U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No.
September 30, 1998 33-9686
CENTRAL VIRGINIA BANKSHARES, INC.
Virginia 54-1467806
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2036 New Dorset Road
P. O. Box 39
Powhatan, Virginia 23139
(Address of Principal Executive Office)
(804) 598-4216
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 (not subject to filing requirements
for the past 90 days).
As of November 16, 1998, 1,911,682 shares were outstanding.
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
QUARTERLY REPORT ON FORM 10-QSB
November 16, 1998
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1998
and 1997.................................................................................................3
Consolidated Statements of Income - Three
Months Ended September 30, 1998 and 1997
and Nine Months Ended September 30, 1998 and 1997........................................................4
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1998 and 1997.................................................................5
Notes to Consolidated Financial Statements -
September 30, 1998 and 1997 (Unaudited)..................................................................6
Item 2 Management's Discussion and Analysis or
Plan of Operation.....................................................................................7-12
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K........................................................................13
Signatures.......................................................................................................14
</TABLE>
-2-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS Sept. 30, 1998 Sept. 30, 1997
------ -------------- --------------
<S> <C> <C>
Cash and due from banks $7,827,302 $4,447,831
Federal funds sold 4,892,000 3,412,000
--------- ---------
Total cash and cash equivalents $12,719,302 $7,859,831
Securities available for sale 24,583,207 22,622,723
Securities held to maturity (approximate market
value 1998 $22,247,347; 1997 $15,382,497) 21,586,507 15,192,950
Mortgage loans held for sale 1,028,350 204,998
Loans, net 100,682,410 87,429,263
Bank premises and equipment, net 4,176,728 3,591,296
Accrued interest receivable 1,252,043 1,011,039
Other assets 2,428,926 1,649,798
--------- ---------
Total assets $168,457,473 $139,561,898
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits:
Demand deposits $20,800,669 $17,375,584
Interest bearing demand deposits and NOW accounts 28,451,000 22,968,334
Savings deposits 15,593,724 13,852,111
Time deposits, $100,000 and over 16,226,565 10,070,334
Other time deposits 64,781,084 53,411,611
---------- ----------
$145,853,042 $117,677,974
Securities sold under repurchase agreements 147,416 743,335
FHLB advance 5,000,000 5,000,000
Note payable 36,000 45,000
Accrued interest payable 351,522 298,559
Other liabilities 179,443 352,002
------- -------
Total liabilities $151,567,423 $124,116,870
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock, common, par value $1.25; authorized 6,000,000
shares; issued 1,911,682 shares 1998; 1,907,276 shares 1997 $2,389,603 $2,384,095
Surplus 4,207,632 4,136,728
Retained earnings 9,933,016 8,773,088
Unrealized gains on securities available for sale, net of tax 359,799 151,117
------- -------
Total stockholders' equity $16,890,050 $15,445,028
----------- -----------
Total liabilities and stockholders' equity $168,457,473 $139,561,898
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,366,132 $2,147,269 $6,758,964 $6,488,080
Interest on securities:
U.S. Government agencies and corporations 393,623 337,730 1,153,464 740,979
U.S. Treasury notes 31,611 16,534 89,886 37,747
States and political subdivisions 294,362 188,578 807,086 492,282
Other 29,761 20,832 83,308 47,379
Interest on federal funds sold 61,555 83,554 167,244 267,399
------ ------ ------- -------
Total interest income $3,177,044 $2,794,497 $9,059,952 $8,073,866
---------- ---------- ---------- ----------
Interest expense
Interest on deposits $1,420,469 $1,178,957 $3,999,336 $3,409,682
Interest on securities sold under repurchase
agreements 10,743 12,745 32,099 44,482
Interest, FHLB advance 74,750 69,530 221,813 69,530
Interest on note payable 720 900 2,340 2,880
--- --- ----- -----
