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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended June 30, 2005



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



For the transition period from  to



Commission File No. 000-31711



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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

(Exact name of registrant as specified in its charter)



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|                                         |  |                    
|---------------------------------------- |  | -------------------
|Virginia                                 |  | 54-1980794         
|(State or other jurisdiction of          |  | (IRS Employer      
|incorporation or organization)           |  | Identification No.)
|                                         | 
|323 Prince St., Tappahannock, VA         |  | 22560              
|(Address of principal executive offices) |  | (Zip Code)         



(804) 443-4343

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈NO  x



State the number of shares outstanding of each of the issuers classes of common equity as of August 8, 2005.



|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at August 8, 2005
|Common Stock, $5.00 par value |  | 1,194,937                    



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##### Table of Contents

BOE Financial Services of Virginia, Inc.



FORM 10-Q



INDEX



|                                                                                                   |  |      
|-------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                   |  | Page 
|PART I - FINANCIAL INFORMATION                                                                     |  |      
|                                                                                                   | 
|Item 1.
Financial Statements                                                                       |  | 1-6  
|                                                                                                   | 
|Consolidated Balance Sheets June 30, 2005 and December 31, 2004                                    |  | 1-2  
|                                                                                                   | 
|Consolidated Statements of Income Three months ended June 30, 2005 and 2004                        |  | 3    
|                                                                                                   | 
|Consolidated Statements of Income Six months ended June 30, 2005 and 2004                          |  | 4    
|                                                                                                   | 
|Consolidated Statements of Cash Flows Six months ended June 30, 2005 and 2004                      |  | 5    
|                                                                                                   | 
|Consolidated Statements of Changes in Stockholders Equity Six months ended June 30, 2005 and 2004 |  | 6    
|                                                                                                   | 
|Notes to Consolidated Financial Statements                                                         |  | 7-8  
|                                                                                                   | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 9-13 
|                                                                                                   | 
|Item 3.
Quantitative and Qualitative Disclosures About Market Risk                                 |  | 13-15
|                                                                                                   | 
|Item 4.
Controls and Procedures                                                                    |  | 16   
|                                                                                                   | 
|PART II - OTHER INFORMATION                                                                        |  |      
|                                                                                                   | 
|Item 1.
Legal Proceedings                                                                          |  | 16   
|                                                                                                   | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                |  | 16   
|                                                                                                   | 
|Item 3.
Defaults Upon Senior Securities                                                            |  | 16   
|                                                                                                   | 
|Item 4.
Submission of Matters to a Vote of Security Holders                                        |  | 16   
|                                                                                                   | 
|Item 5.
Other Information                                                                          |  | 16   
|                                                                                                   | 
|Item 6.
Exhibits                                                                                   |  | 17   
|                                                                                                   | 
|Signatures                                                                                         |  | 18   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



Item 1.  FINANCIAL STATEMENTS



BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets

(in Thousands except share data)



|                                                                          |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                          |  | June 30, 2005 |         |   | December 31,2004 |  
|                                                                          |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                    |  |               |         |   |                  |   |         |  
|Cash and due from banks                                                   |  | $             | 6,464   |   |                  | $ | 4,354   |  
|Federal funds sold                                                        |  |               | 0       |   |                  |   | 5,064   |  
|Securities available for sale, at fair value                              |  |               | 55,849  |   |                  |   | 54,955  |  
|Securities held to maturity(fair value $3,028 in 2005 and $3,000 in 2004) |  |               | 3,000   |   |                  |   | 3,000   |  
|Equity Securities, restricted, at cost                                    |  |               | 1,068   |   |                  |   | 833     |  
|Loans held for resale                                                     |  |               | 469     |   |                  |   | 361     |  
|Loans                                                                     |  |               | 173,850 |   |                  |   | 159,559 |  
|Less: Allowance for loan losses                                           |  |               | (2,235  | ) |                  |   | (2,088  | )
|                                                                          |  |               |         |   |                  |   |         |  
|Net loans                                                                 |  |               | 171,615 |   |                  |   | 157,471 |  
|Bank premises and equipment, net                                          |  |               | 6,373   |   |                  |   | 6,448   |  
|Accrued interest receivable                                               |  |               | 1,197   |   |                  |   | 1,154   |  
|Intangible assets, net                                                    |  |               | 713     |   |                  |   | 776     |  
|Other assets                                                              |  |               | 6,406   |   |                  |   | 2,710   |  
|                                                                          |  |               |         |   |                  |   |         |  
|Total assets                                                              |  | $             | 253,154 |   |                  | $ | 237,126 |  
|                                                                          |  |               |         |   |                  |   |         |  



See accompanying notes to consolidated
financial statements.



Page: 1



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Balance Sheets



|                                           |  |            |  |            |  |              |         |                  |   |        
|------------------------------------------ |  | ---------- |  | ---------- |  | ------------ | ------- | ---------------- | - | -------
|                                           |  |            |  |            |  | June 30,2005 |         | December 31,2004
|                                           |  |            |  |            |  | (Unaudited)  |         |                 
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |            |  |            |  |              |         |                  |   |        
|Deposits                                   |  |            |  |            |  |              |         |                  |   |        
|Noninterest bearing deposits               |  |            |  |            |  | $            | 29,779  |                  | $ | 25,605 
|Interest bearing deposits                  |  |            |  |            |  |              | 183,131 |                  |   | 181,368
|                                           |  |            |  |            |  |              |         |                  |   |        
|Total deposits                             |  |            |  |            |  |              | 212,910 |                  |   | 206,973
|                                           |  |            |  |           
|Federal funds purchased                    |  |            |  |            |  |              | 4,437   |                  |   | 0      
|Accrued interest payable                   |  |            |  |            |  |              | 374     |                  |   | 319    
|Other liabilities                          |  |            |  |            |  |              | 889     |                  |   | 1,029  
|Long  term debt                           |  |            |  |            |  |              | 5,000   |                  |   | 0      
|Trust preferred capital notes              |  |            |  |            |  |              | 4,124   |                  |   | 4,124  
|                                           |  |            |  |            |  |              |         |                  |   |        
|Total liabilities                          |  |            |  |            |  |              | 227,734 |                  |   | 212,445
|                                           |  |            |  |            |  |              |         |                  |   |        
|Commitments and Contingent Liabilities     |  |            |  |            |  |              |         |                  |   |        
|Stockholders equity                       |  |            |  |            |  |              |         |                  |   |        
|Common stock, $5.00 par value              |  |            |  |            |  |              | 5,975   |                  |   | 5,945  
|                                           |  |            |  |           
|                                           |  | 6/30/05    |  | 12/31/04   |  |              |         |                 
|Shares authorized                          |  | 10,000,000 |  | 10,000,000 |  |              |         |                  |   |        
|Shares outstanding                         |  | 1,194,937  |  | 1,188,951  |  |              |         |                  |   |        
|Paid in capital                            |  |            |  |            |  |              | 5,187   |                  |   | 5,111  
|Accumulated other comprehensive income,net |  |            |  |            |  |              | 385     |                  |   | 794    
|Retained earnings                          |  |            |  |            |  |              | 13,873  |                  |   | 12,831 
|                                           |  |            |  |            |  |              |         |                  |   |        
|Total stockholders equity                 |  |            |  |            |  |              | 25,420  |                  |   | 24,681 
|                                           |  |            |  |            |  |              |         |                  |   |        
|Total liabilities and stockholdersequity  |  |            |  |            |  | $            | 253,154 |                  | $ | 237,126
|                                           |  |            |  |            |  |              |         |                  |   |        



See accompanying notes to consolidated
financial statements.



