BANK OF THE JAMES FINANCIAL GROUP INC

Previous wording

the effects of a pandemic on the business, customers, employees and third-party service providers of Financial or any of its acquisition targets;

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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;

Current wording

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

Previous wording

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

Current wording

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

Previous wording

other risks anduncertainties 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”).

Current wording

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”).

Previous wording

Financial is a bank holding company headquartered in Lynchburg, Virginia. Our primary business is retail banking which we conduct through our wholly-owned subsidiary, Bank of the James (which we refer to as the “Bank”). We conduct four other business activities: mortgage banking through the Bank’s Mortgage Division (which we refer to as “Mortgage”), investment services through the Bank’s Investment division (which we refer to as “Investment Division”), insurance activities through BOTJ Insurance, Inc., a subsidiary of the Bank, (which we refer to as “Insurance”), and subsequent to December 31, 2021, investment advisory services through the Company’s wholly-owned subsidiary, Pettyjohn, Wood & White, Inc. (which we refer to as “PWW”).

Current wording

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

Previous wording

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

Current wording

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

Previous wording

For the year ended December 31, 2024, Financial had net income of $7,944,000, a decrease of $760,000 from net income of $8,704,000 for the year ended December 31, 2023.

Current wording

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

Previous wording

For the year ended December 31, 2024, earnings per basic and diluted common share were $1.75, as compared to earnings of $1.91 per basic and diluted common share for the year ended December 31, 2023.

Current wording

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

Previous wording

Net interest income decreased to $29,236,000 for the current year from $29,740,000 for the year ended December 31, 2023.

Current wording

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

Previous wording

Total assets as of December 31, 2024, were $979,244,000 compared to $969,371,000 at the end of 2023, an increase of $9,873,000 or 1.02%.

Current wording

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

Previous wording

Net loans (excluding loans held for sale), net of unearned income and the allowance for credit losses, increased to $636,552,000 as of December 31, 2024 from $601,921,000 as of December 31, 2023.

Current wording

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

Previous wording

The net interest margin decreased by 18 basis point to 3.11% for 2024, compared to 3.29% for 2023.

Current wording

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

Previous wording

A variety and wide scope of economic factors affect Financial’s success and earnings. Although interest rate trends are one of the most important of these factors, Financial believes that interest rates cannot be predicted with a reasonable level of confidence and therefore does not attempt to do so with complicated economic models. Management believes that the best defense against wide swings in interest rate levels is to minimize vulnerability at all potential interest rate levels. Rather than concentrate on any one interest rate scenario, Financial prepares for the opposite as well, in order to safeguard margins against the unexpected.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The allowance for credit losses on loans 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.

Current wording

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

Previous wording

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.

Current wording

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

Previous wording

Goodwill, resulting from business combinations, represents the excess of consideration transferred over the fair value of net identifiable assets acquired. Goodwill is tested annually for impairment as of September 1, or more frequently if impairment indicators arise. Impairment testing begins with a qualitative assessment to determine if further quantitative testing is necessary. If quantitative testing is conducted, impairment is measured by comparing the reporting unit’s carrying value to its fair value, calculated using discounted cash flow analysis, market comparables, or other relevant methodologies. An impairment charge is recognized if the carrying value exceeds fair value. Determining fair value involves significant management judgment, including estimates related to future cash flow projections, discount rates, growth assumptions, and market conditions. Intangible assets with finite useful lives, such as core deposit intangibles or customer relationships, are amortized on a straight-line basis over their estimated useful lives. Goodwill is the only intangible asset with an indefinite life reflected on our consolidated balance sheet.

Current wording

Goodwill resulting from business combinations represents the excess of consideration transferred over the fair value of net identifiable assets acquired and is assigned to the applicable reporting unit. Goodwill is tested for impairment annually as of September 1, or more frequently if events or changes in circumstances indicate that it may be impaired. The impairment evaluation begins with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If necessary, a quantitative test is performed by comparing the reporting unit’s carrying amount to its estimated fair value. Fair value is determined using discounted cash flow analyses, market-based approaches, or a combination of valuation methodologies, as appropriate. An impairment charge is recognized for the amount by which the carrying value exceeds fair value. Determining fair value requires significant management judgment, including assumptions related to projected future cash flows, discount rates, growth rates, and prevailing market conditions.

