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目錄

 

美國

證券交易委員會

華盛頓特區20549

______________________

表格 10-Q

______________________

（在以下選項中加上一個）

☒根據1934年證券交易法第13或15(d)節的季度報告

截至季度末2024年9月30日

☐根據1934年證券交易法第13或15(d)節的轉型報告書

過渡期從

詹姆斯金融集團公司

（按其章程規定的確切註冊人名稱）

______________________

弗吉尼亞州。

001-35402

20-0500300

（國家或其他管轄區的

公司成立或組織）

（委託文件編號）

（IRS僱主

唯一識別號碼）

828 主街， 林奇堡, VA

24504

，（主要行政辦公地址）

(郵政編碼)

(434) 846-2000

(註冊人電話號碼，包括區號)

請勾選標記，以表明該註冊公司：（1）在過去12個月內（或該公司被要求提交該類報告的較短時間內），已經按照證券交易法案第13條或15（d）條的規定提交了所有所需提交的報告；且（2）在過去90天內一直受到該項提交要求的約束。是  ☒沒有☐

請以勾選的方式指明註冊人是否在過去12個月內（或在註冊人被要求提交此類文件的較短期間內）根據規則405的S-T條例（本章第232.405條）提交了所有必需的互動數據文件。是  ☒    否 ☐

請通過勾選表明註冊人是否爲大型加速報告人、加速報告人、非加速報告人、小型報告公司或新興成長公司。有關「大型加速報告人」、「加速報告人」、「小型報告公司」和「新興成長公司」的定義，請參見交易所法第120億.2條。

 

大型加速報告人

 

☐

  

加速文件申報人

 

☐

非加速文件提交人

 

☒

  

更小的報告公司

 

☒

成長型公司

 

☐

  

 

______________________

根據《法案》第12(b)節註冊或將要註冊的證券

每一類的名稱

交易

符號:

普通股，每股面值$0.001

ANNX

普通股，面值每股2.14美元

詹姆斯金融銀行

納斯達克股票交易所有限責任公司

如果是新興成長公司，請在複選框中標示，如果註冊機構選擇不使用根據交換法第13(a)條規定提供的任何新的或修訂後的財務會計標準的延長過渡期來遵守，也請在複選框中標示。☐

請勾選註冊人是否爲空殼公司（根據交易法第120億.2條的定義）。    是  ☐    否  ☒

請說明發行人每一類普通股的流通股份的數量，截至最近可行日期： 4,543,338 截至2024年11月12日，股份的面值爲每股2.14美元的普通股，共有
‎

目錄

 

目錄 的 內容

第一部分 - 財務信息

項目1.    合併財務報表

1

項目2. 財務狀況和經營結果的管理討論與分析

34

項目3。市場風險的數量和質量披露

49

項目4。控件和程序

49

第二部分- 其他信息

項目1。法律訴訟

49

項目1A.風險因素

49

項目2。未註冊出售股票的權益證券，款項用途以及發行人購買的股權

49

第3項。高級證券拖欠

49

第4項。礦山安全披露

49

項目5。其他信息

49

項目6。展覽

50

簽名

50

目錄

 

第一部分 - 財務信息信息

項目1。 合併財務報表ents

詹姆斯金融銀行集團和附屬公司

合併資產負債表

(以千美元爲單位，除每股金額外)（2024未經審計）

九月三十日，

12月31日

資產

2024

2023

現金和存放在銀行的款項

$                 22,692

$                 25,613

聯邦資金出售

86,515

49,225

總現金及現金等價物

109,207

74,838

持有至到期日的證券，按攤銷成本計量（公允價值爲$3,328 截至2024年9月30日，爲$3,231 截至2023年12月31日)，扣除信貸準備金後的淨額0 於2024年9月30日和2023年12月31日

3,610

3,622

可供出售證券，以公允價值計量

192,469

216,510

限制股票，按成本計量

1,821

1,541

待售貸款

3,239

1,258

貸款淨額，扣除2024年6月30日撥備爲$7,078 截至2024年9月30日和$7,412截至2023年12月31日

627,112

601,921

資產和設備淨值

19,378

18,141

應收利息

2,697

2,835

現金價值-銀行擁有的人壽保險

22,716

21,586

客戶關係無形資產

6,865

7,285

商譽

2,054

2,054

其他資產

16,895

17,780

總資產

$            1,008,063

$               969,371

負債和股東權益

存款

非利息支出需求

$               132,223

$               134,275

現在，貨幣市場和儲蓄

540,966

538,229

定期存款

234,421

205,955

存款總額

907,610

878,459

資本債券，淨額

10,046

10,042

其他借款

9,444

9,890

應付利息

758

480

其他負債

11,371

10,461

總負債

$               939,229

$               909,332

承諾和事後約定

 

 

股東權益

優先股; 授權 1,000,000 股； 無已發行並流通

$                           -

$                           -

普通股 $2.14 面值；授權 10,000,000 股；已發行及流通中的 4,543,338 截至2024年9月30日和2023年12月31日

9,723

9,723

股本溢價

35,253

35,253

保留盈餘

41,640

36,678

累計其他綜合損失

(17,782)

(21,615)

股東權益合計

$                 68,834

$                 60,039

負債和股東權益合計

$            1,008,063

$               969,371

1

請參閱這些合併基本報表的附註

目錄

 

詹姆斯金融集團股份公司及其子公司

綜合收益表

(金額以千美元爲單位，除每股金額外) (未經審計)

截至三個月的情況

截至九個月結束

九月三十日，

九月三十日，

利息收入

2024

2023

2024

2023

貸款

$                   9,004

$                   7,990

$                 25,375

$                 23,251

證券

美國政府和機構債務

369

321

1,068

962

以抵押貸款爲支持的證券

442

435

1,974

1,255

市政債 - 應稅

298

286

872

853

市政債 - 免稅

18

18

55

55

分紅派息

12

8

59

49

企業債

136

139

407

423

人形機器人-軸承存款

303

134

628

375

聯邦基金出售

981

812

2,569

1,601

總利息收入

11,563

10,143

33,007

28,824

利息費用

存款

現在，貨幣市場儲蓄

1,487

894

4,145

1,916

定期存款

2,375

1,683

6,731

3,918

FHLb借款

-

-

-

31

融資租約

18

22

58

66

其他借款

92

98

278

297

資本票據

82

82

245

245

總利息支出

4,054

2,779

11,457

6,473

淨利息收入

7,509

7,364

21,550

22,351

信貸損失準備金（回收）

92

(164)

(584)

(278)

信貸損失準備金回收後的淨利息收入

7,417

7,528

22,134

22,629

非利息收入

貸款銷售利潤

1,326

989

3,526

3,065

服務費用、手續費和佣金

991

1,004

2,930

2,942

财富管理費用

1,244

1,050

3,583

3,098

人壽保險收入

189

139

531

405

證券銷售和電話的收益，淨額

42

-

82

-

其他

31

19

669

179

非利息收入總額

3,823

3,201

11,321

9,689

非利息費用

薪資和員工福利

4,920

4,683

14,256

13,296

佔用情況

514

458

1,493

1,389

設備

640

501

1,879

1,813

供應品

131

118

397

399

專業

718

682

2,214

2,075

數據處理

764

689

2,263

2,079

營銷

220

204

481

683

信貸

190

218

612

623

其他房地產業, 淨

-

3

-

36

FDIC保險

94

126

329

321

無形資產攤銷

140

46

420

420

其他

445

412

1,258

957

總非利息支出

8,776

8,140

25,602

24,091

2

See accompanying notes to these consolidated financial statements

Table of Contents

 

Income before income taxes

2,464

2,589

7,853

8,227

Income tax expense

474

511

1,527

1,631

Net Income

$                   1,990

$                   2,078

$                   6,326

$                   6,596

Weighted average shares outstanding - basic and diluted

4,543,338

4,543,338

4,543,338

4,568,789

Earnings per common share - basic and diluted

$                     0.44

$                     0.46

$                     1.39

$                     1.44


‎

3

See accompanying notes to these consolidated financial statements

Table of Contents

 

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(dollar amounts in thousands) (unaudited)

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,

2024

2023

2024

2023

Net Income

$            1,990 

$            2,078 

$            6,326 

$            6,596 

Other comprehensive income (loss):

Unrealized gain (loss) on securities available-for-sale

7,120

(5,462)

4,934

(3,794)

Tax effect

(1,496)

1,147

(1,036)

797

Reclassification adjustment for net gains included in net income

(42)

-

(82)

-

Tax effect

9

-

17

-

Other comprehensive income (loss), net of tax

5,591

(4,315)

3,833

(2,997)

Comprehensive income (loss)

$            7,581 

$          (2,237)

$          10,159 

$            3,599 


‎

4

See accompanying notes to these consolidated financial statements

Table of Contents

 

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollar amounts in thousands) (unaudited)

For the Nine Months Ended September 30,

2024

2023

Cash flows from operating activities

Net Income

$                    6,326 

$                    6,596 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

972 

1,079 

Net amortization and accretion of premiums and discounts on securities

506

(579)

Amortization of debt issuance costs

4

10 

Net gain on sales of available-for-sale securities

(82)

-

Gain on sales of loans held for sale

(3,526)

(3,065)

Proceeds from sales of loans held for sale

146,880 

126,245 

Origination of loans held for sale

(145,335)

(124,082)

Recovery of provision for credit losses

(584)

(278)

Loss on sale of other real estate owned

-

3 

Impairment of other real estate owned

-

23 

Amortization of intangibles

420 

420 

Bank owned life insurance income

(531)

(405)

Loss on disposition of equipment

-

2 

Decrease in interest receivable

138 

29 

Decrease (increase) in other assets

(134)

(154)

Increase in interest payable

278 

292 

Increase (decrease) in other liabilities

1,291

(167)

Net cash provided by operating activities

$                    6,623 

$                    5,969 

Cash flows from investing activities

Purchases of securities available-for-sale

$                 (15,122)

$                   (8,166)

Proceeds from maturities, calls and paydowns of securities available-for-sale

13,305 

8,775 

Proceeds from sale of securities available-for-sale

30,298 

-

Purchase of bank owned life insurance

(599)

(1,800)

Purchase of Federal Home Loan Bank stock

(29)

(154)

Purchase of correspondent bank stock

(251)

-

Proceeds from sale of other real estate owned

-

540 

Origination of loans, net of principal collected

(24,697)

4,814 

Purchases of premises and equipment

(2,209)

(1,478)

Net cash provided by investing activities

$                       696 

$                    2,531 

Cash flows from financing activities

Net increase in deposits

$                  29,151 

$                  32,065 

Principal payments on finance lease obligations

(291)

(274)

Principal payments on other borrowings

(446)

(427)

Repurchase of common stock

-

(997)

Dividends paid to common stockholders

(1,364)

(1,100)

Net cash provided by financing activities

$                  27,050 

$                  29,267 

Increase in cash and cash equivalents

34,369 

37,767 

Cash and cash equivalents at beginning of period

$                  74,838 

$                  61,762 

Cash and cash equivalents at end of period

$                109,207 

$                  99,529 

Supplemental schedule of noncash investing and financing activities

Noncash transactions

Fair value adjustment for securities available-for-sale

$                    4,852 

$                   (3,793)

Supplemental disclosures of cash flow information

Cash transactions

Cash paid for interest

$                  11,179 

$                    6,181 

Cash paid for income taxes

1,300 

1,465 

5

See accompanying notes to these consolidated financial statements

Table of Contents

 

Bank of the James Financial Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2024 and 2023

(dollars in thousands, except per share amounts) (unaudited)