Total interest expense $1,506,682 $1,262,132 $4,255,588 $3,526,574
---------- ---------- ---------- ----------
Net interest income $1,670,362 $1,532,365 $4,804,364 $4,547,292
Provision for loan losses 49,500 43,750 148,499 126,250
------ ------ ------- -------
Net interest income after provision for
loan losses $1,620,862 $1,488,615 $4,655,865 $4,421,042
Other income
Gain (loss) on sale of securities $0 $0 $10,079 $0
Service charges 183,719 146,872 482,359 435,521
Other 107,100 44,695 278,144 130,569
------- ------ ------- -------
Total other income $290,819 $191,567 $770,582 $566,090
Other expenses
Salaries and wages $558,400 $430,500 $1,518,200 $1,332,200
Pensions and other employee benefits 91,655 82,028 247,594 236,234
Occupancy expense 72,524 65,052 199,204 198,110
Equipment depreciation 93,416 80,311 261,876 235,588
Equipment repairs and maintenance 44,285 40,354 129,063 111,895
Advertising and public relations 61,995 36,700 197,075 120,637
Federal insurance premiums 4,841 4,662 14,072 7,858
Office supplies, telephone and postage 95,089 84,866 277,849 257,053
Taxes and licenses 28,137 31,612 89,031 96,528
Other operating expenses 197,639 195,188 592,524 589,075
------- ------- ------- -------
Total other expenses $1,247,981 $1,051,273 $3,526,488 $3,185,178
---------- ---------- ---------- ----------
Income before income taxes $663,700 $628,909 $1,899,959 $1,801,954
Income taxes 187,360 164,248 528,779 486,100
------- ------- ------- -------
Net income $476,340 $464,661 $1,371,180 $1,315,854
======== ======== ========== ==========
Per share of common stock:
Income before income taxes $0.35 $0.33 $0.99 $0.95
Net income $0.25 $0.24 $0.72 $0.69
Weighted average shares 1,911,692 1,906,848 1,909,886 1,902,458
Return on average assets 1.18% 1.37% 1.20% 1.35%
Return on average equity 12.13% 12.70% 11.64% 12.11%
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows for Operating Activities
Net Income $1,371,180 $1,315,854
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 325,572 296,498
Amortization 385 5,383
Provision for loans losses 148,499 126,250
Amortization and accretion on securities 35,383 55,792
Loss on sale of foreclosed real estate 0 9,362
Change in operating assets and liabilities:
(Increase) decrease in assets:
Mortgage loans held for sale (697,000) (3,200)
Accrued interest receivable 66,837 (207,848)
Other assets (827,853) 103,345
Increase (decrease) in liabilities:
Accrued interest payable 23,759 65,613
Other liabilities 40,603 182,458
------ -------
Net cash provided by operating activities $487,365 $1,949,507
-------- ----------
Cash Flows from Investing Activities
Proceeds from maturities of securities held to maturity $1,635,000 $440,000
Purchase of securities held to maturity (5,370,328) (5,418,023)
Proceeds from sales and maturities of securities available for sale 10,009,308 3,971,521
Purchase of securities available for sale (11,858,548) (18,731,163)
Net (increase) decrease in loans made to customers (11,900,018) (3,608,060)
Net purchases of premises and equipment (961,995) (327,185)
Proceeds from sale of foreclosed real estate 0 360,108
Net expenditures on foreclosed real estate (2,112) (18,220)
------- --------
Net cash (used in) investing activities ($18,448,693) ($23,331,022)
------------- -------------
Cash Flows from Financing Activities
Net increase in deposits $23,179,501 $7,797,034
Net increase in Federal Home Loan Bank advances 0 5,000,000
Repayment of note payable (9,000) (9,000)
Net proceeds from issuance of capital stock 76,412 56,954
Net increase (decrease) in securities sold under repurchase
agreements (1,046,471) (791,144)
Dividends paid (544,227) (518,419)
--------- ---------
Net cash provided by financing activities $21,656,215 $11,535,425
----------- -----------
Increase (decrease) in cash and cash equivalents $3,694,887 ($9,846,090)
Cash and cash equivalents:
Beginning 9,024,415 17,705,921
--------- ----------
Ending $12,719,302 $7,859,831
=========== ==========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $4,231,829 $3,460,961
========== ==========
Income Taxes $486,165 $487,096
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(Unaudited)
Note 1 Basis of Presentation
These interim financial statements are unaudited; however, such information
reflects all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented.