Page: 2



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Statements of Income

(In Thousands except per share data)



|                                                                 |  |                    |       |              |   |      
|---------------------------------------------------------------- |  | ------------------ | ----- | ------------ | - | -----
|                                                                 |  | Three Months Ended
|                                                                 |  | June 30,2005       |       | June 30,2004
|                                                                 |  | (Unaudited)       
|Interest Income                                                  |  |                    |       |              |   |      
|Interest and fees on loans                                       |  | $                  | 2,911 |              | $ | 2,640
|Interest on federal funds sold                                   |  |                    | 20    |              |   | 3    
|Interest on U.S. Treasury securities and U.S. Agency Obligations |  |                    | 102   |              |   | 129  
|Interest on obligations of state and political subdivisions      |  |                    | 336   |              |   | 332  
|Interest on other securities                                     |  |                    | 135   |              |   | 81   
|Other interest income                                            |  |                    | 3     |              |   | 1    
|                                                                 |  |                    |       |              |   |      
|Total interest income                                            |  |                    | 3,507 |              |   | 3,186
|                                                                 |  |                    |       |              |   |      
|Interest Expense                                                 |  |                    |       |              |   |      
|Interest on savings and interest bearing deposits                |  |                    | 114   |              |   | 104  
|Interest on certificates of deposit                              |  |                    | 803   |              |   | 736  
|Interest on federal funds purchased                              |  |                    | 15    |              |   | 7    
|Interest on long  term debt                                     |  |                    | 23    |              |   | 0    
|Interest on trust preferred capital notes                        |  |                    | 77    |              |   | 42   
|                                                                 |  |                    |       |              |   |      
|Total interest expense                                           |  |                    | 1,032 |              |   | 889  
|                                                                 |  |                    |       |              |   |      
|Net interest income                                              |  |                    | 2,475 |              |   | 2,297
|Provision for loan losses                                        |  |                    | 75    |              |   | 75   
|                                                                 |  |                    |       |              |   |      
|Net interest income after provision for loan losses              |  |                    | 2,400 |              |   | 2,222
|                                                                 |  |                    |       |              |   |      
|Noninterest Income                                               |  |                    |       |              |   |      
|Service charges on deposit accounts                              |  |                    | 247   |              |   | 257  
|Securities gains  net                                           |  |                    | 3     |              |   | 40   
|Gains on sale of loans                                           |  |                    | 15    |              |   | 20   
|Other fee income                                                 |  |                    | 36    |              |   | 65   
|All other noninterest income                                     |  |                    | 99    |              |   | 90   
|                                                                 |  |                    |       |              |   |      
|Total noninterest income                                         |  |                    | 400   |              |   | 472  
|                                                                 |  |                    |       |              |   |      
|Noninterest Expense                                              |  |                    |       |              |   |      
|Salaries and employee benefits                                   |  |                    | 1,046 |              |   | 959  
|Premises and fixed assets                                        |  |                    | 240   |              |   | 234  
|Intangible premium amortization                                  |  |                    | 32    |              |   | 32   
|Other expenses                                                   |  |                    | 517   |              |   | 539  
|                                                                 |  |                    |       |              |   |      
|Total noninterest expense                                        |  |                    | 1,835 |              |   | 1,764
|                                                                 |  |                    |       |              |   |      
|Income before income taxes                                       |  |                    | 965   |              |   | 930  
|Income taxes                                                     |  |                    | 227   |              |   | 234  
|                                                                 |  |                    |       |              |   |      
|Net income                                                       |  | $                  | 738   |              | $ | 696  
|                                                                 |  |                    |       |              |   |      
|Earnings per share, basic                                        |  | $                  | 0.62  |              | $ | 0.59 
|Earnings per share, diluted                                      |  | $                  | 0.61  |              | $ | 0.58 



See accompanying notes to consolidated
financial statements.



Page: 3



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Consolidated Statements of Income

(In Thousands except per share data)



