[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited consolidated financial statements, management's analysis, market risk, and internal controls [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201%2E%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Bank of the James Financial Group, Inc. and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, income statements, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes on accounting policies, debt, fair value measurements, securities, business segments, and credit losses [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total assets | $1,004,242 | $979,244 | | Total liabilities | $932,577 | $914,379 | | Total stockholders' equity | $71,665 | $64,865 | - Total assets increased by **2.56%** from December 31, 2024, to June 30, 2025, primarily driven by growth in federal funds sold, securities available-for-sale, and loans[10](index=10&type=chunk)[146](index=146&type=chunk) - Total deposits increased by **3.19% to $910,527,000** as of June 30, 2025, largely due to the reversal of one-way Insured Cash Sweep (ICS) placements[11](index=11&type=chunk)[147](index=147&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section outlines the Company's financial performance over specific periods, presenting revenues, expenses, and net income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $11,638 | $10,935 | $22,872 | $21,444 | | Total interest expense | $3,388 | $3,844 | $6,903 | $7,403 | | Net interest income | $8,250 | $7,091 | $15,969 | $14,041 | | Recovery of credit losses | $(528) | $(123) | $(391) | $(676) | | Total noninterest income | $4,075 | $4,191 | $7,358 | $7,498 | | Total noninterest expenses | $9,455 | $8,739 | $19,281 | $16,827 | | Income before income taxes | $3,398 | $2,666 | $4,437 | $5,388 | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Net income per common share - basic | $0.60 | $0.47 | $0.78 | $0.95 | - Net income for the three months ended June 30, 2025, increased by **25.9%** year-over-year, while for the six months, it decreased by **18.2%** year-over-year[173](index=173&type=chunk) - Net interest income increased for both the three-month (**16.3%**) and six-month (**13.7%**) periods ended June 30, 2025, driven by higher loan portfolio growth and increased yields on earning assets, coupled with an **11.9% decline in total interest expense**[12](index=12&type=chunk)[176](index=176&type=chunk)[181](index=181&type=chunk) [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section details the Company's total comprehensive income, including net income and other comprehensive income components | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Other comprehensive income (loss), net of tax | $1,066 | $(422) | $4,162 | $(1,758) | | Comprehensive income | $3,770 | $1,726 | $7,708 | $2,577 | - Comprehensive income significantly increased for both periods in 2025, primarily due to unrealized gains on available-for-sale securities, net of tax, which were **positive $1,066,000 and $4,162,000** for the three and six months ended June 30, 2025, respectively, compared to losses in the prior year[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $4,416 | $1,653 | | Net cash used in investing activities | $(16,449) | $(6,914) | | Net cash provided by financing activities | $16,631 | $5,050 | | Increase (decrease) in cash and cash equivalents | $4,598 | $(211) | | Cash and cash equivalents at end of period | $77,907 | $74,627 | - Net cash provided by operating activities increased significantly to **$4,416,000** for the six months ended June 30, 2025, from $1,653,000 in the prior year, mainly due to adjustments reconciling net income[16](index=16&type=chunk) - Investing activities saw a higher net cash outflow of **$16,449,000** in 2025, primarily due to increased purchases of available-for-sale securities and loan originations[16](index=16&type=chunk) - Financing activities provided substantially more cash, **$16,631,000**, in 2025, driven by a net increase in deposits and repayment of capital notes[16](index=16&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section tracks changes in the Company's equity accounts, including common stock, retained earnings, and comprehensive income | Metric (in thousands) | Balance at Dec 31, 2024 | Net Income (Q1 2025) | Dividends Paid (Q1 2025) | Other Comprehensive Income (Q1 2025) | Balance at Mar 31, 2025 | Net Income (Q2 2025) | Dividends Paid (Q2 2025) | Other Comprehensive Income (Q2 2025) | Balance at Jun 30, 2025 | | :-------------------- | :---------------------- | :------------------- | :----------------------- | :----------------------------------- | :---------------------- | :------------------- | :----------------------- | :----------------------------------- | :---------------------- | | Common Stock | $9,723 | - | - | - | $9,723 | - | - | - | $9,723 | | Additional Paid-in Capital | $35,253 | - | - | - | $35,253 | - | - | - | $35,253 | | Retained Earnings | $42,804 | $842 | $(455) | - | $43,191 | $2,704 | $(455) | - | $45,442 | | Accumulated Other Comprehensive (Loss) | $(22,915) | - | - | $3,096 | $(19,819) | - | - | $1,066 | $(18,753) | | Total Stockholders' Equity | $64,865 | $842 | $(455) | $3,096 | $68,348 | $2,704 | $(455) | $1,066 | $71,665 | - Total stockholders' equity increased from **$64,865,000** at December 31, 2024, to **$71,665,000** at June 30, 2025, primarily due to net income and positive other comprehensive income from unrealized gains on available-for-sale securities, partially offset by dividends paid[11](index=11&type=chunk)[18](index=18&type=chunk) [Note 1 – Basis of Presentation](index=12&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) This note describes the geographical market, accounting principles, and key intangible assets underlying the financial statements - The Company's primary market area is Region 2000 in Central Virginia, with recent expansion into Charlottesville, Roanoke, Blacksburg, Harrisonburg, Lexington, Rustburg, Wytheville, Buchanan, and Nellysford[20](index=20&type=chunk) - The unaudited consolidated financial statements reflect all necessary adjustments for fair presentation as of June 30, 2025, and December 31, 2024, in conformity with GAAP[21](index=21&type=chunk) - An intangible asset for customer relationships, valued at **$8,406,000** from the PWW acquisition, is amortized straight-line over 15 years, with a net balance of **$6,445,000** as of June 30, 2025[22](index=22&type=chunk) [Note 2 – Significant Accounting Policies and Estimates](index=12&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies%20and%20Estimates) This note outlines the critical accounting policies and estimates, such as credit loss allowance and securities valuation, used in financial reporting - The financial statements rely on management estimates and assumptions, particularly for the allowance for credit losses on loans (ACLL) and the valuation of available-for-sale securities, which are susceptible to changes in regional economic conditions and interest rates[23](index=23&type=chunk)[119](index=119&type=chunk) - There have been no significant changes to the application of significant accounting policies since December 31, 2024[25](index=25&type=chunk) [Note 3 – Earnings Per Common Share (EPS)](index=13&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Common%20Share%20%28EPS%29) This note details the calculation of basic and diluted earnings per common share for the reported periods | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $2,704 | $2,148 | $3,546 | $4,335 | | Weighted average shares outstanding | 4,543,338 | 4,543,338 | 4,543,338 | 4,543,338 | | Earnings per common share - basic and diluted | $0.60 | $0.47 | $0.78 | $0.95 | - Basic and diluted EPS increased to **$0.60** for the three months ended June 30, 2025, from $0.47 in the prior year, but decreased to **$0.78** for the six months ended June 30, 2025, from $0.95 in the prior year[26](index=26&type=chunk)[173](index=173&type=chunk) [Note 4 – Debt (Current and Long Term)](index=13&type=section&id=Note%204%20%E2%80%93%20Debt%20%28Current%20and%20Long%20Term%29) This note provides information on the Company's debt obligations, including subordinated notes and the NBB Note, and their repayment or modification - The Company repaid **$10,050,000** in 3.25% fixed-rate subordinated notes on their maturity date of June 30, 2025, using parent-company cash, which is expected to save approximately **$327,000 annually** in interest expense[28](index=28&type=chunk)[168](index=168&type=chunk) - The NBB Note, with a principal balance of approximately **$8,992,000** at June 30, 2025, had its balloon payment date extended to December 31, 2026, and its interest rate lowered to **3.90%** from 4.00% in June 2022[30](index=30&type=chunk)[31](index=31&type=chunk) [Note 5 – Fair Value Measurements](index=14&type=section&id=Note%205%20%E2%80%93%20Fair%20Value%20Measurements) This note explains the three-level hierarchy for fair value measurements and the classification of assets like available-for-sale securities and IRLCs - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs, with Level 1 for quoted prices in active markets, Level 2 for observable inputs, and Level 3 for unobservable inputs[35](index=35&type=chunk)[39](index=39&type=chunk) | Asset (in thousands) | June 30, 2025 (Level 2) | June 30, 2025 (Level 3) | December 31, 2024 (Level 2) | December 31, 2024 (Level 3) | | :------------------- | :---------------------- | :---------------------- | :-------------------------- | :-------------------------- | | Securities available-for-sale | $196,585 | $0 | $187,916 | $0 | | IRLCs - asset | $0 | $239 | $0 | $42 | - All of the Company's available-for-sale securities are classified as **Level 2**, while Interest Rate Lock Commitments (IRLCs) are classified as **Level 3** due to unobservable inputs like the range of pull-through rates[37](index=37&type=chunk)[38](index=38&type=chunk)[42](index=42&type=chunk) - No nonrecurring fair value adjustments were recorded for collateral-dependent loans or loans held for sale at June 30, 2025, or December 31, 2024[45](index=45&type=chunk)[46](index=46&type=chunk) [Note 6 – Securities](index=19&type=section&id=Note%206%20%E2%80%93%20Securities) This note details the Company's held-to-maturity and available-for-sale securities, including unrealized gains/losses and pledged collateral | Security Type (in thousands) | Amortized Costs (Jun 30, 2025) | Fair Value (Jun 30, 2025) | Amortized Costs (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :--------------------------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | Held-to-Maturity | $3,598 | $3,251 | $3,606 | $3,170 | | Available-for-sale | $220,322 | $196,585 | $216,921 | $187,916 | - As of June 30, 2025, available-for-sale securities had gross unrealized losses of **$24,025,000**, primarily due to market volatility and increased interest rates, but management does not expect to realize these losses[52](index=52&type=chunk)[54](index=54&type=chunk)[161](index=161&type=chunk) - The Company had no sales of available-for-sale securities during the three and six months ended June 30, 2025, compared to **$8,754,000** in sales during the same periods in 2024[58](index=58&type=chunk) - The Company pledged approximately **$49,360,000** of available-for-sale securities as collateral for public deposits, **$37,000,000** with correspondent banks, and **$26,000,000** for advances at the Federal Reserve Bank's discount window as of June 30, 2025[60](index=60&type=chunk)[165](index=165&type=chunk) [Note 7 – Business Segments](index=22&type=section&id=Note%207%20%E2%80%93%20Business%20Segments) This note provides financial information for the Company's Community Banking, Mortgage Banking, and Investment Advisory segments - The Company operates three business segments: Community Banking (loans, deposits), Mortgage Banking (residential mortgage originations for sale), and Investment Advisory (investment advisory and financial planning services through PWW)[61](index=61&type=chunk)[64](index=64&type=chunk) | Segment (in thousands) | Segment Income Before Taxes (Q2 2025) | Segment Income Before Taxes (Q2 2024) | Segment Income Before Taxes (YTD 2025) | Segment Income Before Taxes (YTD 2024) | | :--------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------- | :------------------------------------- | | Community Banking | $2,607 | $2,147 | $3,279 | $4,212 | | Mortgage Banking | $369 | $202 | $370 | $447 | | Investment Advisory | $614 | $522 | $1,187 | $1,001 | - Investment Advisory's Assets Under Management (AUM) increased to **$930.0 million** at June 30, 2025, from $854.0 million at December 31, 2024, due to new asset inflows and market value increases[66](index=66&type=chunk)[191](index=191&type=chunk) - Community Banking's total loans held for investment, net, increased to **$649.1 million** at June 30, 2025, from $636.6 million at December 31, 2024, and deposits grew to **$915.4 million** from $882.4 million[63](index=63&type=chunk) [Note 8 – Loans and allowance for credit losses](index=27&type=section&id=Note%208%20%E2%80%93%20Loans%20and%20allowance%20for%20credit%20losses) This note details the Company's loan portfolio by segment, the allowance for credit losses, and nonperforming assets | Loan Segment (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Commercial | $70,510 | $66,418 | | Commercial Real Estate | $366,351 | $359,415 | | Consumer | $80,617 | $78,310 | | Residential | $137,919 | $139,453 | | Total loans | $655,397 | $643,596 | | Less allowance for credit losses | $6,308 | $7,044 | | Net loans | $649,089 | $636,552 | - Total loans, net of allowance, increased by **1.97% to $649,089,000** at June 30, 2025, driven by higher balances in commercial, commercial real estate, and consumer loan categories, partially offset by decreases in residential loans[148](index=148&type=chunk) - The allowance for credit losses decreased to **$6,308,000 (0.96% of total loans)** at June 30, 2025, from $7,044,000 (1.10%) at December 31, 2024, and the Company recorded a recovery of **$528,000** for the three months ended June 30, 2025[80](index=80&type=chunk)[199](index=199&type=chunk) - Nonperforming assets increased to **$1,846,000** at June 30, 2025, from $1,640,000 at December 31, 2024, consisting of nonaccrual loans and loans past due 90 days or more and still accruing[156](index=156&type=chunk) - The allowance for credit losses for unfunded commitments was **$678,000** at June 30, 2025, with a provision of **$27,000** for the three months ended June 30, 2025[108](index=108&type=chunk)[109](index=109&type=chunk) [Note 9 – Recent accounting pronouncements and other authoritative guidance](index=41&type=section&id=Note%209%20%E2%80%93%20Recent%20accounting%20pronouncements%20and%20other%20authoritative%20guidance) This note discusses the impact of recently issued accounting pronouncements, specifically ASU 2024-03, on the Company's financial reporting - ASU 2024-03, requiring disaggregation of income statement expenses, is effective for public business entities for annual periods beginning after December 15, 2026, and interim periods after December 15, 2027. The Company does not expect a material impact from its adoption[111](index=111&type=chunk) [Note 10 - Subsequent Events](index=41&type=section&id=Note%2010%20-%20Subsequent%20Events) This note confirms management's review of events occurring after the balance sheet date, with no material adjustments or disclosures required - Management has reviewed events through the financial statement issuance date and determined no subsequent events require accrual or disclosure beyond those already provided[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, highlighting key drivers of changes in assets, liabilities, equity, and earnings. It includes discussions on critical accounting policies, business overview, off-balance sheet arrangements, and detailed analysis of interest income, expense, noninterest income, noninterest expense, and credit losses [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=42&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns that the report contains forward-looking statements subject to various risks and uncertainties, including economic and regulatory factors - The report contains forward-looking statements subject to risks and uncertainties, including technology problems, regulatory changes, economic conditions, geopolitical risks, liquidity, credit loss allowance adequacy, management team reliance, real estate value changes, and new accounting standards[115](index=115&type=chunk)[117](index=117&type=chunk) [GENERAL](index=43&type=section&id=GENERAL) This section provides an overview of the Company's critical accounting policies, business activities, and strategic plans for branch expansion - The Company's financial statements are prepared in accordance with GAAP, with critical accounting policies including the Allowance for Credit Losses on Loans (ACLL) and Goodwill impairment testing[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - Financial is a bank holding company primarily engaged in retail banking through Bank of the James, with additional activities in mortgage banking, investment services, insurance, and investment advisory services via PWW[123](index=123&type=chunk) - PWW, the investment advisory subsidiary, manages approximately **$929,957,000** in assets as of June 30, 2025, generating revenue primarily through investment advisory fees[126](index=126&type=chunk)[191](index=191&type=chunk) - The Bank plans to open additional branches, including relocating its Temporary Nellysford Branch to a permanent location in Fall 2025, and anticipates new branches to become profitable within **12 to 18 months**[135](index=135&type=chunk)[140](index=140&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=45&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section describes the Company's off-balance sheet financial instruments, such as credit commitments and mortgage rate lock commitments, and associated risks - The Bank uses off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, totaling **$189,294,000** at June 30, 2025, which involve credit and interest rate risk[141](index=141&type=chunk) - Mortgage rate lock commitments (IRLCs) are presold to third-party investors, mitigating credit or interest rate risk for the Bank[143](index=143&type=chunk) [SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=46&type=section&id=SUMMARY%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section summarizes the Company's financial position and operational performance, detailing changes in assets, liabilities, equity, and earnings drivers [Financial Condition Summary](index=46&type=section&id=Financial%20Condition%20Summary) This section summarizes the Company's balance sheet, including asset and deposit growth, loan portfolio composition, nonperforming assets, and capital levels - Total assets increased by **2.56% to $1,004,242,000** at June 30, 2025, from $979,244,000 at December 31, 2024, driven by growth in federal funds sold, available-for-sale securities, and loans[146](index=146&type=chunk) - Total deposits increased by **3.19% to $910,527,000**, primarily due to the reversal of one-way Insured Cash Sweep (ICS) placements[147](index=147&type=chunk) - Total loans, net of allowance, increased by **1.97% to $649,089,000**, with growth in commercial, commercial real estate, and consumer loans, partially offset by a decrease in residential loans[148](index=148&type=chunk) - Non-owner occupied commercial real estate loans totaled **$202,147,000**, or approximately **31% of total loans**, with minimal exposure to large office buildings or shopping centers[151](index=151&type=chunk) - Nonperforming assets increased to **$1,846,000** at June 30, 2025, from $1,640,000 at December 31, 2024[156](index=156&type=chunk) - The Bank's regulatory capital levels exceeded well-capitalized institution requirements at June 30, 2025, with a **Tier 1 risk-based capital ratio of 11.38%** and a **total risk-based capital ratio of 12.19%**[167](index=167&type=chunk)[169](index=169&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) This section analyzes the Company's income statement, focusing on net income, net interest income, noninterest income, expenses, and credit loss recovery | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $2,704 | $2,148 | $3,546 | $4,335 | | Net interest income | $8,250 | $7,091 | $15,969 | $14,041 | | Noninterest income | $4,075 | $4,191 | $7,358 | $7,498 | | Noninterest expenses | $9,455 | $8,739 | $19,281 | $16,827 | | Recovery of credit losses | $(528) | $(123) | $(391) | $(676) | - Net interest income increased by **16.3%** for the three months and **13.7%** for the six months ended June 30, 2025, driven by higher yields on earning assets (loan rates up to **5.70%** from 5.42% YoY for Q2) and a decline in interest expense[176](index=176&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk) - Noninterest income slightly decreased for both periods, primarily due to lower other income and no gains on available-for-sale securities sales in 2025, partially offset by increased gains on loan sales and wealth management fees[176](index=176&type=chunk)[184](index=184&type=chunk)[192](index=192&type=chunk) - Noninterest expense increased by **8.2%** for the quarter and **14.6%** year-to-date, mainly due to higher salaries, employee benefits, and a significant rise in professional, data processing, and other outside services, including a **$1,000,000** consulting fee[176](index=176&type=chunk)[194](index=194&type=chunk) - The allowance for credit losses decreased, and the Bank recorded a recovery of **$528,000** for the three months ended June 30, 2025, influenced by updated CECL loss models incorporating post-pandemic loss history and revised loss-rate parameters[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) - The effective tax rate for the three and six months ended June 30, 2025, was **20.43%** and **20.08%**, respectively, lower than the statutory rate due to tax benefits from bank-owned life insurance and tax-exempt municipal bonds[203](index=203&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company in this report - The Company has no applicable quantitative and qualitative disclosures about market risk in this report[212](index=212&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204%2E%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of the Company's disclosure controls and procedures, concluding they were effective as of June 30, 2025. No significant changes in internal controls over financial reporting occurred during the quarter - Financial's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, ensuring timely and accurate reporting of required information[213](index=213&type=chunk) - No