U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File No.
September 30, 1999 000-24002
CENTRAL VIRGINIA BANKSHARES, INC.
Virginia 54-1467806
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2036 New Dorset Road
P. O. Box 39
Powhatan, Virginia 23139
(Address of Principal Executive Office)
(804) 598-4216
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No (not subject to filing requirements
for the past 90 days).
As of November 15, 1999, 1,923,156 shares were outstanding.
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
QUARTERLY REPORT ON FORM 10-QSB
November 15, 1999
INDEX
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1999
and 1998..............................................................3
Consolidated Statements of Income - Three
Months Ended September 30, 1999 and 1998
and Nine Months Ended September 30, 1999 and 1998.....................4
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1999 and 1998..............................5
Notes to Consolidated Financial Statements -
September 30, 1999 and 1998 (Unaudited)...............................6
Item 2 Management's Discussion and Analysis or
Plan of Operation..................................................7-13
Part II. Other Information
Item 1 Legal Proceedings....................................................13
Item 6 Exhibits and Reports on Form 8-K.....................................14
Signatures....................................................................15
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS Sept. 30, 1999 Sept. 30, 1998
------ -------------- --------------
<S> <C> <C>
Cash and due from banks $5,671,789 $7,827,302
Federal funds sold 0 4,892,000
- ---------
Total cash and cash equivalents $5,671,789 $12,719,302
Securities available for sale 19,599,615 24,583,207
Securities held to maturity (approximate market
value 1999 $27,008,221; 1998 $22,247,347) 27,079,306 21,586,507
Mortgage loans held for sale 345,000 1,028,350
Loans, net 129,210,669 100,682,410
Bank premises and equipment, net 4,631,976 4,176,728
Accrued interest receivable 1,354,445 1,252,043
Other assets 2,395,692 2,428,926
------------ ------------
Total assets $190,288,492 $168,457,473
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
- -----------
Deposits:
Demand deposits $21,840,979 $20,800,669
Interest bearing demand deposits and NOW accounts 35,469,295 28,451,000
Savings deposits 19,314,632 15,593,724
Time deposits, $100,000 and over 14,719,665 16,226,565
Other time deposits 65,390,868 64,781,084
------------ ------------
$156,735,439 $145,853,042
Federal funds purchased and securities sold under repurchase
agreements 10,796,987 147,416
FHLB advance 5,000,000 5,000,000
Note payable 27,000 36,000
Accrued interest payable 363,753 351,522
Other liabilities 142,819 179,443
------------ ------------
Total liabilities $173,065,998 $151,567,423
------------ ------------
STOCKHOLDERS' EQUITY
- --------------------
Capital stock, common, par value $1.25; authorized 6,000,000
shares; issued 1,923,156 shares 1999; 1,911,694 shares 1998 $2,403,945 $2,389,603
Surplus 4,337,689 4,207,632
Retained earnings 11,150,568 9,933,016
Accumulated other comprehensive income (669,708) 359,799
------------ ------------
Total stockholders' equity $17,222,494 $16,890,050
------------ ------------
Total liabilities and stockholders' equity $190,288,492 $168,457,473
============ ============
Loan to Deposit Ratio 82.44% 69.03%
Book Value $8.96 $8.84
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,816,359 $2,366,132 $7,931,912 $6,758,964
Interest on securities:
U.S. Government agencies and corporations 267,356 393,623 1,032,064 1,153,464
U.S. Treasury securities 31,442 31,611 94,573 89,886
States and political subdivisions 391,796 294,362 1,181,536 807,086
Other 96,624 29,761 283,165 83,308
Interest on federal funds sold 1,388 61,555 1,698 167,244
---------- ---------- ----------- ----------
Total interest income $3,604,965 $3,177,044 $10,524,948 $9,059,952
---------- ---------- ----------- ----------
Interest expense
Interest on deposits $1,486,531 $1,420,469 $4,448,517 $3,999,336
Interest on federal funds purchased and securities
sold under repurchase agreements 100,439 10,743 293,446 32,099
Interest on FHLB advance 74,750 74,750 221,813 221,813
Interest on note payable 540 720 1,800 2,340
---------- ---------- ----------- ----------
Total interest expense $1,662,260 $1,506,682 $4,965,576 $4,255,588