Accumulated

Additional

Other

Shares

Common

Paid-in

Retained

Comprehensive

Outstanding

Stock

Capital

Earnings

Loss

Total

Balance at December 31, 2022

4,628,657

$      9,905

$     36,068

$     31,034

$           (26,781)

$       50,226

Adoption of ASU 2016-13

-

-

-

(1,599)

-

(1,599)

Net Income

-

-

-

1,984

-

1,984

Dividends paid on common stock ($0.08 per share)

-

-

-

(370)

-

(370)

Repurchase of common stock

(68,619)

(147)

(666)

-

-

(813)

Other comprehensive income

-

-

-

-

2,583

2,583

Balance at March 31, 2023

4,560,038

$      9,758

$     35,402

$     31,049

$           (24,198)

$       52,011

Net Income

-

-

-

2,534

-

2,534

Dividends paid on common stock ($0.08 per share)

-

-

-

(364)

-

(364)

Repurchase of common stock

(16,700)

(35)

(149)

-

-

(184)

Other comprehensive loss

-

-

-

-

(1,265)

(1,265)

Balance at June 30, 2023

4,543,338

$      9,723

$     35,253

$     33,219

$           (25,463)

$       52,732

Net Income

-

-

-

2,078

-

2,078

Dividends paid on common stock ($0.08 per share)

-

-

-

(366)

-

(366)

Other comprehensive loss

-

-

-

-

(4,315)

(4,315)

Balance at September 30, 2023

4,543,338

$      9,723

$     35,253

$     34,931

$           (29,778)

$       50,129

Balance at December 31, 2023

4,543,338

$      9,723

$     35,253

$     36,678

$           (21,615)

$       60,039

Net Income

-

-

-

2,188

-

2,188

Dividends paid on common stock ($0.10 per share)

-

-

-

(453)

-

(453)

Other comprehensive loss

-

-

-

-

(1,336)

(1,336)

6

See accompanying notes to these consolidated financial statements

Table of Contents

 

Balance at March 31, 2024

4,543,338

$      9,723

$     35,253

$     38,413

$           (22,951)

$       60,438

Net Income

-

-

-

2,148

-

2,148

Dividends paid on common stock ($0.10 per share)

-

-

-

(457)

-

(457)

Other comprehensive loss

-

-

-

-

(422)

(422)

Balance at June 30, 2024

4,543,338

$      9,723

$     35,253

$     40,104

$           (23,373)

$       61,707

Net Income

-

-

-

1,990

-

1,990

Dividends paid on common stock ($0.10 per share)

-

-

-

(454)

-

(454)

Other comprehensive income

-

-

-

-

5,591

5,591

Balance at September 30, 2024

4,543,338

9,723

35,253

41,640

(17,782)

68,834

7

See accompanying notes to these consolidated financial statements

Table of Contents

 

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation

Bank of the James Financial Group, Inc.’s (“Financial” or the “Company”) primary market area consists of the area commonly referred to as Region 2000 which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the Town of Bedford, Bedford County, Campbell County, and the City of Lynchburg. Within the last several years, the Company expanded into Charlottesville, Roanoke, Blacksburg, Harrisonburg, Lexington, Rustburg, and Wytheville.

The unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In management’s opinion the accompanying financial statements, which unless otherwise noted are unaudited, reflect all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial information as of September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023 in conformity with accounting principles generally accepted in the United States of America. Additional information concerning the organization and business of Financial, accounting policies followed, and other related information is contained in Financial’s Annual Report on Form 10-K for the year ended December 31, 2023. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2023 included in Financial’s Annual Report on Form 10-K. Results for the three and nine month periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 

Note 2 – Significant Accounting Policies and Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses on loans (“ACLL”).

Significant Accounting Policies and Estimates

Application of the principles of GAAP and practices within the banking industry requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements may reflect different estimates, assumptions, and judgments. Certain policies inherently rely more extensively on the use of estimates, assumptions, and judgments and as such may have a greater possibility of producing results that could be materially different than originally reported.

The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 2 of the audited financial statements and notes for the year ended December 31, 2023 and are contained in the Company’s 2023 Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2023.

Allowance for Credit Losses - Held-to-Maturity Securities

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

Changes in the allowance for credit loss are recorded as provision for (or recovery of) credit losses in the Consolidated Statements of Income. The Company did not have an allowance for credit losses on held-to-maturity securities as of September 30, 2024 or upon adoption of ASC 326.


‎

8

Table of Contents

 

Note 2 – Significant Accounting Policies and Estimates (continued)

Allowance for Credit Losses - Available-for-Sale Securities

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

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

Changes in the allowance for credit loss are recorded as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At September 30, 2024, there was no allowance for credit loss related to the available-for-sale portfolio.

Allowance for Credit Losses - Loans

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.

With the exception of loans related to agriculture which uses the remaining life method, 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.

Loans that do not share risk characteristics are evaluated on an individual basis. The Company designates individually evaluated loans on nonaccrual status as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk and loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.


‎

9

Table of Contents

 

Note 2 – Significant Accounting Policies and Estimates (continued)

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for (or recovery of) credit losses in the Consolidated Statements of Income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodology as the loan portfolio, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Accrued Interest Receivable

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the allowance for credit losses for both loans and held-to-maturity securities, as well as elected the policy to write-off accrued interest receivable directly through the reversal of interest income. Accrued interest totaled approximately $1.66 million and $1.70 million on loans. Accrued interest receivable on available-for-sale and held-to-maturity securities totaled approximately $1.04 million and $1.15 million at September 30, 2024 and December 31, 2023, respectively, and was excluded from the estimate of credit losses.

Revenue Recognition

All of the Company’s revenue from contracts with customers within the scope of Accounting Standards Codification (ASC) 606 is recognized in non-interest income as presented in its consolidated statements of income. ASC 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, wealth management fees, and annuity and insurance commissions. For a more detailed discussion of noninterest revenue streams within the scope of ASC 606, see “Note 22 – Revenue Recognition” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Goodwill

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 net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed.

Note 3 – Earnings Per Common Share (EPS)

The following is a summary of the earnings per share calculation for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands except per share data):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2024

2023

2024

2023

Net income

$            1,990

$            2,078

$            6,326

$            6,596

Weighted average number of shares outstanding - basic and diluted

4,543,338

4,543,338

4,543,338

4,568,789

Earnings per common share - basic and diluted

$              0.44

$              0.46

$              1.39

$              1.44

There were no potentially dilutive shares outstanding in 2024 and 2023. Consequently, the weighted average shares and weighted average diluted shares were identical.


‎

10

Table of Contents

 

Note 4 – Stock Based Compensation

Accounting standards require companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards.

At the annual meeting of shareholders held on May 15, 2018, the shareholders approved the Bank of the James Financial Group, Inc. 2018 Equity Incentive Plan (the “2018 Incentive Plan”). The 2018 Incentive Plan permits the issuance of up to 250,000 shares of common stock (as may be adjusted for stock dividends, stock splits, mergers, recapitalizations, and certain other transactions) for awards to key employees of the Company and its subsidiaries in the form of stock options, restricted stock, restricted stock units, stock awards and performance units. The Company did not make any grants or awards under the 2018 Incentive Plan in either 2023 or the first nine months of 2024. As of September 30, 2024 and 2023 there were no grants or awards outstanding under the 2018 Incentive Plan.

Note 5 – Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Fair Value on a Recurring Basis

Securities Available-for-Sale

Fair values of securities available-for sale are based on quoted prices available in an active market. If quoted prices are available, these securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow.

Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company’s securities are considered to be Level 2 securities.
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Note 5 – Fair Value Measurements (continued)

Derivatives Assets/Liabilities – Interest Rate Lock Commitments (IRLCs)

The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 3.

The below tables summarize the Company’s financial assets that were measured at fair value on a recurring basis during the period.

Carrying Value at September 30, 2024 (in thousands)

Quoted Prices

Significant

in Active

Other

Significant

Balance as of

Markets for

Observable

Unobservable

Sept 30,

Identical Assets

Inputs

Inputs

Description

2024

(Level 1)

(Level 2)

(Level 3)

US agency obligations

$              70,217

$                        -

$              70,217

$                        -

Mortgage-backed securities

64,697

-

64,697

-

Municipals

43,380

-

43,380

-

Corporates

14,175

-

14,175

-

Total available-for-sale securities

$            192,469

$                        -

$            192,469

$                        -

IRLCs - asset

156

-

-

156

Total assets at fair value

$            192,625

$                        -

$            192,469

$                   156

Carrying Value at December 31, 2023 (in thousands)

Quoted Prices

Significant

in Active

Other

Significant

Balance as of

Markets for

Observable

Unobservable

Dec 31,

Identical Assets

Inputs

Inputs

Description

2023

(Level 1)

(Level 2)

(Level 3)

US Treasuries

$                4,947

$                        -

$                4,947

$                        -

US agency obligations

60,955

-

60,955

-

Mortgage-backed securities

95,079

-

95,079

-

Municipals

40,789

-

40,789

-

Corporates

14,740

-

14,740

-

Total available-for-sale securities

$            216,510

$                        -

$            216,510

$                        -

IRLCs - asset

129

-

-

129

Total assets at fair value

$            216,639

$                        -

$            216,510

$                   129


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Note 5 – Fair Value Measurements (continued)

The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

Quantitative information about Level 3 Fair Value Measurements for September 30, 2024

(dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) (1)

Assets

IRLCs – asset

$

156

Market approach

Range of pull through rate

70% - 100% (85%)

(1)    Weighted based on the relative value of the instruments

Quantitative information about Level 3 Fair Value Measurements for December 31, 2023

(dollars in thousands)

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average) (1)

Assets

IRLCs - asset

$

129

Market approach

Range of pull through rate

70% - 100% (85%)

(1)    Weighted based on the relative value of the instruments

Fair Value on a Non-recurring Basis

Collateral Dependent Loans with an ACLL

In accordance with ASC 326, the Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. Because we had no collateral dependent loans with an ACLL, no nonrecurring fair value adjustments were recorded on these loans during the period ended September 30, 2024.

Loans Held for Sale

Loans held for sale are carried at cost which approximates estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended September 30, 2024. Gains and losses on the sale of loans are recorded within gain on sales of loans held for sale on the Consolidated Statements of Income.

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. The Company believes that the fair value component in its valuation follows the provisions of ASC 820.

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Note 5 – Fair Value Measurements (continued)

Real estate acquired through foreclosure is transferred to OREO. The measurement of loss associated with OREO is based on the fair value of the collateral compared to the unpaid loan balance and anticipated costs to sell the property. The value of OREO property is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser

outside of Bank of the James (the “Bank”) using observable market data (Level 2).

Any fair value adjustments are recorded in the period incurred and expensed against current earnings. However, in situations where the collateral is a house or building in the process of construction, the appraisal is more than 12 months old, management has determined the fair value of the collateral is further impaired below the appraised value, or the appraisal is not based solely on market comparables adjusted for observable inputs, the value is considered Level 3.

There was no OREO as of both September 30, 2024 and December 31, 2023. Because we did not have OREO, no nonrecurring fair value adjustments were recorded for OREO during the period ended September 30, 2024.

Financial Instruments

FASB ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following tables whether or not recognized on the Consolidated Balance Sheets at fair value.