|                                                                 |  |                  |       |              |   |      
|---------------------------------------------------------------- |  | ---------------- | ----- | ------------ | - | -----
|                                                                 |  | Six Months Ended
|                                                                 |  | June 30,2005     |       | June 30,2004
|                                                                 |  | (Unaudited)     
|Interest Income                                                  |  |                  |       |              |   |      
|Interest and fees on loans                                       |  | $                | 5,642 |              | $ | 5,258
|Interest on federal funds sold                                   |  |                  | 35    |              |   | 6    
|Interest on U.S. Treasury securities and U.S. Agency Obligations |  |                  | 205   |              |   | 246  
|Interest on obligations of state and political subdivisions      |  |                  | 657   |              |   | 659  
|Interest on other securities                                     |  |                  | 284   |              |   | 167  
|Other interest income                                            |  |                  | 5     |              |   | 2    
|                                                                 |  |                  |       |              |   |      
|Total interest income                                            |  |                  | 6,828 |              |   | 6,338
|                                                                 |  |                  |       |              |   |      
|Interest Expense                                                 |  |                  |       |              |   |      
|Interest on savings and interest bearing deposits                |  |                  | 230   |              |   | 208  
|Interest on certificates of deposit                              |  |                  | 1,549 |              |   | 1,471
|Interest on federal funds purchased                              |  |                  | 15    |              |   | 11   
|Interest on long  term debt                                     |  |                  | 23    |              |   | 0    
|Interest on trust preferred capital notes                        |  |                  | 134   |              |   | 86   
|                                                                 |  |                  |       |              |   |      
|Total interest expense                                           |  |                  | 1,951 |              |   | 1,776
|                                                                 |  |                  |       |              |   |      
|Net interest income                                              |  |                  | 4,877 |              |   | 4,562
|Provision for loan losses                                        |  |                  | 155   |              |   | 150  
|                                                                 |  |                  |       |              |   |      
|Net interest income after provision for loan losses              |  |                  | 4,722 |              |   | 4,412
|                                                                 |  |                  |       |              |   |      
|Noninterest Income                                               |  |                  |       |              |   |      
|Service charges on deposit accounts                              |  |                  | 468   |              |   | 502  
|Securities gains  net                                           |  |                  | 8     |              |   | 50   
|Gains on sale of loans                                           |  |                  | 31    |              |   | 36   
|Other fee income                                                 |  |                  | 98    |              |   | 122  
|All other noninterest income                                     |  |                  | 189   |              |   | 173  
|                                                                 |  |                  |       |              |   |      
|Total noninterest income                                         |  |                  | 794   |              |   | 883  
|                                                                 |  |                  |       |              |   |      
|Noninterest Expense                                              |  |                  |       |              |   |      
|Salaries and employee benefits                                   |  |                  | 2,069 |              |   | 1,924
|Premises and fixed assets                                        |  |                  | 468   |              |   | 473  
|Intangible premium amortization                                  |  |                  | 63    |              |   | 63   
|Other expenses                                                   |  |                  | 1,014 |              |   | 1,085
|                                                                 |  |                  |       |              |   |      
|Total noninterest expense                                        |  |                  | 3,614 |              |   | 3,545
|                                                                 |  |                  |       |              |   |      
|Income before income taxes                                       |  |                  | 1,902 |              |   | 1,750
|Income taxes                                                     |  |                  | 443   |              |   | 433  
|                                                                 |  |                  |       |              |   |      
|Net income                                                       |  | $                | 1,459 |              | $ | 1,317
|                                                                 |  |                  |       |              |   |      
|Earnings per share, basic                                        |  | $                | 1.22  |              | $ | 1.11 
|Earnings per share, diluted                                      |  | $                | 1.21  |              | $ | 1.10 



See accompanying notes to consolidated
financial statements.



Page: 4



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, Inc.

Consolidated Statements of Cash Flows

(in Thousands)



|                                                                                  |  |                           |         |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                  |  | Six Months Ended June 30, |        
|                                                                                  |  | 2005                      |         |   | 2004 |  
|                                                                                  |  | (Unaudited)               |        
|Cash Flows from Operating Activities                                              |  |                           |         |   |      |   |        |  
|Net income                                                                        |  | $                         | 1,459   |   |      | $ | 1,317  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |         |   |      |   |        |  
|Depreciation and amortization                                                     |  |                           | 252     |   |      |   | 253    |  
|Origination of loans held for sale                                                |  |                           | (1,805  | ) |      |   | (3,878 | )
|Proceeds from sale of loans held for sale                                         |  |                           | 1,728   |   |      |   | 3,718  |  
|Provision for loan losses                                                         |  |                           | 155     |   |      |   | 150    |  
|Net amortization on securities                                                    |  |                           | 99      |   |      |   | 109    |  
|Net (gain) on sale of securities                                                  |  |                           | (8      | ) |      |   | (50    | )
|(Gain) on sale of loans                                                           |  |                           | (31     | ) |      |   | (36    | )
|Loss on other properties                                                          |  |                           | 0       |   |      |   | 14     |  
|(Increase) decrease in accrued interest receivable and other assets               |  |                           | (72     | ) |      |   | 332    |  
|Increase (decrease) in accrued expenses and other liabilities                     |  |                           | 126     |   |      |   | (641   | )
|                                                                                  |  |                           |         |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                           | 1,903   |   |      |   | 1,288  |  
|                                                                                  |  |                           |         |   |      |   |        |  
|Cash Flows from Investing Activities                                              |  |                           |         |   |      |   |        |  
|Proceeds from sale of securities available-for-sale                               |  |                           | 1,970   |   |      |   | 3,652  |  
|Proceeds from maturities and calls of securities available-for-sale               |  |                           | 3,320   |   |      |   | 1,956  |  
|Purchase of securities available for sale                                         |  |                           | (6,895  | ) |      |   | (7,773 | )
|Proceeds from redemption of restricted securities                                 |  |                           | 0       |   |      |   | 10     |  
|Purchase of restricted securities                                                 |  |                           | (235    | ) |      |   | 0      |  
|Net (increase) in loans to customers                                              |  |                           | (14,299 | ) |      |   | (3,191 | )
|Decrease in federal funds sold                                                    |  |                           | 5,064   |   |      |   | 285    |  
|Purchase of Bank Owned Life Insurance                                             |  |                           | (3,667  | ) |      |   | 0      |  
|Capital expenditures                                                              |  |                           | (114    | ) |      |   | (615   | )
|                                                                                  |  |                           |         |   |      |   |        |  
|Net cash (used in) investing activities                                           |  |                           | (14,856 | ) |      |   | (5,676 | )
|                                                                                  |  |                           |         |   |      |   |        |  
|Cash Flows from Financing Activities                                              |  |                           |         |   |      |   |        |  
|Net increase in deposits                                                          |  |                           | 5,937   |   |      |   | 149    |  
|Issuance of Common Stock                                                          |  |                           | 106     |   |      |   | 66     |  
|Increase in federal funds purchased                                               |  |                           | 4,437   |   |      |   | 5,692  |  
|Increase in long  term debt                                                      |  |                           | 5,000   |   |      |   | 0      |  
|Dividends paid                                                                    |  |                           | (417    | ) |      |   | (361   | )
|                                                                                  |  |                           |         |   |      |   |        |  
|Net cash provided by financing activities                                         |  |                           | 15,063  |   |      |   | 5,546  |  
|Net increase in cash and cash equivalents                                         |  |                           | 2,110   |   |      |   | 1,158  |  
|Cash and Cash Equivalents                                                         |  |                           |         |   |      |   |        |  
|Beginning of period                                                               |  |                           | 4,354   |   |      |   | 8,948  |  
|                                                                                  |  |                           |         |   |      |   |        |  
|End of period                                                                     |  | $                         | 6,464   |   |      | $ | 10,106 |  
|                                                                                  |  |                           |         |   |      |   |        |  
|Supplemental disclosure of cash flow information                                  |  |                           |         |   |      |   |        |  
|Cash paid during the year                                                         |  |                           |         |   |      |   |        |  
|Interest                                                                          |  | $                         | 1,895   |   |      | $ | 880    |  
|                                                                                  |  |                           |         |   |      |   |        |  
|Income Taxes                                                                      |  | $                         | 200     |   |      | $ | 350    |  
|                                                                                  |  |                           |         |   |      |   |        |  



See accompanying notes to consolidated
financial statements.