---------- ---------- ---------- ----------
Net interest income $1,942,705 $1,670,362 $5,559,372 $4,804,364
Provision for loan losses 60,000 49,500 159,000 148,499
---------- ---------- ----------- ----------
Net interest income after provision for
loan losses $1,882,705 $1,620,862 $5,400,372 $4,655,865
Other income
Service charges $266,282 $183,719 $705,654 $482,359
Realized gain on sales of securities available
for sale 2,763 0 5,903 10,079
Other 81,852 107,100 271,381 278,144
---------- ---------- ----------- ----------
Total other income $350,897 $290,819 $982,938 $770,582
Other expenses
Salaries and wages $657,600 $558,400 $1,892,500 $1,518,200
Pensions and other employee benefits 117,494 91,655 305,531 247,594
Occupancy expense 67,668 72,524 201,880 199,204
Equipment depreciation 136,655 93,416 346,236 261,876
Equipment repairs and maintenance 55,986 44,285 169,837 129,063
Advertising and public relations 39,074 61,995 135,976 197,075
Federal insurance premiums 5,589 4,841 16,656 14,072
Office supplies, telephone and postage 98,009 95,089 327,259 277,849
Taxes and licenses 33,450 28,137 100,745 89,031
Other operating expenses 341,649 197,639 886,803 592,524
---------- ---------- ----------- ----------
Total other expenses $1,553,174 $1,247,981 $4,383,423 $3,526,488
---------- ---------- ----------- ----------
Income before income taxes $680,428 $663,700 $1,999,887 $1,899,959
Income taxes 197,185 187,360 585,022 528,779
---------- ---------- ----------- ----------
Net income $483,243 $476,340 $1,414,865 $1,371,180
========== ========== =========== ==========
Per share of common stock:
Income before income taxes $0.35 $0.35 $1.04 $0.99
Net income $0.25 $0.25 $0.74 $0.72
Weighted average shares 1,920,800 1,911,692 1,917,776 1,909,886
Return on average assets 1.04% 1.18% 1.02% 1.20%
Return on average equity 11.86% 12.13% 11.55% 11.64%
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows for Operating Activities
Net Income $1,414,865 $1,371,180
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 414,843 325,572
Amortization 270 385
Provision for loans losses 159,000 148,499
Amortization and accretion on securities 62,437 35,383
Realized gain on sales of securities available for sale (5,903) (10,079)
Loss on sale of foreclosed real estate 32,775 0
Change in operating assets and liabilities:
(Increase) decrease in assets:
Mortgage loans held for sale 414,466 (697,000)
Accrued interest receivable 113,150 66,837
Other assets (187,273) (827,853)
Increase (decrease) in liabilities:
Accrued interest payable (12,024) 23,759
Other liabilities (150,774) 40,603
------------- -------------
Net cash provided by operating activities $2,255,832 $477,286
------------- -------------
Cash Flows from Investing Activities
Proceeds from maturities of securities held to maturity $1,830,000 $1,635,000
Purchase of securities held to maturity (1,304,824) (5,370,328)
Proceeds from sales and maturities of securities available for sale 8,926,183 10,009,308
Purchase of securities available for sale (597,500) (11,858,548)
Net (increase) decrease in loans made to customers (19,892,766) (11,889,939)
Net purchases of premises and equipment (765,132) (961,995)
Proceeds from sale of foreclosed real estate 163,950 0
Net expenditures on foreclosed real estate (8,326) (2,112)
------------- -------------
Net cash (used in) investing activities ($11,648,415) ($18,438,614)
------------- -------------
Cash Flows from Financing Activities
Net increase in deposits $2,008,638 $23,179,501
Repayment of note payable (9,000) (9,000)
Net proceeds from issuance of capital stock 110,261 76,412
Net increase (decrease) in federal funds purchased and securities
sold under repurchase agreements 5,716,795 (1,046,471)
Dividends paid (575,126) (544,227)
------------- -------------
Net cash provided by financing activities $7,251,568 $21,656,215
------------- -------------
Increase (decrease) in cash and cash equivalents ($2,141,015) $3,694,887
Cash and cash equivalents:
Beginning 7,812,804 9,024,415
------------- -------------
Ending $5,671,789 $12,719,302
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $4,977,600 $4,231,829
============= =============
Income Taxes $583,856 $486,165
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
Note 1 Basis of Presentation
These interim financial statements are unaudited; however, such information
reflects all adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented.
