an decrease in federal funds sold, the proceeds of which were used to fund loans. In addition, in April, the Bank repaid an FHLB advance in the amount of $10,000,000. Cash and cash equivalents are subject to routine fluctuations in deposits, including fluctuations in transactional accounts and professional settlement accounts.

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Securities held-to-maturity decreased to $3,706,000 on June 30, 2018 from $5,713,000 on December 31, 2017. This decrease resulted from the maturity of a security with a par value of $2,000,000 during the quarter. Securities available-for-sale, which are carried on the balance sheet at fair market value, decreased to $53,688,000 on June 30, 2018, from $55,312,000 on December 31, 2017. The decrease resulted from the normal amortization of and principal payments on mortgage-backed securities in the available-for-sale portfolio along with a decrease in fair value related to an increase in interest rates. During the six months ended June 30, 2018 the Bank received $1,108,000 in proceeds from calls, maturities, and paydowns of securities available-for-sale and $0 in proceeds from the sale of securities available-for-sale. The Bank purchased $998,000 in securities available-for sale during the same period.

Financial’s investment in Federal Home Loan Bank of Atlanta (FHLBA) stock totaled $564,000 at June 30, 2018 and $607,000 at December 31, 2017, a decrease of $43,000. This decrease is attributable to the FHLBA’s redemption of stock as a result of the repayment of the $10,000,000 advance noted above. FHLBA stock is generally viewed as a long-term investment and because there is no market for the stock other than other Federal Home Loan Banks or member institutions, FHLBA stock is viewed as a restricted security. Therefore, when evaluating FHLBA stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Liquidity and Capital

At June 30, 2018, Financial, on a consolidated basis, had liquid assets of $87,537,000 in the form of cash, interest-bearing and noninterest-bearing deposits with banks, and available-for-sale investments. Of this amount, approximately $16,638,000 (representing current book value) of the available-for-sale securities are pledged as collateral with $8,183,000 pledged as security for public deposits, and $8,455,000 pledged as security on a line of credit the Bank may draw on from time to time to meet liquidity needs. This line of credit currently has a zero balance. Management believes that liquid assets were adequate at June 30, 2018. Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments at the Bank. In addition, if additional liquidity is needed, the Bank has the ability to purchase federal funds on the open market, borrow from the FHLBA using loans or investments within the Bank’s portfolio as collateral, and to borrow from the Federal Reserve Bank’s discount window.

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.

On January 25, 2017, Financial closed a private placement of unregistered debt securities (the “2017 Offering”) pursuant to which Financial issued $5,000,000 in principal of notes (the “2017 Notes”). The 2017 Notes bear interest at the rate of 4% per year with interest payable quarterly in arrears. The 2017 Notes are to mature on January 24, 2022, but are subject to prepayment in whole or in part on or after January 24, 2018 at Financial’s sole discretion on 30 days written notice to the holders. Of the proceeds, $3,000,000 was injected into the Bank as equity capital in March 2017. The Company left the remaining $2,000,000 at the holding company level for debt service on the 2017 Notes and other general corporate purposes.

At June 30, 2018, the Bank had a leverage ratio of approximately 9.08%, a Tier 1 risk-based capital ratio and a CET1 ratio of approximately 11.24% and a total risk-based capital ratio of approximately 12.13%. As of June 30, 2018 and December 31, 2017 the Bank’s regulatory capital levels

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exceeded those established for well-capitalized institutions. The following table sets forth the minimum capital requirements and the Bank’s capital position as of June 30, 2018 and December 31, 2017:

Bank Level Only Capital Ratios

	June 30,		December 31,
Analysis of Capital (in 000’s)	2018		2017
Tier 1 capital
Common Stock	$	3,742	$	3,742
Surplus		22,325		22,325
Retained earnings		33,713		31,069
Total Tier 1 capital	$	59,780	$	57,136
Common Equity Tier 1 Capital (CET1)	$	59,780	$	57,136
Tier 2 capital
Allowance for loan losses	$	4,688	$	4,752
Total Tier 2 capital:	$	4,688	$	4,752
Total risk-based capital	$	64,468	$	61,888
Risk weighted assets	$	531,673	$	513,419
Average total assets	$	658,588	$	626,422

	Actual						Regulatory Benchmarks
							For Capital			For Well
	June 30,			December 31,			Adequacy			Capitalized
	2018			2017			Purposes (1)			Purposes
Capital Ratios:
Tier 1 capital to average total assets		9.08	%		9.12	%		4.00	%		5.00	%
Common Equity Tier 1 Ratio		11.24	%		11.13	%		7.00	%		6.50	%
Tier 1 risk-based capital ratio		11.24	%		11.13	%		8.50	%		8.00	%
Total risk-based capital ratio		12.13	%		12.05	%		10.50	%		10.00	%

(1) Includes the capital conservation buffer after full phase-in.

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 at June 30, 2018 would be slightly lower than those of the Bank.

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. The phase-in period for this rule began in January 2015. Under the final rule, minimum requirements were increased for both the quantity and quality of capital held by banking organizations. The rule included 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 applies to all supervised financial institutions. The capital conservation buffer began its phase-in on January 1, 2016 at 0.625% and increases by an additional 0.625% annually until it reaches 2.5% on January 1, 2019. This will result in an effective Tier 1 capital ratio of 8.5% upon full implementation. The capital conservation buffer will limit capital distributions, stock redemptions, and certain discretionary bonuses. Beginning January 1, 2016, failure to maintain the capital conservation buffer will limit the ability of the Bank and Financial to pay dividends, repurchase shares or pay discretionary bonuses. The rule also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2018 and 2017

Earnings Summary

Financial had net income including all operating segments of $1,300,000 and $2,423,000 for the three and six months ended June 30, 2018, compared to $787,000 and $1,547,000 for the comparable periods in 2017. Basic and diluted earnings per common share for the three and six months ended June 30, 2018 were $0.30 and $0.55, compared to basic and diluted earnings per share of $0.18 and $0.35 for the three and six months ended June 30, 2017.

The increase in net income for the three and six months ended June 30, 2018 as compared to the prior year was due primarily to an increase in net interest income and non-interest income and was partially offset by an increase in non-interest expense. Non-interest expense increased in large part because of the Bank’s continued emphasis on growth in Charlottesville, Harrisonburg, and Roanoke. These efforts resulted in increases in personnel, professional, data processing, and other outside expenses.

Also as discussed below under Income Taxes, the reduction in both income tax expense and the effective rate due to the passage of the Tax and Jobs Act of 2017 contributed to the increase in net income for the three and six months ended June 30, 2018 as compared to the same periods in 2017.

These operating results represent an annualized return on average stockholders’ equity of 9.67% and 9.15% for the three and six months ended June 30, 2018, compared with 6.13% and 6.09% for the three and six months ended June 30, 2017. This increase for the three and six months was a direct result of the increase in net income. The Company had an annualized return on average assets of 0.79% and 0.76% for the three and six months ended June 30, 2018 compared with 0.54% and 0.54% for the same periods in 2017. The increase for the three and six months ended June 30, 2018 largely resulted from an increase in net income.

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

Interest Income, Interest Expense, and Net Interest Income

Interest income increased to $6,725,000 and $12,880,000 for the three and six months ended June 30, 2018 from $5,851,000 and $11,360,000 for the same periods in 2017, increases of 14.94% and 13.38%, respectively. Interest income increased primarily because of increased balances in the loan portfolio and increases in interest rates tied to floating rate loans. The average rate received on earning assets increased from 4.26% and 4.21% to 4.33% and 4.27% for the three and six months ended June 30, 2018 from the comparable periods in 2017. The rate on total average earning assets increased for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017 primarily because of multiple short term rate increases by the FOMC, which, as noted above, resulted in an increase in the rates paid by borrowers on floating rate loans.

Interest expense increased to $922,000 and $1,746,000 for the three and six months ended June 30, 2018 from $711,000 and $1,382,000 for the same periods in 2017, increases of 29.68% and $26.34%. The increase in interest expense resulted primarily from an increase on the rates paid on and balances of deposits. The Bank’s average rate paid on interest bearing deposits was 0.69% and 0.70% during the three and six month periods ended June 30, 2018 as compared to 0.63% and 0.63% for the same periods in 2017.

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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 and six months ended June 30, 2018 was $5,803,000 and $11,134,000 as compared to $5,140,000 and $9,978,000 for the same periods in 2017, increases of 12.90% and 11.59%. The increase in net interest income for the three and six months ended June 30, 2018 as compared with the comparable periods in 2017 primarily is attributable to the increase in interest income resulting from increased loan balances and the previously discussed increase in short term rates by the FOMC. The net interest margin was 3.74% and 3.69% for the three and six months ended June 30, 2018 as compared with 3.74% and 3.70% for the same periods in 2017.

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, gains on sales of mortgage loans held for sale, commissions on sales of investments and the Bank’s ownership interest in a title insurance agency. Non-interest income increased to $1,441,000 and $2,627,000 for the three and six months ended June 30, 2018 from $1,204,000 and $2,065,000 for the three and six months ended June 30, 2017.

This increase for the three and six months ended June 30, 2018 as compared to the same periods last year was due primarily due to an increase in gains on sales of loans held for sale from $598,000 and $969,000 for the three and six months ended June 30, 2017 to $873,000 and $1,493,000 for the period ended June 30, 2018 as well slight increases in service charges, fees, and commissions from the comparable periods ended June 30, 2017.

The Bank, through its Mortgage division, originates both conforming and non-conforming consumer residential mortgage loans in the markets we serve. 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, except in limited circumstances such as first payment default, no credit or interest rate risk on these mortgages.

Purchase mortgage originations totaled $25,400,000 and $41,485,000, or 76.14% and 70.91% of the total mortgage loans originated in the three and six months ended June 30, 2018 as compared to $16,179,000 and $22,201,000, or 76.67% and 65.15%% of the total mortgage loans originated in the same periods in 2017. The increase in the volume of purchase mortgage originations for the three and six months of 2018 resulted from the Bank’s increased presence in the Charlottesville, Harrisonburg, Roanoke, and recently, Blacksburg markets as well as continually favorable longer-term interest rates. However, despite the increase in longer-term rates, refinancing activity continued primarily due to the relatively low interest rate environment as compared to long-term historical interest rate levels. Management anticipates that purchase mortgage originations going forward will represent a majority of mortgage originations as they have in the recent past.

Management anticipates that residential mortgage rates will remain stable or trend upward during the remainder of 2018. Management expects that the Mortgage division’s reputation in Region 2000, steady residential real estate inventory and the recent hiring of additional mortgage loan originators in Roanoke, Harrisonburg and Charlottesville, and Blacksburg, will result in strong mortgage originations through the remainder of 2018. 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. Management also believes that in the event that interest rates rise, revenue from the mortgage segment could be under pressure.

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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 2018.

The Bank provides insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary. The Bank has three full-time employees 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 2018.

Non-Interest Expense

Non-interest expense for the three and six months ended June 30, 2018 increased to $5,306,000 and $10,403,000 from $4,756,000 and $9,253,000, increases of 11.56% and 12.43% from the comparable periods in 2017. This increase resulted from increases for personnel expense primarily related to the expansion into Charlottesville, Harrisonburg, and Roanoke, as well as increases in professional fees, data processing and outside expenses, and other real estate expense. Total personnel expense was $2,832,000 and $5,545,000 for the three and six month periods ended June 30, 2018 as compared to $2,396,000 and $4,776,000 for the same periods in 2017.

Allowance and Provision for Loan Losses

The allowance for loan losses represents an amount that, in our judgment, will be adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses increases the allowance, and loans charged off, net of recoveries, reduce the allowance. The provision for 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 when due as well as all TDRs, are evaluated for specific impairment. The general reserve component is based on an evaluation of general economic conditions, actual and expected credit losses, and loan performance measures. Based on the application of the loan loss calculation, the Bank provided $315,000 and $337,000 to the allowance for loan losses for the three and six month periods ended June 30, 2018. This compares to provisions of $445,000 and $545,000 for the comparable periods in 2017, representing decreases of 29.21% and 38.17%.

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 were $315,000 and $555,000 for the three and six months ended June 30, 2018 as compared to $96,000 and $226,000 for the comparable periods in 2017. While a charged off loan may subsequently be collected, such recoveries generally are realized over an extended period of time. In the three and six months ended June 30, 2018, the Bank had recoveries of charged-off loans of $17,000 and $154,000 as compared with $67,000 and $97,000 for the comparable periods in 2017.

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 as of June 30, 2018 decreased slightly as compared to December 31, 2017.

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For the three and six months ended June 30, 2018, the Bank had a minimal change in asset quality from December 31, 2017. As shown in the table below, the total balance in the allowance decreased, from $4,752,000 as of December 31, 2017 to $4,688,000 on June 30, 2018. The allowance for loan losses as a percent of loans decreased to 0.89% as of June 30, 2018 from 0.96% as of December 31, 2017 due to an increase in the Bank’s loan balances and the slight decrease in the reserve. Increased loan balances during the quarter led to an increase in the balance of the general reserve as of June 30, 2018 as compared to December 31, 2017, but this increase was more than offset by a decrease in specific reserves when comparing the same periods. The allowance for loan losses as a percent of unimpaired loans decreased to 0.82% as of June 30, 2018 from 0.86% as of December 31, 2017 due to decrease in the amount of the reserve associated with home equity lines of credit. The allowance for loan losses as a percentage of unimpaired loans primarily decreased from the prior year end based on management’s updated evaluation of the underlying factors measured in the qualitative portion of the general reserve, taking into consideration asset quality as well as the other metrics evaluated in the analysis. Management believes that the current allowance for loan losses is adequate.