Page: 5



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##### Table of Contents

BOE Financial Services of Virginia, Inc.

Consolidated Statements of Changes in Stockholders Equity

For the Six Month Periods Ended June 30, 2005 and 2004

(in thousands)

(Unaudited)



|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|------------------------------------------------------------------------- |  | ----------- | ----- | -------------------------- | - | ---------------- |  | - | ------------------------------------ | - |  | ------------------- | ----- | - | ----- | - | ----- | - |  | - | ------ | -
|                                                                          |  | CommonStock |       | Additional Paid-In Capital |   | RetainedEarnings |  |   | Accumulated OtherComprehensiveIncome |   |  | ComprehensiveIncome |       |   | Total |  
|Balance, December 31, 2003                                                |  | $           | 5,916 |                            | $ | 5,009            |  | $ | 10,693                               |   |  | $                   | 1,304 |   |       |   |       |   |  | $ | 22,922 |  
|Comprehensive Income:                                                     |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Net income                                                                |  |             |       |                            |   |                  |  |   | 1,317                                |   |  |                     |       |   |       | $ | 1,317 |   |  |   | 1,317  |  
|Other comprehensive (loss), net of tax:                                   |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Unrealized (loss) on securities available for sale, net of deferred taxes |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   | (808  | ) |  |   |        |  
|Less: Reclassification adjustment, net of tax                             |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   | (33   | ) |  |   |        |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Other comprehensive (loss), net of tax:                                   |  |             |       |                            |   |                  |  |   |                                      |   |  |                     | (841  | ) |       |   | (841  | ) |  |   | (841   | )
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       | $ | 476   |   |  |   |        |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Cash dividends, $0.30 per share                                           |  |             |       |                            |   |                  |  |   | (361                                 | ) |  |                     |       |   |       |   |       |   |  |   | (361   | )
|Issuance of common stock                                                  |  |             | 17    |                            |   | 49               |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   | 66     |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Balance, June 30, 2004                                                    |  | $           | 5,933 |                            | $ | 5,058            |  | $ | 11,649                               |   |  | $                   | 463   |   |       |   |       |   |  | $ | 23,103 |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|                                                                          |  |             |       |                            |   |                 
|                                                                          |  | CommonStock |       | AdditionalPaid-InCapital   |   | RetainedEarnings |  |   | Accumulated OtherComprehensiveIncome |   |  | ComprehensiveIncome |       |   | Total |  
|Balance, December 31, 2004                                                |  | $           | 5,945 |                            | $ | 5,111            |  | $ | 12,831                               |   |  | $                   | 794   |   |       |   |       |   |  | $ | 24,681 |  
|Comprehensive Income:                                                     |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Net income                                                                |  |             |       |                            |   |                  |  |   | 1,459                                |   |  |                     |       |   |       | $ | 1,459 |   |  |   | 1,459  |  
|Other comprehensive (loss), net of tax:                                   |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Unrealized (loss) on securities available for sale, net of deferred taxes |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   | (404  | ) |  |   |        |  
|Less: Reclassification adjustment, net of tax                             |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   | (5    | ) |  |   |        |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Other comprehensive (loss), net of tax:                                   |  |             |       |                            |   |                  |  |   |                                      |   |  |                     | (409  | ) |       |   | (409  | ) |  |   | (409   | )
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Total comprehensive income                                                |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   | 1,050 |   |  |   |        |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Cash dividends, $0.35 per share                                           |  |             |       |                            |   |                  |  |   | (417                                 | ) |  |                     |       |   |       |   |       |   |  |   | (417   | )
|Issuance of common stock                                                  |  |             | 30    |                            |   | 76               |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   | 106    |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  
|Balance, June 30, 2004                                                    |  | $           | 5,975 |                            | $ | 5,187            |  | $ | 13,873                               |   |  | $                   | 385   |   |       |   |       |   |  | $ | 25,420 |  
|                                                                          |  |             |       |                            |   |                  |  |   |                                      |   |  |                     |       |   |       |   |       |   |  |   |        |  



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##### Table of Contents

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

Notes to Consolidated Financial Statements

(Unaudited)



1. The accounting and reporting policies of BOE Financial Services of Virginia, Inc. (the Company) conform to accounting principles generally accepted in the United States of America and to the general
practices within the banking industry. The interim financial statements have not been audited; however, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the
consolidated financial statements have been included. Operating results for the three month and six month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ended December 31, 2005.



These financial statements should be read in conjunction with
the financial statements and the footnotes included in the Companys 2004 Annual Report to Shareholders.



2. At June 30, 2005, the Company had a stock-based employee compensation plan. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.



|                                                                                                                                  |  |                          |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | -------------------------- | - | ----- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                                                                  |  | Six months endedJune 30, |       |   | Three months endedJune 30, |  
|                                                                                                                                  |  | 2005                     |       |   | 2004                       |   |       | 2005 |  |   | 2004 |  
|Net income, as reported                                                                                                           |  | $                        | 1,459 |   |                            | $ | 1,317 |      |  | $ | 738  |   |  | $ | 696  |  
|Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |                          | (35   | ) |                            |   | (30   | )    |  |   | (18  | ) |  |   | (15  | )
|                                                                                                                                  |  |                          |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Pro forma net income                                                                                                              |  | $                        | 1,424 |   |                            | $ | 1,287 |      |  | $ | 720  |   |  | $ | 681  |  
|                                                                                                                                  |  |                          |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Earnings per share:                                                                                                               |  |                          |       |   |                            |   |       |      |  |   |      |   |  |   |      |  
|Basic-as reported                                                                                                                 |  | $                        | 1.22  |   |                            | $ | 1.11  |      |  | $ | 0.62 |   |  | $ | 0.59 |  
|Basic-pro forma                                                                                                                   |  | $                        | 1.20  |   |                            | $ | 1.09  |      |  | $ | 0.60 |   |  | $ | 0.57 |  
|Diluted-as reported                                                                                                               |  | $                        | 1.21  |   |                            | $ | 1.10  |      |  | $ | 0.61 |   |  | $ | 0.58 |  
|Diluted-pro forma                                                                                                                 |  | $                        | 1.18  |   |                            | $ | 1.08  |      |  | $ | 0.60 |   |  | $ | 0.57 |  



3. Earnings per share are based on the
weighted average number of common shares and common stock equivalents outstanding during the applicable periods. Potential dilutive common stock had no effect on income available to common shareholders. No shares were excluded from the calculation
because the effect would be anti-dilutive.



