SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number: 33-9686
CENTRAL VIRGINIA BANKSHARES, INC.
(Name of small business issuer in its charter)
Virginia 54-1467806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2036 New Dorset Road, Post Office Box 39, Powhatan, Virginia 23139-0039
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (804) 794-6266
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $1.25 par value
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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $13.5 million.
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant was approximately $22,374,303 computed by reference to the
last sales price of $12.4375 per share as of March 5, 1999, on The Nasdaq Stock
MarketSM, as reported in published financial sources.
At March 5, 1999, there were 1,914,147 shares of the Registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-KSB Reference Location
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1999 Proxy Statement Part III
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
The Company and the Bank. Central Virginia Bankshares, Inc. (the
"Company") was incorporated as a Virginia corporation on March 7, 1986, solely
to acquire all of the issued and outstanding shares of Central Virginia Bank's
(the "Bank") capital stock. The Bank was incorporated on June 1, 1972 under the
laws of Virginia and, since opening for business on September 17, 1973, its main
and administrative office has been located on U.S. Route 60 at Flat Rock, in
Powhatan County, Virginia. In May 1996, the administrative offices were
relocated to the Corporate Center in the Powhatan Commercial Center located off
Route 60 near the main office.
Principal Market Area. The Bank's primary service area is Powhatan
County and extends into Chesterfield and Cumberland counties which had
populations of 15,328, 209,274 and 7,825, respectively, according to the 1990
census. Both Powhatan and Chesterfield counties' populations are projected by
the Virginia Department of Planning and Budget to grow faster than the State's
average through the year 2000. The Bank's main office is located in the Village
of Flat Rock in Powhatan County which is on U.S. Route 60, eight miles west of
the Village of Midlothian in Chesterfield County. Flat Rock is the commercial
hub of Powhatan County. The Bank's branch offices are located in the Village
Marketplace Shopping Center in the Village of Midlothian and the Market Square
Shopping Center in Brandermill, both in Chesterfield County, and on U.S. Route
60 near the courthouse and in Cartersville, both in Cumberland County. The
Bank's present intention is to continue concentrating its activities in its
current service area, which the Bank believes is an attractive area in which to
operate.
Banking Services. The principal business of the Bank is to attract
deposits and to loan or invest those deposits on profitable terms. The Bank
engages in a general community and commercial banking business, targeting the
banking needs of individuals and small to medium sized businesses in its primary
service area. The Bank offers all traditional loan and deposit banking services
as well as newer services such as telephone banking and debit cards. The Bank
also makes seasonal and term loans, both alone and in conjunction with other
banks or governmental agencies. The Bank also offers other related services,
such as travelers' checks, safe deposit boxes, deposit transfer, customer note
payment, annuities, collections, notary public, escrow, drive-in facility and
other customary banking services. The Bank's lending policies, deposit products
and related services are intended to meet the needs of individuals and
businesses in its market area. The Bank provides trust services to its customers
through an affiliation with The Trust Company of Virginia.
The Bank's plan of operation for future periods is to continue to
operate as a community bank and to focus its lending and deposit activities in
its primary service area. As the Bank's primary service area shifts from rural
to suburban in nature, the Bank will compete aggressively for customers through
its traditional personal service and extended hours of operation. The Bank will
also emphasize the origination of residential mortgages and construction loans
as the area becomes more developed. Consistent with its focus on providing
community based financial services, the Bank does not plan to diversify its loan
portfolio geographically by making significant loans outside of its primary
service area. While the Bank and its borrowers will be directly affected by the
economic conditions and the real estate market prevailing in the area, the Bank
is better able to monitor the financial condition of its borrowers by
concentrating its lending activities in its primary service area. At the present
time, the Bank does not anticipate extending operations beyond Powhatan County,
the western portion of Chesterfield County and Cumberland County.
<PAGE>
Lending Activities
Loan Portfolio. The Company is an active residential mortgage and
residential construction lender and also extends consumer loans and 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. In
an effort to manage this risk, the Bank's policy gives loan amount approval
limits to individual loan officers based on their level of experience. All
unsecured loans in excess of $100,000 and all secured loans in excess of
$500,000 must be approved by the Board of Directors. 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. Many of the Bank's real estate construction
loans are for pre-sold or contract homes.
Residential Mortgage Loans. Residential mortgage loans are made in
amounts up to 80.0% of the appraised value of the security property. Residential
mortgage loans are underwritten using specific qualification guidelines which
are intended to assure that such loans are eligible for sale into the secondary
mortgage market. The Bank requires that the borrower obtain title, fire and
casualty insurance coverage in an amount equal to the loan amount and in a form
acceptable to the Bank. The Bank originates residential mortgage loans that are
sold in the secondary market. These loans are generally either one-year
adjustable rate mortgages ("ARMs") or fifteen to thirty year fixed rate
mortgages. All permanent residential mortgages made for the Bank's own portfolio
are made as three-year ARMs.
The Bank's ARMs are subject to limitations of 2.0% per three year
period on interest rate increases and decreases. In addition, ARMs currently
originated by the Bank provide for a lifetime cap of 6.0% or less from the
borrower's initial interest rate. All changes in the interest rate must be based
on the movement of an index agreed to by the Bank and the borrower.
There are risks resulting from increased costs to a borrower as a
result of the periodic repricing mechanisms of these loans. Despite the benefits
of ARMs to an institution's asset/liability management, they pose additional
risks, primarily because as interest rates rise, the underlying payments by the
borrowers rise, increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates.
The Bank charges origination fees on its residential mortgage loans.
These fees vary among loan products and with market conditions. Generally such
fees amount to 1.0% to 3.0% of the loan principal amount. In addition, the Bank
charges fees to its borrowers to cover the cost of appraisals, credit reports
and certain expenses related to the documentation and closing of loans.
Commercial Mortgage Loans. The Bank does not actively seek commercial
permanent mortgage loans on income-producing properties such as apartments,
shopping centers, hotels and office buildings. Such requests from Bank customers
and concerning properties in the Bank's established trade area would be
considered.
Real Estate Construction Lending. In general, the Bank does not
actively originate construction loans on income-producing properties such as
apartments, shopping centers, hotels and office buildings.
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<PAGE>
In order to promote its permanent mortgage lending business and because
of the attractive adjustable interest rates available, the Bank makes
construction and small development loans for residential purposes. The large
majority of the Bank's construction loans are to experienced builders. Such
loans normally carry an interest rate of 1.0% to 3.0% over the prime bank
lending rate, adjusted daily. Construction lending entails significant risk as
compared with residential mortgage lending. Construction loans typically involve
larger loan balances concentrated with single borrowers or groups of related
borrowers. Construction loans involve additional risks attributable to the fact
that loan funds are advanced upon the security of the home under construction,
which is of uncertain value prior to the completion of construction. Thus, it is
more difficult to evaluate accurately the total loan funds required to complete
a project and related loan-to-value ratios. To minimize risks associated with
construction lending, the Bank limits loan amounts to 75.0% of appraised value
on unsold homes and 80.0% of appraised value on pre-sold homes, in addition to
its usual credit analysis of its borrowers. The Bank always obtains a first lien
on the property as security for its construction loans.
Consumer Lending. The Bank currently offers most types of consumer
demand, time and installment loans for a variety of purposes, including
automobile loans and home equity lines of credit.
Commercial Business Lending. As a full-service community bank, the Bank
makes commercial loans to qualified small businesses in the Bank's market area.
At December 31, 1998, commercial business loans were $17.7 million or 16.1% of
the Bank's total loan portfolio, a majority of which were secured by real
estate. Commercial business loans generally have a higher degree of risk than
residential mortgage loans but have commensurately higher yields. To manage
these risks, the Bank secures appropriate collateral and carefully monitors the
financial condition of its business borrowers and the concentration of such
loans in the Bank's portfolio. Residential mortgage loans generally are made on
the basis of the borrower's ability to make repayment from his employment and
other income and are secured by real property whose value tends to be easily
ascertainable. In contrast, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of its
business and are either unsecured or secured by business assets, such as
accounts receivable, equipment and inventory. As a result, the availability of
funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself. Further, the collateral for
secured commercial business loans may depreciate over time, and cannot be
appraised with as much precision as residential real estate. At December 31,
1998, the majority of the Bank's non-performing loans were commercial loans.
Competition
The Bank encounters strong competition for its banking services within
its primary service area from other community banks and larger banks in the
Richmond metropolitan area. Financial companies, mortgage companies, credit
unions and savings and loan associations also compete with the Bank for loans
and deposits. In addition, in some instances, the Bank must compete for deposits
with money market mutual funds that are marketed nationally. Most of the Bank's
competitors have substantially greater resources than the Bank. The success of
the Bank in the past and its plans for success in the future is dependent upon
providing superior customer service and convenience.
Employees
The Bank had 75 full-time officers and employees and 17 part-time
employees at December 31, 1998. Employee relations have been good. The Bank
sponsors a Profit Sharing/Retirement Plan for its employees.
Regulation and Supervision
Bank holding companies and banks are extensively regulated under both
federal and state law. The following is a summary of certain federal laws and
regulations that govern the Company and the Bank. However, to the extent that
the following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in
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<PAGE>
applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank.
Bank Holding Companies. The Company is registered as a bank holding
company under the Bank Holding Company Act of 1956 (the "BHCA") and as such is
subject to regulation by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). As a bank holding company, the Company is
required to file with the Federal Reserve Board an annual report and such
additional information as the Federal Reserve Board may require pursuant to the
BHCA. The Federal Reserve Board may also make examinations of the Company.
The BHCA requires the prior approval of the Federal Reserve Board in
any case where a bank holding company proposes to acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank (unless it
owns a majority of such bank's voting shares) or otherwise to control a bank or
to merge or consolidate with any other bank holding company. The BHCA would
prohibit the Federal Reserve Board from approving an application from the
Company to acquire shares of a bank located outside of Virginia, unless such an
acquisition is specifically authorized by statute of the state in which the bank
whose shares are to be acquired is located. However, under recently enacted
federal legislation, the restriction on interstate acquisitions will be
abolished effective September 1995, and thereafter, bank holding companies from
any state will be able to acquire banks and bank holding companies located in
any other state, subject to certain conditions, including nationwide and state
imposed concentration limits. Banks also will be able to branch across state
lines by acquisition, merger or de novo, effective June 1, 1997 (unless state
law would permit such interstate branching at an earlier date), providing
certain conditions are met, including the applicable state law must expressly
permit such interstate branching.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from engaging in any business other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has by regulation determined that
certain activities are closely related to banking within the meaning of the
BHCA.
Banks. The Bank is supervised and regularly examined by the Federal
Reserve Board and the Bureau of Financial Institutions of Virginia's State
Corporation Commission. The various laws and regulations administered by the
regulatory agencies affect corporate practices, such as payment of dividends,
incurring debt and acquisition of financial institutions and other companies,
and affect business practices, such as payment of interest on deposits, the
charging of interest on loans, types of business conducted and location of
offices.
FDIC Insurance Assessments. The Bank is subject to FDIC deposit
insurance assessments. It is possible that insurance assessments could increase
in future years, and it is possible that there may be special additional
assessments. Additional assessments could have an adverse impact on the
Company's results of operations.
Governmental Policies. The operations of the Company and the Bank are
affected not only by general economic conditions, but also by the policies of
various regulatory authorities. In particular, the Federal Reserve Board
regulates money and credit and interest rates in order to influence general
economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest
rates charged on loans or paid for time and savings deposits. Federal Reserve
Board monetary policies have had a significant effect on the operating results
of commercial banks in the past and are expected to continue to do so in the
future.