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Note 5 – Fair Value Measurements (continued)

The estimated fair values, and related carrying or notional amounts, of Financial’s financial instruments and their placement in the fair value hierarchy at September 30, 2024 and December 31, 2023 was as follows (in thousands):

Fair Value Measurements at September 30, 2024 using

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

Assets

Amounts

(Level 1)

(Level 2)

(Level 3)

Balance

Cash and due from banks

$            22,692

$            22,692

$                      -

$                      -

$            22,692

Federal funds sold

86,515

86,515

-

-

86,515

Securities

Available-for-sale

192,469

-

192,469

-

192,469

Held-to-maturity, net

3,610

-

3,328

-

3,328

Restricted stock

1,821

-

1,821

-

1,821

Loans, net (1)

627,112

-

-

606,464

606,464

Loans held for sale

3,239

-

3,239

-

3,239

Interest receivable

2,697

-

2,697

-

2,697

Cash value - bank owned life insurance

22,716

-

22,716

-

22,716

Derivatives - IRLCs

156

-

-

156

156

Liabilities

Deposits

$          907,610

$                      -

$          839,366

$                      -

$          839,366

Capital notes

10,046

-

9,989

-

9,989

Other borrowings

9,444

-

9,481

-

9,481

Interest payable

758

-

758

-

758

Fair Value Measurements at December 31, 2023 using

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

Assets

Amounts

(Level 1)

(Level 2)

(Level 3)

Balance

Cash and due from banks

$            25,613

$            25,613

$                      -

$                      -

$            25,613

Federal funds sold

49,225

49,225

-

-

49,225

Securities

Available-for-sale

216,510

-

216,510

-

216,510

Held-to-maturity

3,622

-

3,231

-

3,231

Restricted stock

1,541

-

1,541

-

1,541

Loans, net (1)

601,921

-

-

566,655

566,655

Loans held for sale

1,258

-

1,258

-

1,258

Interest receivable

2,835

-

2,835

-

2,835

Cash value - bank owned life insurance

21,586

-

21,586

-

21,586

Derivatives - IRLCs

129

-

-

129

129

Liabilities

Deposits

$          878,459

$                      -

$          876,846

$                      -

$          876,846

Capital notes

10,042

-

9,854

-

9,854

Other borrowings

9,890

-

9,861

-

9,861

Interest payable

480

-

480

-

480

(1) Carrying amount is net of unearned income and the ACLL.   


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Note 6 – Securities

The following tables summarize the Bank’s holdings for both securities held-to-maturity and securities available-for-sale as of September 30, 2024 and December 31, 2023 (amounts in thousands):

September 30, 2024

Amortized

Gross Unrealized

Fair

Cost

Gains

Losses

Value

Held-to-maturity

U.S. agency obligations

$

3,610

$

—

$

(282)

$

3,328

Available-for-sale

U.S. agency obligations

$

75,352

$

274

$

(5,409)

$

70,217

Mortgage-backed securities

72,395

61

(7,759)

64,697

Municipals

51,718

56

(8,394)

43,380

Corporates

15,513

—

(1,338)

14,175

$

214,978

$

391

$

(22,900)

$

192,469

December 31, 2023

Amortized

Gross Unrealized

Fair

Cost

Gains

Losses

Value

Held-to-maturity

U.S. agency obligations

$

3,622

$

—

$

(391)

$

3,231

Available-for-sale

U.S. Treasuries

$

4,985

$

—

$

(38)

$

4,947

U.S. agency obligations

68,515

—

(7,560)

60,955

Mortgage-backed securities

103,992

608

(9,521)

95,079

Municipals

50,856

—

(10,067)

40,789

Corporates

15,523

—

(783)

14,740

$

243,871

$

608

$

(27,969)

$

216,510


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Note 6 – Securities (continued)

The following tables summarize the fair value of securities available-for-sale as of September 30, 2024 and as of December 31, 2023 and the corresponding amounts of unrealized losses. Management uses the valuation as of month-end in determining when securities are in an unrealized loss position (amounts in thousands):

September 30, 2024

Less than 12 months

More than 12 months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Available-for-sale

U.S. agency obligations

$

—

$

—

$

62,867

$

5,409

$

62,867

$

5,409

Mortgage-backed securities

3,073

38

58,764

7,721

61,837

7,759

Municipals

—

—

42,379

8,394

42,379

8,394

Corporates

7,310

689

6,865

649

14,175

1,338

$

10,383

$

727

$

170,875

$

22,173

$

181,258

$

22,900

December 31, 2023

Less than 12 months

More than 12 months

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Available-for-sale

U.S. Treasuries

—

—

4,947

38

4,947

38

U.S. agency obligations

—

—

60,955

7,560

60,955

7,560

Mortgage-backed securities

—

—

62,242

9,521

62,242

9,521

Municipals

1,799

25

38,990

10,042

40,789

10,067

Corporates

—

—

6,740

783

6,740

783

$

1,799

$

25

$

173,874

$

27,944

$

175,673

$

27,969

As of September 30, 2024, the Company owned 121 securities in an unrealized loss position. Of the securities, 28 were S&P rated AAA, 81 were rated AA, three were rated A, three were rated BBB, and six were non-rated. As of September 30, 2024, 53 of these securities were municipal issues, 55 were backed directly or indirectly by the U.S. government, and 13 were issues of publicly traded domestic corporations. The Company monitors its municipal and corporate securities by periodically reviewing the issuer’s cash-flow and revenue streams, as well as other economic factors that could affect the issuer’s ability to service and/or repay the debt.

The Company has evaluated available-for-sale securities in an unrealized loss position for credit related impairment at September 30, 2024 and concluded no impairment existed based on a combination of factors, which included: (1) the securities are of high credit quality (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuers to settle the securities at a price less than the par value of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments before recovery of its amortized cost basis, nor is it likely that management will be required to sell the securities. As such, there was not an allowance for credit losses on available-for-sale securities at September 30, 2024.

The Company’s held-to-maturity portfolio is covered by the explicit or implied guarantee of the United States government or one of its agencies and rated investment grade or higher. As a result, the Company did not have an allowance for credit losses on held-to-maturity securities as of September 30, 2024 or December 31, 2023.

All held-to-maturity and available-for-sale securities were current with no securities past due or on nonaccrual as of September 30, 2024.


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Note 6 – Securities (continued)

Sales of available-for-sale securities were $8,754,000 and $30,298,000 during the three and nine months ended September 30, 2024, which resulted in a net gain of $42,000 and $82,000 for the three and nine months ended September 30, 2024. There were no sales of available-for-sale securities during the three and nine months ended September 30, 2023. As of September 30, 2024, the Company had $46,865,000 (book value) pledged as collateral for public deposits.

The amortized costs and fair values of securities at September 30, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment Portfolio Maturities (in thousands):

September 30, 2024

Amortized

Costs

Fair Value

Held-to-maturity:

Due in one year or less

$                     -

$                     -

Due after one year through five years

-

-

Due after five years through ten years

2,420

2,270

Due after ten years

1,190

1,058

Total securities Held-to-maturity

$             3,610

$             3,328

Amortized

Costs

Fair Value

Available-for-sale:

Due in one year or less

$           14,520

$           14,309

Due after one year through five years

40,249

37,643

Due after five years through ten years

61,910

55,795

Due after ten years

98,299

84,722

Total securities Available-for-sale

$         214,978

$         192,469

Note 7 – Business Segments

The Company has three reportable business segments: (i) a traditional full-service community banking segment, (ii) a mortgage loan origination business, and (iii) a registered investment advisory business (sometimes referred to as the wealth management business). The community banking business segment includes Bank of the James which provides loans, deposits, investments and insurance to retail and commercial customers throughout Region 2000 and other areas within Central Virginia. The mortgage segment provides a variety of mortgage loan products principally within Region 2000. Mortgage loans are originated and sold in the secondary market through purchase commitments from investors with servicing released. Because of the pre-arranged purchase commitments, there is minimal risk to the Company. The investment advisory business offers investment advisory services through Financial’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc.

All of the Company’s reportable segments are service-based. The mortgage business is a gain on sale business and the investment advisory business is fee for service based, while the Bank’s primary source of revenue is net interest income. The Bank also provides a referral network for the mortgage origination business and the investment advisory business. The mortgage business may also be in a position to refer its customers to the Bank for banking services when appropriate.

Information about reportable business segments and reconciliation of such information to the consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 was as follows (dollars in thousands):


‎

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Note 7 – Business Segments (continued)

Business Segments

Investment

Community

Advisory

Banking

Mortgage

Services

Total

For the three months ended September 30, 2024

Net interest income

$        7,509

$            -

$              -

$            7,509

Provision for credit losses

92

-

-

92

Net interest income after recovery of provision for credit losses

7,417

-

-

7,417

Noninterest income

1,034

1,326

1,463

3,823

Noninterest expenses

7,029

967

780

8,776

Income before income taxes

1,422

359

683

2,464

Income tax expense

255

76

143

474

Net income

$        1,167

$        283

$         540

$            1,990

Total assets

$    993,406

$     3,714

$    10,943

$     1,008,063

For the three months ended September 30, 2023

Net interest income

$        7,364

$            -

$              -

$            7,364

Recovery of provision for credit losses

(164)

-

-

(164)

Net interest income after recovery of provision for credit losses

7,528

-

-

7,528

Noninterest income

1,162

989

1,050

3,201

Noninterest expenses

6,661

1,073

406

8,140

Income (loss) before income taxes

2,029

(84)

644

2,589

Income tax expense (benefit)

393

(17)

135

511

Net income (loss)

$        1,636

$         (67)

$         509

$            2,078

Total assets

$    945,407

$     3,781

$    11,699

$        960,887

Investment

Community

Advisory

Banking

Mortgage

Services

Total

For the nine months ended September 30, 2024

Net interest income

$      21,550

$            -

$              -

$          21,550

Recovery of provision for credit losses

(584)

-

-

(584)

Net interest income after recovery of provision for credit losses

22,134

-

-

22,134

Noninterest income

4,212

3,526

3,583

11,321

Noninterest expenses

20,815

2,785

2,002

25,602

Income before income taxes

5,531

741

1,581

7,853

Income tax expense

1,039

156

332

1,527

Net income

$        4,492

$        585

$      1,249

$            6,326

Total assets

$    993,406

$     3,714

$    10,943

$     1,008,063

For the nine months ended September 30, 2023

Net interest income

$      22,351

$            -

$              -

$          22,351

Recovery of provision for credit losses

(278)

-

-

(278)

Net interest income after recovery of provision for credit losses

22,629

-

-

22,629

Noninterest income

3,526

3,065

3,098

9,689

Noninterest expenses

19,751

2,705

1,635

24,091

Income before income taxes

6,404

360

1,463

8,227

Income tax expense

1,248

76

307

1,631

Net income

$        5,156

$        284

$      1,156

$            6,596

Total assets

$    945,407

$     3,781

$    11,699

$        960,887


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Note 8 – Loans and allowance for credit losses

On January 1, 2023, the Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The Company’s primary portfolio segments align with the methodology applied in estimating the allowance for credit losses under CECL and are reflected as such in the disclosures as of and for the period ended September 30, 2024 as provided below. Management determined after the adoption of CECL that the classifications set forth below were appropriate for use in identifying and managing risk in the loan portfolio.

Loan Segments:

Loan Classes:

Commercial

Commercial and Industrial Loans

Commercial Real Estate

Commercial Mortgages – Owner Occupied

Commercial Mortgages – Non-Owner Occupied

Commercial Construction/Land

Consumer

Consumer Open-End

Consumer Closed-End

Residential

Residential Mortgages

Residential Consumer Construction/Land

Commercial and Commercial Real Estate

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company's commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company's market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.

Consumer and Residential

Consumer and Residential consist of two segments - residential mortgage loans and personal loans. We include HELOCs and other second mortgages in in our consumer loan segment. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.