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands)
	As of and For the Six Months Ended June 30, 2018
2018	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Charge-offs		(215	)		(142	)		(186	)		(12	)		(555	)
Recoveries		101			3			50			—			154
Provision		356			105			(130	)(1)		6			337
Ending Balance	$	1,506		$	1,704		$	906		$	572		$	4,688
Ending Balance: Individually evaluated for impairment	$	168		$	120		$	134		$	—		$	422
Ending Balance: Collectively evaluated for impairment		1,338			1,584			772			572			4,266
Totals:	$	1,506		$	1,704		$	906		$	572		$	4,688
Loans:
Ending Balance: Individually evaluated for impairment	$	1,108		$	3,222		$	485		$	1,443		$	6,258
Ending Balance: Collectively evaluated for impairment		101,510			275,272			83,710			61,668			522,160
Totals:	$	102,618		$	278,494		$	84,195		$	63,111		$	528,418

(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 this segment.

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	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands)
	As of and For the Year Ended December 31, 2017
2017	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for Loan Losses:
Beginning Balance	$	2,192		$	2,109		$	954		$	461		$	5,716
Charge-offs		(1,652	)		(91	)		(246	)		(105	)		(2,094	)
Recoveries		6			41			51			39			137
Provision		718			(321	)(1)		413			183			993
Ending Balance	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Ending Balance: Individually evaluated for impairment	$	112		$	190		$	257		$	4		$	563
Ending Balance: Collectively evaluated for impairment		1,152			1,548			915			574			4,189
Totals:	$	1,264		$	1,738		$	1,172		$	578		$	4,752
Loans:
Ending Balance: Individually evaluated for impairment	$	1,242		$	4,009		$	708		$	1,731		$	7,690
Ending Balance: Collectively evaluated for impairment		94,885			247,798			83,038			62,363			488,084
Totals:	$	96,127		$	251,807		$	83,746		$	64,094		$	495,774

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

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

	Three months ended June 30, (in thousands)						Six months ended June 30, (in thousands)
	2018			2017			2018			2017
Balance, beginning of period	$	4,671		$	5,716		$	4,752		$	5,716
Provision for loan losses		315			445			337			545
Loans charged off		(315	)		(96	)		(555	)		(226	)
Recoveries of loans charged off		17			67			154			97
Net (charge offs)		(298	)		(29	)		(401	)		(129	)
Balance, end of period	$	4,688		$	6,132		$	4,688		$	6,132

No nonaccrual loans were excluded from the impaired loan disclosures at June 30, 2018 and December 31, 2017. If interest on these loans had been accrued, such income cumulatively would have approximated $381,000 and $472,000 on June 30, 2018 and December 31, 2017, respectively. Loan 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.

45

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

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

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

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

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

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

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

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

46

• “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 and six months ended June 30, 2018, Financial had an income tax expense of $323,000 and $598,000 as compared to $356,000 and $698,000 for the three and six months ended June 30, 2017. This represents an effective tax rate of 19.90% and 19.79% for the three and six months ended June 30, 2018 as compared with 31.15% and 31.09% for the three and six months ended June 30, 2017. Our effective rate was lower than the statutory corporate tax rate in both quarters because of federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance and certain tax free municipal securities. The decrease in the expense, despite an increase in net income, as well as the decrease in the effective rate from June 30, 2017 is due to the decrease in our applicable corporate income tax rate following the passage of the Tax and Jobs Act of 2017 from 34% in the 2017 periods to 21% in the 2018 periods.

47

Schedule I

Net Interest Margin Analysis

Average Balance Sheets

For the Quarter Ended June 30, 2018 and 2017

(dollars in thousands)

	2018								2017
	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)	$	523,634		$	6,158		4.72	%	$	477,512		$	5,440		4.57	%
Loans held for sale		3,706			37		4.00	%		2,347			25		4.27	%
Fed funds sold		20,432			92		1.81	%		9,103			23		1.01	%
Interest bearing bank balances		12,595			56		1.78	%		7,000			17		0.97	%
Securities (3)		60,959			359		2.36	%		54,130			323		2.39	%
Federal agency equities		1,514			23		6.09	%		1,344			28		8.36	%
CBB equity		116			—		—			116			—		—
Total earning assets		622,956			6,725		4.33	%		551,552			5,856		4.26	%
Allowance for loan losses		(4,662	)							(5,742	)
Non-earning assets		42,284								42,357
Total assets	$	660,578							$	588,167
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	210,539		$	189		0.36	%	$	142,254		$	117		0.33	%
Savings		103,065			42		0.16	%		108,019			58		0.22	%
Time deposits		182,790			625		1.37	%		169,336			486		1.15	%
Total interest bearing deposits		496,394			856		0.69	%		419,609			661		0.63	%
Other borrowed funds
Repurchase agreements		—			—		—			275			—		—
FHLB borrowings		3,187			16		2.01	%		—			—		—
Capital Notes		5,000			50		4.00	%		5,000			50		4.00	%
Total interest-bearing liabilities		504,581			922		0.73	%		424,884			711		0.67	%
Non-interest bearing deposits		100,985								110,878
Other liabilities		1,099								922
Total liabilities		606,665								536,684
Stockholders’ equity		53,913								51,483
Total liabilities and Stockholders’ equity	$	660,578							$	588,167
Net interest income				$	5,803							$	5,145
Net interest margin							3.74	%							3.74	%
Interest spread							3.60	%							3.59	%

(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. Assumed income tax rates of 21% and 34% were used for the second quarter of 2018 and 2017, respectively.

48

Net Interest Margin Analysis

Average Balance Sheets

For the Six Months Ended June 30, 2018 and 2017

(dollars in thousands)

	2018								2017
	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)	$	510,479		$	11,807		4.66	%	$	473,779		$	10,613		4.52	%
Loans held for sale		3,076			62		4.06	%		1,871			40		4.31	%
Federal funds sold		19,474			159		1.65	%		8,093			36		0.90	%
Interest bearing bank balances		12,071			91		1.52	%		7,000			32		0.92	%
Securities (3)		61,811			730		2.38	%		52,532			615		2.36	%
Federal agency equities		1,458			31		4.29	%		1,302			35		5.42	%
CBB equity		116			—		—			116			—		—
Total earning assets		608,485			12,880		4.27	%		544,693			11,371		4.21	%
Allowance for loan losses		(4,685	)							(5,727	)
Non-earning assets		41,490								41,438
Total assets	$	645,290							$	580,404
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand interest bearing	$	183,802		$	326		0.36	%	$	141,228		$	228		0.33	%
Savings		103,274			97		0.19	%		108,216			116		0.22	%
Time deposits		182,780			1,206		1.33	%		166,678			951		1.15	%
Total interest bearing deposits		469,856			1,629		0.70	%		416,122			1,295		0.63	%
Other borrowed funds
Repurchase agreements		—			—		—			138			—		—
FHLB borrowings		1,713			17		2.00	%		—			—		—
Capital Notes		5,000			100		4.00	%		4,337			87		4.00	%
Total interest-bearing liabilities		476,569			1,746		0.74	%		420,597			1,382		0.66	%
Non-interest bearing deposits		114,248								107,978
Other liabilities		1,090								601
Total liabilities		591,907								529,176
Stockholders’ equity		53,383								51,228
Total liabilities and Stockholders’ equity	$	645,290							$	580,404
Net interest income				$	11,134							$	9,987
Net interest margin							3.69	%							3.70	%
Interest spread							3.53	%							3.55	%

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

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

(3) The interest income and yields calculated on securities have been tax affected to reflect any tax exempt interest on municipal securities. Assumed income tax rates of 21% and 34% were used for the first six months of 2018 and 2017, respectively.

49

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

There have been no significant changes during the quarter ended June 30, 2018, 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.

50

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

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 21, 2018. There have been no material changes from risk factors as previously disclosed in Part 1 Item 1A of the Company’s Form 10-K for the year ended December 31, 2017.

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

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

51

Item 5. Other Information

Not applicable

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 August 8, 2018
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2018
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated August 8, 2018
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of June 30, 2018 and December 31, 2017; (ii) Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2018 and 2017; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 30, 2018 and 2017 (iv) Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2018 and 2017 (v) Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the six months ended June 30, 2018 and 2017; (vi) Notes to Unaudited Consolidated Financial Statements.

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 August 8, 2018
31.2	Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 8, 2018
32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated August 8, 2018
101	The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of June 30, 2018 and December 31, 2017; (ii) Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2018 and 2017; (iii) Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 30, 2018 and 2017 (iv) Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2018 and 2017 (v) Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the six months ended June 30, 2018 and 2017; (vi) Notes to Unaudited Consolidated Financial Statements.

53

SIGNATURES

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

	BANK OF THE JAMES FINANCIAL GROUP, INC.
Date: August 9, 2018	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President (Principal Executive Officer)
Date: August 9, 2018	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)

54

EX-31.1

Exhibit 31.1

Certification—Principal Executive Officer

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

(1) I have reviewed this Form 10-Q of Bank of the James Financial Group, Inc.;

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

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

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

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

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

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

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter (the issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

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

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

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

Date: August 9, 2018	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification—Principal Financial Officer and Principal Accounting Officer

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

(1) I have reviewed this Form 10-Q of Bank of the James Financial Group, Inc.;

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

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

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

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

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

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

(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter (the issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

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

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

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

Date: August 9, 2018	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

	BANK OF THE JAMES FINANCIAL GROUP, INC.
Date: August 9, 2018	By	/S/ Robert R. Chapman III
		Robert R. Chapman III, President
		(Principal Executive Officer)
Date: August 9, 2018	By	/S/ J. Todd Scruggs
		J. Todd Scruggs, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 08, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018
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		4,378,436

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets
Cash and due from banks	$ 25,717	$ 20,267
Federal funds sold	8,132	16,751
Total cash and cash equivalents	33,849	37,018
Securities held-to-maturity (fair value of $3,448 in 2018 and $5,619 in 2017)	3,706	5,713
Securities available-for-sale, at fair value	53,688	55,312
Restricted stock, at cost	1,462	1,505
Loans, net of allowance for loan losses of $4,688 in 2018 and $4,752 in 2017	523,730	491,022
Loans held for sale	5,815	2,626
Premises and equipment, net	11,995	12,055
Interest receivable	1,755	1,713
Cash value - bank owned life insurance	13,188	13,018
Other real estate owned	2,585	2,650
Income taxes receivable	1,339	1,366
Deferred tax asset, net	1,695	1,418
Other assets	1,059	925
Total assets	655,866	626,341
Deposits
Noninterest bearing demand	86,757	74,102
NOW, money market and savings	328,082	307,987
Time	181,229	185,404
Total deposits	596,068	567,493
Capital notes	5,000	5,000
Interest payable	107	111
Other liabilities	2,167	2,072
Total liabilities	603,342	574,676
Commitments and Contingencies
Stockholders' equity
Preferred stock; authorized 1,000,000 shares; none issued and outstanding
Common stock $2.14 par value; authorized 10,000,000 shares; issued and outstanding 4,378,436 as of June 30, 2018 and December 31, 2017	9,370	9,370
Additional paid-in-capital	31,495	31,495
Retained earnings	14,167	12,269
Accumulated other comprehensive (loss)	(2,508)	(1,469)
Total stockholders' equity	52,524	51,665
Total liabilities and stockholders' equity	$ 655,866	$ 626,341

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Consolidated Balance Sheets [Abstract]
Securities held-to-maturity, fair value	$ 3,448	$ 5,619
Loans, allowance for loan losses	$ 4,688	$ 4,752
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 2.14	$ 2.14
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	4,378,436	4,378,436
Common stock, shares outstanding	4,378,436	4,378,436

XML

Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest Income
Loans	$ 6,195	$ 5,465	$ 11,869	$ 10,653
Securities
US Government and agency obligations	186	121	384	234
Mortgage backed securities	66	77	134	143
Municipals - taxable	83	80	162	149
Municipals - tax exempt		10	3	21
Dividends	23	28	31	35
Other (Corporates)	24	30	47	57
Interest bearing deposits	56	17	91	32
Federal Funds sold	92	23	159	36
Total interest income	6,725	5,851	12,880	11,360
Deposits
NOW, money market savings	231	175	423	344
Time Deposits	625	486	1,206	951
FHLB borrowings	16		17
Total interest expense	922	711	1,746	1,382
Net interest income	5,803	5,140	11,134	9,978
Provision for loan losses	315	445	337	545
Net interest income after provision for loan losses	5,488	4,695	10,797	9,433
Noninterest income
Gain on sales of loans held for sale	873	598	1,493	969
Service charges, fees and commissions	465	443	929	828
Increase in cash value of life insurance	85	87	170	173
Other	18	24	35	33
Gain on sales and calls of securities, net		52		62
Total noninterest income	1,441	1,204	2,627	2,065
Noninterest expenses
Salaries and employee benefits	2,832	2,396	5,545	4,776
Occupancy	360	365	755	737
Equipment	398	438	777	786
Supplies	140	123	289	257
Professional, data processing, and other outside expenses	837	697	1,652	1,377
Marketing	187	236	327	384
Credit expense	112	137	237	231
Other real estate expenses	86	24	126	36
FDIC insurance expense	99	88	200	191
Other	255	252	495	478
Total noninterest expenses	5,306	4,756	10,403	9,253
Income before income taxes	1,623	1,143	3,021	2,245
Income tax expense	323	356	598	698
Net Income	$ 1,300	$ 787	$ 2,423	$ 1,547
Weighted average shares outstanding - basic	4,378,436	4,378,436	4,378,436	4,378,436
Weighted average shares outstanding- diluted	4,378,436	4,378,519	4,378,481	4,378,527
Earnings per common share - basic	$ 0.30	$ 0.18	$ 0.55	$ 0.35
Earnings per common share - diluted	$ 0.30	$ 0.18	$ 0.55	$ 0.35
Capital Notes 4% Due 1/24/2022 [Member]
Deposits
Capital notes	$ 50	$ 50	$ 100	$ 87