|                                 |  |                    |  |               |      |        |           |           |   |     
|-------------------------------- |  | ------------------ |  | ------------- | ---- | ------ | --------- | --------- | - | ----
|                                 |  | Six months ended  
|                                 |  | June 30, 2005      |  | June 30, 2004
|                                 |  | Shares             |  | Per Share     |      | Shares |           | Per Share
|Basic earnings per share         |  | 1,191,458          |  | $             | 1.22 |        | 1,184,335 |           | $ | 1.11
|Effect of dilutive stock options |  | 11,474             |  |               |      |        | 8,883     |           |   |     
|                                 |  |                    |  |               |      |        |           |           |   |     
|Diluted earnings per share       |  | 1,202,932          |  | $             | 1.21 |        | 1,193,218 |           | $ | 1.10
|                                 |  |                    |  |               |      |        |           |           |   |     
|                                 | 
|                                 |  | Three months ended
|                                 |  | June 30, 2005      |  | June 30, 2004
|                                 |  | Shares             |  | Per Share     |      | Shares |           | Per Share
|Basic earnings per share         |  | 1,192,803          |  | $             | 0.62 |        | 1,184,746 |           | $ | 0.59
|Effect of dilutive stock options |  | 9,675              |  |               |      |        | 8,614     |           |   |     
|                                 |  |                    |  |               |      |        |           |           |   |     
|Diluted earnings per share       |  | 1,202,478          |  | $             | 0.61 |        | 1,193,360 |           | $ | 0.58
|                                 |  |                    |  |               |      |        |           |           |   |     



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4. Loans are shown on the balance sheets net of unearned discounts and the allowance for loan losses. Interest is
computed by methods which result in level rates of return on principal. Loans are charged off when in the opinion of management they are deemed to be uncollectable after taking into consideration such factors as the current financial condition of
the customer and the underlying collateral and guarantees. Loan fees and origination costs are deferred and the net amount amortized as an adjustment of the related loans yield using the level yield method. Bank of Essex (the
Bank), a wholly owned subsidiary of the Company, is amortizing these amounts over the contractual life of the related loans.



5. Defined Benefit Pension Plan



Components of Net Periodic Benefit Cost

(In Thousands)



|                                             |  |                          |      |   |                            |   |     |      |  |   |      |   |  |   |     |  
|-------------------------------------------- |  | ------------------------ | ---- | - | -------------------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                             |  | Pension Benefits         |     
|                                             |  | Six Months EndedJune 30, |      |   | Three Months EndedJune 30, |  
|                                             |  | 2005                     |      |   | 2004                       |   |     | 2005 |  |   | 2004 |  
|Service cost                                 |  | $                        | 154  |   |                            | $ | 123 |      |  | $ | 77   |   |  | $ | 62  |  
|Interest cost                                |  |                          | 106  |   |                            |   | 99  |      |  |   | 53   |   |  |   | 49  |  
|Expected return on plan assets               |  |                          | (108 | ) |                            |   | (84 | )    |  |   | (54  | ) |  |   | (42 | )
|Amortization of prior service cost           |  |                          | 2    |   |                            |   | 2   |      |  |   | 1    |   |  |   | 1   |  
|Amortization of net obligation at transition |  |                          | (2   | ) |                            |   | (2  | )    |  |   | (1   | ) |  |   | (1  | )
|Amortization of net (gain) loss              |  |                          | 28   |   |                            |   | 19  |      |  |   | 14   |   |  |   | 10  |  
|                                             |  |                          |      |   |                            |   |     |      |  |   |      |   |  |   |     |  
|Net periodic benefit cost                    |  | $                        | 180  |   |                            | $ | 157 |      |  | $ | 90   |   |  | $ | 79  |  
|                                             |  |                          |      |   |                            |   |     |      |  |   |      |   |  |   |     |  



Employer Contributions



The Company previously disclosed in its financial statements for the year ended December 31,
2004, that it expected to contribute $212,000 to its pension plan in 2005. As of June 30, 2005, no contributions have been made. The Company plans to make all required contributions to the plan.



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##### Table of Contents

Item 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion is intended to assist readers in understanding and evaluating the financial condition and results of operations of the Company
and the Bank. This section should be read in conjunction with the Companys consolidated financial statements and accompanying notes included elsewhere in this report.



CRITICAL ACCOUNTING POLICIES



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



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained in the Companys loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies,which
requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,which requires that losses be accrued based on the differences between the value of
collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective and actual losses could be greater or less than the estimates.



The allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Managements periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers
ability to repay, the estimated value of any underlying collateral, and current economic conditions.



Overview



On June 30,
2005 the Company had total assets of $253.2 million, an increase of $16.0 million, or 6.8%, from $237.1 million at December 31, 2004. Total assets at June 30, 2004 were $237.5 million. The June 30, 2005 total assets figure represents an increase of
6.6%, or $15.7 million, over one year ago. Total loans amounted to $173.9 million on June 30, 2005, an increase of $14.3 million, or 9.0%, over December 31, 2004 total loans of $159.6 million. The June 30, 2005 figure represents an increase of $10.2
million, or 6.2% over total loans of $163.7 million on June 30, 2004. The increase is due to increased demand, more management emphasis on quality loan growth to increase earnings and less loan payoff volume as was experienced in 2004. The
Companys readily marketable securities portfolio increased $895,000, or 1.6%, from $55.0 million at December 31, 2004 to $55.8 million at June 30, 2005. Total readily marketable securities were $53.0 million on June 30, 2004. Federal funds
purchased were $4.4 million on June 30, 2005. At December 31, 2004, the Company had sold $5.1 million in federal funds. This $9.5 million shift in liquidity represents a competitive environment in search of funding coupled with strong loan demand in
the first six months of 2005. Additionally, in the second quarter of 2005 the Bank of Essex borrowed $5 million from the Federal Home Loan Bank of Atlanta at 3.77%. This borrowing is for 10 years with a call feature at the end of four years. If
called the Bank may pay off or refinance, otherwise it remains at the 3.77% rate for the remaining six years of the borrowing.



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The Company is required to account for the effect of market changes in the value of securities
available-for-sale (AFS) under SFAS 115. The market value of the June 30, 2005 securities AFS portfolio was $55.8 million compared to $55.0 million at December 31, 2004 and $53.0 million at June 30, 2004. The impact of the change in market value of
AFS securities, net of deferred income taxes, is reflected in the Statement of Changes in Stockholders Equity under Accumulated Other Comprehensive Income. On June 30, 2005, $584,000 represented the Companys net unrealized gain on AFS
securities compared to $1.2 million at December 31, 2004 and a net unrealized gain of $700,000 at June 30, 2004.



Total deposits at June 30, 2005 were $212.9 million. This $5.9 million increase is 2.9% more than total deposits of $207.0 million at December 31, 2004
and $9.5 million, or 4.7% more than total deposits of $203.4 million at June 30, 2004.