‎

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Note 8 – Loans and allowance for credit losses (continued)

A summary of loans, net of deferred costs of $624 and $961 as of September 30, 2024 and December 31, 2023, respectively, is as follows (dollars in thousands):

As of

As of

September 30, 2024

December 31, 2023

Commercial

$                     60,342

$                     65,324

Commercial Real Estate:

Commercial Mortgages-Owner Occupied

143,791

131,519

Commercial Mortgages-Non-Owner Occupied

189,977

175,344

Commercial Construction/Land

22,358

21,966

Consumer:

Consumer Open-End

47,919

50,282

Consumer Closed-End

27,171

26,235

Residential:

Residential Mortgages

114,989

106,990

Residential Consumer Construction/Land

27,643

31,673

Total loans

$                   634,190

$                   609,333

Less allowance for credit losses

7,078

7,412

Net loans

$                   627,112

$                   601,921

The following table presents the amortized cost basis of collateral dependent loans by loan segment:

Collateral Dependent Loans

September 30, 2024

(dollars in thousands)

Business/Other Assets

Real Estate

Commercial

$                          3,866

$                                  -

Commercial Real Estate

-

8,409

Consumer

-

605

Residential

-

1,261

Total

$                          3,866

$                        10,275

Collateral Dependent Loans

December 31, 2023

(dollars in thousands)

Business/Other Assets

Real Estate

Commercial

$                             313

$                                  -

Commercial Real Estate

-

3,566

Consumer

-

329

Residential

-

1,105

Total

$                             313

$                          5,000

The following tables present the activity in the allowance for credit losses for the three and nine month periods ended and the distribution of the allowance by segment as of September 30, 2024 and 2023.


‎

21

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Note 8 – Loans and allowance for credit losses (continued)

Allowance for Credit Losses

(dollars in thousands)

As of and For the Three Months Ended September 30, 2024

Commercial

2024

Commercial

Real Estate

Consumer

Residential

Total

Allowance for Credit Losses:

Beginning Balance, June 30, 2024

$             606 

$                 3,748 

$            897 

$            1,700 

$         6,951 

Charge-Offs

-

-

-

-

-

Recoveries

1 

2 

18 

-

21 

Provision for (recovery of)

(118)

165 

(17)

76 

106 

Ending Balance, September 30, 2024

$             489 

$                 3,915 

$            898 

$            1,776 

$         7,078 

As of and For the Nine Months Ended September 30, 2024

(dollars in thousands)

Commercial

2024

Commercial

Real Estate

Consumer

Residential

Total

Allowance for Credit Losses:

Beginning Balance, December 31, 2023

$             514 

$                 3,985 

$         1,093 

$            1,820 

$         7,412 

Charge-Offs

(8)

-

(76)

-

(84)

Recoveries

199 

6 

38 

1 

244 

Recovery of

(216)

(76)

(157)

(45)

(494)

Ending Balance, September 30, 2024

$             489 

$                 3,915 

$            898 

$            1,776 

$         7,078 

Allowance for Credit Losses

(dollars in thousands)

As of and For the Three Months Ended September 30, 2023

Commercial

2023

Commercial

Real Estate

Consumer

Residential

Total

Allowance for Credit Losses:

Beginning Balance, June 30, 2023

$             571 

$                 4,052 

$          1,161 

$            1,802 

$         7,586 

Charge-Offs

(120)

-

(24)

-

(144)

Recoveries

2 

1 

3 

2 

8 

Provision for (recovery of)

59 

(90)

(34)

(65)

(130)

Ending Balance, September 30, 2023

$             512 

$                 3,963 

$          1,106 

$            1,739 

$         7,320 

As of and For the Nine Months Ended September 30, 2023

(dollars in thousands)

Commercial

2023

Commercial

Real Estate

Consumer

Residential

Total

Allowance for Credit Losses:

Beginning Balance, December 31, 2022

$          1,102 

$                 2,902 

$             904 

$            1,351 

$         6,259 

Adoption of ASU 2016-13

(526)

1,157 

257 

357 

1,245 

Charge-Offs

(137)

-

(56)

(3)

(196)

Recoveries

50 

91 

42 

17 

200 

Provision for (recovery of)

23 

(187)

(41)

17 

(188)

Ending Balance, September 30, 2023

$             512 

$                 3,963 

$          1,106 

$            1,739 

$         7,320 

22

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Note 8 – Loans and allowance for credit losses (continued)

Credit Quality Indicators

The Bank’s internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower’s individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis.

Below is a summary and definition of the Bank’s risk rating categories:

RATING 1

Excellent

RATING 2

Above Average

RATING 3

Satisfactory

RATING 4

Acceptable / Low Satisfactory

RATING 5

Monitor

RATING 6

Special Mention

RATING 7

Substandard

RATING 8

Doubtful

RATING 9

Loss

We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows:

“Pass.” These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

“Monitor.” These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may currently or in the future be characterized by late payments. The Bank’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

“Special Mention.” These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.

“Substandard.” These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due.

“Doubtful.” These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

“Loss.” These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.


‎

23

Table of Contents

 

Note 8 – Loans and allowance for credit losses (continued)

The table below details the amortized cost of the classes of loans by credit quality indicator and year of origination as of September 30, 2024.

Term Loans Amortized Cost Basis by Origination Year

2024

2023

2022

2021

2020

Prior

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term

Total

Commercial:

Risk Rating

Pass

$        8,413 

$        3,897 

$        3,677 

$        7,693 

$        1,419 

$      13,805 

$      16,780 

$             29 

$      55,713 

Special Mention

68

-

45

84

121

2

384

-

704

Substandard

-

933

14

220

-

106

2,477

175

3,925

Total

$        8,481 

$        4,830 

$        3,736 

$        7,997 

$        1,540 

$      13,913 

$      19,641 

$           204 

$      60,342 

Commercial Real Estate:

Commercial Mort. - Owner Occupied

Risk Rating

Pass

$      20,272 

$        9,132 

$      21,849 

$      40,684 

$        7,271 

$      36,987 

$           826 

$           155 

$    137,176 

Special Mention

-

-

-

-

-

700

-

-

700

Substandard

-

93

-

2,945

44

2,833

-

-

5,915

Total

$      20,272 

$        9,225 

$      21,849 

$      43,629 

$        7,315 

$      40,520 

$           826 

$           155 

$    143,791 

Commercial Mort. - Non-Owner Occupied

Risk Rating

Pass

$      32,420 

$      12,360 

$      49,899 

$      27,855 

$        9,828 

$      50,634 

$        5,808 

$                - 

$    188,804 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

1,173 

-

-

-

1,173

Total

$      32,420 

$      12,360 

$      49,899 

$      27,855 

$      11,001 

$      50,634 

$        5,808 

$                - 

$    189,977 

Commercial Construction/Land

Risk Rating

Pass

$        3,906 

$        2,804 

$           774 

$        9,577 

$        2,035 

$        1,038 

$           904 

$                - 

$      21,038 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

957

363

-

-

-

-

1,320

Total

$        3,906 

$        2,804 

$        1,731 

$        9,940 

$        2,035 

$        1,038 

$           904 

$                - 

$      22,358 

Consumer:

Consumer - Open-End

Risk Rating

Pass

$                - 

$                - 

$                - 

$                - 

$                - 

$                - 

$      46,021 

$        1,471 

$      47,492 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

427

-

427

Total

$                - 

$                - 

$                - 

$                - 

$                - 

$                - 

$      46,448 

$        1,471 

$      47,919 

Consumer - Closed-End

Risk Rating

Pass

$        4,413 

$        4,757 

$        9,907 

$           426 

$           434 

$        6,795 

$                - 

$                - 

$      26,732 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

38.00

-

209

-

-

192

-

-

439

Total

$        4,451 

$        4,757 

$      10,116 

$           426 

$           434 

$        6,987 

$                - 

$                - 

$      27,171 

Residential:

Residential Mortgages

Risk Rating

Pass

$      17,828 

$      24,198 

$      23,223 

$        9,166 

$        8,551 

$      30,003 

$                - 

$                - 

$    112,969 

Special Mention

-

-

-

-

-

398

-

-

398

Substandard

-

-

270

-

103

1,249

-

-

1,622

Total

$      17,828 

$      24,198 

$      23,493 

$        9,166 

$        8,654 

$      31,650 

$                - 

$                - 

$    114,989 

24

Table of Contents

 

Residential Consumer Constr./Land

Risk Rating

Pass

$        9,853 

$        8,854 

$        2,908 

$        1,201 

$           859 

$        3,968 

$                - 

$                - 

$      27,643 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

-

Total

$        9,853 

$        8,854 

$        2,908 

$        1,201 

$           859 

$        3,968 

$                - 

$                - 

$      27,643 

Totals:

Risk Rating

Pass

$      97,105 

$      66,002 

$    112,237 

$      96,602 

$      30,397 

$    143,230 

$      70,339 

$        1,655 

$    617,567 

Special Mention

68

-

45

84

121

1,100

384

-

1,802

Substandard

38

1,026

1,450

3,528

1,320

4,380

2,904

175

14,821

Total

$      97,211 

$      67,028 

$    113,732 

$    100,214 

$      31,838 

$    148,710 

$      73,627 

$        1,830 

$    634,190 


‎

25

Table of Contents

 

Note 8 – Loans and allowance for credit losses (continued)

The table below details the amortized cost of the classes of loans by credit quality indicator and year of origination as of December 31, 2023.

Term Loans Amortized Cost Basis by Origination Year

2023

2022

2021

2020

2019

Prior

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term

Total

Commercial

Risk Rating

Pass

$        6,086 

$        4,559 

$        9,091 

$        6,067 

$        2,754 

$      18,429 

$      17,302 

$             39 

$      64,327 

Special Mention

100 

-

-

132 

-

-

382 

-

614

Substandard

-

18 

51

-

6 

127 

-

181

383

Total

$        6,186 

$        4,577 

$        9,142 

$        6,199 

$        2,760 

$      18,556 

$      17,684 

$           220 

$      65,324 

Commercial Real Estate:

Commercial Mort. - Owner Occupied

Risk Rating

Pass

$      10,260 

$      23,120 

$      45,838 

$        7,972 

$        8,988 

$      31,254 

$        1,471 

$           159 

$    129,062 

Special Mention

-

-

-

-

-

456 

-

-

456

Substandard

94 

-

-

45 

283 

1,579 

-

-

2,001

Total

$      10,354 

$      23,120 

$      45,838 

$        8,017 

$        9,271 

$      33,289 

$        1,471 

$           159 

$    131,519 

Commercial Mort. - Non-Owner Occupied

Risk Rating

Pass

$      13,069 

$      52,341 

$      35,419 

$      10,210 

$        4,397 

$      52,583 

$        6,152 

$                - 

$    174,171 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

1,173 

-

-

-

-

1,173

Total

$      13,069 

$      52,341 

$      35,419 

$      11,383 

$        4,397 

$      52,583 

$        6,152 

$                - 

$    175,344 

Commercial Construction/Land

Risk Rating

Pass

$        1,848 

$        3,157 

$        9,869 

$        2,842 

$           628 

$           463 

$        2,768 

$                - 

$      21,575 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

391 

-

-

-

-

-

391

Total

$        1,848 

$        3,157 

$      10,260 

$        2,842 

$           628 

$           463 

$        2,768 

$                - 

$      21,966 

Consumer:

Consumer - Open-End

Risk Rating

Pass

$                - 

$                - 

$                - 

$                - 

$                - 

$                - 

$      48,576 

$        1,466 

$      50,042 

Special Mention

-

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

240 

-

240

Total

$                - 

$                - 

$                - 

$                - 

$                - 

$                - 

$      48,816 

$        1,466 

$      50,282 

Consumer - Closed-End

Risk Rating

Pass

$        5,587 

$      11,121 

$           588 

$           529 

$        7,647 

$           601 

$                - 

$                - 

$      26,073 

Special Mention

-

-

-

14 

-

-

-

-

14

Substandard

-

-

-

-

32 

116 

-

-

148

Total

$        5,587 

$      11,121 

$           588 

$           543 

$        7,679 

$           717 

$                - 

$                - 

$      26,235 

Residential:

Residential Mortgages

Risk Rating

Pass

$      26,854 

$      24,740 

$      10,220 

$        9,007 

$        7,161 

$      25,935 

$                - 

$                - 

$    103,917 

Special Mention

-

-

-

-

-

1,687 

-

-

1,687

Substandard

-

-

-

105 

54 

1,227 

-

-

1,386

Total

$      26,854 

$      24,740 

$      10,220 

$        9,112 

$        7,215 

$      28,849 

$                - 

$                - 

$    106,990 

26

Table of Contents

 

Residential Consumer Construction/Land

Risk Rating

Pass

$      10,762 

$      11,341 

$        3,821 

$        1,414 

$        1,896 

$        2,417 

$                - 

$                - 

$      31,651 

Special Mention

-

-

22 

-

-

-

-

-

22

Substandard

-

-

-

-

-

-

-

-

-

Total

$      10,762 

$      11,341 

$        3,843 

$        1,414 

$        1,896 

$        2,417 

$                - 

$                - 

$      31,673 

Totals:

Risk Rating

Pass

$      74,466 

$    130,379 

$    114,846 

$      38,041 

$      33,471 

$    131,682 

$      76,269 

$        1,664 

$    600,818 

Special Mention

100 

-

22 

146 

-

2,143 

382 

-

2,793

Substandard

94

18 

442

1,323 

375 

3,049 

240 

181

5,722

Total

$      74,660 

$    130,397 

$    115,310 

$      39,510 

$      33,846 

$    136,874 

$      76,891 

$        1,845 

$    609,333 


‎

27

Table of Contents

 

Note 8 – Loans and allowance for credit losses (continued)

The following table details the current period gross charge-offs of loans by year of origination as of September 30, 2024 and December 31, 2023.

Current Period Gross Charge-Offs by Origination Year (in thousands)

As of September 30, 2024

2024

2023

2022

2021

2020

Prior

Revolving Loans Amortized Cost Basis

Total

Revolving Loans Converted to Term

Commercial

$            - 

$            8 

$            - 

$            - 

$            - 

$            - 

$                - 

$            8 

$                  - 

Commercial Real Estate:

Commercial Mortgages-Owner Occupied

-

-

-

-

-

-

-

-

-

Commercial Mortgages-Non-Owner Occupied

-

-

-

-

-

-

-

-

-

Commercial Construction/Land

-

-

-

-

-

-

-

-

-

Consumer:

Consumer Open-End

-

-

-

-

-

2 

-

2 

-

Consumer Closed-End

-

-

74

-

-

-

-

74

-

Residential:

Residential Mortgages

-

-

-

-

-

-

-

-

-

Residential Consumer Construction/Land

-

-

-

-

-

-

-

-

-

Total

$            - 

$            8 

$          74 

$            - 

$            - 

$            2 

$                - 

$          84 

$                  - 

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving Loans Amortized Cost Basis

Total

Revolving Loans Converted to Term

Commercial

$            - 

$            - 

$            - 

$          17 

$            - 

$        132 

$                - 

$        149 

$                  - 

Commercial Real Estate:

Commercial Mortgages-Owner Occupied

-

-

-

-

-

-

-

-

-

Commercial Mortgages-Non-Owner Occupied

-

-

-

-

-

-

-

-

-

Commercial Construction/Land

-

-

-

-

-

-

-

-

-

Consumer:

Consumer Open-End

-

-

-

-

-

6 

7 

13 

-

Consumer Closed-End

19 

33 

19 

-

-

-

-

71 

-

Residential:

Residential Mortgages

-

-

-

-

-

3 

-

3 

-

Residential Consumer Construction/Land

-

-

-

-

-

-

-

-

-

Total

$          19 

$          33 

$          19 

$          17 

$            - 

$        141 

$                7 

$        236 

$                  - 


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Note 8 – Loans and allowance for credit losses (continued)

The following tables present nonaccrual information by class of loans as of September 30, 2024 and December 31, 2023.

Loans on Nonaccrual Status

(dollars in thousands)

September 30, 2024

Nonaccrual Loans

With No Allowance

With an Allowance

Total

Commercial

$                399

$                    -

$                399

Commercial Real Estate:

Commercial Construction/Land

363

-

363

Consumer:

Consumer Closed-End

263

-

263

Residential Mortgages

270

-

270

Total

$             1,295

$                    -

$             1,295

December 31, 2023

Nonaccrual Loans

With No Allowance

With an Allowance

Total

Commercial Real Estate:

Commercial Construction/Land

$                391

-

$                391


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Note 8 – Loans and allowance for credit losses (continued)

The following tables present an aging analysis of the loan portfolio by class and past due as of September 30, 2024 and December 31, 2023:

Age Analysis of Past Due Loans as of September 30, 2024

Recorded

Greater

Investment

2024

30-59 Days

60-89 Days

than

Total Past

Total

> 90 Days &

Past Due

Past Due

90 Days

Due

Current

Loans

Accruing

Commercial

$

56

$

—

$

—

$

56

$

60,286

$

60,342

$

—

Commercial Real Estate:

Commercial Mortgages-Owner Occupied

93

—

—

93

143,698

143,791

—

Commercial Mortgages-Non-Owner Occupied

—

—

—

—

189,977

189,977

—

Commercial Construction/Land

—

—

—

—

22,358

22,358

—

Consumer:

Consumer Open-End

—

—

—

—

47,919

47,919

—

Consumer Closed-End

—

76

125

201

26,970

27,171

—

Residential:

Residential Mortgages

438

202

99

739

114,250

114,989

—

Residential Consumer Construction/Land

—

4

—

4

27,639

27,643

—

Total

$

587

$

282

$

224

$

1,093

$

633,097

$

634,190

$

—

Age Analysis of Past Due Loans as of December 31, 2023

Recorded

2023

Greater

Investment

30-59 Days

60-89 Days

than

Total Past

Total

> 90 Days &

Past Due

Past Due

90 Days

Due

Current

Loans

Accruing

Commercial

$

—

$

—

$

—

$

—

$

65,324

$

65,324

$

—

Commercial Real Estate:

Commercial Mortgages-Owner Occupied

91

—

—

91

131,428

131,519

—

Commercial Mortgages-Non-Owner Occupied

—

—

—

—

175,344

175,344

—

Commercial Construction/Land

—

—

—

—

21,966

21,966

—

Consumer:

Consumer Open-End

357

—

—

357

49,925

50,282

—

Consumer Closed-End

126

89

—

215

26,020

26,235

—

Residential:

Residential Mortgages

396

—

—

396

106,594

106,990

—

Residential Consumer Construction/Land

—

—

—

—

31,673

31,673

—

Total

$

970

$

89

$

—

$

1,059

$

608,274

$

609,333

$

—


‎

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Note 8 – Loans and allowance for credit losses (continued)

Occasionally, the Bank modifies loans to borrowers experiencing financial difficulties by providing principal forgiveness, term extensions, interest rate reductions or payment deferrals. As the effect of most modifications is already included in the allowance for credit losses due to the measurement methodologies used in its estimate, the allowance for credit losses is typically not adjusted upon modification. When principal forgiveness is provided at modification, the amount forgiven is charged against the allowance for credit losses.

There were no loan modifications to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024 or September 30, 2023. As of September 30, 2024, no previously modified loans have defaulted in the last twelve months.

ACL on Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable by the Company. The allowance for off-balance sheet credit exposures is adjusted as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for loan credit losses. The allowance for credit losses for unfunded loan commitments of $575,000 at September 30, 2024, is separately classified within Other Liabilities on the Consolidated Balance Sheets.

The following table presents the balance and activity in the ACL for unfunded commitments for the three and nine months ended September 30, 2024 and 2023:

Allowance for Credit Losses on Unfunded Commitments (in thousands)

Balance, June 30, 2024

$                           589

Recovery of credit losses

(14)

Balance September 30, 2024

$                           575

Balance, December 31, 2023

$                           665

Recovery of credit losses

(90)

Balance September 30, 2024

$                           575

Balance, June 30, 2023

$                           723

Recovery of credit losses

(33)

Balance September 30, 2023

$                           690

Balance, December 31, 2022

$                                -

Adoption of ASU 2016-13

779

Recovery of credit losses

(89)

Balance September 30, 2023

$                           690

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Note 8 – Loans and allowance for credit losses (continued)

Other Real Estate Owned

We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank which was acquired through purchase at foreclosure or from the borrower through a deed in lieu of foreclosure. There were no OREO properties on September 30, 2024 and December 31, 2023. The following table represents the changes in OREO balance during the nine months ended September 30, 2024 and year ended December 31, 2023.

OREO Changes

Nine Months Ended

Year Ended

(in thousands)

September 30, 2024

December 31, 2023

Balance at the beginning of the year

$

—

$

566

Transfers from Loans

—

—

Capitalized costs

—

—

Valuation adjustments

—

(23)

Sales proceeds

—

(540)

Loss on sales

—

(3)

Balance at the end of the year

$

—

$

—

At September 30, 2024 and December 31, 2023, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. The Company held no residential real estate properties in other real estate owned as of September 30, 2024 and December 31, 2023.

Note 9 – Recent accounting pronouncements and other authoritative guidance

In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”. This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The adoption of ASU 2023-03 has not had a material impact on The Company’s consolidated financial statements.

In November 2023, the FASB amended the Segment Reporting topic in the Accounting Standards Codification to improve disclosures about a public entity’s reportable segments and provide more detailed information about a reportable segment’s expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after

December 15, 2024. Early adoption is permitted. Upon adoption, the Company will apply the amendments retrospectively to all prior periods presented in the financial statements. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

In December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect these amendments to have a material effect on its consolidated financial statements.

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Note 10 - Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Management has reviewed events occurring through the date the financial statements were available to be issued and no other subsequent events occurred requiring accrual or that require disclosure and have not been disclosed in the footnotes to the Company's unaudited consolidated financial statements as of September 30, 2024.


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

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:

problems with technology utilized by us;

potential exposure to fraud, negligence, computer theft and cyber-crime and cyber-threats, 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;

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;

the ability to maintain adequate liquidity by retaining deposit customers and secondary funding sources, especially if the Company's or banking industry's reputation becomes damaged;

the adequacy of the level of the Company's allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses;

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;

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. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A of the most recently filed Form 10-K.


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GENERAL

Critical Accounting Policies

Bank of the James Financial Group, Inc.’s (“Financial” or the “Company”) 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. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

The allowance for credit losses (ACLL) is management’s estimate of the probable losses expected in our loan portfolio and held-to-maturity securities portfolio. With the exception of loans related to agriculture, the Company is utilizing a discounted cash flow model to estimate its current expected credit losses in our loan portfolio. Actual losses could differ significantly from the historical factors that we use in estimating risk. For information on the Company's policies on the ACLL please refer to Note 2 – “Allowance for Credit Losses - Loans” in the Company’s Form 10-K for the year ended December 31, 2023. See “Management Discussion and Analysis Results of Operations – Allowance and Provision for Credit losses” 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 net 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 if events and circumstances exist 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.

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 business”), and as of December 31, 2021, investment advisory services through the Company’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (which we refer to as “PWW”).

