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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 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 a resurgence of COVID-19 or other pandemic 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 the Consumer Protection Act and its related regulations);

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

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competition for our customers from other providers of financial services; government legislation and regulation relating to the banking industry (which changes from time to time and over which we have no control) including but not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act;

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;

economic and political tensions with China, the ongoing war between Russia and Ukraine and potential expansion of combatants, and the sanctions imposed on Russia by numerous countries and private companies, all of 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”), insurance activities through BOTJ Insurance, Inc., a subsidiary of the Bank, (which we refer to as “Insurance”), and subsequent to December 31, 2021, investment advisory services through the Company’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (which we refer to as “PWW”).

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 anticipate that going forward, PWW will enhance our operating results by providing additional noninterest income (generally investment advisory fees less operating expenses).

As discussed in more detail below,

For the year ended December 31, 2023, Financial had net income of $8,704,000, a decrease of $255,000 from net income of $8,959,000, for the year ended December 31, 2022;

For the year ended December 31, 2023, earnings per basic and diluted common share were $1.91, as compared to earnings of $1.91 per basic and diluted common share for the year ended December 31, 2022;

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Net interest income increased to $29,740,000 for the current year from $29,703,000 for the year ended December 31, 2022;

Noninterest income (exclusive of net gains on sales and calls of securities) decreased to $12,867,000 for the year ended December 31, 2023 from $13,247,000 for the year ended December 31, 2022;

Total assets as of December 31, 2023 were $969,371,000 compared to $928,571,000 at the end of 2022, an increase of $40,800,000 or 4.39%;

Net loans (excluding loans held for sale), net of unearned income and the allowance for credit losses, decreased to $601,921, 000 as of December 31, 2023 from $605,366,000 as of the end of December 31, 2022, a decrease of 0.57%; and

The net interest margin increased 6 basis points to 3.29% for 2023, compared to 3.23% for 2022.

The following table sets forth selected financial ratios:

For the Year Ended

December 31,

Return on average assets 0.92% 0.91%

Average equity to total average assets 5.36% 5.86%

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. Management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels. Rather than concentrate on any one interest rate scenario, Financial prepares for the opposite as well, in order to safeguard margins against the unexpected.

Between January 2018 and December 2018, the FOMC raised rates by 25 basis points four times, at which point the target rate for federal funds (“fed funds”) peaked at 2.25% to 2.50%. Beginning in July 2019, the FOMC began to decrease rates. Between July 2019 and October 2019, the FOMC decreased the target rate three times by 25 basis points.

In its December 11, 2019 statement, the FOMC stated it continues to seek to foster maximum employment and price stability. The FOMC judged that the current stance of monetary policy was appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the FOMC’s two percent objective. However, on March 3, 2020, the FOMC lowered the target range of the fed funds rate by 50 basis points in response to concerns related to risks the coronavirus posed to economic activity. Further, in response to concerns that the coronavirus could push the U.S. economy towards a recession, on March 15, 2020, the FOMC, at an emergency meeting lowered the target range of the fed funds rate by an additional 100 basis points. As of March 20, 2020, the FOMC had set a current target rate range of 0% to 0.25%. The target rate remained unchanged for the remainder of 2020 and 2021. However, as a result of COVID-19 stimulus and other factors, long term rates began to trend slightly upward in the first quarter of 2021.

In response to higher inflation and supply chain issues exacerbated by the war in Ukraine, on March 17, 2022, the FOMC increased the target rate to a range of 0.25% to 0.50%. The FOMC continued to increase the target rate, including raises of 50 basis points on May 5, 2022, 75 basis points on each of June 16, July 27, September 30, and November 2, 2022, 50 basis points on December 14, 2022 and 25 basis points on February 1, 2023, at which point the target rate was 4.50% to 4.75%. In a continued effort to bring the rate of inflation in line with Federal Reserve’s target of 2.0%, on March 22, 2023, May 3, 2023 and July 26, 2023, the FOMC raised the target rate by 25 basis points, bringing the target rate to 5.25% to 5.50%. The FOMC has indicated that may consider cutting the federal funds target rate one or more times in 2024.

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Critical Accounting Policies

Financial’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 that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. Actual losses could differ significantly from the historical factors that the Bank uses in estimating risk. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of Financial’s transactions would be the same, the timing of events that would impact the transactions could change.

The allowance for loan credit losses represents an amount which, in management’s judgment, is adequate to absorb the lifetime expected losses that may be sustained on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions, and prepayment experience. The allowance for loan credit losses is measured and recorded upon the initial recognition of a financial asset. The allowance for loan credit losses 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 is utilizing a discounted cash flow model to estimate its current expected credit losses. For the purposes of calculating its quantitative reserves, the Company has segmented its loan portfolio based on loans which share similar risk characteristics. Within the quantitative portion of the calculation, the Company utilizes at least one or a combination of 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.

The allowance for credit losses (ACL) is management’s estimate of the probable losses expected in our loan portfolio.For information on the Company’s policies on the ACL beginning with adoption of CECL on January 1, 2023, please refer to Note 2 - “Accounting Standards Adopted in 2023.”See “Management Discussion and Analysis – Analysis of Financial Condition – Asset Quality” below for further discussion of the allowance for credit losses.

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 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. Impairment testing requires a qualitative assessment or that the fair value of each of the Company’s reporting units be compared to the carrying amount of their net assets, including goodwill. If the fair value of a reporting unit is less than its carrying value, an expense may be required to write down the related goodwill to record an impairment loss. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgment. Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values, if any. Goodwill is the only intangible asset with an indefinite life on our consolidated balance sheet.