Stockholders equity at June 30, 2005 was $25.4 million and represented 10.0% of total assets. Stockholders equity was $24.7 million, or 10.4% of total assets at December 31, 2004 and $23.1 million, or 9.7%
of total assets at June 30, 2004.



On June 30, 2005 the Company
purchased $3,666,666 in Bank-Owned Life Insurance. An additional $1,333,333 will be added after underwriting is complete. It is the intention of the Board of Directors to use this investment to fund a Supplemental Executive Retirement Program for
the Companys Executive Officers.



Results of Operations



Net Income



Net income was $738,000 for the second quarter of 2005, or $0.61 per diluted share. This compares to net income of $696,000,
or $0.58 per diluted share in the second quarter of 2004. The increase in earnings for the second quarter of 2005 over 2004 was $42,000, or 6.0%.



The increase in earnings in the second quarter of 2005 as compared to the same period in 2004 was primarily attributable to an increase of 10.1% or
$321,000 in total interest income. This resulted in an increase of 7.8%, or $178,000, in net interest income after considering a $143,000, or 16.1% increase in total interest expense. Net interest income after provision for loan losses of $2.4
million in the second quarter of 2005 compared to net interest income after provision for loan losses of $2.2 million for the same period in 2004. This represents an increase of 8.0%, or $178,000. Also contributing to the increase in net income for
the second quarter of 2005 compared to the same period in 2004 was a $7,000 decrease in income tax expense.



Increases to net interest income after provision for loan losses were offset by a decrease of $72,000 in total noninterest income in the second quarter of
2005 compared to 2004. Also, total noninterest expenses increased by $71,000 from $1.764 million in the second quarter of 2004 to $1.835 million in the second quarter of 2005.



For the six month period ended June 30, 2005 net income increased $142,000, or 10.8%, to $1.459 million in 2005 from $1.317
million in the 2004 comparison period. Contributing to the increase in net income on a year-to-date basis was a $490,000, or 7.7%, increase in total interest income. This was the result of higher loan volumes and rate increases by the Federal
Reserve Board of Governors which, in turn, increased rates on loans tied to the prime rate.



Offsetting this increase was a $175,000, or 9.9%, increase in interest expenses, a reduction of 10.1%, or $89,000 in total noninterest income, a $69,000, or 1.9%, increase in noninterest expenses and a $10,000, or
2.3%, increase in income tax expenses.



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Net Interest Income



The Companys results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its
interest-earning assets and interest-bearing liabilities. At June 30, 2005, the Companys interest-earning assets exceeded its interest-bearing liabilities by approximately $35.3 million, compared with a $27.8 million excess one year ago. Net
interest margins on a fully tax equivalent basis were 4.47% through June 30, 2005 compared to 4.33% through June 30, 2004. The improvement in net interest margin was the result of an improvement of 18 basis points in yield on total earning assets
coupled with an increase of 4 basis points in the cost of total sources of funds. The Companys yield on average earning assets, on a fully tax equivalent and annualized basis, was 6.08% for the first six months of 2005 compared to 5.90% for
the first six months of 2004. The cost of total sources of funds were 1.61% for the first six months of 2005 compared to 1.57% for the same period in 2004. As interest rates have risen, management does not believe this margin improvement will
continue throughout 2005, and is beginning to experience competitive pressures on obtaining funding to continue asset growth.



The Companys loan-to-deposit ratio was 78.6%, on average, through the first six months of 2005 compared to 79.0% for the same period in 2004. On
June 30, 2005, the Companys loan-to-deposit ratio was 81.7% compared to 77.1% on December 31, 2004 and 80.5% on June 30, 2004.



Provision for Credit Losses



The Companys provision for credit losses was $75,000 in both the second quarter of 2005 and the second quarter of 2004. Charge-off loans were
$44,000 in the second quarter of 2005 compared to $121,000 in charge-off loans in the second quarter of 2004. Recoveries on loans were $12,000 in the second quarter of 2005 as compared to recoveries of $23,000 in the second quarter of 2004. This
resulted in net charge-offs of $32,000 in the second quarter of 2005 compared to $98,000 in the second quarter of 2004.



Noninterest Income



Noninterest income, including net gains and losses on securities, was $400,000 in the second quarter of 2005 compared to $472,000 in the same period of
2004. This represents a decrease of 15.3%, or $72,000. Securities gains decreased $37,000 in the second quarter of 2005 to $3,000 compared to $40,000 in the second quarter of 2004. Other fee income decreased $29,000, or 44.5%, in the second quarter
of 2005 compared to the same period in 2004. Other fee income was $36,000 in the second quarter of 2005 and $65,000 in the second quarter of 2004. This reduction in other fee income is the result of $16,000 less in income from the Companys
investment program and a $9,000 reduction in insurance income in 2005 compared to 2004. Service charges on deposit accounts were $247,000 in the second quarter of 2005 and $257,000 in the second quarter of 2004. This is a decrease of 3.9%, or
$10,000. The decrease was the result of lower levels of demand deposit accounts utilizing the Companys automated program for overdrafts, which provides fee income. All other noninterest income increased 10.0% or $9,000, from $90,000 in the
second quarter of 2004 to $99,000 in the second quarter of 2005.



For the first six months of 2005 noninterest income was $794,000 compared to $883,000 for the same period in 2004. This represents a decrease of $89,000, or 10.1%. Securities gains represented the largest decrease of this total. Securities
gains were $8,000 in the first six months of 2005 compared to $50,000 for the same period in 2004. Service charges on deposit accounts decreased $34,000, or 6.8%, through the first six months of 2005 compared to $502,000 in the same period of 2004.
This is due to a decreased level of usage by customers utilizing a fee based automated overdraft protection program. Other fee income decreased $24,000, or 19.7%, and was $98,000 through the first six months of 2005 compared to $122,000 for the same
period in 2004. Revenue from Bankers Investments decreased $25,000 in 2005 compared to 2004.



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##### Table of Contents

Noninterest Expenses



Noninterest expenses increased 4.0%, or $71,000, from $1.764 million in the second quarter of 2004 to $1.835 million in the second quarter of 2005.
Salaries and employee benefits increased $87,000, or 9.1%, from $959,000 in the second quarter of 2004 to $1.046 million in the second quarter of 2005. Premises and fixed assets increased $6,000, or 2.6%, from $234,000 in the second quarter of 2004
to $240,000 in the second quarter of 2005.