The Bank is a Virginia banking corporation headquartered in Lynchburg, Virginia. The Bank was incorporated under the laws of the Commonwealth of Virginia as a state-chartered bank in 1998 and began banking operations in July 1999. The Bank was organized to engage in general retail and commercial banking business. The Bank is a community-oriented financial institution that provides varied banking services to individuals, small and medium-sized businesses, and professional concerns. Historically, our primary market area has been the Central Virginia, Region 2000 area, which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the Town of Bedford, Bedford County, Campbell County, and the City of Lynchburg. Recently, the Bank has begun to expand to other areas in Virginia, specifically Roanoke, Charlottesville, Harrisonburg, Blacksburg, Lexington and Rustburg. The Bank strives to provide its customers with products comparable to statewide regional banks located in its market area, while maintaining the prompt response time and level of service of a community bank. Management believes this operating strategy has particular appeal in the Bank’s market areas.

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 has approximately $789 million in assets under management and advisement as of September 30, 2024. PWW generates revenue primarily through investment advisory fees.

The Bank’s principal office is located at 828 Main Street, Lynchburg, Virginia 24504 and its telephone number is (434) 846-2000. The Bank also maintains a website at www.bankofthejames.bank.

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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 gains on sales of loans held for sale and service charges, and investment advisory fees, and its noninterest expenses, including salaries and employee benefits, occupancy expense, data processing expenses, Federal Deposit Insurance Corporation premiums, expense in complying with regulatory requirements, miscellaneous other expenses, franchise taxes, and income taxes.

The Bank intends to enhance its profitability by increasing its market share in our service areas, providing additional services to its customers, and controlling costs.

The Bank services its banking customers through the following locations in Virginia:

Full-Service Branches

The main office located at 828 Main Street in Lynchburg, Virginia (the “Main Street Office”),

A branch located at 5204 Fort Avenue in Lynchburg, Virginia (the “Fort Avenue Branch”),

A branch located at 4935 Boonsboro Road, Suites C and D in Lynchburg, Virginia (the “Boonsboro Branch”),

A branch located at 4105 Boonsboro Road in Lynchburg, Virginia (the “Peakland Branch”),

A branch located at 4698 South Amherst Highway in Amherst County, Virginia (the “Madison Heights Branch”),

A branch located at 17000 Forest Road in Forest, Virginia (the “Forest Branch”),

A branch located at 164 South Main Street, Amherst, Virginia (the “Amherst Branch”),

A branch located at 1405 Ole Dominion Boulevard in the Town of Bedford, Virginia, located off of Independence Boulevard (the “Bedford Branch”),

A branch located at 1110 Main Street, Altavista, Virginia (the “Altavista Branch”),

A branch located at 1391 South High Street, Harrisonburg, Virginia (the “Harrisonburg Branch”),

A branch located at 1745 Confederate Blvd, Appomattox, Virginia (the “Appomattox Branch”),

A branch located at 225 Merchant Walk Avenue, Charlottesville, Virginia (the “5th Street Station Branch”),

A branch located at 3562 Electric Road, Roanoke, Virginia (the “Roanoke Branch”),

A branch located at 45 South Main St., Lexington, Virginia (the “Lexington Branch”),

A branch located at 550 Water St., Charlottesville, Virginia (the “Water Street Branch”),

A branch located at 2101 Electric Rd, Roanoke, Virginia (the “Oak Grove Branch”),

A branch located at 13 Village Highway, Rustburg, Virginia (the “Rustburg Branch”),

A branch located at 19792 Main Street, Buchanan, Virginia (the “Buchanan Branch”); and

A temporary branch located at 2773 Rockfish Valley Highway, Nellysford, Virginia (the “Temporary Nellysford Branch”).

Limited Service Branches

Westminster-Canterbury facilities located at 501 VES Road, Lynchburg, Virginia, and

Westminster-Canterbury facilities located at 250 Pantops Mountain Road, Charlottesville, Virginia.

Loan Production Offices

Residential mortgage loan production office located at the Forest Branch,

Residential mortgage loan production office located at 570 West Main St., Wytheville, Virginia,

Residential mortgage loan production office located at 2001 South Main Street, Blacksburg, Virginia, and

Commercial, consumer and residential mortgage loan production office located at the Water Street Branch.

The Investment division and the Insurance business operate primarily out of offices located at the Main Street Office. PWW operates our investment advisory business primarily from its offices at 1925 Atherholt Road in Lynchburg.

The Bank continuously evaluates areas located within our service areas to identify additional viable branch locations. Based on this ongoing evaluation, the Bank may acquire one or more additional suitable sites.

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Subject to regulatory approval, the Bank may open 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 additional branch locations that the Bank currently is considering, including the following properties that we own and are holding for expansion:

Real property located in the Timberlake Road area of Campbell County (Lynchburg), Virginia. In September 2024, the Bank purchased real property commonly known as 20795 Timberlake Road, Lynchburg, 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. Subject to regulatory approval, the Bank anticipates opening a branch at this location in 2025. Following acquisition of this property, the Bank decided to sell the undeveloped property it owns on Timberlake Road, which the Bank previously was holding for possible branch expansion. This property has been listed for sale and is currently being marketed.

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 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. Following the expiration of this restrictive covenant, the Bank intends to use this property as a permanent branch in Nellysford, Virginia We anticipate that we will relocate the Temporary Nellysford Branch to this location in the fall of 2025.

In addition to the facilities set forth above, the Bank owns the following property which is being held for possible expansion:

Real property located at 1925 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. 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 operation.

The Bank continues to evaluate suitable branch locations and may acquire one or more properties for expansion in the next 12 months. Future branch openings are subject to regulatory approval.

OFF-BALANCE SHEET ARRANGEMENTS

The Bank is a party to various financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our 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 and could impact the overall liquidity and capital resources to the extent customers accept and/or use these commitments.

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:

September 30, 2024

December 31, 2023

(in thousands)

Commitments to extend credit

$                 172,867

$                 173,148

Letters of Credit

3,506

2,636

Total

$                 176,373

$                 175,784

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

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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 the Bank’s 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. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on the Bank’s credit evaluation of the customer.

The Bank has rate lock commitments to originate mortgage loans through its Mortgage Division. The Bank has entered into corresponding commitments with third party investors to sell each of these loans that close. No other obligation exists. As a result of these contractual relationships with these investors, the Bank is not exposed to losses nor will it ultimately realize gains related to its rate lock commitments due to changes in interest rates.

SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion represents management’s discussion and analysis of the financial condition of Financial as of September 30, 2024 and December 31, 2023 and the results of operations of Financial for the three and nine month periods ended September 30, 2024 and 2023. This discussion should be read in conjunction with the financial statements included elsewhere herein.

All financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Financial Condition Summary

September 30, 2024 as Compared to December 31, 2023

Total assets were $1,008,063,000 on September 30, 2024 compared with $969,371,000 at December 31, 2023, an increase of 3.99%. The increase in total assets was primarily due to increases in cash, Fed funds sold, loans, net of the allowance for credit losses, loans held for sale, and the cash value of bank-owned life insurance. The increase was offset in part by a decrease in the value of securities available-for-sale.

Total deposits increased from $878,459,000 as of December 31, 2023 to $907,610,000 on September 30, 2024, an increase of 3.32%. The increase resulted in large part from increases in time deposits, NOW, money market and savings deposits and was offset in part by a decrease in noninterest-bearing demand. The increase in time deposits generally was driven by our customers’ desire to lock in higher interest rates while still possible. The increase in NOW, money market and savings deposits was driven by customers’ desire to earn interest while still maintaining liquidity.

Total loans, excluding loans held for sale, increased to $634,190,000 on September 30, 2024 from $609,333,000 on December 31, 2023. The increase was primarily due to increases in commercial real estate and residential loans and was offset in part by a decrease in commercial and consumer loans, which decreased due to payoffs and normal amortization of loans. Loans, excluding loans held for sale and net of deferred fees and costs and including the allowance for credit losses, increased to $627,112,000 on September 30, 2024 from $601,921,000 on December 31, 2023, an increase of 4.19%. The following summarizes the position of the Bank’s loan portfolio as of the dates indicated by dollar amount and percentages (dollar amounts in thousands):

September 30, 2024

December 31, 2023

Amount

Percentage

Amount

Percentage

Commercial

$             60,342

9.51%

$             65,324

10.72%

Commercial Real Estate

356,126

56.15%

328,829

53.97%

Consumer

75,090

11.84%

76,517

12.56%

Residential

142,632

22.49%

138,663

22.76%

Total loans

$           634,190

100.00%

$           609,333

100.00%


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The subsegments of the loan portfolio of the segments shown above are set forth in Note 8.

As a community bank, the Bank remains committed to growing assets through quality loan growth by providing credit to small and mid-size businesses and individuals within the markets we serve. Based on our loan portfolio as of September 30, 2024, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 218.30% and 30.34% (based on interagency CRE guidelines) of total risk-based capital, respectively.

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

The Bank closely monitors concentrations within its commercial real estate loan portfolio. As of September 30, 2024, non-owner occupied commercial real estate loans totaled $189,977,000, or 29.96% of total loans. The Bank has minimal exposure to loans secured by large office buildings or shopping centers, which comprise less than 5% of the non-owner occupied commercial real estate portfolio. The majority of the Bank's non-owner occupied commercial loans are secured by smaller, multi-tenant properties diversified across various industries and geographies within our market areas.

The Bank does not have any non-owner occupied commercial loans secured by properties in major city centers. We have not seen an increase in delinquencies in loans secured by non-owner occupied commercial real estate.

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

Origination and Analysis

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

Ongoing Risk Management

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

Utilizing enhanced risk rating systems specific to CRE exposures;

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

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

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

Regular monitoring of local market conditions and property sector trends;

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

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

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

Credit Enhancements

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


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The following table sets forth information for non-owner occupied CRE Loans for the four largest categories of loans (classified by purpose code and collateral description) having the highest current principal balance:

Commercial Real Estate Loan Portfolio (CRE)

Non-Owner Occupied

(in thousands)

As of September 30, 2024

Collateral Description

Total Number of Loans

Current Balance

% of Total Loans

Average Balance

Weighted Avg LTV of Top 5 Loans (1)

Multi-Family (5 or more)

42

$ 52,600

8.29%

$ 1,252

53.81%

Hotel/Motel

8

31,687

5.00%

3,961

57.65%

Office Building

24

23,320

3.68%

972

58.05%

Retail Store

26

19,452

3.20%

780

63.13%

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

The following table sets forth information for owner occupied CRE Loans set forth the four largest categories of loans (classified by purpose code and collateral description) having the highest current principal balance:

Commercial Real Estate Loan Portfolio (CRE)

Owner Occupied

(in thousands)

As of September 30, 2024

Collateral Description

Total Number of Loans

Current Balance

% of Total Loans

Average Balance

Weighted Avg LTV of Top 5 Loans (1)

Industrial

31

$ 33,126

5.22%

$ 1,069

58.96%

Office Building

70

26,568

4.19%

378

54.33%

Medical Building

25

15,346

2.42%

614

73.42%

Retail Store

29

14,622

2.31%

504

59.72%

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

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days or more and still accruing, and OREO increased to $1,295,000 on September 30, 2024 from $391,000 on December 31, 2023. Because we had no OREO on either September 30, 2024 or December 31, 2023, the nonperforming assets consist entirely of nonperforming loans.

As discussed in more detail below under “Results of Operations—Allowance and Provision for Credit Losses,” management has provided for any anticipated losses on these loans in the allowance for credit losses. Loan payments received on nonaccrual loans are first applied to principal. When a loan is placed on nonaccrual status there are several negative implications. First, all interest accrued but unpaid at the time of the classification is reversed and 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.