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Consolidated Statements Of Income (Parenthetical) - Capital Notes 4% Due 1/24/2022 [Member]	6 Months Ended
	Jun. 30, 2018
Capital notes, interest rate	4.00%
Capital notes, maturity date	Jan. 24, 2022

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Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Consolidated Statements Of Comprehensive Income [Abstract]
Net Income		$ 1,300	$ 787	$ 2,423	$ 1,547
Other comprehensive (loss) income:
Unrealized (losses) gains on securities available-for-sale		(240)	571	(1,316)	994
Unrealized (losses) gains on securities available-for-sale, Tax effect		51	(194)	277	(338)
Reclassification adjustment for gains included in net income	[1]		(52)		(62)
Reclassification adjustment for gains included in net income, Tax effect	[2]		17		21
Other comprehensive (loss) income , net of tax		(189)	342	(1,039)	615
Comprehensive income		$ 1,111	$ 1,129	$ 1,384	$ 2,162

[1] Gains are included in "gain on sales and calls of 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

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Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Cash flows from operating activities
Net Income	$ 1,300	$ 787	$ 2,423	$ 1,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			434	396
Net amortization and accretion of premiums and discounts on securities			205	185
(Gain) on sales of available-for-sale securities				(62)
(Gain) on sales of loans held for sale	(873)	(598)	(1,493)	(969)
Proceeds from sales of loans held for sale			56,811	36,364
Origination of loans held for sale			(58,507)	(34,076)
Provision for loan losses	315	445	337	545	$ 993
(Gain) loss on sale of other real estate owned			(5)	17	1
Impairment of other real estate owned			110
(Increase) in cash value of life insurance	(85)	(87)	(170)	(173)
(Increase) decrease in interest receivable			(42)	80
(Increase) decrease in other assets			(134)	70
Decrease (increase) in income taxes receivable			27	(77)
(Decrease) in interest payable			(4)	(10)
Increase in other liabilities			95	65
Net cash provided by operating activities			87	3,902
Cash flows from investing activities
Proceeds from calls of securities held-to-maturity			2,000
Purchases of securities available-for-sale			(998)	(15,481)
Proceeds from maturities, calls and paydowns of securities available-for-sale			1,108	2,013
Proceeds from sale of securities available-for-sale				5,749
(Purchase) of Federal Reserve Bank stock				(90)
Redemption (purchase) of Federal Home Loan Bank stock			43	(42)
Proceeds from sale of other real estate owned			525	253
Origination of loans, net of principal collected			(33,610)	(20,115)
Purchases of premises and equipment			(374)	(865)
Net cash (used in) investing activities			(31,306)	(28,578)
Cash flows from financing activities
Net increase in deposits			28,575	9,750
Net increase in repurchase agreements				5,000
Dividends paid to common stockholders			(525)	(525)
Proceeds from sale of 4% capital notes due 1/24/2022				5,000
Net cash provided by financing activities			28,050	19,225
(Decrease) in cash and cash equivalents			(3,169)	(5,451)
Cash and cash equivalents at beginning of period			37,018	28,683	28,683
Cash and cash equivalents at end of period	$ 33,849	$ 23,232	33,849	23,232	37,018
Non cash transactions
Transfer of loans to other real estate owned			565	675	$ 815
Fair value adjustment for securities available-for-sale			(1,316)	932
Cash transactions
Cash paid for interest			1,750	1,392
Cash paid for income taxes			$ 650	$ 775

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Consolidated Statements Of Cash Flows (Parenthetical) - Capital Notes 4% Due 1/24/2022 [Member]	6 Months Ended
	Jun. 30, 2018
Capital notes, interest rate	4.00%
Capital notes, maturity date	Jan. 24, 2022

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Consolidated Statements Of Changes In Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) [Member]	Total
Balance at Dec. 31, 2016	$ 9,370	$ 31,495	$ 10,156	$ (1,600)	$ 49,421
Balance, shares at Dec. 31, 2016	4,378,436
Net Income			1,547		1,547
Dividends paid on common stock			(525)		(525)
Other Comprehensive income				615	615
Balance at Jun. 30, 2017	$ 9,370	31,495	11,178	(985)	51,058
Balance, shares at Jun. 30, 2017	4,378,436
Balance at Dec. 31, 2017	$ 9,370	31,495	12,269	(1,469)	51,665
Balance, shares at Dec. 31, 2017	4,378,436
Net Income			2,423		2,423
Dividends paid on common stock			(525)		(525)
Other Comprehensive income				(1,039)	(1,039)
Balance at Jun. 30, 2018	$ 9,370	$ 31,495	$ 14,167	$ (2,508)	$ 52,524
Balance, shares at Jun. 30, 2018	4,378,436

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Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Consolidated Statements Of Changes In Stockholders' Equity [Abstract]
Dividend on common stock, per share	$ 0.12	$ 0.12

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Basis Of Presentation

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 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, 2017.  These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2017 included in Financial’s Annual Report on Form 10-K.  Results for the three and six month periods ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

Certain immaterial reclassifications have been made to prior period balances to conform to the current period presentation.  Reclassifications had no effect on prior year net income or stockholders’ equity.

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.  Recently, the Company has expanded into Charlottesville, Roanoke, and Harrisonburg.

Financial’s critical accounting policies include the evaluation of the allowance for loan losses which is based on management’s estimate of an amount that is adequate to absorb probable losses inherent in the  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 losses 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 policy with respect to the methodology for determining the allowance for loan losses involves a higher degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about uncertain matters. This critical policy and its assumptions are periodically reviewed with the Board of Directors.

Financial also considers valuation of other real estate owned (OREO) a critical accounting policy.  OREO consists of properties acquired through foreclosure or deed in lieu of foreclosure.  These properties are carried at fair value less estimated costs to sell at the date of foreclosure.  Losses from the acquisition of property in full or partial satisfaction of loans are charged against the allowance for loan losses.  Subsequent write-downs, if any, are charged against expense.  Gains and losses on the sales of foreclosed properties are included in determining net income in the year of the sale.  Operating costs after acquisition are expensed.

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Use Of Estimates

6 Months Ended

Jun. 30, 2018

Use Of Estimates [Abstract]

Use Of Estimates

Note 2 – Use of Estimates

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

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Earnings Per Common Share (EPS)

6 Months Ended

Jun. 30, 2018

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 diluted earnings per share.  The following is a summary of the earnings per share calculation for the three and six months ended June 30, 2018 and 2017.

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Net income	$      1,300,000	$        787,000	$      2,423,000	$      1,547,000
Weighted average number of shares	4,378,436	4,378,436	4,378,436	4,378,436
Options effect of incremental shares	-	83	45	91
Weighted average diluted shares	4,378,436	4,378,519	4,378,481	4,378,527
Basic EPS (weighted avg shares)	$               0.30	$              0.18	$               0.55	$               0.35
Diluted EPS (Including Option Shares)	$               0.30	$              0.18	$               0.55	$               0.35

No option shares were excluded in calculating diluted earnings per share for any of the periods presented.

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Stock Based Compensation

6 Months Ended

Jun. 30, 2018

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 six months ended June 30, 2018 is summarized below:

			Weighted
		Weighted	Average
		Average	Remaining
		Exercise	Contractual	Intrinsic
	Shares	Price	Life (in years)	Value
Options outstanding, January 1, 2018	636	$      12.79
Granted	-	-
Exercised	-	-
Forfeited	(636)	12.79
Options outstanding, June 30, 2018	-	$              -	-	$              -
Options exercisable, June 30, 2018	-	$              -	-	$              -

Intrinsic value is calculated by subtracting the exercise price of option shares from the market price of underlying shares as of June 30, 2018 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 and no outstanding options remain outstanding from the 1999 Plan.

At the annual meeting of shareholders held on May 15, 2018, the shareholders approved the  Bank of the James Financial Group, Inc. 2018 Equity Incentive Plan (the “2018 Incentive Plan”).  The 2018 Incentive Plan permits the issuance of up to 250,000 shares of common stock for awards to key employees of the Company and its subsidiaries in the form of stock options, restricted stock, restricted stock units, stock awards and performance units. To date the Company has not awarded any equity compensation under the 2018 Incentive Plan.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

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

Note 5 – Fair Value Measurements (continued)

participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

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

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

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

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

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

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.

Note 5 – Fair Value Measurements (continued)

		Carrying Value at June 30, 2018 (in thousands)
Description	Balance as of June 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US Treasuries	$1,810	$        -	$1,810	$       -
US agency obligations	23,078	-	23,078	-
Mortgage-backed securities	12,996	-	12,996	-
Municipals	12,028	-	12,028	-
Corporates	3,776	-	3,776	-
Total available-for-sale securities	$53,688	$       -	$53,688	$       -
		Carrying Value at December 31, 2017 (in thousands)
Description	Balance as of December 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US Treasuries	$1,858	$	$1,858	$
US agency obligations	23,850	-	23,850	-
Mortgage-backed securities	13,388	-	13,388	-
Municipals	12,274	-	12,274	-
Corporates	3,942	-	3,942	-
Total available-for-sale securities	$55,312	$       -	$55,312	$       -

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, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputs, the 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 June 30, 2018.  Gains and losses on the sale of loans are recorded within gains on sales of loans held for sale, net 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 property 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). 

Any fair value adjustments are recorded in the period incurred and expensed against current earnings.  However, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputes, the value is considered 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 June 30, 2018
Description	Balance as of June 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$2,241	$     -	$          -	$2,241
Loans held for sale	5,815	-	5,815	-
Other real estate owned	2,585	-	-	2,585

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

		Carrying Value at December 31, 2017
Description	Balance as of December 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$2,523	$      -	$       -	$2,523
Loans held for sale	2,626	-	2,626	-
Other real estate owned	2,650	-	-	2,650

*  Includes loans charged down 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 June 30, 2018 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$2,241	Discounted appraised value	Selling cost	0% - 10% (8%)
			Discount for lack of marketability and age of appraisal	0% - 20% (6%)
OREO	2,585	Discounted appraised value	Selling cost	0% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)

	Quantitative information about Level 3 Fair Value Measurements for December 31, 2017 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$2,523	Discounted appraised value	Selling cost	0% - 10%  (8%)
			Discount for lack of marketability and age of appraisal	0% - 20%  (6%)
OREO	2,650	Discounted appraised value	Selling cost	0% - 10%  (6%)
			Discount for lack of marketability and age of appraisal	0% - 25%  (15%)

Note 5 – Fair Value Measurements (continued)

The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments and their placement in the fair value hierarchy at June 30, 2018 and December 31, 2017 was as follows (in thousands):

		Fair Value Measurements at June 30, 2018 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	$25,717		$25,717	$      -	$      -	$25,717
Fed funds sold	8,132		8,132	-	-	8,132
Securities
Available-for-sale	53,688		-	53,688	-	53,688
Held-to-maturity	3,706		-	3,448	-	3,448
Restricted stock	1,462			1,462	-	1,462
Loans, net (1)	523,730		-	-	511,265	511,265
Loans held for sale	5,815		-	5,815	-	5,815
Interest receivable	1,755		-	1,755	-	1,755
BOLI	13,188		-	13,188	-	13,188
Liabilities
Deposits	$596,068		$      -	$596,664	$      -	$599,664
Capital notes	5,000		-	4,670	-	4,670
Interest payable	107		-	107	-	107

		Fair Value Measurements at December 31, 2017 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	$20,267	$20,267	$      -	$      -	$20,267
Fed funds sold	16,751	16,751			16,751
Securities
Available-for-sale	55,312	-	55,312	-	55,312
Held-to-maturity	5,713	-	5,619	-	5,619
Restricted stock	1,505	-	1,505		1,505
Loans, net (1)	491,022	-	-	492,397	492,397
Loans held for sale	2,626	-	2,626	-	2,626
Interest receivable	1,713	-	1,713	-	1,713
BOLI	13,018	-	13,018	-	13,018
Liabilities
Deposits	$567,493	$      -	$568,224	$      -	$568,224
Capital notes	5,000	-	5,310		5,310
Interest payable	111	-	111	-	111

(1) Carrying amount is net of unearned income and the Allowance. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of June 30, 2018 was measured using an exit price notion.  The fair value of loans as of December 31, 2017 was measured using an entry price notion.

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.