RESULTS OF OPERATIONS

Year Ended December 31, 2023 compared to year ended December 31, 2022

Net Income

The net income for Financial for the year ended December 31, 2023 was $8,704,000 or $1.91 per basic and diluted share compared with net income of $8,959,000 or $1.91 per basic and diluted share for the year ended December

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31, 2022. Note 13 of the consolidated financial statements provides additional information with respect to the calculation of Financial’s earnings per share.

The decrease of $255,000 in 2023 net income compared to 2022 was due in large part to a decrease in the recovery of credit losses of $721,000, from $900,000 for the year ended December 31, 2022 to $179,000 for the year ended December 31, 2023 as well as a decrease in gain on sales of loans held for sale and an increase in salaries and employee benefits. This decrease was offset in part by a decrease in income tax expense, an increase in wealth management fees to $4,197,000 in 2023 from $3,932,000 in 2022 as well as a decrease in other expenses.

These operating results represent a return on average stockholders’ equity of 17.07% for the year ended December 31, 2023 compared to 15.59% for the year ended December 31, 2022. Our return on average stockholder’s equity increased because of a decrease in equity resulting from the repurchase of 85,319 shares of common stock in 2023. The return on average assets for the year ended December 31, 2023 was 0.92% compared to 0.91% in 2022 primarily due to a decrease in average assets, which was offset by a decrease in net income.

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 $39,362,000 for the year ended December 31, 2023 from $31,853,000 for the year ended December 31, 2022. This increase was due primarily to an increase in the yields on average earning assets which primarily consist of loans and investment securities, as discussed below.

Net interest income for 2023 increased slightly, to $29,740,000 from $29,703,000 in 2022. The rates charged on loans and received on investments grew faster than rates paid on deposits, which was the primary driver in the increase of our net interest income. Our interest expense increased over 348% from $2,150,000 in 2022 to $9,622,000 in 2023. The average balance of interest bearing liabilities decreased 1.09% from $746,479,000 for the year ended December 31, 2022 to $738,335,000 for the year ended December 31, 2023. The average interest rate paid on interest bearing liabilities increased by 101 basis points to 1.30% in 2023 from 0.29% in 2022.

The net interest margin increased to 3.29% in 2023 from 3.23% in 2022. The average rate on earning assets increased 90 basis points from 3.46% in 2022 to 4.36% in 2023 and the average rate on interest-bearing deposits increased from 0.18% in 2022 to 1.23% in 2023. The increase was primarily caused by an increase in average time deposits, which pay a higher rate than demand interest bearing and savings deposits, from $134,821,000 for the year ended December 31, 2022 to $183,256,000 for the year ended December 31, 2023. Because of Financial’s asset interest rate sensitivity, we anticipate that a gradual decrease in interest rates generally would have a negative 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 (7,535) (6,715)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Other borrowed funds

Total liabilities and

Net interest margin 3.29% 3.23%

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(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.

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

Liabilities:

FHLB borrowings — 31 31 — — —

Capital notes — — — — — —

Other borrowings (22) (20) (42) — — —

Noninterest Income of Financial

Noninterest income has been and will continue to be an important factor for increasing our profitability. Our 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 since January 1, 2022, income from 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, and Blacksburg. 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 assumes no credit or interest rate risk on these mortgages. In addition, overall home inventory for sale decreased in our market areas. Beginning in 2013 we began operating the Mortgage Division with hybrid correspondent relationships that allow the Bank to close loans in its name before an investor purchases the loan. By using the Bank’s

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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.

The Mortgage Division originated 609 mortgage loans, totaling approximately $164,511,000 during the year ended December 31, 2023 as compared with 798 mortgage loans, totaling $213,406,000 in 2022. The decrease in originations was due in large part to a rapid increase in mortgage rates during 2022, particularly the second half of the year. Rates remained elevated throughout 2023 as compared to recent history. Loans for new home purchases comprised 80% of the total volume in 2023 as compared to 75% in 2022. 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, 2023, the Mortgage Division accounted for 7.54% of Financial’s total revenue as compared with 11.65% of Financial’s total revenue for the year ended December 31, 2022. Mortgage contributed $452,000 and $790,000 to Financial’s pre-tax net income in 2023 and 2022, 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 continue to stay above 5% to 6% and prices remain relatively steady or increase, refinancing opportunities will be scarce and the majority of the loan mix will continue to lean towards new home purchases and away from refinancing.

Recently, the Mortgage Division has established a presence in the Wytheville market area. Management expects that the Mortgage Division’s reputation in its markets and our recently-added 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 and fees and commissions increased to $3,901,000 for the year ended December 31, 2023 from $3,591,000 for the year ended December 31, 2022 primarily due to increases related to commissions on the sales of securities, debit card fees, and treasury management fees.

Investment provides brokerage services through an agreement with a third-party broker-dealer. Pursuant to this arrangement, the third party broker-dealer operates a service center adjacent to one of the branches of the Bank. The center is staffed by dual employees of the Bank and the broker-dealer. Investment receives commissions on transactions generated and in some cases ongoing management fees such as mutual fund 12b-1 fees. 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 2024.

In the third quarter of 2008, we began providing 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 2024.

We conduct our investment advisory business through PWW, which 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. PWW operates as a subsidiary of Financial. 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, 2022, its first year of operations as a subsidiary of Financial, PWW had fee income of $3,932,000. PWW’s fee income increased to $4,197,000 for the year ended December 31, 2023. For the year ended December 31, 2023 and 2022, PWW accounted for 8.04% and 8.72% of Financial’s total revenue, respectively.

