10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________________to_____________________________________

Commission File Number:  000-28342

VALLEY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

VIRGINIA	54-1702380
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
36 Church Avenue, S.W.
Roanoke, Virginia	24011
(Address of principal executive offices)	(Zip Code)
(540) 342-2265
(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

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.    Yesx  Noo

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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).          Yes x  No o

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

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

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.)

Yes o No x

At November 14, 2012, 4,742,295 shares of common stock, no par value, of the registrant were outstanding.

VALLEY FINANCIAL CORPORATION

FORM 10-Q

September 30, 2012

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Consolidated Balance Sheets	5
Consolidated Statements of Income	6
Consolidated Statements of Comprehensive Income	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.  Controls and Procedures	46
PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings	47
Item 1A.  Risk Factors	47
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.  Defaults Upon Senior Securities	47
Item 4.  Mine Safety Disclosures	47
Item 5.  Other Information	47
Item 6.  Exhibits	49
SIGNATURES	50
EXHIBIT INDEX

3

Forward-Looking and Cautionary Statements

The Private Securities Litigation Reform Act of 1995 (the “1995 Act”) provides a safe harbor for forward-looking statements made by or on our behalf.  These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of our management and on information available at the time these statements and disclosures were prepared.

This report includes forward-looking statements within the meaning of the 1995 Act. These statements are included throughout this report and relate to, among other things, projections of revenues, earnings, earnings per share, cash flows, capital expenditures, or other financial items, expectations regarding acquisitions, discussions of estimated future revenue enhancements, potential dispositions, and changes in interest rates. These statements also relate to our business strategy, goals and expectations concerning our market position, future operations, margins, profitability, liquidity, and capital resources. The words “believe”, “anticipate”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “will”, and similar terms and phrases identify forward-looking statements in this report.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside of our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct.  Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a number of factors. Factors that may cause actual results to differ materially from those expected include the following:

• General economic conditions may deteriorate and negatively impact the ability of borrowers to repay loans and depositors to maintain balances;

• General decline in the residential real estate construction and finance market;

• Decline in market value of real estate in the Company’s markets;

• Changes in interest rates could reduce net interest income and/or the borrower’s ability to repay loans;

• Competitive pressures among financial institutions may reduce yields and profitability;

• Legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses that the Company is engaged in;

• Increased regulatory supervision could limit our ability to grow and could require considerable time and attention of our management and board of directors;

• New products developed or new methods of delivering products could result in a reduction in business and income for the Company;

• The Company’s ability to continue to improve operating efficiencies;

• Natural events and acts of God such as earthquakes, fires and floods;

• Loss or retirement of key executives; and

• Adverse changes may occur in the securities market.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein.  We caution readers not to place undue reliance on those statements, which speak only as of the date of this report.

4

VALLEY FINANCIAL CORPORATION
Consolidated Balance Sheets
(In 000s, except share data)
	(Unaudited)		(Audited)
Assets	September 30, 2012		December 31, 2011
Cash and due from banks	$	9,262	$	8,428
Interest bearing deposits		12,872		22,296
Total cash and cash equivalents		22,134		30,724
Securities available for sale		142,867		160,465
Securities held to maturity (fair value 9/30/12: $28,014; 12/31/11: $29,723)		26,475		28,770
Loans, net of allowance for loan losses, 9/30/12: $8,548; 12/31/11: $9,650)		533,420		498,936
Foreclosed assets		22,151		17,040
Premises and equipment, net		7,950		7,491
Bank owned life insurance		17,541		16,565
Accrued interest receivable		2,518		2,401
Other assets		10,236		11,112
Total assets	$	785,292	$	773,504
Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits	$	18,004	$	17,903
Interest bearing deposits		599,543		612,805
Total deposits		617,547		630,708
Federal funds purchased and securities sold under agreements to repurchase		22,022		18,646
FHLB borrowings		58,000		43,000
Junior subordinated debentures		16,496		16,496
Accrued interest payable		437		533
Other liabilities		4,614		4,008
Total liabilities		719,116		713,391
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; 16,019 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		15,794		15,661
Common stock, no par value; 10,000,000 shares authorized; 4,742,295 shares issued and outstanding at September 30, 2012 and 4,711,123 shares issued and outstanding at December 31, 2011		23,845		23,654
Retained earnings		24,457		20,131
Accumulated other comprehensive income		2,080		667
Total shareholders' equity		66,176		60,113
Total liabilities and shareholders' equity	$	785,292	$	773,504
See accompanying notes to consolidated financial statements

5

VALLEY FINANCIAL CORPORATION
Consolidated Income Statements
(In 000s, except share and per share data)
	Three Months Ended (Unaudited)				Nine Months Ended (Unaudited)
	9/30/2012		9/30/2011		9/30/2012			9/30/2011
Interest income
Interest and fees on loans	$	6,935	$	6,913	$	20,415		$	20,960
Interest on securities - taxable		833		1,128		3,040			3,380
Interest on securities - nontaxable		131		134		396			447
Interest on deposits in banks		4		21		30			66
Total interest income		7,903		8,196		23,881			24,853
Interest expense
Interest on deposits		984		1,541		3,342			5,015
Interest on borrowings		455		492		1,353			1,474
Total interest expense		1,439		2,033		4,695			6,489
Net interest income		6,464		6,163		19,186			18,364
Provision for loan losses		-		164		(53	)		425
Net interest income after provision for loan losses		6,464		5,999		19,239			17,939
Noninterest income
Service charges on deposit accounts		437		360		1,163			1,049
Mortgage fee income		159		67		464			175
Brokerage fee income, net		183		188		655			339
Realized gain on sale of securities		118		541		158			1,017
Other  income		292		217		771			608
Total noninterest income		1,189		1,373		3,211			3,188
Noninterest expense
Compensation expense		2,716		2,459		7,955			6,987
Occupancy and equipment expense		405		370		1,175			1,170
Data processing expense		305		256		889			786
Insurance expense		233		445		850			2,024
Professional fees		290		415		750			1,265
Foreclosed asset expense, net		475		579		917			1,194
Other operating expense		790		818		2,390			2,388
Total noninterest expense		5,214		5,342		14,926			15,814
Income before income taxes		2,439		2,030		7,524			5,313
Income tax expense		742		460		2,299			1,426
Net income	$	1,697	$	1,570	$	5,225		$	3,887
Preferred dividends and accretion of discounts on warrants		245		242		734			726
Net income available to common shareholders	$	1,452	$	1,328	$	4,491		$	3,161
Earnings per share
Basic earnings per common share	$	0.31	$	0.28	$	0.95		$	0.67
Diluted earnings per common share	$	0.30	$	0.28	$	0.93		$	0.67
Weighted average common shares outstanding		4,742,295		4,697,256		4,737,998			4,694,299
Diluted average common shares outstanding		4,871,077		4,735,658		4,829,638			4,725,967
Dividends declared per common share	$	0.04	$	-	$	0.04		$	-
See accompanying notes to consolidated financial statements

6

VALLEY FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(In 000s)
	Three Months Ended (Unaudited)							Nine Months Ended (Unaudited)
		9/30/2012			9/30/2011			9/30/2012			9/30/2011
Net Income		$	1,697		$	1,570		$	5,225		$	3,887
Other comprehensive income ("OCI"):
Unrealized gains on securities:
Unrealized holding gains arising during period			1,066			766			2,310			3,912
Tax related to unrealized gains			(362	)		(260	)		(785	)		(1,330	)
Reclassification adjustment for gains included in net income			(118	)		(541	)		(158	)		(1,017	)
Tax related to realized gains			40			184			54			346
Holding gains on securities transferred to HTM from AFS:
Holding gains transferred into OCI during period			-			-			-			118
Holding gains amortized during period			(2	)		(2	)		(10	)		(3	)
Tax related to amortized holding gains			1			-			3			-
Total other comprehensive income			625			147			1,414			2,026
Total comprehensive income		$	2,322		$	1,717		$	6,639		$	5,913
See accompanying notes to consolidated financial statements

7

VALLEY FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In 000s)
	Nine Months Ended (Unaudited)
	9/30/2012			9/30/2011
Cash flows from operating activities
Net income	$	5,225		$	3,887
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Provision for loan losses		(53	)		425
Depreciation and amortization of bank premises, equipment and software		519			546
Net amortization of bond premiums/discounts		1,930			1,215
Stock compensation expense		188			189
Net gains on sale of securities		(158	)		(1,017	)
Net losses and impairment writedowns on foreclosed assets and premises		391			963
Increase in value of life insurance contracts		(477	)		(433	)
Decrease in other assets		841			4,095
Increase in other liabilities		344			1,157
Net cash and cash equivalents provided by operating activities		8,750			11,027
Cash flows from investing activities
Purchases of bank premises, equipment and software		(966	)		(316	)
Purchases of securities available-for-sale		(85,946	)		(104,704	)
Purchases of securities held-to-maturity		-			(2,771	)
Proceeds from maturities, calls, and paydowns of securities available-for-sale		103,266			82,295
Proceeds from maturities, calls, and paydowns of securities held-to-maturity		2,214			3,410
Proceeds from sale of foreclosed assets		302			2,447
Purchases of bank owned life insurance		(500	)		(1,500	)
Capitalized costs related to foreclosed assets		(1,058	)		(1,280	)
(Increase) decrease in loans, net		(39,270	)		27,511
Net cash and cash equivalents provided by / (used in) investing activities		(21,958	)		5,092
Cash flows from financing activities
Increase in non-interest bearing deposits		101			2,517
Decrease in interest bearing deposits		(13,262	)		(22,432	)
Proceeds from borrowings		25,000			17,500
Principal repayments of borrowings		(10,000	)		(15,000	)
Increase (decrease) in securities sold under agreements to repurchase		3,376			(2,701	)
Net proceeds from issuance of common stock		3			-
Cash dividends paid		(600	)		(1,201	)
Net cash and cash equivalents provided by / (used in) financing activities		4,618			(21,317	)
Net increase in cash and cash equivalents		(8,590	)		(5,198	)
Cash and cash equivalents at beginning of period		30,724			24,312
Cash and cash equivalents at end of period	$	22,134		$	19,114
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	4,791		$	6,991
Cash paid during the period for income taxes	$	2,105		$	936
Noncash financing and investing activities
Transfer of loans to foreclosed property	$	4,746		$	3,491
See accompanying notes to consolidated financial statements.

8

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)

Note 1.  Organization and Summary of Significant Accounting Policies

Valley Financial Corporation (the "Company") was incorporated under the laws of the Commonwealth of Virginia on March 15, 1994, primarily to serve as a holding company for Valley Bank (the "Bank"), which opened for business on May 15, 1995. The Company's fiscal year end is December 31.

The consolidated financial statements of the Company conform to generally accepted accounting principles and to general banking industry practices. The interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments of a normal recurring nature which are necessary for a fair presentation of the consolidated financial statements herein have been included. The consolidated financial statements herein should be read in conjunction with the Company's 2011 Annual Report on Form 10-K.

Interim financial performance is not necessarily indicative of performance for the full year.

The Company reports its activities as a single business segment.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure.

Recent and Future Accounting Considerations

None.

Note 2.  Securities

The carrying values, unrealized gains, unrealized losses, and approximate fair values of available-for-sale and held-to-maturity investment securities at September 30, 2012 are shown in the tables below. As of  September 30, 2012, investments (including both available-for-sale and held-to-maturity) and restricted equity securities with amortized costs and fair values of $55,926 and $58,098 respectively, were pledged as collateral for public deposits, a line of credit available from the Federal Home Loan Bank, customer sweep accounts, and for other purposes as required or permitted by law.

The amortized costs, gross unrealized gains and losses, and approximate fair values of securities available-for-sale (“AFS”) as of  September 30, 2012 and December 31, 2011 were as follows:

9

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)

	Amortized		Unrealized		Unrealized
September 30, 2012	Cost		Gains		Losses			Fair Values
U.S. Government and federal agency	$	7,686	$	150	$	-		$	7,836
Government-sponsored enterprises *		23,658		191		(7	)		23,842
Mortgage-backed securities		74,041		2,065		-			76,106
Collateralized mortgage obligations		11,980		145		(10	)		12,115
States and political subdivisions		22,510		540		(82	)		22,968
	$	139,875	$	3,091	$	(99	)	$	142,867

December 31, 2011
U.S. Government and federal agency	$	2,770	$	2	$	-		$	2,772
Government-sponsored enterprises *		38,748		131		(37	)		38,842
Mortgage-backed securities		98,836		836		(182	)		99,490
Collateralized mortgage obligations		15,280		125		(15	)		15,390
States and political subdivisions		3,990		-		(19	)		3,971
	$	159,624	$	1,094	$	(253	)	$	160,465

* Such as FNMA, FHLMC and FHLB.

The amortized costs, gross unrealized gains and losses, and approximate fair values of securities held-to-maturity (“HTM”) as of September 30, 2012 and December 31, 2011 were as follows:

	Amortized		Unrealized		Unrealized
September 30, 2012	Cost		Gains		Losses		Fair Values
U.S. Government and federal agency	$	8,260	$	344	$	-	$	8,604
Mortgage-backed securities		250		20		-		270
Collateralized mortgage obligations		1,824		99		-		1,923
States and political subdivisions		16,141		1,076		-		17,217
	$	26,475	$	1,539	$	-	$	28,014

December 31, 2011
U.S. Government and federal agency	$	8,981	$	160	$	-		$	9,141
Mortgage-backed securities		346		25		-			371
Collateralized mortgage obligations		2,555		126		-			2,681
States and political subdivisions		16,888		653		(11	)		17,530
	$	28,770	$	964	$	(11	)	$	29,723

The amortized costs and approximate fair values of our total private-label collateralized mortgage obligations were $1,684 and $1,772, respectively, as of September 30, 2012.  The amortized costs and approximate fair values of our total private-label collateralized mortgage obligations were $2,358 and $2,472, respectively, as of December 31, 2011.

10

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


The following tables present the maturity ranges of securities available-for-sale and held-to-maturity as of  September 30, 2012 and the weighted average yields of such securities. Maturities may differ from scheduled maturities on mortgage-backed securities and collateralized mortgage obligations because the mortgages underlying the securities may be repaid prior to the scheduled maturity date. Maturities on all other securities are based on the contractual maturity. The weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Weighted average yields on tax-exempt obligations have been computed on a taxable equivalent basis using a tax rate of 34%.

Investment Portfolio Maturity Distribution
	Available-for-Sale							Held-to-Maturity
	Amortized		Fair					Amortized		Fair
In thousands	Costs		Value		Yield			Costs		Value		Yield
U.S. Government and federal agency:
Less than one year	$	200		200		1.37	%	$	-	$	-		-
After five but within ten years		3,044		3,051		2.13	%		4,482		4,656		3.43	%
After ten years		4,442		4,585		2.76	%		3,778		3,948		3.21	%
Government-sponsored enterprises:
After one but within five years		2,584		2,680		1.77	%		-		-		-
After five but within ten years		14,574		14,647		1.85	%		-		-		-
After ten years		6,500		6,515		3.58	%		-		-		-
Obligations of states and subdivisions:
After one but within five years		5,447		5,442		1.83	%		599		616		3.90	%
After five but within ten years		4,583		4,570		2.13	%		4,841		5,182		4.16	%
After ten years		12,480		12,956		3.83	%		10,701		11,419		4.35	%
Mortgage-backed securities		74,041		76,106		2.29	%		250		270		4.66	%
Collateralized mortgage obligations		11,980		12,115		1.90	%		1,824		1,923		5.57	%
Total	$	139,875	$	142,867				$	26,475	$	28,014
Total Securities by Maturity Period
Less than one year	$	200	$	200				$	-	$	-
After one but within five years		8,031		8,122					599		616
After five but within ten years		22,201		22,268					9,323		9,838
After ten years		23,422		24,056					14,479		15,367
Mortgage-backed securities*		74,041		76,106					250		270
Collateralized mortgage obligations*		11,980		12,115					1,824		1,923
Total by Maturity Period	$	139,875	$	142,867				$	26,475	$	28,014

*  Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

11

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


The following tables detail unrealized losses and related fair values in the Bank’s available-for-sale and held-to-maturity investment securities portfolios.  This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2012 and December 31, 2011, respectively.

Temporarily Impaired Securities in AFS Portfolio
In thousands	Less than 12 months					Greater than 12 months				Total
			Unrealized					Unrealized				Unrealized
September 30, 2012	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Government-sponsored enterprises	$	2,493	$	(7	)	$	-	$	-	$	2,493	$	(7	)
Collateralized mortgage obligations		3,442		(10	)		-		-		3,442		(10	)
States and political subdivisions		10,327		(82	)		-		-		10,327		(82	)
	$	16,262	$	(99	)	$	-	$	-	$	16,262	$	(99	)

December 31, 2011
Government-sponsored enterprises	$	10,558	$	(30	)	$	2,993	$	(7	)	$	13,551	$	(37	)
Mortgage-backed securities		42,828		(182	)		-		-			42,828		(182	)
Collateralized mortgage obligations		6,884		(14	)		16		(1	)		6,900		(15	)
States and political subdivisions		3,971		(19	)		-		-			3,971		(19	)
	$	64,241	$	(245	)	$	3,009	$	(8	)	$	67,250	$	(253	)

There were no securities with unrealized losses in the HTM portfolio at September 30, 2012.

Temporarily Impaired Securities in HTM Portfolio
In thousands	Less than 12 months					Greater than 12 months				Total
			Unrealized					Unrealized				Unrealized
December 31, 2011	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
States and political subdivisions	$	1,005	$	(11	)	$	-	$	-	$	1,005	$	(11	)
	$	1,005	$	(11	)	$	-	$	-	$	1,005	$	(11	)

Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment is other than temporary.  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, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At September 30, 2012, there are no securities in the portfolio with unrealized losses for a period greater than 12 months.

Note 3.  Loans and Allowance for Loan and Lease Losses

The major components of loans in the consolidated balance sheets at September 30, 2012 and December 31, 2011 are as follows:

12

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


In thousands	9/30/2012			12/31/2011
Commercial	$	90,997		$	87,711
Real estate:
Commercial real estate		263,242			257,578
Construction real estate		46,478			36,081
Residential real estate		136,245			122,450
Consumer		4,648			4,314
Deferred loan fees, net		358			452
Gross loans		541,968			508,586
Allowance for loan losses		(8,548	)		(9,650	)
Net loans	$	533,420		$	498,936

Substantially all one-four family residential and commercial real estate loans collateralize the line of credit available from the Federal Home Loan Bank and substantially all commercial and construction loans collateralize the line of credit with the Federal Reserve Bank of Richmond Discount Window.  The aggregate amount of deposit overdrafts that have been reclassified as loans and included in the consumer category in the above table as of September 30, 2012 and December 31, 2011 was $388 and $74, respectively.

Loan Origination.  The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a periodic basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate market or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus income producing loans. At September 30, 2012, approximately 44% of the

13

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties and 49% was secured by income-producing properties.

With respect to construction and development loans that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by recurring on-site inspections during the construction phase and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential real estate loans are secured by deeds of trust on 1-4 family residential properties.  The Bank also serves as a broker for residential real estate loans placed in the secondary market.  There are occasions when a borrower or the real estate does not qualify under secondary market criteria, but the loan request represents a reasonable credit risk.  On these occasions, if the loan meets the Bank’s internal underwriting criteria, the loan will be closed and placed in the Company’s portfolio.  Residential real estate loans carry risk associated with the continued credit-worthiness of the borrower and changes in the value of collateral.

The Company routinely makes consumer loans, both secured and unsecured, for financing automobiles, home improvements, education, and personal investments.  The credit history, cash flow and character of individual borrowers is evaluated as a part of the credit decision.  Loans used to purchase vehicles or other specific personal property and loans associated with real estate are usually secured with a lien on the subject vehicle or property.  Negative changes in a

customer’s financial circumstances due to a large number of factors, such as illness or loss of employment, can place the repayment of a consumer loan at risk.  In addition, deterioration in collateral value can add risk to consumer loans.

Risk Management. It is the Company’s policy that loan portfolio credit risk shall be continually evaluated and categorized on a consistent basis.  The Board of Directors recognizes that commercial, commercial real estate and construction lending involve varying degrees of risk, which must be identified, managed, and monitored through established risk rating procedures.  Management’s ability to accurately segment the loan portfolio by the various degrees of risk enables the Bank to achieve the following objectives:

1.  Assess the adequacy of the Allowance for Loan and Lease Losses;

2.  Identify and track high risk situations and ensure appropriate risk management;

3.  Conduct portfolio risk analysis and make informed portfolio planning and strategic decisions; and

4. Provide risk profile information to management, regulators and independent accountants as requested in a timely manner.

There are three levels of accountability in the risk rating process:

1. Risk Identification -  The primary responsibility for risk identification lies with the account officer.  It is the account officer's responsibility for the initial and ongoing risk rating of all notes and commitments in his or her portfolio.  The account officer is the one individual who is closest to the credit relationship and is in the best position to identify changing risks.  Account officers are required to continually review the risk ratings for their credit relationships and make timely adjustments, up or down, at the time the circumstances warrant a change.  Account officers are responsible for ensuring that accurate and timely risk ratings are maintained at all times.   Account officers are allowed a maximum 30-day period to assess current financial information (e.g. prepare credit analysis) which may influence the current risk rating. Account officers are required to review the risk ratings of loans assigned to their portfolios on a monthly basis and to certify to the accuracy of the ratings.  Certifications are submitted to the Chief Credit Officer and Chief Lending Officer for review.  All risk rating changes (upgrades and downgrades) must be approved by the Chief Credit Officer prior to submission for input into the Commercial Loan System.

14

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


2. Risk Supervision -  In addition to the account officer’s process of assigning and managing risk ratings, the Chief Credit Officer is responsible for periodically reviewing the risk rating process employed by the account officers.  Through credit administration, the Chief Credit Officer manages the credit process which, among other things, includes maintaining and managing the risk identification process.  The Chief Credit Officer is responsible for the accuracy and timeliness of account officer risk ratings and has the authority to override account officer risk ratings and initiate rating changes, if warranted.  Upgrades from a criticized or classified category to a pass category or upgrades within the criticized/classified categories require the approval of the Senior Loan Committee or Directors’ Loan Committee based upon aggregate exposure. Upgrades must be reported to the Directors' Loan Committee and Board of Directors at their next scheduled meetings.

3. Risk Monitoring - Valley Bank has a loan review program to provide an independent validation of portfolio quality. This independent review is intended to assess adherence to underwriting guidelines, proper credit analysis and documentation.  In addition, the loan review process is required to test the integrity, accuracy, and timeliness of account officer risk ratings and to test the effectiveness of the credit administration function's controls over the risk identification process.  Portfolio quality and risk rating accuracy are evaluated during regularly scheduled portfolio reviews.  Risk Management is required to report all loan review findings to the quarterly joint meeting of the Audit Committee and Directors’ Loan Committee.

Related party loans.  In the ordinary course of business, the Company has granted loans to certain directors, executive officers, significant shareholders and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other unaffiliated persons, and do not involve more than normal credit risk or present other unfavorable features.

Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following schedule is an aging of past due loans receivable by portfolio segment as of September 30, 2012 and December 31, 2011:

15

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


In thousands	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days, Accruing
September 30, 2012
Commercial	$	176	$	586	$	557	$	1,319	$	89,678	$	90,997	$	-
Commercial real estate
Owner occupied		865		1,223		884		2,972		112,116		115,088		476
Income producing		-		-		-		-		129,584		129,584		-
Multifamily		-		-		-		-		18,570		18,570		-
Construction real estate
1 - 4 Family		-		-		289		289		23,175		23,464		-
Other		-		-		4,674		4,674		16,808		21,482		-
Farmland		-		-		-		-		1,532		1,532		-
Residential real estate
Equity Lines		124		-		400		524		29,227		29,751		400
1 - 4 Family		811		981		676		2,468		96,706		99,174		-
Junior Liens		-		88		-		88		7,232		7,320		-
Consumer
Credit Cards		23		3		-		26		1,529		1,555		-
Other		-		1		3		4		3,089		3,093		-
Deferred loan fees, net		-		-		-		-		358		358		-
Total	$	1,999	$	2,882	$	7,483	$	12,364	$	529,604	$	541,968	$	876

December 31, 2011
Commercial	$	93	$	813	$	1,957	$	2,863	$	84,848	$	87,711	$	-
Commercial real estate
Owner occupied		1,265		495		1,012		2,772		110,697		113,469		-
Income producing		-		-		808		808		129,333		130,141		-
Multifamily		-		-		-		-		13,968		13,968		-
Construction real estate
1 - 4 Family		-		-		-		-		11,171		11,171		-
Other		-		569		3,713		4,282		19,266		23,548		-
Farmland		-		-		-		-		1,362		1,362		-
Residential real estate
Equity Lines		164		-		-		164		30,241		30,405		-
1 - 4 Family		775		-		93		868		86,284		87,152		-
Junior Liens		1		-		-		1		4,892		4,893		-
Consumer
Credit Cards		10		-		-		10		1,345		1,355		-
Other		15		-		-		15		2,944		2,959		4
Deferred loan fees, net		-		-		-		-		452		452		-
Total	$	2,323	$	1,877	$	7,583	$	11,783	$	496,803	$	508,586	$	4

16

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Nonaccrual Loans.  Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. Loans will be placed on nonaccrual status automatically when principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection.  In this case, the loan will continue to accrue interest despite its past due status.  When interest accrual is discontinued, all unpaid accrued interest is reversed and any subsequent payments received are applied to the outstanding principal balance. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The following is a schedule of loans receivable, by portfolio segment, on nonaccrual status as of September 30, 2012 and December 31, 2011:

In thousands	September 30, 2012		December 31, 2011
Commercial	$	1,249	$	2,183
Commercial real estate
Owner occupied		408		1,013
Income producing		-		808
Construction real estate
1 - 4 Family		290		471
Other		4,674		3,713
Residential real estate
Equity Lines		62		64
1 - 4 Family		1,815		334
Junior Liens		46		49
Consumer
Other		3		3
Total	$	8,547	$	8,638

Had nonaccrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income in the amount of $253 during the nine-months ended September 30, 2012; $550 during the year ended December 31, 2011, and $437 during the nine-months ended September 30, 2011.  There were seven restructured loans totaling $3,324 at September 30, 2012 and there were twelve restructured loans totaling $2,305 at December 31, 2011.