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Capital Notes

6 Months Ended

Jun. 30, 2018

Capital Notes [Abstract]

Capitol Notes

Note 6 – Capital Notes

On January 25, 2017, Financial closed a private placement of unregistered debt securities (the “2017 Offering”) pursuant to which Financial issued $5,000,000 in principal of notes (the “2017 Notes”).  The 2017 Notes bear interest at the rate of 4% per year with interest payable quarterly in arrears.  The 2017 Notes are to mature on January 24, 2022, but are subject to prepayment in whole or in part on or after January 24, 2018 at Financial’s sole discretion on 30 days written notice to the holders.  Of the proceeds, $3,000,000 was injected into the Bank as equity capital in March 2017.  It is anticipated the remaining $2,000,000 will remain at the holding company level for debt service on the 2017 Notes.

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Securities

6 Months Ended

Jun. 30, 2018

Securities [Abstract]

Securities

Note 7 - Securities

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of June 30, 2018 and December 31, 2017 (amounts in thousands):

		June 30, 2018
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$3,706	$   -	$(258)	$3,448
Available-for-Sale
US Treasuries	1,959	-	(149)	1,810
US agency obligations	24,792	5	(1,719)	23,078
Mortgage-backed securities	13,519	3	(526)	12,996
Municipals	12,485	1	(458)	12,028
Corporates	4,109	-	(333)	3,776
	$56,684	$9	$(3,185)	$53,688
		December 31, 2017
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$5,713	$8	$(102)	$5,619
Available-for-Sale
US Treasuries	1,956	-	(98)	1,858
US agency obligations	24,881	5	(1,036)	23,850
Mortgage-backed securities	13,662	2	(276)	13,388
Municipals	12,556	16	(298)	12,274
Corporates	4,117	-	(175)	3,942
	$57,172	$23	$(1,883)	$55,312

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 June 30, 2018 and December 31, 2017 (amounts in thousands):

	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
June 30, 2018	Value	Losses	Value	Losses	Value	Losses
Description of securities
Held-to-maturity
US agency obligations	$2,436	$167	$1,270	$91	$3,706	$258
Available-for-sale
US Treasuries	-	-	1,810	149	1,810	149
US agency obligations	11,086	567	11,995	1,152	23,081	1,719
Mortgage-backed securities	963	31	11,236	495	12,199	526
Municipals	213	10	11,305	448	11,518	458
Corporates	-	-	3,776	333	3,776	333
Total	$12,262	$608	$40,122	$2,577	$52,384	$3,185
	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
December 31, 2017	Value	Losses	Value	Losses	Value	Losses
Description of securities
Held-to-maturity
US agency obligations	$2,367	$70	$1,243	$32	$3,610	$102
Available-for-sale
US Treasuries	-	-	1,858	98	1,858	98
US agency obligations	11,465	215	12,379	821	23,844	1,036
Mortgage-backed securities	2,802	26	9,712	250	12,514	276
Municipals	4,823	41	5,644	257	10,467	298
Corporates	-	-	3,942	175	3,942	175
Total	$19,090	$282	$33,535	$1,601	$52,625	$1,883

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).

Note 7 – Securities (continued)

At June 30, 2018, the Company did not consider the unrealized losses as other-than-temporary losses due to the nature of the securities involved.  As of June 30, 2018, the Bank owned 60securities in an unrealized loss position that were being evaluated for other than temporary impairment.  Eleven of these securities were S&P rated AAA, 46 were rated AA and three were rated A.  As of June 30, 2018, 33 of these securities were direct obligations of the U.S. government or government sponsored entities, 22 were municipal issues, and five were investments in domestic corporate issued securities.

Based on the analysis performed by management as mandated by the Bank’s investment policy, management believes the default risk to be minimal.  Because management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to change in interest rates and other market conditions, no declines currently are deemed to be other-than-temporary.

There were no gross gains on available-for-sale securities during the three and six month periods ended June 30, 2018 compared to $52 and $62 for the same respective periods in 2017.  There were no losses on sales of available-for-sale securities and no sales of held-to-maturity securities during the three and six month periods ended June 30, 2018 and 2017.

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Business Segments

6 Months Ended

Jun. 30, 2018

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 gain on sale business while the Bank’s primary source of revenue is net interest income.  The Bank also provides a referral network for the mortgage origination business.  The mortgage business may also be in a position to refer its customers to the Bank for banking services when appropriate.

Information about reportable business segments and reconciliation of such information to the consolidated financial statements for the three and six months ended June 30, 2018 and 2017 was as follows (dollars in thousands):

Note 8 – Business Segments (continued)

Business Segments
	Community
	Banking	Mortgage	Total
Six months ended June 30, 2018
Net interest income	$       11,134	$            -	$      11,134
Provision for loan losses	337	-	337
Net interest income after provision for loan losses	10,797	-	10,797
Noninterest income	1,132	1,495	2,627
Noninterest expenses	9,207	1,196	10,403
Income before income taxes	2,722	299	3,021
Income tax expense	546	52	598
Net income	$         2,176	$        247	$        2,423
Total assets	$     649,809	$     6,057	$    655,866
Six months ended June 30, 2017
Net interest income	$         9,978	$            -	$        9,978
Provision for loan losses	545	-	545
Net interest income after provision for loan losses	9,433	-	9,433
Noninterest income	1,096	969	2,065
Noninterest expenses	8,489	764	9,253
Income before income taxes	2,040	205	2,245
Income tax expense	630	68	698
Net income	$         1,410	$        137	$        1,547
Total assets	$     592,998	$     2,639	$    595,637
	Community
	Banking	Mortgage	Total
Three months ended June 30, 2018
Net interest income	$         5,803	$            -	$        5,803
Provision for loan losses	315	-	315
Net interest income after provision for loan losses	5,488	-	5,488
Noninterest income	566	875	1,441
Noninterest expenses	4,603	703	5,306
Income before income taxes	1,451	172	1,623
Income tax expense	298	25	323
Net income	$         1,153	$        147	$        1,300
Total assets	$     649,809	$     6,057	$    655,866
Three months ended June 30, 2017
Net interest income	$         5,140	$            -	$        5,140
Provision for loan losses	445	-	445
Net interest income after provision for loan losses	4,695	-	4,695
Noninterest income	606	598	1,204
Noninterest expenses	4,361	395	4,756
Income before income taxes	940	203	1,143
Income tax expense	289	67	356
Net income	$            651	$        136	$           787
Total assets	$     592,998	$     2,639	$    595,637

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Loans, Allowance For Loan Losses And OREO

6 Months Ended

Jun. 30, 2018

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

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

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

	As of:
	June 30,	December 31,
	2018	2017
Commercial	$102,618	$96,127
Commercial real estate	278,494	251,807
Consumer	84,195	83,746
Residential	63,111	64,094
Total loans (1)	528,418	495,774
Less allowance for loan losses	4,688	4,752
Net loans	$523,730	$491,022

(1) Includes net deferred costs and premiums of $674 and $940as of June 30, 2018 and December 31, 2017, respectively.

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

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

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

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

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

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

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

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

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

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

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

Loans on Non-Accrual Status
(dollars in thousands)
	As of
	June 30, 2018	December 31, 2017
Commercial	$763	$727
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	1,495	1,465
Commercial Mortgages-Non-Owner Occupied	210	468
Commercial Construction	30	-
Consumer
Consumer Unsecured	1	-
Consumer Secured	390	566
Residential:
Residential Mortgages	252	1,025
Residential Consumer Construction	54	58
Totals	$3,195	$4,309

We also classify other real estate owned (OREO) as a nonperforming asset.  OREO represents real property owned by the Bank either through purchase at foreclosure or received from the borrower through a deed in lieu of foreclosure. OREO decreased to $2,585 on June 30, 2018 from $2,650 on December 31, 2017.  The following table represents the changes in OREO balance during the six months ended June 30, 2018 and year ended December 31, 2017.

OREO Changes
(dollars in thousands)
	Six months ended	Year ended
	June 30, 2018	December 31, 2017
Balance at the beginning of the year (net)	$2,650	$2,370
Transfers from loans	565	815
Capitalized costs	-	40
Valuation adjustments	(110)	(60)
Sales proceeds	(525)	(514)
Gain (loss) on disposition	5	(1)
Balance at the end of the period (net)	$2,585	$2,650

At June 30, 2018 and December 31, 2017, the Company had $0 of consumer mortgage loans secured by residential real estate for which foreclosure was in process.  The Company held seven residential real estate properties carried on the books in other real estate owned at a value of $545 as of June 30, 2018 and three residential real estate properties carried on the books at a value of $520 in other real estate owned as of December 31, 2017.

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Six months Ended June 30, 2018
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2018	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$755	$866	$      -	$840	$7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,308	2,408	-	2,368	72
Commercial Mortgage Non-Owner Occupied	171	171	-	423	8
Commercial Construction	30	713	-	15	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	160	161	-	220	7
Residential
Residential Mortgages	1,443	1,513	-	1,512	37
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$353	$749	$168	$335	$6
Commercial Real Estate
Commercial Mortgages-Owner Occupied	508	508	72	587	15
Commercial Mortgage Non-Owner Occupied	205	205	48	139	6
Commercial Construction	-	-	-	85	-
Consumer
Consumer Unsecured	2	2	2	2	-
Consumer Secured	323	330	132	375	6
Residential
Residential Mortgages	-	-	-	76	-
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$1,108	$1,615	$168	$1,175	$13
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,816	2,916	72	2,955	87
Commercial Mortgage Non-Owner Occupied	376	376	48	562	14
Commercial Construction	30	713	-	100	-
Consumer
Consumer Unsecured	2	2	2	2	-
Consumer Secured	483	491	132	595	13
Residential
Residential Mortgages	1,443	1,513	-	1,588	37
Residential Consumer Construction	-	-	-	-	-
	$6,258	$7,626	$422	$6,977	$164

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2017
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2017	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$925	$1,505	$     -	$812	$54
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,427	2,539	-	2,723	179
Commercial Mortgage Non-Owner Occupied	675	690	-	512	30
Commercial Construction	-	-	-	-	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	279	283	-	149	11
Residential
Residential Mortgages	1,580	1,673	-	1,568	63
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$317	$323	$112	$919	$16
Commercial Real Estate
Commercial Mortgages-Owner Occupied	665	665	93	1,126	39
Commercial Mortgage Non-Owner Occupied	73	73	18	74	5
Commercial Construction	169	695	79	169	-
Consumer
Consumer Unsecured	2	2	2	1	-
Consumer Secured	427	445	255	269	11
Residential
Residential Mortgages	151	178	4	425	3
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$1,242	$1,828	$112	$1,731	$70
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,092	3,204	93	3,849	218
Commercial Mortgage Non-Owner Occupied	748	763	18	586	35
Commercial Construction	169	695	79	169	-
Consumer
Consumer Unsecured	2	2	2	1	-
Consumer Secured	706	728	255	418	22
Residential
Residential Mortgages	1,731	1,851	4	1,993	66
Residential Consumer Construction	-	-	-	-	-
	$7,690	$9,071	$563	$8,747	$411

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Six months Ended June 30, 2018
		Commercial
2018	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$1,264	$1,738	$1,172	$578	$4,752
Charge-offs	(215)	(142)	(186)	(12)	(555)
Recoveries	101	3	50	-	154
Provision	356	105	(130)	6	337
Ending Balance	$1,506	$1,704	$906	$572	$4,688
Ending Balance: Individually evaluated for impairment	$168	$120	$134	$   -	$422
Ending Balance: Collectively evaluated for impairment	1,338	1,584	772	572	4,266
Totals:	$1,506	$1,704	$906	$572	$4,688
Loans:
Ending Balance: Individually evaluated for impairment	$1,108	$3,222	$485	$1,443	$6,258
Ending Balance: Collectively evaluated for impairment	101,510	275,272	83,710	61,668	522,160
Totals:	$102,618	$278,494	$84,195	$63,111	$528,418

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Year Ended December 31, 2017
		Commercial
2017	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$2,192	$2,109	$954	$461	$5,716
Charge-offs	(1,652)	(91)	(246)	(105)	(2,094)
Recoveries	6	41	51	39	137
Provision	718	(321)	413	183	993
Ending Balance	$1,264	$1,738	$1,172	$578	$4,752
Ending Balance: Individually evaluated for impairment	$112	$190	$257	$4	$563
Ending Balance: Collectively evaluated for impairment	1,152	1,548	915	574	4,189
Totals:	$1,264	$1,738	$1,172	$578	$4,752
Loans:
Ending Balance: Individually evaluated for impairment	$1,242	$4,009	$708	$1,731	$7,690
Ending Balance: Collectively evaluated for impairment	94,885	247,798	83,038	62,363	488,084
Totals:	$96,127	$251,807	$83,746	$64,094	$495,774

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

	Age Analysis of Past Due Loans as of
	June 30, 2018
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2018	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$114	$161	$395	$670	$101,948	$102,618	$     -
Commercial Real Estate:
Commercial Mortgages-   Owner Occupied	493	-	597	1,090	101,027	102,117	-
Commercial Mortgages-Non-Owner Occupied	145	130	-	275	162,660	162,935	-
Commercial Construction	253	296	30	579	12,863	13,442	-
Consumer:
Consumer Unsecured	1	1	-	2	7,619	7,621	-
Consumer Secured	307	101	216	624	75,950	76,574	-
Residential:
Residential Mortgages	649	127	213	989	54,059	55,048	-
Residential Consumer Construction	-	-	54	54	8,009	8,063	-
Total	$1,962	$816	$1,505	$4,283	$524,135	$528,418	$  -