All adjustments are of a normal recurring nature.
Note 2 Accounting Change
On January 1, 1995, the Company adopted FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan. Statement No. 114 has been amended by FASB
Statement No. 118, Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures. Statement No. 114, as amended, requires that the
impairment of loans that have been separately identified for evaluation is to be
measured based on the present value of expected future cash flows or
alternatively, the observable market price of the loans or the fair value of the
collateral. However, for those loans that are collateral dependent (that is, if
repayment of those loans is expected to be provided solely by the underlying
collateral) and for which management has determined foreclosure is probable, the
measure of impairment of those loans is to be based on the fair value of the
collateral. Statement No. 114, as amended, also requires certain disclosures
about investments in impaired loans and the allowance for credit losses and
interest income recognized on those loans. The effect of adopting Statement No.
114, as amended, is immaterial to the interim financial statements presented
herein.
-6-
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The Company's net income totaled $476,340 in the third quarter of 1998,
an increase of 2.5% from the third quarter of 1997. The earnings for the third
quarter of 1998 were positively affected by increased interest income from loans
and investment securities. This increase is attributable to an increase in the
volume of loans and investment securities.
Net interest income increased by 8.3% for the third quarter of 1998
compared to the same period in 1997. This is the result of an increase of 18.9%
in the average balance of interest-earning assets in the 1998 quarter compared
to the same period in 1997. Another factor in the results for the quarter ended
September 30, 1998 was an 18.7% rise in other expenses. This is mainly the
result of the personnel and operating costs associated with the new Cumberland
branch office opened in June 1998. Net income per common share for the third
quarter of 1998 was $.25 compared to $.24 for the same period in 1997. All
earnings per share figures reflect the two-for-one stock split issued in August
1998. The Company's annualized return on average equity was 12.13% in the third
quarter of 1998, compared to 12.70% for the third quarter of 1997, while the
return on average assets amounted to 1.18% and 1.37% for these periods
respectively.
The Company's net income for the nine months ended September 30, 1998
totaled $1,371,180, an increase of 4.2% over the first nine months of 1997. This
increase is also primarily the result of the increase in interest income
resulting from the 17.9% increase in volume of average interest earning assets.
Net income per common share for the first nine months of 1998 was $.72 compared
to $.69 for the same period in 1997. The Company's annualized return on average
equity was 11.64% for the nine months ended September 30, 1998, compared to
12.11% for the nine months ended September 30, 1997. The return on average
assets amounted to 1.20% and 1.35% for these same periods, respectively.
Net Interest Income. The Company's net interest income was $1,670,362
for the third quarter of 1998, compared to $1,532,365 for the third quarter of
1997. The increase in net interest income in 1998 was attributable primarily to
the increase in the loans and investment securities components of Company's
average interest earning assets. Average interest earning assets were $150.3
million for the third quarter of 1998, compared to $126.4 million for the third
quarter of 1997. Average loans outstanding increased $12.8 million, or 14.7% to
an average of $99.4 million for the quarter ended September 30, 1998. Average
investment securities increased 34.9% to $46.4 million for the quarter ended
September 30, 1998. For the nine months ended September 30, 1998, average
interest earning assets rose 17.9% to $143.5 million compared to the same period
in 1997.
The net interest margin is a measure of net interest income
performance. It represents the difference between interest income, including net
loan fees earned, and interest expense, reflected as a percentage of average
interest earning assets. The Company's net interest margin was 4.44% for the
third quarter of 1998 compared to 4.85% in 1997. For the nine months ended
September 30, 1998 the net interest margin was 4.47% compared to 4.98% for the
same period of 1997.