significant changes occurred in the Company's internal controls over financial reporting during the quarter ended June 30, 2025[214](index=214&type=chunk) [PART II – OTHER INFORMATION](index=59&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=59&type=section&id=Item%201%2E%20Legal%20Proceedings) The Company is not currently involved in any legal proceedings other than routine litigation incidental to its business - The Company is not involved in any pending legal proceedings beyond routine litigation incidental to its business[215](index=215&type=chunk) [Item 1A. Risk Factors](index=59&type=section&id=Item%201A%2E%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the Company's risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2024[217](index=217&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=60&type=section&id=Item%202%2E%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This item is not applicable to the Company for the reporting period - This item is not applicable[218](index=218&type=chunk) [Item 3. Defaults Upon Senior Securities](index=60&type=section&id=Item%203%2E%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - This item is not applicable[218](index=218&type=chunk) [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - This item is not applicable[218](index=218&type=chunk) [Item 5. Other Information](index=60&type=section&id=Item%205%2E%20Other%20Information) This item is not applicable to the Company for the reporting period - This item is not applicable[218](index=218&type=chunk) [Item 6. Exhibits](index=60&type=section&id=Item%206%2E%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL-formatted financial statements - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, dated August 13, 2025[218](index=218&type=chunk) - The financial statements for the quarter ended June 30, 2025, are provided in eXtensible Business Reporting Language (XBRL) format[218](index=218&type=chunk) [SIGNATURES](index=61&type=section&id=SIGNATURES) This section contains the official signatures of the Company's principal executive and financial officers, certifying the report's accuracy [SIGNATURES](index=61&type=section&id=SIGNATURES) The report is signed on behalf of Bank of the James Financial Group, Inc. by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer), both dated August 13, 2025 - The report was signed by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) on August 13, 2025[221](index=221&type=chunk)[223](index=223&type=chunk)

Core Insights - Bank of the James Financial Group, Inc. reported strong financial performance for the second quarter and first half of 2025, with net income increasing to $2.70 million or $0.60 per share, compared to $2.15 million or $0.47 per share in the same period of 2024 [2][3][10] - The company demonstrated growth in commercial lending, mortgage originations, and core deposits, establishing a solid base for continued positive financial performance [3][6] - The net interest margin improved to 3.45% in the second quarter of 2025, the highest in several quarters, reflecting effective management of loan yields and interest expenses [4][15] Financial Performance - Net interest income for the second quarter of 2025 was $8.25 million, up 16% from $7.09 million in the second quarter of 2024, while total interest income rose to $11.64 million, a 6% increase year-over-year [10][11][35] - Total interest expense decreased by 12% to $3.39 million in the second quarter of 2025, contributing to a net interest income after recovery of credit losses of $8.78 million, up 22% from the previous year [13][35] - Noninterest income remained stable at $4.08 million in the second quarter of 2025, with contributions from commercial treasury services and wealth management fees [16][35] Asset Quality and Growth - Loans, net of allowance for credit losses, increased to $649.09 million at June 30, 2025, from $636.55 million at December 31, 2024, driven by growth in commercial real estate loans [10][18][19] - The ratio of nonperforming loans to total loans was 0.28% at June 30, 2025, indicating strong asset quality, with no other real estate owned [22][23] - Total assets reached $1.004 billion at June 30, 2025, up from $979.24 million at December 31, 2024, reflecting increases in securities and loan growth [18][36] Shareholder Value - Stockholders' equity grew to $71.67 million at June 30, 2025, from $64.87 million at December 31, 2024, with a book value per share of $15.77, up from $14.28 [25][36] - The company declared a quarterly dividend of $0.10 per common share, payable on September 26, 2025, to stockholders of record as of September 12, 2025 [10][35] Strategic Initiatives - The company successfully retired approximately $10 million in capital notes, expected to reduce annual interest expenses by approximately $327,000, enhancing financial stability [7][8] - A balanced revenue stream from various sources, including commercial and retail banking, has provided predictable earnings amid economic challenges [6][10]

[Executive Summary and Company Overview](index=1&type=section&id=Executive%20Summary%20and%20Company%20Overview) This section provides an overview of the company's Q2/H1 2025 financial performance and strategic highlights [Company Introduction and Q2/H1 2025 Performance Highlights](index=1&type=section&id=Company%20Introduction%20and%20Q2%2FH1%202025%20Performance%20Highlights) Bank of the James Financial Group reported significant Q2 2025 net income growth, while H1 2025 net income decreased, operating as a full-service bank and investment advisor in Virginia Net Income and EPS Performance (Q2 & H1 2025 vs. 2024) | Metric | Q2 2025 | Q2 2024 | Change | H1 2025 | H1 2024 | Change | | :-------------------- | :------ | :------ | :----- | :------ | :------ | :----- | | Net Income ($ millions) | $2.70 | $2.15 | +25.58% | $3.55 | $4.34 | -18.20% | | EPS (basic & diluted) | $0.60 | $0.47 | +27.66% | $0.79 | $0.95 | -16.84% | - Bank of the James Financial Group, Inc. (NASDAQ:BOTJ) is the parent company of Bank of the James, a full-service commercial and retail bank, and Pettyjohn, Wood & White, Inc. (PWW), an SEC-registered investment advisor[1](index=1&type=chunk) - The Bank serves Region 2000 (greater Lynchburg metropolitan statistical area) and other Virginia markets including Blacksburg, Buchanan, Charlottesville, Harrisonburg, Lexington, Nellysford, Roanoke, and Wytheville[1](index=1&type=chunk) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Robert R. Chapman III highlighted strong Q2 2025 performance driven by lending and deposits, improved net interest margin, and the retirement of capital notes - Financial results, particularly Q2 2025, demonstrated continued traction in commercial lending, mortgage originations, and core deposits[3](index=3&type=chunk) - Net interest margin consistently improved, reaching **3.45% in Q2 2025**, the highest in a number of quarters, reflecting a focus on loan yields, controlling interest expense, and managing borrowings[4](index=4&type=chunk) - The parent company retired approximately **$10 million in capital notes**, expected to reduce annual interest expense by approximately **$327,000**[8](index=8&type=chunk) Key Capitalization Metric | Metric | June 30, 2025 | | :------------------ | :------------ | | Tier 1 leverage ratio | 8.85% | - The Company continues building value for shareholders, evidenced by growth in stockholders' equity, retained earnings, and book value per share[10](index=10&type=chunk) [Financial Highlights and Operational Review](index=2&type=section&id=Financial%20Highlights%20and%20Operational%20Review) This section details the financial performance and operational drivers for the second quarter and first half of 2025 [Second Quarter, First Half of 2025 Highlights](index=2&type=section&id=Second%20Quarter%2C%20First%20Half%20of%202025%20Highlights) Key financial highlights include a significant recovery of allowance for credit losses, increased interest income, improved net interest margin, and growth in commercial real estate loans - Net income and EPS in Q2 2025 partially reflected a **$528,000 recovery of allowance for credit losses**[11](index=11&type=chunk) Interest Income and Net Interest Income (Q2 & H1 2025 vs. 2024) | Metric | Q2 2025 ($ millions) | Q2 2024 ($ millions) | YoY Change | H1 2025 ($ millions) | H1 2024 ($ millions) | YoY Change | | :------------------------------------------ | :------------------- | :------------------- | :--------- | :------------------- | :------------------- | :--------- | | Total Interest Income | $11.64 | $10.94 | +6% | $22.87 | $21.44 | +7% | | Net Interest Income after Recovery of Credit Losses | $8.78 | $7.21 | +22% | $16.36 | $14.72 | +11% | Interest Expense and Net Interest Margin (Q2 & H1 2025 vs. 2024) | Metric | Q2 2025 | Q2 2024 | YoY Change | Q1 2025 | H1 2025 | H1 2024 | YoY Change | | :---------------- | :------ | :------ | :--------- | :------ | :------ | :------ | :--------- | | Interest Expense | | | -12% | | | | -7% | | Net Interest Margin | 3.45% | 3.02% | +0.43 ppt | 3.25% | 3.34% | 3.02% | +0.32 ppt | Key Balance Sheet Items (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ millions) | Dec 31, 2024 ($ millions) | Change | | :------------------------------------ | :------------------------- | :------------------------- | :----- | | Loans, net of allowance for credit losses | $649.09 | $636.55 | +$12.54M | | Commercial Real Estate Loans | $355.67 | $335.53 | +$20.14M | | Total Assets | $1,040.00 | $979.24 | +$60.76M | | Total Deposits | $910.53 | $882.40 | +$28.13M | | Book Value Per Share | $15.77 | $14.28 | +$1.49 | - The Company's board of directors approved a quarterly dividend of **$0.10 per common share** on July 12, 2025[18](index=18&type=chunk) [Second Quarter, First Half of 2025 Operational Review](index=3&type=section&id=Second%20Quarter%2C%20First%20Half%20of%202025%20Operational%20Review) Operational review shows strong net interest income growth from loan yields and controlled interest expense, stable noninterest income, and increased noninterest expenses from strategic investments Net Interest Income and Yield on Earning Assets (Q2 & H1 2025 vs. 2024) | Metric | Q2 2025 ($ millions) | Q2 2024 ($ millions) | YoY Change | H1 2025 ($ millions) | H1 2024 ($ millions) | YoY Change | | :-------------------------- | :------------------- | :------------------- | :--------- | :------------------- | :------------------- | :--------- | | Net Interest Income | $8.25 | $7.09 | +16% | $15.97 | $14.04 | +14% | | Yield on Total Earning Assets | 4.86% | 4.68% | +0.18 ppt | 4.79% | 4.62% | +0.17 ppt | - Total interest expense declined in both Q2 and H1 2025 primarily due to a relatively stable interest rate environment and the Bank's management of rates paid on interest-bearing deposits[15](index=15&type=chunk) Net Interest Margin and Interest Spread (Q2 & H1 2025 vs. 2024) | Metric | Q2 2025 | Q2 2024 | YoY Change | H1 2025 | H1 2024 | YoY Change | | :---------------- | :------ | :------ | :--------- | :------ | :------ | :--------- | | Net Interest Margin | 3.45% | 3.02% | +0.43 ppt | 3.34% | 3.04% | +0.30 ppt | | Interest Spread | 3.15% | 2.69% | +0.46 ppt | 3.15% | 2.68% | +0.47 ppt | - Noninterest income was predominantly generated by fees from debit card activity, commercial treasury services, gains on sale of loans held for sale by the mortgage division, and wealth