Impaired Loans.  Impaired loans are identified by the Company as loans in which it is determined to be probable that the borrower will not make interest and principal payments according to the contract terms of the loan.  In determining impaired loans, our credit administration department reviews past-due loans, examiner classifications, Bank classifications, and a selection of other loans to provide evidence as to whether the loan is impaired.  All loans rated as substandard are evaluated for impairment by the Bank’s Allowances for Loan and Lease Losses (“ALLL”) Committee.  Once classified as impaired, the ALLL Committee individually evaluates the total loan relationship, including a detailed collateral analysis, to determine the reserve appropriate for each one.  Any potential loss exposure identified in the collateral analysis is set aside as a specific reserve (valuation allowance) in the allowance for loan and lease losses.  If the impaired loan is subsequently resolved and it is determined the reserve is no longer required, the specific reserve will be taken back into income during the period the determination is made.  Impaired loans, or portions thereof, are charged off

17

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


when deemed uncollectible.  Impaired loans as of September 30, 2012 and December 31, 2011 are set forth in the following table:

In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2012
With no related allowance:
Commercial	$	2,064	$	2,267	$	-	$	2,485	$	60
Commercial real estate
Owner occupied		10,680		10,680		-		12,217		575
Income producing		4,641		4,641		-		2,453		106
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,294		1,294		-		1,503		50
Other		1,710		3,695		-		2,520		51
Farmland		-		-		-		-		-
Residential real estate
Equity Lines		861		864		-		883		25
1 - 4 Family		5,817		6,022		-		5,492		191
Junior Liens		104		104		-		104		4
Consumer
Credit Cards		-		-		-		-		-
Other		28		28		-		32		1
Total loans with no allowance	$	27,199	$	29,595	$	-	$	27,689	$	1,063
With an allowance recorded:
Commercial		297		308		112		315		1
Construction real estate
1 - 4 Family		289		321		217		402		-
Other		3,769		9,341		1,708		9,341		25
Farmland		180		180		4		183		10
Residential real estate
1 - 4 Family		1,977		1,984		152		1,992		57
Junior Liens		46		49		17		49		-
Total loans with an allowance	$	6,558	$	12,183	$	2,210	$	12,282	$	93
Total:
Commercial		2,361		2,575		112		2,800		61
Commercial real estate		15,321		15,321		-		14,670		681
Construction real estate		7,242		14,831		1,929		13,949		136
Residential real estate		8,805		9,023		169		8,520		277
Consumer		28		28		-		32		1
Totals	$	33,757	$	41,778	$	2,210	$	39,971	$	1,156

18

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2011
With no related allowance:
Commercial	$	4,321	$	4,880	$	-	$	4,791	$	133
Commercial real estate
Owner occupied		14,963		14,995		-		15,305		892
Income producing		2,112		2,201		-		2,122		63
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,763		1,643		-		1,632		73
Other		2,906		4,541		-		3,230		100
Farmland		185		185		-		188		14
Residential real estate
Equity Lines		304		230		-		230		7
1 - 4 Family		6,875		7,093		-		6,906		356
Junior Liens		19		19		-		21		1
Consumer
Credit Cards		-		-		-		-		-
Other		15		15		-		18		1
Total loans with no allowance	$	33,463	$	35,802	$	-	$	34,443	$	1,640
With an allowance recorded:
Commercial		218		222		79		225		9
Construction real estate
1 - 4 Family		471		490		51		723		29
Other		3,741		9,314		1,839		3,741		132
Residential real estate
1 - 4 Family		1,027		1,027		97		1,035		48
Junior Liens		48		49		33		50		-
Total loans with an allowance	$	5,505	$	11,102	$	2,099	$	5,774	$	218
Total:
Commercial		4,539		5,102		79		5,016		142
Commercial real estate		17,075		17,196		-		17,427		955
Construction real estate		9,066		16,173		1,890		9,514		348
Residential real estate		8,273		8,418		130		8,242		412
Consumer		15		15		-		18		1
Totals	$	38,968	$	46,904	$	2,099	$	40,217	$	1,858

19

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Cash basis interest income on impaired loans was $1,181 for the nine months ended September 30, 2012 and $1,708 for the year ended December 31, 2011.

Credit Quality Indicators. The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. This categorization is made on all commercial, commercial real estate and construction and development loans.  The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: 

Risk rated 1

Highest Caliber Credit – to qualify as a “1”, a credit must be either fully secured by cash or secured by a portfolio of marketable securities within margin.

Risk rated 2

Very High Caliber Credit – to qualify as a “2”, a credit must be a borrower within an industry exhibiting strong trends.  The borrower must be a highly-rated individual or company whose management, profitability, liquidity, and leverage are very strong and above industry averages.  Borrower should show substantial liquidation net worth and income or alternative fund sources to retire the debt as agreed.

Risk rated 3

High Caliber Credit - to qualify as a “3”, the criteria of management, industry, profitability, liquidity, and leverage must be generally strong and comparable to industry averages.  Borrower should show above average liquidation net worth and sufficient income or alternative fund sources to retire the debt as agreed.

Risk rated 4

Satisfactory Credit – to qualify as a “4”, a credit should be performing relatively close to expectations, with adequate evidence that the borrower is continuing to generate adequate cash flow to service debt.  There should be no significant departure from the intended source and timing of repayment, and there should be no undue reliance on secondary sources of repayment.  To the extent that some variance exists in one or more criteria being measured, it may be offset by the relative strength of other factors and/or collateral pledged to secure the transaction.  A credit secured by a portfolio of marketable securities in an out-of-margin condition would qualify as a “4”.  Borrower should show average liquidation net worth and income sufficient to retire the debt on an amortizing basis.

Risk rated 5

Monitored Satisfactory Credit – there are certain satisfactory credits, which have elements of risk that the Bank chooses to monitor formally.  The objective of the monitoring process is to assure that no weaknesses develop in credits with certain financial or operating leverage, or credits, which are subject to cyclical economic or variable industry conditions.  Also included in this category are credits with positive operating trends and satisfactory financial conditions, which are achieving performance expectations at a slower pace than anticipated.  This rating may also include loans which exhibit satisfactory credit quality but which are improperly structured as evidenced by excessive renewals, unusually long repayment schedules, the lack of a specific repayment plan, or which exhibit loan policy exceptions or documentation deficiencies.

Risk rated 6

Special Mention – assets in this category are still adequately protected by the borrower’s capital adequacy and payment capability, but exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

20

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Risk Rated 7

Substandard - substandard loans are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Risk Rated 8

Doubtful – an asset classified as doubtful has all the weaknesses inherent in one classified substandard 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.  Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.  The Company’s practice is to charge-off the portion of the loan amount determined to be doubtful in the quarter that the determination is made if the repayment of the loan is collateral dependent.

Risk Rated 9

Loss – assets classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

As of  September 30, 2012 and December 31, 2011, and based on the most recent analysis performed at those dates, the risk category of loans and leases is as follows:

21

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Internal Risk Rating Grades
In thousands		1-4		5		6		7
September 30, 2012
Commercial	$	23,033	$	62,996	$	2,416	$	2,552
Commercial real estate
Owner occupied		38,055		61,771		1,525		13,737
Income producing		17,267		96,182		6,287		9,848
Multifamily		10,142		8,428		-		-
Construction real estate
1 - 4 Family		2,621		17,036		1,561		2,246
Other		-		11,524		2,499		7,459
Farmland		236		630		486		180
Totals	$	91,354	$	258,567	$	14,774	$	36,022
Total:
Commercial		23,033		62,996		2,416		2,552
Commercial real estate		65,464		166,381		7,812		23,585
Construction real estate		2,857		29,190		4,546		9,885
Totals	$	91,354	$	258,567	$	14,774	$	36,022

December 31, 2011
Commercial	$	29,554	$	49,325	$	3,659	$	5,173
Commercial real estate
Owner occupied		27,917		64,408		3,058		18,086
Income producing		15,710		100,994		10,924		2,513
Multifamily		8,613		5,355		-		-
Construction real estate
1 - 4 Family		2,125		4,871		1,489		2,686
Other		1,426		8,881		3,610		9,630
Farmland		-		345		833		185
Totals	$	85,345	$	234,179	$	23,573	$	38,273
Total:
Commercial		29,554		49,325		3,659		5,173
Commercial real estate		52,240		170,757		13,982		20,599
Construction real estate		3,551		14,097		5,932		12,501
Totals	$	85,345	$	234,179	$	23,573	$	38,273

There are no loans classified as 8 or 9 as of September 30, 2012 or December 31, 2011.

All consumer-related loans, including residential real estate are evaluated and monitored based upon payment activity.  Once a consumer-related loan becomes past due on a recurring basis, the Company will pull that loan out of the homogenized pool and evaluate it individually for impairment.  At this time, the consumer-related loan may be placed on the Company’s

22

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


internal watch list and risk rated either special mention or substandard, depending upon the individual circumstances.

Risk Based on Payment Activity	Performing				Non-Performing
In thousands	9/30/2012		12/31/2011		9/30/2012		12/31/2011
Residential real estate
Equity Lines	$	29,689	$	30,341	$	62	$	64
1 - 4 Family		97,359		86,818		1,815		334
Junior Liens		7,274		4,844		46		49
Consumer
Credit Cards		1,555		1,351		-		4
Other		3,090		2,956		3		3
Totals	$	138,967	$	126,310	$	1,926	$	454
Total:
Residential real estate		134,322		122,003		1,923		447
Consumer		4,645		4,307		3		7
Totals	$	138,967	$	126,310	$	1,926	$	454

Allowance for Loan Losses

The allowance for possible loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans.

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of three elements: (i) specific valuation allowances determined in accordance with accounting principles regarding receivables based on probable losses on specific loans; (ii) historical

23

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


valuation allowances determined in accordance with accounting principles regarding contingencies based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) general valuation allowances determined in accordance with accounting principles regarding contingencies based on general economic conditions and other qualitative risk factors both internal and external to the Company.

Specific Valuation

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan is added to the internal watch list, the ALLL Committee analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, and economic conditions affecting the borrower’s industry, among other things.

Historical Valuation

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans at the time they were charged-off. The Company uses a rolling 8-quarter analysis to determine its historical loss ratio for the specific pool. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the average balance of loans in the pool for the respective quarter. The loss factors used at September 30, 2012 and December 31, 2011 are as follows:

	9/30/12	12/31/11
Commercial	0.03%	0.66%
Commercial real estate - Owner occupied	0.02%	0.28%
Commercial real estate - Income producing	0.00%	0.10%
Commercial real estate - Multifamily	0.18%	0.71%
Construction real estate - 1-4 Family	0.00%	0.54%
Construction real estate - Other	3.06%	5.04%
Construction real estate - Farmland	0.00%	0.00%
Residential real estate - Equity lines	0.07%	0.72%
Residential real estate - 1-4 Family	0.45%	0.68%
Residential real estate - Junior Liens	0.00%	2.08%
Consumer & credit cards	0.68%	1.33%
Loans held for sale	0.00%	0.00%

The Company applies the historical loss ratios to balances of all loans within each category to establish a high range allowance.  The Company applies the historical loss ratios to loan balances carrying risk ratings of 5 and higher to establish the low range allowance for this factor.  The rationale behind excluding loans risk rated 1 – 4 from the low range is that these credits range from the very highest caliber to satisfactory and the Company has never had a loan move from a 4 rated credit to a watchlist rated credit (6 or higher) within a one-quarter timeframe.  All impaired loans are excluded from this calculation as they are individually evaluated in the specific valuation section as described above.

As can be seen from the above table, the loss factors reduced significantly in all categories at September 30, 2012 as compared to December 31, 2011.  This is due to the reduction and stabilization of historical charge-offs during the 8-quarter look-back period.  As a result, the reserve requirement for the historical valuation section of the allowance

24

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


calculation decreased by approximately $1.8 million at the high end of the range.  This significant reduction, coupled with changes in the Company’s environmental factors as noted below, has enabled the Company to reduce the general reserves required during this time period.

General Valuation

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Company. In general, such valuation allowances are determined by evaluating, among other things: (i) levels and trends in credit quality; (ii) trends in the volume of loans; (iii) the experience, ability and effectiveness of the bank’s lending management and staff; (iv) local economic trends and conditions; (v) credit concentration risk; (vi) current industry conditions; (vii) real estate market conditions; (viii) and large relationship credit risk. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, moderate or low degree of risk. The results are then input into a general allocation matrix to determine an appropriate general valuation allowance, based on the risk assessment performed by management and the loss factors established for high and low ranges.  Loans identified as losses by management, internal loan review and/or regulatory examiners are charged-off.

The Company’s range for our environmental factors at September 30, 2012 remains constant with prior quarters with the exception of the trends in volume of loans.  Due to the increased volume of new loans during the past 12 months, management decided to change this environmental factor to reflect loan growth over a one-year period versus a three-year period.  As such, the loss factors associated with this environmental factor were modified as well.  The general valuation factors used at September 30, 2012 and December 31, 2011 are as follows:

	9/30/12				12/31/11
	Low		High		Low		High
Levels and trends in credit quality		0.20%		0.30%		0.20%		0.30%
Trends in volume of loans		1.00%		1.50%		0.00%		0.10%
Experience, ability, and depth of lending management and staff		0.00%		0.05%		0.00%		0.05%
Local economic trends and conditions		0.25%		0.35%		0.25%		0.35%
Credit concentration risk		0.00%		0.05%		0.00%		0.05%
Current industry conditions/general economic conditions		0.05%		0.10%		0.10%		0.15%
Commercial Real Estate Devaluation		0.15%		0.25%		0.15%		0.25%
Residential Real Estate Devaluation		0.15%		0.25%		0.15%		0.25%
Credit concentration risk - large relationships > $8 Million		0.30%		0.60%		0.60%		0.90%

As noted in the Company’s second quarter Form 10-Q, at June 30, 2012, management decreased its risk assessment from high to medium for the current industry conditions risk factors as a result of the continued improving trends in the banking industry.  Additionally, the risk assessment for the large relationship risk factor was decreased from high to medium as the percentage of loans in this category risk rated 6 or 7 has declined below the Company’s minimum threshold set for high risk.  At September 30, 2012, the Company maintained the risk assessments for these factors consistent with the June 30, 2012 analysis.

All impaired loans are excluded from this calculation as they are individually evaluated in the specific valuation section as described above.  The loss factors are multiplied by the loan balances related to each environmental factor at quarter-end.  Therefore for example, only commercial real estate balances are used in the determination for the estimated loss for the commercial real estate devaluation factor.  As described in the historical valuation section, the Company applies the historical loss ratios to balances of all loans within each category to establish a high range allowance.  The Company applies the historical loss ratios to loan balances carrying risk ratings of 5 and higher to establish the low range allowance for this factor.

25

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Changes in the allowance for loan losses for the nine-month period ended September 30, 2012 by segment are as follows:

	Beginning										Ending
In thousands	Balance		Charge-offs			Recoveries		Provision			Balance
September 30, 2012
Commercial	$	1,113	$	(104	)	$	7	$	(546	)	$	470
Commercial real estate		3,725		-			-		(753	)		2,972
Construction real estate		4,052		(496	)		-		(263	)		3,293
Residential real estate		732		(470	)		2		1,515			1,779
Consumer		28		(5	)		17		(6	)		34
Total	$	9,650	$	(1,075	)	$	26	$	(53	)	$	8,548

Due to the increased past dues, substandard and nonperforming residential real estate loans at September 30, 2012 as compared to December 31, 2011, the Company has reallocated a portion of its allowance for loan losses from the commercial, commercial real estate and construction real estate categories.  This reallocation is further supported by the decreased past dues and watch list loans in the commercial, commercial real estate and construction real estate portfolios.

As of  September 30, 2012 and December 31, 2011, loans individually and collectively evaluated for impairment, by loan portfolio segment, and the corresponding allowance are as follows:

	Individually Evaluated for Impairment
	9/30/2012					12/31/2011
In thousands		Allowance		Total Loans			Allowance		Total Loans
Commercial		$	112	$	2,361		$	79	$	4,539
Commercial real estate			-		15,321			-		17,075
Construction real estate			1,929		7,242			1,890		9,067
Residential real estate			169		8,805			130		8,272
Consumer			-		28			-		15
Total		$	2,210	$	33,757		$	2,099	$	38,968

26

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


	Collectively Evaluated for Impairment
	9/30/2012				12/31/2011
In thousands	Allowance		Total Loans		Allowance		Total Loans
Commercial	$	358	$	88,636	$	1,034	$	83,172
Commercial real estate		2,972		247,921		3,725		240,503
Construction real estate		1,364		39,236		2,162		27,014
Residential real estate		1,610		127,440		602		114,178
Consumer		34		4,620		28		4,299
Unallocated		-		358		-		452
Total	$	6,338	$	508,211	$	7,551	$	469,618

Troubled Debt Restructurings

Modifications of terms for loans and their inclusion as TDRs are based on individual facts and circumstances.  Loan modifications that are included as TDRs may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal payments, regardless of the period of the modification.  The loans included in all loan classes as TDRs at September 30, 2012 had either an interest rate modification or a deferral of principal payments, which we consider to be a concession.  All loans designated as TDRs were modified due to financial difficulties experienced by the borrower.

The following table provides information about TDRs identified during the specified periods and those loans, if any, identified as TDRs within the prior 12 month timeframe that subsequently defaulted.  Defaults are those TDRs that were greater than 90 days past due, and aligns with our internal definition of default for those loans not identified as TDRs.  There were no TDR defaults identified during the specified periods.

	For the three months ended
In thousands	September 30, 2012						September 30, 2011
In thousands	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential real estate		-		-		-		1		60		60
Total		-	$	-	$	-		1	$	60	$	60

	For the nine months ended
In thousands	September 30, 2012						September 30, 2011
Commercial		-	$	-	$	-		1	$	192	$	192
Construction real estate		1		4,496		2,369		3		935		1,004
Residential real estate		-		-		-		7		963		995
Total		1	$	4,496	$	2,369		11	$	2,090	$	2,191

27

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Note 4.  Foreclosed Assets

The following table summarizes the activity in foreclosed assets for the nine-month period ended September 30, 2012 and the twelve-month period ended December 31, 2011:

	9/30/2012			12/31/2011
Balance, beginning of period	$	17,040		$	16,081
Additions		4,746			4,341
Capitalized items		1,058			1,321
Sales		(302	)		(3,623	)
Impairment writedowns		(363	)		(931	)
Gain (loss)		(28	)		(149	)
Balance, end of period	$	22,151		$	17,040

Note 5.  Earnings Per Share

Basic earnings per share are based upon the weighted average number of common shares outstanding during the period.  The weighted average common shares outstanding for the diluted earnings per share computations were adjusted to reflect the assumed conversion of shares available under stock options.  The following tables summarize earnings per share and the shares utilized in the computations for the three months ended September 30, 2012 and 2011, respectively:

	Net Income
	Available to Common		Weighted Average
	Shareholders (000s)		Common Shares		Per Share Amount
Quarter ended September 30, 2012
Basic earnings per common share	$	1,452		4,742,295	$	0.31
Effect of dilutive stock options		-		51,916
Effect of dilutive stock warrants		-		76,866
Diluted earnings per common share	$	1,452		4,871,077	$	0.30
Quarter ended September 30, 2011
Basic earnings per common share	$	1,328		4,697,256	$	0.28
Effect of dilutive stock options		-		38,402
Effect of dilutive stock warrants		-		-
Diluted earnings per common share	$	1,328		4,735,658	$	0.28

28

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


The following tables summarize earnings per share and the shares utilized in the computations for the nine months ended September 30, 2012 and 2011, respectively:

	Net Income
	Available to Common		Weighted Average
	Shareholders (000s)		Common Shares		Per Share Amount
Year-to-date, September 30, 2012
Basic earnings per common share	$	4,491		4,737,998	$	0.95
Effect of dilutive stock options		-		45,552
Effect of dilutive stock warrants		-		46,088
Diluted earnings per common share	$	4,491		4,829,638	$	0.93
Year-to-date, September 30, 2011
Basic earnings per common share	$	3,161		4,694,299	$	0.67
Effect of dilutive stock options		-		31,668
Effect of dilutive stock warrants		-		-
Diluted earnings per common share	$	3,161		4,725,967	$	0.67

Note 6.  Stock Based Compensation

The Company has two share-based compensation plans, which are described in the Company’s December 31, 2011 Annual Report on Form 10-K. The compensation cost that has been charged against income for those plans was approximately $188 and $189 for the nine-month periods ended September 30, 2012 and 2011, respectively.  The Company has no nonqualified stock options outstanding at September 30, 2012.

A summary of option activity during the three-month periods ended September 30, 2012 and 2011 is presented below: 

29

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


						Weighted Avg.				Weighted Avg.
	Options			Weighted Avg.		Grant Date		Aggregate		Contractual
September 30, 2012	Outstanding			Exercise Price		Fair Value		Intrinsic Value		Term
Balance at 12/31/11		221,290		$	8.59	$	2.74	$	62	5.28 years
Granted		5,300			6.96		3.12
Exercised		(1,000	)		3.41		1.10		4
Forfeited		(1,640	)		10.07		3.97
Expired		(13,100	)		5.33		0.51
Balance at 9/30/12		210,850			8.76		2.89		407	4.96 years
Exercisable at 9/30/12		156,638		$	9.99	$	3.26	$	181	4.19 years

September 30, 2011
Balance at 12/31/10	232,550		$	8.44	$	2.64	$	-	5.78 years
Granted	1,000			4.87		2.09
Forfeited	(760	)		5.82		2.24
Expired	(13,800	)		5.17		0.95
Balance at 9/30/11	218,990			8.64		2.75		44	5.40 years
Exercisable at 9/30/11	146,508		$	9.98	$	3.14	$	9	4.40 years

Cash received from options exercised under all share-based payment arrangements for the three and nine-months ended September 30, 2012 was $0 and $3, respectively.

Information regarding options vested during the three-month periods ended September 30, 2012 and 2011 are as follows:

	3 Months Ended					9 Months Ended
		9/30/2012		9/30/2011			9/30/2012		9/30/2011
Number of options vested:			460		1,470			11,080		12,290
Total grant date fair value of options vested		$	1	$	4		$	34	$	39

A summary of restricted stock activity during the nine-month period ended September 30, 2012 and 2011 is presented below:

	September 30, 2012					September 30, 2011
	Non-Vested			Weighted Average		Non-Vested			Weighted Average
	Restricted Stock			Grant Date		Restricted Stock			Grant Date
	Outstanding			Fair Value		Outstanding			Fair Value
Beginning balance outstanding		37,460		$	3.68		64,015		$	4.26
Granted		18,442			5.52		18,867			3.86
Vested		(30,172	)		4.95		(12,005	)		4.05
Forfeited		-			-		(300	)		4.05
Ending balance outstanding		25,730		$	3.51		70,577		$	4.19

Note 7.  Borrowings and Restricted Stock

Short-term Federal Home Loan Bank (“FHLB”) borrowings totaled $30.0 million at September 30, 2012 and $15.0 million at December 31, 2011.  Long-term FHLB borrowings totaled $28.0 million at September 30, 2012 and $28.0 million at December 31, 2011.

30

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Through the first nine months of 2012, interest expense on FHLB borrowings was $1.0 million, on junior subordinated debt was $299,000 and on fed funds purchased and securities sold under agreements to repurchase was $35,000.  In the same nine months of the prior year, interest expense on FHLB borrowings was $1.2 million, on junior subordinated debt was $281,000 and on fed funds purchased and securities sold under agreements to repurchase was $32,000.

Restricted stock, which represents a required investment in the common stock of a correspondent bank, is carried at cost, and as of September 30, 2012 and December 31, 2011, included the common stock of the FHLB, which is included in other assets.   Restricted stock totaled $5.1 million at September 30, 2012 and $4.9 million December 31, 2011.

Management evaluates the restricted stock for impairment in accordance with authoritative accounting guidance under ASC Topic 320, “Investments – Debt and Equity Securities.”  Management’s determination of whether these investments

are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of the cost of an investment is influenced by criteria such as (1) the significance of the decline in net assets of the issuing bank as compared to the capital stock amount for that bank and the length of time this situation has persisted, (2) commitments by the issuing bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of that bank, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuing bank.

The FHLB of Atlanta neither provides dividend guidance prior to the end of each quarter, nor conducts repurchases of excess activity-based stock on a daily basis, instead making such determinations quarterly.  The FHLB of Atlanta announced on October 30, 2012 that it approved a dividend at the rate of 2.43% for the third quarter of 2012 and will reinstitute daily repurchases of excess activity-based stock beginning November 19, 2012.

Based on evaluation of criteria under ASC Topic 320, management believes that no impairment charge in respect of the restricted stock is necessary as of September 30, 2012.

Note 8.  Fair Value

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability.  In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  Such valuation techniques are consistently applied.  Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.  Generally accepted accounting principles regarding fair value measurements, establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

31

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.  The determination of where an asset or liability falls in the hierarchy requires significant judgment.  The Company evaluates its hierarchy disclosures each quarter and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.  However, the Company expects changes in classifications between levels will be rare.

Securities:  Investment securities are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities.  Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds.  Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities.  Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans:  Other than the Company’s Held For Sale portfolio, the Company does not record loans at fair value on a recurring basis.  However, from time to time, a loan is considered impaired and an allowance for loan losses is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

At September 30, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the collateral.  Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Foreclosed assets:  Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.  Subsequently, foreclosed assets are carried at net realizable value.  Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011 are summarized below:

32

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


In thousands
September 30, 2012	Total		Level 1		Level 2		Level 3
Investment securities available-for-sale:
U.S. Government and federal agency	$	7,836	$	-	$	7,836	$	-
Government-sponsored enterprises		23,842		-		23,842		-
Mortgage-backed securities		76,106		-		76,106		-
Collateralized mortgage obligations		12,115		-		12,115		-
State and political subdivisions		22,968		-		22,968		-
Held for sale loans		972		-		972		-
Total assets at fair value	$	143,839	$	-	$	143,839	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

December 31, 2011
Investment securities available-for-sale:
U.S. Government and federal agency	$	2,772	$	-	$	2,772	$	-
Government-sponsored enterprises		38,842		-		38,842		-
Mortgage-backed securities		99,490		-		99,490		-
Collateralized mortgage obligations		15,390		-		15,390		-
State and political subdivisions		3,971		-		3,971		-
Held for sale loans		640		-		640		-
Total assets at fair value	$	161,105	$	-	$	161,105	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.  These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011 are included in the tables below:

In thousands
September 30, 2012	Total		Level 1		Level 2		Level 3
Impaired Loans:
Commercial	$	551	$	-	$	-	$	551
Residential Real Estate		2,370		-		-		2,370
Construction Real Estate		2,890		-		-		2,890
Total Impaired Loans	$	5,811	$	-	$	-	$	5,811
Foreclosed Assets		22,151		-		-		22,151
Total assets at fair value	$	27,962	$	-	$	-	$	27,962
Total liabilities at fair value	$	-	$	-	$	-	$	-

33

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


December 31, 2011
Impaired Loans:
Commercial	$	1,035	$	-	$	-	$	1,035
Commercial Real Estate		56		-		-		56
Residential Real Estate		1,228		-		-		1,228
Construction Real Estate		3,469		-		-		3,469
Total Impaired Loans	$	5,788	$	-	$	-	$	5,788
Foreclosed Assets		17,040		-		-		17,040
Total assets at fair value	$	22,828	$	-	$	-	$	22,828
Total liabilities at fair value	$	-	$	-	$	-	$	-

For level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

		Fair Value at		Significant	Significant
		September 30,	Valuation	Unobservable	Unobservable
		2012	Technique	Inputs	Input Value
Impaired Loans	$	5,811	Management estimate	Appraisals and/or sales of comparable properties	n/a
Foreclosed Assets	$	22,151	Management estimate	Appraisals and/or sales of comparable properties	n/a

Accounting standards for financial instruments require disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet.  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.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.  These accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The methodologies for estimating fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.  The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies.  The methodologies for other financial assets and liabilities are discussed below:

Loans:  For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair values are based on carrying values.  The fair values for other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.  An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.