OREO represents real property acquired by the Bank for debts previously contracted, including through foreclosure or deeds in lieu of foreclosure. We had no OREO on September 30, 2024 and December 31, 2023. The Bank neither acquired nor disposed of any OREO during the three and nine months ended September 30, 2024. As a result, the OREO balance remained $0 as of September 30, 2024

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Cash and cash equivalents increased to $109,207,000 on September 30, 2024 from $74,838,000 on December 31, 2023. Cash and cash equivalents consist of cash due from correspondents, cash in vault, and overnight investments (including Federal funds sold). This increase was due in large part to the Bank’s sale of securities available-for-sale during the first nine months of 2024, as discussed in more detail below. Cash and cash equivalents are subject to routine fluctuations in deposits, including fluctuations in transactional accounts and professional settlement accounts.

Securities held-to-maturity were essentially flat, decreasing slightly to $3,610,000 on September 30, 2024 from $3,622,000 on December 31, 2023. This decrease is a result of normal net amortization of premiums within the held-to-maturity portfolio.

Securities available-for-sale, which are carried on the balance sheet at fair market value, decreased to $192,469,000 on September 30, 2024, from $216,510,000 on December 31, 2023. During the nine months ended September 30, 2024, the Bank purchased $15,122,000 in available-for-sale securities. During the same period the Bank sold $30,298,000 and received $13,305,000 in proceeds from calls, maturities, and paydowns of securities available-for-sale. The market value of the securities available-for-sale increased. As of September 30, 2024, we have an unrealized tax-effected loss of $17,782,000 (or $22,509,000 prior to the tax benefit). 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.

Financial’s investment in Federal Home Loan Bank of Atlanta (FHLBA) stock totaled $672,000 at September 30, 2024 as compared to $643,000 at December 31, 2023. FHLBA stock is generally viewed as a long-term investment and because there is no market for the stock other than other Federal Home Loan Banks or member institutions, FHLBA stock is viewed as a restricted security. Therefore, when evaluating FHLBA stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Liquidity and Capital

At September 30, 2024, Financial, on a consolidated basis, had liquid assets of $301,676,000 in the form of cash, interest-bearing and noninterest-bearing deposits with banks, and available-for-sale investments. The Bank has pledged (market values):

approximately $37,000,000 of our available-for-sale securities as collateral with correspondent banks, including the FHLBA, for collateralized lines of credit;

approximately $44,000,000 of our available-for-sale securities as security for public deposits; and

approximately $30,000,000 of our available-for-sale securities as collateral for advances at the Federal Reserve Bank’s discount window.

Further, if additional liquidity is needed, the Bank has the ability to purchase up to $53,000,000 of Fed funds through the Bank’s correspondent relationships and borrow from the FHLBA using investments within the Bank’s portfolio as collateral. In addition to the above, the Bank has borrowing capacity with the FHLBA of approximately $20,000,000 related to loans it has pledged to the FHLBA.

As of September 30, 2024, the Bank has no borrowings from any of these sources. Immediately following the failure of Silicon Valley Bank in the spring of 2023, out of an abundance of caution the Bank borrowed $14,000,000 from the FHLBA to test its contingency funding plan. Approximately two weeks later, the Bank repaid the advance. During the first nine months of 2024, the Bank did not experience any unusual inflows or outflows of deposits.

Management believes that liquid assets were adequate at September 30, 2024. Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments from customers.

While we have not experienced any unusual pressure on our deposit balances or our liquidity position, management continues to closely monitor our sources and uses of funds in order to meet our cash flow requirements while attempting to maximize profits. The Company’s total uninsured deposits, which are the amount of deposits, subject to the aggregation rules, that exceed the FDIC insurance limit (currently $250,000) were approximately $267,498,000, approximately 29.47% of our total deposits, at September 30, 2024. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.

At September 30, 2024, the Bank had a leverage ratio of approximately 9.62%, a Tier 1 risk-based capital ratio and a CET1 ratio of approximately 12.58% and a total risk-based capital ratio of approximately 13.52%. As of September 30, 2024 and December 31, 2023, the Bank’s regulatory capital levels exceeded those established for well-capitalized institutions. The following table sets forth the minimum capital requirements and the Bank’s capital position as of September 30, 2024 and December 31, 2023:

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Bank Level Only Capital Ratios

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

(dollars in thousands)

September 30,

December 31,

Analysis of Capital

2024

2023

Tier 1 capital

Common Stock

$             3,742

$            3,742

Surplus

22,325

22,325

Retained earnings

68,727

65,172

Total Tier 1 capital

$           94,794

$          91,239

Common Equity Tier 1 Capital (CET1)

$           94,794

$          91,239

Tier 2 capital

Allowance for credit losses

$             7,078

$            7,412

Total Tier 2 capital:

$             7,078

$            7,412

Total risk-based capital

$         101,872

$          98,651

Risk weighted assets

$         753,334

$        737,505

Average total assets

$         985,109

$        953,757

Actual

Regulatory Benchmarks

For Capital

For Well

September 30,

December 31,

Adequacy

Capitalized

2024

2023

Purposes (1)

Purposes

Capital Ratios:

Tier 1 capital to average total assets

9.62%

9.57%

4.000%

5.000%

Common Equity Tier 1 capital

12.58%

12.37%

7.000%

6.500%

Tier 1 risk-based capital ratio

12.58%

12.37%

8.500%

8.000%

Total risk-based capital ratio

13.52%

13.38%

10.500%

10.000%

(1)Includes the capital conservation buffer of 2.50% for all ratios, excluding the Tier 1 capital to average total assets ratio.

The above tables set forth the capital position and analysis for the Bank only. Because total assets on a consolidated basis are less than $3,000,000,000, 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 at September 30, 2024 would be lower than those of the Bank because a portion of proceeds from the sale of notes previously issued by the holding company were contributed to the Bank as equity.

In July 2013, the Federal Reserve Board approved a final rule establishing a regulatory capital framework for smaller, less complex financial institutions. The rule was fully implemented on January 1, 2019 and implemented a capital conservation buffer of 2.5%. As a result, the Bank is required to have a minimum ratio of Tier 1 capital to average total assets of 4.00% (exclusive of the capital conservation buffer), a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 7.0% (inclusive of the capital conservation buffer), and a Tier 1 risk-based capital ratio of 8.5% (inclusive of the capital conservation buffer). Failure to maintain the capital conservation buffer will limit the ability of the Bank and Financial to pay dividends, repurchase shares or pay discretionary bonuses. The rule also raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.


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Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Earnings Summary

Financial had net income including all operating segments of $1,990,000 and $6,326,000 for the three and nine months ended September 30, 2024, compared to $2,078,000 and $6,596,000 for the comparable periods in 2023. Basic and diluted earnings per common share for the three and nine months ended September 30, 2024 were $0.44 and $1.39, compared to basic and diluted earnings per share of $0.46 and $1.44 for the three and nine months ended September 30, 2023.

The decrease in net income for the three and nine months ended September 30, 2024, as compared to the prior year periods was due primarily to an increase in interest expense of $1,275,000 and $4,984,000 in the three and nine months ended September 30, 2024 from the comparable periods in 2024. The decrease was offset in part by increases in interest income and noninterest income.

These operating results represent an annualized return on average stockholders’ equity of 12.86% and 13.95% for the three and nine month periods ended September 30, 2024, compared with 15.68% and 17.20% for the three and nine months ended September 30, 2023. The decrease for the three and nine month periods ended September 30, 2024 from the same periods in 2023 was due to the decrease in net income and an increase in average equity, which resulted from an increase in retained earnings. The Company had an annualized return on average assets of 0.80% and 0.86% for the three and nine month periods ended September 30, 2024 compared with 0.86% and 0.93% for the three and nine month periods ended September 30, 2023. The decreases largely resulted from a decrease in net income and an increase in average assets.

See “Noninterest Income” below for mortgage business and wealth management segment discussions.

Interest Income, Interest Expense, and Net Interest Income

For the three and nine months ended September 30, 2024, interest income increased to $11,563,000 and $33,007,000 from $10,143,000 and $28,824,000 for the same periods in 2023, primarily to an increase in interest rates received on our interest-earning assets. The average rate on loans was 5.65% and 5.45% for the three and nine months ended September 30, 2024, as compared to 5.13% and 4.99% for the same periods in 2023. The rate on total average earning assets increased to 4.86% and 4.70% during the three and nine months ended September 30, 2024 because of a general increase in market rates and because the loans that we originated in the last six to twelve months had rates significantly higher than the rates referenced above.

Interest expense increased significantly to $4,054,000 and $11,457,000 for the three and nine months ended September 30, 2024 from $2,779,000 and $6,473,000 for the three and nine months ended September 30, 2023. The increase for the three and nine months resulted primarily from an increase in deposit balances and an increase in interest rates paid on deposits during the three and nine months ended September 30, 2024. The Company’s average rate paid on interest-bearing deposits was 2.01% and 1.93% for the three and nine months ended September 30, 2024 as compared to 1.43% and 1.10% for the same periods in 2023. The Company’s average rate paid on interest-bearing liabilities was 2.05% and 1.97% for the three and nine months ended September 30, 2024 as compared to 1.49% and 1.18% for the same periods in 2023. We anticipate a slight decrease in the rate paid on interest-bearing liabilities due to the FOMC’s decision to lower the Fed funds rate in September.

The fundamental source of the Bank’s net revenue is net interest income, which is determined by the difference between (i) interest and dividend income on interest-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. Net interest income for the three and nine months ended September 30, 2024 was $7,509,000 and $21,550,000 as compared to $7,364,000 and $22,351,000 for the same periods in 2023. The net interest margin was 3.16% and 3.07% for the three and nine months ended September 30, 2024 as compared to 3.21% and 3.33% for the comparable periods in 2023. The decreases for the three and nine month periods ended September 30, 2024, were in large part due to interest rates on interest-bearing liabilities increasing more rapidly than the rates received on interest-earning assets during each of the first three quarters of the year. This was exacerbated by a change in deposit mix, with the balance of time deposits, which generally pay a higher rate than demand deposits, increasing year over year while the average balance of interest-bearing demand deposits decreased over the same period. To combat inflation, the FOMC implemented a series of interest rate increases beginning in March 2022. These increases negatively impacted our net interest margin. Despite the Fed’s rate cut in September of 2024, the current interest rate environment is likely to continue to cause long-term uncertainty. For example,

While management does not anticipate it will be necessary to raise deposit rates, if we need to raise rates on deposits, there likely would be an adverse impact on our margin and profitability.

A stabilizing interest rate environment is likely to allow us to increase our net interest margin.

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In the event of rapid rate decreases, in the short term our net interest margin could come under pressure as the Bank is currently asset-sensitive.

Other financial impacts could occur, though such potential impacts are unknown at this time.

Financial’s net interest margin analysis and average balance sheets are shown in Schedule I below.

Noninterest Income

Noninterest income is comprised primarily of fees and charges on transactional deposit accounts, gains on sales of mortgage loans held for sale, commissions on sales of investments, fees generated from treasury management services, fees generated from our investment advisory business, and bank-owned life insurance income.

Noninterest income increased to $3,823,000 and $11,321,000 for the three and nine month periods ended September 30, 2024 from $3,201,000 and $9,689,000 for same periods in 2023. The overall increases primarily were due to increases in wealth management fees, life insurance income, gains on sales of loans, and income received from an investment in a Small Business Investment Company fund, which is reflected in other income.

The Bank, through its Mortgage division, originates both conforming and non-conforming consumer residential mortgage loans in the markets we serve. As part of the Bank’s overall risk management strategy, all of the loans originated and closed by the Mortgage division are presold to major national mortgage banking or financial institutions. The Mortgage division assumes, except in limited circumstances such as first payment default, no credit or interest rate risk on these mortgages.