	Age Analysis of Past Due Loans as of
	December 31, 2017
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2017	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$320	$    -	$250	$570	$95,557	$96,127	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	904	64	177	1,145	92,504	93,649	-
Commercial Mortgages-Non-Owner Occupied	-	361	299	660	138,101	138,761	-
Commercial Construction	-	-	169	169	19,228	19,397	-
Consumer:
Consumer Unsecured	3	-	-	3	6,977	6,980	-
Consumer Secured	245	139	462	846	75,920	76,766	-
Residential:
Residential Mortgages	706	414	532	1,652	51,545	53,197	-
Residential Consumer Construction	-	-	58	58	10,839	10,897	-
Total	$2,178	$978	$1,947	$5,103	$490,671	$495,774	$    -

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

	Credit Quality Information - by Class
	June 30, 2018
	(dollars in thousands)
2018	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$100,317	$723	$382	$1,196	$   -	$102,618
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	92,813	2,799	3,634	2,871	-	102,117
Commercial Mortgages-Non Owner Occupied	159,790	1,577	1,092	476	-	162,935
Commercial Construction	13,412	-	-	30	-	13,442
Consumer
Consumer Unsecured	7,606	-	13	2	-	7,621
Consumer Secured	75,843	66	89	576	-	76,574
Residential:
Residential Mortgages	53,033	-	239	1,776	-	55,048
Residential Consumer Construction	8,009	-	-	54	-	8,063
Totals	$510,823	$5,165	$5,449	$6,981	$   -	$528,418

	Credit Quality Information - by Class
	December 31, 2017
	(dollars in thousands)
2017	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$93,571	$1,217	$4	$1,335	$    -	96,127
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	83,834	2,926	3,734	3,155	-	93,649
Commercial Mortgages-Non Owner Occupied	135,855	1,898	152	856	-	138,761
Commercial Construction	18,423	-	805	169	-	19,397
Consumer
Consumer Unsecured	6,978	-	-	2	-	6,980
Consumer Secured	75,774	90	-	902	-	76,766
Residential:
Residential Mortgages	50,816	-	241	2,140	-	53,197
Residential Consumer Construction	10,839	-	-	58	-	10,897
Totals	$476,090	$6,131	$4,936	$8,617	$   -	$495,774

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

Troubled Debt Restructurings (TDR)

There were no loan modifications that would have been classified as TDRs during the three and six months ended June 30, 2018 and 2017.

There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three and six months ended June 30, 2018 and 2017.

At June 30, 2018 and December 31, 2017, the Bank had no outstanding commitments to disburse additional funds on loans classified as TDRs.

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Revenue Recognition

6 Months Ended

Jun. 30, 2018

Revenue Recognition [Abstract]

Revenue Recognition

Note 10 – Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts.

Fees, Exchange, and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, treasury services income and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Treasury services income primarily represents fees charged to customers for sweep, positive pay and lockbox services.  Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s

Note 10 – Revenue Recognition (continued)

performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or at the end of the month.

Other

Other noninterest income consists of other recurring revenue streams such as commissions from sales of mutual funds and other investments, safety deposit box rental fees, and other miscellaneous revenue streams. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation. The Company also receives periodic service fees (i.e., trailers) from mutual fund companies typically based on a percentage of net asset value. Trailer revenue is recorded over time, usually monthly or quarterly, as net asset value is determined. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 11 – Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.  The Company has gathered and is in the process of analyzing lease data to determine the impact that ASU 2016-02 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”  The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.The Company has been in discussions with its core processor to coordinate its plans for implementation.

Note 11 – Recent accounting pronouncements (continued)

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017‐08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date.  Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company is currently assessing the impact that ASU 2017‐08 will have on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  The amendments in this ASU modify the designation and measurement guidance for hedge accounting as well as provide for increased transparency regarding the presentation of economic results on both the financial statements and related footnotes.  Certain aspects of hedge effectiveness assessments will also be simplified upon implementation of this update.   The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018.  Early adoption is permitted, including adoption in any interim period.  The Company does not expect the adoption of ASU 2017-12 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  The amendments provide targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the amendments include clarifications related to:  measurement elections, transition requirements, and adjustments associated with equity securities without readily determinable fair values; fair value measurement requirements for forward contracts and purchased options on equity securities; presentation requirements for hybrid financial liabilities for which the fair value option has been elected; and measurement requirements for liabilities denominated in a foreign currency for which the fair value option has been elected. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-03 to have a material impact on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  The amendments expand the scope

Note 11 – Recent accounting pronouncements (continued)

of Topic 718 to include share-based payments issued to nonemployees for goods or services and supersedes Subtopic 505-50.  As a result, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted.  The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

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Earnings Per Common Share (EPS) (Tables)

6 Months Ended

Jun. 30, 2018

Earnings Per Common Share (EPS) [Abstract]

Earnings Per Share

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Net income	$      1,300,000	$        787,000	$      2,423,000	$      1,547,000
Weighted average number of shares	4,378,436	4,378,436	4,378,436	4,378,436
Options effect of incremental shares	-	83	45	91
Weighted average diluted shares	4,378,436	4,378,519	4,378,481	4,378,527
Basic EPS (weighted avg shares)	$               0.30	$              0.18	$               0.55	$               0.35
Diluted EPS (Including Option Shares)	$               0.30	$              0.18	$               0.55	$               0.35

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Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

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, 2018	636	$      12.79
Granted	-	-
Exercised	-	-
Forfeited	(636)	12.79
Options outstanding, June 30, 2018	-	$              -	-	$              -
Options exercisable, June 30, 2018	-	$              -	-	$              -

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Measurements [Abstract]

Fair Value Assets Measured On Recurring Basis

		Carrying Value at June 30, 2018 (in thousands)
Description	Balance as of June 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US Treasuries	$1,810	$        -	$1,810	$       -
US agency obligations	23,078	-	23,078	-
Mortgage-backed securities	12,996	-	12,996	-
Municipals	12,028	-	12,028	-
Corporates	3,776	-	3,776	-
Total available-for-sale securities	$53,688	$       -	$53,688	$       -
		Carrying Value at December 31, 2017 (in thousands)
Description	Balance as of December 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
US Treasuries	$1,858	$	$1,858	$
US agency obligations	23,850	-	23,850	-
Mortgage-backed securities	13,388	-	13,388	-
Municipals	12,274	-	12,274	-
Corporates	3,942	-	3,942	-
Total available-for-sale securities	$55,312	$       -	$55,312	$       -

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

		Carrying Value at June 30, 2018
Description	Balance as of June 30, 2018	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$2,241	$     -	$          -	$2,241
Loans held for sale	5,815	-	5,815	-
Other real estate owned	2,585	-	-	2,585

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

		Carrying Value at December 31, 2017
Description	Balance as of December 31, 2017	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans*	$2,523	$      -	$       -	$2,523
Loans held for sale	2,626	-	2,626	-
Other real estate owned	2,650	-	-	2,650

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

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

	Quantitative information about Level 3 Fair Value Measurements for June 30, 2018 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$2,241	Discounted appraised value	Selling cost	0% - 10% (8%)
			Discount for lack of marketability and age of appraisal	0% - 20% (6%)
OREO	2,585	Discounted appraised value	Selling cost	0% - 10% (6%)
			Discount for lack of marketability and age of appraisal	0% - 25% (15%)

	Quantitative information about Level 3 Fair Value Measurements for December 31, 2017 (dollars in thousands)
	Fair Value	Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
Assets
Impaired loans	$2,523	Discounted appraised value	Selling cost	0% - 10%  (8%)
			Discount for lack of marketability and age of appraisal	0% - 20%  (6%)
OREO	2,650	Discounted appraised value	Selling cost	0% - 10%  (6%)
			Discount for lack of marketability and age of appraisal	0% - 25%  (15%)

Fair Value Carrying And Notional Amounts

		Fair Value Measurements at June 30, 2018 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	$25,717		$25,717	$      -	$      -	$25,717
Fed funds sold	8,132		8,132	-	-	8,132
Securities
Available-for-sale	53,688		-	53,688	-	53,688
Held-to-maturity	3,706		-	3,448	-	3,448
Restricted stock	1,462			1,462	-	1,462
Loans, net (1)	523,730		-	-	511,265	511,265
Loans held for sale	5,815		-	5,815	-	5,815
Interest receivable	1,755		-	1,755	-	1,755
BOLI	13,188		-	13,188	-	13,188
Liabilities
Deposits	$596,068		$      -	$596,664	$      -	$599,664
Capital notes	5,000		-	4,670	-	4,670
Interest payable	107		-	107	-	107

		Fair Value Measurements at December 31, 2017 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	$20,267	$20,267	$      -	$      -	$20,267
Fed funds sold	16,751	16,751			16,751
Securities
Available-for-sale	55,312	-	55,312	-	55,312
Held-to-maturity	5,713	-	5,619	-	5,619
Restricted stock	1,505	-	1,505		1,505
Loans, net (1)	491,022	-	-	492,397	492,397
Loans held for sale	2,626	-	2,626	-	2,626
Interest receivable	1,713	-	1,713	-	1,713
BOLI	13,018	-	13,018	-	13,018
Liabilities
Deposits	$567,493	$      -	$568,224	$      -	$568,224
Capital notes	5,000	-	5,310		5,310
Interest payable	111	-	111	-	111

(1) Carrying amount is net of unearned income and the Allowance. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of June 30, 2018 was measured using an exit price notion.  The fair value of loans as of December 31, 2017 was measured using an entry price notion.

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Securities (Tables)

6 Months Ended

Jun. 30, 2018

Securities [Abstract]

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

		June 30, 2018
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$3,706	$   -	$(258)	$3,448
Available-for-Sale
US Treasuries	1,959	-	(149)	1,810
US agency obligations	24,792	5	(1,719)	23,078
Mortgage-backed securities	13,519	3	(526)	12,996
Municipals	12,485	1	(458)	12,028
Corporates	4,109	-	(333)	3,776
	$56,684	$9	$(3,185)	$53,688
		December 31, 2017
	Amortized	Gross Unrealized		Fair Value
	Costs	Gains	(Losses)
Held-to-Maturity
US agency obligations	$5,713	$8	$(102)	$5,619
Available-for-Sale
US Treasuries	1,956	-	(98)	1,858
US agency obligations	24,881	5	(1,036)	23,850
Mortgage-backed securities	13,662	2	(276)	13,388
Municipals	12,556	16	(298)	12,274
Corporates	4,117	-	(175)	3,942
	$57,172	$23	$(1,883)	$55,312

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
June 30, 2018	Value	Losses	Value	Losses	Value	Losses
Description of securities
Held-to-maturity
US agency obligations	$2,436	$167	$1,270	$91	$3,706	$258
Available-for-sale
US Treasuries	-	-	1,810	149	1,810	149
US agency obligations	11,086	567	11,995	1,152	23,081	1,719
Mortgage-backed securities	963	31	11,236	495	12,199	526
Municipals	213	10	11,305	448	11,518	458
Corporates	-	-	3,776	333	3,776	333
Total	$12,262	$608	$40,122	$2,577	$52,384	$3,185
	Less than 12 months		More than 12 months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
December 31, 2017	Value	Losses	Value	Losses	Value	Losses
Description of securities
Held-to-maturity
US agency obligations	$2,367	$70	$1,243	$32	$3,610	$102
Available-for-sale
US Treasuries	-	-	1,858	98	1,858	98
US agency obligations	11,465	215	12,379	821	23,844	1,036
Mortgage-backed securities	2,802	26	9,712	250	12,514	276
Municipals	4,823	41	5,644	257	10,467	298
Corporates	-	-	3,942	175	3,942	175
Total	$19,090	$282	$33,535	$1,601	$52,625	$1,883

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Business Segments (Tables)

6 Months Ended

Jun. 30, 2018

Business Segments [Abstract]

Schedule Of Segment Reporting Information, By Segment

Business Segments
	Community
	Banking	Mortgage	Total
Six months ended June 30, 2018
Net interest income	$       11,134	$            -	$      11,134
Provision for loan losses	337	-	337
Net interest income after provision for loan losses	10,797	-	10,797
Noninterest income	1,132	1,495	2,627
Noninterest expenses	9,207	1,196	10,403
Income before income taxes	2,722	299	3,021
Income tax expense	546	52	598
Net income	$         2,176	$        247	$        2,423
Total assets	$     649,809	$     6,057	$    655,866
Six months ended June 30, 2017
Net interest income	$         9,978	$            -	$        9,978
Provision for loan losses	545	-	545
Net interest income after provision for loan losses	9,433	-	9,433
Noninterest income	1,096	969	2,065
Noninterest expenses	8,489	764	9,253
Income before income taxes	2,040	205	2,245
Income tax expense	630	68	698
Net income	$         1,410	$        137	$        1,547
Total assets	$     592,998	$     2,639	$    595,637
	Community
	Banking	Mortgage	Total
Three months ended June 30, 2018
Net interest income	$         5,803	$            -	$        5,803
Provision for loan losses	315	-	315
Net interest income after provision for loan losses	5,488	-	5,488
Noninterest income	566	875	1,441
Noninterest expenses	4,603	703	5,306
Income before income taxes	1,451	172	1,623
Income tax expense	298	25	323
Net income	$         1,153	$        147	$        1,300
Total assets	$     649,809	$     6,057	$    655,866
Three months ended June 30, 2017
Net interest income	$         5,140	$            -	$        5,140
Provision for loan losses	445	-	445
Net interest income after provision for loan losses	4,695	-	4,695
Noninterest income	606	598	1,204
Noninterest expenses	4,361	395	4,756
Income before income taxes	940	203	1,143
Income tax expense	289	67	356
Net income	$            651	$        136	$           787
Total assets	$     592,998	$     2,639	$    595,637

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Loans, Allowance For Loan Losses And OREO (Tables)

6 Months Ended

Jun. 30, 2018

Loans, Allowance For Loan Losses And OREO [Abstract]

Summary Of Loans, Net

	As of:
	June 30,	December 31,
	2018	2017
Commercial	$102,618	$96,127
Commercial real estate	278,494	251,807
Consumer	84,195	83,746
Residential	63,111	64,094
Total loans (1)	528,418	495,774
Less allowance for loan losses	4,688	4,752
Net loans	$523,730	$491,022

(1) Includes net deferred costs and premiums of $674 and $940as of June 30, 2018 and December 31, 2017, respectively.