Limits on Dividends and Other Payments. The Company is a legal entity
separate and distinct from the Bank. Most of the Company's revenues result from
dividends paid to the Company by the Bank. The right of the Company, and
consequently the right of creditors and shareholders of the Company, to
participate in any distribution of the assets or earnings of the Bank through
the payment of such dividends
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<PAGE>
or otherwise is necessarily subject to the prior claims of creditors of the
Bank, except to the extent that claims of the Company in its capacity as a
creditor may be recognized.
The amount of dividends payable by the Bank to the Company depends upon
the Bank's earnings and capital position, and is limited by federal and state
law, regulations and policies.
As a state member bank subject to the regulations of the Federal
Reserve Board, the Bank must obtain the approval of the Federal Reserve Board
for any dividend if the total of all dividends declared in any calendar year
would exceed the total of its net profits, as defined by the Federal Reserve
Board, for that year, combined with its retained net profits for the preceding
two years. In addition, the Bank may not pay a dividend in an amount greater
than its undivided profits then on hand after deducting its losses and bad
debts. For this purpose, bad debts are generally defined to include the
principal amount of loans which are in arrears with respect to interest by six
months or more unless such loans are fully secured and in the process of
collection. Moreover, for purposes of this limitation, the Bank is not permitted
to add the balance in its allowance for loan losses account to its undivided
profits then on hand; however, it may net the sum of its bad debts as so defined
against the balance in its allowance for loan losses account and deduct from
undivided profits only bad debts as so defined in excess of that account. At
December 31, 1998, the Bank had $2.8 million of retained earnings legally
available for the payment of dividends.
In addition, the Federal Reserve Board is authorized to determine under
certain circumstances relating to the financial condition of a national bank, a
state member bank or a bank holding company that the payment of dividends would
be an unsafe or unsound practice and to prohibit payment thereof. The payment of
dividends that deplete a bank's capital base could be deemed to constitute such
an unsafe or unsound practice. The Federal Reserve Board has indicated that
banking organizations should generally pay dividends only out of current
operating earnings.
Borrowings by the Company. There are various legal restrictions on the
extent to which the Company can borrow or otherwise obtain credit from the Bank.
In general, these restrictions require that any such extensions of credit must
be secured by designated amounts of specified collateral and are limited, as to
the Company, to 10% of the Bank's capital stock and surplus, and as to the
Company and any nonbanking subsidiaries in the aggregate, to 20% of the Bank's
capital stock and surplus. Federal law also requires that transactions between
the Bank and the Company or any nonbanking subsidiaries, including extensions of
credit, sales of securities or assets and the provision of services, be
conducted on terms at least as favorable to the Bank as those that apply or
would apply to comparable transactions with unaffiliated parties.
Capital Requirements. The Federal Reserve Board has published
risk-based capital guidelines which are applicable to bank holding companies.
The Federal Reserve Board guidelines redefine the components of capital,
categorize assets into different risk classes and include certain off-balance
sheet items in the calculation of risk-weighted assets. The minimum ratio of
qualified total capital to risk-weighted assets (including certain off balance
sheet items, such as standby letters of credit) is 8.00%. At least half of the
total capital must be comprised of common equity, retained earnings and a
limited amount of permanent preferred stock, less goodwill ("Tier 1 capital").
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt, other preferred stock, certain other instruments and a limited amount of
loan and lease losses reserves. The Company's Tier 1 and Total Capital ratios as
of December 31, 1998 were 13.6% and 14.6%, respectively.
In addition, the Federal Reserve Board has established minimum Leverage
ratio (Tier 1 capital to quarterly average assets less goodwill) guidelines for
bank holding companies. These guidelines provide for a minimum ratio of 3.00%
for bank holding companies that meet certain specified criteria, including that
they have the highest regulatory rating. All other bank holding companies are
required to maintain a Leverage ratio of 3.00% plus an additional cushion of at
least 100 to 200 basis points. The Company's Leverage ratio as of December 31,
1998 was 8.9%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
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The Bank is subject to capital requirements adopted by the Federal
Reserve Board that are the same as those that apply to the Company. At December
31, 1998 the Bank's total capital, Tier 1 capital and leverage ratios were 14.4%
13.3% and 10.1%, respectively.
Each federal regulatory agency is required to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risk of non-traditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family mortgages. The Federal Reserve Board and the FDIC have
jointly solicited comments on a proposed framework for implementing the interest
rate risk component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighted by risk factors that approximate the instruments' price sensitivity to
a one hundred basis point change in interest rates. Institutions with interest
rate risk exposure in excess of the threshold level would be required to hold
additional capital proportional to that risk. In 1994, the Federal Reserve
Board, FDIC, and related agencies solicited comments on a proposed revision to
the risk-based capital guidelines to take account of concentration of credit
risk and the risk of non-traditional activities. The revision proposed to amend
each agency's risk-based capital standards by explicitly identifying
concentration of credit risk and the risk arising from non-traditional
activities, as well as an institution's ability to manage those risks, as
important factors to be taken into account by the agency in assessing an
institution's overall capital adequacy. The proposal was adopted as a final rule
by the Federal Reserve Board and the FDIC and subsequently became effective on
January 17, 1995. The Company and the Bank do not expect the final rule to have
a material impact on their respective capital requirements.
Under Federal Reserve Board policy, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that, in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks. This support may be required during periods of financial stress or
adversity, in circumstances where the Company might not do so absent such
policy. A bank holding company is expected to maintain the financial flexibility
and capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. The failure of a bank holding company to serve as a source of
strength to its subsidiary banks would generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice, a violation of
Federal Reserve Board regulations, or both.
ITEM 2. DESCRIPTION OF PROPERTIES
The main office of the Company and the Bank was built in 1978 and is a
two-story building of brick construction, with approximately 8,500 square feet
of floor space. It is located on Route 60 in the Village of Flat Rock in
Powhatan County. On March 6, 1992, the Bank purchased the deposits of the
Powhatan office of the former Coreast Federal Savings Bank from the Resolution
Trust Corporation assuming approximately $9.0 million in deposit liabilities.
The Bank also negotiated the purchase of that branch site and its furniture and
equipment at a price at or slightly below market value. The branch facility is
located in the Village of Flat Rock across Route 60 from the Bank's main office.
This facility allows the Bank to service westbound traffic on Route 60 with its
drive-in teller facility, and also houses the Bank's secondary mortgage market
loan origination operation. In April 1993, the Bank acquired the branch facility
of the former Investors Federal Savings Bank located in the Market Square
Shopping Center in Brandermill in Chesterfield County, through the Resolution
Trust Corporation. This one-story building contains approximately 1,600 square
feet and opened for business on November 1, 1993. The Bank's other branches are
located in the Village of Midlothian in Chesterfield County and on U.S. Route 60
near the courthouse and in Cartersville, both in Cumberland County. The
Midlothian branch is a one and one-half story building with approximately 3,000
square feet. The Cartersville location, which was originally opened in 1985, was
replaced in mid-1994 with a one-story brick building with approximately 1,600
square feet. In June 1998 the Bank opened a 4,800 square foot branch located on
U. S. Route 60 (Anderson Highway) near the courthouse in Cumberland County,
Virginia.
In May 1996 the Company moved its administrative staff to a 15,000
square foot two-story Corporate Center in the Powhatan Commercial Center located
off U.S. Route 60 near the main office. The
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Corporate Center houses the computer operations, loan administration and
bookkeeping departments all of which were formerly located in the main office.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending at this time involving
either the Company or the Bank as a party or affecting any property of the
Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
Central Virginia Bankshares, Inc.'s common stock trades on The Nasdaq
Stock MarketSM under the symbol "CVBK". As of March 16, 1999, the Company had
approximately 1,613 shareholders of record.
The following table shows dividends paid and the high and low trade
prices by quarter for the past two years according to the Nasdaq (figures
reflect 2-for-1 stock split issued in August 1998):
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------- -------------------------------------------
Dividends Dividends
High Trade Low Trade Paid High Trade Low Trade Paid
<S> <C> <C> <C> <C> <C> <C>
First Quarter $22.813 $14.00 $.095 $10.875 $9.75 $.09
Second Quarter 20.25 16.50 .095 12.25 10.625 .09
Third Quarter 17.313 12.25 .095 14.125 11.125 .0925
Fourth Quarter 15.50 12.75 .10 16.50 12.50 .095
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Company's net income for the year ended December 31, 1998 was
$1,936,367, an increase of 5.6% from 1997. This increase reflects a 6.2%
increase in net interest income, which was primarily due to a 17.9% increase in
average interest earning assets for the year. In addition, other income rose
51.2% primarily due to an 18.2% increase in service charges on deposit accounts
as well as a 128% increase in other income. The other income increase represents
a $210,213 increase in fees received on mortgage loans originated and sold in
the secondary market. The 1998 figures in this area reflect a full year's
results by the staff in the secondary mortgage market staff hired in October
1997. The Company did not participate in the secondary mortgage market during
most of 1997. Net income per common share was $1.01 in 1998 compared to $.96 in
1997. Per share data has been adjusted to reflect a 2-for-1 stock split paid in
August 1998.
The Company's net income totaled $1,834,090 in 1997, an increase of
7.2% from 1996. These results also reflect an increase in the net interest
income. Average interest-earning assets increased 7.4% in 1997, which included a
65.3% decrease in lower-yielding federal funds sold. Average investment
securities
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increased 83.7% in 1997 and average loans outstanding increased 5.8% in the same
time period. Net income per common share was $.96 in 1997 compared to $.90 in
1996.
The Company's return on average equity was 12.2% in 1998, compared to
12.6% and 12.5% in 1997 and 1996, respectively. Return on average assets
amounted to 1.23%, 1.38% and 1.37% for these same years.
Net Interest Income. The Company's net interest income was $6,466,420
in 1998, compared to $6,090,879 and $5,498,547 for 1997 and 1996, respectively.
The following table sets forth the Company's average interest earning
assets (on a tax equivalent basis) and average interest bearing liabilities, the
average yields earned on such assets and rates paid on such liabilities, and the
net interest margin, all for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ----------------------------- --------- --------- --------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- --------- -------- --------- --------- -------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $3,747 $210 5.60% $5,510 $315 5.72% $15,862 $848 5.35%
------ ---- ------ ---- ------- ----
Securities: (5)
U.S. Treasury securities 2,032 122 6.00 863 54 6.26 - - -
Obligations of other U.S.
governmental agencies and
corporations 23,514 1,556 6.62 16,415 1,116 6.80 6,812 473 6.94
Obligations of states and
political subdivisions(3) 19,101 1,168 7.81 12,544 727 8.03 9,747 553 8.60
Other securities 1,821 141 7.74 1,012 72 7.11 227 11 4.85
----- --- ----- -- --- --
Total securities (3) 46,468 2,987 7.12 30,834 1,969 7.29 16,786 1,037 7.88
------ ----- ------ ----- ------ -----
Loans (1)(2)(4) 96,560 9,131 9.46 88,180 8,657 9.82 83,323 8,207 9.85
------ ----- ------ ----- ------ -----
Total interest-earning assets $146,775 $12,328 8.40% $124,524 $10,941 8.79% $115,971 $10,092 8.70%
======== ======= ======== ======= ======== =======
Interest bearing liabilities:
Deposits:
Interest bearing demand $26,219 $754 2.88% $21,668 $637 2.94% $20,630 $611 2.96%
Savings 15,361 497 3.24 13,602 441 3.24 12,189 394 3.23
Other time 75,083 4,266 5.68 62,634 3,568 5.70 61,985 3,544 5.72
------ ----- ------ ----- ------ -----
Total deposits 116,663 5,517 4.73 97,904 4,646 4.75 94,804 4,549 4.80
Federal funds purchased
and securities sold under
repurchase agreements 754 44 5.84 1,101 55 5.00 815 39 4.79
FHLB advance 5,000 297 5.94 2,480 145 5.85 - - -
Long-term debt 38 3 7.89 47 4 8.51 56 5 8.93
-- - -- - -- -
Total interest-bearing
liabilities $122,455 $5,861 4.79% $101,532 $4,850 4.78% $95,675 $4,593 4.80%
======== ====== ======== ====== ======= ======
Net interest margin $6,467 3.61% $6,091 4.01% $5,499 3.90%
====== ====== ======
Net interest yield 4.63% 5.12% 4.99%
</TABLE>
______________________
(1) Installment loans are stated net of unearned income.