Purchase mortgage originations totaled $31,016,000 and $120,657,000 or 84.98% and 83.02% respectively, of the total mortgage loans originated in the three and nine months ended September 30, 2024, as compared to $37,811,000 and $105,228,000 or 89.00% and 84.80%, respectively, of the total mortgage loans originated in the same period in 2023. Because of a relatively higher mortgage interest rate environment, management anticipates that in the short-term purchase mortgage originations will continue to represent a significant percentage of mortgage originations. Management also believes that a continued increase in long-term market interest rates could limit refinancing activity.

Mortgage rates increased dramatically in 2022 and 2023 and remain elevated compared to recent history. These increases continue to have a negative impact on mortgage origination volume. Because of the uncertainty surrounding current and near-term economic conditions arising from inflation and geopolitical and economic concerns, management cannot predict future mortgage rates. Management also believes that the relatively high interest rates could cause revenue from the mortgage segment to remain under additional pressure.

Our Investment division 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 two 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. The Investment division’s financial impact on our consolidated revenue has been minimal. Although management cannot predict the financial impact of Investment with certainty, management anticipates the Investment division’s revenue as a percentage of our overall noninterest will remain minimal 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 has approximately $828 million in assets under management and advisement as of September 30, 2024. 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.

The Bank provides insurance and annuity products to Bank customers and others, through the Bank’s Insurance subsidiary. The Bank has three employees that are licensed to sell insurance products through Insurance. 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 for the remainder of 2024.


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Noninterest Expense

Noninterest expense for the three and nine months ended September 30, 2024 increased to $8,776,000 and $25,602,000 from $8,140,000 and $24,091,000 for the same periods in 2023, increases of 7.81% and 6.27%, respectively. These increases resulted primarily from increases in salaries and employee benefits and to a lesser extent in the nine month period, professional, data processing and other outside expenses. While other expenses increased for the three and nine month periods in 2024, the increase for the nine months was due large part because we had a recovery in 2023 related to a previous fraud loss, which had the effect of reducing other expense for the nine month period in 2023. Total personnel expense was $4,920,000 and $14,256,000 for the three and nine month periods ended September 30, 2024 as compared to $4,683,000 and $13,296,000 for the same periods in 2023. Personnel expense increased largely because of increases in salaries, compensation related accruals, and additional personnel hired in connection with the opening of new branches.

Allowance and Provision for Credit Losses

The allowance for credit losses represents an amount that, in our judgment, will be adequate to absorb probable losses expected in the loan portfolio. The provision for credit losses increases the allowance, and loans charged-off, net of recoveries, reduce the allowance. The provision for the allowance for credit losses is charged to earnings to bring the total allowance to a level deemed appropriate by management. As discussed below, loans having a risk rating of 7 or below that are significantly past due, and loans with borrowers whose performance and financial condition provide evidence that it is probable that the Bank will be unable to collect all amounts when due, are evaluated for specific impairment. The general reserve component is based on an evaluation of general economic conditions, actual and expected credit losses, and loan performance measures. Based on the application of the credit loss calculation, the Bank recorded a provision of $92,000 for the three months ended September 30, 2024 and provision recoveries of $584,000 for the nine months ended September 30, 2024. This compares to provision recoveries of $164,000 and $278,000 for the same periods in 2023. For the nine month periods ended September 30, 2024, and 2023, the provision recovery attributable to unfunded commitments was $90,000 and $90,000, respectively, and was not included in the allowance. Despite an increase in loan balances, the amount of additional provision otherwise needed to reflect loan growth was offset in part by principal recoveries of loans previously charged off of approximately $21,000 and $244,000, respectively, for the three and nine months ended September 30, 2024.

A September 30, 2024, the allowance for credit losses was 1.12% of total loans outstanding, versus 1.22% and 1.21% of total loans outstanding at December 31, 2023 and September 30, 2023, respectively. The allowance for credit losses for individually evaluated loans was $0 at both September 30, 2024 and December 31, 2023. As shown in Note 8, the total balance in the allowance decreased, from $7,412,000 as of December 31, 2023 to $7,078,000 as of September 30, 2024.

Charged-off loans, which are loans that management deems uncollectible, are charged against the allowance for credit losses and constitute a realized loss. We had charged-off loans of $0 and $84,000 for the three and nine month periods ended September 30, 2024 as compared to $144,000 and $196,000 for the same periods in 2023. While a charged-off loan may subsequently be collected, such recoveries generally are realized over an extended period of time. We had principal recoveries of $21,000 and $244,000 for the three and nine month periods ended September 30, 2024 as compared to principal recoveries of $8,000 and $200,000 for the same periods in 2023.

If indicated by Bank policy, certain nonaccrual loans are individually analyzed for impairment. The principal balance on our nonaccrual loans totaled $1,295,000 and $391,000 at September 30, 2024 and December 31, 2023, respectively. If interest on these loans had been accrued, such income cumulatively would have approximated $51,000 and $37,000 on September 30, 2024 and December 31, 2023, respectively. Loan payments received on nonaccrual loans are applied to principal. When a loan is placed on nonaccrual 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.

Income Taxes

For the three and nine months ended September 30, 2024, Financial had an income tax expense of $474,000 and $1,527,000 as compared to $511,000 and $1,631,000 for the same periods in 2023. This represents an effective tax rate of 19.24% and 19.44% for the three and nine months ended September 30, 2024 as compared with 19.74% and 19.82% for the three and nine months ended September 30, 2023. Our effective rate was lower than the statutory corporate tax rate in all periods primarily because of federal income tax benefits resulting from the tax treatment of earnings on bank owned life insurance, and interest earned on tax free municipal bonds.

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Schedule I

Net Interest Margin Analysis

Average Balance Sheets

For the Three Months Ended September 30, 2024 and 2023

(dollars in thousands)

2024

2023

Average

Average

Average

Interest

Rates

Average

Interest

Rates

Balance

Income/

Earned/

Balance

Income/

Earned/

Sheet

Expense

Paid

Sheet

Expense

Paid

ASSETS

Loans, including fees (1)(2)

$

629,860

$

8,939

5.65%

$

612,021

$

7,917

5.13%

Loans held for sale

3,745

65

6.90%

4,421

73

6.55%

Federal funds sold

71,724

981

5.44%

61,026

812

5.28%

Interest-bearing bank balances

18,736

303

6.43%

7,972

134

6.67%

Securities (3)

220,730

1,268

2.29%

222,969

1,204

2.14%

Restricted stock

1,723

12

2.77%

1,365

8

2.33%

Total earning assets

946,518

11,568

4.86%

909,774

10,148

4.43%

Allowance for credit losses

(6,965)

(7,563)

Non-earning assets

55,548

51,335

Total assets

$

995,101

$

953,546

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Demand interest bearing

394,973

947

0.95%

399,690

677

0.67%

Savings

139,161

540

1.54%

121,311

217

0.71%

Time deposits

229,451

2,375

4.12%

196,169

1,683

3.40%

Total interest bearing deposits

763,585

3,862

2.01%

717,170

2,577

1.43%

Other borrowed funds

Other borrowings

9,528

92

3.84%

10,112

98

3.84%

Financing leases

2,822

18

2.54%

3,194

22

2.73%

Capital Notes

10,045

82

3.25%

10,040

82

3.24%

Total interest-bearing liabilities

785,980

4,054

2.05%

740,516

2,779

1.49%

Noninterest bearing deposits

139,030

152,485

Other liabilities

8,515

7,981

Total liabilities

933,525

900,982

Stockholders' equity

61,576

52,564

Total liabilities and

Stockholders’ equity

$

995,101

$

953,546

Net interest earnings

$

7,514

$

7,369

Net interest margin

3.16%

3.21%

Interest spread

2.81%

2.94%

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(1)Net accretion or amortization of 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 nonaccrual loans.

(3)The interest income and yields calculated on securities have been tax affected to reflect any tax-exempt interest on municipal securities. Assumed income tax rates of 21% were used for the periods presented.

Net Interest Margin Analysis

Average Balance Sheets

For the Nine Months Ended September 30, 2024 and 2023

(dollars in thousands)

2024

2023

Average

Average

Average

Interest

Rates

Average

Interest

Rates

Balance

Income/

Earned/

Balance

Income/

Earned

Sheet

Expense

Paid

Sheet

Expense

/Paid

ASSETS

Loans, including fees (1)(2)

$

617,582

$

25,210

5.45%

$

618,152

$

23,082

4.99%

Loans held for sale

3,454

165

6.38%

3,548

169

6.37%

Federal funds sold

63,006

2,569

5.45%

42,148

1,601

5.08%

Interest-bearing bank balances

14,931

628

5.62%

8,718

375

5.75%

Securities (3)

237,215

4,391

2.47%

223,391

3,563

2.13%

Restricted stock

1,605

59

4.91%

1,407

49

4.66%

Total earning assets

937,793

33,022

4.70%

897,364

28,839

4.30%

Allowance for credit losses

(7,091)

(7,611)

Non-earning assets

55,430

55,636

Total assets

$

986,132

$

945,389

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Demand interest bearing

396,795

2,763

0.93%

409,373

1,557

0.51%

Savings

134,407

1,382

1.37%

122,943

359

0.39%

Time deposits

222,832

6,731

4.03%

176,628

3,918

2.97%

Total interest bearing deposits

754,034

10,876

1.93%

708,944

5,834

1.10%

Other borrowed funds

FHLB borrowings

—

—

—

821

31

5.05%

Other borrowings

9,676

278

3.84%

10,255

297

3.87%

Financing leases

2,918

58

2.66%

3,284

66

2.69%

Capital Notes

10,044

245

3.26%

10,039

245

3.26%

Total interest-bearing liabilities

776,672

11,457

2.97%

733,343

6,473

1.18%

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Noninterest bearing deposits

140,966

153,268

Other liabilities

7,930

7,504

Total liabilities

925,568

894,115

Stockholders' equity

60,564

51,274

Total liabilities and

Stockholders’ equity

$

986,132

$

945,389

Net interest earnings

$

21,565

$

22,366

Net interest margin

3.07%

3.33%

Interest spread

1.73%

3.12%

(1)Net accretion or amortization of 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 nonaccrual loans.

(3)The interest income and yields calculated on securities have been tax affected to reflect any tax-exempt interest on municipal securities. Assumed income tax rates of 21% were used for the periods presented.

(4)
‎

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Financial’s management, including Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that Financial files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There have been no significant changes during the quarter ended September 30, 2024, in the Company’s internal controls over financial reporting (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934) or in other factors that could have significantly affected those controls subsequent to the date of our most recent evaluation of internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings at this time, other than routine litigation incidental to its business.

Item 1A. Risk Factors

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 27, 2024. There have been no material changes from risk factors as previously disclosed in Part 1 Item 1A of the Company’s Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

(a)Not applicable.

(b)Not applicable.

(c)Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable


‎

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Item 6. Exhibits

Exhibit No.

Description of Exhibit

31.1

Certification of Robert R. Chapman III Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 12, 2024

31.2

Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated August 12, 2024

32.1

Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002, dated August 12, 2024

101

The following materials from Bank of the James Financial Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets (unaudited) as of September 30, 2024 and December 31, 2023; (ii) Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2024 and 2023 (iv) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2024 and 2023 (v) Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2024 and 2023; (vi) Notes to Unaudited Consolidated Financial Statements.

SIGNATURES

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

BANK OF THE JAMES FINANCIAL GROUP, INC.

Date: November 12, 2024

By /S/ Robert R. Chapman III

Robert R. Chapman III, President

(Principal Executive Officer)

Date: November 12, 2024

By /S/ J. Todd Scruggs

J. Todd Scruggs, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

50