Non-Interest Income. In the third quarter of 1998, the Company's total
non-interest income totaled $290,819, an increase of 51.8%, or $99,252, compared
to 1997. Of the various components of non-interest income, this increase is
primarily attributable to an increase in fees received on mortgage loans
originated for others. For the first nine months of 1998, non-interest income
increased by $204,492 or 36.1% compared to 1997. This increase is primarily
related to an increase in service charges on deposit
-7-
<PAGE>
accounts, the volume of which increased in 1998 from 1997, as well as a increase
in fees received on mortgage loans originated for others.
Non-Interest Expense. The Company's total non-interest expenses for the
third quarter ended September 30, 1998 increased $196,708, or 18.7% and for the
nine month period ended September 30, 1998 increased $341,310, or 10.7% compared
to the same periods in 1997. Expenses related to salaries and employee benefits
not treated as an adjustment to the yield of loans originated in 1998 increased
$137,527 for the quarter and $197,360 for the first nine months compared to
1997. These increases represent regular annual salary increases as well as
staffing for the new branch office and increased staffing in the mortgage loan
origination area. Occupancy and equipment expenses increased 13.2% for the
quarter and 8.2% for the nine month period primarily due to the opening of the
new Cumberland branch office in June 1998. Expenses for advertising and public
relations rose 68.9% for the quarter and 63.3% for the nine months ended
September 30, 1988 as the Company enhanced its efforts to attract new customers.
Income Taxes. The Company reported income taxes of $187,360 for the
third quarter and $528,779 for the first nine months of 1998, compared to
$164,247 and $486,100 for the same periods in 1997, respectively. These amounts
yielded effective tax rates of 28.2% for the quarter and 27.8% for the first
nine months of 1998, compared to 26.1% and 27.0% for the same periods in 1997,
respectively. The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". This
Statement superseded Statement of Financial Accounting Standards No. 96, and is
effective for fiscal years beginning after December 15, 1992. This statement was
implemented in March of 1993 and did not have a material effect upon the
financial position or results of operations of the Company.
Financial Condition
Loan Portfolio. The Company is an active residential mortgage and
residential construction lender and generally extends commercial loans to small
and medium sized businesses within its primary service area. The Company's
commercial lending activity extends across its primary service area of Powhatan,
Cumberland and western Chesterfield Counties. Consistent with its focus on
providing community-based financial services, the Company does not attempt to
diversify its loan portfolio geographically by making significant amounts of
loans to borrowers outside of its primary service area.
The principal economic risk associated with each of the categories of
loans in the Company's portfolio is the creditworthiness of its borrowers.
Within each category, such risk is increased or decreased depending on
prevailing economic conditions. The risk associated with the real estate
mortgage loans and installment loans to individuals varies based upon employment
levels, consumer confidence, fluctuations in value of residential real estate
and other conditions that affect the ability of consumers to repay indebtedness.
The risk associated with commercial, financial and agricultural loans varies
based upon the strength and activity of the local economies of the Company's
market areas. The risk associated with real estate construction loans varies
based upon the supply of and demand for the type of real estate under
construction. Most of the Bank's real estate construction loans are for pre-sold
or contract homes.
At September 30, 1998 loans increased $11.85 million from December 31,
1997 and $13.25 million from September 30, 1997. The loan-to-deposit ratio was
69.0% at September 30, 1998, compared to 72.4% at December 31, 1997, and 74.3%
at September 30, 1997. As of September 30, 1998, real estate loans accounted for
54.7% of the loan portfolio, consumer loans were 21.9%, and commercial and
industrial loans totaled 23.4%.
-8-
<PAGE>
Asset Quality. Non-performing loans include non-accrual loans, loans 90
days or more past due and restructured loans. Non-accrual loans are loans on
which interest accruals have been discontinued. Loans which reach non-accrual
status may not be restored to accrual status until all delinquent principal and
interest has been paid, or the loan becomes both well secured and in the process
of collection. Restructured loans are loans with respect to which a borrower has
been granted a concession on the interest rate or the original repayment terms
because of financial difficulties.