Deposit liabilities:  The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date.  The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits.

Short-term borrowings:  The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and

34

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


other short-term borrowings maturing within 90 days approximate their fair values.  Fair values of other short-term borrowings are estimated using discounted cash flow analyses on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Federal Home Loan Bank of Atlanta advances:  The fair values of the Company’s Federal Home Loan Bank of Atlanta advances are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Junior Subordinated Debentures:   The values of the Company’s junior subordinated debentures are variable rate instruments that reprice on a quarterly basis; therefore, carrying value is adjusted for the three month repricing lag in order to approximate fair value.

Off-Balance-Sheet Financial Instruments:  The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At September 30, 2012, the fair value of loan commitments and stand-by letters of credit was immaterial.

					Quoted Prices
					in Active Markets		Significant		Significant
					for Identical Assets		Other Observable		Unobservable
September 30, 2012	Carrying		Approximate		or Liabilities		Inputs		Inputs
In thousands	Amounts		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets
Securities held-to-maturity	$	26,475	$	28,014	$	-	$	28,014	$	-
Loans, net		533,420		545,517		-		-		545,517
Financial liabilities
Time deposits/IRAs		149,161		150,334		-		150,334		-
FHLB borrowings		58,000		62,394		-		62,394		-
Junior subordinated debentures		16,496		16,362		-		16,362		-

December 31, 2011
In thousands
Financial assets
Securities held-to-maturity	$	28,770	$	29,723	$	-	$	29,723	$	-
Loans, net		498,936		506,971		-		-		506,971
Financial liabilities
Time deposits/IRAs		174,338		175,674		-		175,674		-
FHLB borrowings		43,000		47,301		-		47,301		-
Junior subordinated debentures		16,496		16,361		-		16,361		-

35

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Note 9.  Commitments and Contingencies

The federal income tax returns of the Company for 2009, 2010 and 2011 remain subject to examination by the IRS, generally for three years after they are filed.

Litigation

In the normal course of business the Bank may be involved in various legal proceedings.  Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business to meet the financing needs of its customers, the Company is a party to financial instruments with off-balance-sheet risk, which involve commitments to extend credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

Credit risk is defined as the possibility of sustaining a loss because the other parties to a financial instrument fail to perform in accordance with the terms of the contract.  The Bank’s maximum exposure to credit loss under commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.    At September 30, 2012 outstanding commitments to extend credit were $137,066 as compared to $130,637 at December 31, 2011.

Commitments to extend credit are agreements to lend to a customer as long as there is no breach of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Commitments may be at fixed or variable rates and generally expire within one year.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Derivative Financial Instruments

For asset/liability management purposes, we may use interest rate swap agreements to hedge interest rate risk exposure to declining rates.  Such derivatives are used as part of the asset/liability management process and are linked to specific assets, and have a high correlation between the contract and the underlying item being hedged, both at inception and throughout the hedge period.  Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flow of the items being hedged.  At September 30, 2012 and December 31, 2011 the Company did not have any derivative agreements related to interest rate hedging in place.

Note 10.  Regulatory Matters

Regulatory Agreement

The Federal Reserve Bank of Richmond (“Federal Reserve”) terminated the September 30, 2010 Written Agreement (“Written Agreement”) between the Company and the Federal Reserve on August 20, 2012.

36

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


Dividends

The Company's principal source of funds for dividend payments is dividends received from the Bank.  The amount of dividends that may be paid by the Bank to the Company will depend on the Bank’s earnings and capital position and is limited by state law, regulations and policies.  A state bank may not pay dividends from its capital; all dividends must be paid out of net undivided profits then on hand.  Before any dividend is declared, any deficit in capital funds originally paid in shall have been restored by earnings to their initial level, and no dividend shall be declared or paid by any bank which would impair the paid-in-capital of the bank.  As of September 30, 2012 and December 31, 2011, the amount available from the Bank’s retained earnings for payment of dividends was $35,810 and $30,246 respectively.  The Company is current on all dividend payments for the Series A Preferred Stock and current on all dividend payments on its Trust Preferred Securities.  Additionally, the Company declared a quarterly cash dividend of $0.035 per share, payable November 1, 2012 to common shareholders of record October 15, 2012.

Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of September 30, 2012 and December 31, 2011 that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2012 and December 31, 2011, the Company and the Bank were categorized as “well capitalized” as defined by applicable regulations.  To be categorized as “well capitalized”, the Company and Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below.  There are no conditions or events since that date that management believes have changed the Company's or the Bank's category.  The Company has received regulatory permission to redeem the first 10% increment of its TARP preferred stock through payment in the amount of $1,601,900 to the U. S. Treasury on November 14, 2012.  The Company's and the Bank's actual capital amounts and ratios are also presented in the table below.

													Minimum to be Well
							Minimum Required						Capitalized Under
							for Capital						Prompt Corrective
	Actual						Adequacy Purposes						Action Provisions
September 30, 2012		Amount		Ratio				Amount		Ratio				Amount		Ratio
Total Capital (to risk weighted assets):
Valley Financial Corporation		$	87,535		14.7	%		$	47,518		8.0	%		$	n/a		n/a
Valley Bank			83,885		14.1	%			47,499		8.0	%			59,374		10.0	%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation			80,096		13.5	%			23,759		4.0	%			n/a		n/a
Valley Bank			76,449		12.9	%			23,750		4.0	%			35,624		6.0	%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation			80,096		10.2	%			31,379		4.0	%			n/a		n/a
Valley Bank			76,449		9.8	%			31,344		4.0	%			39,180		5.0	%

37

VALLEY FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2012 (Unaudited)

(In thousands, except share and per share data)


December 31, 2011
Total Capital (to risk weighted assets):
Valley Financial Corporation	$	82,522	14.6	%	$	45,079	8.0	%	$	n/a	n/a
Valley Bank		77,939	13.9	%		44,940	8.0	%		56,175	10.0	%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation		75,446	13.4	%		22,540	4.0	%		n/a	n/a
Valley Bank		70,885	12.6	%		22,470	4.0	%		33,705	6.0	%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation		75,446	9.9	%		30,570	4.0	%		n/a	n/a
Valley Bank		70,885	9.3	%		30,480	4.0	%		38,100	5.0	%

Note 11.  Other Items

On September 27, 2012, the Company’s Board of Directors declared a quarterly cash dividend in the amount of $0.035 per share, payable on November 1, 2012 to common shareholders of record October 15, 2012.

On October 25, 2012, with regulatory permission, the Board of Directors authorized the Company's redemption of the first 10%, or $1,601,900, of its TARP preferred stock currently held by the U. S. Treasury. The payment will be made on November 14, 2012.

38

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

Management’s discussion and analysis of the financial condition and results of operations of the Company as of September 30, 2012 and December 31, 2011 and for the three and nine month periods ended September 30, 2012 and 2011 is as follows.  The discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Written Agreement with the Federal Reserve

The Federal Reserve Bank of Richmond (“Federal Reserve”) terminated the September 30, 2010 Written Agreement (“Written Agreement”) between the Company and the Federal Reserve on August 20, 2012.

Critical Accounting Estimates

General

The Company’s financial statements are prepared in accordance with Accounting Principles Generally Accepted in the United States (“GAAP”) and with general practices within the banking industry.  In connection with the application of those principles, we have made judgments and estimates, which in the case of the determination of our allowance for loan losses, deferred tax assets, and foreclosed assets have been critical to the determination of our financial position and results of operations.

Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimate requires management to make assumptions about matters that are highly uncertain and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements.

For a discussion on the Company’s critical accounting estimates, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Non-GAAP Financial Measures

The Company measures the net interest margin as an indicator of profitability. The net interest margin is calculated by dividing tax-equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax-equivalent net interest income is considered in the calculation of this ratio. Tax-equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for 2012 and 2011 is 34%. The reconciliation of tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below.

	Three months ended							Nine months ended
In thousands		9/30/2012			9/30/2011				9/30/2012			9/30/2011
Net interest income, non tax-equivalent		$	6,464		$	6,163			$	19,186		$	18,364
Less: tax-exempt interest income			(131	)		(134	)			(396	)		(447	)
Add: tax-equivalent of tax-exempt interest income			197			203				600			677
Net interest income, tax-equivalent		$	6,530		$	6,232			$	19,390		$	18,594

39

Results of Operations

Net Income

2012 Compared to 2011

Net income for the three-month period ending September 30, 2012 was $1,697,000 as compared to net income of $1,570,000 for the same period last year, an increase of $127,000 or 8%.  After the dividend on preferred stock and accretion of discounts on warrants, net income available to common shareholders was a record $1,452,000, or $0.30 per diluted common share, as compared to $1,328,000 or $0.28 per diluted common share for the third quarter of 2011, an increase of 7%.  The Company’s earnings for the third quarter of 2012 produced an annualized return on average total assets of 0.86% and an annualized return on average shareholders’ equity of 10.54%, as compared to 0.80% and 10.77%, respectively for the same period last year.  For the nine-month period ending September 30, 2012, net income available to common shareholders was $4,491,000 as compared to $3,161,000 for the same period last year, an increase of $1,330,000 or 42%.

2011 Compared to 2010

Net income for the three-month period ended September 30, 2011 was $1,570,000 as compared to net income of $1,048,000 for the same period in 2010, an increase of $522,000 or 50%.  After the dividend on preferred stock and accretion of discounts on warrants, net income available to common shareholders was $1,328,000, or $0.28 per diluted common share, as compared to $809,000 or $0.17 per diluted common share for the third quarter of 2010.  The Company’s earnings for the third quarter of 2011 produced an annualized return on average total assets of 0.80% and an annualized return on average shareholders’ equity of 10.77%, as compared to 0.54% and 7.66%, respectively for the same period last year.  For the nine-month period ending September 30, 2011, net income available to common shareholders was $3,161,000 or $0.67 per diluted common share as compared to $2,433,000 or $0.52 per diluted common share for the same period in 2010.

The following table shows our key performance ratios for the periods ended September 30, 2012, December 31, 2011 and September 30, 2011:

Key Performance Ratios(1)
	9 months ended			12 months ended			9 months ended
	9/30/2012			12/31/2011			9/30/2011
Return on average assets		0.89	%		0.73	%		0.66	%
Return on average equity(2)		11.21	%		9.88	%		9.10	%
Net interest margin(3)		3.55	%		3.39	%		3.40	%
Cost of funds		0.87	%		1.17	%		1.20	%
Yield on earning assets		4.41	%		4.54	%		4.58	%
Basic net earnings per common share	$	0.95		$	1.01		$	0.67
Diluted net earnings per common share	$	0.93		$	1.00		$	0.67

1. Ratios are annualized.

2. The calculation of ROE excludes the effect of any unrealized gains or losses on investment securities available-for-sale.

3. Calculated on a fully taxable equivalent basis (“FTE”).

Net Interest Income

The primary source of the Company’s banking revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets.  Earning assets include loans, securities, and federal funds sold.  Interest bearing liabilities include deposits and borrowings.  To compare the

40

tax-exempt yields to taxable yields, amounts are adjusted to pretax equivalents based on a 34% federal corporate income tax rate.

Net interest income is affected by changes in interest rates, volume of interest bearing assets and liabilities, and the composition of those assets and liabilities.  The “interest rate spread” and “net interest margin” are two common statistics related to changes in net interest income.  The interest rate spread represents the difference between the yields earned on interest earning assets and the rates paid for interest bearing liabilities.  The net interest margin is defined as the percentage of net interest income to average earning assets.  Earning assets obtained through noninterest bearing sources of funds such as regular demand deposits and shareholders’ equity result in a net interest margin that is higher than the interest rate spread.

2012 Compared to 2011

Net interest income for the three-month period ended September 30, 2012 was $6,464,000, a $301,000 or 5% increase when compared to the $6,163,000 reported for the same period in 2011.  The Company’s net interest margin, at 3.58%, increased by 17 basis points over the 3.41% reported for the same quarter last year.  In comparison to the linked quarter, the Company’s net interest margin increased by 1 basis point over the 3.57% reported for the second quarter of 2012.  Net interest income for the nine-month period ended September 30, 2012 was $19,186,000, an $822,000 or 5% increase when compared to the $18,364,000 reported for the same period in 2011.

The increase in net interest income and corresponding increase in net interest margin was primarily attributable to the reduction in funding costs over the previous 12 months.  The Company’s cost of funds was 0.80% during the three-month period ended September 30, 2012 compared to the 1.13% reported in the same period last year.  Decreased rates on our Prime Money Market accounts and more aggressive pricing on time deposits have led to the decrease in funding costs.  The Company’s yield on earning assets declined to 4.36% in comparison to the 4.52% yield from the same prior year period and the 4.39% yield earned in the linked quarter.  We believe that continued margin expansion will be difficult due to the downward pressure we are seeing on yields in both our loan and investment portfolio.

2011 Compared to 2010

Net interest income for the three-month period ended September 30, 2011 was $6,163,000, a $1,085,000 or 21% increase when compared to the $5,078,000 reported for the same period in 2010.  The Company’s net interest margin increased by 59 bps to 3.41% compared to the 2.82% reported for the third quarter of 2010.  Net interest income for the nine-month period ended September 30, 2011 was $18,364,000, a $3,109,000, or 20% increase when compared to the $15,255,000 reported for the same period in 2010.

Noninterest Income

2012 Compared to 2011

Noninterest income for the three-month period ended September 30, 2012 was $1,189,000, a decrease of $184,000 or 13% compared to the $1,373,000 for the same period last year.  However, included in the current and prior year results were gains taken on the sale of securities totaling $118,000 and $541,000, respectively.  Absent these gains, noninterest income improved $239,000 or 29%, led by the Company’s mortgage division and an increase in service charges on deposit accounts.  Mortgage fee income increased $92,000 or 137% while service charge income increased $77,000 or 21%.  Noninterest income for the nine-month period ended September 30, 2012 was $3,211,000, a $23,000 or 1% increase when compared to the $3,188,000 reported for the same period in 2011.  Excluding realized gains on the sale of securities, noninterest income has risen by $882,000, or 41% as compared to the same period last year.  For the nine-month period, results were impacted by increases in the Company’s wealth management and mortgage divisions, which outperformed the prior year’s nine-month totals by $316,000 and $289,000 respectively.

2011 Compared to 2010

Noninterest income for the three-month period ended September 30, 2011 was $1,373,000, an increase of $497,000, or 57%, compared to the $876,000 for the same period in 2010.  The third quarter of 2011 included $541,000 in realized gains from the sale of securities compared to $0 in the same prior in 2010.  The Company recorded $110,000 in gains

41

from partnership interests in the third quarter of 2010 compared to $0 in the three months ended September 30, 2011.  Excluding these nonrecurring items, noninterest income would have totaled $832,000, an increase of $66,000, or 9%, from the same period in 2010.  In comparison to third quarter of 2010, brokerage fee income increased $65,000, or 53% and mortgage fee income decreased $20,000, or 23%.  For the nine-month period ended September 30, 2011, noninterest income was $3,188,000, an increase of $1,116,000, or 54%, compared to the $2,072,000 in the same period in 2010.  Excluding realized gains on the sale of securities and partnership interests, noninterest income would have totaled $2,171,000, an increase of $162,000, or 8%, from the same period in 2010.

Noninterest Expense

2012 Compared to 2011

Noninterest expense for the three-month period ended September 30, 2012 was $5,214,000, a decrease of $128,000, or 2%, compared to the $5,342,000 recorded in same period last year.  The Company’s efficiency ratio for the third quarter of 2012 was 66.8%, as compared to 69.6% for the same period last year.  Specific items to note are as follows:

· Insurance expense decreased $212,000 or 48%;

· Professional fees decreased by $125,000 or 30% due to reduced legal expenses;

· Net foreclosed asset expense decreased by $104,000 or 18% due to reduced impairment losses taken on its foreclosed asset portfolio during the third quarter of 2012 as compared to 2011;

· Compensation expense increased by $257,000 as a result of equity and merit increases for all employees which went into effect January 1, 2012, increased commissions in our Mortgage and Valley Wealth Management areas and increased incentive and profit sharing accruals based upon the Company’s performance year-to-date;

· Occupancy and equipment expense increased by $35,000 or 10% due increased rental expenses as a result of expansion of office space in our downtown location; and

· Data processing expense increased $49,000 or 19% due to increased online banking usage (73% increase in number of online banking users) and the addition of new fraud prevention software for monitoring customer transactions.

Noninterest expense for the nine-month period ended September 30, 2012 was $14,926,000, an $888,000 or 6% decrease when compared to the $15,814,000 reported for the same period in 2011.

2011 Compared to 2010

Noninterest expense for the three-month period ended September 30, 2011 was $5,342,000, an increase of $1,062,000, or 25%, compared to $4,280,000 in the same period of 2010.  The Company’s efficiency ratio improved slightly for the quarter to 69.6% as compared to 69.7% for the same quarter in the prior year.  Specific items to note are as follows:

· Compensation expense increased $416,000 due to year-end profit sharing accruals as well as increased pension costs and merit, equity, and promotional increases that went into effect during 2011;

· Net foreclosed asset expense increased by $398,000 due to increased write-downs on foreclosed assets as compared to the same period in 2010;

· The $158,000 increase in insurance expense is attributable to FDIC insurance premiums; and

· Professional fees increased $110,000 due primarily to litigation costs incurred.

Noninterest expense for the nine-month period ended September 30, 2011 was $15,814,000, an increase of $2,998,000, or 23%, compared to $12,816,000 in the same period in 2010.  The primary increases in noninterest expense were in compensation, foreclosed asset, legal and FDIC insurance expenses.

42

Asset Quality

Summary of Allowance for Loan Losses

2012 Compared to 2011

The allowance for loan losses (“ALLL”) was $8,548,000 as of September 30, 2012, compared to $9,650,000 as of December 31, 2011 and $10,013,000 reported a year earlier.  The ratio of the allowance for loan losses to total loans outstanding was approximately 1.58% at September 30, 2012, which compares to approximately 1.90% of total loans at December 31, 2011 and 1.96% of total loans at September 30, 2011.  A total of $2,210,000 in specific reserves was included in the balance of the allowance for loan losses as of September 30, 2012 for impaired loans, which compares to a total of $2,099,000 as of December 31, 2011 and $1,048,000 at September 30, 2011.  Total reserves represented 100% of the non-accrual loan balances as of September 30, 2012, as compared to 106% reported in the same period last year.

The Company recorded no provision for loan losses during the third quarter of 2012 compared to a net provision expense of $164,000 in the same period last year.  Net charge-offs as a percentage of average loans receivable was 0.08% for the third quarter of 2012, compared to 0.09% for the same quarter in the prior year.  Net charge-offs were $443,000 for the quarter ended September 30, 2012 in comparison to $450,000 for the same quarter one year ago.

We have been successful in gradually reducing the level of the allowance for loan losses needed over the past 12-18 months based upon our significantly reduced level of charge-offs, reduction in overall watch list credits, reduction in non-accrual loans, as well as an overall reduction in new credits migrating to watch list or impaired status during this period.  While we reserved no provision for loan losses in the third quarter, we did see an increase in nonaccrual loans during the quarter and we may need to make additional provisions in the future if we see additional increases in this category.

We believe the allowance for loan losses is adequate to provide for expected losses in the loan portfolio, but there are no assurances that it will be.

2011 Compared to 2010

The allowance for loan losses was $10,013,000 as of September 30, 2011, compared to $11,003,000 as of December 31, 2010 and $10,669,000 reported as of September 30, 2010.  The ratio of the allowance for loan losses to total loans outstanding was approximately 1.96% at September 30, 2011, which compares to approximately 2.02% of total loans at December 31, 2010 and 1.98% of total loans at September 30, 2010.  A total of $1,048,000 in specific reserves was included in the balance of the allowance for loan losses as of September 30, 2011 for impaired loans, which compares to a total of $1,280,000 as of December 31, 2010 and $1,018,000 at September 30, 2010.

The Company recorded provision for potential loan losses of $164,000 for the third quarter of 2011, a decrease of $68,000 as compared to the same period in 2010.  Total reserves represented 94% of the non-accrual loan balances as of September 30, 2011, decreased from the 103% coverage of non-accrual loans as of June 30, 2011 but a significant increase from the 65% reported as of September 30, 2010.

Non-Performing Assets

Non-performing assets include nonaccrual loans, loans past due 90 days or more, restructured loans and foreclosed/ repossessed property.  A loan will be placed on nonaccrual status when collection of all principal or interest is deemed unlikely.  A loan will be placed on nonaccrual status automatically when principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of being collected.  In this case, the loan will continue to accrue interest despite its past due status.

A restructured loan is a loan in which the original contract terms have been modified due to a borrower’s financial condition or there has been a transfer of assets in full or partial satisfaction of the loan.  A modification of original contractual terms is generally a concession to a borrower that a lending institution would not normally consider.

43

Based on generally accepted accounting standards for receivables, a loan is impaired when, based on current information and events, it is likely that a creditor will be unable to collect all amounts, including both principal and interest, due according to the contractual terms of the loan agreement.

The Company’s ratio of non-performing assets as a percentage of total assets increased 11 basis points to 4.44% as compared to 4.33% one year earlier and increased 45 basis points from the 3.99% reported at June 30, 2012.  The uptick in non-performing assets during the third quarter is primarily attributable to one relationship moving to nonaccrual status and the increase in loans past due 90 days or more.  These loans have been evaluated individually for potential loss exposure and we determined that new specific reserves in the amount of $550,000 were needed for these relationships at September 30, 2012.  Due to the substantial reduction in charge-offs during our 8-quarter look-back period as compared to the June 30, 2012 analysis, the additional specific reserves were offset by a reduction in our general reserves..

Nonperforming assets at September 30, 2012, December 31, 2011 and September 30, 2011 are presented in the following table:

Nonperforming Assets
In thousands	9/30/2012		12/31/2011		9/30/2011
Nonaccrual loans	$	8,547	$	8,638	$	9,412
Loans past due 90 days or more		876		4		3,124
Restructured loans		3,324		2,305		2,187
Total nonperforming loans	$	12,747	$	10,947	$	14,723
Foreclosed, repossessed and idled properties		22,151		17,040		17,915
Total nonperforming assets	$	34,898	$	27,987	$	32,638

If nonaccrual loans had performed in accordance with their original terms, additional interest income would have been recorded in the amount of $253,000 for the nine months ended September 30, 2012; $550,000 for the year ended December 31, 2011; and $437,000 for the nine months ended September 30, 2011.

Higher Risk Loans

Certain types of loans, such as option ARM products, interest-only loans, subprime loans, and loans with initial teaser rates, can have a greater risk of non-collection than other loans.  We do not offer option ARM, interest-only, or subprime mortgage loans.

Junior-lien mortgages can also be considered higher risk loans and our junior lien portfolio currently consists of balances totaling $24,043,000 (4.4% of total portfolio) at September 30, 2012.  Loans included in this category that were initially made with high loan-to-value ratios of 100% or greater have current balances totaling $1,397,000 at September 30, 2012.  Since 2003, we have experienced net charge-offs totaling $830,000 in junior lien mortgages.

Financial Condition

Total assets at September 30, 2012 were $785,292,000, up $11,788,000 or 2% from $773,504,000 at December 31, 2011.  The principal components of the Company’s assets at the end of the period were $22,134,000 in cash and cash equivalents, $142,867,000 in securities available-for-sale, $26,475,000 in securities held-to-maturity and $541,968,000 in gross loans.  Total assets at December 31, 2011 were $773,504,000 with the principal components consisting of $30,724,000 in cash and cash equivalents, $160,465,000 in securities available-for-sale, $28,770,000 in securities held-to-maturity and $508,586,000 in gross loans.

44

Total liabilities at September 30, 2012 were $719,116,000, up from $713,391,000 at December 31, 2011, an increase of $5,725,000 or 1%.  Deposits decreased $13,161,000 or 2% to $617,547,000 from the $630,708,000 level at December 31, 2011 while FHLB advances increased $15,000,000 to $53,000,000 at September 30, 2012.  Total shareholders’ equity at September 30, 2012 was $66,176,000, up from $60,113,000 at December 31, 2011, an increase of $6,063,000 or 10%.  Likewise, the Company’s book value per share increased by 13% from $8.98 at December 31, 2011 to $10.19 at September 30, 2012.

During the past 12 months, the Company has experienced gross loan growth of $33,382,000 or 7%.  This growth has been funded through a combination of a reduction in excess cash, cash flows and sales from our investment portfolio and an increase in FHLB advances.  With our current loan to deposit ratio close to our internal maximum threshold of 90% , we will be focused on raising new core deposits in the coming months.

Capital Adequacy

The management of capital in a regulated financial services industry must properly balance return on equity to shareholders while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements.  The Company’s capital management strategies have been developed to provide attractive rates of returns to shareholders, while maintaining its “well-capitalized” position at the banking subsidiary.

The primary source of additional capital to the Company is earnings retention, which represents net income less dividends declared.    The Company is current on all dividend payments for the Series A Preferred Stock.  With the Company’s improved capital levels, the Company’s Board of Directors declared a quarterly cash dividend in the amount of $0.035 per share, payable November 1, 2012 to common shareholders of record October 15, 2012.  Additionally, the Company will make its first TARP redemption payment in the amount of $1,601,900 on November 14, 2012.  The Company currently expects to make quarterly redemptions during 2013 of similar amounts, based on its earnings, financial condition and obtaining continued regulatory permission.

The Company and its banking subsidiary also are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the subsidiary bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action under the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), the Company and its banking subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its banking subsidiary to maintain minimum amounts and ratios of total and Tier 1 capital to average assets.  As of September 30, 2012 and December 31, 2011, the Company and the subsidiary bank met all minimum capital adequacy requirements to which they are subject and are categorized as “well capitalized”.  These capital amounts and ratios are included in Note 10 of the consolidated financial statements incorporated by reference herein.

Interest Rate Risk

Interest rate risk is the exposure to fluctuations in the Company’s future earnings (earnings at risk) and value (economic value at risk) resulting from changes in interest rates.  This exposure results from differences between the amounts of interest earning assets and interest bearing liabilities that reprice within a specified time period as a result of scheduled maturities and repayment and contractual interest rate changes.  At September 30, 2012 the Company is asset sensitive as simulation results indicate that net interest income would rise by approximately 2% if rates were to rise 200 basis points.