All adjustments are of a normal recurring nature.
Note 2 Accounting Change
On January 1, 1995, the Company adopted FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan. Statement No. 114 has been amended by FASB
Statement No. 118, Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures. Statement No. 114, as amended, requires that the
impairment of loans that have been separately identified for evaluation is to be
measured based on the present value of expected future cash flows or
alternatively, the observable market price of the loans or the fair value of the
collateral. However, for those loans that are collateral dependent (that is, if
repayment of those loans is expected to be provided solely by the underlying
collateral) and for which management has determined foreclosure is probable, the
measure of impairment of those loans is to be based on the fair value of the
collateral. Statement No. 114, as amended, also requires certain disclosures
about investments in impaired loans and the allowance for credit losses and
interest income recognized on those loans. The effect of adopting Statement No.
114, as amended, is immaterial to the interim financial statements presented
herein.
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<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Company's net income totaled $483,243 in the third quarter of 1999,
an increase of 1.4% from the third quarter of 1998. The earnings for the third
quarter of 1999 were positively affected by increased interest and fee income
from loans. This increase is attributable to a 28.3% increase in the volume of
loans since the end of the third quarter of 1998.
Net interest income increased by 16.3% for the third quarter of 1999
compared to the same period in 1998. This is the result of an increase of 19.8%
in the average balance of interest earning assets in the 1999 quarter compared
to the same period in 1998, primarily in the amount of loans outstanding.
Another factor in the results for the quarter ended September 30, 1999 is a
24.5% rise in other expenses. This is mainly the result of costs associated with
Year 2000 as well as equipment and personnel expenses attributable to continuing
investment in technology and the general growth of the Bank. Net income per
common share for the third quarter of 1999 was $.25 which was the same as the
comparable period in 1998. The Company's annualized return on average equity was
11.86% in the third quarter of 1999, compared to 12.13% for the third quarter of
1998, while the return on average assets amounted to 1.04% and 1.18% for these
same periods, respectively.
The Company's net income for the nine months ended September 30, 1999
totaled $1,414,865, an increase of 3.2% over the first nine months of 1998. This
increase is also primarily the result of the increase in interest income
resulting from the 19.8% increase in volume of average interest earning assets.
Net income per common share for the first nine months of 1999 was $.74 compared
to $.72 for the same period in 1998. The Company's annualized return on average
equity was 11.55% for the nine months ended September 30, 1999, compared to
11.64% for the nine months ended September 30, 1998. The return on average
assets amounted to 1.02% and 1.20% for these same periods, respectively.
Net Interest Income. The Company's net interest income was $1,942,705
for the third quarter of 1999, compared to $1,670,362 for the third quarter of
1998. The increase in net interest income in 1999 was attributable primarily to
the increase in the loans outstanding component of the Company's average
interest earning assets. Average interest earning assets were $173.3 million for
the third quarter of 1999, compared to $150.3 million for the third quarter of
1998. Average loans outstanding increased $26.1 million, or 26.3% to an average
of $125.6 million for the quarter ended September 30, 1999. Average investment
securities increased 2.6% to $47.6 million for the quarter ended September 30,
1999. For the nine months ended September 30, 1999, average interest earning
assets rose 19.8% to $171.9 million compared to the same period in 1998.
The net interest margin is a measure of net interest income
performance. It represents the difference between interest income, including net
loan fees earned, and interest expense, reflected as a percentage of average
interest earning assets. The Company's net interest margin was 4.48% for the
third quarter of 1999 compared to 4.44% in 1998. For the nine months ended
September 30, 1999 the net interest margin was 4.31% compared to 4.47% for the
same period of 1998.