management fees from PWW[17](index=17&type=chunk) - Noninterest expense increases reflected consulting fees for a major vendor agreement amendment, the addition of revenue-generating employees, new banking facilities, and quarterly accruals of year-end employee compensation[18](index=18&type=chunk)[19](index=19&type=chunk) [Balance Sheet and Asset Quality](index=4&type=section&id=Balance%20Sheet%20and%20Asset%20Quality) This section reviews the company's balance sheet growth, asset composition, and maintained high asset quality metrics [Balance Sheet Overview](index=4&type=section&id=Balance%20Sheet%20Overview) Total assets surpassed $1.04 billion, driven by growth in securities and commercial real estate loans, while construction loans saw mixed trends Key Balance Sheet Growth (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ millions) | Dec 31, 2024 ($ millions) | Change | | :------------------------------------ | :------------------------- | :------------------------- | :----- | | Total Assets | $1,040.00 | $979.24 | +$60.76M | | Loans, net of allowance for credit losses | $649.09 | $636.55 | +$12.54M | | Commercial Real Estate Loans (total) | $355.68 | $335.53 | +$20.15M | | Commercial Construction/Land Loans | $10.68 | $23.88 | -$13.20M | | Residential Construction/Land Loans | $29.04 | $26.15 | +$2.89M | | Commercial and Industrial Loans | $70.51 | $66.42 | +$4.09M | - The Bank closely monitors concentrations in commercial real estate segments and has no commercial real estate loans secured by large office buildings in large metropolitan city centers[21](index=21&type=chunk) - Residential mortgage loans intended to be kept on the balance sheet totaled **$108.88 million**, with the Bank continuing to focus on selling the majority of originated mortgage loans to the secondary market[23](index=23&type=chunk) [Asset Quality](index=4&type=section&id=Asset%20Quality) The company maintained strong asset quality with low nonperforming loans and no OREO, reflecting diligent credit management Asset Quality Metrics (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | Change (ppt) | | :------------------------------------ | :------------ | :------------ | :----------- | | Nonperforming loans to total loans | 0.28% | 0.25% | +0.03 | | Allowance for credit losses for loans to total loans | 0.96% | 1.09% | (0.13) | - Total nonperforming loans were **$1.85 million** at June 30, 2025, and there was no other real estate owned (OREO), meaning total nonperforming assets were equal to total nonperforming loans[25](index=25&type=chunk) [Deposits and Shareholder Value](index=4&type=section&id=Deposits%20and%20Shareholder%20Value) Total deposits and core deposits increased, contributing to positive trends in stockholders' equity, retained earnings, and book value per share Deposit Growth (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ millions) | Dec 31, 2024 ($ millions) | Change | | :------------- | :------------------------- | :------------------------- | :----- | | Total Deposits | $910.53 | $882.40 | +$28.13M | | Core Deposits | $681.36 | $651.90 | +$29.46M | - The Bank had no brokered deposits at June 30, 2025, and December 31, 2024, reflecting its focus on growing and retaining lower-cost core deposits[26](index=26&type=chunk) Shareholder Value Metrics (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ millions) | Dec 31, 2024 ($ millions) | Change | | :------------------- | :------------------------- | :------------------------- | :----- | | Stockholders' Equity | $71.67 | $64.87 | +$6.80M | | Retained Earnings | $45.44 | $42.80 | +$2.64M | | Book Value Per Share | $15.77 | $14.28 | +$1.49 | [Available-for-Sale Securities Portfolio](index=5&type=section&id=Available-for-Sale%20Securities%20Portfolio) The portfolio, primarily government-guaranteed, experiences fair value adjustments due to interest rate fluctuations, with unrealized losses excluded from regulatory capital - The available-for-sale securities portfolio is composed primarily of securities with explicit or implicit government guarantees, including U.S. Treasuries and U.S. agency obligations, and other highly rated debt instruments[29](index=29&type=chunk) - Interest rate fluctuations result in adjustments to the fair value (mark-to-market) of the available-for-sale securities portfolio, reflected in accumulated other comprehensive loss, but these losses are excluded when calculating the Bank's regulatory capital ratios[29](index=29&type=chunk) - The Company does not expect to realize the unrealized losses, as it has the intent and ability to hold the securities until their recovery, which may be at maturity[29](index=29&type=chunk) [Corporate Information](index=5&type=section&id=Corporate%20Information) This section provides details about the company's structure, services, and a cautionary statement regarding forward-looking information [About the Company](index=5&type=section&id=About%20the%20Company) Bank of the James Financial Group is the parent company of Bank of the James, offering comprehensive banking, investment, and insurance services across Virginia - Bank of the James Financial Group, Inc. (NASDAQ:BOTJ) is the parent company of Bank of the James, headquartered in Lynchburg, Virginia[30](index=30&type=chunk) - The Bank offers full investment and insurance services through its BOTJ Investment Services division and BOTJ Insurance, Inc. subsidiary, and mortgage loan origination through Bank of the James Mortgage[30](index=30&type=chunk) - The Company provides investment advisory services through its wholly-owned subsidiary, Pettyjohn, Wood & White, Inc., an SEC-registered investment advisor[30](index=30&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This standard disclaimer warns that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - The press release contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, identified by words like "believe," "estimate," "expect," "intend," and "anticipate"[31](index=31&type=chunk) - Readers are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, with actual results potentially differing materially[31](index=31&type=chunk) - Factors that could cause actual results to differ include competition, general economic conditions, potential changes in interest rates, changes in real estate values, and geopolitical conditions[31](index=31&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=6&type=section&id=Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents detailed consolidated financial statements, including balance sheets, income statements, and selected financial data [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheet shows total assets exceeding $1 billion, driven by growth in securities and loans, with increased deposits and stockholders' equity Consolidated Balance Sheet Highlights (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total assets | $1,004,242 | $979,244 | | Loans, net of allowance for credit losses | $649,089 | $636,552 | | Securities available-for-sale, at fair value | $196,585 | $187,916 | | Total deposits | $910,527 | $882,404 | | Capital notes, net | $- | $10,048 | | Total stockholders' equity | $71,665 | $64,865 | [Consolidated Statements of Income](index=8&type=section&id=Consolidated%20Statements%20of%20Income) Q2 2025 net income increased significantly due to higher interest income and lower interest expense, while H1 2025 net income decreased year-over-year Consolidated Statements of Income (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :--------- | | Total interest income | $11,638 | $10,935 | 6.43% | | Total interest expense | $3,388 | $3,844 | -11.86% | | Net interest income | $8,250 | $7,091 | 16.34% | | Recovery of credit losses | $(528) | $(123) | 329.27% | | Net income | $2,704 | $2,148 | 25.88% | | Basic net income per common share | $0.60 | $0.47 | 27.66% | Consolidated Statements of Income (H1 2025 vs. H1 2024) | Metric | H1 2025 ($ thousands) | H1 2024 ($ thousands) | Change (%) | | :----------------------------------- | :-------------------- | :-------------------- | :--------- | | Total interest income | $22,872 | $21,444 | 6.66% | | Total interest expense | $6,903 | $7,403 | -6.75% | | Net interest income | $15,969 | $14,041 | 13.73% | | Recovery of credit losses | $(391) | $(676) | -42.16% | | Net income | $3,546 | $4,335 | -18.20% | | Basic net income per common share | $0.79 | $0.95 | -16.84% | [Selected Financial Data](index=10&type=section&id=Selected%20Financial%20Data) This section provides a comparative overview of key financial metrics for the three and six months ended June 30, 2025, and 2024, highlighting significant year-over-year changes Selected Income Statement Changes (Q2 2025 vs. Q2 2024) | Metric | Change (%) | | :------------------------------------------ | :--------- | | Interest income | 6.43% | | Interest expense | -11.86% | | Net interest income | 16.34% | | Provision for (recovery of) credit losses | 329.27% | | Noninterest income | -2.77% | | Noninterest expense | 8.19% | | Net income | 25.88% | Selected Income Statement Changes (H1 2025 vs. H1 2024) | Metric | Change (%) | | :------------------------------------------ | :--------- | | Interest income | 6.66% | | Interest expense | -6.75% | | Net interest income | 13.73% | | Provision for (recovery of) credit losses | -42.16% | | Noninterest income | -1.87% | | Noninterest expense | 14.58% | | Net income | -18.20% | Selected Balance Sheet Changes (June 30, 2025 vs. Dec 31, 2024) | Metric | Change (%) | | :------------------- | :--------- | | Loans, net | 1.97% | | Loans held for sale | 16.87% | | Total securities | 4.52% | | Total deposits | 3.19% | | Stockholders' equity | 10.48% | | Total assets | 2.55% | | Book value per share | $1.49 (absolute change) | [Daily Averages and Financial Ratios](index=11&type=section&id=Daily%20Averages%20and%20Financial%20Ratios) This section presents daily average balances for key assets and liabilities, along with important financial ratios, providing insights into profitability and operational efficiency Key Financial Ratios (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change (ppt) | | :-------------------------- | :------ | :------ | :----------- | | Return on average assets | 1.06% | 0.87% | 0.19 | | Return on average equity | 15.89% | 14.35% | 1.54 | | Net interest margin | 3.45% | 3.02% | 0.43 | | Efficiency ratio | 76.71% | 77.46% | (0.75) | | Average equity to average assets | 6.69% | 6.05% | 0.64 | Key Financial Ratios (H1 2025 vs. H1 2024) | Metric | H1 2025 | H1 2024 | Change (ppt) | | :-------------------------- | :------ | :------ | :----------- | | Return on average assets | 0.70% | 0.89% | (0.19) | | Return on average equity | 10.81% | 14.60% | (3.79) | | Net interest margin | 3.34% | 3.02% | 0.32 | | Efficiency ratio | 82.66% | 78.12% | 4.54 | | Average equity to average assets | 6.52% | 6.11% | 0.41 | Daily Average Balances (H1 2025 vs. H1 2024) | Metric | H1 2025 ($ thousands) | H1 2024 ($ thousands) | Change (%) | | :---------------------- | :-------------------- | :-------------------- | :--------- | | Loans | $650,292 | $611,375 | 6.37% | | Total deposits | $921,241 | $891,152 | 3.38% | | Stockholders' equity | $66,526 | $60,045 | 10.79% | | Interest earning assets | $964,062 | $934,396 | 3.17% | | Total assets | $1,020,182 | $982,441 | 3.84% | [Allowance for Credit Losses and Nonperforming Assets](index=11&type=section&id=Allowance%20for%20Credit%20Losses%20and%20Nonperforming%20Assets) This section details the allowance for credit losses and nonperforming assets, showing changes in balances and asset quality ratios reflecting ongoing credit management Allowance for Credit Losses (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Beginning balance | $7,022 | $7,044 | | Provision for (recovery of) credit losses* | $(555) | $(391) | | Charge-offs | $(160) | $(223) | | Recoveries | $1 | $13 | | Ending balance | $6,308 | $6,308 | *does not include provision for or recovery of unfunded loan commitment liability Nonperforming Assets (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | | Total nonperforming loans | $1,846 | $1,640 | 12.56% | | Total nonperforming assets | $1,846 | $1,640 | 12.56% | Asset Quality Ratios (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | Change (ppt) | | :------------------------------------------ | :------------ | :------------ | :----------- | | Nonperforming loans to total loans | 0.28% | 0.25% | 0.03 | | Allowance for credit losses for loans to total loans | 0.96% | 1.09% | (0.13) | | Allowance for credit losses for loans to nonperforming loans | 341.71% | 429.51% | (87.80) |