For a further discussion on interest rate risks, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

45

Liquidity

One of the principal goals of the Bank’s asset and liability management strategy is to maintain adequate liquidity.  Liquidity measures our ability to meet our maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund our operations and to provide for customers’ credit needs.  Liquidity represents a financial institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds from alternative funding sources.  We sell excess funds overnight to provide an immediate source of liquidity and as of September 30, 2012 we had a total of $12,360,000 in overnight funds at the Reserve Bank.   Overnight cash maintained in interest-bearing accounts averaged $8,319,000 in the third quarter of 2012 compared to an average of $35,316,000 during the same period last year and compared to an average of $24,090,000 in the second quarter of 2012.  The Company also maintains approved lines of credit with correspondent banks as backup liquidity sources.

The secondary liquidity source for both short-term and long-term borrowings consists of a secured line of credit from the Federal Home Loan Bank (“FHLB”).  At September 30, 2012, the line of credit had $58,000,000 outstanding under a total available line of $86,001,000.  Borrowings from the FHLB are secured by a blanket collateral agreement on a pledged portion of the Bank’s 1-4 family residential real estate loans, multifamily mortgage loans, and commercial mortgage collateral.  Additionally, we have an established line of credit with the Reserve Bank’s Discount Window that had no outstanding balance under a total available line of $59,871,000 at September 30, 2012.  Borrowings from the FRB Discount Window are secured by a collateral agreement on a pledged portion of the Bank’s commercial and real estate construction collateral.

The Company maintains a liquidity policy as a means to manage liquidity and the associated risk.  The policy includes a Liquidity Contingency Plan (“the Liquidity Plan”) that is designed as a tool for the Company to detect liquidity issues in order to protect depositors, creditors and shareholders.  The Liquidity Plan includes monitoring various internal and external indicators such as changes in core deposits and changes in the market conditions.  It provides for timely responses to a wide variety of funding scenarios ranging from changes in loan demand to a decline in the Company’s quarterly earnings to a decline in market price of the Company’s stock.  The Liquidity Plan calls for specific responses designed to meet a wide range of liquidity needs based upon assessments that are performed on a recurring basis by the Company and its Board of Directors.

As a result of our management of liquid assets and our ability to generate liquidity through alternative funding sources, we believe we maintain overall liquidity sufficient to meet our depositors’ requirements and satisfy our customers’ credit needs.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4.  Controls and Procedures.

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.  There has not been any change in our internal control over financial reporting that occurred during the last quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

46

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events.  There can be no assurance that any design will succeed in achieving its stated goal under every potential condition, regardless of how remote.  In addition, the operation of any system of controls and procedures is dependent upon the employees responsible for executing it.  While we have evaluated the operation of our disclosure controls and procedures and found them effective, there can be no assurance that they will succeed in every instance to achieve their objective.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

In the normal course of business the Bank may be involved in various legal proceedings.  Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

Item 1A.  Risk Factors.

There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2011.

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

There were no unregistered sales of equity securities during the quarter.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits

Exhibit Number	Description
31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

47

101 Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2012, is formatted in XBRL interactive data files:  (i) Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011; (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated Balance Sheets at September 30, 2012 and December 31, 2011; (iv) Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2012 and 2011; and (v) Notes to Consolidated Financial Statements.

*  Filed herewith.

48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	VALLEY FINANCIAL CORPORATION
November 14, 2012	/s/ Ellis L. Gutshall
Date	Ellis L. Gutshall, President and Chief Executive Officer
November 14, 2012	/s/ Kimberly B. Snyder
Date	Kimberly B. Snyder, Executive Vice President and
	Chief Financial Officer

49

EXHIBIT INDEX

Exhibit Number	Description
31.1	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2012, is formatted in XBRL interactive data files:  (i) Consolidated Statements of Income for the three and nine months ended September 30, 2012 and 2011; (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and 2011; (iii) Consolidated Balance Sheets at September 30, 2012 and December 31, 2011; (iv) Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2012 and 2011; and (v) Notes to Consolidated Financial Statements.

*  Filed herewith.

50

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Ellis L. Gutshall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valley Financial Corporation;

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

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

4. The registrant’s other certifying officer and I 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 registrant 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent 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 registrant’s ability to record, process, summarize and report financial information; and

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

Date: November 14, 2012	By:	/s/ Ellis L. Gutshall
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

 I, Kimberly B. Snyder, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valley Financial Corporation;

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

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

4. The registrant’s other certifying officer and I 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 registrant 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 registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent 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 registrant’s ability to record, process, summarize and report financial information; and

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

Date: November 14, 2012	By:	/s/ Kimberly B. Snyder
		Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS

The undersigned, as the Chief Executive Officer of Valley Financial Corporation, certifies that the Form 10-Q for the quarter ended September 30, 2012, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Valley Financial Corporation at the dates and for the periods indicated.  The foregoing certification is made solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code and is subject to the knowledge and willfulness qualifications contained in Title 18, Chapter 63, Section 1350(c).

Date: November 14, 2012	By:	/s/ Ellis L. Gutshall
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATIONS

The undersigned, as the Chief Financial Officer of Valley Financial Corporation, certifies that the Form 10-Q for the quarter ended September 30, 2012, which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Valley Financial Corporation at the dates and for the periods indicated.  The foregoing certification is made solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code and is subject to the knowledge and willfulness qualifications contained in Title 18, Chapter 63, Section 1350(c).

Date: November 14, 2012	By:	/s/ Kimberly B. Snyder
		Chief Financial Officer

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of General Valuation Allowances For Credit Risk) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Credit concentration risk - large relationships	$ 8.0	$ 8.0
Low [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Levels and trends in credit quality	0.20%	0.20%
Trends in volume of loans	1.00%	0.00%
Experience, ability, and depth of lending management and staff	0.00%	0.00%
Local economic trends and conditions	0.25%	0.25%
Credit concentration risk	0.00%	0.00%
Current industry conditions/general economic conditions	0.05%	0.10%
Commercial Real Estate Devaluation	0.15%	0.15%
Residential Real Estate Devaluation	0.15%	0.15%
Credit concentration risk - large relationships > $8 Million	0.30%	0.60%
High [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Levels and trends in credit quality	0.30%	0.30%
Trends in volume of loans	1.50%	0.10%
Experience, ability, and depth of lending management and staff	0.05%	0.05%
Local economic trends and conditions	0.35%	0.35%
Credit concentration risk	0.05%	0.05%
Current industry conditions/general economic conditions	0.10%	0.15%
Commercial Real Estate Devaluation	0.25%	0.25%
Residential Real Estate Devaluation	0.25%	0.25%
Credit concentration risk - large relationships > $8 Million	0.60%	0.90%

XML

Commitments And Contingencies (Details) (Commitments To Extend Credit [Member], USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Outstanding commitments	$ 137,066	$ 130,637

XML

Stock Based Compensation (Summary Of Restricted Stock Activity) (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Stock Based Compensation [Abstract]
Non-Vested Restricted Stock Outstanding, Beginning balance	37,460	64,015
Non-Vested Restricted Stock Outstanding, Granted	18,442	18,867
Non-Vested Restricted Stock Outstanding, Vested	(30,172)	(12,005)
Non-Vested Restricted Stock Outstanding, Forfeited		(300)
Non-Vested Restricted Stock Outstanding, Ending balance	25,730	70,577
Weighted Average Grant Date Fair Value, Beginning balance	$ 3.68	$ 4.26
Weighted Average Grant Date Fair Value, Granted	$ 5.52	$ 3.86
Weighted Average Grant Date Fair Value, Vested	$ 4.95	$ 4.05
Weighted Average Grant Date Fair Value, Forfeited		$ 4.05
Weighted Average Grant Date Fair Value, Ending balance	$ 3.51	$ 4.19

XML

Regulatory Matters (Narrative) (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Regulatory Matters [Line Items]
Amount available from the Bank's retained earnings for payment of dividends	$ 35,810,000	$ 30,246,000
TARP [Member]
Regulatory Matters [Line Items]
Redemption amount	1,601,900
Series A Preferred Stock [Member]
Regulatory Matters [Line Items]
Redemption amount	$ 1,601,900

XML

Stock Based Compensation (Summary Of Stock Options Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Stock Based Compensation [Abstract]
Options Outstanding, Beginning Balance	221,290	232,550
Options Outstanding, Granted	5,300	1,000
Options Outstanding, Exercised	(1,000)
Options Outstanding, Forfeited	(1,640)	(760)
Options Outstanding, Expired	(13,100)	(13,800)
Options Outstanding, Ending Balance	210,850	218,990
Options Outstanding, Exercisable	156,638	146,508
Weighted Average Exercise Price, Beginning Balance	$ 8.59	$ 8.44
Weighted Average Exercise Price, Granted	$ 6.96	$ 4.87
Weighted Average Exercise Price, Exercised	$ 3.41
Weighted Average Exercise Price, Forfeited	$ 10.07	$ 5.82
Weighted Average Exercise Price, Expired	$ 5.33	$ 5.17
Weighted Average Exercise Price, Ending Balance	$ 8.76	$ 8.64
Weighted Average Exercise Price, Exercisable	$ 9.99	$ 9.98
Weighted Average Grant Date Fair Value, Beginning Balance	$ 2.74	$ 2.64
Weighted Average Grant Date Fair Value, Granted	$ 3.12	$ 2.09
Weighted Average Grant Fair Value, Exercised	$ 1.10
Weighted Average Grant Date Fair Value, Forfeited	$ 3.97	$ 2.24
Weighted Average Grant Date Fair Value, Expired	$ 0.51	$ 0.95
Weighted Average Grant Date Fair Value, Ending Balance	$ 2.89	$ 2.75
Weighted Average Grant Date Fair Value, Exercisable	$ 3.26	$ 3.14
Intrinsic Value of Options Exercised, Beginning Balance	$ 62
Aggregate Intrinsic Value, Exercised	4
Aggregate Intrinsic Value of Options Exercised, Ending Balance	407	44
Aggregate Intrinsic Value of Options Exercised, Exercisable	$ 181	$ 9
Weighted Average Contractual Term, Beginning Balance	5 years 3 months 11 days	5 years 9 months 11 days
Weighted Average Contractual Term, Ending Balance	5 years 2 months 16 days	5 years 7 months 28 days
Weighted Average Contractual Term, Exercisable	4 years 5 months 5 days	4 years 7 months 17 days

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Aging Of Past Due Loans Receivable By Portfolio Segment) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	$ 1,999	$ 2,323
60 - 89 Days Past Due	2,882	1,877
Greater than 90 Days	7,483	7,583
Total Past Due	12,364	11,783
Current	529,604	496,803
Total Loans	541,968	508,586
Recorded Investment > 90 Days and Accruing	876	4
Commercial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	176	93
60 - 89 Days Past Due	586	813
Greater than 90 Days	557	1,957
Total Past Due	1,319	2,863
Current	89,678	84,848
Total Loans	90,997	87,711
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	263,242	257,578
Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	865	1,265
60 - 89 Days Past Due	1,223	495
Greater than 90 Days	884	1,012
Total Past Due	2,972	2,772
Current	112,116	110,697
Total Loans	115,088	113,469
Recorded Investment > 90 Days and Accruing	476
Income Producing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days		808
Total Past Due		808
Current	129,584	129,333
Total Loans	129,584	130,141
Multifamily [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	18,570	13,968
Total Loans	18,570	13,968
Construction Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	46,478	36,081
Construction Real Estate - 1 - 4 Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Greater than 90 Days	289
Total Past Due	289
Current	23,175	11,171
Total Loans	23,464	11,171
Construction Real Estate - Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
60 - 89 Days Past Due		569
Greater than 90 Days	4,674	3,713
Total Past Due	4,674	4,282
Current	16,808	19,266
Total Loans	21,482	23,548
Construction Real Estate - Farmland [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	1,532	1,362
Total Loans	1,532	1,362
Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	136,245	122,450
Residential Real Estate - Equity Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	124	164
Greater than 90 Days	400
Total Past Due	524	164
Current	29,227	30,241
Total Loans	29,751	30,405
Recorded Investment > 90 Days and Accruing	400
Residential Real Estate - 1 -4 Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	811	775
60 - 89 Days Past Due	981
Greater than 90 Days	676	93
Total Past Due	2,468	868
Current	96,706	86,284
Total Loans	99,174	87,152
Residential Real Estate - Junior Liens [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due		1
60 - 89 Days Past Due	88
Total Past Due	88	1
Current	7,232	4,892
Total Loans	7,320	4,893
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	4,648	4,314
Consumer & Credit Cards [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due	23	10
60 - 89 Days Past Due	3
Total Past Due	26	10
Current	1,529	1,345
Total Loans	1,555	1,355
Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days Past Due		15
60 - 89 Days Past Due	1
Greater than 90 Days	3
Total Past Due	4	15
Current	3,089	2,944
Total Loans	3,093	2,959
Recorded Investment > 90 Days and Accruing		4
Deferred Loan Fees Net [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	358	452
Total Loans	$ 358	$ 452

XML

Other Items (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Dividends Payable [Line Items]
Quarterly common stock dividend declared	$ 0.035
Quarterly common stock dividend, Payable date	Nov. 01, 2012
Quarterly common stock dividend, Record date	Oct. 15, 2012
TARP [Member]
Dividends Payable [Line Items]
Percent of preferred stock redemption	10.00%
Redemption amount	$ 1,601,900

XML

Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2012

Regulatory Matters [Abstract]

Schedule Of Company's And The Bank's Actual Capital Amounts And Ratios

								Minimum to be Well
				Minimum Required				Capitalized Under
				for Capital				Prompt Corrective
	Actual			Adequacy Purposes				Action Provisions
September 30, 2012		Amount	Ratio			Amount	Ratio			Amount	Ratio
Total Capital (to risk weighted assets):
Valley Financial Corporation	$	87,535	14.7%		$	47,518	8.0%		$	n/a	n/a
Valley Bank		83,885	14.1%			47,499	8.0%			59,374	10.0%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation		80,096	13.5%			23,759	4.0%			n/a	n/a
Valley Bank		76,449	12.9%			23,750	4.0%			35,624	6.0%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation		80,096	10.2%			31,379	4.0%			n/a	n/a
Valley Bank		76,449	9.8%			31,344	4.0%			39,180	5.0%

December 31, 2011
Total Capital (to risk weighted assets):
Valley Financial Corporation	$	82,522	14.6%	$	45,079	8.0%	$	n/a	n/a
Valley Bank		77,939	13.9%		44,940	8.0%		56,175	10.0%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation		75,446	13.4%		22,540	4.0%		n/a	n/a
Valley Bank		70,885	12.6%		22,470	4.0%		33,705	6.0%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation		75,446	9.9%		30,570	4.0%		n/a	n/a
Valley Bank		70,885	9.3%		30,480	4.0%		38,100	5.0%

XML

Fair Value (Schedule Of Assets And Liabilities Recorded At Fair Value On A Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	$ 143,839	$ 161,105
U.S. Government And Federal Agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	7,836	2,772
Government-Sponsored Enterprises [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	23,842	38,842
Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	76,106	99,490
Collateralized Mortgage Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	12,115	15,390
States And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	22,968	3,971
Held For Sale Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	972	640
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	143,839	161,105
Level 2 [Member] | U.S. Government And Federal Agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	7,836	2,772
Level 2 [Member] | Government-Sponsored Enterprises [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	23,842	38,842
Level 2 [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	76,106	99,490
Level 2 [Member] | Collateralized Mortgage Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	12,115	15,390
Level 2 [Member] | States And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	22,968	3,971
Level 2 [Member] | Held For Sale Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets at fair value, Recurring	$ 972	$ 640

XML

Loans And Allowance For Loan And Lease Losses (Trouble Debt Restructurings) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2011 contract	Sep. 30, 2012 contract	Sep. 30, 2011 contract
Financing Receivable, Modifications [Line Items]
Number of Contracts	1	1	11
Pre-Modification Outstanding Recorded Investment	$ 60	$ 4,496	$ 2,090
Post-Modification Outstanding Recorded Investment	60	2,369	2,191
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts			1
Pre-Modification Outstanding Recorded Investment			192
Post-Modification Outstanding Recorded Investment			192
Construction Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		1	3
Pre-Modification Outstanding Recorded Investment		4,496	935
Post-Modification Outstanding Recorded Investment		2,369	1,004
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	1		7
Pre-Modification Outstanding Recorded Investment	60		963
Post-Modification Outstanding Recorded Investment	$ 60		$ 995

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Risk Based On Payment Activity) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 138,967	$ 126,310
Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,926	454
Residential Real Estate [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	134,322	122,003
Residential Real Estate [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,923	447
Residential Real Estate - Equity Lines [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	29,689	30,341
Residential Real Estate - Equity Lines [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	62	64
Residential Real Estate - 1 -4 Family [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	97,359	86,818
Residential Real Estate - 1 -4 Family [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,815	334
Residential Real Estate - Junior Liens [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	7,274	4,844
Residential Real Estate - Junior Liens [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	46	49
Consumer [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	4,645	4,307
Consumer [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	3	7
Consumer & Credit Cards [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,555	1,351
Consumer & Credit Cards [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total		4
Other [Member] | Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	3,090	2,956
Other [Member] | Non-Performing, Risk Based On Payment Activity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 3	$ 3

XML

Fair Value (Level 3 Assets And Liabilities Measured At Fair Value On Recurring Or Non-Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreclosed Assets, Fair Value	$ 22,151	$ 17,040
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Loans, Fair Value	5,811
Foreclosed Assets, Fair Value	$ 22,151	$ 17,040
Impaired Loans, Valuation Technique	Management estimate
Foreclosed Assets, Valuation Technique	Management estimate
Impaired Loans, Significant Unobservable Inputs	Appraisals and/or sales of comparable properties
Foreclosed Assets, Significant Unobservable Inputs	Appraisals and/or sales of comparable properties

XML

Stock Based Compensation (Schedule Of Information Regarding Options Vested) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock Based Compensation [Abstract]
Number of options vested	460	1,470	11,080	12,290
Total grant date fair value of options vested	$ 1	$ 4	$ 34	$ 39

XML

Loans And Allowance For Loan And Lease Losses

9 Months Ended

Sep. 30, 2012

Loans And Allowance For Loan And Lease Losses [Abstract]

Loans And Allowance For Loan And Lease Losses

Note 3.  Loans and Allowance for Loan and Lease Losses

The major components of loans in the consolidated balance sheets at September 30, 2012 and December 31, 2011 are as follows:

In thousands		9/30/2012		12/31/2011
Commercial	$	90,997	$	87,711
Real estate:
Commercial real estate		263,242		257,578
Construction real estate		46,478		36,081
Residential real estate		136,245		122,450
Consumer		4,648		4,314
Deferred loan fees, net		358		452
Gross loans		541,968		508,586
Allowance for loan losses		(8,548)		(9,650)
Net loans	$	533,420	$	498,936

Substantially all one-four family residential and commercial real estate loans collateralize the line of credit available from the Federal Home Loan Bank and substantially all commercial and construction loans collateralize the line of credit with the Federal Reserve Bank of Richmond Discount Window.  The aggregate amount of deposit overdrafts that have been reclassified as loans and included in the consumer category in the above table as of September 30, 2012 and December 31, 2011 was $388 and $74, respectively.

Loan Origination.  The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a periodic basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate market or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus income producing loans. At September 30, 2012, approximately 44% of the outstanding principal balance of the Company’s commercial real estate loans was secured by owner-occupied properties and 49% was secured by income-producing properties.

With respect to construction and development loans that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by recurring on-site inspections during the construction phase and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential real estate loans are secured by deeds of trust on 1-4 family residential properties.  The Bank also serves as a broker for residential real estate loans placed in the secondary market.  There are occasions when a borrower or the real estate does not qualify under secondary market criteria, but the loan request represents a reasonable credit risk.  On these occasions, if the loan meets the Bank’s internal underwriting criteria, the loan will be closed and placed in the Company’s portfolio.  Residential real estate loans carry risk associated with the continued credit-worthiness of the borrower and changes in the value of collateral. 

The Company routinely makes consumer loans, both secured and unsecured, for financing automobiles, home improvements, education, and personal investments.  The credit history, cash flow and character of individual borrowers is evaluated as a part of the credit decision.  Loans used to purchase vehicles or other specific personal property and loans associated with real estate are usually secured with a lien on the subject vehicle or property.  Negative changes in a

customer’s financial circumstances due to a large number of factors, such as illness or loss of employment, can place the repayment of a consumer loan at risk.  In addition, deterioration in collateral value can add risk to consumer loans.

Risk Management. It is the Company’s policy that loan portfolio credit risk shall be continually evaluated and categorized on a consistent basis.  The Board of Directors recognizes that commercial, commercial real estate and construction lending involve varying degrees of risk, which must be identified, managed, and monitored through established risk rating procedures.  Management’s ability to accurately segment the loan portfolio by the various degrees of risk enables the Bank to achieve the following objectives:

1. Assess the adequacy of the Allowance for Loan and Lease Losses;

2. Identify and track high risk situations and ensure appropriate risk management;

3. Conduct portfolio risk analysis and make informed portfolio planning and strategic decisions; and

4. Provide risk profile information to management, regulators and independent accountants as requested in a timely manner.

There are three levels of accountability in the risk rating process:

1. Risk Identification - The primary responsibility for risk identification lies with the account officer.  It is the account officer's responsibility for the initial and ongoing risk rating of all notes and commitments in his or her portfolio.  The account officer is the one individual who is closest to the credit relationship and is in the best position to identify changing risks.  Account officers are required to continually review the risk ratings for their credit relationships and make timely adjustments, up or down, at the time the circumstances warrant a change.  Account officers are responsible for ensuring that accurate and timely risk ratings are maintained at all times.   Account officers are allowed a maximum 30-day period to assess current financial information (e.g. prepare credit analysis) which may influence the current risk rating. Account officers are required to review the risk ratings of loans assigned to their portfolios on a monthly basis and to certify to the accuracy of the ratings.  Certifications are submitted to the Chief Credit Officer and Chief Lending Officer for review.  All risk rating changes (upgrades and downgrades) must be approved by the Chief Credit Officer prior to submission for input into the Commercial Loan System.

2. Risk Supervision - In addition to the account officer’s process of assigning and managing risk ratings, the Chief Credit Officer is responsible for periodically reviewing the risk rating process employed by the account officers.  Through credit administration, the Chief Credit Officer manages the credit process which, among other things, includes maintaining and managing the risk identification process.  The Chief Credit Officer is responsible for the accuracy and timeliness of account officer risk ratings and has the authority to override account officer risk ratings and initiate rating changes, if warranted.  Upgrades from a criticized or classified category to a pass category or upgrades within the criticized/classified categories require the approval of the Senior Loan Committee or Directors’ Loan Committee based upon aggregate exposure. Upgrades must be reported to the Directors' Loan Committee and Board of Directors at their next scheduled meetings.

3. Risk Monitoring - Valley Bank has a loan review program to provide an independent validation of portfolio quality. This independent review is intended to assess adherence to underwriting guidelines, proper credit analysis and documentation.  In addition, the loan review process is required to test the integrity, accuracy, and timeliness of account officer risk ratings and to test the effectiveness of the credit administration function's controls over the risk identification process.  Portfolio quality and risk rating accuracy are evaluated during regularly scheduled portfolio reviews.  Risk Management is required to report all loan review findings to the quarterly joint meeting of the Audit Committee and Directors’ Loan Committee. 

Related party loans.  In the ordinary course of business, the Company has granted loans to certain directors, executive officers, significant shareholders and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other unaffiliated persons, and do not involve more than normal credit risk or present other unfavorable features. 

Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following schedule is an aging of past due loans receivable by portfolio segment as of September 30, 2012 and December 31, 2011:

In thousands		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days, Accruing
September 30, 2012
Commercial	$	176	$	586	$	557	$	1,319	$	89,678	$	90,997	$	-
Commercial real estate
Owner occupied		865		1,223		884		2,972		112,116		115,088		476
Income producing		-		-		-		-		129,584		129,584		-
Multifamily		-		-		-		-		18,570		18,570		-
Construction real estate
1 - 4 Family		-		-		289		289		23,175		23,464		-
Other		-		-		4,674		4,674		16,808		21,482		-
Farmland		-		-		-		-		1,532		1,532		-
Residential real estate
Equity Lines		124		-		400		524		29,227		29,751		400
1 - 4 Family		811		981		676		2,468		96,706		99,174		-
Junior Liens		-		88		-		88		7,232		7,320		-
Consumer
Credit Cards		23		3		-		26		1,529		1,555		-
Other		-		1		3		4		3,089		3,093		-
Deferred loan fees, net		-		-		-		-		358		358		-
Total	$	1,999	$	2,882	$	7,483	$	12,364	$	529,604	$	541,968	$	876

December 31, 2011
Commercial	$	93	$	813	$	1,957	$	2,863	$	84,848	$	87,711	$	-
Commercial real estate
Owner occupied		1,265		495		1,012		2,772		110,697		113,469		-
Income producing		-		-		808		808		129,333		130,141		-
Multifamily		-		-		-		-		13,968		13,968		-
Construction real estate
1 - 4 Family		-		-		-		-		11,171		11,171		-
Other		-		569		3,713		4,282		19,266		23,548		-
Farmland		-		-		-		-		1,362		1,362		-
Residential real estate
Equity Lines		164		-		-		164		30,241		30,405		-
1 - 4 Family		775		-		93		868		86,284		87,152		-
Junior Liens		1		-		-		1		4,892		4,893		-
Consumer
Credit Cards		10		-		-		10		1,345		1,355		-
Other		15		-		-		15		2,944		2,959		4
Deferred loan fees, net		-		-		-		-		452		452		-
Total	$	2,323	$	1,877	$	7,583	$	11,783	$	496,803	$	508,586	$	4

Nonaccrual Loans.  Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. Loans will be placed on nonaccrual status automatically when principal or interest is past due 90 days or more, unless the loan is both well secured and in the process of collection.  In this case, the loan will continue to accrue interest despite its past due status.  When interest accrual is discontinued, all unpaid accrued interest is reversed and any subsequent payments received are applied to the outstanding principal balance. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The following is a schedule of loans receivable, by portfolio segment, on nonaccrual status as of September 30, 2012 and December 31, 2011:

In thousands		September 30, 2012		December 31, 2011
Commercial	$	1,249	$	2,183
Commercial real estate
Owner occupied		408		1,013
Income producing		-		808
Construction real estate
1 - 4 Family		290		471
Other		4,674		3,713
Residential real estate
Equity Lines		62		64
1 - 4 Family		1,815		334
Junior Liens		46		49
Consumer
Other		3		3
Total	$	8,547	$	8,638

Had nonaccrual loans performed in accordance with their original contract terms, the Company would have recognized additional interest income in the amount of  $253 during the nine-months ended September 30, 2012; $550 during the year ended December 31, 2011, and$437 during the nine-months ended September 30, 2011.  There were seven restructured loans totaling $3,324 at September 30, 2012 and there were twelve restructured loans totaling $2,305 at December 31, 2011.