Non-Interest Income. In the third quarter of 1999, the Company's total
non-interest income totaled $350,897, an increase of 20.7%, or $60,078, compared
to 1998. Of the various components of non-interest income, this increase is
primarily attributable to an increase in service charges collected on deposit
accounts. This increase is due to an increase in the number and volume of demand
deposit
-7-
<PAGE>
accounts. For the first nine months of 1999, non-interest income increased by
$212,356 or 27.6% compared to 1998. This increase is also related to the
increase in service charges on deposit accounts.
Non-Interest Expense. The Company's total non-interest expenses for the
third quarter ended September 30, 1999 increased $305,193, or 24.5% and for the
nine month period ended September 30, 1999 increased $856,935, or 24.3% compared
to the same periods in 1998. Expenses related to salaries and employee benefits
not treated as an adjustment to the yield of loans originated in 1999 increased
$125,039 for the quarter and $432,237 for the first nine months compared to
1998. These increases represent regular annual salary increases as well as
staffing for the new Cumberland branch office, which opened in June 1998, as
well as increased staffing to support the overall growth of the Bank. Occupancy
and equipment expenses increased 23.8% for the quarter and 21.7% for the nine
month period primarily due to the continuing investment in technology, as
out-dated computer hardware and software are replaced. Expenses for advertising
and public relations decreased 37.0% for the quarter and 31.0% for the nine
months ended September 30, 1999 as the 1998 numbers included expenditures
related to the Bank's enhanced efforts to attract new customers. The success of
this effort has been noted previously in the increases in loans and deposit
accounts.
Income Taxes. The Company reported income taxes of $197,185 for the
third quarter and $585,022 for the first nine months of 1999, compared to
$187,360 and $528,779 for the same periods in 1998, respectively. These amounts
yielded effective tax rates of 29.0% for the quarter and 29.3% for the first
nine months of 1999, compared to 28.2% and 27.8% for the same periods in 1998,
respectively. The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". This
Statement superseded Statement of Financial Accounting Standards No. 96, and is
effective for fiscal years beginning after December 15, 1992. This statement was
implemented in March of 1993 and did not have a material effect upon the
financial position or results of operations of the Company.
Financial Condition
Loan Portfolio. The Company is an active residential mortgage and
residential construction lender and generally extends commercial loans to small
and medium sized businesses within its primary service area. The Company's
commercial lending activity extends across its primary service area of Powhatan,
Cumberland and western Chesterfield Counties. Consistent with its focus on
providing community-based financial services, the Company does not attempt to
diversify its loan portfolio geographically by making significant amounts of
loans to borrowers outside of its primary service area.
The principal economic risk associated with each of the categories of
loans in the Company's portfolio is the creditworthiness of its borrowers.
Within each category, such risk is increased or decreased depending on
prevailing economic conditions. The risk associated with the real estate
mortgage loans and installment loans to individuals varies based upon employment
levels, consumer confidence, fluctuations in value of residential real estate
and other conditions that affect the ability of consumers to repay indebtedness.
The risk associated with commercial, financial and agricultural loans varies
based upon the strength and activity of the local economies of the Company's
market areas. The risk associated with real estate construction loans varies
based upon the supply of and demand for the type of real estate under
construction. Many of the Bank's real estate construction loans are for pre-sold
or contract homes.
At September 30, 1999 loans increased $19.64 million from December 31,
1998 and $28.53 million from September 30, 1998. The loan-to-deposit ratio was
82.4% at September 30, 1999, compared to 69.9% at December 31, 1998, and 69.0%
at September 30, 1998. As of September 30, 1999, real estate loans
-8-
<PAGE>
accounted for 52.4% of the loan portfolio, consumer loans were 23.7%, and
commercial and industrial loans totaled 23.9%.
