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Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist readers in understanding and evaluating our financial condition and results of operations. You should read this discussion in conjunction with our financial statements and accompanying notes included elsewhere in this report. Bank of the James Financial Group, Inc. (“Financial”) has no material operations and conducts no business other than the ownership of its operating subsidiaries, Bank of the James (and its divisions and subsidiary), and Pettyjohn, Wood & White, Inc., which was acquired on December 31, 2021. However, for ease of reading and because our financial statements are presented on a consolidated basis, references to “we,” “us,” or “our” refer to Financial, Bank of the James, and their divisions and subsidiaries as appropriate.

Cautionary Statement Regarding Forward-Looking Statements

This report contains statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements generally may be

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identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Shareholders should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Financial and could cause those results to differ materially from those expressed in forward-looking statements contained in this document. These factors, many of which are beyond Financial’s control, include, but are not necessarily limited to the following:

the effects of widespread health emergencies or public health crises on the business, customers, employees and third-party service providers of Financial or any of its acquisition targets;

problems with technology utilized by us;

potential exposure to fraud, negligence, computer theft and cyber-crime, and the Company’s ability to maintain the security of its data processing and information technology systems;

operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Financial specifically;

government legislation and policies, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its related regulations;

economic, market, political and competitive forces affecting Financial’s banking and other businesses;

competition for our customers from other providers of financial services;

reliance on our management team, including our ability to attract and retain key personnel;

changes in interest rates, monetary policy and general economic conditions, which may impact Financial’s net interest income;

changes in the value of real estate securing loans made by the Bank;

adoption of new accounting standards or changes in existing standards;

compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Financial may pursue or implement;

the risk that Financial’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful;

the stability of the overall banking industry in the United States;

liquidity and perceived liquidity in the banking industry in the United States;

geopolitical conflicts, international tensions, and related economic sanctions, which may have a destabilizing effect on financial markets and economic activity; and

other risks and uncertainties set forth in this Annual Report on Form 10-K and, from time to time, in our other filings with the Securities and Exchanges Commission (“SEC”).

Other risks, uncertainties and factors could cause our actual results to differ materially from those projected in any forward-looking statements we make.

These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements. Financial specifically disclaims any obligation to update factors or to publicly announce the results of revisions to any of the forward-looking statements or comments included herein to reflect future events or developments.

Overview

Financial is a bank holding company headquartered in Lynchburg, Virginia. Our primary business is retail banking which we conduct through our wholly-owned subsidiary, Bank of the James (which we refer to as the “Bank”). We conduct four other business activities: mortgage banking through the Bank’s Mortgage Division (which we refer to as “Mortgage”), investment services through the Bank’s Investment division (which we refer to as “Investment Division”), certain insurance activities through BOTJ Insurance, Inc., a subsidiary of the Bank, (which we refer to as “Insurance”), and investment advisory services through the Company’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (which we refer to as “PWW”).

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Although we intend to increase other sources of revenue, our operating results depend primarily upon the Bank’s net interest income, which is determined by the difference between (i) interest and dividend income on earning assets, which consist primarily of loans, investment securities and other investments, and (ii) interest expense on interest-bearing liabilities, which consist principally of deposits and other borrowings. The Bank’s net income also is affected by its provision for credit losses, as well as the level of its noninterest income, including deposit fees and service charges, gains on sales of mortgage loans, and its noninterest expenses, including salaries and employee benefits, occupancy expense, data processing expenses, miscellaneous other expenses, franchise taxes, and income taxes. We expect PWW to continue enhancing our operating results through investment advisory fee income.

As discussed in more detail below,

For the year ended December 31, 2025, Financial had net income of $9,022,000, an increase of $1,078,000 from net income of $7,944,000 for the year ended December 31, 2024.

For the year ended December 31, 2025, earnings per basic and diluted common share were $1.99, as compared to earnings of $1.75 per basic and diluted common share for the year ended December 31, 2024.

Net interest income increased to $32,807,000 for the current year from $29,236,000 for the year ended December 31, 2024.

Noninterest income increased to $15,852,000 for the year ended December 31, 2025, from $15,137,000 for the year ended December 31, 2024.

Total assets as of December 31, 2025, were $1,039,024,000 compared to $979,244,000 at the end of 2024, an increase of $59,780,000 or 6.10%.

Net loans (excluding loans held for sale), net of unearned income and the allowance for credit losses, increased to $661,357,000 as of December 31, 2025 from $636,552,000 as of December 31, 2024.

The net interest margin increased by 28 basis points to 3.39% for 2025, compared to 3.11% for 2024. The following table sets forth select financial ratios:

For the Year Ended

December 31,

Return on average assets 0.88% 0.80%

Average equity to total average assets 6.97% 6.28%

Effect of Economic Trends

A variety and wide scope of economic factors affect Financial’s success and earnings. Although interest rate trends are one of the most important of these factors, Financial believes that interest rates cannot be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models. Rather than focusing on any single interest rate scenario, Financial prepares for multiple outcomes, including unexpected ones, in order to safeguard its margins against wide swings in interest rates.

Following the COVID-19 pandemic, the Federal Reserve maintained the target range for federal funds (“fed funds”) at 0% to 0.25% through early 2022. However, in response to elevated inflation and supply chain disruptions exacerbated by geopolitical tensions, the FOMC began an aggressive rate-hiking cycle in March 2022. Through a series of increases throughout 2022 and into 2023, including multiple 75 basis point increases, the FOMC raised the target rate from near zero to a peak range of 5.25% to 5.50% by July 2023 - the highest level in over two decades.

The FOMC maintained this restrictive monetary policy stance throughout the second half of 2023 and the first half of 2024, as inflation gradually moderated toward the Federal Reserve’s 2.0% target. In September 2024, with

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inflation showing sustained progress and labor market conditions normalizing, the FOMC initiated a rate-cutting cycle with a 50 basis point reduction, followed by additional 25 basis point cuts in November and December 2024, bringing the target range to 4.25% to 4.50% by year-end 2024.

During 2025, the FOMC continued its gradual easing cycle with three 25 basis point rate cuts at its September, October, and December meetings, bringing the target rate to a range of 3.50% to 3.75% as of December 31, 2025. These cuts totaled 75 basis points and brought the cumulative rate reduction since the peak in July 2023 to 175 basis points. At its January 2026 meeting, the FOMC voted to hold rates steady at 3.50% to 3.75%, pausing after three consecutive cuts to assess incoming economic data. As of mid-March 2026, the target rate remains at 3.50% to 3.75%.

The FOMC has indicated that further rate adjustments will depend on incoming economic data, particularly inflation metrics, labor market conditions, and overall economic growth. The Federal Reserve has emphasized its commitment to achieving maximum employment and returning inflation sustainably to its 2.0% target. The December 2025 Summary of Economic Projections indicated significant division among FOMC participants, with the median projection showing only one additional 25 basis point cut in 2026 and another in 2027, reflecting the Committee’s view that the fed funds rate is now approaching neutral levels.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset, or relieving a liability. The following critical accounting policies involve significant management judgment and have a material impact on our financial statements.

The allowance for credit losses (“ACL”) on loans represents management’s best estimate of lifetime expected losses in the loan portfolio as of the reporting date. The ACL is initially recognized upon origination or acquisition of loans and reflects management’s ongoing evaluation based on current conditions, past events, and reasonable and supportable forecasts of future economic conditions, including anticipated prepayments. The allowance is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for (or recovery of) credit losses, which is recorded in the Consolidated Statements of Income.

The Company utilizes a discounted cash flow model to estimate its current expected credit losses. For purposes of calculating quantitative reserves, the Company has segmented its loan portfolio based on loans that share similar risk characteristics. Within the quantitative portion of the calculation, the Company utilizes at least one or more loss drivers, which may include unemployment rates and/or gross domestic product (“GDP”), to adjust its loss rates over a reasonable and supportable forecast period of one year. A straight-line reversion technique is used for the following four quarters, at which time the Company reverts to historical averages. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider qualitative factors, including but not limited to: variability in the economic forecast, changes in volume and severity of adversely classified loans, changes in concentrations of credit, changes in the nature and volume of the loan segments, factors related to credit administration, and other idiosyncratic risks not embedded in the data used in the model. Additional analysis and detailed information on the ACL and loan portfolio quality can be found in “Management’s Discussion and Analysis – Analysis of Financial Condition – Asset Quality.”

Goodwill resulting from business combinations represents the excess of consideration transferred over the fair value of net identifiable assets acquired and is assigned to the applicable reporting unit. Goodwill is tested for impairment annually as of September 1, or more frequently if events or changes in circumstances indicate that it may be impaired. The impairment evaluation begins with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If necessary, a quantitative test is performed by comparing the

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reporting unit’s carrying amount to its estimated fair value. Fair value is determined using discounted cash flow analyses, market-based approaches, or a combination of valuation methodologies, as appropriate. An impairment charge is recognized for the amount by which the carrying value exceeds fair value. Determining fair value requires significant management judgment, including assumptions related to projected future cash flows, discount rates, growth rates, and prevailing market conditions.

RESULTS OF OPERATIONS

Year Ended December 31, 2025 compared to year ended December 31, 2024

Net Income

The net income for Financial for the year ended December 31, 2025, was $9,022,000 or $1.99 per basic and diluted share compared with net income of $7,944,000 or $1.75 per basic and diluted share for the year ended December 31, 2024. Note 13 of the consolidated financial statements provides additional information with respect to the calculation of Financial’s earnings per share.

The increase of $1,078,000 in 2025 net income compared to 2024 was due primarily to a significant increase in our net interest income. Net interest income grew $3,571,000, or 12.2%, driven by improved net interest margin, higher loan yields, and reduced interest expense following the retirement of approximately $10.05 million in capital notes discussed below. The increase in net income was also in part due to growth in noninterest income, including a 10.4% increase in wealth management fees to $5,347,000 in 2025 from $4,843,000 in 2024. Core operating performance strengthened in 2025. The year-over-year comparison was partially offset by lower credit loss recoveries of $35,000 in 2025 compared to $655,000 in 2024.

Additionally, the Company’s efficiency ratio, calculated as noninterest expense divided by the sum of net interest income and noninterest income, improved to 77.17% in 2025 from 79.11% in 2024, as revenue growth of 9.7% outpaced expense growth of 7.0%. The improvement reflects the substantial increase in net interest income driven by margin expansion and lower interest expense following the retirement of capital notes, together with disciplined expense management initiatives, including vendor renegotiations. The efficiency ratio is a non-GAAP financial measure used by the Company to assess operational efficiency, and no non-recurring adjustments were applied in its calculation.

These operating results represent a return on average stockholders’ equity of 12.68% for the year ended December 31, 2025, compared to 12.70% for the year ended December 31, 2024. Our return on average stockholders’ equity decreased modestly despite the 13.6% increase in net income due to a significant increase in stockholders’ equity, which grew 23.4% from $64,865,000 at December 31, 2024, to $80,048,000 at December 31, 2025. The return on average assets for the year ended December 31, 2025, was 0.88% compared to 0.80% in 2024, reflecting improved profitability relative to our asset base.

Provision for Credit Losses

The provision for credit losses was a net recovery of $35,000 for the year ended December 31, 2025, compared to a net recovery of $655,000 for 2024, a decrease of $620,000. Both amounts include the provision for credit losses on unfunded commitments. The 2025 figure consisted of a recovery of credit losses on loans of $166,000 and a provision for credit losses on unfunded commitments of $131,000, as compared with a recovery of credit losses on loans of $533,000 and a recovery of credit losses on unfunded commitments of $122,000 for 2024. The decrease from 2024 reflected loan growth of approximately $24,212,000, which required additional reserves, partially offset by the impact of model updates implemented in the second quarter of 2025, as described in Note 5. In the second quarter, the Company, in collaboration with its third-party model vendor and as part of ongoing model governance, implemented updates to the quantitative CECL loss models for collectively evaluated loan segments that use discounted cash flow techniques. The updates (i) revised certain maximum loss-rate parameters and (ii) incorporated additional post-COVID historical loss data. Provision

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activity in the third and fourth quarters of 2025 reflected the continued application of the updated models together with normal portfolio dynamics, updated economic forecasts, and loan growth trends. The allowance for credit losses as a percentage of total loans was 0.97% at December 31, 2025, compared to 1.09% at December 31, 2024.

Net Interest Income

The fundamental source of Financial’s earnings, net interest income, is defined as the difference between income on earning assets and the cost of funds supporting those assets. The significant categories of earning assets are loans, federal funds sold, interest-bearing balances at other banks, and investment securities, while deposits, federal funds purchased, and other borrowings represent interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates when compared to previous periods of operation.

Interest income increased to $46,655,000 for the year ended December 31, 2025, from $44,643,000 for the year ended December 31, 2024. This increase was due to growth in average earning assets, which increased 3.14% as loan balances increased, and a modest increase in the yields on average earning assets, which primarily consist of loans and investment securities, as discussed below. The increase was driven by an increase in the rates received on loans and investment securities and was partially offset by a decrease in rate received on fed funds sold.

Net interest income for 2025 increased substantially, to $32,807,000 from $29,236,000 in 2024, representing growth of $3,571,000 or 12.2%. This improvement was driven by a significant decline in interest expense, which decreased 10.1% from $15,407,000 in 2024 to $13,848,000 in 2025, combined with steady growth in interest income. The decrease in interest expense primarily reflected the moderately easing interest rate environment during 2025, the Bank’s active management of deposit pricing as competitive pressures moderated, and the retirement of approximately $10.05 million in capital notes at the end of the second quarter of 2025, which eliminated interest expense on those borrowings. The average balance of interest-bearing liabilities increased 2.39%, from $783,003,000 for the year ended December 31, 2024, to $801,692,000 for the year ended December 31, 2025. However, the average interest rate paid on interest-bearing liabilities decreased by 24 basis points to 1.73% in 2025 from 1.97% in 2024, as the Federal Reserve’s rate cuts beginning in September 2024 and continuing through 2025 allowed the Bank to reduce deposit pricing.

The net interest margin increased to 3.39% in 2025 from 3.11% in 2024, an improvement of 28 basis points. The average rate on earning assets increased modestly by 7 basis points from 4.75% in 2024 to 4.82% in 2025, as new loan originations and repricing of variable-rate loans continued at elevated market rates. Meanwhile, the average rate on interest-bearing deposits decreased from 1.92% in 2024 to 1.68% in 2025, a decline of 24 basis points, reflecting the Bank’s pricing discipline as the competitive environment for deposits moderated and market rates declined. As of December 31, 2025, time deposits were $235,328,000, as the Bank successfully managed the overall cost of these deposits downward as maturing certificates of deposit were renewed at lower rates consistent with the declining interest rate environment. Because of Financial’s asset interest rate sensitivity, we anticipate that a decrease in interest rates likely would have a negative impact on our results of operations while an increase likely would have a positive impact on our results of operations.

The following table shows the average balances of total interest earning assets and total interest-bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders’ equity and related revenue,

expense and corresponding weighted average yields and rates. The average balances used in this table and other statistical data were calculated using average daily balances.

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Net Interest Margin Analysis

Average Balance Sheets

(dollars in thousands)

Average Average

Average Interest Rates Average Interest Rates

Balance Income/ Earned/ Balance Income/ Earned

ASSETS Sheet Expense Paid Sheet Expense /Paid

Allowance for credit losses (6,623) (7,089)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Other borrowed funds

Total liabilities and

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Net interest margin 3.39% 3.11%

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

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

(3)The interest income and yields calculated on securities have been tax affected to reflect any tax-exempt interest on municipal securities using the Company’s applicable federal tax rate of 21% for each year. This tax-exempt income is exempt from federal income tax only; no state tax adjustment was included as state net operating loss carryforwards eliminated state income tax liability in both periods presented. Accordingly, 21% represents the full combined marginal rate applied in the tax equivalent calculation.’

Interest income and expenses are affected by fluctuations in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. The following table shows the direct causes of the year-to-year changes in components of net interest income on a taxable equivalent basis:

Volume and Rate

(dollars in thousands)

Years Ending December 31,

Change in Change in

Volume Rate Income/ Volume Rate Income/

Effect Effect Expense Effect Effect Expense

Securities nontaxable 46 33 79 - - -

Federal agency equities 1 (4) (3) 8 5 13

Correspondent bank equity - 6 6 - - -

Liabilities:

FHLB borrowings - - - (16) (16) (31)

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Net interest income on a taxable equivalent basis was $32,843,000 for the year ended December 31, 2025, compared to $29,255,000 for the year ended December 31, 2024. The tax equivalent adjustment, which reflects the grossing up of tax-exempt municipal securities income at the 21% federal statutory rate, was $36,000 for 2025 and $19,000 for 2024. No state tax adjustment was included as state net operating loss carryforwards eliminated state income tax liability in both periods presented. Net interest income as reported on a GAAP basis was $32,807,000 and $29,236,000 for the years ended December 31, 2025 and 2024, respectively.

Noninterest Income of Financial

Noninterest income has been and will continue to be an important factor for increasing our profitability. Management continues to review and consider areas where noninterest income can be increased. Noninterest income (excluding securities gains and losses) consists of income from mortgage originations and sales, service fees, income from life insurance, income from credit and debit card transactions, fees generated by the investment services of Investment, and wealth management fees earned by PWW. Service fees consist primarily of monthly service and minimum account balance fees and charges on transactional deposit accounts, treasury management fees, overdraft charges, and ATM service fees.

The Bank, through the Mortgage Division originates both conforming and non-conforming consumer residential mortgages and reverse mortgage loans primarily in the Region 2000 area as well as in Charlottesville, Harrisonburg, Roanoke, Lexington, Blacksburg, and Wytheville. As part of the Bank’s overall risk management strategy, all of the loans originated and closed by the Mortgage Division are presold to mortgage banking or other financial institutions. The Mortgage Division and assumes negligible credit or interest rate risk on these mortgages. We operate the Mortgage Division primarily with non-delegated correspondent relationships that allow the Bank to close loans in its name before an investor purchases the loan. By using the Bank’s funds to close the loan (as compared to a broker relationship in which loans are funded by the purchaser of the mortgage), the Bank is able to obtain better pricing due to the slight increase in risk. In 2025 and 2024, approximately 15.04% and 13.21% percent of our loans by total origination amount.

The Mortgage Division originated 659 mortgage loans, totaling approximately $199,563,000 during the year ended December 31, 2025, as compared with 633 mortgage loans, totaling $190,669,000 in 2024. The increase in originations was due to continued purchase activity in our market areas, including markets served by the Mortgage Division. Loans for new home purchases comprised 80.66% of the total volume in 2025, as compared to 81% in 2024. The Mortgage Division’s revenue is derived from gains on sales of loans held-for-sale to the secondary market. For the year ended December 31, 2025 and 2024, the Mortgage Division accounted for approximately 6.27% and 8.33% of Financial’s pre-tax net income, contributing $699,000 and $827,000, respectively. Because of the uncertainty surrounding current and near-term economic conditions, management cannot predict future mortgage rates. Management also anticipates that in the near to medium term, if rates are above the mid- 6% range and prices remain relatively steady or increase, refinancing opportunities will be limited, and the majority of the loan mix will continue to lean towards new home purchases and away from refinancing. The Mortgage Division’s presence in the Wytheville market area continues to develop. Management expects that the Mortgage Division’s reputation in its markets and our offices and producers present an opportunity for us to continue to grow the Mortgage Division’s market share and, in the longer term, revenue.

Service charges, fees, and commissions increased to $4,273,000 for the year ended December 31, 2025, from $4,003,000 for the year ended December 31, 2024. Contributing factors included growth in merchant services income, higher debit card interchange income, a Visa network incentive fee earned for the first time in 2025, and modestly higher wire transfer fees and business online banking fees. These increases were partially offset by a decline in commercial credit card interchange fees. Overall, the improvement reflects continued growth in customer accounts and payment transaction activity across the Bank’s service offerings.

Investment provides brokerage services to its clients through an agreement with a third-party broker-dealer. Pursuant to this arrangement, the third-party broker-dealer operates a service center adjacent to one of the branches of the Bank. The center is staffed by dual employees of the Bank and the broker-dealer. Investment receives commissions on

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transactions generated and, in some cases, ongoing management fees such as mutual fund 12b-1 fees. Investment’s financial impact on our consolidated revenue has been minimal. Although management cannot predict the financial impact of Investment with certainty, management anticipates it will continue to be a relatively small component of revenue in 2026.

We provide insurance and annuity products to Bank customers and others through the Bank’s Insurance subsidiary. Insurance generates minimal revenue, and its financial impact on our consolidated revenue has been immaterial. Management anticipates that Insurance’s impact on noninterest income will remain immaterial in 2026.

We conduct our investment advisory business through PWW, a wholly-owned subsidiary of Financial acquired on December 31, 2021. PWW is a Lynchburg, Virginia-based investment advisory firm that had approximately $650 million in assets under management and advisement at the time of the acquisition. As of December 31, 2025, PWW’s assets under management were approximately $1,028,928,000. PWW generates revenue primarily through investment advisory fees. The investment advisory fees will vary based on the value of assets under management. Assets under management may fluctuate due to both client action and fluctuations in the equity and debt markets. Despite the potential for fluctuation, we anticipate that PWW will continue to contribute meaningfully to the Company’s consolidated net income. For the year ended December 31, 2024, PWW had fee income of $4,843,000. PWW’s fee income increased to $5,328,000 for the year ended December 31, 2025, representing growth of 10.4%. For the year ended December 31, 2025 and 2024, PWW accounted for approximately 22.5% and 21.5% of Financial’s pre-tax net income, respectively.

The Bank has invested in two Small Business Investment Company (SBIC) funds as part of its community development and investment strategy. At December 31, 2025, the carrying value of these investments totaled $3,217,000, compared to $2,529,000 at December 31, 2024. The Bank has outstanding capital commitments of $1,220,000 related to these funds, which may be drawn over time at the discretion of the fund managers. Income from SBIC investments totaled $506,000 for the year ended December 31, 2025, compared to $934,000 for the year ended December 31, 2024. The decrease of $427,841, or 45.8%, reflects variability and timing in fund distributions, which are driven by the underlying investment activity and performance of portfolio companies within each fund and are not necessarily indicative of future results.

Noninterest income increased to $15,852,000 in 2025 from $15,137,000 in 2024. The principal components of this change are reflected in the table below. The following table details our noninterest income for the periods indicated:

Noninterest Income

(dollars in thousands)

December 31,

Gains on sale of loans held for sale $ 4,853 $ 4,494

Service charges, fees and commissions 4,273 4,003

Gain on sales and calls of securities, net 27 62

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The following table details the Company’s noninterest expense for the periods indicated:

Noninterest Expense

(dollars in thousands)

December 31,

Professional and other outside expenses 3,967 3,471

Amortization of intangibles 561 560

The increase in noninterest expense from $35,105,000 in 2024 to $37,549,000 in 2025 was driven by normal operating cost increases, including salaries and employee benefits reflecting annual compensation adjustments and the impact of staffing for a branch location opened in April 2025. Variable compensation related to mortgage origination increased consistent with changes in mortgage volume. The year-over-year increase was also driven by higher professional and other outside expenses, primarily due to a non-recurring fee paid to a consultant engaged to assist the Company with the negotiation of an amendment to and extension of the contract with its core service provider. However, the year-over-year increase was significantly moderated by successful cost reduction initiatives implemented during 2025. Specifically, the Company achieved meaningful reductions in data processing expenses through vendor contract renegotiations completed during the year. Management anticipates that the amended contract with the Company’s core provider, which was effective April 1, 2025, will generate significant savings over the term of the contract as compared to the previous contract. Marketing and advertising expenses increased as the Company continued to support customer acquisition and growth initiatives across its markets. Other expenses increased by $61,000, primarily due to higher software and software licensing costs, office supplies and mail handling expenses These increases were partially offset by lower printing costs and modest decreases in other expense categories.

Income Tax Expense

For the year ended December 31, 2025, Financial recorded federal income tax expense of $1,997,000, compared to federal income tax expense of $1,851,000 for the year ended December 31, 2024, resulting in effective tax rates of 17.92% and 18.66%, respectively. The Company’s effective tax rate was lower than the federal statutory corporate tax rate of 21% in both periods primarily due to permanent tax benefits associated with earnings on bank-owned life insurance and certain tax-exempt municipal securities and loans. These benefits were partially offset by the impact of state income taxes. For the year ended December 31, 2025, Financial recorded total income tax expense (federal and state) of $2,123,000, compared to total income tax expense (federal and state) of $1,979,000 for the year ended December 31, 2024, resulting in effective tax rates of 19.05% and 19.94%, respectively. Note 12 of the consolidated financial statements provides additional information regarding income tax expense and deferred tax accounts for 2025 and 2024.

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ANALYSIS OF FINANCIAL CONDITION

As of December 31, 2025 and December 31, 2024

General

Our total assets were $1,039,024,000 at December 31, 2025, an increase of $59,780,000 or 6.1% from $979,244,000 at December 31, 2024. This reflects balanced growth across our core business lines and marked the first time the Company has exceeded $1 billion in total assets at year-end. The increase was primarily driven by growth in loans, net of allowance for credit losses, which increased $24,805,000 or 3.9%, reflecting organic loan demand in our Virginia markets. As explained in more detail below, deposits increased from $882,404,000 on December 31, 2024, to $937,129,000 on December 31, 2025, representing growth of $54,725,000 or 6.2%. The deposit growth in excess of loan growth was deployed into a combination of federal funds sold, interest-bearing balances at other financial institutions, and investment securities, providing the Company with enhanced liquidity and interest income while maintaining flexibility to fund future loan growth.

Loans

Our loan portfolio is the largest and most profitable component of our earning assets. The Bank has comprehensive policies and procedures which cover both commercial and consumer loan origination and management of credit risk. Loans are underwritten in a manner that focuses on the borrower’s ability to repay through cash flow. Management’s goal is not to avoid risk, but to manage it and to include credit risk as part of the pricing decision for each product.

The Bank’s loan portfolio consists of commercial short-term lines of credit, term loans, mortgage financing and construction loans that are used by the borrower to build or develop real estate properties, and consumer loans. The consumer portfolio includes residential real estate mortgages, home equity lines and installment loans.

Loans, net of unearned income and the allowance, increased to $661,357,000 on December 31, 2025, from $636,552,000 on December 31, 2024, representing growth of $24,805,000 or 3.9%. Total loans increased due to continued demand and originations across our lending portfolios, with particular strength in commercial real estate and consumer lending. The moderate growth rate reflects the Bank’s disciplined underwriting approach in a competitive market environment, as management maintained credit quality standards while selectively pursuing attractive lending opportunities. Competition for qualified borrowers continues to remain strong, with pricing pressure in certain segments as competitors seek to deploy excess liquidity.

As of December 31, 2025, the Bank had $1,704,000, or 0.26% of total loans, in nonaccrual status, compared with $1,640,000, or 0.25% of total loans, at December 31, 2024. The increase in nonaccrual loans was primarily attributable to higher balances in real estate and commercial loans, partially offset by declines in consumer loans during 2025. Despite the modest increase, nonaccrual loans remained at a low level relative to total loans. Management continues to focus on maintaining nonperforming assets at low levels through proactive collection efforts and, when appropriate, the liquidation of underlying collateral. The Bank works with borrowers on a case-by-case basis to protect its interests. However, the level of nonaccrual loans may be affected by changes in unemployment levels, housing market conditions, and broader economic conditions at the local, regional, and national levels. See “Asset Quality” below.

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The following table summarizes net charge-offs, average loan balance and the percentage of net (charge-offs) recoveries to average loan balance for each of the Company’s loan segments at the end of the period:

Loan Portfolio

(dollars in thousands)

December 31,

The provision amounts in the table above reflect only the provision for (recovery of) credit losses on loans. Total provision for (recovery of) credit losses as reported in the Consolidated Statements of Income was a recovery of $35,000 and $655,000 for the years ended December 31, 2025 and 2024, respectively. The Consolidated Statements of Income also includes provision for (recovery of) credit losses on unfunded commitments.

The following table sets forth the maturities of the loan portfolio at December 31, 2025:

Remaining Maturities of Selected Loans

(dollars in thousands)

Due in After One, After Five,

One Year but Within but Within After

or Less Five Years Fifteen Years Fifteen Years Total

Loans with fixed interest rates:

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Loans with variable interest rates:

Deposits

Total deposits increased by 6.2%, from $882,404,000 at December 31, 2024, to $937,129,000 at December 31, 2025, representing growth of $54,725,000. This deposit growth was driven by core deposit expansion, including noninterest bearing demand deposits and interest-bearing transaction accounts reflecting successful customer relationship growth and the maturation of branch locations opened in 2024 and 2025. Noninterest-bearing demand deposits increased by $1,764,000, or 1.4%, from $129,692,000 at December 31, 2024, to $131,456,000 at December 31, 2025. This increase reflects our stable customer base as the competitive environment for deposits moderated following Federal Reserve rate cuts, reducing the incentive for customers to migrate funds to higher-yielding accounts. Interest-bearing deposits increased by $52,961,000, or 7.0%, from $752,712,000 at December 31, 2024, to $805,673,000 at December 31, 2025, driven by new customer relationships, growth in existing customer balances, and the ongoing maturation of our branch network. We continue to pursue deposit growth in all our markets and remain focused on acquiring primary checking accounts from commercial loan customers to strengthen our core deposit base. The Company’s strong deposit franchise and relationship-focused approach enabled successful deposit gathering even as the declining interest rate environment allowed the Bank to reduce rates paid on deposits during 2025.

The following table sets forth the average deposit balances and the rates paid on deposits for the years indicated:

Average Deposits and Rates Paid

(dollars in thousands)

Year Ended December 31,

Amount Rate Amount Rate

Interest-bearing deposits

Time deposits

The following table sets forth the maturity schedule for certificates of deposits greater than $250,000:

Maturities of CD’s Greater than $ 250,000

(dollars in thousands)

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In addition to our time deposit maturity profile, we consider the level of deposits that may be more sensitive to changes in market conditions. As of December 31, 2025, deposits in accounts with balances exceeding the FDIC insurance limit of $250,000 totaled approximately $289,069,000 (approximately 30.85% of total deposits), compared to approximately $275,654,000 (approximately 31.24% of total deposits) as of December 31, 2024. These amounts are based on account balances calculated without applying FDIC deposit insurance aggregation rules across accounts or ownership capacities and, as a result, the amounts presented may differ from the actual portion of deposits that is uninsured. Excluding public deposits that are collateralized in accordance with applicable requirements, deposits in accounts exceeding the FDIC insurance limit totaled approximately $252,818,000 (approximately 26.98% of total deposits) and $236,358,000 (approximately 26.79% of total deposits) as of December 31, 2025 and 2024, respectively.

Larger-balance deposits may be more rate-sensitive or otherwise more likely to migrate in response to market conditions, which could increase our funding costs and/or affect our liquidity.

Cash and Cash Equivalents

Cash and cash equivalents increased from $73,309,000 on December 31, 2024, to $84,475,000 on December 31, 2025. Federal funds sold increased to $55,937,000 on December 31, 2025, from $50,022,000 on December 31, 2024. The Company’s liquidity position strengthened during 2025, as deposit growth of $54,725,000 exceeded loan growth of $24,805,000. This increased liquidity was deployed across a combination of loans, federal funds sold, interest-bearing deposits at other financial institutions, and securities available-or-sale, balancing the objectives of earning competitive returns, maintaining operational flexibility, and managing interest rate risk. The Company continually evaluates its liquidity deployment strategy and may adjust the allocation among these liquid assets based on market conditions, anticipated loan demand, and the overall interest rate environment. Fluctuations in cash, federal funds sold, and short-term investment balances reflect our ongoing liquidity management practices and our conservative approach to balance sheet management.

Investment Securities

The investment securities portfolio of the Bank is used as a source of income and liquidity.

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The following table summarizes the fair value of the Bank’s securities portfolio for the periods indicated:

Securities Portfolio

(dollars in thousands)

December 31,

Held-to-maturity

Available-for-sale

Deposited funds are generally invested in overnight vehicles, including federal funds sold, until approved loans are funded. The decision to purchase investment securities is based on several factors, individually or in combination, including:

a)Whether yields on investment securities rated “A” or better by Standard & Poor’s are materially higher than the overnight federal funds rate, while credit quality and duration characteristics remain within the Company’s risk tolerance;

b)Whether demand for loan funding exceeds the rate of deposit growth, which affects the level of surplus liquidity;

c)Management’s objective of maintaining a minimum of 6% of the Bank’s total assets in a combination of federal funds sold and investment securities (including both available-for-sale and held-to-maturity portfolios); and

d)Whether the maturity and call structure of potential investments aligns with management’s asset/liability management strategy.

Available-for-sale securities (as opposed to held-to-maturity securities) may be liquidated at any time as funds are needed to fund loans. Liquidation of securities may result in a net loss or net gain depending on current bond yields available in the primary and secondary markets and the shape of the U.S. Treasury yield curve. Management is cognizant of its credit standards policy and does not feel pressure to maintain loan growth at the same levels as deposit growth and thus sacrifice credit quality in order to avoid security purchases.

Management maintains a portion of available funds in liquid assets to ensure the Bank can fund anticipated loan growth and other higher-yielding earning assets as opportunities arise. Because loans generally provide higher yields than overnight instruments and many investment securities, this approach allows the Bank to deploy liquidity into higher-return assets while maintaining appropriate liquidity levels and managing interest rate risk.

Securities held-to-maturity at amortized cost decreased from $3,606,000 at December 31, 2024, to $3,590,000 at December 31, 2025, due to normal amortization of premiums and scheduled paydowns/maturities. The decision to classify securities as held-to-maturity reflects management’s intent and ability to hold such securities until maturity, based on the assessment that the related funds will not be required for liquidity needs during the securities’ contractual term. Held-to-maturity securities may, however, be pledged to secure public deposits or short-term borrowings.

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The portfolio of securities available-for-sale increased from $187,916,000 at December 31, 2024, to $214,128,000 at December 31, 2025. This increase resulted from purchases of $44,263,000 using excess liquidity from strong deposit growth, partially offset by principal repayments, maturities, and calls totaling $23,754,000 and proceeds from sales of $4,227,000, on which net gains of $27,000 were realized. The fair value of the portfolio improved by approximately $7,978,000 (net of tax) during 2025, as declining interest rates increased the market value of the Bank’s fixed-rate securities holdings. Unrealized losses on the available-for-sale portfolio decreased from $22,915,000 (net of tax) at December 31, 2024, to $14,937,000 (net of tax) at December 31, 2025.

The following table shows the maturities of held-to-maturity and available-for-sale securities at fair value and amortized cost at December 31, 2025 and 2024 and the approximate weighted average yields of such securities. Weighted average yields on all securities including state and political subdivision securities are shown on a pre-tax basis. Financial attempts to maintain diversity in its portfolio and maintain credit quality and repricing terms that are consistent with its asset/liability management and investment practices and policies. For further information on Financial’s securities, see Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K.

Securities Portfolio Maturity Distribution / Yield Analysis

(dollars in thousands)

Held to Maturity

U.S. agency

Available for sale securities

U.S. agency

Mortgage Backed Securities

Municipals

Corporate

Total portfolio

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Cash surrender value of bank-owned life insurance

The Company maintains bank-owned life insurance (“BOLI”) on the lives of certain officers. The Company is the owner and sole beneficiary of the BOLI policies. As of December 31, 2025, the BOLI had a cash surrender value of $23,676,000, an increase of $769,000 from the cash surrender value of $22,907,000, as of December 31, 2024. The Company purchased no additional BOLI in 2025 and $600,000 in 2024. With the exception of purchases, the value of BOLI increases from the cash surrender values of the pool of insurance. The increase in cash surrender value is recorded as a component of noninterest income; however, the Company does not pay tax on the increase in cash value. This profitability is used to offset a portion of current and future employee benefit costs. BOLI can be liquidated if necessary with associated tax costs. However, the Company intends to hold this pool of insurance, because it provides income that enhances the Company’s capital position. Therefore, the Company has not provided for deferred income taxes on the earnings from the increase in cash surrender value.

Goodwill and Other Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquired entity, over the fair value of the nets assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently in events and circumstances exists that indicate that a goodwill impairment test should be performed. The Company has selected September 1 of each year as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

On December 31, 2021, Financial completed its acquisition of Pettyjohn, Wood & White, Inc. (“PWW”), a Lynchburg, Virginia-based investment advisory firm with approximately $650 million in assets under management and advisement at the time of the acquisition. PWW operates as a subsidiary of Financial. The acquisition date fair value of consideration transferred totaled $10.5 million, which was paid in cash.

In connection with the transaction, the Company recorded intangibles relating to customer relationships and the resultant goodwill, representing the excess of the fair value of the consideration transferred over the fair value of the assets acquired and liabilities assumed in accordance with the acquisition method of accounting. Other assets acquired and liabilities assumed in the combination were not significant.

Liquidity

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities.

The liquidity of Financial depends primarily on Financial’s current assets, available credit, and the dividends paid to it by the Bank and PWW. Payment of cash dividends by the Bank is limited by regulations of the Federal Reserve Board and is tied to the regulatory capital requirements. Management believes that Financial has sufficient liquidity to meet its current obligations. See “Capital Resources,” below.

The objective of liquidity management for the Bank is to ensure the continuous availability of funds to meet the demands of depositors, borrowers, creditors, and others. Liquidity management involves monitoring the Bank’s sources and uses of funds in order to meet the day-to-day cash flow requirements while maximizing profits. Stable core deposits and a strong capital position are the components of a solid foundation for the Bank’s liquidity position. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of securities held-to-maturity is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net non-maturity deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

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Funding sources for the Bank primarily include paid-in capital and customer-based deposits, and also include borrowed funds and cash flow from operations. The Bank maintains multiple alternative sources of liquidity, including, among others, unsecured and secured borrowing arrangements, the ability to sell investment securities, federal funds purchased, advances through the Federal Home Loan Bank of Atlanta (“FHLBA”) and other correspondent relationships, and brokered certificate of deposit arrangements.

Federal Home Loan Bank of Atlanta. The Bank is a member of the FHLBA and may obtain advances subject to the FHLBA’s lending requirements and the amount and type of eligible collateral pledged. As of December 31, 2025, the Bank’s remaining available credit through the FHLBA was $303,408,000, based on the most recent calculation. The Bank had pledged loans and securities with an estimated book value of approximately $66,510,000, which supported total potential borrowings of up to $47,574,000, of which $0was drawn and outstanding as of December 31, 2025. Additional collateral would be required for additional borrowing capacity to become available up to the Bank’s maximum potential eligibility.

Unsecured federal funds lines. The Bank maintains unsecured federal funds lines with multiple correspondent banking institutions with aggregate borrowing availability of approximately $58.0 million as of December 31, 2025. Borrowings under these lines are subject to customary terms and conditions and counterparty approval.

At December 31, 2025, liquid assets, which include cash, interest-bearing and noninterest-bearing deposits with banks, federal funds sold, and securities available-for-sale, totaled $298,603,000, as compared to $261,225,000 at December 31, 2024. Investment securities traditionally provide a secondary source of liquidity because they can be converted into cash in a timely manner. However, approximately$115,815,000of these securities are pledged to secure public deposits and unfunded lines of credit. In the event any secured line of credit is drawn upon, the related debt would need to be repaid before the securities could be sold and converted to cash.

The Bank’s liquidity position remained strong throughout 2025, supported by robust deposit growth and diversified funding sources. Management continues to actively monitor our sources and uses of funds in order to meet our cash needs and cash flow requirements while maximizing profits. Our ongoing liquidity management framework includes internal stress testing scenarios and contingency plans to address potential deposit volatility or market disruptions.

At December 31, 2025, non-deposit sources of available funds totaled $366,525,000 which included $303,408,000 available from the FHLBA.

Management believes that the Bank has the ability to meet its liquidity needs.

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The following table sets forth non-deposit sources of funding:

Funding Sources

(dollars in thousands)

Source Capacity Outstanding Available

Federal funds purchased lines (unsecured) $ 58,000 $ - $ 58,000

Federal funds purchased lines (secured) 5,117 - 5,117

Source Capacity Outstanding Available

Federal funds purchased lines (unsecured) $ 53,000 $ - $ 53,000

Federal funds purchased lines (secured) 4,950 - 4,950

(1)Currently the Bank has in place collateral in the form of 1-4 family residential mortgages and securities with a book value of approximately $27,220,000 against which $0 was drawn and outstanding on December 31, 2025. Additional collateral would be required to be pledged in order for the full $303,408,000 to be available.

Capital Resources

Capital adequacy is an important measure of financial stability and performance. Management’s objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.

Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profiles of financial institutions. The guidelines define capital as Tier 1 (primarily common stockholders’ equity, defined to include certain debt obligations) and Tier 2 (remaining capital generally consisting of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general valuation allowance for credit losses).

Regulatory Capital Framework

The Federal Reserve and other federal banking agencies have implemented the Basel III regulatory capital reforms, which established strengthened risk-based and leverage capital requirements for banking organizations. These rules became effective January 1, 2015, and were fully phased in by January 1, 2019.

The current regulatory framework requires the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets.

In addition to these minimum requirements, banks must maintain a capital conservation buffer of 2.5% of risk-weighted assets. This buffer is designed to absorb losses during periods of economic stress. The capital conservation buffer effectively raises the minimum capital ratios to: (i) 7.0% for common equity Tier 1 capital, (ii) 8.5% for Tier 1 capital, and (iii) 10.5% for total capital. Banking institutions that fall below the conservation buffer face constraints on dividends, equity repurchases, and discretionary compensation payments.

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Well-Capitalized Standards

Under the prompt corrective action regulations pursuant to Section 38 of the Federal Deposit Insurance Act, a bank is considered “well-capitalized” if it maintains: (i) a common equity Tier 1 capital ratio of at least 6.5%, (ii) a Tier 1 capital ratio of at least 8.0%, (iii) a total capital ratio of at least 10.0%, and (iv) a leverage ratio of at least 5.0%.

Community Bank Leverage Ratio

Effective January 1, 2020, depository institutions and depository institution holding companies with less than $10 billion in total consolidated assets may elect to use a simplified community bank leverage ratio framework. Qualifying community banking organizations that maintain a leverage ratio (Tier 1 capital divided by average total consolidated assets) of greater than 9.0% are deemed to satisfy all risk-based and leverage capital requirements and are considered well-capitalized for regulatory purposes. As of the date of this filing, the Company has not elected to use the community bank leverage ratio framework.

Risk Weighting of Assets

The capital requirements include specific risk weights for various asset categories to better reflect credit risk and other exposures. Notable risk weights include: 150% for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or on non-accrual status; 250% for mortgage servicing rights and deferred tax assets that are not deducted from capital; and varying risk weights (0% to 600%) for equity exposures.

The Bank’s Capital Position

The Bank’s regulatory capital levels exceed those established for well-capitalized institutions. Management remains committed to maintaining strong capital ratios that provide a cushion above regulatory minimums and support the Bank’s growth objectives.

The following table (along with Note 18 of the consolidated financial statements) shows the minimum capital requirements and the Bank’s capital position as of December 31, 2025 and 2024:

Analysis of Capital for Bank of the James (Bank only)

(dollars in thousands)

Tier 1 capital

Tier 2 capital

Allowance for credit losses $ 6,450 $ 7,044

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Actual Regulatory Benchmarks

For Capital For Well

December 31, December 31, Adequacy Capitalized

Capital Ratios:

(1)Includes capital conservation buffer of 2.5%, where applicable.

On April 13, 2020, the Company commenced a private placement of unregistered debt securities (the “2020 Offering”). In the 2020 Offering, the Company sold $10,050,000 in principal of fixed-rate subordinated notes (the “2020 Notes”) during the second and third quarters of 2020. The 2020 Notes bore interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes matured and were repaid in full on June 30, 2025. The retirement of these notes eliminated approximately $327,000 in annual interest expense and contributed to the Company’s improved net interest margin and profitability in the second half of 2025. For the full year 2025, the notes contributed approximately $163,000 in interest expense during the first half of the year while they remained outstanding.

In June 2025, the Bank paid a dividend to Financial of $5,000,000. The dividend was used to support the repayment of the holding company’s capital notes and had the effect of lowering the capital ratios set forth above. As a result, the Bank’s Tier 1 capital ratio temporarily fell below 9%; however, the Bank subsequently restored the Tier 1 capital ratio above 9% earlier than budgeted.

The capital ratios set forth in the above tables state the capital position and analysis for the Bank only. Because total assets on a consolidated basis are less than $3 billion, Financial is not subject to the consolidated capital requirements imposed by the Bank Holding Company Act. Consequently, Financial does not calculate its financial ratios on a consolidated basis. If calculated, the capital ratios for the Company on a consolidated basis would be slightly lower than the capital ratios of the Bank due to holding company debt used to finance the acquisition of Pettyjohn, Wood & White in December 2021, as well as other minor differences between the Bank and the consolidated entity.

Stockholders’ Equity

Stockholders’ equity increased from $64,865,000 at December 31, 2024, to $80,048,000 at December 31, 2025, representing an increase of $15,183,000 or 23.4%. This increase was primarily due to record net income of $9,022,000 earned during the year and an improvement of $7,978,000 in the mark-to-market adjustment (net of taxes) of available-for-sale securities during 2025, partially offset by dividends paid to stockholders. As of December 31, 2025, we had an unrealized loss in our securities available-for-sale portfolio of $14,937,000 as compared to $22,915,000 on December 31, 2024. The decrease in unrealized losses during 2025 resulted from declining interest rates as the Federal Reserve reduced the federal funds rate by 75 basis points during the second half of the year, which increased the fair value of the Bank’s fixed-rate securities holdings. The remaining unrealized loss is due to changes in market rates of interest rather than the creditworthiness of the issuers. Financial does not expect to realize the losses, as it has the intent and ability to hold the securities until their recovery, which may be at maturity.

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Asset Quality

We perform monthly reviews of all delinquent loans and loan officers are charged with working with customers to resolve potential payment issues. We generally classify a loan as non-accrual when interest is deemed uncollectible or when the borrower is 90 days or more past due. We generally restore a loan if i) a borrower is no longer 90 days past due on the loan and the borrower has demonstrated the capacity to repay the loan for six consecutive months or ii) the loan committee of the Board of Directors determines that a borrower has the capacity to repay the loan.

Non-accrual loans increased to $1,704,000 on December 31, 2025, from $1,640,000 on December 31, 2024. Non-accrual loans remained relatively stable, reflecting consistent asset quality and the Bank’s disciplined underwriting standards. This change reflects ongoing credit monitoring and collection efforts and the resolution of certain credits through workout arrangements, payments, or charge-offs. Total charge-offs during 2025 were $447,000 compared to $84,000 in 2024.

There was no other real estate owned (OREO) activity during the years ended December 31, 2025 and 2024.

We classified loan modifications as both performing and nonperforming assets. Loans individually evaluated are based on the present value of expected future cash flows discounted at the effective interest rate of the loan or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. We maintain a valuation allowance to the extent that the measure of the loan individually evaluated is less than the recorded investment. Loan modifications occurred when we agreed to significantly modify the original terms of a loan by granting a concession due to the deterioration in the financial condition of the borrower. These concessions typically were made for loss mitigation purposes and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Performing loan modifications were $313,000 and $354,000 on December 31, 2025 and 2024.

The amount allocated during the year to the provision for credit losses represents management’s estimate of expected credit losses in the existing loan portfolio. Management’s policy is to maintain the allowance for credit losses at a level sufficient to absorb all expected losses over the life of the loans.Both the amount of the provision and the level of the allowance for credit losses are influenced by numerous factors, including current and forecasted economic conditions, historical credit loss experience, loan performance metrics, borrower-specific conditions, and other relevant qualitative considerations. In performing its credit loss analysis, the Bank assigns a risk rating to each loan in the Bank’s portfolio.

The Bank’s allowance for credit losses decreased 8.4%, from $7,044,000 on December 31, 2024, to $6,450,000 on December 31, 2025, primarily due to changes in the factors used in the CECL model. In the second quarter of 2025, the Company worked with its model provider to implement routine updates to the quantitative CECL loss models, as described in Note 5. The updated model specifications, which revised certain maximum loss-rate parameters and incorporated additional post-COVID historical loss data, resulted in lower probabilities of default and reduced projected losses across the loan portfolio, driving a reduction in the provision for credit losses relative to what would have been recorded under the prior model specification. The updated models remained in use throughout the remainder of 2025 with no further specification changes. The CECL model incorporates input related to economic forecasts, peer asset quality data, historical loss experience, and other quantitative and qualitative factors. At December 31, 2025, the allowance for credit losses was 0.97% of total loans outstanding, versus 1.09% of total loans outstanding at December 31, 2024. The decrease in the allowance as a percentage of total loans was due primarily to the updates implemented to the Company’s quantitative CECL loss models in the second quarter of 2025, which revised certain maximum loss-rate parameters and incorporated additional post-COVID historical loss data, partially offset by loan growth of approximately $24,212,000 during the year.

Management intends to continue to be proactive in quantifying and mitigating the ongoing risk associated with all asset classes. If interest rates rise and/or the U.S. economy experiences a recession, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require increases in the

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allowance for credit losses. The process of identifying potential credit losses is a subjective process. Therefore, the Company maintains a general reserve to cover credit losses within the portfolio.

All non-accrual loans in excess of $100,000 (and any other loans related to that borrower) at December 31, 2025 and 2024 were individually evaluated. If interest on non-accrual loans had been accrued, such income would have totaled approximately $81,000 and $36,000 at December 31, 2025 and 2024, respectively. Loan payments received on non-accrual loans are applied to principal.

When a loan is placed on non-accrual status, several negative implications occur. First, all interest previously accrued but unpaid is reversed and deducted from the Bank’s interest income. Second, interest accruals are discontinued until it becomes probable that both principal and interest can be fully repaid. Third, the loan may require additional provisions for credit losses that are charged against earnings. These loans are included in the nonperforming loan totals presented below.

The following table shows the balance and percentage of the Bank’s allowance for credit losses allocated to each major category of loans:

Allocation of Allowance for Credit Losses

(dollars in thousands)

At December 31,

Amount Percent of Loans to Total Loans Amount Percent of Loans to Total Loans

The following table provides information on the Bank’s nonperforming assets as of the dates indicated:

Nonperforming Assets

(dollars in thousands)

At December 31,

Nonaccrual loans

Foreclosed Properties

Commercial - -

Commercial Real Estate - -

Consumer - -

Residential - -

Total foreclosed properties $ - $ -

Repossessed Assets - -

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Total Nonperforming assets $ 1,704 $ 1,640

Total nonperforming loans as a percentage of total loans 0.26% 0.25%

Total nonperforming loans as a percentage of total assets 0.17% 0.17%

Total nonaccrual loans as a percentage of total loans 0.26% 0.25%

As set forth in the preceding table, the allowance for credit losses as a percentage of non-accrual loans declined from 429.4% in 2024 to 378.5% in 2025. This decrease reflects a modest increase in non-accrual loans from $1,640,000 to $1,704,000. As a community bank, the Bank remains committed to growing assets through quality loan growth by providing credit to small and mid-size businesses and individuals within the markets we serve.

We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within our loan portfolio monthly.

Based on our loan portfolio as of December 31, 2025, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 241.81% and 26.95% (based on interagency CRE guidelines) of total risk-based capital, respectively.

The Bank closely monitors concentrations within its commercial real estate loan portfolio. As of December 31, 2025, non-owner occupied commercial real estate loans totaled $215,301,000, or 32.24% of total loans. The Bank has minimal exposure to loans secured by large office buildings or shopping centers, which comprise less than 6% of the non-owner occupied commercial real estate portfolio. The majority of the Bank’s non-owner occupied commercial loans are secured by smaller, multi-tenant properties diversified across various industries and geographies within our market areas.The Bank does not have any non-owner-occupied commercial loans secured by properties in major city centers. We have not seen an increase in delinquencies in loans secured by non-owner occupied commercial real estate.

In addition, to help manage risk we actively manage and monitor our commercial real estate risk through, when appropriate, the following:

Origination and Analysis

We have a thorough loan origination process.For all CRE loans secured by real estate collateral, we require an appraisal or valuation at the time that we originate the loan.We generally do not approve loans that have a loan-to-value ratio in excess of 80%. We perform an individual property cashflow analysis and, if appropriate, a global cash flow analysis at origination and generally require a debt service coverage ratio of at least 1.2x.

Ongoing Risk Management

Following origination, we continue to manage risk. Our ongoing risk management includes:

Utilizing enhanced risk rating systems specific to CRE exposures;

Obtaining regular third-party loan reviews of the CRE portfolio;

Obtaining subsequent appraisals when either required by regulations or dictated by our internal policies;

Stress testing of property cash flows using various vacancy and rate scenarios during underwriting;

Regular monitoring of local market conditions and property sector trends;

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Meeting at least annually with clients to which the Bank has significant exposure along with market-level monitoring of vacancy rates and rental trends;

Performing annual reviews, including the review of current financial information, rate shocking, and collecting and analyzing rent rolls and operating statements at least annually; and

Utilizing a risk rating system that incorporates both property and borrower performance metrics.

Credit Enhancements

Where appropriate, we mitigate risk by obtaining credit enhancements. Typical enhancements to CRE loans include personal guarantees, secondary collateral, and liquid collateral.

The following table sets forth information for non-owner occupied CRE Loans for each loan category (classified by purpose code and collateral description) that comprises more than one percent (1%) of our total loans:

(1)Loan-to-value is based on collateral valuation at origination date against current bank-owned principal.

The following table sets forth information for owner occupied CRE Loans for the four largest categories of loans (classified by purpose code and collateral description) that comprises more than one percent (1%) of our total loans:

(1)Loan-to-value is based on collateral valuation at origination date against current bank-owned principal.

Interest Rate Sensitivity

The most important element of asset/liability management is the monitoring of Financial’s sensitivity to interest rate movements. The income stream of Financial is subject to risk resulting from interest rate fluctuations to the extent there is a difference between the amount of Financial’s interest earning assets and the amount of interest-bearing liabilities that prepay, mature or reprice in specified periods. Management’s goal is to maximize net interest income with

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acceptable levels of risk to changes in interest rates. Management seeks to meet this goal by influencing the maturity and re-pricing characteristics of the various lending and deposit taking lines of business and by managing discretionary balance sheet asset and liability portfolios.

Management also is attempting to mitigate interest rate risk by limiting the dollar amount of loans carried on its balance sheet that have fixed rates in excess of five years. To reduce our exposure to interest rate risks inherent with longer term fixed rate loans, we generally do not hold such mortgages on our books. The Bank established the Mortgage Division to serve potential customers that desired longer fixed rate loans, generally in excess of ten years.

Management monitors interest rate levels on a daily basis and meets quarterly with the board of directors, who acts as the Enterprise Risk Management and Asset/Liability Committee (“ALCO”). The following reports and/or tools are used to assess the current interest rate environment and its impact on Financial’s earnings and liquidity: monthly and year-to-date net interest margin and spread calculations, monthly and year-to-date balance sheet and income statements versus budget (including quarterly interest rate shock analysis), quarterly economic value of equity analysis, a survey of rates offered by other local competitive institutions, and gap analysis which matches maturities or repricing dates of interest sensitive assets to those of interest sensitive liabilities.

Financial currently subscribes to computer simulated modeling tools made available through its consultant, FinPro, Inc., to aid in asset/liability analysis. In addition to monitoring by ALCO, the board is informed of the current asset/liability position and its potential effect on earnings at least quarterly.

As of December 31, 2025, approximately $274,237,000, or 41.07%, of the loan portfolio was scheduled to mature or reprice within one year, reflecting a significant portion of earning assets that are sensitive to changes in interest rates.

Other Borrowings

On April 13, 2020, the Company commenced a private placement of unregistered debt securities (the “2020 Offering”). In the 2020 Offering, the Company issued $10,050,000 in principal of fixed-rate subordinated notes (the “2020 Notes”) during the second and third quarters of 2020. The 2020 Notes bore interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes matured and were repaid in full on June 30, 2025.

On December 29, 2021, Financial borrowed $11,000,000 from National Bank of Blacksburg pursuant to a secured promissory note (the “NBB Note”). Financial used the proceeds of the loan primarily to purchase 100% of the capital stock of Pettyjohn, Wood & White, with the remainder retained for general corporate purposes. The note was modified as of July 1, 2022. On September 1, 2025, the NBB Note was amended a second time to extend the maturity date, adjust the interest rate, and restructure the amortization and payment schedule. Pursuant to the amended note, the interest rate increased from 3.90% to 5.65% per annum, the maturity date was extended to August 31, 2030, and the amortization schedule was recast based on a 240-month amortization with 60 equal monthly payments of principal and interest in the amount of $62,000, followed by a balloon payment of approximately $7,410,000 at maturity. The amendment also added a provision allowing Financial to request a one-time recast of the amortization schedule upon any prepayment of principal of $1,000,000 or more. The note is secured by a first priority lien on approximately 4.95% of the Bank’s common stock. The balance of the NBB Note is presented on the December 31, 2025 and 2024 consolidated balance sheets under “other borrowings” and is net of unamortized issuance costs.

The Bank may use borrowings in conjunction with deposits to fund lending and investing activities, including both short-term and long-term funding. Short-term borrowings consist of securities sold under agreements to repurchase, which are secured transactions with customers and generally mature the day following the date sold. Short-term borrowings may also include federal funds purchased, which are unsecured overnight borrowings from other financial institutions. As set forth under “Analysis of Financial Condition - Liquidity,” above, the Bank has the ability to borrow funds from a number of sources. The Bank had no amounts outstanding on any of these facilities as of December 31, 2025 and 2024.

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Off-Balance Sheet Arrangements

At December 31, 2025, the Bank had rate lock commitments to originate mortgage loans through its Mortgage Division amounting to approximately $14,337,000. The Bank recorded $99,000 in other assets on the consolidated balance sheets in relation to its interest rate lock commitments at December 31, 2025. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close. No other obligation exists.

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Bank’s commitments is as follows:

Contract Amounts at

December 31,

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on its credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which the Bank deems necessary.

Management does not anticipate any material losses as a result of these transactions.

The Bank rents, under non-cancelable leases eight of its banking facilities and one mortgage production office. “Note 23 – Leases” in the Notes to Consolidated Financial Statements provides information on the Company’s liability under the Company’s leases of significance.

‎

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Expansion Plans

The Bank has no current plans to open additional branches but may consider doing so if appropriate circumstances arise. Any expansion would be subject to regulatory approval and influenced by numerous factors, including market conditions and strategic priorities.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements and their effect on us, see “Impact of Recent Accounting Pronouncements” in Note 24 to the consolidated financial statements included in Item 8 of this Form 10-K.

Item 7A.Quantitative and Qualitative Disclosure About Market Risk

Not applicable

Item 8.Financial Statements and Supplementary Data

The following financial statements are filed as a part of this report:

Management’s Annual Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firms

Consolidated Financial Statements

Balance Sheets, December 31, 2025 and December 31, 2024

Statements of Income, Years Ended December 31, 2025 and December 31, 2024

Statements of Comprehensive Income, Years Ended December 31, 2025 and December 31, 2024

Statements of Changes in Stockholders’ Equity, Years Ended December 31, 2025 and December 31, 2024

Statements of Cash Flows, Years Ended December 31, 2025 and December 31, 2024

Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm PCAOB ID 149)

To the Stockholders and the Board of Directors of Bank of the James Financial Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Bank of the James Financial Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses – Collectively Evaluated Loans

As more fully described in Note 2 and Note 5 of the financial statements, the Company reported gross loans of $667.8 million and a related allowance for credit losses (“ACL”) of $6.5 million as of December 31, 2025. Expected credit losses are evaluated based on the composition of the loan portfolio, current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors. The discounted cash flow (“DCF”) method is the primary credit loss estimation methodology used by the Company and involves estimating future cash flows for each individual loan and discounting them back to their present value using the loan’s contractual interest rate,

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which is adjusted for any net deferred fees, costs, premiums, or discounts existing at the loan’s origination or acquisition date. For collectively evaluated loans not assessed using the DCF method, the Company applies the remaining life method. In applying future economic forecasts, the Company utilizes a forecast period of one year and then reverts to the mean of historical loss rates on a straight-line basis over the following one-year period. Historical loss rates, which are adjusted for qualitative factors that involve significant management judgment, are applied to the collectively evaluated loan segments. For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual basis.

We identified the Company’s estimate of the ACL, specifically the ACL on loans collectively evaluated, as a critical audit matter. The principal considerations for our determination of the ACL for collectively evaluated loans as a critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors, model assumptions, forecasts and forecasting periods. Auditing these complex judgments and assumptions by the Company involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included the following:

Evaluated the relevance and reasonableness of key assumptions by assessing portfolio segmentation, credit quality indicators, current credit conditions, and the incorporation of reasonable and supportable economic forecasts into expected cash-flow projections.

Tested the completeness and accuracy of significant estimate inputs by verifying loan-level data, model inputs, and macroeconomic variables used to generate forecasted scenarios and qualitative overlays.

Tested the mathematical accuracy of estimated losses by independently recalculating historical loss rates, regression-based factors, and a sample of loan-level discounted cash flows.

Evaluated the reasonableness of assumptions and data used by the Company in developing qualitative factors by comparing these data points to internally developed and third-party sources, as well as other audit evidence gathered.

Evaluated the reasonableness of forward-looking forecasts by comparing forecasted macroeconomic variables and scenario weightings to third-party forecasts, independently recalculating model-generated forecast factors.

Evaluated subsequent events and transactions and considered whether those events and transactions corroborated or contradicted the Company’s estimate of allowance for credit losses.

/s/ Elliott Davis, PLLC

We have served as the Company’s auditor since 2024.

Raleigh, North Carolina

March 27, 2026

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31, December 31,

Cash value - bank owned life insurance 23,676 22,907

Customer relationship intangible 6,164 6,725

Liabilities and Stockholders’ Equity

Deposits

Capital notes, net - 10,048

Stockholders’ equity

Accumulated other comprehensive loss (14,937) (22,915)

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands except per share amounts)

Securities

US Government and agency obligations 2,121 1,471

Municipals - tax exempt 135 73

Interest bearing deposits 559 775

Interest Expense

Deposits

NOW, money market savings $ 4,949 $ 5,455

Recovery of credit losses (35) (655)

Net interest income after recovery of credit losses 32,842 29,891

Noninterest income

Gain on sales of loans held for sale $ 4,853 $ 4,494

Service charges, fees and commissions 4,273 4,003

Gain on sales of securities, net 27 62

Noninterest expenses

Professional and other outside expenses 3,967 3,471

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands except per share amounts)

Amortization of intangibles 561 560

Weighted average shares outstanding - basic and diluted 4,543,338 4,543,338

Earnings per common share - basic and diluted $ 1.99 $ 1.75

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands except per share amounts)

For the Year Ended

December 31,

Other comprehensive income:

Unrealized gains (losses) on securities available-for-sale 10,125 (1,582)

Reclassification adjustment for gains included in net income (1) (27) (62)

Other comprehensive income (loss), net of tax 7,978 (1,300)

(1)Gains are included in “gain on sales of securities, net” on the consolidated statements of income.

(2)Documents the 21% federal corporate tax rate used for calculations. The tax effect on these reclassifications is reflected in “income tax expense” on the consolidated statements of income.

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands except per share amounts)

Additional Accumulated

Shares Common Paid-in Retained Other Comprehensive

Outstanding Stock Capital Earnings (Loss) Total

Dividends paid on common stock ($0.40 per share) - - - (1,818) - (1,818)

Other comprehensive loss - - - - (1,300) (1,300)

Dividends paid on common stock ($0.40 per share) - - - (1,817) - (1,817)

Other comprehensive income - - - - 7,978 7,978

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

For the Year Ended December 31,

Cash flows from operating activities

Depreciation and amortization 1,328 1,378

Net amortization and accretion of premiums and discounts on securities 211 571

Amortization of debt issuance costs 2 6

Gain on sales of available-for-sale securities, net (27) (62)

Gain on sale of equipment (28) -

Gain on sales of loans held for sale (4,853) (4,494)

Deferred income taxes (156) 28

Recovery of credit losses (35) (655)

Amortization of intangibles 561 560

Bank owned life insurance income (769) (721)

Increase in accrued interest receivable (315) (230)

Decrease in other assets 979 50

Increase in interest payable 445 242

Increase in other liabilities 298 1,756

Net cash provided by operating activities $ 11,660 $ 8,509

Cash flows from investing activities

Purchases of securities available-for-sale $ (44,263) $ (20,752)

Proceeds from sales of securities available-for-sale 4,227 31,353

Purchases of bank owned life insurance - (600)

Purchases of restricted securities (7) (280)

Origination of loans, net of principal collected (24,639) (34,098)

Purchases of premises and equipment (1,165) (2,550)

Proceeds from sales of equipment 46 -

Purchase of SBIC investments (350) (100)

Net cash used in investing activities $ (42,397) $ (11,173)

Cash flows from financing activities

Principal payments on finance lease obligations (451) (402)

Repayment of capital notes (10,050) -

Repayment of other borrowings (504) (590)

Dividends paid to common stockholders (1,817) (1,818)

Net cash provided by financing activities $ 41,903 $ 1,135

Increase (decrease) in cash and cash equivalents 11,166 (1,529)

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Cash and cash equivalents at beginning of period $ 73,309 $ 74,838

Cash and cash equivalents at end of period $ 84,475 $ 73,309

Supplemental schedule of noncash investing and financing activities

Noncash transactions

Unrealized gains on securities available-for-sale $ 10,098 $ (1,644)

Lease liabilities arising from right-of-use assets - 212

Supplemental disclosures of cash flow information

Cash transactions

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization

Bank of the James Financial Group, Inc. (“Financial” or the “Company”), a Virginia corporation, was organized in 2003 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Financial is headquartered in Lynchburg, Virginia. Financial conducts its business activities through the branch offices and loan production offices of its wholly-owned subsidiary bank, Bank of the James (the “Bank”), the Bank’s wholly-owned subsidiary, BOTJ Insurance, Inc. (“BOTJ-Ins.”), and through the Bank’s two divisions, Bank of the James Mortgage division (“Mortgage Division”) and BOTJ Investment Services division (“Investment Division”).

Bank of the James was incorporated on October 23, 1998, and began banking operations on July 22, 1999. The Bank is a Virginia chartered bank and is engaged in lending and deposit gathering activities in Region 2000 and other markets in Central Virginia and the Shenandoah Valley. It operates under the laws of Virginia and the Rules and Regulations of the Federal Reserve System and the Federal Deposit Insurance Corporation. The Bank’s locations consist of four branches (one of which is a limited-service branch) in Lynchburg, Virginia, one in Forest, Virginia, which includes the Mortgage Division, one in Madison Heights, Virginia, one in the Town of Amherst, Virginia, one in the Town of Bedford, Virginia, one in the Town of Altavista, Virginia, and one in the Town of Appomattox. Outside of Region 2000, the Bank also operates two full-service branches and one limited-service branch in Charlottesville, Virginia, a full-service branch in Harrisonburg, Virginia, two full-service branches in Roanoke, Virginia, a full-service branch in Rustburg, Virginia, a full-service branch in Lexington, Virginia and mortgage origination offices in Blacksburg and Wytheville, Virginia.

The Mortgage Division originates conforming and non-conforming home mortgages in the Region 2000 area, which includes the counties of Amherst, Appomattox, Bedford and Campbell (which includes the Town of Altavista and the county seat in Rustburg), the Town of Bedford and the City of Lynchburg, Virginia, as well as the cities of Charlottesville, Harrisonburg, Lexington, Roanoke, and Blacksburg.

Financial exists primarily for the purpose of holding the stock of its subsidiaries, the Bank and such other subsidiaries as it may acquire or establish. Financial also has one wholly-owned non-operating subsidiary.

On December 31, 2021, Financial completed its acquisition of all the outstanding shares of Pettyjohn, Wood & White, Inc. (“PWW”), a Lynchburg, Virginia-based investment advisory firm with approximately $650 million in assets under management and advisement at the time of the acquisition. The acquisition was undertaken to enhance Financial’s service line offerings as well as augment its noninterest income streams. PWW operates as a subsidiary of the Company.

Note 2 - Summary of significant accounting policies

Consolidation

The consolidated financial statements include the accounts of Bank of the James Financial Group, Inc. and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Basis of presentation and use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, as well as the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses.

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of significant accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents include cash and balances due from banks and federal funds sold, all of which mature within ninety days. Generally, federal funds are purchased and sold for one-day periods.

Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held-to-maturity or trading, are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income . Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, earlier of call or maturity date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Allowance for Credit Losses - Held-to-Maturity Securities

The primary indicators of credit quality for the Company’s held-to-maturity portfolio are security type and credit rating, which are influenced by a number of factors including obligor cash flow, geography, seniority, among other factors. Currently, the Company’s held-to-maturity securities consist completely of securities covered by the explicit or implied guarantee of the United States government or one of its agencies.

Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit losses in the Consolidated Statements of Income. The Company did not have an allowance for credit losses on held-to-maturity securities as of December 31, 2025 or December 31, 2024.

Allowance for Credit Losses - Available-for-Sale Securities

Management evaluates all available-for-sale securities in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specific to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any deficiency is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2025 and December 31, 2024, there was no allowance for credit loss related to the available-for-sale portfolio.

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of significant accounting policies (continued)

Accrued interest receivable on available-for-sale securities totaled approximately $1,405,000 and $1,150,000 at December 31, 2025 and December 31, 2024, respectively, and was excluded from the estimate of credit losses. Accrued interest receivable is recorded under “Other Assets” on the Company’s Consolidated Balance Sheets.

Restricted Stock

As members of the Federal Reserve Bank (FRB) and the Federal Home Loan Bank of Atlanta (FHLBA), the Bank is required to maintain certain minimum investments in the common stock of the FRB and FHLBA. Required levels of investment are based upon the Bank’s capital and a percentage of qualifying assets. The Bank also maintains stock ownership in Community Bankers’ Bank (CBB) and First National Bankers’ Bank (FNBB). The investment in these correspondent banks is minimal and is not mandated but qualifies the Bank for preferred pricing on services offered by CBB and FNBB. Based on liquidation restrictions, all of these investments are carried at cost, less impairment, if any.

Loans

Financial makes real estate, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by real estate loans collateralized by real estate within Region 2000. The ability of Financial’s borrowers to honor their contracts is dependent upon the real estate and general economic conditions in the area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for credit losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Past due status

Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual and potentially charged-off at an earlier date if collection of principal or interest is considered doubtful.

Non-accrual status

Financial stops accruing interest on a loan at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. At the time the loan is placed on non-accrual status, all previously accrued but not collected interest is reversed against interest income. While the loan is classified as non-accrual, any payments collected are accounted for using the cost-recovery method which requires the entire amount of the payment to be applied directly to principal, until qualifying for return to performing status. Loans may be, but are not always, returned to performing status when all the principal and interest amounts contractually due are brought current (within 90 days past due), future payments are reasonably assured, and contractually required payments have been made on a timely basis for at least six consecutive months.

Charge-off

At the time a loan is placed on non-accrual status, it is generally reevaluated for expected loss and a specific reserve, if not already assigned, is established against the loan. Consumer term loans are typically charged-off no later than 120 days whereas consumer revolving credit loans are typically charged-off no later than 180 days. Although the goal for commercial and commercial real estate loans is for charge off no later than 180 days, a commercial or commercial real

Bank of the James Financial Group Inc BOTJ US Equity

BOTJ · 10-K · period ended 2025-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosure About Market Risk

Item 8.Financial Statements and Supplementary Data

Bank of the James Financial Group Inc BOTJ US Equity☆

BOTJ · 10-K · period ended 2025-12-31

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.Quantitative and Qualitative Disclosure About Market Risk

Item 8.Financial Statements and Supplementary Data

Bank of the James Financial Group Inc BOTJ US Equity