Impaired Loans. Impaired loans are identified by the Company as loans in which it is determined to be probable that the borrower will not make interest and principal payments according to the contract terms of the loan.  In determining impaired loans, our credit administration department reviews past-due loans, examiner classifications, Bank classifications, and a selection of other loans to provide evidence as to whether the loan is impaired.  All loans rated as substandard are evaluated for impairment by the Bank’s Allowances for Loan and Lease Losses (“ALLL”) Committee.  Once classified as impaired, the ALLL Committee individually evaluates the total loan relationship, including a detailed collateral analysis, to determine the reserve appropriate for each one.  Any potential loss exposure identified in the collateral analysis is set aside as a specific reserve (valuation allowance) in the allowance for loan and lease losses.  If the impaired loan is subsequently resolved and it is determined the reserve is no longer required, the specific reserve will be taken back into income during the period the determination is made.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.  Impaired loans as of September 30, 2012 and December 31, 2011 are set forth in the following table:

In thousands		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2012
With no related allowance:
Commercial	$	2,064	$	2,267	$	-	$	2,485	$	60
Commercial real estate
Owner occupied		10,680		10,680		-		12,217		575
Income producing		4,641		4,641		-		2,453		106
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,294		1,294		-		1,503		50
Other		1,710		3,695		-		2,520		51
Farmland		-		-		-		-		-
Residential real estate
Equity Lines		861		864		-		883		25
1 - 4 Family		5,817		6,022		-		5,492		191
Junior Liens		104		104		-		104		4
Consumer
Credit Cards		-		-		-		-		-
Other		28		28		-		32		1
Total loans with no allowance	$	27,199	$	29,595	$	-	$	27,689	$	1,063
With an allowance recorded:
Commercial		297		308		112		315		1
Construction real estate
1 - 4 Family		289		321		217		402		-
Other		3,769		9,341		1,708		9,341		25
Farmland		180		180		4		183		10
Residential real estate
1 - 4 Family		1,977		1,984		152		1,992		57
Junior Liens		46		49		17		49		-
Total loans with an allowance	$	6,558	$	12,183	$	2,210	$	12,282	$	93
Total:
Commercial		2,361		2,575		112		2,800		61
Commercial real estate		15,321		15,321		-		14,670		681
Construction real estate		7,242		14,831		1,929		13,949		136
Residential real estate		8,805		9,023		169		8,520		277
Consumer		28		28		-		32		1
Totals	$	33,757	$	41,778	$	2,210	$	39,971	$	1,156

In thousands		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2011
With no related allowance:
Commercial	$	4,321	$	4,880	$	-	$	4,791	$	133
Commercial real estate
Owner occupied		14,963		14,995		-		15,305		892
Income producing		2,112		2,201		-		2,122		63
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,763		1,643		-		1,632		73
Other		2,906		4,541		-		3,230		100
Farmland		185		185		-		188		14
Residential real estate
Equity Lines		304		230		-		230		7
1 - 4 Family		6,875		7,093		-		6,906		356
Junior Liens		19		19		-		21		1
Consumer
Credit Cards		-		-		-		-		-
Other		15		15		-		18		1
Total loans with no allowance	$	33,463	$	35,802	$	-	$	34,443	$	1,640
With an allowance recorded:
Commercial		218		222		79		225		9
Construction real estate
1 - 4 Family		471		490		51		723		29
Other		3,741		9,314		1,839		3,741		132
Residential real estate
1 - 4 Family		1,027		1,027		97		1,035		48
Junior Liens		48		49		33		50		-
Total loans with an allowance	$	5,505	$	11,102	$	2,099	$	5,774	$	218
Total:
Commercial		4,539		5,102		79		5,016		142
Commercial real estate		17,075		17,196		-		17,427		955
Construction real estate		9,066		16,173		1,890		9,514		348
Residential real estate		8,273		8,418		130		8,242		412
Consumer		15		15		-		18		1
Totals	$	38,968	$	46,904	$	2,099	$	40,217	$	1,858

Cash basis interest income on impaired loans was $1,181 for the nine months ended September 30, 2012 and $1,708 for the year ended December 31, 2011.

Credit Quality Indicators. The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. This categorization is made on all commercial, commercial real estate and construction and development loans.  The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: 

Risk rated 1

Highest Caliber Credit – to qualify as a “1”, a credit must be either fully secured by cash or secured by a portfolio of marketable securities within margin.

Risk rated 2

Very High Caliber Credit – to qualify as a “2”, a credit must be a borrower within an industry exhibiting strong trends.  The borrower must be a highly-rated individual or company whose management, profitability, liquidity, and leverage are very strong and above industry averages.  Borrower should show substantial liquidation net worth and income or alternative fund sources to retire the debt as agreed.

Risk rated 3

High Caliber Credit - to qualify as a “3”, the criteria of management, industry, profitability, liquidity, and leverage must be generally strong and comparable to industry averages.  Borrower should show above average liquidation net worth and sufficient income or alternative fund sources to retire the debt as agreed.

Risk rated 4

Satisfactory Credit – to qualify as a “4”, a credit should be performing relatively close to expectations, with adequate evidence that the borrower is continuing to generate adequate cash flow to service debt.  There should be no significant departure from the intended source and timing of repayment, and there should be no undue reliance on secondary sources of repayment.  To the extent that some variance exists in one or more criteria being measured, it may be offset by the relative strength of other factors and/or collateral pledged to secure the transaction.  A credit secured by a portfolio of marketable securities in an out-of-margin condition would qualify as a “4”.  Borrower should show average liquidation net worth and income sufficient to retire the debt on an amortizing basis.

Risk rated 5

Monitored Satisfactory Credit – there are certain satisfactory credits, which have elements of risk that the Bank chooses to monitor formally.  The objective of the monitoring process is to assure that no weaknesses develop in credits with certain financial or operating leverage, or credits, which are subject to cyclical economic or variable industry conditions.  Also included in this category are credits with positive operating trends and satisfactory financial conditions, which are achieving performance expectations at a slower pace than anticipated.  This rating may also include loans which exhibit satisfactory credit quality but which are improperly structured as evidenced by excessive renewals, unusually long repayment schedules, the lack of a specific repayment plan, or which exhibit loan policy exceptions or documentation deficiencies.  

Risk rated 6

Special Mention – assets in this category are still adequately protected by the borrower’s capital adequacy and payment capability, but exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

Risk Rated 7

Substandard - substandard loans are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. 

Risk Rated 8

Doubtful – an asset classified as doubtful has all the weaknesses inherent in one classified substandard 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.  Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.  The Company’s practice is to charge-off the portion of the loan amount determined to be doubtful in the quarter that the determination is made if the repayment of the loan is collateral dependent. 

Risk Rated 9

Loss – assets classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

As of  September 30, 2012 and December 31, 2011, and based on the most recent analysis performed at those dates, the risk category of loans and leases is as follows:

Internal Risk Rating Grades
In thousands		1-4		5		6		7
September 30, 2012
Commercial	$	23,033	$	62,996	$	2,416	$	2,552
Commercial real estate
Owner occupied		38,055		61,771		1,525		13,737
Income producing		17,267		96,182		6,287		9,848
Multifamily		10,142		8,428		-		-
Construction real estate
1 - 4 Family		2,621		17,036		1,561		2,246
Other		-		11,524		2,499		7,459
Farmland		236		630		486		180
Totals	$	91,354	$	258,567	$	14,774	$	36,022
Total:
Commercial		23,033		62,996		2,416		2,552
Commercial real estate		65,464		166,381		7,812		23,585
Construction real estate		2,857		29,190		4,546		9,885
Totals	$	91,354	$	258,567	$	14,774	$	36,022

December 31, 2011
Commercial	$	29,554	$	49,325	$	3,659	$	5,173
Commercial real estate
Owner occupied		27,917		64,408		3,058		18,086
Income producing		15,710		100,994		10,924		2,513
Multifamily		8,613		5,355		-		-
Construction real estate
1 - 4 Family		2,125		4,871		1,489		2,686
Other		1,426		8,881		3,610		9,630
Farmland		-		345		833		185
Totals	$	85,345	$	234,179	$	23,573	$	38,273
Total:
Commercial		29,554		49,325		3,659		5,173
Commercial real estate		52,240		170,757		13,982		20,599
Construction real estate		3,551		14,097		5,932		12,501
Totals	$	85,345	$	234,179	$	23,573	$	38,273

There are no loans classified as 8 or 9 as of September 30, 2012 or December 31, 2011.

All consumer-related loans, including residential real estate are evaluated and monitored based upon payment activity.  Once a consumer-related loan becomes past due on a recurring basis, the Company will pull that loan out of the homogenized pool and evaluate it individually for impairment.  At this time, the consumer-related loan may be placed on the Company’s internal watch list and risk rated either special mention or substandard, depending upon the individual circumstances. 

Risk Based on Payment Activity	Performing				Non-Performing
In thousands		9/30/2012		12/31/2011		9/30/2012		12/31/2011
Residential real estate
Equity Lines	$	29,689	$	30,341	$	62	$	64
1 - 4 Family		97,359		86,818		1,815		334
Junior Liens		7,274		4,844		46		49
Consumer
Credit Cards		1,555		1,351		-		4
Other		3,090		2,956		3		3
Totals	$	138,967	$	126,310	$	1,926	$	454
Total:
Residential real estate		134,322		122,003		1,923		447
Consumer		4,645		4,307		3		7
Totals	$	138,967	$	126,310	$	1,926	$	454

Allowance for Loan Losses

The allowance for possible loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans.

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of three elements: (i) specific valuation allowances determined in accordance with accounting principles regarding receivables based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with accounting principles regarding contingencies based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) general valuation allowances determined in accordance with accounting principles regarding contingencies based on general economic conditions and other qualitative risk factors both internal and external to the Company.

Specific Valuation

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan is added to the internal watch list, the ALLL Committee analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, and economic conditions affecting the borrower’s industry, among other things.

Historical Valuation

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans at the time they were charged-off. The Company uses a rolling 8-quarter analysis to determine its historical loss ratio for the specific pool. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the average balance of loans in the pool for the respective quarter. The loss factors used at September 30, 2012 and December 31, 2011 are as follows:

	9/30/12	12/31/11
Commercial	0.03%	0.66%
Commercial real estate - Owner occupied	0.02%	0.28%
Commercial real estate - Income producing	0.00%	0.10%
Commercial real estate - Multifamily	0.18%	0.71%
Construction real estate - 1-4 Family	0.00%	0.54%
Construction real estate - Other	3.06%	5.04%
Construction real estate - Farmland	0.00%	0.00%
Residential real estate - Equity lines	0.07%	0.72%
Residential real estate - 1-4 Family	0.45%	0.68%
Residential real estate - Junior Liens	0.00%	2.08%
Consumer & credit cards	0.68%	1.33%
Loans held for sale	0.00%	0.00%

The Company applies the historical loss ratios to balances of all loans within each category to establish a high range allowance.  The Company applies the historical loss ratios to loan balances carrying risk ratings of 5 and higher to establish the low range allowance for this factor.  The rationale behind excluding loans risk rated 1 – 4 from the low range is that these credits range from the very highest caliber to satisfactory and the Company has never had a loan move from a 4 rated credit to a watchlist rated credit (6 or higher) within a one-quarter timeframe.  All impaired loans are excluded from this calculation as they are individually evaluated in the specific valuation section as described above.

As can be seen from the above table, the loss factors reduced significantly in all categories at September 30, 2012 as compared to December 31, 2011.  This is due to the reduction and stabilization of historical charge-offs during the 8-quarter look-back period.  As a result, the reserve requirement for the historical valuation section of the allowance calculation decreased by approximately $1.8 million at the high end of the range.  This significant reduction, coupled with changes in the Company’s environmental factors as noted below, has enabled the Company to reduce the general reserves required during this time period.

General Valuation

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Company. In general, such valuation allowances are determined by evaluating, among other things: (i) levels and trends in credit quality; (ii) trends in the volume of loans; (iii) the experience, ability and effectiveness of the bank’s lending management and staff; (iv) local economic trends and conditions; (v) credit concentration risk; (vi) current industry conditions; (vii) real estate market conditions; (viii) and large relationship credit risk. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, moderate or low degree of risk. The results are then input into a general allocation matrix to determine an appropriate general valuation allowance, based on the risk assessment performed by management and the loss factors established for high and low ranges.  Loans identified as losses by management, internal loan review and/or regulatory examiners are charged-off. 

The Company’s range for our environmental factors at September 30, 2012 remains constant with prior quarters with the exception of the trends in volume of loans.  Due to the increased volume of new loans during the past 12 months, management decided to change this environmental factor to reflect loan growth over a one-year period versus a three-year period.  As such, the loss factors associated with this environmental factor were modified as well.  The general valuation factors used at September 30, 2012 and December 31, 2011 are as follows:

	9/30/12		12/31/11
	Low	High	Low	High
Levels and trends in credit quality	0.20%	0.30%	0.20%	0.30%
Trends in volume of loans	1.00%	1.50%	0.00%	0.10%
Experience, ability, and depth of lending management and staff	0.00%	0.05%	0.00%	0.05%
Local economic trends and conditions	0.25%	0.35%	0.25%	0.35%
Credit concentration risk	0.00%	0.05%	0.00%	0.05%
Current industry conditions/general economic conditions	0.05%	0.10%	0.10%	0.15%
Commercial Real Estate Devaluation	0.15%	0.25%	0.15%	0.25%
Residential Real Estate Devaluation	0.15%	0.25%	0.15%	0.25%
Credit concentration risk - large relationships > $8 Million	0.30%	0.60%	0.60%	0.90%

As noted in the Company’s second quarter Form 10-Q, at June 30, 2012, management decreased its risk assessment from high to medium for the current industry conditions risk factors as a result of the continued improving trends in the banking industry.  Additionally, the risk assessment for the large relationship risk factor was decreased from high to medium as the percentage of loans in this category risk rated 6 or 7 has declined below the Company’s minimum threshold set for high risk.  At September 30, 2012, the Company maintained the risk assessments for these factors consistent with the June 30, 2012 analysis.

All impaired loans are excluded from this calculation as they are individually evaluated in the specific valuation section as described above.  The loss factors are multiplied by the loan balances related to each environmental factor at quarter-end.  Therefore for example, only commercial real estate balances are used in the determination for the estimated loss for the commercial real estate devaluation factor.  As described in the historical valuation section, the Company applies the historical loss ratios to balances of all loans within each category to establish a high range allowance.  The Company applies the historical loss ratios to loan balances carrying risk ratings of 5 and higher to establish the low range allowance for this factor.  

Changes in the allowance for loan losses for the nine-month period ended September 30, 2012 by segment are as follows:

		Beginning								Ending
In thousands		Balance		Charge-offs		Recoveries		Provision		Balance
September 30, 2012
Commercial	$	1,113	$	(104)	$	7	$	(546)	$	470
Commercial real estate		3,725		-		-		(753)		2,972
Construction real estate		4,052		(496)		-		(263)		3,293
Residential real estate		732		(470)		2		1,515		1,779
Consumer		28		(5)		17		(6)		34
Total	$	9,650	$	(1,075)	$	26	$	(53)	$	8,548

Due to the increased past dues, substandard and nonperforming residential real estate loans at September 30, 2012 as compared to December 31, 2011, the Company has reallocated a portion of its allowance for loan losses from the commercial, commercial real estate and construction real estate categories.  This reallocation is further supported by the decreased past dues and watch list loans in the commercial, commercial real estate and construction real estate portfolios. 

As of September 30, 2012 and December 31, 2011, loans individually and collectively evaluated for impairment, by loan portfolio segment, and the corresponding allowance are as follows:

	Individually Evaluated for Impairment
	9/30/2012				12/31/2011
In thousands		Allowance		Total Loans		Allowance		Total Loans
Commercial	$	112	$	2,361	$	79	$	4,539
Commercial real estate		-		15,321		-		17,075
Construction real estate		1,929		7,242		1,890		9,067
Residential real estate		169		8,805		130		8,272
Consumer		-		28		-		15
Total	$	2,210	$	33,757	$	2,099	$	38,968

	Collectively Evaluated for Impairment
	9/30/2012				12/31/2011
In thousands		Allowance		Total Loans		Allowance		Total Loans
Commercial	$	358	$	88,636	$	1,034	$	83,172
Commercial real estate		2,972		247,921		3,725		240,503
Construction real estate		1,364		39,236		2,162		27,014
Residential real estate		1,610		127,440		602		114,178
Consumer		34		4,620		28		4,299
Unallocated		-		358		-		452
Total	$	6,338	$	508,211	$	7,551	$	469,618

Troubled Debt Restructurings

Modifications of terms for loans and their inclusion as TDRs are based on individual facts and circumstances.  Loan modifications that are included as TDRs may involve either an increase or reduction of the interest rate, extension of the term of the loan, or deferral of principal payments, regardless of the period of the modification.  The loans included in all loan classes as TDRs at September 30, 2012 had either an interest rate modification or a deferral of principal payments, which we consider to be a concession.  All loans designated as TDRs were modified due to financial difficulties experienced by the borrower.

The following table provides information about TDRs identified during the specified periods and those loans, if any, identified as TDRs within the prior 12 month timeframe that subsequently defaulted.  Defaults are those TDRs that were greater than 90 days past due, and aligns with our internal definition of default for those loans not identified as TDRs.  There were no TDR defaults identified during the specified periods.

	For the three months ended
In thousands	September 30, 2012					September 30, 2011
In thousands	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential real estate	-		-		-	1		60		60
Total	-	$	-	$	-	1	$	60	$	60

	For the nine months ended
In thousands	September 30, 2012					September 30, 2011
Commercial	-	$	-	$	-	1	$	192	$	192
Construction real estate	1		4,496		2,369	3		935		1,004
Residential real estate	-		-		-	7		963		995
Total	1	$	4,496	$	2,369	11	$	2,090	$	2,191

XML

Foreclosed Assets (Summary Of Foreclosed Assets) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Foreclosed Assets [Abstract]
Balance, beginning of period	$ 17,040	$ 16,081	$ 16,081
Additions	4,746		4,341
Capitalized items	1,058	1,280	1,321
Sales	(302)	(2,447)	(3,623)
Impairment writedowns	(363)		(931)
Gain (loss)	(28)		(149)
Balance, end of period	$ 22,151		$ 17,040

XML

Securities (Schedule Of Maturity Ranges Of Securities Available-For-Sale And Held-To-Maturity, Weighted Average Yields Of Securities) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale of Securities, Amortized Costs, Less than one year	$ 200
Available-for-Sale of Securities, Amortized Costs, After one but within five years	8,031
Available-for-Sale of Securities, Amortized Costs, After five but within ten years	22,201
Available-for-Sale of Securities, Amortized Costs, After ten years	23,422
Available-for-Sale of Securities, Fair Value, Less than one year	200
Available-for-Sale of Securities, Fair Value, After one but within five years	8,122
Available-for-Sale of Securities, Fair Value, After five but within ten years	22,268
Available-for-Sale of Securities, Fair Value, After ten years	24,056
Held-to-Maturity of Securities, Amortized Costs, After one but within five years	599
Held-to-Maturity of Securities, Amortized Costs, After five but within ten years	9,323
Held-to-Maturity of Securities, Amortized Costs, After ten years	14,479
Held-to-Maturity of Securities, Fair Value, After one but within five years	616
Held-to-Maturity of Securities, Fair Value, After five but within ten years	9,838
Held-to-Maturity of Securities, Fair Value, After ten years	15,367
Available-for-Sale Securities, Amortized Costs	139,875		159,624
Available-for-Sale of Securities, Fair Value	142,867		160,465
Held-to-Maturity, Amortized Costs	26,475		28,770
Held-to-Maturity, Fair Value	28,014		29,723
U.S. Government And Federal Agency [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale of Securities, Amortized Costs, Less than one year	200
Available-for-Sale of Securities, Amortized Costs, After five but within ten years	3,044
Available-for-Sale of Securities, Amortized Costs, After ten years	4,442
Available-for-Sale of Securities, Fair Value, Less than one year	200
Available-for-Sale of Securities, Fair Value, After five but within ten years	3,051
Available-for-Sale of Securities, Fair Value, After ten years	4,585
Available-for-Sale of Securities, Yield, Less than one year	1.37%
Available-for-Sale of Securities, Yield, After five but within ten years	2.13%
Available-for-Sale of Securities, Yield, After ten years	2.76%
Held-to-Maturity of Securities, Amortized Costs, After five but within ten years	4,482
Held-to-Maturity of Securities, Amortized Costs, After ten years	3,778
Held-to-Maturity of Securities, Fair Value, After five but within ten years	4,656
Held-to-Maturity of Securities, Fair Value, After ten years	3,948
Held-to-Maturity of Securities, Yield, Less than one year
Held-to-Maturity of Securities, Yield, After five but within ten years	3.43%
Held-to-Maturity of Securities, Yield, After ten years	3.21%
Available-for-Sale Securities, Amortized Costs	7,686		2,770
Available-for-Sale of Securities, Fair Value	7,836		2,772
Held-to-Maturity, Amortized Costs	8,260		8,981
Held-to-Maturity, Fair Value	8,604		9,141
Government-Sponsored Enterprises [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale of Securities, Amortized Costs, After one but within five years	2,584
Available-for-Sale of Securities, Amortized Costs, After five but within ten years	14,574
Available-for-Sale of Securities, Amortized Costs, After ten years	6,500
Available-for-Sale of Securities, Fair Value, After one but within five years	2,680
Available-for-Sale of Securities, Fair Value, After five but within ten years	14,647
Available-for-Sale of Securities, Fair Value, After ten years	6,515
Available-for-Sale of Securities, Yield, After one but within five years	1.77%
Available-for-Sale of Securities, Yield, After five but within ten years	1.85%
Available-for-Sale of Securities, Yield, After ten years	3.58%
Held-to-Maturity of Securities, Yield, After one but within five years
Held-to-Maturity of Securities, Yield, After five but within ten years
Held-to-Maturity of Securities, Yield, After ten years
Available-for-Sale Securities, Amortized Costs	23,658	[1]	38,748
Available-for-Sale of Securities, Fair Value	23,842	[1]	38,842
States And Political Subdivisions [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale of Securities, Amortized Costs, After one but within five years	5,447
Available-for-Sale of Securities, Amortized Costs, After five but within ten years	4,583
Available-for-Sale of Securities, Amortized Costs, After ten years	12,480
Available-for-Sale of Securities, Fair Value, After one but within five years	5,442
Available-for-Sale of Securities, Fair Value, After five but within ten years	4,570
Available-for-Sale of Securities, Fair Value, After ten years	12,956
Available-for-Sale of Securities, Yield, After one but within five years	1.83%
Available-for-Sale of Securities, Yield, After five but within ten years	2.13%
Available-for-Sale of Securities, Yield, After ten years	3.83%
Held-to-Maturity of Securities, Amortized Costs, After one but within five years	599
Held-to-Maturity of Securities, Amortized Costs, After five but within ten years	4,841
Held-to-Maturity of Securities, Amortized Costs, After ten years	10,701
Held-to-Maturity of Securities, Fair Value, After one but within five years	616
Held-to-Maturity of Securities, Fair Value, After five but within ten years	5,182
Held-to-Maturity of Securities, Fair Value, After ten years	11,419
Held-to-Maturity of Securities, Yield, After one but within five years	3.90%
Held-to-Maturity of Securities, Yield, After five but within ten years	4.16%
Held-to-Maturity of Securities, Yield, After ten years	4.35%
Available-for-Sale Securities, Amortized Costs	22,510		3,990
Available-for-Sale of Securities, Fair Value	22,968		3,971
Held-to-Maturity, Amortized Costs	16,141		16,888
Held-to-Maturity, Fair Value	17,217		17,530
Collateralized Mortgage Obligations [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale Securities, Amortized Costs	11,980	[2]	15,280
Available-for-Sale of Securities, Fair Value	12,115	[2]	15,390
Available-for-Sale of Securities, Yield	1.90%
Held-to-Maturity, Amortized Costs	1,824	[2]	2,555
Held-to-Maturity, Fair Value	1,923	[2]	2,681
Held-to-Maturity of Securities, Yield	5.57%
Mortgage-Backed Securities [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Available-for-Sale Securities, Amortized Costs	74,041	[2]	98,836	[1]
Available-for-Sale of Securities, Fair Value	76,106	[2]	99,490	[1]
Available-for-Sale of Securities, Yield	2.29%
Held-to-Maturity, Amortized Costs	250	[2]	346
Held-to-Maturity, Fair Value	$ 270	[2]	$ 371
Held-to-Maturity of Securities, Yield	4.66%

[1] Such as FNMA, FHLMC and FHLB.