Noninterest income decreased to $12,867,000 in 2023 from $13,247,000 in 2022. The following table summarizes our noninterest income for the periods indicated.

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Noninterest Income

(dollars in thousands)

December 31,

Gains on sale of loans held for sale $ 3,938 $ 5,256

Service charges, fees and commissions 3,901 3,591

Loss on sales and calls of securities, net — (3)

The decrease in noninterest income for 2023 as compared to 2022 was due to a decrease in gain on sales of loans held for sale and was offset by an increase in service charges, fees and commission and wealth management fees. The decrease in the gain on sales of loans held for sale was caused by an increase in mortgage loan rates.

Noninterest Expense of Financial

Noninterest expenses decreased slightly from $32,737,000 for the year ended December 31, 2022 to $32,507,000 for the year ended December 31, 2023. The following table summarizes our noninterest expense for the periods indicated.

Noninterest Expense

(dollars in thousands)

December 31,

Professional and other outside expenses 2,513 2,589

Other real estate expenses, net 40 214

Amortization of intangibles 560 560

The decrease in noninterest expense was due in large part to a decrease in credit expense, OREO expense, and other expense. The decrease in other expense decreased primarily due to an insurance recovery of $287,000 associated with a check forgery. The decrease was offset in part by increases in compensation expense and data processing expense. Data processing increased primarily due to increased charges by our core service provider relating to the additional volume of transactions in 2023. Our compensation and benefits expense has a variable component related to mortgage origination, which offset some of the increase noted above due to lower mortgage volume in 2023

The efficiency ratio, that is the cost of producing each dollar of revenue, is determined by dividing noninterest expense by the sum of net interest income plus noninterest income. Financial’s efficiency ratio increased from 76.23% in 2022 to 76.29% in 2023. Our efficiency ratio increased because of the slight decrease in noninterest income. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. No non-recurring adjustments were made to the calculation of the efficiency ratio.

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Income Tax Expense

For the year ended December 31, 2023, Financial had federal income tax expense of $1,575,000 as compared to a federal income tax expense of $2,151,000, in 2022, which equates to effective tax rates of 15.32% and 19.36%, respectively. Our effective tax rate was lower than the statutory corporate tax rate in 2022 because of federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance, and certain tax-free municipal securities. Our effective tax rate was lower than the statutory corporate tax rate in 2023 because, in addition to the same factors from 2022, in the fourth quarter we utilized a tax benefit for Virginia state income tax purposes that has accumulated as a result of parent company only (i.e., not consolidated) losses over time. This resulted in a one-time credit to income tax expense and led to a sharp decrease in the effective tax rate in 2023 as compared to 2022. Note 12 of the consolidated financial statements provides additional information with respect to our 2022 and 2023 federal income tax expense and deferred tax accounts.

ANALYSIS OF FINANCIAL CONDITION

As of December 31, 2023 and December 31, 2022

General

Our total assets were $969,371,000 at December 31, 2023, an increase of $40,800,000 or 4.39% from $928,571,000 at December 31, 2022, primarily due to increases in federal funds sold and securities available for sale and partially offset by decreases in cash and due from banks and loans, net of allowance for credit losses. As explained in more detail below, deposits increased from $848,138,000 on December 31, 2022 to $878,459,000 on December 31, 2023. These deposits were in large part used to purchase fed funds sold and securities available for sale.

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. 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, decreased to $601,921,000 on December 31, 2023 from $605,366,000 on December 31, 2022. Total loans, including loans held for sale decreased to $610,591,000 on December 31, 2023 from $614,048,000 on December 31, 2022. The decrease in total loans was in large part due to both reduced demand for commercial and residential mortgage loans as well as paydowns of existing loans. Competition for qualified borrowers remains strong.

As of December 31, 2023, the Bank had $391,000, or 0.06% of its total loans, in non-accrual status compared with $633,000, or 0.10% of its total loans, at December 31, 2022. Management is continuing its efforts to reduce non-performing assets through enhanced collection efforts and the liquidation of underlying collateral when applicable. The Bank attempts to work with borrowers on a case-by-case basis to attempt to protect the Bank’s interests. However, despite our commitment, a reduction of non-accrual loans can be dependent on a number of factors, including an increase in unemployment, adverse housing market conditions, and overall economic conditions at the local, regional and national levels. See “Asset Quality” below.

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:

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Loan Portfolio

(dollars in thousands)

December 31,

The following table sets forth the maturities of the loan portfolio at December 31, 2023:

Remaining Maturities of Selected Loans

(dollars in thousands)

Loans with fixed interest rates:

Loans with variable interest rates:

Deposits

We experienced an increase in deposits from $848,138,000 at December 31, 2022 to $878,459,000 at December 31, 2023, for an increase of 3.58%. Noninterest-bearing deposits decreased $20,609,000 or 13.31% from $154,884,000 at December 31, 2022 to $134,275,000 at December 31, 2023. The decrease in noninterest-bearing deposits was due to customers moving funds to higher rate accounts both within and outside the Bank. The decrease was offset by our growth

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in the Charlottesville, Harrisonburg, Roanoke, Appomattox, and Rustburg markets, as well as increased and continued efforts to procure the primary checking accounts of our commercial loan customers. Interest-bearing deposits including certificates of deposit increased $50,930,000, or 7.35%, from $693,254,000 at December 31, 2022 to $744,184,000 at December 31, 2023.

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 includes a summary of maturities of CDs greater than $250,000:

Maturities of CD’s Greater than $ 250,000

(dollars in thousands)

The total amount of all deposit categories in excess of the FDIC $250,000 insurance limit was $221,312,000 and $185,848,000 as of December 31, 2023 and 2022, respectively.

Cash and Cash Equivalents

Cash and cash equivalents increased from $61,762,000 on December 31, 2022 to $74,838,000 on December 31, 2023. Federal funds sold amounted to $49,225,000 on December 31, 2023 compared to $31,737,000 on December 31, 2022. The increase in the balance of federal funds sold is due in part to the increase in deposits and reduced loan volume. In addition, fluctuations in federal funds sold generally are related to fluctuations in transactional accounts and professional settlement accounts. The large increase in cash and cash equivalents in 2023 can be directly attributed to the increase in federal funds sold.

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 or a combination thereof, including:

a) The fact that yields on acceptably rated investment securities (S&P “A” rated or better) are significantly better than the overnight federal funds rate;

b) Whether demand for loan funding exceeds the rate at which deposits are growing, which leads to higher or lower levels of surplus cash;

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

d) Whether the maturity or call schedule meets management’s asset/liability plan.

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 has made the decision to maintain a significant portion of its available funds in liquid assets so that funds are available to fund future growth of the loan portfolio and in anticipation of rising rates. Management believes that this strategy will allow us to maximize interest margins while maintaining appropriate levels of liquidity.

Securities held-to-maturity at amortized cost decreased slightly from $3,639,000 as of December 31, 2022 to $3,622,000 as of December 31, 2023. This decrease resulted from the amortization of premiums within the held-to-maturity portfolio. The decision to invest in securities held-to-maturity is based on the same factors as the decision to invest in securities available-for-sale except that management invests surplus funds in securities held-to-maturity only after concluding that such funds will not be necessary for liquidity purposes during the term of such security. However, the held-to-maturity securities may be pledged for such purposes as short term borrowings and as collateral for public deposits.

The portfolio of securities available-for-sale increased to $216,510,000 as of December 31, 2023 from $185,787,000 as of December 31, 2022. The increase was due to the deployment of cash and cash equivalents into fixed income securities in an attempt secure higher yields on our earning assets. In addition, the increase was due in part to an increase in the fair value of available-for-sale securities of $6,539,000 (net of tax) from December 31, 2022 to December 31, 2023 caused by declining interest rates and the decreasing duration of the portfolio. The Bank realized $12,127,000 from paydowns related to the normal amortization of principal related to the Bank’s mortgage backed securities, calls, and

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maturities. During 2023, the Bank sold no available-for-sale securities and purchased $34,853,000 of available-for-sale securities.

The following table shows the maturities of held-to-maturity and available-for-sale securities at fair value at December 31, 2023 and 2022 and 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

Weighted average yield 2.88% 3.27%

Available-for-sale securities

U.S Treasury

Weighted average yield 1.73%

U.S. Agency

Mortgage Backed Securities

Municipals

Corporates

Weighted average yield 2.62% 3.85%

Total portfolio

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Securities Portfolio Maturity Distribution / Yield Analysis

(dollars in thousands)

Held-to-maturity

U.S. Agency

Weighted average yield 2.88% 3.25%

Available-for-sale securities

U.S Treasury

Weighted average yield 1.73%

U.S. Agency

Mortgage Backed Securities

Municipals

Corporates

Weighted average yield 2 2.61% 3.85%

Total portfolio

Cash surrender value of bank-owned life insurance

The Company has funded bank-owned life insurance (BOLI) for certain of its officers. The Company is the owner and sole beneficiary of the BOLI policies. As of December 31, 2023, the BOLI had a cash surrender value of $21,586,000 an increase of $2,349,000 from the cash surrender value of $19,237,000, as of December 31, 2022. The Company did not purchase any additional BOLI in 2022 and purchased an additional $1,800,000 of BOLI during the first quarter of 2023. 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

On December 31, 2021, Financial completed its acquisition of Pettyjohn, Wood & White, Inc. (“PWW”), a

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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. Refer to Note 26. Acquisitions, included in Item 8 of this Annual Report on Form 10-K for additional information.

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.

Funding sources for the Bank primarily include paid-in capital and customer-based deposits but also include borrowed funds and cash flow from operations. The Bank has in place several agreements that will provide alternative sources of funding, including, but not limited to, lines of credit, sale of investment securities, purchase of federal funds, advances through the Federal Home Loan Bank of Atlanta (“FHLBA”) and correspondents, and brokered certificate of deposit arrangements. Specifically,

Additional borrowings may be obtained through the FHLBA. The Bank’s remaining available credit through the FHLBA was $239,927,000 as of December 31, 2023, the most recent calculation. Currently the Bank has in place pledged collateral in the amount of approximately $34,535,000, allowing the Bank to borrow up to $21,052,000, against which $0 was drawn and outstanding on December 31, 2023. Additional collateral would be required to be pledged in order for the full amount to be available.

Unsecured federal funds lines and their respective limits are maintained with the following institutions: Community Bankers’ Bank, $13,000,000, PNC Bank, $6,000,000, First National Bankers’ Bank, $10,000,000, Pacific Coast Bankers’ Bank, $20,000,000 and Zions Bank, $4,000,000.

In response to the failures of Silicon Valley Bank and Signature Bank, the Federal Reserve authorized all 12 regional reserve banks to make additional funding available to eligible depository institutions, including the Bank, through the Bank Term Funding Program (the “Program”) in order to help assure the depository institutions that they have an additional source of liquidity to meet the needs of their depositors. Under the Program, eligible depository institutions could pledge eligible collateral (which included direct obligations of the U.S. Department of Treasury and most federal agencies and mortgage-backed securities issued and/or fully guaranteed by Ginnie Mae, Freddie Mac, and Fannie Mae) in exchange for advances equal to 100% of the par value of the collateral pledged. The advances had a term of one year and bore interest at a fixed rate equal to the one-year overnight swap index rate plus 10 basis points. As of March 11, 2024, no new advances were available under the program. Although the Bank pledged approximately $30,000,000 of collateral under the program, the Bank did not take any advances. To maintain this liquidity, the Bank intends to transfer the collateral pledged as part of the Program to the Fed’s discount window.

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At December 31, 2023, liquid assets, which include cash, interest-bearing and noninterest-bearing deposits with banks, federal funds sold, and securities available-for-sale totaled $291,348,000 as compared to $247,549,000 at December 31, 2022. Investment securities traditionally provide a secondary source of liquidity because they can be converted into cash in a timely manner. However, approximately $30,166,000 (current market value) of these securities are pledged to secure public deposits and $5,210,000 (current market value) are pledged to secure 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.

While we have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of increased interest rates or recent turmoil in the banking system, management continues to monitor our sources and uses of funds in order to meet our cash needs and cash flow requirements while maximizing profits.

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

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

Funding Sources

(dollars in thousands)

Source Capacity Outstanding Available

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

Federal funds purchased lines (secured) 4,597 — 4,597

Source Capacity Outstanding Available

Federal funds purchased lines (unsecured) $ 33,000 $ — $ 33,000

Federal funds purchased lines (secured) 4,689 — 4,689

Reverse repurchase agreements 5,000 — 5,000

(1)Currently the Bank has in place collateral in the form of 1-4 family residential mortgages and securities in the amount of approximately $34,535,000, against which $0 was drawn and outstanding on December 31, 2023. Additional collateral would be required to be pledged in order for the full $297,524,000 to be available.

At the end of 2023, approximately 28.07%, or $171,016,000 of the loan portfolio could mature or could reprice within a one-year period. At December 31, 2023, non-deposit sources of available funds totaled $297,524,000, which included $239,927,000 available from the FHLBA.

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).

On June 7, 2012, the Federal Reserve issued a series of proposed rules that would revise and strengthen its risk-based and leverage capital requirements and its method for calculating risk-weighted assets. The rules were proposed to implement the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain

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provisions of the Dodd-Frank Act. On July 2, 2013, the Federal Reserve approved certain revisions to the proposals and finalized new capital requirements for banking organizations.

Effective January 1, 2015, the final rules require 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 (unchanged from the previous requirement); and (iv) a leverage ratio of 4.0% of total assets. A capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk-weighted assets, increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

Since January 1, 2019 the rules have required the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus the 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

With respect to the Bank, the rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA by (i) introducing a common equity Tier 1 capital ratio requirement at each level (other than critically undercapitalized), with the required ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum ratio for well-capitalized status being 8.0% (as compared to the previous 6.0%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3.0% Tier 1 leverage ratio and still be well-capitalized.

The capital requirements also include changes in the risk weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and nonresidential mortgage loans that are 90 days past due or otherwise on non-accrual status, a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable, a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital, and increased risk-weights (from 0% to up to 600%) for equity exposures.

Pursuant to the Regulatory Relief Act, on September 17, 2019, the federal banking agencies adopted a final rule regarding a community bank leverage ratio. Under the final rule, which was effective on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9 percent, will be eligible to opt into the community bank leverage ratio framework (qualifying community banking organizations). Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9 percent will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

The Bank’s regulatory capital levels exceed those established for well-capitalized institutions.

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, 2023 and 2022.

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

(dollars in thousands)

December 31, December 31,

Tier 1 capital

Tier 2 capital

Allowance for credit losses $ 7,412 $ 6,259

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 and closed $10,050,000 in principal of notes (the “2020 Notes”) during the second and third quarters of 2020. The 2020 Offering officially ended on July 8, 2020. The 2020 Notes bear interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes will mature on June 30, 2025 and are subject to full or partial repayment on or after June 30, 2021. The balance of the 2020 Notes as presented on the December 31, 2023 consolidated balance sheet is net of unamortized issuance costs.

On September 24, 2020, the Bank used $5,000,000 of the proceeds for the payment of principal of unregistered debt securities issued by Financial in 2017. The Company has used the balance of the proceeds from the 2020 Offering for general corporate purposes. Such uses have included payment of interest on the 2020 Notes and the contribution of additional capital to the Bank.

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 because of the Company’s decision to contribute a portion of the debt offerings to the Bank.

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Stockholders’ Equity

Stockholders’ equity increased by $9,813,000 from $50,226,000 on December 31, 202 2to $60,039,000 on December 31, 2023. The increase was due to 2023 income and an increase in the market value (mark to market, net of taxes) of available-for-sale securities of $5,166,000. The increase was partially offset by cash dividends paid. As of December 31, 2023, we had an unrealized loss in our securities available-for-sale portfolio of $21,615,000 as compared to $26,781,000 on December 31, 2022. The unrealized loss is due to changes in market rates of interest rather than the credit worthiness 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.

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 decreased to $391,000 on December 31, 2023 from $633,000 on December 31, 2022. Total charge-offs during 2023 were $236,000 compared to $162,000 in 2022. In 2023, the Bank recovered $209,000 in loans previously charged-off as compared with recoveries of $406,000 in 2022.

We also classify other real estate owned (OREO) as a nonperforming asset. OREO is the value of real property acquired by the Bank following default by the borrower. During the twelve months ended December 31, 2023 the Bank disposed of two (2) OREO properties and did not acquire any OREO properties. As of December 31, 2023 the Bank was carrying no OREO properties. The following table represents the changes in OREO balance in 2023 and 2022.

OREO Changes

(dollars in thousands)

Year Ended December 31,

Balance at the beginning of the year (net) $ 566 $ 761

Transfers from Loans — —

Capitalized costs — —

Valuation Adjustment (23) (195)

Sales proceeds (540) —

Loss on sales (3) —

Balance at the end of the year (net) $ — $ 566

Non-accrual loans plus OREO decreased to $391,000 on December 31, 2023 from $1,199,000 on December 31, 2022, a decrease of 67.39%.

Prior to January 1, 2023, we classified troubled debt restructurings (TDRs) as both performing and nonperforming assets. We measure impaired loans 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 impaired loan is less than the recorded investment. TDRs 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. TDRs were considered impaired loans. 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 TDRs were $431,000 on December 31, 2022.

The following table sets forth the number of outstanding TDR contracts and the total amount of the Bank’s TDRs as of December 31, 2022:

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Troubled Debt Restructurings

(dollars in thousands)

December 31,

Number of performing TDR contracts 1

Number of nonperforming TDR contracts —

Total number of TDR contracts 1

Amount of performing TDR contracts $ 431

Amount of nonperforming TDR contracts —

Total amount of TDRs contracts $ 431

The Company adopted ASU 2022-02 on January 1, 2023, which eliminated the accounting guidance for TDRs.

The amount allocated during the year to the provision for credit losses represents management’s analysis of the existing loan portfolio and credit risks. Management’s policy is to maintain the allowance for credit losses at a level sufficient to absorb the probable expected losses inherent in the loan portfolio. Both the amount of the provision and the level of the allowance for credit losses are impacted by many factors, including general economic conditions, actual and expected credit losses, loan performance measures, historical trends and specific conditions of the individual borrower.

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 increased 18.42% from $6,259,000 on December 31, 2022 to $7,412,000 on December 31, 2023, primarily due to the adoption of ASU 2022-02. The increase was offset by a $179,000 recovery of credit loss provision as a result of applying the CECL model. At December 31, 2023, the allowance for credit losses was 1.22% of total loans outstanding, versus 1.02% of total loans outstanding at December 31, 2022.

Management intends to continue to be proactive in quantifying and mitigating the ongoing risk associated with all asset classes. If interest rates continue to 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 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.

No non-accrual loans were excluded from impaired loans at December 31, 2023 and 2022. If interest on these loans had been accrued, such income cumulatively would have approximated $37,000 and $79,000 at December 31, 2023 and 2022, respectively. Loan payments received on non-accrual loans are applied to principal. When a loan is placed on non-accrual status there are several negative implications. First, all interest accrued but unpaid at the time of the classification is deducted from the interest income totals for the Bank. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Third, there may be actual losses that necessitate additional provisions for credit losses charged against earnings. These loans were included in the nonperforming loan totals listed below.

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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,

Non-accrual loans

Commercial $ — $ —

Consumer — 20

Residential — 95

Total non-accrual loans $ 391 $ 633

Foreclosed Properties

Commercial — —

Commercial Real Estate — 500

Consumer — —

Residential — 66

Total foreclosed properties $ — $ 566

Repossessed Assets — —

Total Nonperforming assets $ 391 $ 1,199

Total nonperforming loans as a percentage of total loans 0.06% 0.10%

Total nonperforming loans as a percentage of total assets 0.04% 0.07%

Total non-accrual loans as a percentage of total loans 0.06% 0.10%

The allowance for credit losses as a percentage of non-accrual loans increased from 2022 to 2023 due to the sharp decrease in non-accrual loans for the same periods.

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

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that prepay, mature or reprice in specified periods. Management’s goal is to maximize net interest income with 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 fixed rate loans in excess of five 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.

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 sold and closed $10,050,000 in principal of notes (the “2020 Notes”) during the 2nd and 3rd quarters of 2020. The 2020 Offering officially ended on July 8, 2020. The 2020 Notes bear interest at the rate of 3.25% per year with interest payable quarterly in arrears. The 2020 Notes will mature on June 30, 2025 and are subject to full or partial repayment on or after June 30, 2021. The balance of the 2020 Notes as presented on the December 31, 2023 consolidated balance sheet is net of unamortized issuance costs.

On December 29, 2021 Financial borrowed $11,000,000 from National Bank of Blacksburg pursuant to a secured promissory note (the “NBB Note”). The NBB Note bears interest at the rate of 4.00%, and is being amortized over a fifteen year period with a balloon payment of approximately $9,375,000 due on December 31, 2024. 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, 2023 consolidated balance sheet under “other borrowings” and is net of unamortized issuance costs. A portion of the proceeds were used to purchase 100% of the capital stock of PWW. On June 30, 2022, NBB agreed to modify the terms of the NBB Note effective July 1, 2022. Pursuant to the modification, the balloon payment date was extended to December 31, 2026 from December 31, 2024 and the interest rate was lowered to 3.90% from 4.00%. Under the normal amortization schedule, the approximate amount of the balloon payment on December 31, 2026 will be $8,104,000.

Financial uses borrowing in conjunction with deposits to fund lending and investing activities. Borrowings include funding of a short and long-term nature.

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, which totaled $0 as of December 31, 2023 and December 31, 2022. 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 these facilities as of December 31, 2023 and 2022.

Off-Balance Sheet Arrangements

At December 31, 2023, the Bank had rate lock commitments to originate mortgage loans through its Mortgage Division amounting to approximately $11,562,000. The Bank recorded $107,000 in other assets in relation to its interest

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rate lock commitments at December 31, 2023. 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

(dollars in thousands) 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.

Expansion Plans

Subject to regulatory approval, the Bank anticipates opening additional branches during the next two fiscal years. Although numerous factors could influence the Bank’s expansion plans, the following discussion provides a general overview of the real property the Bank is holding for potential branch expansion.

Real property located at 19792 Main Street, Buchanan, Virginia. On August 7, 2023, the Bank purchased real property located at 19792 Main Street, Buchanan, Virginia. The building on the property previously served as a bank branch for another financial institution. The Bank anticipates that the cost to upfit the building will be modest. The Bank anticipates that it will open a branch at this location in the second quarter of 2024.

Real Property located at 2935 Rockfish Valley Highway, Nellysford, Virginia. On September 18, 2023, the Bank purchased real property located at 2935 Rockfish Valley Highway, Nellysford, Virginia. The building on the property previously served as a bank branch for another financial institution. The Bank anticipates that the cost to upfit the building will be minimal. The property is a subject to a restrictive covenant that prohibits the Bank from using the property for any banking-related activity until the covenant expires in September 2025. The Bank anticipates opening a temporary branch at 2800 Rockfish Valley Highway, Nellysford, Virginia in the second quarter of 2024.

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Timberlake Road Area, Campbell County (Lynchburg), Virginia. As previously disclosed, the Bank has purchased certain undeveloped real property located at the intersection of Turnpike and Timberlake Roads, Campbell County, Virginia. The Bank has not determined when it will open a branch at this location. The Bank has determined that the existing structure is not suitable for use as a bank branch. The Bank estimates that the cost of improvements, furniture, fixtures, and equipment necessary to upfit the property at the undeveloped Timberlake location will be between $900,000 and $1,500,000.

Atherholt Road, Lynchburg, Virginia. On December 31, 2021, the Bank purchased real property located at 1925 Atherholt Road, Lynchburg, Virginia. The building currently serves as the offices for Financial’s wholly-owned subsidiary, PWW. PWW is currently leasing the space from the Bank on a month-to-month basis. While the Bank currently does not have a timeline for a branch at this location, the space is attractive for a branch due to its close proximity to Centra’s Lynchburg General Hospital. Management expects that the investment needed to upfit the property will be minimal.

Although the Bank cannot predict with certainty the financial impact of each new branch, management generally anticipates that each new branch will become profitable within 12 to 18 months of opening.

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

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements

Balance Sheets, December 31, 2023 and December 31, 2022

Statements of Income, Years Ended December 31, 2023 and December 31, 2022

Statements of Comprehensive Income (Loss), Years Ended December 31, 2023 and December 31, 2022

Statements of Changes in Stockholders’ Equity, Years Ended December 31, 2023 and December 31, 2022

Statements of Cash Flows, Years Ended December 31, 2023 and December 31, 2022

Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

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, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in 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, 2023 and 2022, 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.

Adoption of New Accounting Standard

As discussed in the Notes 2 and 5 to the financial statements, the Company changed its method of accounting for credit losses in 2023 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, including all related amendments.

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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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,

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taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans Collectively Evaluated for Losses

As described in the Note 2 (Summary of significant accounting policies) and Note 5 (Loans and allowance for credit losses) to the consolidated financial statements, the Company changed its method of accounting for credit losses on January 1, 2023, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as amended. The allowance for credit losses on loans (ACLL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information, from internal and external sources, relevant to assessing collectability over the loans’ contractual terms. Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions. The Company’s ACLL related to collectively evaluated loans represented the entire recorded ACLL of $7.4 million as of December 31, 2023. The collectively evaluated ACLL consists of quantitative and qualitative components.

The quantitative component consists of loss estimates derived from a discounted cash flow model using external observations of historical loan losses adjusted for estimated prepayments and forecasts of future conditions over a reasonable and supportable period. The estimate considers large amounts of data in tabulating default, loss given default, and prepayment speeds and requires complex calculations as well as management judgment in the selection of appropriate inputs.

In addition to the quantitative component, the collectively evaluated ACLL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process. Factors considered by management in developing its qualitative estimates include: changes and expected changes in general market, economic and business conditions; the nature and volume of the loan portfolio; changes in lending policies, changes in management, changes in loan concentrations, changes in the loan review function, the volume and severity of delinquencies and the value of underlying collateral. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

Management exercised significant judgment when estimating the ACLL on collectively evaluated loans. We identified the estimation of the collectively evaluated ACLL as a critical audit matter as auditing the collectively evaluated ACLL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

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

oEvaluating conceptual soundness, assumptions, and key data inputs of the Company’s discounted cashflow methodology, including the identification of loan pools, the probability of default and loss given default rate inputs, and the prepayment/curtailment rate inputs for each pool.

oEvaluating the methodology and testing the accuracy of incorporating reasonable and supportable forecasts in the collectively evaluated ACLL estimate.

oEvaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.

oEvaluating the qualitative factors for directional consistency in comparison to prior periods and for reasonableness in comparison to underlying supporting data.

oTesting the mathematical accuracy of the ACLL for collectively evaluated loans including both the discounted cash flow and qualitative factor components of the calculations.

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/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 2006.

Winchester, Virginia

March 27, 2024

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

_____________________________________________________________________________

December 31, December 31,

Cash value - bank owned life insurance 21,586 19,237

Other real estate owned - 566

Customer relationship intangibles 7,285 7,845

Liabilities and Stockholders’ Equity

Deposits

Commitments and Contingencies

Stockholders’ equity

Accumulated other comprehensive loss (21,615) (26,781)

Total liabilities and stockholders’ equity $ 969,371 $ 928,571

See Notes to Consolidated Financial Statements

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands)

For the Year Ended

December 31,

Securities

US Government and agency obligations 1,273 1,235

Municipals - tax exempt 73 73

Interest bearing deposits 496 282

Interest Expense

Deposits

FHLB borrowings 31 -

Recovery of credit losses (179) (900)

Net interest income after recovery of credit losses 29,919 30,603

Noninterest income

Gain on sales of loans held for sale 3,938 5,256

Service charges, fees and commissions 3,901 3,591

Loss on sales and calls of securities, net - (3)

Noninterest expenses

Professional and other outside expenses 2,513 2,589

Other real estate expenses, net 40 214

Amortization of intangibles 560 560

See Notes to Consolidated Financial Statements

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands)

Weighted average shares outstanding - basic and diluted 4,562,374 4,698,041

Earnings per common share - basic and diluted $ 1.91 $ 1.91

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See Notes to Consolidated Financial Statements

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

For the Year Ended

December 31,

Other comprehensive income (loss):

Unrealized gain (losses) on securities available-for-sale 6,540 (32,151)

Reclassification adjustment for losses included in net income (1) - 3

Tax effect (2) - (1)

Other comprehensive income (loss), net of tax 5,166 (25,395)

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

(2)The tax effect on these reclassifications is reflected in “income tax expense” on the consolidated statements of income.

See Notes to Consolidated Financial Statements

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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)

Accumulated

Additional Other

Shares Common Paid-in Retained Comprehensive

Outstanding Stock Capital Earnings (Loss) Total

Dividends paid on common stock ($0.29 per share) - - - (1,365) - (1,365)

Dividends paid on common stock ($0.32 per share) - - - (1,461) - (1,461)

Other comprehensive income - - - - 5,166 5,166

See Notes to Consolidated Financial Statements

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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 1,407 2,049

Net amortization of premiums and discounts on securities 1,440 508

Amortization of debt issuance costs 10 10

Loss on sales of available-for-sale securities - 3

(Gain) on sales of loans held for sale (3,938) (5,256)

Recovery of credit losses (179) (900)

Loss on sale of other real estate owned 3 -

Impairment of other real estate owned 23 195

(Gain) on sales of equipment - (18)

(Benefit) for deferred income taxes (356) (10)

Bank owned life insurance income (548) (452)

(Increase) in interest receivable (99) (672)

(Increase) in other assets (3,512) (62)

Increase in interest payable 391 43

Amortization of intangibles 560 560

Increase (decrease) in other liabilities 483 (106)

Net cash provided by operating activities $ 9,492 $ 9,312

Cash flows from investing activities

Purchases of securities available-for-sale $ (34,853) $ (76,562)

Proceeds from sale of securities available-for-sale - 7,681

Purchases of bank owned life insurance (1,800) -

Purchases of Federal Home Loan Bank stock (154) (63)

Proceeds from sale of other real estate owned, net 540 -

Origination of loans, net of principal collected 2,379 (27,997)

Cash paid in acquisition, net of cash received - (818)

Purchases of premises and equipment (1,574) (1,191)

Proceeds from sale of equipment - 30

Purchase of other investments - (927)

Net cash (used in) investing activities $ (23,335) $ (88,129)

Cash flows from financing activities

Net increase (decrease) in deposits $ 30,321 $ (38,918)

Principal payments on finance lease obligations (367) (357)

Repurchase of common stock (997) (1,402)

Dividends paid to common stockholders (1,461) (1,365)

Principal payments on bank loan (577) (532)

See Notes to Consolidated Financial Statements

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BANK OF THE JAMES FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Net cash provided by (used in) financing activities $ 26,919 $ (42,574)

Increase (decrease) in cash and cash equivalents 13,076 (121,391)

Cash and cash equivalents at beginning of period $ 61,762 $ 183,153

Cash and cash equivalents at end of period $ 74,838 $ 61,762

Non cash transactions

Fair value adjustment for securities available-for-sale $ 6,540 $ (32,148)

Cash transactions

See Notes to Consolidated Financial Statements

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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”). On December 31, 2021, Financial acquired all of the issued and outstanding stock of Pettyjohn, Wood & White, Inc. (“PWW”) through which it conducts its investment advisory business. 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.

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 a mortgage origination office in Blacksburg, Virginia.

On December 31, 2021, Financial completed its acquisition of PWW, a Lynchburg, Virginia-based investment advisory firm. Because the acquisition of PWW was effective on December 31, 2021, PWW had no impact on the consolidated statements of income and was primarily reflected on the consolidated balance sheets through balances recorded for Customer relationship intangibles and Goodwill.

Note 2 - Summary of significant accounting policies (dollars in thousands)

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.

‎

Bank of the James Financial Group Inc BOTJ US Equity

BOTJ · 10-K · period ended 2023-12-31

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 2023-12-31

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