Loans On Non-Accrual Status

Loans on Non-Accrual Status
(dollars in thousands)
	As of
	June 30, 2018	December 31, 2017
Commercial	$763	$727
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	1,495	1,465
Commercial Mortgages-Non-Owner Occupied	210	468
Commercial Construction	30	-
Consumer
Consumer Unsecured	1	-
Consumer Secured	390	566
Residential:
Residential Mortgages	252	1,025
Residential Consumer Construction	54	58
Totals	$3,195	$4,309

Changes In OREO Balance

OREO Changes
(dollars in thousands)
	Six months ended	Year ended
	June 30, 2018	December 31, 2017
Balance at the beginning of the year (net)	$2,650	$2,370
Transfers from loans	565	815
Capitalized costs	-	40
Valuation adjustments	(110)	(60)
Sales proceeds	(525)	(514)
Gain (loss) on disposition	5	(1)
Balance at the end of the period (net)	$2,585	$2,650

Impaired Loans

	Impaired Loans
	(dollars in thousands)
	As of and For the Six months Ended June 30, 2018
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2018	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$755	$866	$      -	$840	$7
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,308	2,408	-	2,368	72
Commercial Mortgage Non-Owner Occupied	171	171	-	423	8
Commercial Construction	30	713	-	15	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	160	161	-	220	7
Residential
Residential Mortgages	1,443	1,513	-	1,512	37
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$353	$749	$168	$335	$6
Commercial Real Estate
Commercial Mortgages-Owner Occupied	508	508	72	587	15
Commercial Mortgage Non-Owner Occupied	205	205	48	139	6
Commercial Construction	-	-	-	85	-
Consumer
Consumer Unsecured	2	2	2	2	-
Consumer Secured	323	330	132	375	6
Residential
Residential Mortgages	-	-	-	76	-
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$1,108	$1,615	$168	$1,175	$13
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,816	2,916	72	2,955	87
Commercial Mortgage Non-Owner Occupied	376	376	48	562	14
Commercial Construction	30	713	-	100	-
Consumer
Consumer Unsecured	2	2	2	2	-
Consumer Secured	483	491	132	595	13
Residential
Residential Mortgages	1,443	1,513	-	1,588	37
Residential Consumer Construction	-	-	-	-	-
	$6,258	$7,626	$422	$6,977	$164

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

	Impaired Loans
	(dollars in thousands)
	As of and For the Year Ended December 31, 2017
		Unpaid		Average	Interest
	Recorded	Principal	Related	Recorded	Income
2017	Investment	Balance	Allowance	Investment	Recognized
With No Related Allowance Recorded:
Commercial	$925	$1,505	$     -	$812	$54
Commercial Real Estate
Commercial Mortgages-Owner Occupied	2,427	2,539	-	2,723	179
Commercial Mortgage Non-Owner Occupied	675	690	-	512	30
Commercial Construction	-	-	-	-	-
Consumer
Consumer Unsecured	-	-	-	-	-
Consumer Secured	279	283	-	149	11
Residential
Residential Mortgages	1,580	1,673	-	1,568	63
Residential Consumer Construction	-	-	-	-	-
With An Allowance Recorded:
Commercial	$317	$323	$112	$919	$16
Commercial Real Estate
Commercial Mortgages-Owner Occupied	665	665	93	1,126	39
Commercial Mortgage Non-Owner Occupied	73	73	18	74	5
Commercial Construction	169	695	79	169	-
Consumer
Consumer Unsecured	2	2	2	1	-
Consumer Secured	427	445	255	269	11
Residential
Residential Mortgages	151	178	4	425	3
Residential Consumer Construction	-	-	-	-	-
Totals:
Commercial	$1,242	$1,828	$112	$1,731	$70
Commercial Real Estate
Commercial Mortgages-Owner Occupied	3,092	3,204	93	3,849	218
Commercial Mortgage Non-Owner Occupied	748	763	18	586	35
Commercial Construction	169	695	79	169	-
Consumer
Consumer Unsecured	2	2	2	1	-
Consumer Secured	706	728	255	418	22
Residential
Residential Mortgages	1,731	1,851	4	1,993	66
Residential Consumer Construction	-	-	-	-	-
	$7,690	$9,071	$563	$8,747	$411

Allowance For Loan Losses And Recorded Investment In Loans

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Six months Ended June 30, 2018
		Commercial
2018	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$1,264	$1,738	$1,172	$578	$4,752
Charge-offs	(215)	(142)	(186)	(12)	(555)
Recoveries	101	3	50	-	154
Provision	356	105	(130)	6	337
Ending Balance	$1,506	$1,704	$906	$572	$4,688
Ending Balance: Individually evaluated for impairment	$168	$120	$134	$   -	$422
Ending Balance: Collectively evaluated for impairment	1,338	1,584	772	572	4,266
Totals:	$1,506	$1,704	$906	$572	$4,688
Loans:
Ending Balance: Individually evaluated for impairment	$1,108	$3,222	$485	$1,443	$6,258
Ending Balance: Collectively evaluated for impairment	101,510	275,272	83,710	61,668	522,160
Totals:	$102,618	$278,494	$84,195	$63,111	$528,418

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

	Allowance for Loan Losses and Recorded Investment in Loans (dollars in thousands) As of and For the Year Ended December 31, 2017
		Commercial
2017	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Loan Losses:
Beginning Balance	$2,192	$2,109	$954	$461	$5,716
Charge-offs	(1,652)	(91)	(246)	(105)	(2,094)
Recoveries	6	41	51	39	137
Provision	718	(321)	413	183	993
Ending Balance	$1,264	$1,738	$1,172	$578	$4,752
Ending Balance: Individually evaluated for impairment	$112	$190	$257	$4	$563
Ending Balance: Collectively evaluated for impairment	1,152	1,548	915	574	4,189
Totals:	$1,264	$1,738	$1,172	$578	$4,752
Loans:
Ending Balance: Individually evaluated for impairment	$1,242	$4,009	$708	$1,731	$7,690
Ending Balance: Collectively evaluated for impairment	94,885	247,798	83,038	62,363	488,084
Totals:	$96,127	$251,807	$83,746	$64,094	$495,774

Age Analysis Of Past Due Financing Receivables

	Age Analysis of Past Due Loans as of
	June 30, 2018
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2018	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$114	$161	$395	$670	$101,948	$102,618	$     -
Commercial Real Estate:
Commercial Mortgages-   Owner Occupied	493	-	597	1,090	101,027	102,117	-
Commercial Mortgages-Non-Owner Occupied	145	130	-	275	162,660	162,935	-
Commercial Construction	253	296	30	579	12,863	13,442	-
Consumer:
Consumer Unsecured	1	1	-	2	7,619	7,621	-
Consumer Secured	307	101	216	624	75,950	76,574	-
Residential:
Residential Mortgages	649	127	213	989	54,059	55,048	-
Residential Consumer Construction	-	-	54	54	8,009	8,063	-
Total	$1,962	$816	$1,505	$4,283	$524,135	$528,418	$  -

	Age Analysis of Past Due Loans as of
	December 31, 2017
	(dollars in thousands)
			Greater				Recorded Investment
	30-59 Days	60-89 Days	than	Total Past		Total	> 90 Days &
2017	Past Due	Past Due	90 Days	Due	Current	Loans	Accruing
Commercial	$320	$    -	$250	$570	$95,557	$96,127	$     -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	904	64	177	1,145	92,504	93,649	-
Commercial Mortgages-Non-Owner Occupied	-	361	299	660	138,101	138,761	-
Commercial Construction	-	-	169	169	19,228	19,397	-
Consumer:
Consumer Unsecured	3	-	-	3	6,977	6,980	-
Consumer Secured	245	139	462	846	75,920	76,766	-
Residential:
Residential Mortgages	706	414	532	1,652	51,545	53,197	-
Residential Consumer Construction	-	-	58	58	10,839	10,897	-
Total	$2,178	$978	$1,947	$5,103	$490,671	$495,774	$    -

Credit Quality Information-By Class

	Credit Quality Information - by Class
	June 30, 2018
	(dollars in thousands)
2018	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$100,317	$723	$382	$1,196	$   -	$102,618
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	92,813	2,799	3,634	2,871	-	102,117
Commercial Mortgages-Non Owner Occupied	159,790	1,577	1,092	476	-	162,935
Commercial Construction	13,412	-	-	30	-	13,442
Consumer
Consumer Unsecured	7,606	-	13	2	-	7,621
Consumer Secured	75,843	66	89	576	-	76,574
Residential:
Residential Mortgages	53,033	-	239	1,776	-	55,048
Residential Consumer Construction	8,009	-	-	54	-	8,063
Totals	$510,823	$5,165	$5,449	$6,981	$   -	$528,418

	Credit Quality Information - by Class
	December 31, 2017
	(dollars in thousands)
2017	Pass	Monitor	Special	Substandard	Doubtful	Totals
			Mention
Commercial	$93,571	$1,217	$4	$1,335	$    -	96,127
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	83,834	2,926	3,734	3,155	-	93,649
Commercial Mortgages-Non Owner Occupied	135,855	1,898	152	856	-	138,761
Commercial Construction	18,423	-	805	169	-	19,397
Consumer
Consumer Unsecured	6,978	-	-	2	-	6,980
Consumer Secured	75,774	90	-	902	-	76,766
Residential:
Residential Mortgages	50,816	-	241	2,140	-	53,197
Residential Consumer Construction	10,839	-	-	58	-	10,897
Totals	$476,090	$6,131	$4,936	$8,617	$   -	$495,774

XML

Basis Of Presentation (Details)	6 Months Ended
	Jun. 30, 2018 item
Basis Of Presentation [Abstract]
Number of jurisdictions	7

XML

Earnings Per Common Share (EPS) (Narrative) (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings Per Common Share (EPS) [Abstract]
Options excluded from calculating diluted EPS because their effect was anti-dilutive	0	0	0	0

XML

Earnings Per Common Share (EPS) (Earnings Per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings Per Common Share (EPS) [Abstract]
Net Income	$ 1,300	$ 787	$ 2,423	$ 1,547
Weighted average number of shares	4,378,436	4,378,436	4,378,436	4,378,436
Options effect of incremental shares		83	45	91
Weighted average diluted shares	4,378,436	4,378,519	4,378,481	4,378,527
Basic EPS (weighted avg shares)	$ 0.30	$ 0.18	$ 0.55	$ 0.35
Diluted EPS (Including Option Shares)	$ 0.30	$ 0.18	$ 0.55	$ 0.35

XML

Stock Based Compensation (Narrative) (Details) - shares	Jun. 30, 2018	May 15, 2018	Dec. 31, 2017
Outstanding options			636
1999 Plan [Member]
Outstanding options	0
The 2018 Incentive Plan [Member]
Shares authorized		250,000

XML

Stock Based Compensation (Summary Of Stock Option Activity) (Details)	6 Months Ended
	Jun. 30, 2018 USD ($) $ / shares shares
Stock Based Compensation[Abstract]
Options outstanding, January 1, 2018, Shares | shares	636
Options outstanding, granted, Shares | shares
Options outstanding, exercised, Shares | shares
Options outstanding, forfeited, Shares | shares	(636)
Options outstanding, June 30, 2018, Shares | shares
Options exercisable, June 30, 2018, Shares | shares
Options outstanding, January 1, 2018, Weighted Average Exercise Price | $ / shares	$ 12.79
Options outstanding, granted, Weighted Average Exercise Price | $ / shares
Options outstanding, exercised, Weighted Average Exercise Price | $ / shares
Options outstanding, forfeited, Weighted Average Exercise Price | $ / shares	12.79
Options outstanding, June 30, 2018, Weighted Average Exercise Price | $ / shares
Options exercisable, June 30, 2018, Weighted Average Exercise Price | $ / shares
Options outstanding, June 30, 2018, Weighted Average Remaining Contractual Life (in years)	0 years
Options exercisable, June 30, 2018, Weighted Average Remaining Contractual Life (in years)	0 years
Options outstanding, June 30, 2018, Intrinsic Value | $
Options exercisable, June 30, 2018, Intrinsic Value | $