Asset Quality. Non-performing loans include non-accrual loans, loans 90
days or more past due and restructured loans. Non-accrual loans are loans on
which interest accruals have been discontinued. Loans which reach non-accrual
status may not be restored to accrual status until all delinquent principal and
interest has been paid, or the loan becomes both well secured and in the process
of collection. Restructured loans are loans with respect to which a borrower has
been granted a concession on the interest rate or the original repayment terms
because of financial difficulties.
The following table summarizes non-performing loans:
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
1999 1998 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis $312 $237 $309
Loans contractually past due 90 days or more as to
interest or principal payments (not included in
non-accrual loans above) 334 358 636
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 $646 $595 $945
==== ==== ====
</TABLE>
Management is not aware of any other loans at September 30, 1999 which
involve serious doubts as to the ability of such borrowers to comply with the
existing payment terms.
Management has analyzed the potential risk of loss on the Company's
loan portfolio, given the loan balances and the value of the underlying
collateral, and has recognized losses where appropriate. Non-performing loans
are closely monitored on an ongoing basis as part of the Company's loan review
process. Management reviews the loan loss allowance at the end of each month.
Based primarily on the Company's loan classification system, which classifies
problem credits as substandard, doubtful or loss, additional provisions for
losses are made monthly. The ratio of the allowance for loan losses to total
loans was 1.08%, 1.14% and 1.25% at September 30, 1999, December 31, 1998 and
September 30, 1998, respectively. At September 30, 1999 the ratio of the
allowance for loan losses to non-performing loans was 218.1%, compared to 212.9%
at December 31, 1998 and 135.1% at September 30, 1998.
Management evaluates non-performing loans relative to their collateral
value and makes appropriate reductions in the carrying value of those loans
based on that review. Management believes, based on its review, that the Company
has adequate reserves to cover any future write down that may be required on
these loans.
For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into consideration all
factors connected with the collectibility of the existing portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and value of the portfolio, industry standards and other relevant
factors. Specific factors considered by management in determining the amounts
charged to operations include internally generated loan review reports, previous
loan loss experience with the borrower, the status of past due interest and
principal
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<PAGE>
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 $60,000 for the quarter ended
September 30, 1999 and $49,500 for the same period in 1998. For the nine month
periods ended September 30, 1999 and 1998, the provision for loan losses totaled
$159,000 and $148,499, 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 increase the allowance for loan losses.
Securities
The Company's securities portfolio serves several purposes. Portions of
the portfolio secure certain public and trust deposits. The remaining portions
are held as investments or used to assist the Company in liquidity and asset
liability management. During the first nine months of 1998, total securities
decreased 17.4% to $46.7 million, or 24.5% of total assets at September 30,
1999. At December 31, 1998, total securities were $56.5 million, or 30.9% of
total assets and at September 30, 1998, total securities were $46.2 million, or
27.4% of total assets.
The securities portfolio consists of two components, investment
securities and securities available for sale. Securities are classified as
investment securities when management has the intent and the Company has the
ability at the time of purchase to hold the securities to maturity. Investment
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts. Securities to be held for indefinite periods of time are
classified as available for sale and accounted for at the lower of cost or
market value. Securities available for sale include securities that may be sold
in response to changes in market interest rates, changes in the security's
prepayment risk, increases in loan demand, general liquidity needs and other
similar factors. The Company's recent purchases of investment securities have
generally been limited to securities of high credit quality with short to medium
term maturities or securities with longer maturities and short to medium term
call features.
The fully taxable equivalent annualized average yield on the entire
portfolio was 6.94% for the third quarter and 7.13% for the first nine months of
1999, compared to 7.11% and 7.14% for the same periods in 1998. The book value
of the portfolio exceeded the market value by $1,093,438 at September 30, 1999.
Deposits and Short-Term Borrowings
The Company's predominate source of funds is depository accounts. The
Company's deposit base is comprised of demand deposits, savings and money market
accounts and other time deposits. The Company's deposits are provided by
individuals and businesses located within the communities served.
Total deposits grew by 1.3% between December 31, 1998 and September 30,
1999. The average aggregate interest rate paid on deposits was 3.79% in the
third quarter of 1999 and 3.82% for the first nine months of 1999, compared to
4.07% and 4.01% for the same periods in 1998. 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.