The following table summarizes non-performing loans:
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
1998 1997 1997
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis $309 $38 $176
Loans contractually past due 90 days or more as to
interest or principal payments (not included in
non-accrual loans above) 636 696 1,094
Loans restructured and in compliance with modified terms
(not included in non-accrual loans or loans
contractually past due 90 days or more above) -- -- --
---- ---- ------
Total $945 $734 $1,270
==== ==== ======
</TABLE>
Management is not aware of any other loans at September 30, 1998 which
involve serious doubts as to the ability of such borrowers to comply with the
existing payment terms.
Management has analyzed the potential risk of loss on the Company's
loan portfolio, given the loan balances and the value of the underlying
collateral, and has recognized losses where appropriate. Non-performing loans
are closely monitored on an ongoing basis as part of the Company's loan review
process. Management reviews the loan loss allowance at the end of each month.
Based primarily on the Company's loan classification system, which classifies
problem credits as substandard, doubtful or loss, additional provisions for
losses are made monthly. The ratio of the allowance for loan losses to total
loans was 1.25%, 1.31% and 1.29% at September 30, 1998, December 31, 1997 and
September 30, 1997, respectively. At September 30, 1998 the ratio of the
allowance for loan losses to non-performing loans was 135.1%, compared to 160.2%
at December 31, 1997 and 90.1% at September 30, 1997.
Management evaluates non-performing loans relative to their collateral
value and makes appropriate reductions in the carrying value of those loans
based on that review. Management believes, based on its review, that the Company
has adequate reserves to cover any future write down that may be required on
these loans.
For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into consideration all
factors connected with the collectibility of the existing portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and value of the portfolio, industry standards and other relevant
factors. Specific factors considered by management in determining the amounts
charged to operations include internally generated loan review reports, previous
loan loss experience with the borrower, the status of past due interest and
principal payments on the loan, the quality of financial information supplied by
the borrower and the general financial condition of the borrower.
The provision for loan losses totaled $49,500 for the quarter ended
September 30, 1998 and $43,750 for the same period in 1997. For the nine month
periods ended September 30, 1998 and 1997, the provision for loan losses totaled
$148,499 and $126,250, respectively. In the opinion of management, the provision
charged to
-9-
<PAGE>
operations has been sufficient to absorb the current year's net loan losses
while continuing to increase the allowance for loan losses.
Securities
The Company's securities portfolio serves several purposes. Portions of
the portfolio secure certain public and trust deposits. The remaining portions
are held as investments or used to assist the Company in liquidity and asset
liability management. During the first nine months of 1997, total securities
increased 13.8% to $46.2 million, or 27.4% of total assets at September 30,
1998. At December 31, 1997, total securities were $40.6 million, or 27.9% of
total assets and at September 30, 1997, total securities were $37.8 million, or
27.1% of total assets.
The securities portfolio consists of two components, investment
securities and securities available for sale. Securities are classified as
investment securities when management has the intent and the Company has the
ability at the time of purchase to hold the securities to maturity. Investment
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts. Securities to be held for indefinite periods of time are
classified as available for sale and accounted for at the lower of cost or
market value. Securities available for sale include securities that may be sold
in response to changes in market interest rates, changes in the security's
prepayment risk, increases in loan demand, general liquidity needs and other
similar factors. The Company's recent purchases of investment securities have
generally been limited to securities of high credit quality with short to medium
term maturities or securities with longer maturities and short to medium term
call features.
The fully taxable equivalent annualized average yield on the entire
portfolio was 7.11% for the third quarter and 7.14% for the first nine months of
1998, compared to 7.32% and 7.32% for the same periods in 1997. The market value
of the portfolio exceeded the book value by $551,292 at September 30, 1998.
Deposits and Short-Term Borrowings
The Company's predominate source of funds is depository accounts. The
Company's deposit base is comprised of demand deposits, savings and money market
accounts and other time deposits. The Company's deposits are provided by
individuals and businesses located within the communities served.