XML

Fair Value Measurements (Fair Value Assets Measured On Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	$ 53,688	$ 55,312
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	53,688	55,312
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value
US Treasuries [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available-for-sale, at fair value	1,810	1,858
US Treasuries [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 Treasuries [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	1,810	1,858
US Treasuries [Member] | 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	23,078	23,850
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	23,078	23,850
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	12,996	13,388
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	12,996	13,388
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	12,028	12,274
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	12,028	12,274
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	3,776	3,942
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	3,776	3,942
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

Fair Value Measurements (Impaired Loans And Other Real Estate Owned Measured At Fair Value On A Nonrecurring Basis) (Details) - USD ($) $ in Thousands		Jun. 30, 2018	Dec. 31, 2017	Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	$ 2,241	$ 2,523
Loans held for sale		5,815	2,626
Other real estate owned		2,585	2,650	$ 2,370
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans held for sale		0
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[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		5,815	2,626
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Impaired loans	[1]	2,241	2,523
Loans held for sale
Other real estate owned		$ 2,585	$ 2,650

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

XML

Fair Value Measurements (Information Regarding Quantitative Inputs Used To Value Assets Classified As Level 3) (Details) - Significant Unobservable Inputs (Level 3) [Member] - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	$ 2,241,000	$ 2,523,000
Impaired Loans [Member] | Maximum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	10.00%	10.00%
Discount for lack of marketability and age of appraisal	20.00%	20.00%
Impaired Loans [Member] | Minimum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	0.00%	0.00%
Discount for lack of marketability and age of appraisal	0.00%	0.00%
Impaired Loans [Member] | Weighted Average [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	8.00%	8.00%
Discount for lack of marketability and age of appraisal	6.00%	6.00%
OREO [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets, Fair Value	$ 2,585,000	$ 2,650,000
OREO [Member] | Maximum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	10.00%	10.00%
Discount for lack of marketability and age of appraisal	25.00%	25.00%
OREO [Member] | Minimum [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	0.00%	0.00%
Discount for lack of marketability and age of appraisal	0.00%	0.00%
OREO [Member] | Weighted Average [Member] | Discounted Appraised Value [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Selling cost	6.00%	6.00%
Discount for lack of marketability and age of appraisal	15.00%	15.00%

XML

Fair Value Measurements (Fair Value Carrying And Notional Amounts) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	$ 25,717	$ 20,267
Fed funds sold	8,132	16,751
Available-for-sale Securities	53,688	55,312
Held-to-maturity Securities	3,706	5,713
Restricted stock	1,462	1,505
Loans held for sale	5,815	2,626
Interest receivable	1,755	1,713
BOLI	13,188	13,018
Interest payable	107	111
Quoted Prices In Active Markets For Identical Assets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	25,717	20,267
Fed funds sold	8,132	16,751
Available-for-sale Securities
Loans held for sale
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities	53,688	55,312
Held-to-maturity Securities	3,448	5,619
Restricted stock	1,462	1,505
Loans held for sale	5,815	2,626
Interest receivable	1,755	1,713
BOLI	13,188	13,018
Deposits	596,664	568,224
Capital notes	4,670	5,310
Interest payable	107	111
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities
Loans, net	511,265	492,397
Loans held for sale
Carrying Amounts [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	25,717	20,267
Fed funds sold	8,132	16,751
Available-for-sale Securities	53,688	55,312
Held-to-maturity Securities	3,706	5,713
Restricted stock	1,462	1,505
Loans, net	523,730	491,022
Loans held for sale	5,815	2,626
Interest receivable	1,755	1,713
BOLI	13,188	13,018
Deposits	596,068	567,493
Capital notes	5,000	5,000
Interest payable	107	111
Fair Values [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	25,717	20,267
Fed funds sold	8,132	16,751
Available-for-sale Securities	53,688	55,312
Held-to-maturity Securities	3,448	5,619
Restricted stock	1,462	1,505
Loans, net	511,265	492,397
Loans held for sale	5,815	2,626
Interest receivable	1,755	1,713
BOLI	13,188	13,018
Deposits	599,664	568,224
Capital notes	4,670	5,310
Interest payable	$ 107	$ 111

XML

Capital Notes (Narrative) (Details) - USD ($)	1 Months Ended	6 Months Ended
	Mar. 31, 2018	Jun. 30, 2018	Jun. 30, 2017	Jan. 25, 2017
Debt Instrument [Line Items]
Capital note proceeds			$ 5,000,000
Capital Notes 4% Due 1/24/2022 [Member]
Debt Instrument [Line Items]
Capital notes, interest rate		4.00%
Capital notes, maturity date		Jan. 24, 2022
Capital Notes 4% Due 1/24/2022 [Member] | 2017 Notes [Member]
Debt Instrument [Line Items]
Capital note issued				$ 5,000,000
Capital notes, interest rate				4.00%
Capital notes, maturity date		Jan. 24, 2022
Duration of written notice to holders		30 days
Capital Notes 4% Due 1/24/2022 [Member] | Equity Capital [Member]
Debt Instrument [Line Items]
Capital note proceeds	$ 3,000,000
Capital Notes 4% Due 1/24/2022 [Member] | Debt Services [Member]
Debt Instrument [Line Items]
Capital note proceeds		$ 2,000,000

XML

Securities (Narrative) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($) security	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) security	Jun. 30, 2017 USD ($)
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	60		60
Available-for-sale Securities, Gross Realized Gains | $	$ 0	$ 52	$ 0	$ 62
Available-for-sale Securities, Gross Realized Losses | $	$ 0	$ 0	$ 0	$ 0
US Agency Obligations [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	33		33
Municipals [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	22		22
Corporates [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	5		5
S&P Rated AA [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	46		46
S&P Rated A [Member]
Number Of Securities Evaluated For Other Than Temporary Impairment [Line Items]
Securities evaluated for other than temporary impairment	3		3

XML

Securities (Summary Of Securities Held-To-Maturity And Securities Available-For-Sale) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-maturity	$ 3,706	$ 5,713
Held-to-Maturity, Fair Value	3,448	5,619
Available-for-Sale, Amortized Costs	56,684	57,172
Available-for-Sale, Gross Unrealized Gains	9	23
Available-for-Sale, Gross Unrealized (Losses)	(3,185)	(1,883)
Available-for-sale, Fair Value	53,688	55,312
US Treasuries [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	1,959	1,956
Available-for-Sale, Gross Unrealized (Losses)	(149)	(98)
Available-for-sale, Fair Value	1,810	1,858
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	24,792	24,881
Available-for-Sale, Gross Unrealized Gains	5	5
Available-for-Sale, Gross Unrealized (Losses)	(1,719)	(1,036)
Available-for-sale, Fair Value	23,078	23,850
Mortgage-Backed Securities [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	13,519	13,662
Available-for-Sale, Gross Unrealized Gains	3	2
Available-for-Sale, Gross Unrealized (Losses)	(526)	(276)
Available-for-sale, Fair Value	12,996	13,388
Municipals [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	12,485	12,556
Available-for-Sale, Gross Unrealized Gains	1	16
Available-for-Sale, Gross Unrealized (Losses)	(458)	(298)
Available-for-sale, Fair Value	12,028	12,274
Corporates [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Available-for-Sale, Amortized Costs	4,109	4,117
Available-for-Sale, Gross Unrealized (Losses)	(333)	(175)
Available-for-sale, Fair Value	3,776	3,942
US Agency Obligations [Member]
Schedule Of Available-For-Sale Securities And Held-To-Maturity Securities [Line Items]
Held-to-maturity	3,706	5,713
Held-to-maturity, Gross Unrealized Gains		8
Held-to-maturity, Gross Unrealized (Losses)	(258)	(102)
Held-to-Maturity, Fair Value	$ 3,448	$ 5,619

XML

Securities (Gross Unrealized Losses And Fair Value Of The Bank's Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	$ 12,262	$ 19,090
Unrealized Losses, Less than 12 months	608	282
Fair Value, More than 12 months	40,122	33,535
Unrealized Losses, More than 12 months	2,577	1,601
Fair Value, Total	52,384	52,625
Unrealized Losses, Total	3,185	1,883
US Treasuries [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, More than 12 months	1,810	1,858
Unrealized Losses, More than 12 months	149	98
Fair Value, Total	1,810	1,858
Unrealized Losses, Total	149	98
US Agency Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months, Held-to-maturity	2,436	2,367
Unrealized Losses, Less than 12 months, Held-to-maturity	167	70
Fair Value, More than 12 months, Held-to-maturity	1,270	1,243
Unrealized Losses, More than 12 months, Held-to-maturity	91	32
Fair Value, Total, Held-to-maturity	3,706	3,610
Unrealized Losses, Total, Held-to-maturity	258	102
Fair Value, Less than 12 months	11,086	11,465
Unrealized Losses, Less than 12 months	567	215
Fair Value, More than 12 months	11,995	12,379
Unrealized Losses, More than 12 months	1,152	821
Fair Value, Total	23,081	23,844
Unrealized Losses, Total	1,719	1,036
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	963	2,802
Unrealized Losses, Less than 12 months	31	26
Fair Value, More than 12 months	11,236	9,712
Unrealized Losses, More than 12 months	495	250
Fair Value, Total	12,199	12,514
Unrealized Losses, Total	526	276
Municipals [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months	213	4,823
Unrealized Losses, Less than 12 months	10	41
Fair Value, More than 12 months	11,305	5,644
Unrealized Losses, More than 12 months	448	257
Fair Value, Total	11,518	10,467
Unrealized Losses, Total	458	298
Corporates [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than 12 months
Unrealized Losses, Less than 12 months
Fair Value, More than 12 months	3,776	3,942
Unrealized Losses, More than 12 months	333	175
Fair Value, Total	3,776	3,942
Unrealized Losses, Total	$ 333	$ 175

XML

Business Segments (Narrative) (Details)	6 Months Ended
	Jun. 30, 2018 segment
Business Segments [Abstract]
Number of reportable segments	2

XML

Business Segments (Schedule Of Segment Reporting Information, By Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Segment Reporting Information [Line Items]
Net interest income	$ 5,803	$ 5,140	$ 11,134	$ 9,978
Provision for loan losses	315	445	337	545	$ 993
Net interest income after provision for loan losses	5,488	4,695	10,797	9,433
Noninterest income	1,441	1,204	2,627	2,065
Noninterest expenses	5,306	4,756	10,403	9,253
Income before income taxes	1,623	1,143	3,021	2,245
Income tax expense	323	356	598	698
Net Income	1,300	787	2,423	1,547
Total assets	655,866	595,637	655,866	595,637	$ 626,341
Community Banking [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Net interest income	5,803	5,140	11,134	9,978
Provision for loan losses	315	445	337	545
Net interest income after provision for loan losses	5,488	4,695	10,797	9,433
Noninterest income	566	606	1,132	1,096
Noninterest expenses	4,603	4,361	9,207	8,489
Income before income taxes	1,451	940	2,722	2,040
Income tax expense	298	289	546	630
Net Income	1,153	651	2,176	1,410
Total assets	649,809	592,998	649,809	592,998
Mortgage [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Noninterest income	875	598	1,495	969
Noninterest expenses	703	395	1,196	764
Income before income taxes	172	203	299	205
Income tax expense	25	67	52	68
Net Income	147	136	247	137
Total assets	$ 6,057	$ 2,639	$ 6,057	$ 2,639

XML

Loans, Allowance For Loan Losses And OREO (Narrative) (Details) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2018 USD ($) contract item	Jun. 30, 2017 contract	Dec. 31, 2017 USD ($) contract item	Dec. 31, 2016 USD ($)
Financing Receivable, Modifications [Line Items]
Other real estate owned | $	$ 2,585		$ 2,650	$ 2,370
Loan modifications that would have been classified as TDRs | contract	0	0
Loan modifications classified as TDRs | contract	0	0
Outstanding commitments to disburse additional funds on TDR's | contract	0		0
Consumer mortgage loan secured by residential real estate | $	$ 0
Number of real estate properties held | item	0		3
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Other real estate owned | $	$ 545		$ 520

XML

Loans, Allowance For Loan Losses And OREO (Summary Of Loans, Net) (Details) - USD ($) $ in Thousands		Jun. 30, 2018	Dec. 31, 2017
Loans, Allowance For Loan Losses And OREO [Abstract]
Commercial		$ 102,618	$ 96,127
Commercial real estate		278,494	251,807
Consumer		84,195	83,746
Residential		63,111	64,094
Total loans	[1]	528,418	495,774
Less allowance for loan losses		4,688	4,752
Net loans		523,730	491,022
Deferred loan costs		$ 674	$ 940

[1] Includes net deferred costs and premiums of $674 and $940 as of June 30, 2018 and December 31, 2017, respectively.