(2) Average loan balances include non-accrual loans.
(3) Tax-exempt income has been adjusted to a tax-equivalent basis using an
incremental rate of 34%.
(4) Interest income on loans includes loan fees of $514,033 in 1998, $429,851
in 1997, and $425,320 in 1996.
(5) Includes investment securities and securities available for sale.
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
-8-
<PAGE>
percentage of average interest earning assets. The Company's net interest margin
was 3.61% in 1998, compared to 4.01% during 1997 and 3.90% in 1996. The net
interest margin decreased in 1998 primarily due to the general decline in
interest rates charged on loans and offered on securities. The tax-equivalent
yield on interest earning assets declined to 8.4% in 1998 from 8.79% in 1997. In
1997, the net interest margin increased primarily due to the decrease in the
average balance of lower-yielding federal funds sold and the reinvestment of
these funds into loans and securities.
Net interest income is affected by changes in both average interest
rates and average volumes of interest-earning assets and interest-bearing
liabilities. The following table sets forth the amounts of the total change in
interest income that can be attributed to rate (change in rate multiplied by old
volume) and volume (change in volume multiplied by old rate) for the periods
indicated. The amount of change not solely due to rate or volume changes was
allocated between the change due to rate and the change due to volume based on
the relative size of the rate and volume changes.
<TABLE>
<CAPTION>
1998 Compared to 1997 1997 Compared to 1996
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold ($101) ($4) ($105) ($553) $20 ($533)
------ ---- ------ ------ ---- ------
Securities: (1)
U. S. Treasury securities 73 (5) 68 54 0 54
Obligations of other U. S.
government agencies and
corporations 483 (42) 440 666 (23) 643
Obligations of states and
political subdivisions 505 (64) 441 159 15 174
Other 58 11 69 38 23 61
--- --- --- --- --- --
Total securities 1,118 (100) 1,018 917 15 932
------ ----- ----- ---- --- ---
Loans 823 (349) 474 477 (27) 450
---- ----- --- ---- ---- ---
Total interest income $1,840 ($453) $1,387 $841 $8 $849
====== ====== ====== ===== === ====
Interest expense:
Deposits:
Interest bearing demand $134 ($17) $117 $31 ($5) $26
Savings 56 0 56 46 1 47
Other time 711 (13) 698 36 (12) 24
---- ---- --- --- ---- --
Total deposits 901 (30) 871 113 (16) 97
Federal funds purchased and securities
sold under repurchase agreements (17) 6 (11) 14 2 16
FHLB advances 147 4 152 145 0 145
Long-term debt (1) (0) (1) (1) (0) (1)
--- --- --- --- --- ---
Total interest expense $1,031 ($20) $1,011 $271 ($14) $257
====== ===== ====== ===== ===== ====
Increase (decrease) in net
interest income $809 ($433) $376 $570 $22 $592
===== ====== ==== ===== ==== ====
</TABLE>
______________________
(1) Includes securities available for sale and securities held to maturity
Non-Interest Income. In 1998, the Company's non-interest income
increased to $1,157,677 from $765,583 in 1997, a 51.2% gain. This is the result
of a $105,800 (18.2%) increase in service charges on deposit accounts, and a
$214,305 (128.1%) increase in other income. Included in the other income is the
$210,213 increase in fees received on loans sold in the secondary mortgage
market. Gains realized on the sale of securities available for sale also
increased to $88,342 in 1998 from $16,353 in 1997 as the Company took advantage
of existing gains in securities to reinvest the funds in higher-yielding
securities.
-9-
<PAGE>
In 1997 the Company's total non-interest income decreased 11.3% due to
a decrease in the amount of fees collected on checking accounts for overdrafts
as well as a decrease in the fees received on loans sold in the secondary
mortgage market. The Company was not an active participant in the secondary
mortgage market during much of 1997.
Non-Interest Expenses. The Company's total non-interest expenses
increased 16.4% in 1998 to $4,846,376. Increases in salaries and benefits of
21.8%, occupancy expenses of 4.5%, equipment expenses of 9.5%, and office
supplies, telephone, and postage expense of 19.1%, primarily reflect the opening
of the new branch location in Cumberland Courthouse in June 1998. A 44.3%
increase in advertising and public relations is partially attributable to the
new branch but is primarily due to increased advertising efforts directed
towards former customers of larger institutions that had recently been sold to
out of state banks.
In 1997, the Company's total non-interest expenses increased 9.5% or
$361,892 compared to 1996. Included in this increase is a 9.8% increase in
salaries and benefits, as well as a 13.7% increase in occupancy expenses and a
12.7% increase in equipment and office supplies expenses, both attributable to
the first full year of operation of the Corporate Center office.
Income Taxes. The Company reported income taxes of $643,355 in 1998,
compared to $659,239 in 1997 and $684,917 in 1996. These amounts yielded
effective tax rates of 24.9%, 26.4%, and 28.6%, respectively.
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. Many of the Company's real estate construction loans are for
pre-sold or contract homes. Builders are limited as to the number and dollar
amount of loans for speculative home construction based on the financial
strength of the borrower and the prevailing market conditions.
Loans increased $20.7 million or 23.3% from year-end 1997 to year-end
1998 compared to an increase of $4.5 million, or 5.3% from year-end 1996 to
year-end 1997. The loan to deposit ratio was 70.8% at December 31, 1998,
compared to 72.4% at December 31, 1997 and 76.8% at December 31, 1996.
-10-
<PAGE>
The following table summarizes the Company's loan portfolio, net of
unearned income:
<TABLE>
<CAPTION>
At December 31
-----------------------------------------------
1998 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C>
Real Estate:
Mortgage $51,564 $42,158 $37,884
Home equity 4,831 5,769 6,315
Construction 14,330 8,472 10,078
------ ----- ------
Total Real Estate $70,725 $56,399 $54,237
Commercial 17,674 17,816 15,314
Installment 22,734 16,134 16,400
------ ------ ------
$111,133 $90,349 $85,951
Less unearned discount (300) (341) (401)
----- ----- -----
110,833 90,008 85,550
Allowance for loan losses (1,267) (1,176) (1,212)
------- ------- -------
Loans, net $109,566 $88,832 $84,338
======== ======= =======
</TABLE>
As shown in the above table, the total amount of outstanding real
estate loans increased by $14.3 million in 1998 and by $2.2 million in 1997.
During 1998, the amount of outstanding installment loans to individuals
increased by $6.6 million, compared to a decrease of $266,000 in 1997 compared
to 1996. Commercial, financial and agricultural loans decreased by $142,000 in
1998 compared to an increase of $2.5 million in 1997.
At December 31, 1998, no concentrations of loans exceeding 10.0% of
total loans existed which were not disclosed as a separate category of loans.
The following table shows the maturity of loans outstanding as of
December 31, 1998. Also provided are the amounts due classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------
After One
Within but Within After Five
One Year Five Years Years Total
-------- ---------- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate mortgage $770 $43,709 $7,085 $51,564
Installment 933 19,615 2,186 22,734
Other (1) 33,645 3,190 - 36,835
------- ------- ------ --------
$35,348 $66,514 $9,271 $111,133
======= ======= ====== ========
Loans maturing with:
Fixed interest rates $35,960
Variable interest rates 75,173
$111,133
</TABLE>
_____________________
(1) Includes home equity, real estate construction and commercial loans.
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.
Non-performing loans totaled $595,000 at December 31, 1998, compared to
$734,000 at December 31, 1997 and $1,643,000 at December 31, 1996. The decrease
in non-performing loans in 1998
-11-
<PAGE>
reflects an increase in loans accounted for on a non-accrual basis and a
decrease in loans contractually past due 90 days or more.
Management forecloses on delinquent real estate loans when all other
repayment possibilities have been exhausted. Real estate acquired through
foreclosure (OREO) was $479,725 at December 31, 1998, compared to $313,000 and
$372,546 at December 31, 1997 and 1996, respectively. All foreclosed property
held at December 31, 1998 was in the Company's primary service area and
consisted of two single-family dwellings, a former day-care center, ten building
lots, and a 5-acre parcel of improved land. The Bank has not incurred
significant current period expenses related to carrying OREO on its books. The
Bank's practice is to value real estate acquired through foreclosure at the
lower of (i) an independent current appraisal or market analysis less
anticipated costs of disposal, or (ii) the existing loan balance. The Bank is
actively marketing all foreclosed real estate and does not anticipate material
write-downs in value before disposition.
Management does not believe that the level of non-performing loans in
1998 reflects any systematic problem in the Company's loan portfolio. At
December 31, 1998, non-accrual loans totaled $237,000 compared to $38,000 at
December 31, 1997 and $708,000 at December 31, 1996. Management does not
anticipate a material increase in non-performing assets, although it may move to
foreclose on borrowers whose loans were on a non-accrual status at December 31,
1998.
The following table summarizes non-performing loans:
<TABLE>
<CAPTION>
At December 31
--------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <S> <C> <C>
Loans accounted for on a non-accrual basis $237 $38 $708
Loans contractually past due 90 days or more as to interest or
principal payments (not included in non-accrual loans above) 358 696 935
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 $595 $734 $1,643
==== ==== ======
</TABLE>
Loans 90 days or more past due are placed on non-accrual status unless
well secured and in the process of collection. In 1998, $8,602 of interest
income was reversed when loans were placed on non-accrual status or upon
foreclosure. In 1997 and 1996, $10,895 and $3,502 of interest income was
reversed under the same circumstances, respectively. Since the Company operates
in a rural to suburban area, it has generally been well acquainted with its
principal borrowers and has not had such a large number of problem credits that
management has not been able to stay well informed about, and in contact with,
troubled borrowers. Additionally, because the Company generally requires
collateral for loans, the Company has been able to recover a sufficient amount
of loans previously charged off so that the provision for loan losses each year
exceeds net charge-offs.
-12-
<PAGE>
The following table sets forth the amounts of contracted interest
income and interest income reflected in income on loans accounted for on a
non-accrual basis and loans restructured and in compliance with modified terms:
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Gross interest income that would have been recorded if the loans
had been current and in accordance with their original terms $19 $4 $56
Interest income included in income on the loans - - -
</TABLE>
Management is not aware of any other loans at December 31, 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. Furthermore, past experiences led management to
conclude that as a general matter it is prudent to operate with a high level of
reserves. The ratio of the allowance for loan losses to total loans was 1.14% at
December 31, 1998, compared to 1.31% at December 31, 1997 and 1.42% at December
31, 1996. The decrease in the ratios reflects the growth of the portfolio.
Management feels that the growth of the allowance for loans losses, while not at
the same rate as the portfolio growth, is adequate to provide for future losses.
As evidence of this belief, the ratio of the allowance for loan losses to
non-performing assets has increased. At December 31, 1998 the ratio of the
allowance for loan losses to non-performing loans was 212.9%, compared to 160.2%
and 73.8% at December 31, 1997 and 1996, respectively. 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.
-13-
<PAGE>
The following table summarizes changes in the allowance for loan
losses:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at beginning of period $1,176 $1,212 $1,127
Charge-offs:
Commercial, financial and agricultural 24 74 8
Real estate mortgage 61 60 30
Installment loans to individuals 70 134 64
-- --- --
Total 155 268 102
Recoveries on previous loan losses:
Commercial, financial and agricultural $8 $- $-
Installment loans to individuals 40 32 22
-- -- --
Total 48 32 22
--- --- ---
Net charge-offs (107) (236) (80)
Provision charged to operations 198 200 165
--- --- ---
Balance at end of period $1,267 $1,176 $1,212
====== ====== ======
Ratio of net loan losses to average net loans outstanding:
Net charge-offs $107 $236 $80
Average net loans 97,066 86,616 81,701
------ ------ ------
0.11% 0.27% 0.10%
----- ----- -----
Ratio of allowance for loan losses to total loans, net of
unearned income:
Allowance for loan losses $1,267 $1,176 $1,212
Total loans at period end 110,833 90,008 85,550
------- ------ ------
1.14% 1.31% 1.42%
----- ----- -----
Ratio of allowance for loan losses to non-performing loans:
Allowance for loan losses $1,267 $1,176 $1,212
Non-performing loans 595 734 1,643
--- --- -----
212.94% 160.22% 73.77%
------- ------- ------
</TABLE>
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 collectability 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 $198,000 for the year ended
December 31, 1998, $200,000 and $165,000 for the years ended December 31, 1997
and 1996, respectively. In the opinion of management, the provision charged to
operations has been sufficient to absorb the current year's net loan losses
while continuing to provide for future loan losses.
-14-
<PAGE>
The following table shows the balance and percentage of the Company's
allowance for loan losses allocated to each category of loans:
<TABLE>
<CAPTION>
At December 31
----------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------- --------------------------------- ---------------------------------
Percentage Percentage Percentage
Reserve of Reserve Percentage Reserve of Reserve Percentage Reserve of Reserve Percentage
for Loan for Loan of Total for Loan for Loan of Total for Loan for Loan of Total
Losses Losses Loans Losses Losses Loans Losses Losses Loans
------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $211 17% 16% $197 17% 20% $212 18% 19%
Real estate 131 10 13 94 8 9 125 10 12
construction
Real estate mortgage (1) 693 55 51 721 61 53 660 54 47
Installment 232 18 20 164 14 18 215 18 22
--- -- -- --- -- -- --- -- --
$1,267 100% 100% $1,176 100% 100% $1,212 100% 100%
====== ==== ==== ====== ==== ==== ====== ==== ====
</TABLE>
- --------------
(1) Includes home-equity loans.
The Company has allocated the allowance according to the amount deemed
to be reasonably necessary to provide for the possibility of losses being
incurred within each of the above categories of loans. The allocation of the
allowance as shown in the table above should not be interpreted as an indication
that loan losses in future years will occur in the same proportions or that the
allocation indicates future loss trends. Furthermore, the portion allocated to
each loan category is not the total amount available for future losses that
might occur within such categories since the total allowance is a general
allowance applicable to the entire portfolio.
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 1998, total securities increased to $56.5 million,
or 30.9% of total assets at December 31, 1998. During 1997, total securities
increased to $40.6 million, or 27.9% of assets at December 31, 1997.
The securities portfolio consists of two components, securities
available for sale and securities held to maturity. Securities are classified as
held to maturity when management has the intent and the Company has the ability
at the time of purchase to hold the securities to maturity. 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 securities have generally been limited to
securities of high credit quality with short to medium term maturities.
-15-
<PAGE>
The following table summarizes the book value of the Company's
securities held to maturity at the date indicated:
<TABLE>
<CAPTION>
Book Value at December 31
------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. government agencies and corporations $ 998 $ 998 $ -
States and political subdivisions 24,794 15,817 10,208
Corporate debt 828 - -
U. S. treasury notes 1,025 1,042 -
----- ----- -------
$27,645 $17,857 $10,208
======= ======= =======
</TABLE>
The following table summarizes the book value of the Company's
securities available for sale at the dates indicated.
<TABLE>
<CAPTION>
Book Value at December 31
------------------------------------------
1998 1997 1996
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. government agencies and corporations $17,912 $15,230 $6,717
Equities 3,983 712 -
Mortgage-backed securities 6,727 6,450 962
----- ----- ------
$28,622 $22,392 $7,679
======= ======= ======
</TABLE>
The book value and average yield of the Company's securities, including
securities available for sale, at December 31, 1998, by contractual maturity,
are reflected in the following table. Actual maturities will differ from
contractual maturities because certain borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
U. S. Government
States and political U. S. Treasury Agencies and
Subdivisions Securities Corporations Corporate Debt
-------------------- -------------------- --------------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $1,988 5.82% $ - - $12 6.47% $ - -
Due after one year through five years 2,988 6.21% - - 2,648 6.15% - -
Due after five years through ten years 4,152 4.79% 1,025 6.28% 6,426 6.88% 97 7.50%
Due after ten years 15,666 6.60% - - 16,550 6.33% 730 8.13%
------ --- ------ ---
$24,794 6.19% $1,025 6.28% $25,636 6.44% $827 8.06%
======= ====== ======= ====
</TABLE>
As shown in the table above, approximately $2.0 million or 3.8% of the
total portfolio will mature in one year or less while $5.6 million or 10.7% will
mature after one year but within five years. The fully taxable equivalent
average yield on the entire portfolio was 7.12% for 1998, compared to 7.29% for
1997 and 7.88% for 1996. The market value of the portfolio exceeded the book
value by $1.1 million at December 31, 1998.
-16-
<PAGE>
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.
As shown in the following table, average total deposits grew by 18.2%
in 1998 and 4.7% in 1997. The average aggregate interest rate paid on deposits
was 4.05% in 1998, compared to 4.03% for 1997 and 4.13% in 1996. 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 average deposits and average rates
paid:
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------- ------------------------------
Average Interest Average Average Interest Average Average Interest Average
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $19,645 $ - -% $17,434 $ - -% $15,371 $ - -%
Interest bearing demand
deposits 26,219 754 2.88% 21,668 637 2.94% 20,630 611 2.96%
Savings deposits 15,361 497 3.24% 13,602 441 3.24% 12,189 394 3.23%
Time deposits 75,083 4,266 5.68% 62,634 3,568 5.70% 61,985 3,544 5.72%
------ ----- ------ ----- ------ -----
Total $136,308 $5,517 4.05% $115,338 $4,646 4.03% $110,175 $4,549 4.13%
======== ====== ======== ====== ======== ======
</TABLE>
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at December 31, 1998:
Time Deposits > $100,000
------------------------
(in Thousands)
Three months or less $1,756
Three to six months 5,507
Six to twelve months 5,272
Over twelve months 2,768
--------
$15,303
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 Bank's capital position continues to exceed regulatory
requirements. The primary indicators relied on by the Federal Reserve Board and
other bank regulators in measuring strength of capital position are the Tier 1
Capital, Total Capital, and Leverage ratios. Tier 1 Capital consists of common
and qualifying preferred stockholders' equity less goodwill. Total Capital
consists of Tier 1 Capital, qualifying subordinated debt and a portion of the
allowance for loan losses. Risk-based capital ratios are calculated with
reference to risk-weighted assets, which consist of both on and off-balance
sheet risks. The Company's Tier 1 Capital ratio was 13.3% at December 31, 1998,
compared to 16.2% at December 31, 1997 and 16.4% at December 31, 1996. The Total
Capital ratio was 14.4% at December 31, 1998, compared to 17.4% and 17.7% at
December 31, 1997 and 1996, respectively. These ratios are in excess of the
mandated minimum requirements of 4.00% and 8.00%, respectively. The Leverage
ratio consists of
-17-
<PAGE>
Tier 1 capital divided by quarterly average assets. At December 31, 1998, the
Bank's Leverage ratio was 10.1% compared to 11.2% at December 31, 1997 and 11.3%
at December 31, 1996. Each of these exceeds the required minimum leverage ratio
of 3.00%.
The following table shows risk based capital ratios and stockholders
equity to total assets:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------
Regulatory
Minimum 1998 1997 1996
------- ---- ---- ----
<S> <C> <C> <C> <C>
Tier 1 risk-based capital 4.0% 13.3% 16.2% 16.4%
Total risk-based capital 8.0% 14.4% 17.4% 17.7%
Leverage ratio 3.0% 10.1% 11.2% 11.3%
Stockholders' equity to total assets N/A 9.4% 10.9% 11.4%
</TABLE>
The capital management function is an ongoing process. Central to this
process is internal equity generation accomplished by earnings retention. During
1998, total stockholders' equity increased by $1,277,338, primarily as a result
of earnings retention. Total stockholders' equity increased by $1,396,186 in
1997 also due to earnings retention. The return on average equity was 12.2% in
1998, compared to 12.6% in 1997 and 12.5% in 1996. Total cash dividends were
paid representing 38% of net income for 1998, which was also the same percentage
of net income for both 1997 and 1996. Book value per share was $8.94 at December
31, 1998, compared to $8.30 at December 31, 1997 and $7.61 at December 31, 1996.
The Company's principal source of cash income is dividend payments from
the Bank. Certain limitations exist under applicable law and regulation by
regulatory agencies regarding dividend payments to a parent by its subsidiaries.
As of December 31, 1998, the Bank had $2.8 million of retained earnings
available for distribution to the Company as dividends without prior regulatory
approval.
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, borrowing from the Federal Home Loan Bank 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 has 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 interval.
At December 31, 1998, the Company had a positive gap position. Since
the largest amount of interest sensitive assets and liabilities reprice within
12 months, the Company monitors this area closely. The Company does not
emphasize interest sensitivity analysis beyond this time frame because it
believes various unpredictable factors could result in erroneous
interpretations. Early withdrawal of deposits, prepayments of loans and loan
delinquencies are some of the factors that could have such and effect. In
addition, changes in rates on interest sensitive assets and liabilities may not
be equal, which could result in a change in net interest margin. While the
Company does not match each of its interest sensitive assets
-18-
<PAGE>
against specific interest sensitive liabilities, it does seek to enhance the net
interest margin while minimizing exposure to interest rate fluctuations.
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. Management actively monitors interest rate
sensitivity, as illustrated by the Gap Analysis, 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.
The following table summarizes the contractual repayment terms or
nearest repricing dates of the Company's interest earning assets and interest
bearing liabilities at December 31, 1998:
<TABLE>
<CAPTION>
Maturing or Repricing In:
----------------------------------------------------------------------
Within 4-12 1-5 Over
3 Months Months Years 5 Years Total
-------- ------ ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Securities available for sale $7,378 $9,105 $9,964 $2,441 $28,888
Securities held to maturity 429 1,559 9,760 15,897 27,645
Loans 34,037 1,311 64,947 9,271 109,566
------ ----- ------ ----- -------
Total interest-earning assets $41,844 $11,975 $84,671 $27,609 $166,099
======= ======= ======= ======= ========
Interest Bearing Liabilities
Deposits:
Interest bearing demand $31,769 $ - $ - $ - $31,769
Savings 17,305 - - - 17,305
Time deposits, $100,000 and over 1,756 5,507 8,040 - 15,303
Other time deposits 13,889 30,370 22,523 - 66,782
Federal funds purchased and securities
sold under repurchase agreements 5,080 - - - 5,080
FHLB advances - 5,000 - - 5,000
Long-term debt - 9 27 - 36
------- ------- ------- --- --------
Total interest-bearing liabilities $69,799 $40,886 $30,590 $0 $141,275
======= ======= ======= === ========
Period gap ($27,955) ($28,911) $54,081 $27,609 $24,824
========= ========= ======= ======= =======
Cumulative gap ($27,955) ($56,866) ($2,785) $24,824
========= ========= ======== =======
Ratio of cumulative gap to total earning
assets (16.83%) (34.24%) (1.68%) 14.95%
</TABLE>
Of the amount of loans due after 12 months, $38.2 million had floating
or adjustable rates of interest and $36.0 million had fixed rates of interest.
Year 2000 Issue
With the approach of the beginning of the new millennium, there is
increasing public awareness and attention being directed toward the Year 2000
problem. The Year 2000 problem stems from the inability of certain computerized
systems and devices to either recognize or process data on a year date later
than 1999.
-19-
<PAGE>
The Company began its review of the Year 2000 problem in late 1997
through its Year 2000 Project Committee, which is comprised of the Company's
senior managers and representatives from each major business line and functional
area of the Company. The committee manages and monitors the process to determine
that all areas and systems have been reviewed, certified compliant and tested
and ensures that the Company remains in compliance with regulatory guidelines
promulgated by the Federal Financial Institutions Examination Council (the
"FFIEC") regarding Year 2000 preparedness. The objective of these guidelines is
to eliminate or minimize the impact from Year 2000 problems to internal
operations that could affect the Company's customers and its ability to maintain
basic banking services.
Under current banking regulations relating to the Year 2000 problem,
all financial institutions must meet several required processes and critical
dates, as follows:
Review Mission-Critical Systems for Year 2000 Readiness.
o Identify and prioritize all internal and external
mission-critical systems.
o Identify and/or obtain all financial and human resources
necessary to correct deficiencies.
o Develop and adopt a formal project plan to accomplish
remediation.
o Conduct a due diligence process to monitor and evaluate the
efforts of external third party vendors and service providers in
becoming Year 2000 compliant.
Renovate and Test Systems.
o Certification of Year 2000 compliance and testing for all
internally supported mission-critical systems must be
substantially completed by December 31, 1998.
o Certification of Year 2000 compliance and testing for all
externally supported mission-critical systems must be
substantially completed by March 31, 1999.
o Certification and testing for Year 2000 compliance of any
internal or external supported non mission-critical system must
be substantially completed by June 30, 1999.
Business Resumption Contingency Planning.
o A documented business resumption contingency plan must be in
place that defines scenarios and evaluates options in the event
that a mission-critical system fails to achieve Year 2000
readiness.
Customer Risk Assessment.
o Develop a due diligence process to identify any customers and/or
counterparties that represent a material risk exposure to the
Company.
o Evaluate these customers' Year 2000 preparedness.
o Assess these customers' existing and potential Year 2000 risk to
the Company.
o Implement risk controls to manage and mitigate this Year 2000
risk to the Company.
The status of the Company's current schedule to meet all regulatory
mandated requirements for Year 2000 readiness as of March 1, 1999 is as follows:
o The Company has certified compliant over 85% of its
mission-critical systems and services, and it anticipates
substantially completing all certification and testing as
required by March 31, 1999.
o The Company expects to certify compliant and appropriately test
the remaining non mission-critical systems by June 30, 1999. This
process is currently over 40% completed, and the Company does not
anticipate any significant problems in meeting this requirement.
-20-
<PAGE>
o The Company has developed and continues to revise its Year 2000
business resumption plan that will outline and direct its
operations in the event of any mission-critical system failures
effecting a core business process. This plan identifies the
minimum service levels associated with these core business
processes.
o The anticipated cost of the entire process of becoming Year 2000
compliant should not exceed, in the aggregate $250,000, some of
which has already been expensed in the normal course of business
during 1998. A portion of these costs may be capitalized to the
extent that they relate to purchase of new hardware or equipment.
Net book value of previously capitalized assets replaced as a
direct result of Year 2000 compliance will be written off in
accordance with generally accepted accounting principles. In
addition, costs associated with personnel assigned to work on the
Year 2000 project are not included in the above figure. Personnel
costs are expensed as incurred and no personnel have been
assigned to the Year 2000 project on a full-time basis. At this
time, it is the opinion of management that the total impact to
1999 earnings for Year 2000 remediation and compliance should not
be material.
o The Company is engaged in a comprehensive internal information
and education process with all of its associates regarding Year
2000 issues and contingency plans.
The Company relies on external sources for its computer hardware and
software needs. The Company is evaluating and monitoring, to the extent
possible, the progress of external vendors and service providers in becoming
Year 2000 compliant. The Company has been communicating with these third party
vendors, and such vendors either are already Year 2000 ready or are in the
process of modifying, upgrading or replacing their computer applications to
ensure Year 2000 compliance. There are many services and functions that are
beyond the direct control of the Company, and the Company is developing a
detailed contingency plan that will address what the Company will do should any
problems with these external providers occur. This plan will include, among
other things, moving to new vendors if existing vendors cannot continue to
provide services or stay in business.
At this time, the Company believes that the most likely worst case Year
2000 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 Year
2000 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 Year 2000
issues. While unlikely, it is acknowledged that the failure of the Company to
successfully implement its Year 2000 plan, or to adequately assess the
likelihood of various events relating to the Year 2000 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
-21-
<PAGE>
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements and independent
auditors' report thereon are filed as a part of this report following Item 13:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on
accounting and financial disclosure as defined by Item 304 of Regulation S-B.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information set forth under the caption "ELECTION OF DIRECTORS;
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" on pages 2
through 6 of the definitive 1999 Proxy Statement of the Registrant furnished to
shareholders in connection with its Annual Meeting to be held on April 27, 1999
(the "1999 Proxy Statement") is hereby incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information set forth under the heading "Remuneration" on pages 6
through 7 of the 1999 Proxy Statement is hereby incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth under the heading "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" on pages 4 and
5, respectively, of the 1999 Proxy Statement, is hereby incorporated by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth under the heading "Certain Transactions" on page
7 of the 1999 Proxy Statement is hereby incorporated by reference.
-22-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are attached hereto or incorporated herein by
reference as Exhibits:
3.1 Articles of Incorporation, including amendments thereto
(incorporated herein by reference to Exhibit 2 to the
Registrant's Form 8-A filed with the SEC on May 2, 1994).
3.2 Bylaws (incorporated herein by reference to Exhibit 3 to the
Registrant's Form 8-A filed with the SEC on May 2, 1994).
4.1 Specimen of Registrant's Common Stock Certificate
(incorporated herein by reference to Exhibit 1 to the
Registrant's Form 8-A filed with the SEC on May 2, 1994).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Mitchell, Wiggins & Company, LLP (filed herewith)
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
With the exception of the information herein expressly incorporated by
reference, the 1999 Proxy Statement of the Registrant is not to be deemed filed
as part of this Annual Report on Form 10-KSB.
-23-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
C O N T E N T S
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 2 - 3
Consolidated statements of income 4 - 5
Consolidated statements of stockholders' equity 6
Consolidated statements of cash flows 7 - 8
Notes to consolidated financial statements 9 - 27
- --------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Central Virginia Bankshares, Inc.
Powhatan, Virginia
We have audited the accompanying consolidated balance sheets of Central Virginia
Bankshares, Inc., and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Central Virginia
Bankshares, Inc., and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Mitchell, Wiggins & Company, LLP
Richmond, Virginia
January 15, 1999
-1-
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 7,812,804 $ 5,239,415
Federal funds sold - 3,785,000
---------------------------------------
Total cash and cash equivalents 7,812,804 9,024,415
Securities available for sale 28,888,350 22,713,173
Securities held to maturity 27,645,062 17,857,400
Mortgage loans held for sale 759,466 331,350
Loans, net 109,566,111 88,832,228
Bank premises and equipment, net 4,281,687 3,540,305
Accrued interest receivable 1,467,595 1,318,880
Other assets 2,208,419 1,601,073
---------------------------------------
$ 182,629,494 $ 145,218,824
---------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities
Deposits:
Demand deposits $ 23,566,911 $ 19,614,855
Interest bearing demand deposits
and NOW accounts 31,769,395 20,991,218
Savings deposits 17,305,350 13,973,955
Time deposits, $100,000 and over 15,302,914 11,997,704
Other time deposits 66,782,231 56,095,809
--------------------------------------
154,726,801 122,673,541
Federal funds purchased and securities
sold under repurchase agreements 5,080,192 1,193,887
FHLB advance 5,000,000 5,000,000
Note payable 36,000 45,000
Accrued interest payable 375,777 327,763
Other liabilities 293,593 138,840
--------------------------------------
165,512,363 129,379,031
--------------------------------------
Commitments and Contingencies (Note 11)
Stockholders' Equity
Common stock, $1.25 par value;
6,000,000 shares authorized; 1,914,147
and 1,907,276 shares issued and out-
standing in 1998 and 1997, respectively 2,392,684 2,384,095
Surplus 4,238,689 4,136,728
Retained earnings 10,310,831 9,109,861
Accumulated other comprehensive
income 174,927 209,109
--------------------------------------
17,117,131 15,839,793
--------------------------------------
$ 182,629,494 $ 145,218,824
--------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $9,131,040 $8,656,580 $8,206,531
Interest on securities:
U. S. government agencies and corporations 1,555,869 1,115,884 473,056
U. S. Treasury securities 121,716 54,349 -
States and political subdivisions 1,168,126 726,564 553,370
Other 140,588 72,207 10,916
Interest on federal funds sold 210,513 314,940 847,727
----------------------------------------------------
12,327,852 10,940,524 10,091,600
----------------------------------------------------
Interest expense:
Interest on deposits 5,517,379 4,646,081 4,549,567
Interest on federal funds purchased and
securities sold under repurchase agreements 44,431 55,159 38,986
Interest on FHLB advance 296,562 144,625 -
Interest on note payable 3,060 3,780 4,500
----------------------------------------------------
5,861,432 4,849,645 4,593,053
----------------------------------------------------
Net interest income 6,466,420 6,090,879 5,498,547
Provision for loan losses 197,999 200,000 165,000
----------------------------------------------------
Net interest income after
provision for loan losses 6,268,421 5,890,879 5,333,547
----------------------------------------------------
Other income:
Service charges 687,696 581,896 598,981
Realized gain on sales of securities
available for sale 88,342 16,353 25,000
Other 381,639 167,334 239,427
----------------------------------------------------
1,157,677 765,583 863,408
----------------------------------------------------
Other expenses:
Salaries and wages 1,935,153 1,572,054 1,434,644
Pensions and other employee benefits 500,156 427,134 386,712
Occupancy expense 260,884 249,622 219,579
Equipment depreciation 354,477 319,210 258,635
Equipment repairs and maintenance 181,304 170,000 165,222
</TABLE>
(Continued)
-4-
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising and public relations 252,977 175,359 140,841
Federal insurance premiums 18,872 12,375 69,869
Office supplies, telephone, and postage 403,106 338,354 310,174
Taxes and licenses 116,718 130,186 119,408
Other operating expenses 822,729 768,839 696,157
----------------------------------------------
4,846,376 4,163,133 3,801,241
----------------------------------------------
Income before income taxes 2,579,722 2,493,329 2,395,714
Income taxes 643,355 659,239 684,917
----------------------------------------------
Net income $ 1,936,367 $ 1,834,090 $ 1,710,797
----------------------------------------------
Basic earnings per share $ 1.01 $ 0.96 $ 0.90
----------------------------------------------
Diluted earnings per share $ 1.01 $ 0.96 $ 0.90
----------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $2,359,332 $3,996,803 $ 6,917,211 $ 40,148 $13,313,494
-----------
Comprehensive income:
Net income - - 1,710,797 - 1,710,797
Other comprehensive income, net of tax:
Unrealized holding losses arising during the period
net of deferred income taxes of $9,938 - - - (19,291) (19,291)
Less reclassification adjustment for gains included in
net income, net of deferred income taxes of $8,500 - - - (16,500) (16,500)
--------
Total comprehensive income 1,675,006
---------
Issuance of common stock:
18 shares in employee bonuses 23 153 - - 176
10,796 shares pursuant to dividend
reinvestment plan 13,495 94,063 - - 107,558
Cash dividends declared, $.345 per share - - (652,627) - (652,627)
-----------------------------------------------------------------
Balance, December 31, 1996 2,372,850 4,091,019 7,975,381 4,357 14,443,607
----------
Comprehensive income:
Net income - - 1,834,090 - 1,834,090
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period,
net of deferred income taxes of $111,038 - - - 215,545 215,545
Less reclassification adjustment for gains included in
net income, net of deferred income taxes of $5,560 - - - (10,793) (10,793)
---------
Total comprehensive income 2,038,842
---------
Issuance of common stock:
6,222 shares pursuant to exercise
of stock options 7,778 20,221 - - 27,999
10 shares in employee bonuses 12 92 - - 104
2,764 shares pursuant to dividend
reinvestment plan 3,455 25,396 - - 28,851
Cash dividends declared, $.368 per share - - (699,610) - (699,610)
-----------------------------------------------------------------
Balance, December 31, 1997 2,384,095 4,136,728 9,109,861 209,109 15,839,793
----------
Comprehensive income:
Net income - - 1,936,367 - 1,936,367
Other comprehensive income, net of tax:
Unrealized holding gains arising during the period,
net of deferred income taxes of $12,428 - - - 24,124 24,124
Less reclassification adjustment for gains included in
net income, net of deferred income taxes of $30,036 - - - (58,306) (58,306)
--------
Total comprehensive income 1,902,185
---------
Issuance of common stock:
36 shares in employee bonuses 45 445 - - 490
6,835 shares pursuant to dividend
reinvestment plan 8,544 101,516 - - 110,060
Cash dividends declared, $.385 per share - - (735,397) - (735,397)
-----------------------------------------------------------------
Balance, December 31, 1998 $2,392,684 $4,238,689 $10,310,831 $ 174,927 $17,117,131
-----------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,936,367 $ 1,834,090 $ 1,710,797
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 441,044 400,281 330,092
Amortization - 2,766 16,600
Deferred income taxes (45,356) 50,496 (28,623)
Provision for loan losses 197,999 200,000 165,000
Amortization and accretion on securities 51,131 71,930 (2,093)
Realized gain on sales of securities
available for sale (88,342) (16,353) (25,000)
Gain on sale of equipment - (7,430) -
Loss on sale of foreclosed real estate - 9,362 16,211
Change in operating assets and liabilities:
(Increase) decrease in assets:
Mortgage loans held for sale (428,116) (129,552) 666,796
Accrued interest receivable (148,715) (515,689) (15,647)
Other assets (372,636) (33,737) (592,763)
Increase (decrease) in liabilities:
Accrued interest payable 48,014 94,817 (30,474)
Other liabilities 154,753 (30,704) 56,419
--------------------------------------------------
Net cash provided by operating activities 1,746,143 1,930,277 2,267,315
--------------------------------------------------
Cash Flows From Investing Activities
Proceeds from maturities of
securities held to maturity 1,785,000 440,000 910,000
Purchase of securities held to maturity (11,588,886) (8,087,324) (1,104,736)
Proceeds from sales and maturities of
securities available for sale 13,578,242 7,180,442 3,031,996
Purchase of securities available for sale (19,754,346) (21,951,343) (5,787,595)
Net increase in loans made to customers (21,099,882) (5,007,369) (1,796,896)
Proceeds from sale of equipment - 7,600 -
Net purchases of premises and equipment (1,171,349) (336,866) (1,771,900)
Proceeds from sale of foreclosed real estate - 360,109 291,233
Net expenditures on foreclosed real estate - - (22,978)
Proceeds received from cancellation
of life insurance policies - - 19,564
Increase in cash value, life insurance (12,251) (17,385) (12,651)
--------------------------------------------------
Net cash (used in) investing activities (38,263,472) (27,412,136) (6,243,963)
--------------------------------------------------
</TABLE>
(Continued)
-7-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Financing Activities
Net increase in deposits 32,053,260 12,792,601 2,074,735
Net increase (decrease) in federal funds
purchased and securities sold
under repurchase agreements 3,886,305 (340,592) 99,172
Net proceeds from FHLB advance - 5,000,000 -
Repayment of note payable (9,000) (9,000) (9,000)
Net proceeds from issuance
of common stock 110,550 56,954 107,734
Dividends paid (735,397) (699,610) (652,627)
-----------------------------------------------------
Net cash provided by financing
activities 35,305,718 16,800,353 1,620,014
-----------------------------------------------------
(Decrease) in cash and
cash equivalents (1,211,611) (8,681,506) (2,356,634)
Cash and cash equivalents, beginning 9,024,415 17,705,921 20,062,555
-----------------------------------------------------
Cash and cash equivalents, ending $ 7,812,804 $ 9,024,415 $ 17,705,921
-----------------------------------------------------
Supplemental Disclosures Of
Cash Flow Information
Interest paid $ 5,813,418 $ 4,754,828 $ 4,623,527
Income taxes paid 635,927 664,064 692,356
Supplemental Schedule Of Noncash
Investing Activities
Other real estate, equipment
and investments acquired
in settlement of loans 168,000 313,000 369,189
</TABLE>
See Notes to Consolidated Financial Statements.
-8-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies
Nature of operations: Central Virginia Bankshares, Inc., is a one bank holding
company headquartered in Powhatan County, Virginia. The Corporation's
subsidiary, Central Virginia Bank provides a variety of financial services to
individuals and corporate customers through its six branches located in the
Virginia counties of Powhatan, Chesterfield, and Cumberland. The Bank's primary
deposit products are checking accounts, savings accounts, and certificates of
deposit. Its primary lending products are residential mortgage, construction,
installment and commercial business loans.
Central Virginia Bank's subsidiary, CVB Title Services, Inc., is a corporation
organized under the laws of the Commonwealth of Virginia. The Corporation's
primary purpose is to own a partnership interest in a title insurance company.
Basis of consolidation: The accompanying consolidated financial statements
include the accounts of Central Virginia Bankshares, Inc., and its subsidiary,
Central Virginia Bank, including its subsidiary, CVB Title Services, Inc. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Cash and cash equivalents: For purposes of reporting the consolidated statements
of cash flows, the Corporation includes cash on hand, amounts due from banks,
federal funds sold and all highly liquid debt instruments purchased with a
maturity of three months or less as cash and cash equivalents on the
accompanying consolidated balance sheets. Cash flows from deposits and loans are
reported net.
The Bank maintains amounts due from banks which, at times, may exceed federally
insured limits. The Bank has not experienced any losses in such accounts.
The Bank is required to maintain average reserve and clearing balances in cash
with the Federal Reserve Bank. The total of these balances, after receiving
credit for vault cash on hand, was approximately $50,000 at December 31, 1998
and 1997.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies (Continued)
A majority of the Bank's loan portfolio consist of single-family residential
loans in the Virginia counties of Powhatan, Chesterfield, and Cumberland. There
is also a significant concentration of loans to builders and developers in the
region. Accordingly, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio and the recovery of a substantial portion of the carrying
amount of foreclosed real estate are susceptible to changes in local market
conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near
term.
Securities: Securities are classified as held to maturity when management has
the intent and the Bank has the ability at the time of purchase to hold them
until maturity or on a long-term basis. These securities are carried at cost
adjusted for amortization of premium and accretion of discount, computed by the
interest method over their contractual lives. Gains and losses on the sale of
such securities are determined by the specific identification method.
Securities to be held for indefinite periods of time and not intended to be held
to maturity or on a long-term basis are classified as available for sale and
accounted for at market value on an aggregate basis. These include securities
used as part of the Bank's asset/liability management strategy and may be sold
in response to changes in interest rates, prepayment risk, the need or desire to
increase capital, to satisfy regulatory requirements and other similar factors.
Unrealized gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Realized gains and
losses of securities available for sale are included in net securities gains
(losses) based on the specific identification method.
Trading securities, which are generally held for the short term in anticipation
of market gains, are carried at fair value. Realized and unrealized gains and
losses on trading account assets are included in interest income on trading
account securities. The Corporation held no trading securities during the years
ended December 31, 1998, 1997, and 1996.
Mortgage loans held for sale: Mortgage loans originated and held for sale in the
secondary market are reported at the lower of cost or market value determined on
an aggregate basis.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies (Continued)
Loans and allowance for loan losses: Loans are stated at the amount of unpaid
principal, reduced by unearned discount and fees and an allowance for possible
loan losses.
Unearned interest on discounted loans is amortized to income over the life of
the loans, using the interest method. For all other loans, interest is accrued
daily on the outstanding balances.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
estimated losses on existing loans that may become uncollectible, based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amount amortized as an adjustment of the related
loan's yield. The Bank is generally amortizing these amounts over the average
contractual life.
A loan is impaired when it is probable the creditor will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the loan agreement. Impaired loans are measured based on the present value of
payments expected to be received, using the historical effective loan rate as
the discount rate. Alternatively, measurement also may be based on observable
market prices or, for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the collateral. The
Bank does not aggregate loans for risk classification. Loans that are to be
foreclosed are measured based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses.
The basic policy of the Bank is to charge off loans when the loss can be readily
determined. Changes in the allowance for loan losses relating to impaired loans
are charged or credited to the provision for loan losses.
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual if repayment in full of principal
and/or interest is in doubt. Loans may be returned to accrual status when all
principal and interest amounts contractually due are reasonably assured of
repayment.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies (Continued)
When a loan is classified as nonaccrual, all interest receivable on that
particular loan is charged back to income at that time. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. On charged-off loans, cash receipts in excess of the
amount charged to the allowance for loan losses are recognized as income on the
cash basis.
Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Expenditures for betterments and major renewals are
capitalized and ordinary maintenance and repairs are charged to operations as
incurred. Depreciation is computed using the straight-line method over the
following estimated useful lives.
Years
-----
Buildings and improvements 5 - 39
Furniture and equipment 3 - 10
Foreclosed real estate: Foreclosed real estate represents properties acquired
through foreclosure or other proceedings. Foreclosed real estate is held for
sale and is recorded at the lower of the recorded amount of the loan or fair
value of the properties less estimated costs of disposal. Any write-down to fair
value at the time of transfer to foreclosed real estate is charged to the
allowance for loan losses. Property is evaluated regularly to ensure the
recorded amount is supported by its current fair value and valuation allowances
to reduce the carrying amount to fair value less estimated costs to dispose are
recorded as necessary. Foreclosed real estate is included with other assets on
the accompanying consolidated balance sheets.
Advertising costs: Advertising costs are expensed as incurred.
Income taxes: The provision for income taxes relates to items of revenue and
expenses recognized for financial accounting purposes during each of the years.
The actual current liability may be more or less than the charge against
earnings due to the effect of deferred income taxes.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Significant Accounting Policies (Continued)
Earnings per share: In 1997, the Financial Accounting Standards Board issued its
Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings per
Share." This Statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the Statement 128 requirements.
The following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Income available to common stockholders
used in basic EPS $ 1,936,367 $ 1,834,090 $ 1,710,797
-------------------------------------------------------
Weighted average number of common
shares used in basic EPS 1,910,484 1,903,672 1,892,154
Effect of dilutive securities:
Stock options - - -
-------------------------------------------------------
Weighted number of common shares and
dilutive potential stock used in diluted
EPS 1,910,484 1,903,672 1,892,154
-------------------------------------------------------
</TABLE>
Note 2. Stock Split
On July 14, 1998, the Board of Directors authorized a 2-for-1 stock split. In
connection with the stock split, the number of issued and outstanding shares
increased by 955,847 shares, and the par value of each share decreased to $1.25
per share. All references in the accompanying financial statements to the number
of common shares and per share amounts for prior years have been restated to
reflect the stock split.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities
Carrying amounts and approximate market values of securities available for sale
are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government agencies
and corporations $ 17,911,720 $218,920 $112,769 $ 18,017,871
Equities 3,983,230 100,889 11,880 4,072,239
Mortgage-backed securities 6,726,685 85,359 13,804 6,798,240
-----------------------------------------------------------------------
$ 28,621,635 $405,168 $138,453 $ 28,888,350
-----------------------------------------------------------------------
December 31, 1997
-----------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------
U. S. government agencies
and corporations $ 15,229,999 $171,918 $ 7,644 $ 15,394,273
Equities 712,125 80,750 - 792,875
Mortgage-backed securities 6,449,972 92,419 16,366 6,526,025
-----------------------------------------------------------------------
$ 22,392,096 $345,087 $24,010 $ 22,713,173
-----------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of securities available for sale
at December 31, 1998, by contractual maturity, are shown below. Maturities may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
Approximate
Amortized Market
Cost Value
---------------------------------
Due in one year or less $ - $ -
Due after one year through five years 798,910 802,949
Due after five years through ten years 9,861,683 9,955,627
Due after ten years 7,251,127 7,259,295
Equities 3,983,230 4,072,239
Mortgage-backed securities 6,726,685 6,798,240
---------------------------------
$ 28,621,635 $28,888,350
---------------------------------
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities (Continued)
Carrying amounts and approximate market values of securities being held to
maturity are as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government agencies
and corporations $ 998,026 $ 19,214 $ - $ 1,017,240
U. S. Treasury securities 1,025,373 21,187 - 1,046,560
Corporate debt 827,442 - - 827,442
States and political subdivisions 24,794,221 924,260 112,130 25,606,351
-------------------------------------------------------------------------
$27,645,062 $964,661 $112,130 $28,497,593
-------------------------------------------------------------------------
December 31, 1997
-------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------------------
U. S. government agencies
and corporations $ 997,666 $ 1,224 $ - $ 998,890
U. S. Treasury securities 1,042,663 10,467 - 1,053,130
States and political subdivisions 15,817,071 305,404 28,104 16,094,371
-------------------------------------------------------------------------
$17,857,400 $317,095 $ 28,104 $18,146,391
-------------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of securities being held to
maturity at December 31, 1998, by contractual maturity, are shown below.
Approximate
Amortized Market
Cost Value
-----------------------------------
Due in one year or less $ 1,988,267 $ 1,999,016
Due after one year through five years 3,986,451 4,132,269
Due after five years through ten years 7,805,551 8,121,946
Due after ten years 13,864,793 14,244,362
-----------------------------------
$ 27,645,062 $ 28,497,593
-----------------------------------
Securities with an amortized cost of $4,153,610 and $3,838,931 and a market
value of $4,257,709 and $3,924,835 at December 31, 1998 and 1997, respectively,
were pledged as collateral on public deposits and for other purposes as required
or permitted by law.
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Loans
Major classifications of loans are summarized as follows:
December 31,
------------------------------------
1998 1997
------------------------------------
Commercial $ 17,674,195 $ 17,815,987
Real estate:
Mortgage 56,395,438 47,927,212
Construction 14,329,842 8,472,139
Installment 22,733,430 16,134,096
------------------------------------
111,132,905 90,349,434
Less unearned discount (299,602) (341,364)
------------------------------------
110,833,303 90,008,070
Allowance for loan losses (1,267,192) (1,175,842)
------------------------------------
Loans, net $ 109,566,111 $ 88,832,228
------------------------------------
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 1,175,842 $ 1,211,675 $ 1,126,872
Provision charged to operations 197,999 200,000 165,000
Loans charged off (155,563) (267,145) (101,558)
Recoveries 48,914 31,312 21,361
----------------------------------------------------
Balance, end of year $ 1,267,192 $ 1,175,842 $ 1,211,675
----------------------------------------------------
</TABLE>
At December 31, 1998, the Bank had loans amounting to $236,962 that were
specifically classified as impaired. The average balance of impaired loans
amounted to approximately $197,102 for the year ended December 31, 1998. The
allowance for loan losses related to impaired loans amounted to $32,000 at
December 31, 1998. The following is a summary of cash receipts on these loans
and how they were applied in 1998:
Cash receipts applied to reduce
principal balance $ 25,862
Cash receipts recognized as
interest income 892
--------------
Total cash receipts $ 26,754
--------------
Nonaccruing loans (principally commercial and mortgage loans) totaled $241,962,
$37,989, and $708,476 at December 31, 1998, 1997, and 1996, respectively, which
had the effect of reducing net income $18,887 ($.01 per common share), $4,403
($.002 per common share), and $55,518 ($.03 per common share) for the years then
ended, respectively.
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Bank Premises and Equipment
Major classifications of bank premises and equipment and the total accumulated
depreciation are summarized as follows:
December 31,
---------------------------------
1998 1997
---------------------------------
Land $ 544,802 $ 543,802
Buildings and improvements 3,103,115 2,611,016
Furniture and equipment 3,805,020 3,115,693
---------------------------------
7,452,937 6,270,511
Less accumulated depreciation 3,171,250 2,730,206
---------------------------------
$ 4,281,687 $ 3,540,305
---------------------------------
Note 6. Maturities of Certificates of Deposits
The scheduled maturities of certificates of deposits at December 31, 1998, are
as follows:
Year Ending
December 31
- -----------------------------------------------
1999 $ 50,938,361
2000 15,487,058
2001 5,151,614
2002 5,790,719
2003 and later 4,717,393
--------------
$ 82,085,145
--------------
Note 7. FHLB Advance
The advance of $5,000,000 from the Federal Home Loan Bank of Atlanta, Georgia,
is secured by the mortgage loan portfolio of Central Virginia Bank. Interest is
payable quarterly at a fixed rate of 5.85% per annum. The principal balance is
due and payable on July 8, 2002.
Note 8. Note Payable
The Corporation's subsidiary, Central Virginia Bank, has a note payable which is
secured by a first deed of trust on the bank building in Powhatan and is due in
annual principal installments of $9,000 plus interest at the rate of 8% per
annum through the year 2002. At December 31, 1998 and 1997, the balance of the
note was $36,000 and $45,000, respectively.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Income Tax Matters
The Corporation and Subsidiary file a consolidated federal income tax return.
The consolidated provision for income taxes for the years ended December 31,
1998, 1997, and 1996, are as follows:
1998 1997 1996
-------------------------------------------
Currently payable $ 653,966 $ 608,743 $ 713,540
Deferred (10,611) 50,496 (28,623)
-------------------------------------------
$ 643,355 $ 659,239 $ 684,917
-------------------------------------------
A reconciliation of the expected income tax expense computed at 34% to the
income tax expense included in the consolidated statements of income is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 877,105 $ 847,732 $ 814,543
Tax-exempt interest (206,624) (177,519) (148,044)
Tax-exempt loan interest (22,844) (5,717) -
Disallowance of interest expense
deduction for the portion attributable
to carrying tax-exempt obligations 25,575 23,132 20,001
Other (29,857) (28,389) (1,583)
------------------------------------------------
$ 643,355 $ 659,239 $ 684,917
------------------------------------------------
</TABLE>
The deferred income tax provision consists of the following items:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Difference between loan loss provision charged
to operating expense and the bad debt
deduction taken for income tax purposes $(20,707) $ 8,123 $(19,223)
Interest income on nonaccrual loans
recognized for federal income tax pur-
poses, but not recognized for financial
statements until received (6,522) 25,635 (10,458)
Accretion of discount recognized for
financial statements, but not recognized
for income tax purposes until realized 5,845 6,717 (689)
Difference between the depreciation methods
used for financial statements and for income
tax purposes 10,773 10,021 1,747
--------------------------------------------
$(10,611) $ 50,496 $(28,623)
--------------------------------------------
</TABLE>
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Income Tax Matters (Continued)
The component of the net deferred tax asset included in other assets is as
follows at December 31:
1998 1997
-------------------------------
Deferred tax assets:
Allowance for loan losses $ 373,607 $ 342,548
Less valuation allowance (124,523) (114,171)
-------------------------------
249,084 228,377
Interest income on nonaccrual loans 9,831 3,309
-------------------------------
258,915 231,686
-------------------------------
Deferred tax liabilities:
Property and equipment 93,776 83,003
Securities 20,062 14,217
Unrealized gain on securities
available for sale 91,788 111,968
-------------------------------
205,626 209,188
-------------------------------
Net deferred tax asset $ 53,289 $ 22,498
-------------------------------
Note 10. Profit-Sharing Plan
The Bank has a profit-sharing plan for those employees who meet the eligibility
requirements set forth in the Plan. Substantially all the full-time employees
are covered. Contributions to the Trust fund are determined each year by the
Board of Directors. The plan may be amended or terminated by the Board of
Directors at any time. The contributions for the years ended December 31, 1998,
1997, and 1996, were $142,526, $133,341, and $118,824, respectively.
Note 11. Commitments and Contingencies
Financial instruments with off-balance-sheet risk: The Bank is party to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the consolidated balance sheets.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Commitments and Contingencies (Continued)
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 they do for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 1998 and 1997, is as follows:
1998 1997
---------------------------------
Commitments to extend credit $ 32,132,566 $ 25,720,298
Standby letters of credit 1,901,084 2,725,439
---------------------------------
$ 34,033,650 $ 28,445,737
---------------------------------
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
Bank evaluates each customer's credit-worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party. Collateral held
varies, but may include accounts receivable, crops, livestock, inventory,
property and equipment, residential real estate and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees 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 loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Bank deems necessary.
Concentrations of credit risk: All of the Bank's loans, commitments to extend
credit, and standby letters of credit have been granted to customers within the
state and, more specifically, the area surrounding Richmond, Virginia. The
concentrations of credit by type of loan are set forth in Note 4. Although the
Bank has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the agribusiness and
construction sectors of the economy.
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Related Party Transactions
The Corporation's subsidiary, Central Virginia Bank, has had, and may be
expected to have in the future, banking transactions in the ordinary course of
business with directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders (commonly referred
to as related parties), all of which have been, in the opinion of management, on
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with others.