Previous wording

The net income for Financial for the year ended December 31, 2024, was$7,944,000 or$1.75 per basic and diluted share compared with net income of $8,704,000 or $1.91 per basic and diluted share for the year ended December 31, 2023. Note 13 of the consolidated financial statements provides additional information with respect to the calculation of Financial’s earnings per share.

Current wording

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

Previous wording

The efficiency ratio, calculated as noninterest expense divided by the sum of net interest income plus noninterest income, increased from 76.29% in 2023 to 79.11% in 2024. This increase was driven by higher interest expenses, which reduced net interest income, in combination with the rise in noninterest expenses outlined above. The efficiency ratio is a non-GAAP financial measure used by the Company to assess operational efficiency. No non-recurring adjustments were applied in calculating this ratio.

Current wording

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

Previous wording

These operating results represent a return on average stockholders’ equity of 12.70% for the year ended December 31, 2024, compared to 17.07% for the year ended December 31, 2023. Our return on average stockholders’ equity decreased due to our decrease in net income and the increase in equity. The return on average assets for the year ended December 31, 2024, was 0.80% compared to 0.92% in 2023, primarily due to a decrease in net income and an increase in average assets.

Current wording

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

Previous wording

Interest income increased to$44,643,000 for the year ended December 31, 2024, from $39,362,000 for the year ended December 31, 2023. This increase was due primarily to an increase in the yields on average earning assets, which primarily consist of loans and investment securities, as discussed below.

Current wording

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

Previous wording

The net interest margin decreased to 3.11% in 2024 from 3.29% in 2023. The average rate on earning assets increased 39 basis points from 4.36% in 2023 to 4.75% in 2024, and the average rate on interest-bearing deposits increased from 1.23% in 2023 to 1.92% in 2024. The increase was primarily caused by an increase in average time deposits, which generally pay a higher rate than demand interest-bearing and savings deposits, from $183,256,000 for the year ended December 31, 2023, to $225,894,000 for the year ended December 31, 2024. Because of Financial’s asset interest rate sensitivity, we anticipate that a decrease in interest rates likely would have a negative impact on our results of operations while an increase likely would have a positive impact on our results of operations.

Current wording

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

Previous wording

The following table shows the average balances of total interest earning assets and total interest-bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders’ equity and related revenue, expense and corresponding weighted average yields and rates. The average balances used in this table and other statistical data were calculated using average daily balances.

Current wording

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

Previous wording

(3)The interest income and yields calculated on securities have been tax affected to reflect any tax-exempt interest on municipal securities using the Company’s applicable federal tax rate of 21% for each year.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The Bank, through the Mortgage Division originates both conforming and non-conforming consumer residential mortgages and reverse mortgage loans primarily in the Region 2000 area as well as in Charlottesville, Harrisonburg, Roanoke, Lexington, and Blacksburg. As part of the Bank’s overall risk management strategy, all of the loans originated and closed by the Mortgage Division are presold to mortgage banking or other financial institutions. The Mortgage Division assumes no credit or interest rate risk on these mortgages. In addition, overall home inventory in our market areas has remains below historical levels. We operate the Mortgage Division with hybrid correspondent relationships that allow the Bank to close loans in its name before an investor purchases the loan. By using the Bank’s funds to close the loan (as compared to a broker relationship in which loans are funded by the purchaser of the mortgage), the Bank is able to obtain better pricing due to the slight increase in risk.

Current wording

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

Previous wording

Rates remained elevated throughout 2024 as compared to recent history. Loans for new home purchases comprised 81% of the total volume in 2024, as compared to 80% in 2023. The Mortgage Division’s revenue is derived from gains on sales of loans held-for-sale to the secondary market. For the year ended December 31, 2024, the Mortgage Division accounted for 7.52% of Financial’s total revenue, as compared with 7.54% of Financial’s total revenue for the year ended December 31, 2023. Mortgage contributed$827,000 and $452,000 to Financial’s pre-tax net income in 2024 and 2023, respectively. Because of the uncertainty surrounding current and near-term economic conditions, management cannot predict future mortgage rates. Management also anticipates that in the near to medium term, if rates continue to stay above 5% to 6% and prices remain relatively steady or increase, refinancing opportunities will be scarce, and the majority of the loan mix will continue to lean towards new home purchases and away from refinancing.