Core Insights - The company reported a net income of $2.70 million for the second quarter of 2025, an increase from $2.15 million in the same period of 2024, with earnings per share rising to $0.60 from $0.47 [2][9] - Total interest income increased by 6% to $11.64 million in the second quarter of 2025 compared to $10.94 million a year earlier, driven by higher loan yields and growth in commercial real estate [9][12] - The company successfully retired approximately $10 million in capital notes, expected to reduce annual interest expenses by about $327,000, enhancing its financial position [7][9] Financial Performance - Net interest income for the second quarter of 2025 was $8.25 million, up 16% from $7.09 million in the second quarter of 2024 [11][36] - The net interest margin improved to 3.45% in the second quarter of 2025, compared to 3.02% in the same quarter of 2024 [4][16] - Total noninterest income was $4.08 million in the second quarter of 2025, slightly down from $4.19 million in the same period of 2024 [17] Asset Quality and Growth - Loans, net of the allowance for credit losses, increased to $649.09 million at June 30, 2025, from $636.55 million at December 31, 2024 [19][22] - The ratio of nonperforming loans to total loans was 0.28% at June 30, 2025, indicating strong asset quality [23][24] - Total assets reached $1.04 billion at June 30, 2025, up from $979.24 million at December 31, 2024, reflecting growth in both loans and securities [19][26] Shareholder Value - Stockholders' equity rose to $71.67 million at June 30, 2025, from $64.87 million at December 31, 2024, with a book value per share increasing to $15.77 from $14.28 [26][9] - The company declared a quarterly dividend of $0.10 per common share, payable on September 26, 2025 [9][8] Strategic Initiatives - The company emphasized a balanced revenue stream from various sources, including commercial and retail banking, which has provided financial stability amid economic challenges [6][9] - The focus on maintaining high-quality interest-earning assets and diligent credit management has supported sound margins and quality earnings [5][6]

PART I – FINANCIAL INFORMATION [Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes explaining accounting policies, fair value measurements, securities, business segments, and loan portfolio performance for the periods ended March 31, 2025, and December 31, 2024 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets show the company's financial position at March 31, 2025, compared to December 31, 2024, with total assets and deposits increasing by 3.32% to $1,011,726 thousand and $911,683 thousand respectively, driven by a strategic reversal of Insured Cash Sweep transactions and growth in cash, federal funds sold, securities, and loans, while stockholders' equity increased to $68,348 thousand Consolidated Balance Sheet Highlights | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 1,011,726 | 979,244 | 3.32% | | Total Deposits | 911,683 | 882,404 | 3.32% | | Loans, net | 642,388 | 636,552 | 0.92% | | Stockholders' Equity | 68,348 | 64,865 | 5.37% | - The majority of the first quarter **deposit increase** was due to the reversal of transactions related to the one-way Insured Cash Sweep (ICS) program, which temporarily off-loaded deposits at year-end 2024[128](index=128&type=chunk) [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income for the three months ended March 31, 2025, significantly decreased to $842 thousand from $2,187 thousand in the prior year, primarily due to a substantial increase in noninterest expenses, including a non-recurring consultant fee, and a shift from a credit loss recovery to a provision for credit losses, despite an 11.1% increase in net interest income from loan growth and higher yields on earning assets Income Statement Highlights | Metric | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | 842 | 2,187 | -61.5% | | Earnings per Common Share | 0.19 | 0.48 | -60.4% | | Net Interest Income | 7,719 | 6,950 | 11.1% | | Provision for (recovery of) credit losses | 137 | (553) | N/A | | Noninterest Expenses | 9,826 | 8,088 | 21.5% | - Noninterest expense rose significantly due to a non-recurring fee of approximately **$1,000,000** paid to a consultant for contract negotiation with a core service provider[155](index=155&type=chunk)[173](index=173&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income significantly increased to $3,938 thousand for the three months ended March 31, 2025, from $851 thousand in the prior year, primarily driven by a substantial unrealized gain on securities available-for-sale in the current period, contrasting with an unrealized loss in the prior year Comprehensive Income Summary | Metric | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Net Income | 842 | 2,187 | | Unrealized gain (loss) on securities available-for-sale (net of tax) | 3,096 | (1,336) | | Comprehensive Income | 3,938 | 851 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased by $21,657 thousand to $94,966 thousand at March 31, 2025, primarily driven by net cash provided by financing activities, which saw a substantial increase in deposits, and a shift from net cash used in operating activities to net cash provided by operating activities, while investing activities resulted in net cash used due to purchases of available-for-sale securities and loan originations Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 763 | (1,230) | | Net cash provided by (used in) investing activities | (7,665) | 124 | | Net cash provided by financing activities | 28,559 | 14,340 | | Increase in cash and cash equivalents | 21,657 | 13,234 | | Cash and cash equivalents at end of period | 94,966 | 88,072 | - Net cash provided by financing activities was significantly boosted by a **$29,279 thousand net increase in deposits** during Q1 2025[16](index=16&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased to $68,348 thousand at March 31, 2025, from $64,865 thousand at December 31, 2024, primarily due to net income of $842 thousand and a significant positive adjustment from other comprehensive income of $3,096 thousand, partially offset by dividends paid Stockholders' Equity Changes | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Total Stockholders' Equity | 68,348 | 64,865 | | Net Income (Q1 2025) | 842 | N/A | | Dividends paid (Q1 2025) | (455) | N/A | | Other comprehensive income (Q1 2025) | 3,096 | N/A | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, fair value measurements, securities, business segments, and loan portfolio analysis, including credit quality and allowance for credit losses, while also addressing recent accounting pronouncements and subsequent events [Note 1 – Basis of Presentation](index=10&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) This note outlines the company's primary market area in Central Virginia, with recent expansion into other areas, confirms the adoption of FASB ASU 2023-07 on Segment Reporting applied retrospectively with no material impact, and states that the unaudited financial statements reflect all necessary adjustments in conformity with GAAP - The company's primary market area is Region 2000 in Central Virginia, with recent expansion into Charlottesville, Roanoke, Blacksburg, Harrisonburg, Lexington, Rustburg, and Wytheville[19](index=19&type=chunk) - FASB Accounting Standards Update 2023-07, Segment Reporting, was adopted effective January 1, 2025, and applied retrospectively with **no material impact** on financial statements[20](index=20&type=chunk) [Note 2 – Significant Accounting Policies and Estimates](index=10&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies%20and%20Estimates) This note emphasizes that the consolidated financial statements are prepared using GAAP, requiring management estimates and assumptions, particularly for the allowance for credit losses on loans (ACLL), and states that no significant changes to accounting policies have occurred since December 31, 2024 - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions, with the **Allowance for Credit Losses on Loans (ACLL)** being a particularly susceptible material estimate[22](index=22&type=chunk)[23](index=23&type=chunk) - There have been **no significant changes** to the application of significant accounting policies since December 31, 2024[24](index=24&type=chunk) [Note 3 – Earnings Per Common Share (EPS)](index=11&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Common%20Share%20(EPS)) Basic and diluted earnings per common share for the three months ended March 31, 2025, were $0.19, a decrease from $0.48 in the prior year period, with the weighted average number of shares outstanding remaining constant and no potentially dilutive shares Earnings Per Common Share Data | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income ($k) | 842 | 2,187 | | Weighted average shares outstanding | 4,543,338 | 4,543,338 | | Earnings per common share | $0.19 | $0.48 | - There were **no potentially dilutive shares outstanding** as of March 31, 2025 and 2024, resulting in identical basic and diluted weighted average shares[26](index=26&type=chunk) [Note 4 – Stock Based Compensation](index=11&type=section&id=Note%204%20%E2%80%93%20Stock%20Based%20Compensation) The company recognizes stock-based compensation costs based on fair value, with the 2018 Equity Incentive Plan allowing for the issuance of up to 250,000 shares, but no grants or awards were made or outstanding in 2024 or the three months ended March 31, 2025 - The 2018 Equity Incentive Plan permits the issuance of up to **250,000 shares** of common stock for awards to key employees[28](index=28&type=chunk) - **No grants or awards were made** under the 2018 Incentive Plan in 2024 or the three months ended March 31, 2025, and no grants or awards were outstanding as of these dates[29](index=29&type=chunk) [Note 5 – Fair Value Measurements](index=11&type=section&id=Note%205%20%E2%80%93%20Fair%20Value%20Measurements) This note details the company's fair value measurement practices, categorizing financial assets and liabilities into a three-level hierarchy based on input observability, with securities available-for-sale primarily Level 2 and Interest Rate Lock Commitments (IRLCs) Level 3, and notes no non-recurring fair value adjustments were recorded for collateral-dependent loans or loans held for sale, and no OREO existed - Financial assets and liabilities are grouped into a three-level fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[32](index=32&type=chunk)[36](index=36&type=chunk) - All securities available-for-sale are classified as **Level 2**, while Interest Rate Lock Commitments (IRLCs) are classified as **Level 3**[34](index=34&type=chunk)[35](index=35&type=chunk) Fair Value of Financial Instruments | Asset/Liability | Carrying Amount (Mar 31, 2025, $k) | Fair Value (Mar 31, 2025, $k) | Level 1 ($k) | Level 2 ($k) | Level 3 ($k) | | :--- | :--- | :--- | :--- | :--- | :--- | | Securities Available-for-sale | 192,780 | 192,780 | - | 192,780 | - | | Derivatives - IRLCs | 188 | 188 | - | - | 188 | | Loans, net | 642,388 | 622,849 | - | - | 622,849 | | Deposits | 911,683 | 910,750 | - | 910,750 | - | - **No nonrecurring fair value adjustments** were recorded for collateral dependent loans with an ACLL, loans held for sale, or Other Real Estate Owned (OREO) at March 31, 2025, or December 31, 2024, as no OREO existed[41](index=41&type=chunk)[42](index=42&type=chunk)[46](index=46&type=chunk) [Note 6 – Securities](index=17&type=section&id=Note%206%20%E2%80%93%20Securities) This note provides a detailed breakdown of the company's held-to-maturity and available-for-sale securities portfolios, showing available-for-sale securities with a fair value of $192,780 thousand and gross unrealized losses of $25,248 thousand at March 31, 2025, primarily due to market volatility and interest rate increases, with no credit-related impairment found as the company intends to hold these securities until recovery, and no sales occurred in Q1 2025 or Q1 2024 Securities Portfolio Breakdown | Security Type | Amortized Cost (Mar 31, 2025, $k) | Gross Unrealized Gains (Mar 31, 2025, $k) | Gross Unrealized Losses (Mar 31, 2025, $k) | Fair Value (Mar 31, 2025, $k) | | :--- | :--- | :--- | :--- | :--- | | Held-to-maturity | 3,602 | - | (365) | 3,237 | | Available-for-sale | 217,867 | 161 | (25,248) | 192,780 | - Unrealized losses on available-for-sale securities are primarily due to market volatility and increases in market interest rates; **no credit-related impairment** was found as the company intends and has the ability to hold these securities until recovery[53](index=53&type=chunk) - **No sales of available-for-sale securities** occurred during the three months ended March 31, 2025, or March 31, 2024[56](index=56&type=chunk) - Approximately **$46,451 thousand (book value)** of available-for-sale securities were pledged as collateral for public deposits as of March 31, 2025[56](index=56&type=chunk) [Note 7 – Business Segments](index=19&type=section&id=Note%207%20%E2%80%93%20Business%20Segments) The company operates through three business segments: Community Banking (loans, deposits, banking services), Mortgage Banking (residential mortgage originations for sale), and Investment Advisory (investment advisory and financial planning services via Pettyjohn, Wood & White, Inc.), with performance evaluated based on segment profit and supplemental data including loans, deposits, and assets under management (AUM) - The company reports three business segments: **Community Banking, Mortgage Banking, and Investment Advisory**[59](index=59&type=chunk)[60](index=60&type=chunk) Segment Income Before Taxes | Segment | Income before income taxes (Q1 2025, $k) | Net Income (Q1 2025, $k) | | :--- | :--- | :--- | | Community Banking | 672 | 574 | | Mortgage Banking | 1 | 1 | | Investment Advisory | 573 | 418 | Segment Financial Metrics | Segment | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | :--- | :--- | | Community Banking | Total loans held for investment, net | 642,388 | 636,600 | 601,100 | | Community Banking | Total deposits | 918,503 | 889,500 | 894,600 | | Investment Advisory | Assets under management (AUM) | 842,540 | 854,000 | 770,936 | [Note 8 – Loans and allowance for credit losses](index=23&type=section&id=Note%208%20%E2%80%93%20Loans%20and%20allowance%20for%20credit%20losses) This note details the company's loan portfolio, credit quality indicators, and allowance for credit losses (ACL), showing total loans increased to $649,409 thousand at March 31, 2025, driven by commercial real estate and consumer loans, with the ACL at $7,021 thousand (1.08% of total loans) and a provision for credit losses of $137 thousand for Q1 2025, while nonaccrual loans increased to $1,798 thousand, and the note also outlines the internal risk rating system and provides aging analysis of past due loans Loan Portfolio Composition | Loan Category | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Commercial | 59,976 | 66,418 | | Commercial Real Estate | 371,299 | 359,415 | | Consumer | 80,121 | 78,310 | | Residential | 138,013 | 139,453 | | **Total loans** | **649,409** | **643,596** | | Less allowance for credit losses | 7,021 | 7,044 | | **Net loans** | **642,388** | **636,552** | Allowance for Credit Losses Activity | Metric | March 31, 2025 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | | Allowance for Credit Losses (Ending Balance) | 7,021 | 6,920 | | Provision for (recovery of) credit losses | 28 | (501) | | Charge-Offs | (62) | (65) | | Recoveries | 11 | 74 | - The allowance for credit losses was **1.08% of total loans outstanding** at March 31, 2025, compared to 1.14% at March 31, 2024, and 1.09% at December 31, 2024[176](index=176&type=chunk) Nonaccrual Loans | Nonaccrual Loans | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Total Nonaccrual Loans | 1,798 | 1,640 | - The company uses an internal risk rating system (1-9) for commercial and commercial real estate loans, categorizing them from 'Excellent' (Pass) to 'Loss'[75](index=75&type=chunk)[77](index=77&type=chunk) ACL on Unfunded Commitments | ACL on Unfunded Commitments | March 31, 2025 ($k) | March 31, 2024 ($k) | | :--- | :--- | :--- | | Balance | 652 | 613 | | Provision for (recovery of) credit losses | 109 | (52) | [Note 9 – Recent accounting pronouncements and other authoritative guidance](index=35&type=section&id=Note%209%20%E2%80%93%20Recent%20accounting%20pronouncements%20and%20other%20authoritative%20guidance) The company discusses two recent FASB ASUs: ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Income Tax Disclosures), both of which are expected to have no material impact on the consolidated financial statements upon adoption in future periods - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' requires public companies to disclose specific expense types; effective for annual periods beginning after December 15, 2026, with **no material impact expected**[97](index=97&type=chunk) - ASU 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' requires additional income tax rate reconciliation and disaggregated tax paid information; effective for annual periods beginning after December 15, 2024, with **no material impact expected**[98](index=98&type=chunk) [Note 10 – Subsequent Events](index=36&type=section&id=Note%2010%20%E2%80%93%20Subsequent%20Events) Management has reviewed events through the financial statement issuance date and found no subsequent events requiring accrual or disclosure beyond what has already been presented - Management has reviewed events through the date the financial statements were available to be issued and found **no other subsequent events** requiring accrual or disclosure[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, including forward-looking statements, critical accounting policies, business overview, off-balance sheet arrangements, and a detailed analysis of financial results, liquidity, and capital adequacy for the three months ended March 31, 2025, compared to the prior year [Cautionary Statement Regarding Forward-Looking Statements](index=37&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section warns that the report contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially from projections, with key factors including technology problems, fraud exposure, regulatory risks, economic conditions, interest rate changes, and geopolitical tensions, and the company disclaims any obligation to update these statements - The report contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those projected[102](index=102&type=chunk)[103](index=103&type=chunk) - Key risk factors include problems with technology, potential exposure to fraud and cyber-crime, operating and regulatory risks, government legislation and policies, economic and market forces, liquidity, adequacy of allowance for credit losses, reliance on management, changes in interest rates, real estate values, new accounting standards, and geopolitical tensions[105](index=105&type=chunk) - The company specifically disclaims any obligation to update forward-looking statements to reflect future events or developments[104](index=104&type=chunk) [General](index=38&type=section&id=GENERAL) This section outlines the company's critical accounting policies, particularly the Allowance for Credit Losses on Loans (ACLL) and goodwill impairment testing, and provides an overview of Financial as a bank holding company, its primary subsidiary Bank of the James, and its other business activities including mortgage banking, investment services, insurance, and investment advisory through Pettyjohn, Wood & White, Inc. (PWW), with operating results primarily driven by net interest income and affected by various noninterest income and expense factors - Critical accounting policies include the **Allowance for Credit Losses on Loans (ACLL)**, estimated using a discounted cash flow model, and goodwill, which is tested for impairment annually on September 1[107](index=107&type=chunk)[108](index=108&type=chunk) - Financial is a bank holding company, with its primary business being retail banking through Bank of the James, and other activities including mortgage banking, investment services, insurance, and investment advisory (PWW)[109](index=109&type=chunk) - PWW, the investment advisory subsidiary, had approximately **$843 million in assets under management and advisement** as of March 31, 2025[111](index=111&type=chunk) - Operating results depend primarily on **net interest income**, influenced by interest and dividend income on earning assets and interest expense on liabilities, as well as provision for credit losses, noninterest income, and noninterest expenses[112](index=112&type=chunk)[113](index=113&type=chunk) - The Bank is considering additional branch locations, including properties in Nellysford and Lynchburg, with new branches generally anticipated to become profitable within **12 to 18 months**[117](index=117&type=chunk)[124](index=124&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The Bank engages in off-balance sheet arrangements, including commitments to extend credit and standby letters of credit, which involve credit and interest rate risk, with total commitments of $185,145 thousand at March 31, 2025, and also has rate lock commitments for mortgage loans that are presold to third-party investors, mitigating credit and interest rate risk - The Bank is party to financial instruments with off-balance sheet risk, including commitments to extend credit and standby letters of credit[120](index=120&type=chunk) Off-Balance Sheet Commitments | Commitment Type | March 31, 2025 ($k) | December 31, 2024 ($k) | | :--- | :--- | :--- | | Commitments to extend credit | 181,880 | 182,522 | | Letters of Credit | 3,265 | 3,507 | | **Total** | **185,145** | **186,029** | - Rate lock commitments for mortgage loans are presold to third-party investors, meaning the Bank is **not exposed to losses or gains** from interest rate changes on these commitments[123](index=123&type=chunk) [Summary of Financial Condition and Results of Operations](index=41&type=section&id=SUMMARY%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's detailed discussion and analysis of the company's financial condition and results of operations for the periods presented, covering asset and liability trends, loan portfolio quality, liquidity, capital adequacy, and a comprehensive review of income and expenses [Financial Condition Summary](index=41&type=section&id=Financial%20Condition%20Summary) Total assets increased by 3.32% to $1,011,726 thousand at March 31, 2025, driven by growth in cash, federal funds sold, securities, and loans, while deposits also rose by 3.32% due to a strategic reversal of ICS transactions, and the loan portfolio grew with commercial real estate and consumer loans increasing, though nonperforming assets increased slightly to $1,798 thousand, consisting entirely of nonaccrual loans, and the company maintains adequate liquidity and capital, with all regulatory capital ratios exceeding well-capitalized thresholds Key Financial Condition Metrics | Metric | March 31, 2025 ($k) | December 31, 2024 ($k) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 1,011,726 | 979,244 | 3.32% | | Total Deposits | 911,683 | 882,404 | 3.32% | | Total Loans (excl. held for sale) | 649,409 | 643,596 | 0.90% | Loan Portfolio Composition | Loan Portfolio Composition | March 31, 2025 ($k) | Percentage | | :--- | :--- | :--- | | Commercial | 59,976 | 9.24% | | Commercial Real Estate | 371,299 | 57.17% | | Consumer | 80,121 | 12.34% | | Residential | 138,013 | 21.25% | | **Total loans** | **649,409** | **100.00%** | - Nonperforming assets, consisting entirely of nonaccrual loans, increased to **$1,798 thousand** at March 31, 2025, from $1,640 thousand at December 31, 2024[139](index=139&type=chunk) - Liquid assets totaled **$287,746 thousand** at March 31, 2025, and the Bank has additional borrowing capacity from correspondent banks and the FHLBA[146](index=146&type=chunk) Regulatory Capital Ratios | Capital Ratio | March 31, 2025 | Regulatory Benchmark (Well Capitalized) | | :--- | :--- | :--- | | Tier 1 capital to average total assets | 9.12% | 5.000% | | Common Equity Tier 1 capital | 11.84% | 6.500% | | Tier 1 risk-based capital ratio | 11.84% | 8.000% | | Total risk-based capital ratio | 12.75% | 10.000% | [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Net income for Q1 2025 significantly decreased to $842 thousand from $2,187 thousand in Q1 2024, primarily due to a 21.5% increase in noninterest expenses (including a $1 million non-recurring consultant fee) and a shift from a credit loss recovery to a provision, while net interest income, however, increased by 11.1% to $7,719 thousand, driven by higher interest income from loan growth and increased yields, partially offset by a slight decrease in interest expense, and the net interest margin improved to 3.25%, with noninterest income slightly decreasing due to lower gains on loan sales Key Operating Results | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Income ($k) | 842 | 2,187 | | EPS | $0.19 | $0.48 | | Return on Average Stockholders' Equity | 5.27% | 14.69% | | Return on Average Assets | 0.33% | 0.90% | Net Interest Income and Margin | Interest Metrics | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income ($k) | 7,719 | 6,950 | | Net Interest Margin | 3.25% | 3.02% | | Total Interest Income ($k) | 11,234 | 10,509 | | Average rate on loans | 5.56% | 5.28% | | Total Interest Expense ($k) | 3,515 | 3,559 | | Average rate paid on interest-bearing deposits | 1.73% | 1.82% | Noninterest Income and Expense Summary | Noninterest Metrics | Three Months Ended March 31, 2025 ($k) | Three Months Ended March 31, 2024 ($k) | | :--- | :--- | :--- | | Noninterest Income | 3,283 | 3,307 | | Noninterest Expense | 9,826 | 8,088 | | Provision for Credit Losses | 137 | (553) | | Allowance for Credit Losses to Total Loans | 1.08% | 1.14% | | Effective Tax Rate | 18.96% | 19.65% | - The increase in noninterest expense was largely due to a non-recurring **$1,000,000 fee** paid to a consultant for negotiating a core service provider contract, which is expected to generate significant savings over its 65-month term[173](index=173&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is marked as 'Not applicable' in the report, indicating no specific quantitative or qualitative disclosures about market risk are provided - The company states that Item 3, Quantitative and Qualitative Disclosures About Market Risk, is **not applicable**[182](index=182&type=chunk) [Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that management, including the principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of March 31, 2025, with no significant changes in internal controls over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=50&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no significant changes in internal controls over financial reporting occurring during the quarter - Financial's management concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2025[183](index=183&type=chunk) - There have been **no significant changes** in the company's internal controls over financial reporting during the quarter ended March 31, 2025[184](index=184&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any pending legal proceedings other than routine litigation incidental to its business - The company is **not involved in any pending legal proceedings** at this time, other than routine litigation incidental to its business[185](index=185&type=chunk) [Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - There have been **no material changes** to the risk factors as previously disclosed in Part I, Item 1A of the Company's Form 10-K for the year ended December 31, 2024[186](index=186&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This item is marked as 'Not applicable' for all sub-sections (a), (b), and (c), indicating no information to report regarding unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities - Item 2, Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities, is **not applicable**[188](index=188&type=chunk) [Defaults Upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as 'Not applicable' in the report, indicating no defaults upon senior securities to disclose - Item 3, Defaults Upon Senior Securities, is **not applicable**[187](index=187&type=chunk) [Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as 'Not applicable' in the report, indicating no mine safety disclosures are required - Item 4, Mine Safety Disclosures, is **not applicable**[187](index=187&type=chunk) [Other Information](index=51&type=section&id=Item%205.%20Other%20Information) This item is marked as 'Not applicable' in the report, indicating no other information to disclose - Item 5, Other Information, is **not applicable**[189](index=189&type=chunk) [Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL formatted financial statements and notes - Exhibits include certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, and XBRL formatted financial statements and notes[189](index=189&type=chunk) SIGNATURES [Signatures](index=52&type=section&id=SIGNATURES) The report is signed by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer), on May 15, 2025 - The report was signed by Robert R. Chapman III, President (Principal Executive Officer), and J. Todd Scruggs, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)[193](index=193&type=chunk) - The signing date for the report was **May 15, 2025**[193](index=193&type=chunk)

Financial Performance - Net income for Q1 2025 was $842,000, down from $2.19 million in Q1 2024, resulting in earnings per share of $0.19 compared to $0.48 a year earlier[2] - Net income decreased by 61.50% to $842 thousand for the three months ended March 31, 2025, down from $2,187 thousand in the prior year[36] - Basic net income per share decreased to $0.19 for the three months ended March 31, 2025, down from $0.48 in the same period of 2024[36] Interest Income and Margin - Total interest income increased by 6.90% to $11.23 million in Q1 2025, up from $10.51 million in Q1 2024, driven by higher yields on loans and growth in commercial real estate[11] - Net interest margin improved to 3.25% in Q1 2025, up from 3.02% in Q1 2024, while interest spread rose to 2.95% from 2.73% year-over-year[11] - Net interest income rose to $7,719 thousand for the three months ended March 31, 2025, reflecting an 11.06% increase compared to $6,950 thousand in the same period of 2024[34] Asset and Loan Growth - Total assets grew by 3% to $1.01 billion at March 31, 2025, compared to $979.24 million at December 31, 2024[19] - Total assets increased to $1,011,726 thousand as of March 31, 2025, up 3.32% from $979,244 thousand at December 31, 2024[32] - Loans, net of allowance for credit losses, increased to $642.39 million at March 31, 2025, from $636.55 million at December 31, 2024[19] - Loans held for sale increased significantly by 31.06% to $4,739 thousand compared to $3,616 thousand in the previous quarter[36] Deposits and Equity - Total deposits reached $911.68 million at March 31, 2025, up from $882.40 million at December 31, 2024, reflecting growth in core deposits[24] - Total deposits grew to $911,683 thousand, a 3.32% increase from $882,404 thousand at the end of 2024[36] - Stockholders' equity increased to $68.35 million at March 31, 2025, from $64.87 million at December 31, 2024, with book value per share rising to $15.04 from $14.28[25] Asset Quality - Nonperforming loans to total loans ratio was 0.28% at March 31, 2025, indicating strong asset quality[23] - Nonperforming loans rose to $1,799 thousand, a 9.70% increase from $1,640 thousand at December 31, 2024[38] Expenses and Efficiency - Noninterest expenses increased by 21.49% to $9,826 thousand for the three months ended March 31, 2025, compared to $8,088 thousand in the same period of 2024[35] - The efficiency ratio worsened to 89.31% for the three months ended March 31, 2025, compared to 78.85% in the same period of 2024[37] Future Projections and Savings - The company anticipates $5 million in savings over the 65-month term of a new contract with its core service provider, despite a one-time expense of approximately $1 million in Q1 2025[11] - The company plans to pay off approximately $10 million of capital notes in June 2025, reducing annual interest expense by approximately $327,000[5] Credit Loss Provision - The provision for credit losses was $137 thousand, a significant recovery from a negative provision of $553 thousand in the prior year[36]

Core Insights - The company reported a net income of $842,000 for Q1 2025, a significant decrease from $2.19 million in Q1 2024, resulting in earnings per share of $0.19 compared to $0.48 a year earlier [2][14] - The decrease in earnings was primarily due to a one-time expense of approximately $1 million related to a consultant for negotiating a contract with the core service provider, which is expected to yield long-term cost savings [4][10] - The company maintained a strong cash position, allowing it to pay off approximately $10 million of capital notes without raising new capital, which will reduce annual interest expenses by about $327,000 [5] Financial Performance - Total interest income increased by 6.90% to $11.23 million in Q1 2025 from $10.51 million in Q1 2024, driven by higher yields on loans and growth in commercial real estate loans [12][14] - Net interest income after provision for credit losses rose to $7.58 million, compared to $7.50 million a year earlier, with a net interest margin improvement to 3.25% from 3.02% [11][15] - Noninterest income was stable at $3.28 million, with contributions from commercial treasury services and wealth management activities [16][14] Asset Quality and Growth - Total assets grew by 3% to $1.01 billion at March 31, 2025, from $979.24 million at December 31, 2024, with loans net of allowance for credit losses increasing to $642.39 million [18][24] - The ratio of nonperforming loans to total loans was 0.28%, indicating strong asset quality, with total nonperforming loans at $1.80 million [22][24] - The company added two experienced commercial relationship managers to enhance its commercial lending capabilities and expand market share [8][9] Shareholder Value - Stockholders' equity increased to $68.35 million at March 31, 2025, up from $64.87 million at December 31, 2024, with a book value per share rising to $15.04 from $14.28 [24][14] - The board of directors approved a quarterly dividend of $0.10 per common share, reflecting the company's commitment to returning value to shareholders [14]

Financial Performance - Total interest income increased to $44,643,000 in 2024 from $39,362,000 in 2023, representing a growth of 8.2%[380] - Net income decreased to $7,944,000 in 2024 compared to $8,704,000 in 2023, a decline of 8.7%[381] - Noninterest income rose to $15,137,000 in 2024, up from $12,867,000 in 2023, marking an increase of 17.7%[381] - Total noninterest expenses increased to $35,105,000 in 2024 from $32,507,000 in 2023, reflecting a rise of 8.1%[381] - Earnings per common share decreased to $1.75 in 2024 from $1.91 in 2023, a decline of 8.4%[381] - The net revenue for the consolidated entity was $44.373 million in 2024, up from $42.607 million in 2023, reflecting an increase of approximately 4.1%[503] Assets and Liabilities - The Bank's total assets increased to $979.2 million as of December 31, 2024, compared to $969.4 million as of December 31, 2023, reflecting a growth of approximately 1.8%[379] - The Bank's total liabilities increased to $914.4 million in 2024 from $909.3 million in 2023, reflecting a growth of approximately 0.6%[379] - The Bank's gross loan portfolio is approximately $643.6 million with an allowance for credit losses of $7.0 million as of December 31, 2024[369] - The balance of cash and cash equivalents at the end of the period was $73,309,000 in 2024, slightly down from $74,838,000 in 2023[388] Deposits and Loans - The Bank's total deposits rose to $882.4 million in 2024, up from $878.5 million in 2023, indicating an increase of about 0.5%[379] - Total loans as of December 31, 2024, amounted to $643,596,000, an increase from $609,333,000 as of December 31, 2023[463] - Total loans held for investment, net of allowances, increased to $636.6 million at December 31, 2024, up from $601.9 million in 2023, representing a growth of approximately 5.8%[501] Credit Quality and Allowance for Credit Losses - The allowance for credit losses decreased to $7,044,000 as of December 31, 2024, from $7,412,000 as of December 31, 2023[465] - The company actively monitors credit risk through comprehensive underwriting standards and regular portfolio reviews[461] - The total provision for credit losses included charge-offs of $236 million and recoveries of $209 million, highlighting the bank's management of credit risk[467] - The allowance for credit losses for unfunded loan commitments was $543,000 and $665,000 at December 31, 2024 and 2023, respectively[487] Investments and Securities - The Bank's securities available-for-sale decreased to $187.9 million in 2024 from $216.5 million in 2023, a decline of about 13.2%[379] - The company’s total amortized cost of securities as of December 31, 2024, was $216,921,000, with a fair value of $187,916,000, reflecting gross unrealized losses of $29,014,000[450] - The total available-for-sale securities decreased from $216,510,000 in 2023 to $187,916,000 in 2024, reflecting a reduction of about 13.2%[555] Branch Growth and Strategic Plans - The Bank plans to evaluate additional locations for future branch growth and may open a new branch within the next 18 months if a suitable location is found[208] - The Bank is utilizing the internet to enhance growth plans, offering online account access and management functions[209] Capital Ratios and Compliance - As of December 31, 2024, the Bank's total capital to risk-weighted assets ratio was 12.84%, exceeding the minimum requirement of 10.50%[534] - The Bank's Tier 1 capital to risk-weighted assets ratio was 11.92%, above the required minimum of 8.50%[534] - The Bank is categorized as well capitalized under the regulatory framework for prompt corrective action as of December 31, 2024[533] Miscellaneous - The company reported a total of $1,664 million in special mention loans, indicating a focus on monitoring potential credit risks[476] - The company recorded no liabilities for unrecognized tax benefits as of December 31, 2024, and 2023[430] - The Bank had no Other Real Estate Owned (OREO) as of December 31, 2024 and 2023, maintaining a consistent position[489]

Financial Performance - Net income for the fourth quarter of 2024 was $1.62 million, down 23.2% from $2.11 million in the same quarter of 2023, while full-year net income decreased to $7.94 million from $8.70 million [2][12]. - Net income decreased by 8.73% to $7,944,000 in 2024 compared to $8,704,000 in 2023 [40]. - Return on average assets decreased to 0.63% in 2024 from 0.87% in 2023, a decline of 0.24 percentage points [42]. - Return on average equity fell to 9.39% in 2024 compared to 16.69% in 2023, a decrease of 7.30 percentage points [42]. Income and Revenue - Total interest income for 2024 increased by 13% to $44.64 million compared to $39.36 million in 2023, driven by higher commercial loan interest rates and new loans [12][14]. - Noninterest income rose 18% year-over-year to $15.14 million in 2024, supported by gains on loan sales and wealth management fees [5][18]. - Total interest income increased by 13.42% to $44,643,000 in 2024 from $39,362,000 in 2023 [39]. - Noninterest income grew by 17.64% to $15,137,000 in 2024 from $12,867,000 in 2023 [41]. Loans and Assets - Total loans, net of allowance for credit losses, increased by 6% to $636.55 million at December 31, 2024, with commercial real estate loans growing by 9% [6][22]. - Loans, net increased by 5.75% to $636,552,000 as of December 31, 2024, up from $601,921,000 in 2023 [41]. - Total assets increased by 1.02% to $979,244,000 as of December 31, 2024, from $969,371,000 in 2023 [41]. - Loans held for sale increased significantly by 187.44% to $3,616,000 in 2024 from $1,258,000 in 2023 [41]. Deposits and Equity - Total deposits increased to $882.40 million at December 31, 2024, up from $878.46 million a year earlier, reflecting a focus on core deposits [9][27]. - Total deposits rose by 0.45% to $882,404,000 in 2024 from $878,459,000 in 2023 [41]. - Stockholders' equity rose by 8% to $64.87 million at December 31, 2024, with book value per share increasing to $14.28 from $13.21 a year earlier [10][28]. - Stockholders' equity increased by 8.04% to $64,865,000 in 2024 compared to $60,039,000 in 2023 [41]. - Book value per share improved to $14.28 in 2024 from $13.21 in 2023, reflecting a $1.07 increase [41]. Expenses and Efficiency - Noninterest expense for the full year of 2024 was $35.11 million, up from $32.51 million in 2023, impacted by a one-time payment related to a debit card processing contract [20][12]. - Interest expense surged by 60.12% to $15,407,000 in 2024 from $9,622,000 in 2023 [41]. - The efficiency ratio increased to 82.62% in 2024, up from 79.64% in 2023, reflecting a rise of 2.98 percentage points [42]. Credit Quality - The ratio of nonperforming loans to total loans was 0.25% at December 31, 2024, indicating strong asset quality management [26]. - Total nonperforming loans surged by 319.44% to $1,640 million in 2024 from $391 million in 2023 [42]. - Nonperforming loans to total loans ratio increased to 0.25% in 2024 from 0.06% in 2023, an increase of 0.19 percentage points [42]. - The allowance for credit losses for loans to total loans decreased to 1.09% in 2024 from 1.22% in 2023, a change of -0.12 percentage points [42]. - The ending balance of allowance for credit losses dropped by 4.96% to $7,044 million in 2024 from $7,412 million in 2023 [42]. - Provision for credit losses showed a recovery of $39 million in 2024 compared to a provision of $123 million in 2023, a change of -131.71% [42]. - Charge-offs were recorded at $0 million in 2024, a significant decrease from $40 million in 2023, marking a -100.00% change [42]. Future Outlook - The company anticipates recognizing up to $438,000 in incentive payments from a new card processing contract, with expected long-term benefits of $2.1 million [12].

Core Insights - The company reported a decline in net income for both the fourth quarter and the full year of 2024 compared to the previous year, with net income of $1.62 million ($0.36 per share) for Q4 2024, down from $2.11 million ($0.45 per share) in Q4 2023, and full-year net income of $7.94 million ($1.75 per share), down from $8.70 million ($1.91 per share) in 2023 [2][10][37] Financial Performance - Total interest income increased to $44.64 million for the full year of 2024, up 13% from $39.36 million in 2023, primarily due to higher rates on commercial loans and new loans reflecting the prevailing rate environment [13][17] - Noninterest income rose 18% to $15.14 million in 2024, driven by gains on loan sales, commercial treasury services, and wealth management fees [5][18][19] - Total loans, net of allowance for credit losses, increased by 6% to $636.55 million at the end of 2024, with commercial real estate loans growing by 9% [6][17][21] Asset Quality and Management - The ratio of nonperforming loans to total loans was 0.25% at the end of 2024, indicating strong asset quality, although this was an increase from 0.06% at the end of 2023 [25][40] - The allowance for credit losses on loans to total loans was 1.09% at the end of 2024, down from 1.22% a year earlier, reflecting effective credit management [25][40] Shareholder Value - Stockholders' equity increased by 8% to $64.87 million at the end of 2024, with retained earnings rising to $42.80 million from $36.68 million a year earlier [9][27][28] - The company declared a quarterly dividend of $0.10 per share, reflecting its commitment to returning value to shareholders [10][28] Operational Highlights - The company opened new strategic locations in Buchanan and Nellysford, Virginia, enhancing its deposit-gathering capabilities [8] - Noninterest expense for the full year of 2024 was $35.11 million, up from $32.51 million in 2023, influenced by a one-time payment related to a contract with a debit card processor [20][37]