Aggregate loan transactions with related parties were as follows:
Years Ended December 31,
--------------------------------
1998 1997
--------------------------------
Balance, beginning $ 1,797,346 $ 1,485,811
New loans 2,067,488 1,844,749
Repayments (1,604,543) (1,533,214)
--------------------------------
Balance, ending $ 2,260,291 $ 1,797,346
--------------------------------
Note 13. Stock Option Plan
During the year ended December 31, 1998, the Corporation established a stock
option plan which authorizes the granting of stock options to key employees and
directors up to a maximum of 190,000 shares of common stock. The options are
exercisable at the date of grant and expire ten years thereafter. As of December
31, 1998, no options were granted under this plan.
Prior to 1998, the Corporation had a stock option plan which authorized the
grant of 15,000 shares of common stock on July 14, 1987. During the year ended
December 31, 1997, options were exercised for the purchase of 6,222 shares of
common stock at $4.50 per share. No options were exercised for the purchase of
common stock during the year ended December 31, 1996. At December 31, 1997,
there were no remaining unexercised options.
The Corporation did not grant any options during the years ended December 31,
1998 and 1997. Therefore, the transition provisions of FASB Statement 123 would
not be applicable.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Reserve Bank. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly, additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios as set forth in the
table below of total and Tier I capital as defined in the regulations to
risk-weighted assets as defined, and of Tier I capital as defined to average
assets as defined. Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal Reserve
Bank categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $ 17,390 14.35% $ 9,695 8.00% $ 12,118 10.00%
Tier I Capital
(to Risk Weighted Assets) 16,123 13.30% 4,847 4.00% 7,271 6.00%
Tier I Capital
(to Average Assets) 16,123 10.07% 6,405 4.00% 8,006 5.00%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 16,172 17.45% $ 7,413 8.00% $ 9,266 10.00%
Tier I Capital
(to Risk Weighted Assets) 15,013 16.20% 3,706 4.00% 5,560 6.00%
Tier I Capital
(to Average Assets) 15,013 11.29% 5,320 4.00% 6,650 5.00%
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. Under that limitation,
the Bank could have declared additional dividends of approximately $2,844,383 in
1998 without regulatory approval.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation and subsidiary.
The following methods and assumptions were used by the Corporation and
subsidiary in estimating the fair value of financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate their fair values.
Investment securities (including mortgage-backed securities): Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Mortgage loans held for sale: The carrying amount of mortgage loans held for
sale approximate their fair values.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are determined using estimated future cash flows,
discounted at the interest rates currently being offered for loans with similar
terms to borrowers with similar credit quality.
Accrued interest receivable and accrued interest payable: The carrying amounts
of accrued interest receivable and accrued interest payable approximate their
fair values.
Deposit liabilities: The fair values of demand deposits equal their carrying
amounts which represents the amount payable on demand. The carrying amounts for
variable-rate fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected maturities on time deposits.
Federal funds purchased and securities sold under repurchase agreements: The
carrying amounts for federal funds purchased and securities sold under
repurchase agreements approximate their fair values.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 15. Fair Value of Financial Instruments (Continued)
FHLB advance: The carrying amount of the FHLB advance approximates its fair
value.
Note payable: The carrying amount of note payable approximates its fair value.
The following is a summary of the carrying amounts and estimated fair values of
the Corporation and subsidiary's financial assets and liabilities at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, December 31,
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,812,804 $ 7,812,804 $ 9,024,415 $ 9,024,415
Securities available for sale 28,888,350 28,888,350 22,713,173 22,713,173
Securities held to maturity 27,645,062 28,497,593 17,857,400 18,146,391
Mortgage loans held for sale 759,466 759,466 331,350 331,350
Loans, net 109,566,111 113,699,000 88,832,228 91,350,000
Accrued interest receivable 1,467,595 1,467,595 1,318,880 1,318,880
Financial liabilities:
Demand and variable rate deposits 72,641,656 72,641,656 54,580,028 54,580,028
Fixed-rate certificates of deposits 82,085,145 83,893,000 68,093,513 68,636,000
Federal funds purchased and securities
sold under repurchase agreements 5,080,192 5,080,192 1,193,887 1,193,887
FHLB advance 5,000,000 5,000,000 5,000,000 5,000,000
Note payable 36,000 36,000 45,000 45,000
Accrued interest payable 375,777 375,777 327,763 327,763
</TABLE>
At December 31, 1998 and 1997, the Corporation had outstanding standby letters
of credit and commitments to extend credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the date
the underlying transaction will be completed, and, therefore, they were deemed
to have no current fair market value.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Condensed Parent-Only Financial Statements
Financial statements for Central Virginia Bankshares, Inc., (not consolidated)
are presented below.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------------------------
Assets 1998 1997
-----------------------------------
<S> <C> <C>
Cash $ 55,481 $ 95,325
Investment in subsidiary 16,122,640 15,178,495
Securities available for sale 903,614 532,875
Other assets 49,458 33,098
-----------------------------------
$ 17,131,193 $ 15,839,793
-----------------------------------
Liabilities
Other liabilities $ 14,062 $ -
-----------------------------------
Stockholders' Equity
Common stock, $1.25 par value;
6,000,000 shares authorized;
1,914,147 and 1,907,276 shares
issued and outstanding in 1998
and 1997, respectively 2,392,684 2,384,095
Surplus 4,238,689 4,136,728
Retained earnings 10,310,831 9,109,861
Accumulated other comprehensive income 174,927 209,109
-----------------------------------
17,117,131 15,839,793
-----------------------------------
$ 17,131,193 $ 15,839,793
-----------------------------------
</TABLE>
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Condensed Parent-Only Financial Statements (Continued)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Income:
Management fees $ 36,000 $ 38,368 $ 46,456
Dividends received from subsidiary 935,397 999,611 652,627
Equity in undistributed earnings of subsidiary 951,733 834,475 1,058,170
Dividend income 38,428 19,520 -
Gain on sale of securities available for sale 64,114 - -
---------------------------------------------------
2,025,672 1,891,974 1,757,253
Expenses:
Operating expenses 75,243 57,884 46,456
---------------------------------------------------
Income before income taxes 1,950,429 1,834,090 1,710,797
Income taxes 14,062 - -
---------------------------------------------------
Net income $ 1,936,367 $ 1,834,090 $ 1,710,797
---------------------------------------------------
</TABLE>
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Condensed Parent-Only Financial Statements (Continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,936,367 $ 1,834,090 $ 1,710,797
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiary (951,733) (834,475) (1,058,170)
Realized gain on sales of securities available
for sale (64,114) - -
Change in operating assets and liabilities:
(Increase) decrease in other assets (88) 27,486 (36,420)
Increase in other liabilities 14,062 - -
---------------------------------------------------
Net cash provided by operating activities 934,494 1,027,101 616,207
---------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sales of securities available
for sale 319,489 - -
Purchase of securities available for sale (668,980) (462,125) -
---------------------------------------------------
Net cash (used in) investing activities (349,491) (462,125) -
---------------------------------------------------
Cash Flows From Financing Activities
Net proceeds from issuance of common stock 110,550 56,954 107,733
Dividends paid (735,397) (699,610) (652,627)
---------------------------------------------------
Net cash (used in) financing activities (624,847) (642,656) (544,894)
---------------------------------------------------
Increase (decrease) in cash (39,844) (77,680) 71,313
Cash, beginning 95,325 173,005 101,692
---------------------------------------------------
Cash, ending $ 55,481 $ 95,325 $ 173,005
---------------------------------------------------
</TABLE>
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTRAL VIRGINIA BANKSHARES, INC.
Date: March 31, 1999 By: /s/ Ralph Larry Lyons
---------------------------------------
Ralph Larry Lyons
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 31, 1999 /s/ Ralph Larry Lyons
-----------------------------------------------
Ralph Larry Lyons
President and Chief Executive Officer; Director
(Chief Financial Officer)
March 31, 1999 /s/ Thomas R. Thornton, Jr.
-----------------------------------------------
Thomas R. Thornton, Jr.
Assistant Vice President
(Chief Accounting Officer)
March 31, 1999 /s/ John B. Larus
-----------------------------------------------
John B. Larus
Chairman of the Board of Directors
March __, 1999
-----------------------------------------------
Fleming V. Austin
Director
March __, 1999
-----------------------------------------------
Charles W. Binford
Director
March __, 1999
-----------------------------------------------
Garland L. Blanton, Jr.
Director
March 31, 1999 /s/ Charles B. Goodman
-----------------------------------------------
Charles B. Goodman
Director
March 31, 1999 /s/ Elwood C. May
-----------------------------------------------
Elwood C. May
Director
March 31, 1999 /s/ James T. Napier
-----------------------------------------------
James T. Napier
Director
<PAGE>
EXHIBITS INDEX
Item No. Description
- -------- -----------
3.1 Articles of Incorporation, including amendments thereto
(incorporated herein by reference to Exhibit 2 to the Registrant's
Form 8-A filed with the SEC on May 2, 1994)
3.2 Bylaws (incorporated herein by reference to Exhibit 3 to the
Registrant's Form 8-A filed with the SEC on May 2, 1994)
4.1 Specimen of Registrant's Common Stock Certificate (incorporated
herein by reference to Exhibit 1 to the Registrant's Form 8-A
filed with the SEC on May 2, 1994)
21.1 Subsidiaries of the Registrant (filed herewith)
23.1 Consent of Mitchell, Wiggins & Company, LLP (filed herewith)
27 Financial Data Schedule (filed electronically only)
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Central Virginia Bank
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Central Virginia Bankshares, Inc.
We consent to incorporation by reference in the December 31, 1998, annual report
on Form 10-KSB of Central Virginia Bankshares, Inc., of our report dated January
15, 1999, relating to the consolidated balance sheets of Central Virginia
Bankshares, Inc., and subsidiary, as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998.
/s/ Mitchell, Wiggins & Company, LLP
Richmond, Virginia
January 15, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This summary financial information is qualified in its entirety by reference to
the Company's financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,812,804
<INT-BEARING-DEPOSITS> 14,083
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,888,350
<INVESTMENTS-CARRYING> 27,645,062
<INVESTMENTS-MARKET> 28,497,593
<LOANS> 109,566,111
<ALLOWANCE> 1,267,192
<TOTAL-ASSETS> 182,629,494
<DEPOSITS> 154,726,801
<SHORT-TERM> 5,089,192
<LIABILITIES-OTHER> 669,370
<LONG-TERM> 5,027,000
0
0
<COMMON> 2,392,684
<OTHER-SE> 14,724,447
<TOTAL-LIABILITIES-AND-EQUITY> 182,629,494
<INTEREST-LOAN> 9,131,040
<INTEREST-INVEST> 3,196,812
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 12,327,852
<INTEREST-DEPOSIT> 5,517,379
<INTEREST-EXPENSE> 5,861,432
<INTEREST-INCOME-NET> 6,466,420
<LOAN-LOSSES> 197,999
<SECURITIES-GAINS> 88,342
<EXPENSE-OTHER> 4,846,376
<INCOME-PRETAX> 2,579,722
<INCOME-PRE-EXTRAORDINARY> 2,579,722
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,936,367
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 8.40
<LOANS-NON> 236,961
<LOANS-PAST> 358,922
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,175,842
<CHARGE-OFFS> 155,563
<RECOVERIES> 48,914
<ALLOWANCE-CLOSE> 1,267,192
<ALLOWANCE-DOMESTIC> 796,076
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 471,116
</TABLE>