Current wording

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

Previous wording

In the third quarter of 2008, we began providing insurance and annuity products to Bank customers and others through the Bank’s Insurance subsidiary. Insurance generates minimal revenue, and its financial impact on our consolidated revenue has been immaterial. Management anticipates that Insurance’s impact on noninterest income will remain immaterial in 2025.

Current wording

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

Previous wording

We conduct our investment advisory business through PWW, which Financial acquired on December 31, 2021. PWW is a Lynchburg, Virginia-based investment advisory firm that had approximately $650 million in assets under management and advisement at the time of the acquisition. PWW operates as a subsidiary of Financial. As of December 31, 2024, PWW’s asset under management was approximately $853,970,000. PWW generates revenue primarily through investment advisory fees. The investment advisory fees will vary based on the value of assets under management. Assets under management may fluctuate due to both client action and fluctuations in the equity and debt markets. Despite the potential for fluctuation, we anticipate that PWW will continue to contribute meaningfully to the Company’s consolidated net income. For the year ended December 31, 2023, its second year of operations as a subsidiary of Financial, PWW had fee income of $4,197,000. PWW’s fee income increased to $4,843,000 for the year ended December 31, 2024. For the year ended December 31, 2024 and 2023, PWW accounted for 8.10% and 8.04% of Financial’s total revenue, respectively.

Current wording

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

Previous wording

Noninterest income increased to $15,137,000 in 2024 from $12,867,000 in 2023. The following table summarizes our noninterest income for the periods indicated:

Current wording

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

Previous wording

The following table details the Company’s noninterest expense:

Current wording

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

Previous wording

For the year ended December 31, 2024, Financial had federal income tax expense of $1,979,000 as compared to a federal income tax expense of $1,575,000 in 2023, which equates to effective tax rates of 19.94% and 15.32%, respectively. Our effective tax rate was lower than the statutory corporate tax rate in 2024 because of federal income tax benefits resulting from the tax treatment of earnings on bank-owned life insurance and certain tax-free municipal securities and loans. Our effective tax rate was lower than the statutory corporate tax rate in 2023 because, in addition to the same factors in 2024, in the fourth quarter we utilized a tax benefit for Virginia state income tax purposes that has accumulated as a result of parent company-only (i.e., not consolidated) losses over time. This resulted in a one-time credit to income tax expense and led to a sharp decrease in the effective tax rate in 2023 as compared to 2024. Note 12 of the consolidated financial statements provides additional information with respect to our 2023 and 2024 federal income tax expense and deferred tax accounts.

Current wording

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

Previous wording

As of December 31, 2024, the Bank had$1,640,000, or 0.25% of its total loans, in non-accrual status compared with $391,000, or 0.06% of its total loans, at December 31, 2023. Management is continuing its efforts to reduce non-performing assets through enhanced collection efforts and the liquidation of underlying collateral when applicable. The Bank attempts to work with borrowers on a case-by-case basis to protect the Bank’s interests. However, despite our commitment, a reduction of non-accrual loans can be dependent on a number of factors, including an increase in unemployment, adverse housing market conditions, and overall economic conditions at the local, regional, and national levels. See “Asset Quality” below.

Current wording

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

Previous wording

We continue to pursue deposit growth in our Charlottesville, Harrisonburg, Roanoke, Appomattox, and Rustburg markets and remain focused on acquiring primary checking accounts from commercial loan customers to strengthen our core deposit base.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Securities held-to-maturity at amortized cost decreased slightly from $3,622,000 at December 31, 2023, to $3,606,000 at December 31, 2024, due to normal amortization of premiums. The decision to invest surplus funds into securities held-to-maturity reflects our assessment that such funds will not be required for liquidity during the securities' term, though they may be pledged for short-term borrowings or collateral for public deposits.

Current wording

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

Previous wording

The following table shows the maturities of held-to-maturity and available-for-sale securities at fair value at December 31, 2024 and 2023 and approximate weighted average yields of such securities. Weighted average yields on all securities including state and political subdivision securities are shown on a pre-tax basis. Financial attempts to maintain diversity in its portfolio and maintain credit quality and repricing terms that are consistent with its asset/liability management and investment practices and policies. For further information on Financial’s securities, see Note 4 to the consolidated financial statements included in Item 8 of this Form 10-K.

Current wording

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