XML

Loans, Allowance For Loan Losses And OREO (Loans On Non-Accrual Status) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 3,195	$ 4,309
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	763	727
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1,495	1,465
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	210	468
Commercial Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	30
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	1
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	390	566
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	252	1,025
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivables on Non-Accrual Status	$ 54	$ 58

XML

Loans, Allowance For Loan Losses And OREO (Changes In OREO Balance) (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Loans, Allowance For Loan Losses And OREO [Abstract]
Balance at the beginning of the year (net)	$ 2,650	$ 2,370	$ 2,370
Transfers from loans	565	675	815
Capitalized costs			40
Valuation adjustments	(110)		(60)
Sales proceeds	(525)		(514)
Gain (Loss) on disposition	5	$ (17)	(1)
Balance at the end of the period (net)	$ 2,585		$ 2,650

XML

Loans, Allowance For Loan Losses And OREO (Impaired Loans) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Impaired [Line Items]
Totals: Recorded Investment	$ 6,258	$ 7,690
Totals: Unpaid Principal Balance	7,626	9,071
Totals: Related Allowance	422	563
Totals: Average Recorded Investment	6,977	8,747
Totals: Interest Income Recognized	164	411
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	2,308	2,427
With No Related Allowance Recorded: Unpaid Principal Balance	2,408	2,539
With No Related Allowance Recorded: Average Recorded Investment	2,368	2,723
With No Related Allowance Recorded: Interest Income Recognized	72	179
With An Allowance Recorded: Recorded Investment	508	665
With An Allowance Recorded: Unpaid Principal Balance	508	665
With An Allowance Recorded: Average Recorded Investment	587	1,126
With An Allowance Recorded: Interest Income Recognized	15	39
Totals: Recorded Investment	2,816	3,092
Totals: Unpaid Principal Balance	2,916	3,204
Totals: Related Allowance	72	93
Totals: Average Recorded Investment	2,955	3,849
Totals: Interest Income Recognized	87	218
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	171	675
With No Related Allowance Recorded: Unpaid Principal Balance	171	690
With No Related Allowance Recorded: Average Recorded Investment	423	512
With No Related Allowance Recorded: Interest Income Recognized	8	30
With An Allowance Recorded: Recorded Investment	205	73
With An Allowance Recorded: Unpaid Principal Balance	205	73
With An Allowance Recorded: Average Recorded Investment	139	74
With An Allowance Recorded: Interest Income Recognized	6	5
Totals: Recorded Investment	376	748
Totals: Unpaid Principal Balance	376	763
Totals: Related Allowance	48	18
Totals: Average Recorded Investment	562	586
Totals: Interest Income Recognized	14	35
Commercial Construction [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	30
With No Related Allowance Recorded: Unpaid Principal Balance	713
With No Related Allowance Recorded: Average Recorded Investment	15
With An Allowance Recorded: Recorded Investment		169
With An Allowance Recorded: Unpaid Principal Balance		695
With An Allowance Recorded: Average Recorded Investment	85	169
Totals: Recorded Investment	30	169
Totals: Unpaid Principal Balance	713	695
Totals: Related Allowance		79
Totals: Average Recorded Investment	100	169
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
With An Allowance Recorded: Recorded Investment	2	2
With An Allowance Recorded: Unpaid Principal Balance	2	2
With An Allowance Recorded: Average Recorded Investment	2	1
Totals: Recorded Investment	2	2
Totals: Unpaid Principal Balance	2	2
Totals: Related Allowance	2	2
Totals: Average Recorded Investment	2	1
Consumer Secured [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	160	279
With No Related Allowance Recorded: Unpaid Principal Balance	161	283
With No Related Allowance Recorded: Average Recorded Investment	220	149
With No Related Allowance Recorded: Interest Income Recognized	7	11
With An Allowance Recorded: Recorded Investment	323	427
With An Allowance Recorded: Unpaid Principal Balance	330	445
With An Allowance Recorded: Average Recorded Investment	375	269
With An Allowance Recorded: Interest Income Recognized	6	11
Totals: Recorded Investment	483	706
Totals: Unpaid Principal Balance	491	728
Totals: Related Allowance	132	255
Totals: Average Recorded Investment	595	418
Totals: Interest Income Recognized	13	22
Residential Mortgages [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	1,443	1,580
With No Related Allowance Recorded: Unpaid Principal Balance	1,513	1,673
With No Related Allowance Recorded: Average Recorded Investment	1,512	1,568
With No Related Allowance Recorded: Interest Income Recognized	37	63
With An Allowance Recorded: Recorded Investment		151
With An Allowance Recorded: Unpaid Principal Balance		178
With An Allowance Recorded: Average Recorded Investment	76	425
With An Allowance Recorded: Interest Income Recognized		3
Totals: Recorded Investment	1,443	1,731
Totals: Unpaid Principal Balance	1,513	1,851
Totals: Related Allowance		4
Totals: Average Recorded Investment	1,588	1,993
Totals: Interest Income Recognized	37	66
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
Totals: Related Allowance
Totals: Average Recorded Investment
Totals: Interest Income Recognized
Commercial [Member]
Financing Receivable, Impaired [Line Items]
With No Related Allowance Recorded: Recorded Investment	755	925
With No Related Allowance Recorded: Unpaid Principal Balance	866	1,505
With No Related Allowance Recorded: Average Recorded Investment	840	812
With No Related Allowance Recorded: Interest Income Recognized	7	54
With An Allowance Recorded: Recorded Investment	353	317
With An Allowance Recorded: Unpaid Principal Balance	749	323
With An Allowance Recorded: Average Recorded Investment	335	919
With An Allowance Recorded: Interest Income Recognized	6	16
Totals: Recorded Investment	1,108	1,242
Totals: Unpaid Principal Balance	1,615	1,828
Totals: Related Allowance	168	112
Totals: Average Recorded Investment	1,175	1,731
Totals: Interest Income Recognized	$ 13	$ 70

XML

Loans, Allowance For Loan Losses And OREO (Allowance For Loan Losses And Recorded Investment In Loans) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended		12 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance				$ 4,752	$ 5,716	$ 5,716
Allowance for Credit Losses: Charge-offs				(555)		(2,094)
Allowance for Credit Losses: Recoveries				154		137
Allowance for credit losses: Provision		$ 315	$ 445	337	545	993
Allowance for Credit Losses: Ending Balance		4,688		4,688		4,752
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment		422		422		563
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment		4,266		4,266		4,189
Allowance for Credit Losses: Totals		4,688		4,688		4,752
Financing Receivables: Ending Balance: Individually evaluated for impairment		6,258		6,258		7,690
Financing Receivables: Ending Balance: Collectively evaluated for impairment		522,160		522,160		488,084
Total loans	[1]	528,418		528,418		495,774
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance				1,264	2,192	2,192
Allowance for Credit Losses: Charge-offs				(215)		(1,652)
Allowance for Credit Losses: Recoveries				101		6
Allowance for credit losses: Provision				356		718
Allowance for Credit Losses: Ending Balance		1,506		1,506		1,264
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment		168		168		112
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment		1,338		1,338		1,152
Allowance for Credit Losses: Totals		1,506		1,506		1,264
Financing Receivables: Ending Balance: Individually evaluated for impairment		1,108		1,108		1,242
Financing Receivables: Ending Balance: Collectively evaluated for impairment		101,510		101,510		94,885
Total loans		102,618		102,618		96,127
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance				1,738	2,109	2,109
Allowance for Credit Losses: Charge-offs				(142)		(91)
Allowance for Credit Losses: Recoveries				3		41
Allowance for credit losses: Provision				105		(321)
Allowance for Credit Losses: Ending Balance		1,704		1,704		1,738
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment		120		120		190
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment		1,584		1,584		1,548
Allowance for Credit Losses: Totals		1,704		1,704		1,738
Financing Receivables: Ending Balance: Individually evaluated for impairment		3,222		3,222		4,009
Financing Receivables: Ending Balance: Collectively evaluated for impairment		275,272		275,272		247,798
Total loans		278,494		278,494		251,807
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance				1,172	954	954
Allowance for Credit Losses: Charge-offs				(186)		(246)
Allowance for Credit Losses: Recoveries				50		51
Allowance for credit losses: Provision				(130)		413
Allowance for Credit Losses: Ending Balance		906		906		1,172
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment		134		134		257
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment		772		772		915
Allowance for Credit Losses: Totals		906		906		1,172
Financing Receivables: Ending Balance: Individually evaluated for impairment		485		485		708
Financing Receivables: Ending Balance: Collectively evaluated for impairment		83,710		83,710		83,038
Total loans		84,195		84,195		83,746
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Credit Losses: Beginning Balance				578	$ 461	461
Allowance for Credit Losses: Charge-offs				(12)		(105)
Allowance for Credit Losses: Recoveries						39
Allowance for credit losses: Provision				6		183
Allowance for Credit Losses: Ending Balance		572		572		578
Allowance for Credit Losses: Ending Balance: Individually evaluated for impairment						4
Allowance for Credit Losses: Ending Balance: Collectively evaluated for impairment		572		572		574
Allowance for Credit Losses: Totals		572		572		578
Financing Receivables: Ending Balance: Individually evaluated for impairment		1,443		1,443		1,731
Financing Receivables: Ending Balance: Collectively evaluated for impairment		61,668		61,668		62,363
Total loans		$ 63,111		$ 63,111		$ 64,094

[1] Includes net deferred costs and premiums of $674 and $940 as of June 30, 2018 and December 31, 2017, respectively.

XML

Loans, Allowance For Loan Losses And OREO (Age Analysis Of Past Due Financing Receivables) (Details) - USD ($) $ in Thousands		Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		$ 4,283	$ 5,103
Current		524,135	490,671
Total loans	[1]	528,418	495,774
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		1,090	1,145
Current		101,027	92,504
Total loans		102,117	93,649
Recorded Investment > 90 Days & Accruing
Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		275	660
Current		162,660	138,101
Total loans		162,935	138,761
Recorded Investment > 90 Days & Accruing
Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		579	169
Current		12,863	19,228
Total loans		13,442	19,397
Recorded Investment > 90 Days & Accruing
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		2	3
Current		7,619	6,977
Total loans		7,621	6,980
Recorded Investment > 90 Days & Accruing
Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		624	846
Current		75,950	75,920
Total loans		76,574	76,766
Recorded Investment > 90 Days & Accruing
Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		989	1,652
Current		54,059	51,545
Total loans		55,048	53,197
Recorded Investment > 90 Days & Accruing
Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		54	58
Current		8,009	10,839
Total loans		8,063	10,897
Recorded Investment > 90 Days & Accruing
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		1,962	2,178
30 to 59 Days Past Due [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		493	904
30 to 59 Days Past Due [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		145
30 to 59 Days Past Due [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		253
30 to 59 Days Past Due [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		1	3
30 to 59 Days Past Due [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		307	245
30 to 59 Days Past Due [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		649	706
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		816	978
60 to 89 Days Past Due [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due			64
60 to 89 Days Past Due [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		130	361
60 to 89 Days Past Due [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		296
60 to 89 Days Past Due [Member] | Consumer Unsecured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		1
60 to 89 Days Past Due [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		101	139
60 to 89 Days Past Due [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		127	414
Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		1,505	1,947
Greater than 90 Days Past Due [Member] | Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		597	177
Greater than 90 Days Past Due [Member] | Commercial Mortgages-Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due			299
Greater than 90 Days Past Due [Member] | Commercial Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		30	169
Greater than 90 Days Past Due [Member] | Consumer Secured [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		216	462
Greater than 90 Days Past Due [Member] | Residential Mortgages [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		213	532
Greater than 90 Days Past Due [Member] | Residential Consumer Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		54	58
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		670	570
Current		101,948	95,557
Total loans		102,618	96,127
Recorded Investment > 90 Days & Accruing
Commercial [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		114	320
Commercial [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		161
Commercial [Member] | Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due		395	250
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans		278,494	251,807
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans		63,111	64,094
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans		$ 84,195	$ 83,746

[1] Includes net deferred costs and premiums of $674 and $940 as of June 30, 2018 and December 31, 2017, respectively.

XML

Loans, Allowance For Loan Losses And OREO (Credit Quality Information-By Class) (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 528,418	$ 495,774
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	510,823	476,090
Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	5,165	6,131
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	5,449	4,936
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	6,981	8,617
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial Mortgages-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	102,117	93,649
Commercial Mortgages-Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	92,813	83,834
Commercial Mortgages-Owner Occupied [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,799	2,926
Commercial Mortgages-Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	3,634	3,734
Commercial Mortgages-Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2,871	3,155
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	162,935	138,761
Commercial Mortgages-Non-Owner Occupied [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	159,790	135,855
Commercial Mortgages-Non-Owner Occupied [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,577	1,898
Commercial Mortgages-Non-Owner Occupied [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,092	152
Commercial Mortgages-Non-Owner Occupied [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	476	856
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	13,442	19,397
Commercial Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	13,412	18,423
Commercial Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables		805
Commercial Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	30	169
Commercial Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Consumer Unsecured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	7,621	6,980
Consumer Unsecured [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	7,606	6,978
Consumer Unsecured [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	13
Consumer Unsecured [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	2	2
Consumer Unsecured [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Consumer Secured [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	76,574	76,766
Consumer Secured [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	75,843	75,774
Consumer Secured [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	66	90
Consumer Secured [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	89
Consumer Secured [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	576	902
Consumer Secured [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Residential Mortgages [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	55,048	53,197
Residential Mortgages [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	53,033	50,816
Residential Mortgages [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	239	241
Residential Mortgages [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	1,776	2,140
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	8,063	10,897
Residential Consumer Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	8,009	10,839
Residential Consumer Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	54	58
Residential Consumer Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	102,618	96,127
Commercial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	100,317	93,571
Commercial [Member] | Monitor [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	723	1,217
Commercial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	382	4
Commercial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables	$ 1,196	1,335
Commercial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivables