##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-QSB



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Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange
Act of 1934



For the Quarterly Period Ended March 31,
2005



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BANK OF THE JAMES FINANCIAL GROUP, INC.

(Name of Small Business Issuer in Its Charter)



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|                                                               |  |                          |  |                                     
|-------------------------------------------------------------- |  | ------------------------ |  | ------------------------------------
|Virginia                                                       |  | 000-50548                |  | 20-0500300                          
|(State or other jurisdiction of incorporation or organization) |  | (Commission file number) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|828 Main Street, Lynchburg, VA           |  | 24504     
|(Address of principal executive offices) |  | (Zip Code)



(434) 846-2000

(Registrants telephone number, including area code)



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Check whether
the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No ̈



APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: 1,600,468 shares of Common Stock, par value $2.67 per share, were outstanding at May 11, 2005.



Transitional Small Business Disclosure Format (check one)    Yes ̈No  x



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##### Table of Contents

TABLE OF CONTENTS



|                                                                                      |  |   
|------------------------------------------------------------------------------------- |  | --
|PART 1  FINANCIAL INFORMATION                                                        |  | 3 
|                                                                                      | 
|Item 1  Financial Statements                                                         |  | 3 
|                                                                                      | 
|Item 2. Managements Discussion and Analysis or Plan of Operation.                    |  | 9 
|                                                                                      | 
|Item 3. Controls and Procedures                                                       |  | 15
|                                                                                      | 
|PART II  OTHER INFORMATION                                                           |  | 15
|                                                                                      | 
|Item 1. Legal Proceedings                                                             |  | 15
|                                                                                      | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  Not Applicable. |  | 16
|                                                                                      | 
|Item 3. Defaults Upon Senior Securities  Not Applicable.                             |  | 16
|                                                                                      | 
|Item 4. Submission of Matters to a Vote of Security Holders  Not Applicable          |  | 16
|                                                                                      | 
|Item 5. Other Information  Not Applicable                                            |  | 16
|                                                                                      | 
|Item 6. Exhibits                                                                      |  | 16
|                                                                                      | 
|SIGNATURES                                                                            |  | 16



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##### Table of Contents

PART 1  FINANCIAL INFORMATION



Item 1  Financial Statements



Bank of the
James Financial Group, Inc.

Consolidated Balance Sheets

(dollar amounts in thousands) (unaudited)



|                                                                                                    |  |           |         |   |            |   |         |  
|--------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ---------- | - | ------- | -
|                                                                                                    |  | 3/31/2005 |         |   | 12/31/2004 |  
|Assets                                                                                              |  |           |         |   |            |   |         |  
|Cash and due from banks                                                                             |  | $         | 3,608   |   |            | $ | 3,980   |  
|Federal funds sold                                                                                  |  |           | 3,779   |   |            |   |        |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total cash and cash equivalents                                                                     |  |           | 7,387   |   |            |   | 3,980   |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Securities held-to-maturity                                                                         |  |           | 7,512   |   |            |   | 8,999   |  
|Securities available-for-sale                                                                       |  |           | 14,106  |   |            |   | 10,912  |  
|Loans, net                                                                                          |  |           | 142,903 |   |            |   | 140,272 |  
|Premises and equipment, net                                                                         |  |           | 4,724   |   |            |   | 4,641   |  
|Community Bankers Bank stock                                                                       |  |           | 56      |   |            |   | 56      |  
|Federal Reserve Bank stock                                                                          |  |           | 281     |   |            |   | 281     |  
|Federal Home Loan Bank stock                                                                        |  |           | 342     |   |            |   | 290     |  
|Interest receivable                                                                                 |  |           | 894     |   |            |   | 983     |  
|Deferred tax asset                                                                                  |  |           | 180     |   |            |   | 117     |  
|Other assets                                                                                        |  |           | 957     |   |            |   | 494     |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total Assets                                                                                        |  | $         | 179,342 |   |            | $ | 171,025 |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Liabilities and Stockholders Equity                                                                |  |           |         |   |            |   |         |  
|                                                                                                    |  |          
|Deposits                                                                                            |  |           |         |   |            |   |         |  
|Noninterest bearing demand                                                                          |  | $         | 22,067  |   |            | $ | 21,699  |  
|NOW, money market and savings                                                                       |  |           | 72,964  |   |            |   | 74,834  |  
|Time                                                                                                |  |           | 67,575  |   |            |   | 57,301  |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total deposits                                                                                      |  |           | 162,606 |   |            |   | 153,834 |  
|                                                                                                    |  |          
|Federal funds purchased                                                                             |  |           |        |   |            |   | 999     |  
|                                                                                                    |  |          
|Income taxes payable                                                                                |  |           | 174     |   |            |   |        |  
|Interest payable                                                                                    |  |           | 93      |   |            |   | 65      |  
|Repurchase agreements                                                                               |  |           | 3,036   |   |            |   | 3,259   |  
|Other liabilities                                                                                   |  |           | 105     |   |            |   | 82      |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total liabilities                                                                                   |  |           | 166,014 |   |            |   | 158,239 |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Stockholders equity                                                                                |  |           |         |   |            |   |         |  
|Common stock $2.67 par value; authorized 10,000,000 Shares; issued and outstanding 1,600,468 shares |  |           | 4,267   |   |            |   | 4,129   |  
|Additional paid-in-capital                                                                          |  |           | 7,419   |   |            |   | 7,237   |  
|Unrealized gain (loss) on securities available-for-sale                                             |  |           | (134    | ) |            |   | (13     | )
|Retained earnings                                                                                   |  |           | 1,776   |   |            |   | 1,433   |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total stockholders equity                                                                          |  |           | 13,328  |   |            |   | 12,786  |  
|                                                                                                    |  |           |         |   |            |   |         |  
|Total liabilities and stockholders equity                                                          |  | $         | 179,342 |   |            | $ | 171,025 |  
|                                                                                                    |  |           |         |   |            |   |         |  



See accompanying notes
to these consolidated financial statements



3



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##### Table of Contents

Bank of the James Financial Group, Inc.

Consolidated Statements of Operation

(dollar amounts in thousands) (unaudited)





|                                                    |  |                    |       |   |           |   |       |  
|--------------------------------------------------- |  | ------------------ | ----- | - | --------- | - | ----- | -
|                                                    |  | Three months ended |      
|                                                    |  | 3/31/2005          |       |   | 3/31/2004 |  
|Interest income                                     |  |                    |       |   |           |   |       |  
|Loans                                               |  | $                  | 2,446 |   |           | $ | 1,970 |  
|Federal Funds Sold                                  |  |                    | 14    |   |           |   | 16    |  
|Securities                                          |  |                    |       |   |           |   |       |  
|US Government and agency obligations                |  |                    | 194   |   |           |   | 154   |  
|Other                                               |  |                    | 16    |   |           |   | 19    |  
|                                                    |  |                    |       |   |           |   |       |  
|Total interest income                               |  |                    | 2,670 |   |           |   | 2,159 |  
|                                                    |  |                    |       |   |           |   |       |  
|Interest expense                                    |  |                    |       |   |           |   |       |  
|Federal Funds Purchased                             |  |                    | 5     |   |           |   |      |  
|Reverse Repurchase Agreements                       |  |                    | 8     |   |           |   | 2     |  
|Deposits                                            |  |                    |       |   |           |   |       |  
|NOW, money market savings                           |  |                    | 282   |   |           |   | 160   |  
|Time Deposits                                       |  |                    | 466   |   |           |   | 422   |  
|                                                    |  |                    |       |   |           |   |       |  
|Total interest expense                              |  |                    | 761   |   |           |   | 584   |  
|                                                    |  |                    |       |   |           |   |       |  
|Net interest income                                 |  |                    | 1,909 |   |           |   | 1,575 |  
|                                                    |  |                   
|Provision for loan losses                           |  |                    | 175   |   |           |   | 77    |  
|                                                    |  |                    |       |   |           |   |       |  
|Net interest income after provision for loan losses |  |                    | 1,734 |   |           |   | 1,498 |  
|                                                    |  |                    |       |   |           |   |       |  
|Other operating income                              |  |                    |       |   |           |   |       |  
|Service charges, fees, commissions                  |  |                    | 456   |   |           |   | 290   |  
|Gain on sale of securities                          |  |                    | 5     |   |           |   |      |  
|                                                    |  |                    |       |   |           |   |       |  
|Total other operating income                        |  |                    | 461   |   |           |   | 290   |  
|                                                    |  |                   
|Other operating expenses                            |  |                    |       |   |           |   |       |  
|Salaries and employee benefits                      |  |                    | 792   |   |           |   | 560   |  
|Occupancy                                           |  |                    | 125   |   |           |   | 77    |  
|Equipment                                           |  |                    | 187   |   |           |   | 176   |  
|Supplies                                            |  |                    | 73    |   |           |   | 69    |  
|Outside expenses                                    |  |                    | 215   |   |           |   | 197   |  
|Marketing                                           |  |                    | 58    |   |           |   | 59    |  
|Credit expense                                      |  |                    | 49    |   |           |   | 23    |  
|Other                                               |  |                    | 139   |   |           |   | 107   |  
|Sarbanes-Oxley Compliance                           |  |                    | 38    |   |           |   |      |  
|                                                    |  |                    |       |   |           |   |       |  
|Total other operating expenses                      |  |                    | 1,676 |   |           |   | 1,268 |  
|                                                    |  |                    |       |   |           |   |       |  
|Income before income taxes                          |  |                    | 519   |   |           |   | 520   |  
|Income tax (expense)                                |  |                    | (176  | ) |           |   | (179  | )
|                                                    |  |                    |       |   |           |   |       |  
|Net Income                                          |  | $                  | 343   |   |           | $ | 341   |  
|                                                    |  |                    |       |   |           |   |       |  
|Income per common share  basic                     |  | $                  | 0.22  |   |           | $ | 0.22  |  
|                                                    |  |                    |       |   |           |   |       |  
|Income per common share  diluted                   |  | $                  | 0.21  |   |           | $ | 0.21  |  
|                                                    |  |                    |       |   |           |   |       |  



See accompanying notes
to these consolidated financial statements



4



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##### Table of Contents

Bank of the James Financial Group, Inc.

Consolidated Statements of Cash Flows

(in thousands) (unaudited)



|                                                                                 |  |                    |        |   |           |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------ | ------ | - | --------- | - | ------ | -
|                                                                                 |  | Three months ended |       
|                                                                                 |  | 3/31/2005          |        |   | 3/31/2004 |  
|Cash flows from operating activities                                             |  |                    |        |   |           |   |        |  
|Net income                                                                       |  | $                  | 343    |   |           | $ | 341    |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |                    |        |   |           |   |        |  
|                                                                                 |  |                   
|Depreciation                                                                     |  |                    | 151    |   |           |   | 112    |  
|Gain on sale of securities                                                       |  |                    | (5     | ) |           |   |       |  
|Provision for loan losses                                                        |  |                    | 175    |   |           |   | 77     |  
|(Increase) decrease in interest receivable                                       |  |                    | 89     |   |           |   | (48    | )
|(Increase) decrease in other assets                                              |  |                    | 278    |   |           |   | (78    | )
|Increase (decrease) in income taxes payable                                      |  |                    | 174    |   |           |   | 118    |  
|Increase (decrease) in interest payable                                          |  |                    | 28     |   |           |   |       |  
|Increase (decrease) in other liabilities                                         |  |                    | 23     |   |           |   | 13     |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Net cash provided by operating activities                                        |  |                    | 700    |   |           |   | 535    |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Cash flows from investing activities                                             |  |                    |        |   |           |   |        |  
|(Increase) decrease in balance of held-to-maturity securities                    |  |                    | 1,487  |   |           |   | (539   | )
|(Increase) decrease in balance of available-for-sale securities                  |  |                    | (3,373 | ) |           |   | (959   | )
|Purchases of Federal Home Loan Bank stock                                        |  |                    | (52    | ) |           |   | (72    | )
|Origination of loans, net of principal collected                                 |  |                    | (2,997 | ) |           |   | (4,489 | )
|Recoveries on loans charged off                                                  |  |                    | 6      |   |           |   | 42     |  
|Purchases of premises and equipment                                              |  |                    | (234   | ) |           |   | (404   | )
|                                                                                 |  |                    |        |   |           |   |        |  
|Net cash used in investing activities                                            |  |                    | (5,163 | ) |           |   | (6,421 | )
|                                                                                 |  |                    |        |   |           |   |        |  
|Cash flows from financing activities                                             |  |                    |        |   |           |   |        |  
|Net increase in deposits                                                         |  |                    | 8,772  |   |           |   | 10,372 |  
|Net (decrease) in federal funds purchased                                        |  |                    | (999   | ) |           |   |       |  
|Net (decrease) increase in repurchase agreements                                 |  |                    | (223   | ) |           |   | 2,589  |  
|Proceeds from exercise of stock options                                          |  |                    | 320    |   |           |   |       |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Net cash provided by financing activities                                        |  |                    | 7,870  |   |           |   | 12,961 |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Increase (decrease) in cash and cash equivalents                                 |  |                    | 3,407  |   |           |   | 7,075  |  
|                                                                                 |  |                   
|Cash and cash equivalents at beginning of period                                 |  |                    | 3,980  |   |           |   | 10,217 |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Cash and cash equivalents at end of period                                       |  | $                  | 7,387  |   |           | $ | 17,292 |  
|                                                                                 |  |                    |        |   |           |   |        |  
|Non-Cash Transaction                                                             |  |                    |        |   |           |   |        |  
|Additions to other real estate owned                                             |  | $                  | 182    |   |           | $ |       |  
|                                                                                 |  |                    |        |   |           |   |        |  



See accompanying notes
to these consolidated financial statements



5



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##### Table of Contents

Bank of the James Financial Group, Inc.

March 31, 2005 and 2004



Notes to Unaudited Financial Statements



Note 1  Basis
of Presentation



The unaudited consolidated financial statements have been
prepared by Bank of the James Financial Group, Inc. (Financial) 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 and for the three month period ended March 31, 2005, in conformity with accounting
principles generally accepted in the United States of America. Results and statements for all periods prior to January 1, 2004 are for Bank of the James (the Bank), predecessor registrant to Financial. The results and statements for all
periods on or after January 1, 2004 are for Financial. Additional information concerning the organization and business of Financial, accounting policies followed, and other related information are contained in Financials Annual Report on Form
10-KSB for the year ended December 31, 2004. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2004 included in Financials Annual Report on
Form 10-KSB. Results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.



Financials critical accounting policy relates to the evaluation of the allowance for loan loss which is based on managements
opinion of an amount that is adequate to absorb loss in the Banks existing portfolio. The allowance for loan loss is established through a provision for loan loss based on available information including the composition of the loan portfolio,
historical loan loss (to the extent available due to limited history), specific impaired loans, availability and quality of collateral, age of the various portfolios, changes in local economic conditions, and loan performance and quality of the
portfolio. Different assumptions used in evaluating the adequacy of the Banks allowance for loan loss could result in material changes in Financials financial condition and results of operations. The Banks policies with respect to
the methodology for determining the allowance for loan loss involve a higher degree of complexity and require management to make subjective judgments that often require assumptions or estimates about uncertain matters. These critical policies and
their assumptions are periodically reviewed with the Board of Directors.



Note
2  Use of 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.



Note 3  Earnings per share



For the quarters ended March 31, 2005 and 2004, basic earnings per share has
been computed based upon the weighted average common shares outstanding of 1,559,104 and 1,543,901, respectively. All earnings per share amounts have been adjusted to reflect the 10% stock dividend paid by Financial in January, 2004 and the 50%
stock split effected in the form of a stock dividend paid by Financial in March, 2005.



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Currently, only the option shares granted to certain officers and employees of Financial pursuant to the Amended and
Restated Stock Option Plan of Financial are considered dilutive under the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share. The following is a summary of the earnings per share calculation for the
three months ended March 31, 2005 and 2004.



|                                      |  |                              |           |      |   |          
|------------------------------------- |  | ---------------------------- | --------- | ---- | - | ---------
|                                      |  | Three months ended March 31,
|                                      |  |                             
|                                      |  | 2005                         |           | 2004
|Net income                            |  | $                            | 343,000   |      | $ | 341,000  
|                                      |  |                             
|Weight average number of shares       |  |                              | 1,559,104 |      |   | 1,543,901
|Options effect of incremental shares  |  |                              | 83,331    |      |   | 96,444   
|                                      |  |                             
|Weighted average diluted shares       |  |                              | 1,642,435 |      |   | 1,640,345
|                                      |  |                             
|Basic EPS (weighted avg shares)       |  | $                            | 0.22      |      | $ | 0.22     
|                                      |  |                             
|Diluted EPS (Including option shares) |  | $                            | 0.21      |      | $ | 0.21     



Note 4 - Stock Options



In accordance with SFAS No. 123, Accounting for Stock-Based Compensation, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  An Amendment of FASB Statement No. 123, the Company has adopted the disclosureonly option and elected to apply the provisions
of APB No. 25 for financial statement purposes. No stock-based employee compensation cost is reflected in net income for these plans.



Pro forma information regarding net income and earnings per share have been determined as if the Company had accounted for its employee stock options using the fair value
method, and is presented below.



|                                                                                               |  |                                  |         |                                  |   |        
|---------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -------------------------------- | - | -------
|                                                                                               |  | Three monthsEnded March 31, 2005 |         | Three monthsended March 31, 2004
|Net Income:                                                                                    |  |                                  |         |                                  |   |        
|As reported                                                                                    |  | $                                | 343,000 |                                  | $ | 341,000
|                                                                                               |  |                                 
|Deduct: total stock-based compensation cost determined under the fair value method, net of tax |  |                                  | 34,000  |                                  |   | 8,000  
|                                                                                               |  |                                  |         |                                  |   |        
|Pro forma                                                                                      |  | $                                | 309,000 |                                  | $ | 333,000
|                                                                                               |  |                                  |         |                                  |   |        
|Basic earnings per share:                                                                      |  |                                  |         |                                  |   |        
|As reported                                                                                    |  | $                                | 0.22    |                                  | $ | 0.22   
|Pro forma                                                                                      |  | $                                | 0.20    |                                  | $ | 0.22   
|Diluted earnings per share:                                                                    |  |                                  |         |                                  |   |        
|As reported                                                                                    |  | $                                | 0.21    |                                  | $ | 0.21   
|Pro forma                                                                                      |  | $                                | 0.19    |                                  | $ | 0.20   



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The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for the three-month periods ended March 31, 2005 and 2004: dividend yield of 0%, expected volatility of 10%, a risk-free interest rate of 4.08%, and expected lives of 7 years.



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Item 2. Managements Discussion and Analysis or Plan of Operation.



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. The words believe, estimate, expect, intend,
anticipate, plan and similar expressions and variations thereof identify certain of such forward-looking statements which speak only as of the dates on which they were made. Bank of the James Financial Group, Inc. undertakes
no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ materially from those indicated in the forward-looking statements as a result of various factors. Such factors include, but are not limited to competition, general economic
conditions, potential changes in interest rates, and changes in the value of real estate securing loans made by Bank of the James, the wholly-owned subsidiary of Bank of the James Financial Group, Inc.



GENERAL



Critical Accounting Policies



Financials financial statements are prepared in accordance with accounting principles generally accepted in the United
States (GAAP). The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate
value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss ratios as one factor in determining the inherent loss that may be present in our loan portfolio. Actual
losses could differ significantly from the historical factors that we use in estimating risk. 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 loan losses is managements estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS No. 5, Accounting for Contingencies,
which requires that losses be accrued when they are probable of occurring and are reasonably estimable and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses on impaired loans be accrued based
on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. See Note 1 to the Consolidated Financial Statements along with Results of
Operations  Allowance for Loan Losses and Loan Loss Reserve below for further discussion of the allowance for loan losses.



Overview



Bank of the James Financial Group, Inc. (Financial) was incorporated on October 3, 2003 under the laws of the Commonwealth of Virginia.
Financial was incorporated at the direction of Bank of the James (the Bank) to serve as a bank holding company of the Bank. Effective January 1, 2004, pursuant to an Agreement and Plan of Share Exchange dated October 9, 2003 (the
Agreement) between Financial and the Bank, and approved by the shareholders of the Bank at a special meeting of shareholders held on December 17, 2003, Financial acquired all of the outstanding stock of the Bank in a statutory share
exchange transaction. Under the terms of the Agreement, the shares of the Banks common stock were exchanged for shares of Financial on a one-for-one basis.



9



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##### Table of Contents

Following completion of the share exchange, Financial became the successor issuer to the Bank pursuant to
Rule 12g-3 (promulgated under the Securities Exchange Act of 1934). Prior to the share exchange, the Bank was subject to the information requirements of the Exchange Act and, in accordance with Section 12(i) thereof, was required to file reports and
other financial information with the Board of Governors of the Federal Reserve System (the Federal Reserve). Such reports and other information filed by the Bank with the Federal Reserve may be inspected and copied at the public
reference facilities maintained by the Federal Reserve in Washington, D.C. at the Freedom of Information Office, 1st Floor of the Martin Building, 20th & C Streets, and in Richmond, Virginia at the Research Library of the Federal Reserve Bank of
Richmond, 701 East Byrd Street. The last financial report filed by the Bank with the Federal Reserve was its Form 10-QSB for the quarter ended September 30, 2003, filed on November 13, 2003.



As of the date hereof, the sole business of Financial is the ownership of the
capital stock of the Bank. Financial had no business until January 1, 2004 when it acquired the common stock of the Bank and unless otherwise noted all of the financial statements and results referenced for the periods prior to January 1, 2004
herein refer to the results and statements of the Bank.



Financial declared a 10% stock dividend payable to shareholders of record as of January 2, 2004, which dividend was paid on January 27, 2004. Financial declared a 50% stock split effected in the form of a stock dividend payable to
shareholders of record as of February 4, 2005, which dividend was paid on March 4, 2005. All earnings per share amounts have been adjusted to reflect these two stock dividends.



The Bank is Financials sole subsidiary and 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 is a community-oriented financial institution that provides varied banking services to
individuals, small and medium-sized businesses, and professional concerns in the Central Virginia, Region 2000 area, which encompasses the seven jurisdictions of the Town of Altavista, Amherst County, Appomattox County, the City of Bedford, Bedford
County, Campbell County, and the City of Lynchburg. 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 area.



The operating results of the Bank depend primarily upon its 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. The Banks net income also is
affected by its provision for loan loss, as well as the level of its other operating income, including loan fees and service charges, and its other operating expenses, including salaries and employee benefits, occupancy expense, Federal Deposit
Insurance Corporation assessments, miscellaneous other expenses, franchise taxes, and income taxes.



The Bank intends to enhance its profitability by increasing its market share in the Region 2000 area, providing additional services to its customers, and
controlling costs.



The Bank currently serves its customers
through the following five full service offices: the main office located at 828 Main Street in Lynchburg (opened October 25, 2004) (the Main Street Office), a branch located at 615 Church Street in Lynchburg (opened July 22, 1999), a
branch located at 5204 Fort



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Avenue in Lynchburg (opened November 13, 2000), a branch located on South Amherst Highway in Amherst County (opened June
4, 2002), and a branch located at 17000 Forest Road in Forest (the Forest Branch) (opened February 4, 2004).



Effective March 31, 2005, the Bank designated the Main street office as its main office with the Virginia Bureau of Financial Institutions.



The Bank continuously evaluates locations for additional branches and would
consider an additional branch in the next twelve months if a suitable location were found. Future branch openings are subject to regulatory approval. The Bank has identified several locations that may be suitable for an additional branch and has
begun a preliminary evaluation in order to determine the feasibility of one of the locations. Except as set forth herein, the Bank does not expect to purchase any significant property or equipment in the upcoming 12 months.



The following discussion represents managements discussion and analysis
of the financial condition and results of operations of Financial and the Bank, respectively, as of March 31, 2005 and December 31, 2004 and for the three months ended March 31, 2005. It should be read in conjunction with the condensed financial
statements included elsewhere herein.



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:



|                             |  |                |           
|---------------------------- |  | -------------- | ----------
|                             |  | March 31, 2005
|Commitments to extend credit |  | $              | 30,773,000
|Letters of Credit            |  |                | 2,206,000 
|                             |  |                |           
|Total                        |  | $              | 32,979,000
|                             |  |                |           



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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on 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. Collateral is required in instances which the Bank deems necessary.



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##### Table of Contents

SUMMARY OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The comparison of the financial condition and operating results between March
31, 2005 and December 31, 2004 and March 31,2004, as applicable, should be read in the context of the length of time for which the Bank has been operating. The Bank began operations on July 22, 1999, opened its second location in November, 2000,
opened its mortgage division in April, 2001, opened its third location in June, 2002, opened its fourth location in February, 2004, and opened its fifth location in October, 2004.



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



Financial Condition Summary

March 31, 2005 as Compared to December 31, 2004



Total assets were $179,342,000 on March 31, 2005 compared with $171,025,000 at December 31, 2004. This increase in total assets can be attributed to
deposit growth, particularly the continued growth of the Forest Branch, from $153,384,000 for the year ended December 31, 2004 to $162,606,000 on March 31, 2005, an increase of 5.7%. The following summarize the composition of the Banks loan
portfolio:



|                         |  |                                 |         |   |        |   |        |                                      |         |  |        |        |  |   |         |  |        |  
|------------------------ |  | ------------------------------- | ------- | - | ------ | - | ------ | ------------------------------------ | ------- |  | ------ | ------ |  | - | ------- |  | ------ | -
|                         |  | For the Quarter Ended March 31, |         |   |        |   |        |                                     
|                         |  | 2005                            |         |   | 2004   |   |        | For the Year Ended December 31, 2004 |        
|                         |  | Amount                          |         | % |        |   | Amount |                                      | %       |  |        | Amount |  | % |        
|Commercial               |  | $                               | 34,064  |   | 23.59  | % |        | $                                    | 33,234  |  | 27.58  | %      |  | $ | 35,163  |  | 24.82  | %
|Real estate construction |  |                                 | 21,618  |   | 14.97  | % |        |                                      | 12,369  |  | 10.27  | %      |  |   | 22,251  |  | 15.70  | %
|Residential real estate  |  |                                 | 66,224  |   | 45.86  | % |        |                                      | 55,389  |  | 45.97  | %      |  |   | 63,215  |  | 44.61  | %
|Consumer                 |  |                                 | 21,742  |   | 15.06  | % |        |                                      | 19,453  |  | 16.15  | %      |  |   | 21,240  |  | 14.99  | %
|Other                    |  |                                 | 747     |   | 0.52   | % |        |                                      | 36      |  | 0.03   | %      |  |   | -178    |  | -0.12  | %
|                         |  |                                 |         |   |        |   |        |                                      |         |  |        |        |  |   |         |  |        |  
|Total loans              |  | $                               | 144,395 |   | 100.00 | % |        | $                                    | 120,481 |  | 100.00 | %      |  | $ | 141,691 |  | 100.00 | %
|                         |  |                                 |         |   |        |   |        |                                      |         |  |        |        |  |   |         |  |        |  