On a year-to-date
basis noninterest expense increased $69,000, or 1.9%, and was $3.614 million through six months of 2005 compared to $3.545 million for the same period in 2004. Salaries and employee benefits increased $145,000, or 7.5% while other expenses decreased
$71,000 and premises and fixed assets expenses decreased $5,000. Salaries and employee benefits were $2.069 million for the first six months of 2005 and $1.924 for the same period in 2004. Other expenses were $1.014 million for the first six months
of 2005 and $1.085 million for the same period in 2004. Premises and fixed assets expenses were $468,000 for the first six months of 2005 and $473,000 for the same period in 2004.



Income Taxes



Income tax expense in the second quarter of 2005 was $227,000. The effective tax rate for the second quarter of 2005 was 23.5% and was 25.2% for the same
quarter in 2004.



Income tax expense was $443,000 for the first
six months of 2005 compared to $433,000 for the same period in 2004. The effective tax rate through six months of 2005 was 23.3% and for 2004 was 24.7%.



Asset Quality



The Companys allowance for credit losses totaled $2.235 million on June 30, 2005 or 1.29% of total loans. On December 31, 2004, the allowance for credit losses totaled $2.088 million and was 1.31% of total
loans. On June 30, 2004, the allowance for credit losses was $1.990 million and was 1.22% of total loans.



On June 30, 2005, the Company had nonaccruing assets of $222,000 compared to $1.876 million on June 30, 2004. Loans past due and still accruing interest
totaled $44,000 on June 30, 2005 compared to $46,000 on June 30, 2004.



Capital
Requirements



The determination of capital adequacy depends
upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. The Company seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and
promote public confidence in the Company.



The federal banking
regulators have defined three tests for assessing the capital strength and adequacy of banks, based on two definitions of capital. Tier 1 Capital is defined as a combination of common and qualifying preferred stockholders equity
less goodwill. Tier 2 Capital is defined as qualifying subordinated debt and a portion of the allowance for loan losses. Total Capital is defined as Tier 1 Capital plus Tier 2 Capital.



Three risk-based capital ratios are computed using the above capital
definitions, total assets and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting
and the resulting total is risk-weighted assets. Tier 1 Risk-based Capital is Tier 1 Capital divided by risk-weighted assets. Total Risk-based Capital is Total Capital divided by risk-weighted assets. The Leverage ratio is
Tier 1 Capital divided by total average assets.



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##### Table of Contents

The Companys ratio of total capital to risk-weighted assets was 15.79% on June 30, 2005 compared to
15.16% on June 30, 2004. Its ratio of Tier 1 Capital to risk-weighted assets was 14.80% on June 30, 2005 and 14.08% on June 30, 2004. The Companys leverage ratio (Tier I capital to average adjusted total assets) was 11.73% on June 30, 2005 and
11.73% on June 30, 2004. These ratios exceed regulatory minimums. The Company issued trust preferred subordinated debt that qualifies as regulatory capital in the fourth quarter of 2003. This trust preferred debt has a 30-year maturity with a 5-year
call option and was issued at a rate of three month LIBOR plus 3.00% and was priced at 4.11% in the second quarter of 2005.



RECENT ACCOUNTING PRONOUNCEMENTS



In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 154, Accounting Changes and Error
CorrectionsA Replacement of APB Opinion No. 20 and FASB Statement No. 3. The new standard changes the requirements for the accounting for and reporting of a change in an accounting principle. Among other changes, SFAS No. 154 requires
that a voluntary change in an accounting principle be applied retrospectively with all prior period financial statements presented based on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a
change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued
financial statements should be termed a restatement.  The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Corporation does not anticipate this
revision will have a material effect on its financial statements.



On December
16, 2004, FASB issued SFAS No. 123R (revised 2004), Share-Based Payment, that addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the
company or liabilities that are based on the fair value of the companys equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation
transactions using the intrinsic method and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the statement of income. The effective date of SFAS No. 123R (as amended by the SEC) is for
annual periods beginning after June 15, 2005. The provisions of SFAS No. 123R do not have an impact on the Companys results of operations at the present time.



In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107). SAB 107 expresses the views of the SEC staff regarding the
interaction of FAS 123R and certain SEC rules and regulations and provides the SEC staffs view regarding the valuation of share-based payment arrangements for public companies. SAB 107 does not impact the Corporations results of
operations at the present time.



In November 2004, the Emerging Issues Task
Force (EITF) published Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The EITF discussed the meaning of other-than-temporary impairment and its application to certain investments
carried at cost. The EITF requested that the FASB staff consider other impairment models within U.S. Generally Accepted Accounting Principles (GAAP) when developing its views. The EITF also requested that the scope of the impairment issue be
expanded to include equity investments and investments subject to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and that the issue be addressed by the Task Force as a separate EITF issue. At the EITF
meeting, the Task Force reached a consensus on one issue that certain quantitative and qualitative disclosures should be required for securities accounted for under SFAS No. 115 that are impaired at the balance sheet date but for which an
other-than-temporary impairment has not been recognized. The Board ratified the consensus on that one issue at its November 25, 2004 meeting. In September 2004, FASB directed its staff to



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issue two proposed FASB Staff Positions (FSP): Proposed FSP EITF Issue 03-1-a, which provides guidance for the application of paragraph 16 of EITF Issue 03-1
to debt securities that are impaired because of interest rate and/or sector spread increases, and Proposed FSP EITF Issue 03-1-b, which delays the effective date of Issue 03-1 for debt securities that are impaired because of interest rate and/or
sector spread increases. In June 2005, the FASB reach a decision whereby they declined to provide additional guidance on the meaning of other-than-temporary impairment. FASB directed the FASB staff to issue EITF 03-1a as final and to draft a new FSP
that will replace EITF 03-01. The final FSP (retitled FAS 115-1, The Meaning of Other-Than-Temporary Impairment and it Application to Certain Investments) would be effective for other-than-temporary impairment analysis conducted in
periods beginning after September 15, 2005. The Company does not anticipate this revision will have a material effect on its financial statements



OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS



Commitments to extend credit were $46.2 million at June 30, 2005 compared to $41.9 million at December 31, 2004. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any condition established in the loan contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent expected future cash flows. Standby letters of credit were $3.7 million at June 30, 2005 and $3.9 million at December 30, 2004.



Additionally, in the second quarter of 2005 the Bank of Essex
borrowed $5 million from the Federal Home Loan Bank of Atlanta at 3.77%. This borrowing is for 10 years with a call feature at the end of four years. If called the Bank may pay off or refinance, otherwise it remains at the 3.77% rate for the
remaining six years of the borrowing.



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. The Companys market risk is composed
primarily of interest rate risk. The Companys Asset and Liability Management Committee (ALCO) is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to this risk. The Board
of Directors reviews and approves the guidelines established by ALCO.