Total deposits grew by 18.9% between December 31, 1997 and September
30, 1998. The average aggregate interest rate paid on deposits was 4.07% in the
third quarter of 1998 and 4.01% for the first nine months of 1998, compared to
4.07% and 4.00% for the same periods in 1997. The majority of the Company's
deposits are higher yielding time deposits because most of its customers are
individuals who seek higher yields than those offered on savings and demand
accounts.
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at September 30, 1998:
September 30, 1998
Time Deposits
(Dollars in Thousands)
Three months or less $1,617
Three to twelve months 6,591
Over twelve months 8,019
-----
Total $16,227
=======
-10-
<PAGE>
Capital Resources
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance and changing competitive
conditions and economic forces. The Company seeks to maintain a strong capital
base to support its growth and expansion activities, to provide stability to
current operations and to promote public confidence. The Company's capital
position continues to exceed regulatory minimums.
Banking regulations also require the Bank to maintain certain minimum
capital levels in relation to Bank Assets. Capital is measured using a leverage
ratio as well as based on risk-weighting assets according to regulatory
guidelines. A comparison of the Bank's actual regulatory capital as of September
30, 1998, with minimum requirements, as defined by regulation, is shown below:
Minimum Actual
Requirements September 30, 1998
------------ ------------------
Tier 1 risk-based capital 4.0% 14.48%
Total risk-based capital 8.0% 15.65%
Leverage ratio 3.0% 9.84%
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity is the ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its
depositors' requirements and meet its customers' credit needs.
Additional sources of liquidity available to the Company include, but
are not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also has access to the Federal Reserve
System. In the past, growth in deposits and proceeds from the maturity of
investment securities have been sufficient to fund the net increase in loans.
Interest Rate Sensitivity. In conjunction with maintaining a
satisfactory level of liquidity, management must also control the degree of
interest rate risk assumed on the balance sheet. Managing this risk involves
regular monitoring of the interest sensitive assets relative to interest
sensitive liabilities over specific time intervals.
Effects of Inflation
Inflation significantly affects industries having high proportions of
fixed assets or high levels of inventories. Although the Company is not
significantly affected in these areas, inflation does have an impact on the
growth of assets. As assets grow rapidly, it becomes necessary to increase
equity capital at proportionate levels to maintain the appropriate equity to
asset ratios. Traditionally, the Company's earnings and high capital retention
levels have enabled the Company to meet these needs.
The Company's reported earnings results have been affected by
inflation, but isolating the effect is difficult. The different types of income
and expense are affected in various ways. Interest rates are affected by
inflation, but the timing and magnitude of the changes may not coincide with
changes in the consumer price index.
-11-
<PAGE>
Management actively monitors interest rate sensitivity in order to minimize the
effects of inflationary trends on interest rates. Other areas of non-interest
expenses may be more directly affected by inflation.
Year 2000 Issue
As we approach the beginning of the new millennium, there is increasing
public awareness and attention being directed toward the year 2000 ("Y2K")
problem. The Y2K problem stems from the inability of certain computerized
systems and devices to either recognize or process data on a year date later
than 1999. The Company has developed a plan to implement the necessary changes
in its equipment and computer systems so that they will be fully operational
before the year 2000 begins. The Company's Y2K plans are subject to guidelines
promulgated by the Federal Financial Institutions Examination Council ("FFIEC").
The Federal Reserve Bank of Richmond periodically reviews the status of the
Company's plans and progress, as outlined in the FFIEC guidelines.
To date, the Company has primarily focused on the identification and
assessment of its Y2K issues. All components of the Company's information
systems have been identified and rated as to the critical degree of the
component in the continuing operations of the Company in the event of failure in
the year 2000. The Company relies on external sources for its computer hardware
and software needs. The Company has been communicating with these third party
vendors, and such vendors either are already Y2K ready or are in the process of
modifying, upgrading or replacing their computer applications to ensure Y2K
compliance. When third parties communicate the results of any such modification
to the Company, the Company plans to perform its own tests and to make an
independent assessment of any potential problems.