In addition, the
increase in total assets is due to an increase in rates (as a result of the increasing rate environment) that the Bank offers on its deposit products, the addition of new lenders, and the Banks reputation for service. Loans, net of unearned
income and allowance, increased to $142,903,000 on March 31, 2005 from $140,272,000 on December 31, 2004. Cash and cash equivalents increased to $7,387,000 on March 31, 2005 from $3,980,000 on December 31, 2004. This increase is a result of deposits
increasing faster than loans. Management has invested this surplus in federal overnight funds to enable the Bank to fund future loan growth. In addition, routine fluctuations in deposits, an increased number of transactional accounts and
professional settlement accounts, both of which are subject to fluctuations, will contribute to variations in cash and cash equivalents. Securities held-to-maturity decreased to $7,512,000 on March 31, 2005 from $8,999,000 on December 31, 2004.
Securities available-for-sale increased to $14,106,000 on March 31, 2005 from $10,912,000 on December 31, 2004. These changes from December 31, 2004 in both securities held-to-maturity and securities available-for-sale was primarily due to
managements effort to improve cash management by allocating cash to investment securities from lower yielding federal funds.



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##### Table of Contents

As of March 31, 2005 and December 31, 2004 the Banks regulatory capital levels exceeded those
established for well-capitalized institutions.



Results of
Operations

Comparison of the Three months Ended March 31, 2005 and 2004



Earnings Summary



Net income for the three months ended March 31, 2005 was $343,000 compared
to a net income of $341,000 for the same period in 2004. Basic earnings per common share for the three months ended March 31, 2005 were unchanged at $0.22 for the three months ended March 31, 2005 and 2004. Fully diluted earnings per common share
for the three months ended March 31, 2005 were unchanged at $0.21 for the three months ended March 31, 2005 and 2004. All earnings per share amounts have been adjusted to reflect the 10% stock dividend paid by Financial in January, 2004 and the 50%
stock split effected in the form of a stock dividend paid by Financial in March, 2005.



The increase in the Banks operating revenue was offset by an increase in non-interest expense as discussed below, particularly occupancy and compensation expense related to the opening of the Main Street Office
and the Forest Branch.



These operating results represent an
annualized return on shareholders equity of 10.66% for the three months ended March 31, 2005 compared with 11.89% for the same period in 2004. The annualized return on average assets for the three months ended March 31, 2005 was 0.81% compared
with 0.93% for the same period in 2004.



Interest Income;
Interest Expense; and Net Interest Income



Interest income
increased to $2,670,000 for the three months ended March 31, 2005 from $2,159,000 for the three months ended March 31, 2004. This increase was due to an increase in interest earning assets, including loans and investment securities, as well as an
increase in rates paid to the Bank on its investments. In particular, a significant portion of the Banks loan portfolio is invested in variable rate loans, the rates on which have increased in the current rising interest rate environment.



Interest expense increased to $761,000 for the three months
ended March 31, 2005 from $584,000 for the same period in 2004. This increase in interest expense was primarily due to an increase in the aggregate balance in interest bearing deposit accounts and an increase in the interest rates paid by the Bank
on deposit accounts that accompanied the interest rate increases by Federal Open Market Committee (FOMC). In addition, interest expense increased in part because the Bank has increased the interest rates that it offers on certificates of
deposit in response both to competition and the FOMC rate increases. The Bank expects this trend to continue during the current fiscal year.



The fundamental source of the Banks 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 months ended March 31, 2005 was $1,909,000 compared with $1,575,000 and for the same period in 2004. The growth in net interest income for the three months ended March 31, 2005 as compared with the comparable three months in 2004 was due
to the increase in average interest-earning assets, which was the result of growth in the loan portfolio funded by the growth in deposits. The net interest margin increased to 4.74% in the first quarter of 2005 from 4.53% in the same period a year
ago. This increase was due to rates on loans increasing faster than the rates on deposits.



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##### Table of Contents

Non-Interest Income



Non-interest income, which is comprised primarily of fees and charges on transactional deposit accounts, mortgage loan
origination fees, and the Banks ownership interest in a title insurance agency, increased to $461,000 for the three month period ended March 31, 2005, from $290,000 for the comparable period in 2004. This increase was due in large part to an
increase in mortgage origination volume for the three month period ended March 31, 2005 from the comparable period in 2004. In addition, revenues from fees and service charges increased as the number of transactional deposit accounts increased.



The Bank, through Bank of the James Mortgage, a Division of
Bank of the James (the Mortgage Division) originates consumer residential mortgage loans. Through the Mortgage Division, the Bank originates conforming and non-conforming home mortgages in the Region 2000 area, as defined below. As part
of the Banks overall risk management strategy, all of the loans originated and closed by the Mortgage Division are sold at closing to major national mortgage banking or financial institutions.



Non-Interest Expense



Non-interest expense for the three months ended March 31, 2005 was
$1,676,000 compared to $1,268,000 for the three months ended March 31, 2004. The increase in non-interest expense can be attributed to increased occupancy expenses, along with an increase in compensation expense related to an increase in the number
of employees necessary to accommodate the Banks growth and expansion as well as expense in complying with the Sarbanes-Oxley Act of 2002 (SOx). Management expects that the Forest Branch and the Main Street Office, both of which
opened in 2004, will generate interest earning assets to compensate for the costs incurred in opening and operating those branches. The cost of compliance with SOx set forth in the Consolidated Statement of Operations reflects only the direct costs
to outside consultants and does not include indirect costs including salaries of Bank personnel and administrative costs related to Sox compliance. Total personnel expense increased to $792,000 for the three month period ended March 31, 2005, from
$560,000 for the comparable period in 2004. Compensation for some employees of the mortgage division is commission-based and therefore subject to fluctuation. The Bank also had increases in depreciation expense, data processing fees, other operating
expenses.



Allowance for Loan Losses



The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon many factors, including calculations of specific impairment of certain loans, general economic conditions, actual and expected credit losses, loan performance measures,
historical trends and specific conditions of the individual borrower. The amount added to the allowance for loan loss for the three months ended March 31, 2005 was $175,000 compared with $77,000 for the comparable periods in 2004. This increase was
due in large part to growth in the loan portfolio and the application of the loan loss calculation for impaired loans. Management believes that the current allowance for loan loss of $1,492,000 (or 1.03% of total loans) at March 31, 2005 is
adequate.



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##### Table of Contents

The following sets forth the reconciliation of the allowance for loan loss:



|                                |  |                                |       |   |                                |   |       |                           |  |   |       |  
|------------------------------- |  | ------------------------------ | ----- | - | ------------------------------ | - | ----- | ------------------------- |  | - | ----- | -
|                                |  | ThreeMonthsEnded March31, 2005 |       |   | ThreeMonthsEnded March31, 2004 |   |       | YearEndedDecember31, 2004 | 
|Balance, beginning of period    |  | $                              | 1,419 |   |                                | $ | 1,451 |                           |  | $ | 1,451 |  
|Provision for loan losses       |  |                                | 175   |   |                                |   | 77    |                           |  |   | 754   |  
|Loans charged off               |  |                                | (108  | ) |                                |   | (21   | )                         |  |   | (889  | )
|Recoveries of loans charged off |  |                                | 6     |   |                                |   |      |                           |  |   | 103   |  
|                                |  |                                |       |   |                                |   |       |                           |  |   |       |  
|Net charge offs                 |  |                                | (102  | ) |                                |   | (21   | )                         |  |   | (786  | )
|                                |  |                                |       |   |                                |   |       |                           |  |   |       |  
|Balance, end of period          |  | $                              | 1,492 |   |                                | $ | 1,507 |                           |  | $ | 1,419 |  
|                                |  |                                |       |   |                                |   |       |                           |  |   |       |  



Income Taxes



For the quarter ended March 31, 2005, the Bank accrued an
income tax liability of $176,000 and, based on its 2004 income tax liability, made an estimated income tax payment of $176,000 during the quarter ended March 31, 2005.



Item 3. Controls and Procedures



Evaluation of Disclosure Controls and Procedures



Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, the Banks principal executive officer and principal financial officer have concluded that the Banks disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure that information required to be disclosed by the Bank in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



Changes in Internal Controls



There were no significant changes in the Banks internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



PART II  OTHER INFORMATION



Item 1. Legal Proceedings



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



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##### Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  Not Applicable.



Item 3. Defaults Upon Senior Securities  Not Applicable.



Item 4. Submission of Matters to a Vote of Security Holders  Not Applicable



Item 5. Other Information  Not Applicable



Item 6. Exhibits



The following
are filed as Exhibits to this Form 10-QSB



|            |  |                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|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 May 12, 2005.                    
|31.2        |  | Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 12, 2005                            
|32          |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated May 12, 2005



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
|                   |  |                  
|                   |  | By                |  | /S/ Robert R. Chapman III                                                                              
|Date: May 12, 2005 |  |                   |  | Robert R. Chapman III, President (Principal Executive
Officer)                                         
|                   |  |                  
|                   |  | By                |  | /S/ J. Todd Scruggs                                                                                    
|                   |  |                   |  | J. Todd Scruggs, Secretary and Treasurer (Principal
Financial Officer and Principal Accounting Officer)



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##### Table of Contents

Index of 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 May 12, 2005                     
|31.2        |  | Certification of J. Todd Scruggs Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 12, 2005                            
|32          |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002, dated May 12, 2005



17