Interest rate risk is monitored through the use of two complimentary modeling tools: earnings simulation modeling and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest
rate scenarios. While each of the interest rate risk measures has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the distribution of risk along the yield curve, the
level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management
on a regular basis and are explained below.



Earnings Simulation Analysis



Management uses simulation analysis to measure the
sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that management has input, but it
provides a better analysis of the sensitivity of earnings to changes in interest rates than other potential analyses.



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Assumptions used in the model are derived from historical trends and managements outlook and
include loan and deposit growth rates and projected yields and rates. Such assumptions are monitored and periodically adjusted as appropriate. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like
instruments. Mortgage loans and mortgage backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are
used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.



The Company uses its simulation model to estimate earnings in rate
environments where rates ramp up or down around a most likely rate scenario, based on implied forward rates. The analysis assesses the impact on net interest income over a 12 month time horizon by applying 12-month shock versus the
implied forward rates of 200 basis points up and down. The following table represents the interest rate sensitivity on net interest income for the Company across the rate paths modeled as of June 30, 2005:



|                          |  |                               |   |  |                  |     
|------------------------- |  | ----------------------------- | - |  | ---------------- | ----
|                          |  | Change in Net Interest Income
|Change in Yield Curve     |  | (Percent)                     |   |  | ($ in thousands)
|+200 basis points         |  | -1.32                         | % |  | $                | -145
|Most likely rate scenario |  | 0.00                          | % |  |                  |    
|-200 basis points         |  | -0.99                         | % |  |                  | -109



Economic Value Simulation



Economic value simulation is used to determine the
estimated fair value of assets and liabilities over different interest rate scenarios. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic
value of all liabilities. The change in net economic value over different rate scenarios is an indication of the longer term earnings sensitivity capability of the balance sheet. The same assumptions are used in the economic value simulation as in
the earnings simulation. The economic value simulation uses simultaneous rate shocks to the balance sheet, whereas the earnings simulation uses rate shock over 12 months. The following chart reflects the estimated change in net economic value over
different rate environments using economic value simulation as of June 30, 2005:



|                          |  |                                    |   |  |                  |       
|------------------------- |  | ---------------------------------- | - |  | ---------------- | ------
|                          |  | Change in Economic Value of Equity
|Change in Yield Curve     |  | (Percent)                          |   |  | ($ in thousands)
|+200 basis points         |  | -13.22                             | % |  | $                | -4,542
|Most likely rate scenario |  | 0.00                               | % |  |                  |      
|-200 basis points         |  | 7.34                               | % |  |                  | 2,523 



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Item 4. Controls and Procedures



Based on their most recent review, which was completed as of the last day of the period covered by this report, the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure
controls and procedures are effective to ensure that information required to be disclosed by the Companys in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the
Companys management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to ensure that such information is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. There were no significant changes in the Companys internal controls or in other factors that could significantly affect those controls subsequent to
the date of their evaluation.



PART II - OTHER INFORMATION



Item 1. Legal Proceedings



None



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



None



Item 3. Defaults Upon Senior Securities



None



Item 4. Submission of Matters to a Vote of Security Holders



The Company held its annual shareholders meeting on May 13, 2005.



L. McCauley Chenault, R. Tyler Bland, III, Page Emerson Hughes and Elsie L. Rose Shank, all of the directors nominated for election, were elected to the Board of Directors of the Company to serve until the Annual
Meeting held in 2008 and until their successors are duly elected.



Votes were
cast in the election of directors as follows:



|                     |  |         |  |         |  |        
|-------------------- |  | ------- |  | ------- |  | -------
|                     |  | FOR     |  | AGAINST |  | ABSTAIN
|L. McCauley Chenault |  | 951,088 |  | 16,942  |  | 0      
|R. Tyler Bland, III  |  | 964,533 |  | 3,497   |  | 0      
|Page Emerson Hughes  |  | 968,013 |  | 17      |  | 0      
|Elsie L. Rose Shank  |  | 968,013 |  | 17      |  | 0      



Yount, Hyde & Barbour, P.C.,
Certified Public Accountants, were ratified as the independent auditors of the Company for 2005.



Item 5. Other Information



None



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Item 6. Exhibits



The information
furnished herein, including Exhibit 99.1, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.



| | (a) | Exhibit Listing
| | --- | ---------------



|              |  |                                                                                                                                                                                                                                                                                   
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                       
|2             |  | Agreement and Plan of Reorganization (the Reorganization Agreement) dated as of March 20, 2000 between the Corporation and Bank. (Exhibit A of the Proxy Statement included in Form
S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).
|              | 
|3(a)          |  | Articles of Incorporation of the Corporation (Appendix 1 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                        
|              | 
|3(b)          |  | Bylaws (Appendix 2 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by reference).                                                                                                              
|              | 
|10(a)         |  | The Corporations Stock Incentive Plan (Appendix 3 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24, 2000, incorporated by
reference).                                                                              
|              | 
|10(b)         |  | First Amendment to the Corporations Stock Incentive Plan (Exhibit 99(b) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).                                                                                                   
|              | 
|10(c)         |  | The Corporations Stock Option Plan for Outside Directors (Appendix 4 to Exhibit A of the Proxy Statement included in Form S-4 Registration Statement (No. 333-33260) filed March 24,
2000, incorporated by reference).                                                           
|              | 
|10(d)         |  | First Amendment to the Corporations Stock Option Plan for Outside Directors (Exhibit 99(d) to Form S-8 Registration Statement (No. 333-49538) filed November 8, 2000, incorporated by
reference).                                                                                
|              | 
|31.1          |  | Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act.                                                                                                                                                                             
|              | 
|31.2          |  | Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act                                                                                                                                                                              
|              | 
|32            |  | Certification of Chief Executive Officer and Chief Financial Officer.                                                                                                                                                                                                             
|              | 
|99.1          |  | BOE Financial Services Dividend Reinvestment Plan (Incorporated by reference to the Registrants Registration Statement on Form S-3D filed November 8, 2000)                                                                                                                      



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Signatures



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



|               |  |     |             |                                                      
|-------------- |  | --- | ----------- | -----------------------------------------------------
|               |  |     |             | BOE Financial Services of Virginia, Inc. (Registrant)
|               |  |    
|8/11/05 (Date) |  | By: |             | /s/ George M. Longest, Jr.                           
|               |  |     | (Signature)
|               |  |     |             | George M. Longest, Jr.                               
|               |  |     |             | President and Chief Executive Officer                
|               |  |    
|8/11/05 (Date) |  | By: |             | /s/ Bruce E. Thomas                                  
|               |  |     | (Signature)
|               |  |     |             | Bruce E. Thomas                                      
|               |  |     |             | Secretary, Vice President & Chief Financial Officer  





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