Current estimates of costs to the Company relating to the Y2K issue are
estimated not to exceed $250,000. The majority of these costs is for the
purchase of equipment that will qualify as depreciable assets for accounting
purposes, with the related depreciation expense recognized over the estimated
lives of the related assets. Costs associated with personnel assigned to work on
the Y2K project are not included in the above figure. Personnel costs are
expensed as incurred and no personnel have been assigned to the Y2K project on a
full-time basis.
As required by the FFIEC guidelines, the Company has developed a
contingency plan based on possible scenarios, and their likelihood of
occurrence. The contingency plan addresses operational issues, including
communication links, utility services, and the availability of alternative
services among key vendors. At this time, the Company believes that the most
likely worst case Y2K scenario would not have a material effect on the Company's
results of operations, liquidity and financial condition for the year ending
December 31, 2000. The Company does not foresee a material loss of revenue due
to the Y2K issue. However, while the contingency plan is based on assessments of
the likelihood of occurrence of possible scenarios, the Company believes that no
entity can address the unlimited possible circumstances relating to Y2K issues.
While unlikely, it is acknowledged that the failure of the Company to
successfully implement its Y2K plan, or to adequately assess the likelihood of
various events relating to the Y2K issue, could have a material adverse effect
on the Company's results of operations and financial condition.
Forward-Looking Statements
Certain information contained in this discussion may include
"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. These forward-looking statements are generally identified by phrases
such as "the Company expects," "the Company believes" or words of similar
import. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest rate fluctuations, competition within and from outside the
banking industry, new products and services in the banking industry, risk
inherent in making loans such as repayment risks and fluctuating collateral
values, problems with technology utilized by the Company, changing trends in
customer profiles and changes in laws and regulations applicable to the Company.
Although the Company believes that its expectations with respect to the
forward-looking statements are based upon reliable assumptions within the bounds
of its knowledge of its business and operations, there can be no assurance that
actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
-12-
<PAGE>
Part II. Other Information
ITEM 6 EXHIBITS AND REPORTS ON 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith)
(b) Form 8-K. No reports were filed on Form 8-K in the
period for which this report is filed.
-13-
<PAGE>
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.
CENTRAL VIRGINIA BANKSHARES, INC.
(Registrant)
Date: November 16, 1998 /s/ Ralph Larry Lyons
-------------------------------------------
Ralph Larry Lyons, President and Chief
Executive Officer (Chief Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,719,302
<INT-BEARING-DEPOSITS> 125,052,373
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,583,207
<INVESTMENTS-CARRYING> 21,586,507
<INVESTMENTS-MARKET> 22,247,347
<LOANS> 101,959,744
<ALLOWANCE> 1,277,334
<TOTAL-ASSETS> 168,457,473
<DEPOSITS> 145,853,042
<SHORT-TERM> 147,416
<LIABILITIES-OTHER> 530,965
<LONG-TERM> 5,036,000
0
0
<COMMON> 2,389,603
<OTHER-SE> 14,500,447
<TOTAL-LIABILITIES-AND-EQUITY> 168,457,473
<INTEREST-LOAN> 6,758,964
<INTEREST-INVEST> 2,133,745
<INTEREST-OTHER> 167,244
<INTEREST-TOTAL> 9,059,952
<INTEREST-DEPOSIT> 3,999,336
<INTEREST-EXPENSE> 4,255,588
<INTEREST-INCOME-NET> 4,804,364
<LOAN-LOSSES> 148,499
<SECURITIES-GAINS> 10,079
<EXPENSE-OTHER> 3,526,488
<INCOME-PRETAX> 1,899,959
<INCOME-PRE-EXTRAORDINARY> 1,899,959
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371,180
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 7.14
<LOANS-NON> 309,000
<LOANS-PAST> 636,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,176,000
<CHARGE-OFFS> 85,000
<RECOVERIES> 39,000
<ALLOWANCE-CLOSE> 1,277,000
<ALLOWANCE-DOMESTIC> 295,822
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 981,178
</TABLE>