[2] Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

XML

Securities (Schedule Of Amortized Costs, Gross Unrealized Gains And Losses, And Approximate Fair Values Of Securities Held-To-Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Schedule of Held-to-maturity Securities [Line Items]
Amortized Costs	$ 26,475		$ 28,770
Unrealized Gains	1,539		964
Unrealized Losses			(11)
Fair Value	28,014		29,723
U.S. Government And Federal Agency [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Costs	8,260		8,981
Unrealized Gains	344		160
Fair Value	8,604		9,141
States And Political Subdivisions [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Costs	16,141		16,888
Unrealized Gains	1,076		653
Unrealized Losses			(11)
Fair Value	17,217		17,530
Collateralized Mortgage Obligations [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Costs	1,824	[1]	2,555
Unrealized Gains	99		126
Fair Value	1,923	[1]	2,681
Mortgage-Backed Securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Costs	250	[1]	346
Unrealized Gains	20		25
Fair Value	$ 270	[1]	$ 371

[1] Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

XML

Regulatory Matters (Schedule Of Company's And The Bank's Actual Capital Amounts And Ratios) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Valley Bank [Member]
Total Capital (to Risk Weighted Assets), Actual, Amount	$ 87,535	$ 82,522
Total Capital (to Risk Weighted Assets), Actual, Ratio	14.70%	14.60%
Total Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Amount	47,518	45,079
Total Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Tier 1 Capital (to Risk Weighted Assets), Actual, Amount	80,096	75,446
Tier 1 Capital (to Risk Weighted Assets), Actual, Ratio	13.50%	13.40%
Tier 1 Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Amount	23,759	22,540
Tier 1 Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 Capital - Leverage (to Average Assets), Actual, Amount	80,096	75,446
Tier 1 Capital - Leverage (to Average Assets), Actual, Ratio	10.20%	9.90%
Tier 1 Capital - Leverage (to Average Assets), Minimum Required For Capital Adequacy Purposes, Amount	31,379	30,570
Tier 1 Capital - Leverage (to Average Assets), Minimum Required For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Bank [Member]
Total Capital (to Risk Weighted Assets), Actual, Amount	83,885	77,939
Total Capital (to Risk Weighted Assets), Actual, Ratio	14.10%	13.90%
Total Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Amount	47,499	44,940
Total Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Total Capital (to Risk Weighted Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Amount	59,374	56,175
Total Capital (to Risk Weighted Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	10.00%	10.00%
Tier 1 Capital (to Risk Weighted Assets), Actual, Amount	76,449	70,885
Tier 1 Capital (to Risk Weighted Assets), Actual, Ratio	12.90%	12.60%
Tier 1 Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Amount	23,750	22,470
Tier 1 Capital (to Risk Weighted Assets), Minimum Required For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 Capital (to Risk Weighted Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Amount	35,624	33,705
Tier 1 Capital (to Risk Weighted Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	6.00%	6.00%
Tier 1 Capital - Leverage (to Average Assets), Actual, Amount	76,449	70,885
Tier 1 Capital - Leverage (to Average Assets), Actual, Ratio	9.80%	9.30%
Tier 1 Capital - Leverage (to Average Assets), Minimum Required For Capital Adequacy Purposes, Amount	31,344	30,480
Tier 1 Capital - Leverage (to Average Assets), Minimum Required For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 Capital - Leverage (to Average Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 39,180	$ 38,100
Tier 1 Capital - Leverage (to Average Assets), Minimum to be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	5.00%	5.00%

XML

Earnings Per Share (Summary Of Earnings Per Share And The Shares Utilized In The Computations) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Abstract]
Basic earnings per common share, Net Income Available to Common Shareholders	$ 1,452	$ 1,328	$ 4,491	$ 3,161
Basic earnings per common share, Weighted Average Common Shares	4,742,295	4,697,256	4,737,998	4,694,299
Basic earnings per common share, Per Share Amount	$ 0.31	$ 0.28	$ 0.95	$ 0.67
Effect of dilutive stock options, Weighted Average Common Shares	51,916	38,402	45,552	31,668
Effect of dilutive stock warrants, Weighted Average Common Shares	76,866		46,088
Diluted earnings per common share, Net Income Available to Common Shareholders	$ 1,452	$ 1,328	$ 4,491	$ 3,161
Diluted earnings per common share, Weighted Average Shares Common Shares	4,871,077	4,735,658	4,829,638	4,725,967
Diluted earnings per common share, Per Share Amount	$ 0.30	$ 0.28	$ 0.93	$ 0.67

XML

Securities (Schedule Of Unrealized Losses And Related Fair Values In the Bank's Available-For-Sale And Held-To-Maturity Investment Securities Portfolios) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule Of Unrealized Losses And Related Fair Values In Of Available-For-Sale And Held-To-Maturity Investment Securities Portfolios [Line Items]
Available-for-sale Securities, Continuous unrealized loss position, Less than 12 months, Fair Value	$ 16,262	$ 64,241
Available-for-sale Securities, Continuous unrealized loss position, Greater than 12 months, Fair Value		3,009
Available-for-sale Securities, Continuous unrealized loss position, Total, Fair Value	16,262	67,250
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	(99)	(245)
Available-for-sale Securities, Continuous Unrealized Loss Position, Greater than 12 months, Unrealized Losses		(8)
Available-for-sale Securities, Continuous unrealized loss position, Total, Unrealized Losses	(99)	(253)
Held-to-maturity Securities, Continuous unrealized loss position, Less than 12 months, Fair Value		1,005
Held-to-maturity Securities, Continuous unrealized loss position, Total, Fair Value		1,005
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses		(11)
Held-to-maturity Securities, Continuous unrealized loss position, Total, Unrealized Losses		(11)
Government-Sponsored Enterprises [Member]
Schedule Of Unrealized Losses And Related Fair Values In Of Available-For-Sale And Held-To-Maturity Investment Securities Portfolios [Line Items]
Available-for-sale Securities, Continuous unrealized loss position, Less than 12 months, Fair Value	2,493	10,558
Available-for-sale Securities, Continuous unrealized loss position, Greater than 12 months, Fair Value		2,993
Available-for-sale Securities, Continuous unrealized loss position, Total, Fair Value	2,493	13,551
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	(7)	(30)
Available-for-sale Securities, Continuous Unrealized Loss Position, Greater than 12 months, Unrealized Losses		(7)
Available-for-sale Securities, Continuous unrealized loss position, Total, Unrealized Losses	(7)	(37)
States And Political Subdivisions [Member]
Schedule Of Unrealized Losses And Related Fair Values In Of Available-For-Sale And Held-To-Maturity Investment Securities Portfolios [Line Items]
Available-for-sale Securities, Continuous unrealized loss position, Less than 12 months, Fair Value	10,327	3,971
Available-for-sale Securities, Continuous unrealized loss position, Total, Fair Value	10,327	3,971
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	(82)	(19)
Available-for-sale Securities, Continuous unrealized loss position, Total, Unrealized Losses	(82)	(19)
Held-to-maturity Securities, Continuous unrealized loss position, Less than 12 months, Fair Value		1,005
Held-to-maturity Securities, Continuous unrealized loss position, Total, Fair Value		1,005
Held-to-maturity Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses		(11)
Held-to-maturity Securities, Continuous unrealized loss position, Total, Unrealized Losses		(11)
Collateralized Mortgage Obligations [Member]
Schedule Of Unrealized Losses And Related Fair Values In Of Available-For-Sale And Held-To-Maturity Investment Securities Portfolios [Line Items]
Available-for-sale Securities, Continuous unrealized loss position, Less than 12 months, Fair Value	3,442	6,884	[1]
Available-for-sale Securities, Continuous unrealized loss position, Greater than 12 months, Fair Value		16	[1]
Available-for-sale Securities, Continuous unrealized loss position, Total, Fair Value	3,442	6,900	[1]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses	(10)	(14)	[1]
Available-for-sale Securities, Continuous Unrealized Loss Position, Greater than 12 months, Unrealized Losses		(1)	[1]
Available-for-sale Securities, Continuous unrealized loss position, Total, Unrealized Losses	(10)	(15)	[1]
Mortgage-Backed Securities [Member]
Schedule Of Unrealized Losses And Related Fair Values In Of Available-For-Sale And Held-To-Maturity Investment Securities Portfolios [Line Items]
Available-for-sale Securities, Continuous unrealized loss position, Less than 12 months, Fair Value		42,828
Available-for-sale Securities, Continuous unrealized loss position, Total, Fair Value		42,828
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Unrealized Losses		(182)
Available-for-sale Securities, Continuous unrealized loss position, Total, Unrealized Losses		$ (182)

[1] Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

XML

Loans And Allowance For Loan And Lease Losses (Narrative) (Details) (USD $)	9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Aggregate amount of deposit overdrafts	$ 388,000		$ 74,000
Recognized additional interest income	253,000	437,000	550,000
Cash basis interest income on impaired loans	1,181,000		1,708,000
Decrease in the reserve requirement for the historical valuation section of the allowance	1,800,000
Restructured Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of restructured loans	7		12
Restructured loans, amount	$ 3,324,000		$ 2,305,000
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage outstanding principal balance on loans	44.00%
Income Producing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage outstanding principal balance on loans	49.00%

XML

Securities

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

Securities

Note 2.  Securities

The carrying values, unrealized gains, unrealized losses, and approximate fair values of available-for-sale and held-to-maturity investment securities at September 30, 2012 are shown in the tables below. As ofSeptember 30, 2012, investments (including both available-for-sale and held-to-maturity) and restricted equity securities with amortized costs and fair values of  $55,926and $58,098  respectively, were pledged as collateral for public deposits, a line of credit available from the Federal Home Loan Bank, customer sweep accounts, and for other purposes as required or permitted by law. 

The amortized costs, gross unrealized gains and losses, and approximate fair values of securities available-for-sale (“AFS”) as ofSeptember 30, 2012 and December 31, 2011 were as follows:

		Amortized		Unrealized		Unrealized
September 30, 2012		Cost		Gains		Losses		Fair Values
U.S. Government and federal agency	$	7,686	$	150	$	-	$	7,836
Government-sponsored enterprises *		23,658		191		(7)		23,842
Mortgage-backed securities		74,041		2,065		-		76,106
Collateralized mortgage obligations		11,980		145		(10)		12,115
States and political subdivisions		22,510		540		(82)		22,968
	$	139,875	$	3,091	$	(99)	$	142,867

December 31, 2011
U.S. Government and federal agency	$	2,770	$	2	$	-	$	2,772
Government-sponsored enterprises *		38,748		131		(37)		38,842
Mortgage-backed securities		98,836		836		(182)		99,490
Collateralized mortgage obligations		15,280		125		(15)		15,390
States and political subdivisions		3,990		-		(19)		3,971
	$	159,624	$	1,094	$	(253)	$	160,465

*  Such as FNMA, FHLMC and FHLB.

The amortized costs, gross unrealized gains and losses, and approximate fair values of securities held-to-maturity (“HTM”) as of September 30, 2012  and December 31, 2011 were as follows:

		Amortized		Unrealized		Unrealized
September 30, 2012		Cost		Gains		Losses		Fair Values
U.S. Government and federal agency	$	8,260	$	344	$	-	$	8,604
Mortgage-backed securities		250		20		-		270
Collateralized mortgage obligations		1,824		99		-		1,923
States and political subdivisions		16,141		1,076		-		17,217
	$	26,475	$	1,539	$	-	$	28,014

December 31, 2011
U.S. Government and federal agency	$	8,981	$	160	$	-	$	9,141
Mortgage-backed securities		346		25		-		371
Collateralized mortgage obligations		2,555		126		-		2,681
States and political subdivisions		16,888		653		(11)		17,530
	$	28,770	$	964	$	(11)	$	29,723

The amortized costs and approximate fair values of our total private-label collateralized mortgage obligations were  $1,684and $1,772, respectively,as of September 30, 2012.  The amortized costs and approximate fair values of our total private-label collateralized mortgage obligations were $2,358and $2,472, respectively, as of December 31, 2011. 

The following tables present the maturity ranges of securities available-for-sale and held-to-maturity as of September 30, 2012 and the weighted average yields of such securities. Maturities may differ from scheduled maturities on mortgage-backed securities and collateralized mortgage obligations because the mortgages underlying the securities may be repaid prior to the scheduled maturity date. Maturities on all other securities are based on the contractual maturity. The weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Weighted average yields on tax-exempt obligations have been computed on a taxable equivalent basis using a tax rate of 34%.

Investment Portfolio Maturity Distribution
	Available-for-Sale					Held-to-Maturity
		Amortized		Fair			Amortized		Fair
In thousands		Costs		Value	Yield		Costs		Value	Yield
U.S. Government and federal agency:
Less than one year	$	200		200	1.37%	$	-	$	-	-
After five but within ten years		3,044		3,051	2.13%		4,482		4,656	3.43%
After ten years		4,442		4,585	2.76%		3,778		3,948	3.21%
Government-sponsored enterprises:
After one but within five years		2,584		2,680	1.77%		-		-	-
After five but within ten years		14,574		14,647	1.85%		-		-	-
After ten years		6,500		6,515	3.58%		-		-	-
Obligations of states and subdivisions:
After one but within five years		5,447		5,442	1.83%		599		616	3.90%
After five but within ten years		4,583		4,570	2.13%		4,841		5,182	4.16%
After ten years		12,480		12,956	3.83%		10,701		11,419	4.35%
Mortgage-backed securities		74,041		76,106	2.29%		250		270	4.66%
Collateralized mortgage obligations		11,980		12,115	1.90%		1,824		1,923	5.57%
Total	$	139,875	$	142,867		$	26,475	$	28,014
Total Securities by Maturity Period
Less than one year	$	200	$	200		$	-	$	-
After one but within five years		8,031		8,122			599		616
After five but within ten years		22,201		22,268			9,323		9,838
After ten years		23,422		24,056			14,479		15,367
Mortgage-backed securities*		74,041		76,106			250		270
Collateralized mortgage obligations*		11,980		12,115			1,824		1,923
Total by Maturity Period	$	139,875	$	142,867		$	26,475	$	28,014

*  Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

The following tables detail unrealized losses and related fair values in the Bank’s available-for-sale and held-to-maturity investment securities portfolios.  This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2012 and December 31, 2011, respectively.

Temporarily Impaired Securities in AFS Portfolio
In thousands		Less than 12 months				Greater than 12 months				Total
				Unrealized				Unrealized				Unrealized
September 30, 2012		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Government-sponsored enterprises	$	2,493	$	(7)	$	-	$	-	$	2,493	$	(7)
Collateralized mortgage obligations		3,442		(10)		-		-		3,442		(10)
States and political subdivisions		10,327		(82)		-		-		10,327		(82)
	$	16,262	$	(99)	$	-	$	-	$	16,262	$	(99)

December 31, 2011
Government-sponsored enterprises	$	10,558	$	(30)	$	2,993	$	(7)	$	13,551	$	(37)
Mortgage-backed securities		42,828		(182)		-		-		42,828		(182)
Collateralized mortgage obligations		6,884		(14)		16		(1)		6,900		(15)
States and political subdivisions		3,971		(19)		-		-		3,971		(19)
	$	64,241	$	(245)	$	3,009	$	(8)	$	67,250	$	(253)

There were no securities with unrealized losses in the HTM portfolio at September 30, 2012.

Temporarily Impaired Securities in HTM Portfolio
In thousands		Less than 12 months				Greater than 12 months				Total
				Unrealized				Unrealized				Unrealized
December 31, 2011		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
States and political subdivisions	$	1,005	$	(11)	$	-	$	-	$	1,005	$	(11)
	$	1,005	$	(11)	$	-	$	-	$	1,005	$	(11)

Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment is other than temporary.  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, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At  September 30, 2012, there are no securities in the portfolio with unrealized losses for a period greater than 12 months.

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Components Of Loans In The Consolidated Balance Sheets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Deferred loan fees, net	$ 358	$ 452
Gross loans	541,968	508,586
Allowance for loan losses	(8,548)	(9,650)
Net Loans	533,420	498,936
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	90,997	87,711
Allowance for loan losses	(470)	(1,113)
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	263,242	257,578
Allowance for loan losses	(2,972)	(3,725)
Construction Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	46,478	36,081
Allowance for loan losses	(3,293)	(4,052)
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	136,245	122,450
Allowance for loan losses	(1,779)	(732)
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	4,648	4,314
Allowance for loan losses	$ (34)	$ (28)

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Changes In Allowance For Loan Losses) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	$ 9,650
Charge-offs	(1,075)
Recoveries	26
Provision	(53)
Ending Balance	8,548
Commercial [Member]
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	1,113
Charge-offs	(104)
Recoveries	7
Provision	(546)
Ending Balance	470
Commercial Real Estate [Member]
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	3,725
Provision	(753)
Ending Balance	2,972
Construction Real Estate [Member]
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	4,052
Charge-offs	(496)
Provision	(263)
Ending Balance	3,293
Residential Real Estate [Member]
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	732
Charge-offs	(470)
Recoveries	2
Provision	1,515
Ending Balance	1,779
Consumer [Member]
Allowance For Loan And Lease Losses Rollforward [Line Items]
Beginning Balance	28
Charge-offs	(5)
Recoveries	17
Provision	(6)
Ending Balance	$ 34

XML

Fair Value (Schedule Of Carrying Amounts And Fair Values Of The Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Carrying Amounts [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities held-to-maturity	$ 26,475	$ 28,770
Loans, net	533,420	498,936
Time deposits/IRAs	149,161	174,338
FHLB borrowings	58,000	43,000
Junior subordinated debentures	16,496	16,496
Approximate Fair Values [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities held-to-maturity	28,014	29,723
Loans, net	545,517	506,971
Time deposits/IRAs	150,334	175,674
FHLB borrowings	62,394	47,301
Junior subordinated debentures	16,362	16,361
Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities held-to-maturity	28,014	29,723
Time deposits/IRAs	150,334	175,674
FHLB borrowings	62,394	47,301
Junior subordinated debentures	16,362	16,361
Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans, net	$ 545,517	$ 506,971

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 9,262	$ 8,428
Interest-bearing deposits	12,872	22,296
Total cash and cash equivalents	22,134	30,724
Securities available-for-sale	142,867	160,465
Securities held to maturity (fair value 9/30/12: $28,014; 12/31/11: $29,723)	26,475	28,770
Loans, net of allowance for loan losses, 9/30/12: $8,548; 12/31/11: $9,650)	533,420	498,936
Foreclosed assets	22,151	17,040
Premises and equipment, net	7,950	7,491
Bank owned life insurance	17,541	16,565
Accrued interest receivable	2,518	2,401
Other assets	10,236	11,112
Total assets	785,292	773,504
Liabilities:
Noninterest-bearing deposits	18,004	17,903
Interest-bearing deposits	599,543	612,805
Total deposits	617,547	630,708
Federal funds purchased and securities sold under agreements to repurchase	22,022	18,646
FHLB borrowings	58,000	43,000
Junior subordinated debentures	16,496	16,496
Accrued interest payable	437	533
Other liabilities	4,614	4,008
Total liabilities	719,116	713,391
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; 16,019 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	15,794	15,661
Common stock, no par value; 10,000,000 shares authorized; 4,742,295 shares issued and outstanding at September 30, 2012 and 4,711,123 shares issued and outstanding at December 31, 2011	23,845	23,654
Retained earnings	24,457	20,131
Accumulated other comprehensive income	2,080	667
Total shareholders' equity	66,176	60,113
Total liabilities and shareholders' equity	$ 785,292	$ 773,504

XML

Stock Based Compensation (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011
Stock Based Compensation [Abstract]
Share-based compensation		$ 188	$ 189
Cash received from options exercised	$ 0	$ 3

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities
Net income	$ 5,225	$ 3,887
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Provision for loan losses	(53)	425
Depreciation and amortization of bank premises, equipment and software	519	546
Net amortization of bond premiums/discounts	1,930	1,215
Stock compensation expense	188	189
Net gains on sale of securities	(158)	(1,017)
Net losses and impairment writedowns on foreclosed assets and premises	391	963
Increase in value of life insurance contracts	(477)	(433)
Decrease in other assets	841	4,095
Increase in other liabilities	344	1,157
Net cash and cash equivalents provided by operating activities	8,750	11,027
Cash flows from investing activities
Purchases of bank premises, equipment and software	(966)	(316)
Purchases of securities available-for-sale	(85,946)	(104,704)
Purchases of securities held-to-maturity		(2,771)
Proceeds from maturities, calls, and paydowns of securities available-for-sale	103,266	82,295
Proceeds from maturities, calls, and paydowns of securities held-to-maturity	2,214	3,410
Proceeds from sale of foreclosed assets	302	2,447
Purchase of bank owned life insurance	(500)	(1,500)
Capitalized costs related to foreclosed assets	(1,058)	(1,280)
(Increase) decrease in loans, net	(39,270)	27,511
Net cash and cash equivalents provided by / (used in) investing activities	(21,958)	5,092
Cash flows from financing activities
Increase in non-interest bearing deposits	101	2,517
Decrease in interest bearing deposits	(13,262)	(22,432)
Proceeds from borrowings	25,000	17,500
Principal repayments of borrowings	(10,000)	(15,000)
Increase (decrease) in securities sold under agreements to repurchase	3,376	(2,701)
Net proceeds from issuance of common stock	3
Cash dividends paid	(600)	(1,201)
Net cash and cash equivalents provided by / (used in) financing activities	4,618	(21,317)
Net increase in cash and cash equivalents	(8,590)	(5,198)
Cash and cash equivalents at beginning of period	30,724	24,312
Cash and cash equivalents at end of period	22,134	19,114
Supplemental disclosure of cash flow information
Cash paid during the period for interest	4,791	6,991
Cash paid during the period for income taxes	2,105	936
Noncash financing and investing activities
Transfer of loans to foreclosed property	$ 4,746	$ 3,491

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Impaired Loan Financing Receivables) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	$ 27,199	$ 33,463
With no related allowance, Unpaid Principal Balance	29,595	35,802
With no related allowance, Average Recorded Investment	27,689	34,443
With no related allowance, Interest Income Recognized	1,063	1,640
With an allowance recorded, Recorded Investment	6,558	5,505
With an allowance recorded, Unpaid Principal Balance	12,183	11,102
With an allowance recorded, Average Recorded Investment	12,282	5,774
With an allowance recorded, Interest Income Recognized	93	218
Recorded Investment	33,757	38,968
Unpaid Principal Balance	41,778	46,904
Related Allowance	2,210	2,099
Average Recorded Investment	39,971	40,217
Interest Income Recognized	1,156	1,858
Commercial [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	2,064	4,321
With no related allowance, Unpaid Principal Balance	2,267	4,880
With no related allowance, Average Recorded Investment	2,485	4,791
With no related allowance, Interest Income Recognized	60	133
With an allowance recorded, Recorded Investment	297	218
With an allowance recorded, Unpaid Principal Balance	308	222
With an allowance recorded, Average Recorded Investment	315	225
With an allowance recorded, Interest Income Recognized	1	9
Recorded Investment	2,361	4,539
Unpaid Principal Balance	2,575	5,102
Related Allowance	112	79
Average Recorded Investment	2,800	5,016
Interest Income Recognized	61	142
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	15,321	17,075
Unpaid Principal Balance	15,321	17,196
Average Recorded Investment	14,670	17,427
Interest Income Recognized	681	955
Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	10,680	14,963
With no related allowance, Unpaid Principal Balance	10,680	14,995
With no related allowance, Average Recorded Investment	12,217	15,305
With no related allowance, Interest Income Recognized	575	892
Income Producing [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	4,641	2,112
With no related allowance, Unpaid Principal Balance	4,641	2,201
With no related allowance, Average Recorded Investment	2,453	2,122
With no related allowance, Interest Income Recognized	106	63
Construction Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	7,242	9,066
Unpaid Principal Balance	14,831	16,173
Related Allowance	1,929	1,890
Average Recorded Investment	13,949	9,514
Interest Income Recognized	136	348
Construction Real Estate - 1 - 4 Family [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	1,294	1,763
With no related allowance, Unpaid Principal Balance	1,294	1,643
With no related allowance, Average Recorded Investment	1,503	1,632
With no related allowance, Interest Income Recognized	50	73
With an allowance recorded, Recorded Investment	289	471
With an allowance recorded, Unpaid Principal Balance	321	490
With an allowance recorded, Average Recorded Investment	402	723
With an allowance recorded, Interest Income Recognized		29
Related Allowance	217	51
Construction Real Estate - Other [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	1,710	2,906
With no related allowance, Unpaid Principal Balance	3,695	4,541
With no related allowance, Average Recorded Investment	2,520	3,230
With no related allowance, Interest Income Recognized	51	100
With an allowance recorded, Recorded Investment	3,769	3,741
With an allowance recorded, Unpaid Principal Balance	9,341	9,314
With an allowance recorded, Average Recorded Investment	9,341	3,741
With an allowance recorded, Interest Income Recognized	25	132
Related Allowance	1,708	1,839
Construction Real Estate - Farmland [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment		185
With no related allowance, Unpaid Principal Balance		185
With no related allowance, Average Recorded Investment		188
With no related allowance, Interest Income Recognized		14
With an allowance recorded, Recorded Investment	180
With an allowance recorded, Unpaid Principal Balance	180
With an allowance recorded, Average Recorded Investment	183
With an allowance recorded, Interest Income Recognized	10
Related Allowance	4
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	8,805	8,273
Unpaid Principal Balance	9,023	8,418
Related Allowance	169	130
Average Recorded Investment	8,520	8,242
Interest Income Recognized	277	412
Residential Real Estate - Equity Lines [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	861	304
With no related allowance, Unpaid Principal Balance	864	230
With no related allowance, Average Recorded Investment	883	230
With no related allowance, Interest Income Recognized	25	7
Residential Real Estate - 1 -4 Family [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	5,817	6,875
With no related allowance, Unpaid Principal Balance	6,022	7,093
With no related allowance, Average Recorded Investment	5,492	6,906
With no related allowance, Interest Income Recognized	191	356
With an allowance recorded, Recorded Investment	1,977	1,027
With an allowance recorded, Unpaid Principal Balance	1,984	1,027
With an allowance recorded, Average Recorded Investment	1,992	1,035
With an allowance recorded, Interest Income Recognized	57	48
Related Allowance	152	97
Residential Real Estate - Junior Liens [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	104	19
With no related allowance, Unpaid Principal Balance	104	19
With no related allowance, Average Recorded Investment	104	21
With no related allowance, Interest Income Recognized	4	1
With an allowance recorded, Recorded Investment	46	48
With an allowance recorded, Unpaid Principal Balance	49	49
With an allowance recorded, Average Recorded Investment	49	50
Related Allowance	17	33
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	28	15
Unpaid Principal Balance	28	15
Average Recorded Investment	32	18
Interest Income Recognized	1	1
Other [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	28	15
With no related allowance, Unpaid Principal Balance	28	15
With no related allowance, Average Recorded Investment	32	18
With no related allowance, Interest Income Recognized	$ 1	$ 1

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Summary Of Earnings Per Share And The Shares Utilized In The Computations

		Net Income
		Available to Common	Weighted Average
		Shareholders (000s)	Common Shares		Per Share Amount
Quarter ended September 30, 2012
Basic earnings per common share	$	1,452	4,742,295	$	0.31
Effect of dilutive stock options		-	51,916
Effect of dilutive stock warrants		-	76,866
Diluted earnings per common share	$	1,452	4,871,077	$	0.30
Quarter ended September 30, 2011
Basic earnings per common share	$	1,328	4,697,256	$	0.28
Effect of dilutive stock options		-	38,402
Effect of dilutive stock warrants		-	-
Diluted earnings per common share	$	1,328	4,735,658	$	0.28

The following tables summarize earnings per share and the shares utilized in the computations for the nine months ended September 30, 2012 and 2011, respectively:

		Net Income
		Available to Common	Weighted Average
		Shareholders (000s)	Common Shares		Per Share Amount
Year-to-date, September 30, 2012
Basic earnings per common share	$	4,491	4,737,998	$	0.95
Effect of dilutive stock options		-	45,552
Effect of dilutive stock warrants		-	46,088
Diluted earnings per common share	$	4,491	4,829,638	$	0.93
Year-to-date, September 30, 2011
Basic earnings per common share	$	3,161	4,694,299	$	0.67
Effect of dilutive stock options		-	31,668
Effect of dilutive stock warrants		-	-
Diluted earnings per common share	$	3,161	4,725,967	$	0.67

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Risk Category Of Loans And Leases) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 91,354	$ 85,345
Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	258,567	234,179
Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	14,774	23,573
Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	36,022	38,273
Commercial [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	23,033	29,554
Commercial [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	62,996	49,325
Commercial [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,416	3,659
Commercial [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,552	5,173
Commercial Real Estate [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	65,464	52,240
Commercial Real Estate [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	166,381	170,757
Commercial Real Estate [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	7,812	13,982
Commercial Real Estate [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	23,585	20,599
Owner Occupied [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	38,055	27,917
Owner Occupied [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	61,771	64,408
Owner Occupied [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,525	3,058
Owner Occupied [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	13,737	18,086
Income Producing [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	17,267	15,710
Income Producing [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	96,182	100,994
Income Producing [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	6,287	10,924
Income Producing [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	9,848	2,513
Multifamily [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	10,142	8,613
Multifamily [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	8,428	5,355
Construction Real Estate [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,857	3,551
Construction Real Estate [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	29,190	14,097
Construction Real Estate [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	4,546	5,932
Construction Real Estate [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	9,885	12,501
Construction Real Estate - 1 - 4 Family [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,621	2,125
Construction Real Estate - 1 - 4 Family [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	17,036	4,871
Construction Real Estate - 1 - 4 Family [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,561	1,489
Construction Real Estate - 1 - 4 Family [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,246	2,686
Construction Real Estate - Other [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total		1,426
Construction Real Estate - Other [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	11,524	8,881
Construction Real Estate - Other [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	2,499	3,610
Construction Real Estate - Other [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	7,459	9,630
Construction Real Estate - Farmland [Member] | Risk Rating 1 - 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	236
Construction Real Estate - Farmland [Member] | Risk Rating 5 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	630	345
Construction Real Estate - Farmland [Member] | Risk Rating 6 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	486	833
Construction Real Estate - Farmland [Member] | Risk Rating 7 [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 180	$ 185

XML

Fair Value (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value [Abstract]

Schedule Of Assets And Liabilities Recorded At Fair Value On A Recurring Basis

:

In thousands
September 30, 2012		Total		Level 1		Level 2		Level 3
Investment securities available-for-sale:
U.S. Government and federal agency	$	7,836	$	-	$	7,836	$	-
Government-sponsored enterprises		23,842		-		23,842		-
Mortgage-backed securities		76,106		-		76,106		-
Collateralized mortgage obligations		12,115		-		12,115		-
State and political subdivisions		22,968		-		22,968		-
Held for sale loans		972		-		972		-
Total assets at fair value	$	143,839	$	-	$	143,839	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

December 31, 2011
Investment securities available-for-sale:
U.S. Government and federal agency	$	2,772	$	-	$	2,772	$	-
Government-sponsored enterprises		38,842		-		38,842		-
Mortgage-backed securities		99,490		-		99,490		-
Collateralized mortgage obligations		15,390		-		15,390		-
State and political subdivisions		3,971		-		3,971		-
Held for sale loans		640		-		640		-
Total assets at fair value	$	161,105	$	-	$	161,105	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

Schedule Of Assets And Liabilities Recorded At Fair Value On A Nonrecurring Basis

:

In thousands
September 30, 2012		Total		Level 1		Level 2		Level 3
Impaired Loans:
Commercial	$	551	$	-	$	-	$	551
Residential Real Estate		2,370		-		-		2,370
Construction Real Estate		2,890		-		-		2,890
Total Impaired Loans	$	5,811	$	-	$	-	$	5,811
Foreclosed Assets		22,151		-		-		22,151
Total assets at fair value	$	27,962	$	-	$	-	$	27,962
Total liabilities at fair value	$	-	$	-	$	-	$	-

December 31, 2011
Impaired Loans:
Commercial	$	1,035	$	-	$	-	$	1,035
Commercial Real Estate		56		-		-		56
Residential Real Estate		1,228		-		-		1,228
Construction Real Estate		3,469		-		-		3,469
Total Impaired Loans	$	5,788	$	-	$	-	$	5,788
Foreclosed Assets		17,040		-		-		17,040
Total assets at fair value	$	22,828	$	-	$	-	$	22,828
Total liabilities at fair value	$	-	$	-	$	-	$	-

Level 3 Assets And Liabilities Measured At Fair Value On Recurring Or Non-Recurring Basis

		Fair Value at		Significant	Significant
		September 30,	Valuation	Unobservable	Unobservable
		2012	Technique	Inputs	Input Value
Impaired Loans	$	5,811	Management estimate	Appraisals and/or sales of comparable properties	n/a
Foreclosed Assets	$	22,151	Management estimate	Appraisals and/or sales of comparable properties	n/a

Schedule Of Carrying Amounts And Fair Values Of The Financial Instruments

						Quoted Prices
						in Active Markets		Significant		Significant
						for Identical Assets		Other Observable		Unobservable
September 30, 2012		Carrying		Approximate		or Liabilities		Inputs		Inputs
In thousands		Amounts		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets
Securities held-to-maturity	$	26,475	$	28,014	$	-	$	28,014	$	-
Loans, net		533,420		545,517		-		-		545,517
Financial liabilities
Time deposits/IRAs		149,161		150,334		-		150,334		-
FHLB borrowings		58,000		62,394		-		62,394		-
Junior subordinated debentures		16,496		16,362		-		16,362		-

December 31, 2011
In thousands
Financial assets
Securities held-to-maturity	$	28,770	$	29,723	$	-	$	29,723	$	-
Loans, net		498,936		506,971		-		-		506,971
Financial liabilities
Time deposits/IRAs		174,338		175,674		-		175,674		-
FHLB borrowings		43,000		47,301		-		47,301		-
Junior subordinated debentures		16,496		16,361		-		16,361		-

XML

Organization And Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Organization And Summary Of Significant Accounting Policies [Abstract]

Organization And Summary Of Significant Accounting Policies

Note 1.  Organization and Summary of Significant Accounting Policies

Valley Financial Corporation (the "Company") was incorporated under the laws of the Commonwealth of Virginia on March 15, 1994, primarily to serve as a holding company for Valley Bank (the "Bank"), which opened for business on May 15, 1995. The Company's fiscal year end is December 31.

The consolidated financial statements of the Company conform to generally accepted accounting principles and to general banking industry practices. The interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments of a normal recurring nature which are necessary for a fair presentation of the consolidated financial statements herein have been included. The consolidated financial statements herein should be read in conjunction with the Company's 2011 Annual Report on Form 10-K.

Interim financial performance is not necessarily indicative of performance for the full year.

The Company reports its activities as a single business segment. 

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. 

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure.

Recent and Future Accounting Considerations

None.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Securities held-to-maturity, fair value	$ 28,014	$ 29,723
Loans, allowance for loan losses	8,548	9,650
Preferred stock, par value	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	16,019	16,019
Preferred stock, shares outstanding	16,019	16,019
Preferred Stock, Liquidation Preference, Value	$ 1,000	$ 1,000
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	4,742,295	4,711,123
Common stock, shares outstanding	4,742,295	4,711,123

XML

Other Items

9 Months Ended

Sep. 30, 2012

Other Items [Abstract]

Other Items

Note 11.  Other Items

On September 27, 2012, the Company’s Board of Directors declared a quarterly cash dividend in the amount of $0.035 per share, payable on November 1, 2012 to common shareholders of record October 15, 2012. 

On October 25, 2012, with regulatory permission, the Board of Directors authorized the Company's redemption of the first 10%, or $1,601,900, of its TARP preferred stock currently held by the U. S. Treasury. The payment will be made on November 14, 2012.

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 14, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012
Entity Registrant Name	VALLEY FINANCIAL CORP /VA/
Entity Central Index Key	0000921590
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,742,295

XML

Organization And Summary Of Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2012

Organization And Summary Of Significant Accounting Policies [Abstract]

Use Of Estimates

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Subsequent Events

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure.

XML

Consolidated Statements Of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest Income:
Interest and fees on loans	$ 6,935	$ 6,913	$ 20,415	$ 20,960
Interest on securities-taxable	833	1,128	3,040	3,380
Interest on securities-nontaxable	131	134	396	447
Interest on deposits in banks	4	21	30	66
Total interest income	7,903	8,196	23,881	24,853
Interest Expense:
Interest on deposits	984	1,541	3,342	5,015
Interest on borrowings	455	492	1,353	1,474
Total interest expense	1,439	2,033	4,695	6,489
Net interest income	6,464	6,163	19,186	18,364
Provision for loan losses		164	(53)	425
Net interest income after provision for loan losses	6,464	5,999	19,239	17,939
Noninterest Income:
Service charges on deposit accounts	437	360	1,163	1,049
Mortgage fee income	159	67	464	175
Brokerage fee income, net	183	188	655	339
Realized gain on sale of securities	118	541	158	1,017
Other income	292	217	771	608
Total noninterest income	1,189	1,373	3,211	3,188
Noninterest Expense:
Compensation expense	2,716	2,459	7,955	6,987
Occupancy and equipment expense	405	370	1,175	1,170
Data processing expense	305	256	889	786
Insurance expense	233	445	850	2,024
Professional fees	290	415	750	1,265
Foreclosed asset expense, net	475	579	917	1,194
Other operating expenses	790	818	2,390	2,388
Total noninterest expense	5,214	5,342	14,926	15,814
Income before income taxes	2,439	2,030	7,524	5,313
Income tax expense	742	460	2,299	1,426
Net income	1,697	1,570	5,225	3,887
Preferred dividends and accretion of discounts on warrants	245	242	734	726
Net income available to common shareholders	$ 1,452	$ 1,328	$ 4,491	$ 3,161
Earnings per common share
Basic earnings per common share	$ 0.31	$ 0.28	$ 0.95	$ 0.67
Diluted earnings per common share	$ 0.30	$ 0.28	$ 0.93	$ 0.67
Weighted average shares outstanding	4,742,295	4,697,256	4,737,998	4,694,299
Diluted average shares outstanding	4,871,077	4,735,658	4,829,638	4,725,967
Dividends declared per common share	$ 0.04		$ 0.04

XML

Stock Based Compensation

9 Months Ended

Sep. 30, 2012

Stock Based Compensation [Abstract]

Stock Based Compensation

Note 6.  Stock Based Compensation

The Company has two share-based compensation plans, which are described in the Company’s December 31, 2011 Annual Report on Form 10-K. The compensation cost that has been charged against income for those plans was approximately  $188and $189for the nine-month periods ended September 30, 2012 and 2011, respectively.  The Company has no nonqualified stock options outstanding at September 30, 2012. 

A summary of option activity during the three-month periods ended September 30, 2012 and 2011 is presented below: 

					Weighted Avg.			Weighted Avg.
	Options		Weighted Avg.		Grant Date		Aggregate	Contractual
September 30, 2012	Outstanding		Exercise Price		Fair Value		Intrinsic Value	Term
Balance at 12/31/11	221,290	$	8.59	$	2.74	$	62	5.28 years
Granted	5,300		6.96		3.12
Exercised	(1,000)		3.41		1.10		4
Forfeited	(1,640)		10.07		3.97
Expired	(13,100)		5.33		0.51
Balance at 9/30/12	210,850		8.76		2.89		407	4.96 years
Exercisable at 9/30/12	156,638	$	9.99	$	3.26	$	181	4.19 years

September 30, 2011
Balance at 12/31/10	232,550	$	8.44	$	2.64	$	-	5.78 years
Granted	1,000		4.87		2.09
Forfeited	(760)		5.82		2.24
Expired	(13,800)		5.17		0.95
Balance at 9/30/11	218,990		8.64		2.75		44	5.40 years
Exercisable at 9/30/11	146,508	$	9.98	$	3.14	$	9	4.40 years

Cash received from options exercised under all share-based payment arrangements for the three and nine-months ended September 30, 2012 was $0 and $3, respectively.

Information regarding options vested during the three-month periods ended September 30, 2012 and 2011 are as follows:

	3 Months Ended				9 Months Ended
		9/30/2012		9/30/2011		9/30/2012		9/30/2011
Number of options vested:		460		1,470		11,080		12,290
Total grant date fair value of options vested	$	1	$	4	$	34	$	39

A summary of restricted stock activity during the nine-month period ended September 30, 2012 and 2011 is presented below:

	September 30, 2012			September 30, 2011
	Non-Vested		Weighted Average	Non-Vested		Weighted Average
	Restricted Stock		Grant Date	Restricted Stock		Grant Date
	Outstanding		Fair Value	Outstanding		Fair Value
Beginning balance outstanding	37,460	$	3.68	64,015	$	4.26
Granted	18,442		5.52	18,867		3.86
Vested	(30,172)		4.95	(12,005)		4.05
Forfeited	-		-	(300)		4.05
Ending balance outstanding	25,730	$	3.51	70,577	$	4.19

XML

Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 5.  Earnings Per Share

Basic earnings per share are based upon the weighted average number of common shares outstanding during the period.  The weighted average common shares outstanding for the diluted earnings per share computations were adjusted to reflect the assumed conversion of shares available under stock options.  The following tables summarize earnings per share and the shares utilized in the computations for the three months ended September 30, 2012 and 2011, respectively:

		Net Income
		Available to Common	Weighted Average
		Shareholders (000s)	Common Shares		Per Share Amount
Quarter ended September 30, 2012
Basic earnings per common share	$	1,452	4,742,295	$	0.31
Effect of dilutive stock options		-	51,916
Effect of dilutive stock warrants		-	76,866
Diluted earnings per common share	$	1,452	4,871,077	$	0.30
Quarter ended September 30, 2011
Basic earnings per common share	$	1,328	4,697,256	$	0.28
Effect of dilutive stock options		-	38,402
Effect of dilutive stock warrants		-	-
Diluted earnings per common share	$	1,328	4,735,658	$	0.28

The following tables summarize earnings per share and the shares utilized in the computations for the nine months ended September 30, 2012 and 2011, respectively:

		Net Income
		Available to Common	Weighted Average
		Shareholders (000s)	Common Shares		Per Share Amount
Year-to-date, September 30, 2012
Basic earnings per common share	$	4,491	4,737,998	$	0.95
Effect of dilutive stock options		-	45,552
Effect of dilutive stock warrants		-	46,088
Diluted earnings per common share	$	4,491	4,829,638	$	0.93
Year-to-date, September 30, 2011
Basic earnings per common share	$	3,161	4,694,299	$	0.67
Effect of dilutive stock options		-	31,668
Effect of dilutive stock warrants		-	-
Diluted earnings per common share	$	3,161	4,725,967	$	0.67

XML

Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Stock Based Compensation [Abstract]

Summary Of Stock Options Activity

					Weighted Avg.			Weighted Avg.
	Options		Weighted Avg.		Grant Date		Aggregate	Contractual
September 30, 2012	Outstanding		Exercise Price		Fair Value		Intrinsic Value	Term
Balance at 12/31/11	221,290	$	8.59	$	2.74	$	62	5.28 years
Granted	5,300		6.96		3.12
Exercised	(1,000)		3.41		1.10		4
Forfeited	(1,640)		10.07		3.97
Expired	(13,100)		5.33		0.51
Balance at 9/30/12	210,850		8.76		2.89		407	4.96 years
Exercisable at 9/30/12	156,638	$	9.99	$	3.26	$	181	4.19 years

September 30, 2011
Balance at 12/31/10	232,550	$	8.44	$	2.64	$	-	5.78 years
Granted	1,000		4.87		2.09
Forfeited	(760)		5.82		2.24
Expired	(13,800)		5.17		0.95
Balance at 9/30/11	218,990		8.64		2.75		44	5.40 years
Exercisable at 9/30/11	146,508	$	9.98	$	3.14	$	9	4.40 years

Schedule Of Information Regarding Options Vested

	3 Months Ended				9 Months Ended
		9/30/2012		9/30/2011		9/30/2012		9/30/2011
Number of options vested:		460		1,470		11,080		12,290
Total grant date fair value of options vested	$	1	$	4	$	34	$	39

Summary Of Restricted Stock Activity

	September 30, 2012			September 30, 2011
	Non-Vested		Weighted Average	Non-Vested		Weighted Average
	Restricted Stock		Grant Date	Restricted Stock		Grant Date
	Outstanding		Fair Value	Outstanding		Fair Value
Beginning balance outstanding	37,460	$	3.68	64,015	$	4.26
Granted	18,442		5.52	18,867		3.86
Vested	(30,172)		4.95	(12,005)		4.05
Forfeited	-		-	(300)		4.05
Ending balance outstanding	25,730	$	3.51	70,577	$	4.19

XML

Securities (Tables)

9 Months Ended

Sep. 30, 2012

Securities [Abstract]

Schedule Of Amortized Costs, Gross Unrealized Gains And Losses, And Approximate Fair Values Of Securities Available-For-Sale

		Amortized		Unrealized		Unrealized
September 30, 2012		Cost		Gains		Losses		Fair Values
U.S. Government and federal agency	$	7,686	$	150	$	-	$	7,836
Government-sponsored enterprises *		23,658		191		(7)		23,842
Mortgage-backed securities		74,041		2,065		-		76,106
Collateralized mortgage obligations		11,980		145		(10)		12,115
States and political subdivisions		22,510		540		(82)		22,968
	$	139,875	$	3,091	$	(99)	$	142,867

December 31, 2011
U.S. Government and federal agency	$	2,770	$	2	$	-	$	2,772
Government-sponsored enterprises *		38,748		131		(37)		38,842
Mortgage-backed securities		98,836		836		(182)		99,490
Collateralized mortgage obligations		15,280		125		(15)		15,390
States and political subdivisions		3,990		-		(19)		3,971
	$	159,624	$	1,094	$	(253)	$	160,465

*  Such as FNMA, FHLMC and FHLB.

Schedule Of Amortized Costs, Gross Unrealized Gains And Losses, And Approximate Fair Values Of Securities Held-To-Maturity

		Amortized		Unrealized		Unrealized
September 30, 2012		Cost		Gains		Losses		Fair Values
U.S. Government and federal agency	$	8,260	$	344	$	-	$	8,604
Mortgage-backed securities		250		20		-		270
Collateralized mortgage obligations		1,824		99		-		1,923
States and political subdivisions		16,141		1,076		-		17,217
	$	26,475	$	1,539	$	-	$	28,014

December 31, 2011
U.S. Government and federal agency	$	8,981	$	160	$	-	$	9,141
Mortgage-backed securities		346		25		-		371
Collateralized mortgage obligations		2,555		126		-		2,681
States and political subdivisions		16,888		653		(11)		17,530
	$	28,770	$	964	$	(11)	$	29,723

Schedule Of Maturity Ranges Of Securities Available-For-Sale And Held-To-Maturity, Weighted Average Yields Of Securities

Investment Portfolio Maturity Distribution
	Available-for-Sale					Held-to-Maturity
		Amortized		Fair			Amortized		Fair
In thousands		Costs		Value	Yield		Costs		Value	Yield
U.S. Government and federal agency:
Less than one year	$	200		200	1.37%	$	-	$	-	-
After five but within ten years		3,044		3,051	2.13%		4,482		4,656	3.43%
After ten years		4,442		4,585	2.76%		3,778		3,948	3.21%
Government-sponsored enterprises:
After one but within five years		2,584		2,680	1.77%		-		-	-
After five but within ten years		14,574		14,647	1.85%		-		-	-
After ten years		6,500		6,515	3.58%		-		-	-
Obligations of states and subdivisions:
After one but within five years		5,447		5,442	1.83%		599		616	3.90%
After five but within ten years		4,583		4,570	2.13%		4,841		5,182	4.16%
After ten years		12,480		12,956	3.83%		10,701		11,419	4.35%
Mortgage-backed securities		74,041		76,106	2.29%		250		270	4.66%
Collateralized mortgage obligations		11,980		12,115	1.90%		1,824		1,923	5.57%
Total	$	139,875	$	142,867		$	26,475	$	28,014
Total Securities by Maturity Period
Less than one year	$	200	$	200		$	-	$	-
After one but within five years		8,031		8,122			599		616
After five but within ten years		22,201		22,268			9,323		9,838
After ten years		23,422		24,056			14,479		15,367
Mortgage-backed securities*		74,041		76,106			250		270
Collateralized mortgage obligations*		11,980		12,115			1,824		1,923
Total by Maturity Period	$	139,875	$	142,867		$	26,475	$	28,014

*  Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

Schedule Of Unrealized Losses And Related Fair Values In The Bank's Available-For-Sale And Held-To-Maturity Investment Securities Portfolios

Temporarily Impaired Securities in AFS Portfolio
In thousands		Less than 12 months				Greater than 12 months				Total
				Unrealized				Unrealized				Unrealized
September 30, 2012		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Government-sponsored enterprises	$	2,493	$	(7)	$	-	$	-	$	2,493	$	(7)
Collateralized mortgage obligations		3,442		(10)		-		-		3,442		(10)
States and political subdivisions		10,327		(82)		-		-		10,327		(82)
	$	16,262	$	(99)	$	-	$	-	$	16,262	$	(99)

December 31, 2011
Government-sponsored enterprises	$	10,558	$	(30)	$	2,993	$	(7)	$	13,551	$	(37)
Mortgage-backed securities		42,828		(182)		-		-		42,828		(182)
Collateralized mortgage obligations		6,884		(14)		16		(1)		6,900		(15)
States and political subdivisions		3,971		(19)		-		-		3,971		(19)
	$	64,241	$	(245)	$	3,009	$	(8)	$	67,250	$	(253)

There were no securities with unrealized losses in the HTM portfolio at September 30, 2012.

Temporarily Impaired Securities in HTM Portfolio
In thousands		Less than 12 months				Greater than 12 months				Total
				Unrealized				Unrealized				Unrealized
December 31, 2011		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
States and political subdivisions	$	1,005	$	(11)	$	-	$	-	$	1,005	$	(11)
	$	1,005	$	(11)	$	-	$	-	$	1,005	$	(11)

XML

Commitments And Contingencies

9 Months Ended

Sep. 30, 2012

Commitments And Contingencies [Abstract]

Commitments And Contingencies

Note 9.  Commitments and Contingencies

The federal income tax returns of the Company for 2009, 2010 and 2011 remain subject to examination by the IRS, generally for three years after they are filed.

Litigation

In the normal course of business the Bank may be involved in various legal proceedings.  Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.

Financial Instruments with Off-Balance-Sheet Risk

In the normal course of business to meet the financing needs of its customers, the Company is a party to financial instruments with off-balance-sheet risk, which involve commitments to extend credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.  The contract amounts of these instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

Credit risk is defined as the possibility of sustaining a loss because the other parties to a financial instrument fail to perform in accordance with the terms of the contract.  The Bank’s maximum exposure to credit loss under commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.   At September 30, 2012 outstanding commitments to extend credit were  $137,066as compared to $130,637 at December 31, 2011.

Commitments to extend credit are agreements to lend to a customer as long as there is no breach of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Commitments may be at fixed or variable rates and generally expire within one year.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Derivative Financial Instruments

For asset/liability management purposes, we may use interest rate swap agreements to hedge interest rate risk exposure to declining rates.  Such derivatives are used as part of the asset/liability management process and are linked to specific assets, and have a high correlation between the contract and the underlying item being hedged, both at inception and throughout the hedge period.  Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flow of the items being hedged.  At September 30, 2012 and December 31, 2011 the Company did not have any derivative agreements related to interest rate hedging in place.

XML

Borrowings And Restricted Stock

9 Months Ended

Sep. 30, 2012

Borrowings And Restricted Stock [Abstract]

Borrowings And Restricted Stock

Note 7.  Borrowings and Restricted Stock

Short-term Federal Home Loan Bank (“FHLB”) borrowings totaled $30.0 million at September 30, 2012 and $15.0 million at December 31, 2011.  Long-term FHLB borrowings totaled $28.0 million at September 30, 2012 and $28.0 million at December 31, 2011. 

Through the first nine months of 2012, interest expense on FHLB borrowings was $1.0 million, on junior subordinated debt was $299,000 and on fed funds purchased and securities sold under agreements to repurchase was $35,000.  In the same nine months of the prior year, interest expense on FHLB borrowings was $1.2 million, on junior subordinated debt was $281,000 and on fed funds purchased and securities sold under agreements to repurchase was $32,000.

Restricted stock, which represents a required investment in the common stock of a correspondent bank, is carried at cost, and as of September 30, 2012 and December 31, 2011, included the common stock of the FHLB, which is included in other assets.   Restricted stock totaled  $5.1 million at September 30, 2012 and $4.9 million December 31, 2011.

Management evaluates the restricted stock for impairment in accordance with authoritative accounting guidance under ASC Topic 320, “Investments – Debt and Equity Securities.”  Management’s determination of whether these investments

are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of the cost of an investment is influenced by criteria such as (1) the significance of the decline in net assets of the issuing bank as compared to the capital stock amount for that bank and the length of time this situation has persisted, (2) commitments by the issuing bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of that bank, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuing bank.

The FHLB of Atlanta neither provides dividend guidance prior to the end of each quarter, nor conducts repurchases of excess activity-based stock on a daily basis, instead making such determinations quarterly.  The FHLB of Atlanta announced on October 30, 2012 that it approved a dividend at the rate of 2.43% for the third quarter of 2012 and will reinstitute daily repurchases of excess activity-based stock beginning November 19, 2012.

Based on evaluation of criteria under ASC Topic 320, management believes that no impairment charge in respect of the restricted stock is necessary as of September 30, 2012.

XML

Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value [Abstract]

Fair Value

Note 8.  Fair Value

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability.  In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach.  Such valuation techniques are consistently applied.  Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability.  Generally accepted accounting principles regarding fair value measurements, establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3:  Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions.  Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value.  The determination of where an asset or liability falls in the hierarchy requires significant judgment.  The Company evaluates its hierarchy disclosures each quarter and based on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.  However, the Company expects changes in classifications between levels will be rare.

Securities:  Investment securities are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relaying on the securities’ relationship to other benchmark quoted securities.  Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds.  Level 2 securities include U.S. Agency securities, mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities.  Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans:  Other than the Company’s Held For Sale portfolio, the Company does not record loans at fair value on a recurring basis.  However, from time to time, a loan is considered impaired and an allowance for loan losses is established.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. 

At September 30, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the collateral.  Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2.When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Foreclosed assets:  Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.  Subsequently, foreclosed assets are carried at net realizable value.  Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2012and December 31, 2011 are summarized below:

In thousands
September 30, 2012		Total		Level 1		Level 2		Level 3
Investment securities available-for-sale:
U.S. Government and federal agency	$	7,836	$	-	$	7,836	$	-
Government-sponsored enterprises		23,842		-		23,842		-
Mortgage-backed securities		76,106		-		76,106		-
Collateralized mortgage obligations		12,115		-		12,115		-
State and political subdivisions		22,968		-		22,968		-
Held for sale loans		972		-		972		-
Total assets at fair value	$	143,839	$	-	$	143,839	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

December 31, 2011
Investment securities available-for-sale:
U.S. Government and federal agency	$	2,772	$	-	$	2,772	$	-
Government-sponsored enterprises		38,842		-		38,842		-
Mortgage-backed securities		99,490		-		99,490		-
Collateralized mortgage obligations		15,390		-		15,390		-
State and political subdivisions		3,971		-		3,971		-
Held for sale loans		640		-		640		-
Total assets at fair value	$	161,105	$	-	$	161,105	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.  These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of September 30, 2012and December 31, 2011 are included in the tables below:

In thousands
September 30, 2012		Total		Level 1		Level 2		Level 3
Impaired Loans:
Commercial	$	551	$	-	$	-	$	551
Residential Real Estate		2,370		-		-		2,370
Construction Real Estate		2,890		-		-		2,890
Total Impaired Loans	$	5,811	$	-	$	-	$	5,811
Foreclosed Assets		22,151		-		-		22,151
Total assets at fair value	$	27,962	$	-	$	-	$	27,962
Total liabilities at fair value	$	-	$	-	$	-	$	-

December 31, 2011
Impaired Loans:
Commercial	$	1,035	$	-	$	-	$	1,035
Commercial Real Estate		56		-		-		56
Residential Real Estate		1,228		-		-		1,228
Construction Real Estate		3,469		-		-		3,469
Total Impaired Loans	$	5,788	$	-	$	-	$	5,788
Foreclosed Assets		17,040		-		-		17,040
Total assets at fair value	$	22,828	$	-	$	-	$	22,828
Total liabilities at fair value	$	-	$	-	$	-	$	-

For level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2012, the significant unobservable inputs used in the fair value measurements were as follows:

		Fair Value at		Significant	Significant
		September 30,	Valuation	Unobservable	Unobservable
		2012	Technique	Inputs	Input Value
Impaired Loans	$	5,811	Management estimate	Appraisals and/or sales of comparable properties	n/a
Foreclosed Assets	$	22,151	Management estimate	Appraisals and/or sales of comparable properties	n/a

Accounting standards for financial instruments require disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet.  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.  In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.  These accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The methodologies for estimating fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.  The estimated fair value approximates carrying value for cash and cash equivalents, accrued interest and the cash surrender value of life insurance policies.  The methodologies for other financial assets and liabilities are discussed below:

Loans:  For variable-rate loans that re-price frequently and with no significant changes in credit risk, fair values are based on carrying values.  The fair values for other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.  An overall valuation adjustment is made for specific credit risks as well as general portfolio credit risk.

Deposit liabilities:  The fair values disclosed for demand and savings deposits are, by definition, equal to the amount payable on demand at the reporting date.  The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. 

Short-term borrowings:  The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within 90 days approximate their fair values.  Fair values of other short-term borrowings are estimated using discounted cash flow analyses on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Federal Home Loan Bank of Atlanta advances:  The fair values of the Company’s Federal Home Loan Bank of Atlanta advances are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Junior Subordinated Debentures:   The values of the Company’s junior subordinated debentures are variable rate instruments that reprice on a quarterly basis; therefore, carrying value is adjusted for the three month repricing lag in order to approximate fair value.

Off-Balance-Sheet Financial Instruments:  The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At September 30, 2012, the fair value of loan commitments and stand-by letters of credit was immaterial.

						Quoted Prices
						in Active Markets		Significant		Significant
						for Identical Assets		Other Observable		Unobservable
September 30, 2012		Carrying		Approximate		or Liabilities		Inputs		Inputs
In thousands		Amounts		Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets
Securities held-to-maturity	$	26,475	$	28,014	$	-	$	28,014	$	-
Loans, net		533,420		545,517		-		-		545,517
Financial liabilities
Time deposits/IRAs		149,161		150,334		-		150,334		-
FHLB borrowings		58,000		62,394		-		62,394		-
Junior subordinated debentures		16,496		16,362		-		16,362		-

December 31, 2011
In thousands
Financial assets
Securities held-to-maturity	$	28,770	$	29,723	$	-	$	29,723	$	-
Loans, net		498,936		506,971		-		-		506,971
Financial liabilities
Time deposits/IRAs		174,338		175,674		-		175,674		-
FHLB borrowings		43,000		47,301		-		47,301		-
Junior subordinated debentures		16,496		16,361		-		16,361		-

XML

Regulatory Matters

9 Months Ended

Sep. 30, 2012

Regulatory Matters [Abstract]

Regulatory Matters

Note 10.  Regulatory Matters

Regulatory Agreement

The Federal Reserve Bank of Richmond (“Federal Reserve”) terminated the September 30, 2010 Written Agreement (“Written Agreement”) between the Company and the Federal Reserve on August 20, 2012.

Dividends

The Company's principal source of funds for dividend payments is dividends received from the Bank.  The amount of dividends that may be paid by the Bank to the Company will depend on the Bank’s earnings and capital position and is limited by state law, regulations and policies.  A state bank may not pay dividends from its capital; all dividends must be paid out of net undivided profits then on hand.  Before any dividend is declared, any deficit in capital funds originally paid in shall have been restored by earnings to their initial level, and no dividend shall be declared or paid by any bank which would impair the paid-in-capital of the bank.  As of September 30, 2012 and December 31, 2011, the amount available from the Bank’s retained earnings for payment of dividends was $35,810 and $30,246 respectively.  The Company is current on all dividend payments for the Series A Preferred Stock and current on all dividend payments on its Trust Preferred Securities.  Additionally, the Company declared a quarterly cash dividend of $0.035 per share, payable November 1, 2012 to common shareholders of record October 15, 2012.

Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of September 30, 2012 and December 31, 2011 that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2012 and December 31, 2011, the Company and the Bank were categorized as “well capitalized” as defined by applicable regulations.  To be categorized as “well capitalized”, the Company and Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table below.  There are no conditions or events since that date that management believes have changed the Company's or the Bank's category.  The Company has received regulatory permission to redeem the first 10% increment of its TARP preferred stock through payment in the amount of $1,601,900 to the U. S. Treasury on November 14, 2012.  The Company's and the Bank's actual capital amounts and ratios are also presented in the table below.

								Minimum to be Well
				Minimum Required				Capitalized Under
				for Capital				Prompt Corrective
	Actual			Adequacy Purposes				Action Provisions
September 30, 2012		Amount	Ratio			Amount	Ratio			Amount	Ratio
Total Capital (to risk weighted assets):
Valley Financial Corporation	$	87,535	14.7%		$	47,518	8.0%		$	n/a	n/a
Valley Bank		83,885	14.1%			47,499	8.0%			59,374	10.0%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation		80,096	13.5%			23,759	4.0%			n/a	n/a
Valley Bank		76,449	12.9%			23,750	4.0%			35,624	6.0%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation		80,096	10.2%			31,379	4.0%			n/a	n/a
Valley Bank		76,449	9.8%			31,344	4.0%			39,180	5.0%

December 31, 2011
Total Capital (to risk weighted assets):
Valley Financial Corporation	$	82,522	14.6%	$	45,079	8.0%	$	n/a	n/a
Valley Bank		77,939	13.9%		44,940	8.0%		56,175	10.0%
Tier 1 Capital (to risk weighted assets):
Valley Financial Corporation		75,446	13.4%		22,540	4.0%		n/a	n/a
Valley Bank		70,885	12.6%		22,470	4.0%		33,705	6.0%
Tier 1 Capital - Leverage (to average assets):
Valley Financial Corporation		75,446	9.9%		30,570	4.0%		n/a	n/a
Valley Bank		70,885	9.3%		30,480	4.0%		38,100	5.0%

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Loans Receivable, By Portfolio Segment, On Nonaccrual Status) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Total	$ 8,547	$ 8,638
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,249	2,183
Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	408	1,013
Income Producing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total		808
Construction Real Estate - 1 - 4 Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	290	471
Construction Real Estate - Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	4,674	3,713
Residential Real Estate - Equity Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	62	64
Residential Real Estate - 1 -4 Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	1,815	334
Residential Real Estate - Junior Liens [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	46	49
Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total	$ 3	$ 3

XML

Fair Value (Schedule Of Assets And Liabilities Recorded At Fair Value On A Nonrecurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	$ 5,811	$ 5,788
Foreclosed Assets	22,151	17,040
Total assets at fair value, Nonrecurring	27,962	22,828
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	5,811	5,788
Foreclosed Assets	22,151	17,040
Total assets at fair value, Nonrecurring	27,962	22,828
Commercial [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	551	1,035
Commercial [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	551	1,035
Commercial Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans		56
Commercial Real Estate [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans		56
Residential Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	2,370	1,228
Residential Real Estate [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	2,370	1,228
Construction Real Estate [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	2,890	3,469
Construction Real Estate [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Impaired Loans	$ 2,890	$ 3,469

XML

Foreclosed Assets (Tables)

9 Months Ended

Sep. 30, 2012

Foreclosed Assets [Abstract]

Summary Of Foreclosed Assets

		9/30/2012		12/31/2011
Balance, beginning of period	$	17,040	$	16,081
Additions		4,746		4,341
Capitalized items		1,058		1,321
Sales		(302)		(3,623)
Impairment writedowns		(363)		(931)
Gain (loss)		(28)		(149)
Balance, end of period	$	22,151	$	17,040

XML

Securities (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Securities [Abstract]
Marketable securities, restricted, Total at cost	$ 55,926
Marketable securities, restricted, Total at FVM	58,098
Private-label collateralized mortgage obligations, amortized cost	1,684	2,358
Private-label collateralized mortgage obligations, fair value	$ 1,772	$ 2,472
Weighted average yields on tax-exempt obligations rate	34.00%

XML

Borrowings And Restricted Stock (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Borrowings And Restricted Stock [Abstract]
Short-term Federal Home Loan Bank ("FHLB") borrowings, total	$ 30,000,000	$ 30,000,000		$ 15,000,000
Long-term FHLB borrowings, total	28,000,000	28,000,000		28,000,000
Interest expense on FHLB borrowings		1,000,000	1,200,000
Interest expense on junior subordinated debentures		299,000	281,000
Fed funds purchased and securities sold under agreements to repurchase		35,000	32,000
Restricted stock	$ 5,100,000	$ 5,100,000		$ 4,900,000
FHLB dividend rate	2.43%

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Allowance For Loan Losses Individually And Collectively Evaluated For Impairment) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Allowance	$ 2,210	$ 2,099
Individually Evaluated for Impairment, Total Loans	33,757	38,968
Collectively Evaluated for Impairment, Allowance	6,338	7,551
Collectively Evaluated for Impairment, Total Loans	508,211	469,618
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Allowance	112	79
Individually Evaluated for Impairment, Total Loans	2,361	4,539
Collectively Evaluated for Impairment, Allowance	358	1,034
Collectively Evaluated for Impairment, Total Loans	88,636	83,172
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Total Loans	15,321	17,075
Collectively Evaluated for Impairment, Allowance	2,972	3,725
Collectively Evaluated for Impairment, Total Loans	247,921	240,503
Construction Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Allowance	1,929	1,890
Individually Evaluated for Impairment, Total Loans	7,242	9,067
Collectively Evaluated for Impairment, Allowance	1,364	2,162
Collectively Evaluated for Impairment, Total Loans	39,236	27,014
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Allowance	169	130
Individually Evaluated for Impairment, Total Loans	8,805	8,272
Collectively Evaluated for Impairment, Allowance	1,610	602
Collectively Evaluated for Impairment, Total Loans	127,440	114,178
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually Evaluated for Impairment, Total Loans	28	15
Collectively Evaluated for Impairment, Allowance	34	28
Collectively Evaluated for Impairment, Total Loans	4,620	4,299
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively Evaluated for Impairment, Total Loans	$ 358	$ 452

XML

Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,697	$ 1,570	$ 5,225	$ 3,887
Unrealized gains on securities:
Unrealized holding gains arising during period	1,066	766	2,310	3,912
Tax related to unrealized gains	(362)	(260)	(785)	(1,330)
Reclassification adjustment for gains included in net income	(118)	(541)	(158)	(1,017)
Tax related to realized gains	40	184	54	346
Holding gains on securities transferred to HTM from AFS:
Holding gains transferred into OCI during period				118
Holding gains amortized during period	(2)	(2)	(10)	(3)
Tax related to amortized holding gains	1		3
Total other comprehensive income	625	147	1,414	2,026
Total comprehensive income	$ 2,322	$ 1,717	$ 6,639	$ 5,913

XML

Foreclosed Assets

9 Months Ended

Sep. 30, 2012

Foreclosed Assets [Abstract]

Foreclosed Assets

Note 4.  Foreclosed Assets

The following table summarizes the activity in foreclosed assets for the nine-month period ended September 30, 2012 and the twelve-month period ended December 31, 2011:

		9/30/2012		12/31/2011
Balance, beginning of period	$	17,040	$	16,081
Additions		4,746		4,341
Capitalized items		1,058		1,321
Sales		(302)		(3,623)
Impairment writedowns		(363)		(931)
Gain (loss)		(28)		(149)
Balance, end of period	$	22,151	$	17,040

XML

Securities (Schedule Of Amortized Costs, Gross Unrealized Gains And Losses, And Approximate Fair Values Of Securities Available-For-Sale) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012		Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	$ 139,875		$ 159,624
Unrealized Gains	3,091		1,094
Unrealized Losses	(99)		(253)
Fair Values	142,867		160,465
U.S. Government And Federal Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	7,686		2,770
Unrealized Gains	150		2
Fair Values	7,836		2,772
Government-Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	23,658	[1]	38,748
Unrealized Gains	191	[1]	131
Unrealized Losses	(7)	[1]	(37)
Fair Values	23,842	[1]	38,842
States And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	22,510		3,990
Unrealized Gains	540
Unrealized Losses	(82)		(19)
Fair Values	22,968		3,971
Collateralized Mortgage Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	11,980	[2]	15,280
Unrealized Gains	145		125
Unrealized Losses	(10)		(15)
Fair Values	12,115	[2]	15,390
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Costs	74,041	[2]	98,836	[1]
Unrealized Gains	2,065		836	[1]
Unrealized Losses			(182)	[1]
Fair Values	$ 76,106	[2]	$ 99,490	[1]

[1] Such as FNMA, FHLMC and FHLB.

[2] Maturities on mortgage-backed securities and collateralized mortgage obligations are not presented in this table because maturities may differ substantially from contractual terms due to early repayments of principal.

XML

Loans And Allowance For Loan And Lease Losses (Schedule Of Historical Loss Factors) (Details)	Sep. 30, 2012	Dec. 31, 2011
Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.03%	0.66%
Owner Occupied [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.02%	0.28%
Income Producing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.00%	0.10%
Multifamily [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.18%	0.71%
Construction Real Estate - 1 - 4 Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.00%	0.54%
Construction Real Estate - Other [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	3.06%	5.04%
Construction Real Estate - Farmland [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.00%	0.00%
Residential Real Estate - Equity Lines [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.07%	0.72%
Residential Real Estate - 1 -4 Family [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.45%	0.68%
Residential Real Estate - Junior Liens [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.00%	2.08%
Consumer And Credit Cards [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio	0.68%	1.33%
Held For Sale Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Percentage of loan loss ratio

XML

Loans And Allowance For Loan And Lease Losses (Tables)

9 Months Ended

Sep. 30, 2012

Loans And Allowance For Loan And Lease Losses [Abstract]

Schedule Of Components Of Loans In The Consolidated Balance Sheets

In thousands		9/30/2012		12/31/2011
Commercial	$	90,997	$	87,711
Real estate:
Commercial real estate		263,242		257,578
Construction real estate		46,478		36,081
Residential real estate		136,245		122,450
Consumer		4,648		4,314
Deferred loan fees, net		358		452
Gross loans		541,968		508,586
Allowance for loan losses		(8,548)		(9,650)
Net loans	$	533,420	$	498,936

Schedule Of Aging Of Past Due Loans Receivable By Portfolio Segment

In thousands		30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days, Accruing
September 30, 2012
Commercial	$	176	$	586	$	557	$	1,319	$	89,678	$	90,997	$	-
Commercial real estate
Owner occupied		865		1,223		884		2,972		112,116		115,088		476
Income producing		-		-		-		-		129,584		129,584		-
Multifamily		-		-		-		-		18,570		18,570		-
Construction real estate
1 - 4 Family		-		-		289		289		23,175		23,464		-
Other		-		-		4,674		4,674		16,808		21,482		-
Farmland		-		-		-		-		1,532		1,532		-
Residential real estate
Equity Lines		124		-		400		524		29,227		29,751		400
1 - 4 Family		811		981		676		2,468		96,706		99,174		-
Junior Liens		-		88		-		88		7,232		7,320		-
Consumer
Credit Cards		23		3		-		26		1,529		1,555		-
Other		-		1		3		4		3,089		3,093		-
Deferred loan fees, net		-		-		-		-		358		358		-
Total	$	1,999	$	2,882	$	7,483	$	12,364	$	529,604	$	541,968	$	876

December 31, 2011
Commercial	$	93	$	813	$	1,957	$	2,863	$	84,848	$	87,711	$	-
Commercial real estate
Owner occupied		1,265		495		1,012		2,772		110,697		113,469		-
Income producing		-		-		808		808		129,333		130,141		-
Multifamily		-		-		-		-		13,968		13,968		-
Construction real estate
1 - 4 Family		-		-		-		-		11,171		11,171		-
Other		-		569		3,713		4,282		19,266		23,548		-
Farmland		-		-		-		-		1,362		1,362		-
Residential real estate
Equity Lines		164		-		-		164		30,241		30,405		-
1 - 4 Family		775		-		93		868		86,284		87,152		-
Junior Liens		1		-		-		1		4,892		4,893		-
Consumer
Credit Cards		10		-		-		10		1,345		1,355		-
Other		15		-		-		15		2,944		2,959		4
Deferred loan fees, net		-		-		-		-		452		452		-
Total	$	2,323	$	1,877	$	7,583	$	11,783	$	496,803	$	508,586	$	4

Schedule Of Loans Receivable, By Portfolio Segment, On Nonaccrual Status

In thousands		September 30, 2012		December 31, 2011
Commercial	$	1,249	$	2,183
Commercial real estate
Owner occupied		408		1,013
Income producing		-		808
Construction real estate
1 - 4 Family		290		471
Other		4,674		3,713
Residential real estate
Equity Lines		62		64
1 - 4 Family		1,815		334
Junior Liens		46		49
Consumer
Other		3		3
Total	$	8,547	$	8,638

Schedule Of Impaired Loan Financing Receivables

In thousands		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2012
With no related allowance:
Commercial	$	2,064	$	2,267	$	-	$	2,485	$	60
Commercial real estate
Owner occupied		10,680		10,680		-		12,217		575
Income producing		4,641		4,641		-		2,453		106
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,294		1,294		-		1,503		50
Other		1,710		3,695		-		2,520		51
Farmland		-		-		-		-		-
Residential real estate
Equity Lines		861		864		-		883		25
1 - 4 Family		5,817		6,022		-		5,492		191
Junior Liens		104		104		-		104		4
Consumer
Credit Cards		-		-		-		-		-
Other		28		28		-		32		1
Total loans with no allowance	$	27,199	$	29,595	$	-	$	27,689	$	1,063
With an allowance recorded:
Commercial		297		308		112		315		1
Construction real estate
1 - 4 Family		289		321		217		402		-
Other		3,769		9,341		1,708		9,341		25
Farmland		180		180		4		183		10
Residential real estate
1 - 4 Family		1,977		1,984		152		1,992		57
Junior Liens		46		49		17		49		-
Total loans with an allowance	$	6,558	$	12,183	$	2,210	$	12,282	$	93
Total:
Commercial		2,361		2,575		112		2,800		61
Commercial real estate		15,321		15,321		-		14,670		681
Construction real estate		7,242		14,831		1,929		13,949		136
Residential real estate		8,805		9,023		169		8,520		277
Consumer		28		28		-		32		1
Totals	$	33,757	$	41,778	$	2,210	$	39,971	$	1,156

In thousands		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2011
With no related allowance:
Commercial	$	4,321	$	4,880	$	-	$	4,791	$	133
Commercial real estate
Owner occupied		14,963		14,995		-		15,305		892
Income producing		2,112		2,201		-		2,122		63
Multifamily		-		-		-		-		-
Construction real estate
1 - 4 Family		1,763		1,643		-		1,632		73
Other		2,906		4,541		-		3,230		100
Farmland		185		185		-		188		14
Residential real estate
Equity Lines		304		230		-		230		7
1 - 4 Family		6,875		7,093		-		6,906		356
Junior Liens		19		19		-		21		1
Consumer
Credit Cards		-		-		-		-		-
Other		15		15		-		18		1
Total loans with no allowance	$	33,463	$	35,802	$	-	$	34,443	$	1,640
With an allowance recorded:
Commercial		218		222		79		225		9
Construction real estate
1 - 4 Family		471		490		51		723		29
Other		3,741		9,314		1,839		3,741		132
Residential real estate
1 - 4 Family		1,027		1,027		97		1,035		48
Junior Liens		48		49		33		50		-
Total loans with an allowance	$	5,505	$	11,102	$	2,099	$	5,774	$	218
Total:
Commercial		4,539		5,102		79		5,016		142
Commercial real estate		17,075		17,196		-		17,427		955
Construction real estate		9,066		16,173		1,890		9,514		348
Residential real estate		8,273		8,418		130		8,242		412
Consumer		15		15		-		18		1
Totals	$	38,968	$	46,904	$	2,099	$	40,217	$	1,858

Schedule Of Risk Category Of Loans And Leases

Internal Risk Rating Grades
In thousands		1-4		5		6		7
September 30, 2012
Commercial	$	23,033	$	62,996	$	2,416	$	2,552
Commercial real estate
Owner occupied		38,055		61,771		1,525		13,737
Income producing		17,267		96,182		6,287		9,848
Multifamily		10,142		8,428		-		-
Construction real estate
1 - 4 Family		2,621		17,036		1,561		2,246
Other		-		11,524		2,499		7,459
Farmland		236		630		486		180
Totals	$	91,354	$	258,567	$	14,774	$	36,022
Total:
Commercial		23,033		62,996		2,416		2,552
Commercial real estate		65,464		166,381		7,812		23,585
Construction real estate		2,857		29,190		4,546		9,885
Totals	$	91,354	$	258,567	$	14,774	$	36,022

December 31, 2011
Commercial	$	29,554	$	49,325	$	3,659	$	5,173
Commercial real estate
Owner occupied		27,917		64,408		3,058		18,086
Income producing		15,710		100,994		10,924		2,513
Multifamily		8,613		5,355		-		-
Construction real estate
1 - 4 Family		2,125		4,871		1,489		2,686
Other		1,426		8,881		3,610		9,630
Farmland		-		345		833		185
Totals	$	85,345	$	234,179	$	23,573	$	38,273
Total:
Commercial		29,554		49,325		3,659		5,173
Commercial real estate		52,240		170,757		13,982		20,599
Construction real estate		3,551		14,097		5,932		12,501
Totals	$	85,345	$	234,179	$	23,573	$	38,273

Schedule Of Risk Based On Payment Activity

Risk Based on Payment Activity	Performing				Non-Performing
In thousands		9/30/2012		12/31/2011		9/30/2012		12/31/2011
Residential real estate
Equity Lines	$	29,689	$	30,341	$	62	$	64
1 - 4 Family		97,359		86,818		1,815		334
Junior Liens		7,274		4,844		46		49
Consumer
Credit Cards		1,555		1,351		-		4
Other		3,090		2,956		3		3
Totals	$	138,967	$	126,310	$	1,926	$	454
Total:
Residential real estate		134,322		122,003		1,923		447
Consumer		4,645		4,307		3		7
Totals	$	138,967	$	126,310	$	1,926	$	454

Schedule Of Historical Loss Factors

	9/30/12	12/31/11
Commercial	0.03%	0.66%
Commercial real estate - Owner occupied	0.02%	0.28%
Commercial real estate - Income producing	0.00%	0.10%
Commercial real estate - Multifamily	0.18%	0.71%
Construction real estate - 1-4 Family	0.00%	0.54%
Construction real estate - Other	3.06%	5.04%
Construction real estate - Farmland	0.00%	0.00%
Residential real estate - Equity lines	0.07%	0.72%
Residential real estate - 1-4 Family	0.45%	0.68%
Residential real estate - Junior Liens	0.00%	2.08%
Consumer & credit cards	0.68%	1.33%
Loans held for sale	0.00%	0.00%

Schedule Of General Valuation Allowances For Credit Risk

	9/30/12		12/31/11
	Low	High	Low	High
Levels and trends in credit quality	0.20%	0.30%	0.20%	0.30%
Trends in volume of loans	1.00%	1.50%	0.00%	0.10%
Experience, ability, and depth of lending management and staff	0.00%	0.05%	0.00%	0.05%
Local economic trends and conditions	0.25%	0.35%	0.25%	0.35%
Credit concentration risk	0.00%	0.05%	0.00%	0.05%
Current industry conditions/general economic conditions	0.05%	0.10%	0.10%	0.15%
Commercial Real Estate Devaluation	0.15%	0.25%	0.15%	0.25%
Residential Real Estate Devaluation	0.15%	0.25%	0.15%	0.25%
Credit concentration risk - large relationships > $8 Million	0.30%	0.60%	0.60%	0.90%

Schedule Of Changes In Allowance For Loan Losses

		Beginning								Ending
In thousands		Balance		Charge-offs		Recoveries		Provision		Balance
September 30, 2012
Commercial	$	1,113	$	(104)	$	7	$	(546)	$	470
Commercial real estate		3,725		-		-		(753)		2,972
Construction real estate		4,052		(496)		-		(263)		3,293
Residential real estate		732		(470)		2		1,515		1,779
Consumer		28		(5)		17		(6)		34
Total	$	9,650	$	(1,075)	$	26	$	(53)	$	8,548

Schedule Of Allowance For Loan Losses Individually And Collectively Evaluated For Impairment

	Individually Evaluated for Impairment
	9/30/2012				12/31/2011
In thousands		Allowance		Total Loans		Allowance		Total Loans
Commercial	$	112	$	2,361	$	79	$	4,539
Commercial real estate		-		15,321		-		17,075
Construction real estate		1,929		7,242		1,890		9,067
Residential real estate		169		8,805		130		8,272
Consumer		-		28		-		15
Total	$	2,210	$	33,757	$	2,099	$	38,968

	Collectively Evaluated for Impairment
	9/30/2012				12/31/2011
In thousands		Allowance		Total Loans		Allowance		Total Loans
Commercial	$	358	$	88,636	$	1,034	$	83,172
Commercial real estate		2,972		247,921		3,725		240,503
Construction real estate		1,364		39,236		2,162		27,014
Residential real estate		1,610		127,440		602		114,178
Consumer		34		4,620		28		4,299
Unallocated		-		358		-		452
Total	$	6,338	$	508,211	$	7,551	$	469,618

Summary Of Troubled Debt Restructurings

	For the three months ended
In thousands	September 30, 2012					September 30, 2011
In thousands	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential real estate	-		-		-	1		60		60
Total	-	$	-	$	-	1	$	60	$	60

	For the nine months ended
In thousands	September 30, 2012					September 30, 2011
Commercial	-	$	-	$	-	1	$	192	$	192
Construction real estate	1		4,496		2,369	3		935		1,004
Residential real estate	-		-		-	7		963		995
Total	1	$	4,496	$	2,369	11	$	2,090	$	2,191