-10-
<PAGE>
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at September 30, 1999:
September 30, 1999
Time Deposits
-------------
(Dollars in Thousands)
Three months or less $2,342
Three to twelve months 6,168
Over twelve months 6,210
-----
Total $14,720
Capital Resources
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance and changing competitive
conditions and economic forces. The Company seeks to maintain a strong capital
base to support its growth and expansion activities, to provide stability to
current operations and to promote public confidence. The Company's capital
position continues to exceed regulatory minimums.
Banking regulations also require the Bank to maintain certain minimum
capital levels in relation to Bank Assets. Capital is measured using a leverage
ratio as well as based on risk-weighting assets according to regulatory
guidelines. A comparison of the Bank's actual regulatory capital as of September
30, 1999, with minimum requirements, as defined by regulation, is shown below:
Minimum Actual
Requirements September 30, 1999
------------ ------------------
Tier 1 risk-based capital 4.0% 12.03%
Total risk-based capital 8.0% 13.05%
Leverage ratio 3.0% 8.98%
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity is the ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its
depositors' requirements and meet its customers' credit needs.
Additional sources of liquidity available to the Company include, but
are not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also has access to the Federal Reserve
System. In the past, growth in deposits and proceeds from the maturity of
investment securities have been sufficient to fund the net increase in loans.
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<PAGE>
Interest Rate Sensitivity. In conjunction with maintaining a
satisfactory level of liquidity, management must also control the degree of
interest rate risk assumed on the balance sheet. Managing this risk involves
regular monitoring of the interest sensitive assets relative to interest
sensitive liabilities over specific time intervals.
Effects of Inflation
Inflation significantly affects industries having high proportions of
fixed assets or high levels of inventories. Although the Company is not
significantly affected in these areas, inflation does have an impact on the
growth of assets. As assets grow rapidly, it becomes necessary to increase
equity capital at proportionate levels to maintain the appropriate equity to
asset ratios. Traditionally, the Company's earnings and high capital retention
levels have enabled the Company to meet these needs.
The Company's reported earnings results have been affected by
inflation, but isolating the effect is difficult. The different types of income
and expense are affected in various ways. Interest rates are affected by
inflation, but the timing and magnitude of the changes may not coincide with
changes in the consumer price index. Management actively monitors interest rate
sensitivity in order to minimize the effects of inflationary trends on interest
rates. Other areas of non-interest expenses may be more directly affected by
inflation.
Year 2000 Issue
The Company continues with its managed process to ensure all systems
and core business functions are prepared for the Year 2000. The Company remains
steadfast in its commitment to eliminate or minimize the impact to internal bank
operations from Year 2000 problems that could adversely affect any of its
individual or business customers, as well as its ability to deliver basic
banking services. The Company remains confident, based largely upon its testing,
remediation, third party certifications, and contingency planning, that no
significant problems should be experienced by customers as a result of a failure
of any of the systems and processes over which it has direct control.
All of the required processes and steps outlined by the Company's
primary regulator as well as the Federal Financial Institutions Examination
Council (FFIEC) have been substantially met. The Company continues to evaluate
and monitor, to the extent possible, the progress of its external vendors and
service providers in becoming Year 2000 compliant.
Giving consideration to possible disruptions in services and functions
upon which the Company depends, and which are beyond its direct control, a
detailed contingency plan has been developed that addresses what will be done
should any problems occur with these external vendors and/or service providers.
The plan includes, among other things, operating the various branch banking
locations in a totally manual mode, i.e. without any automated systems,
electrical power or communications, as well as contracting with new vendors
should the existing service provider be unable to continue to provide services
or stay in business. The retail and commercial banking business resumption
portion of this plan was successfully tested in a live environment in August at
one branch, and will be further tested at several others during the fourth
quarter of 1999.
As previously disclosed, the costs of becoming Year 2000 compliant will
be less than our preliminary estimate of $200,000. The majority of all such
related costs have been expensed in the normal course of business during 1998
and 1999. Where appropriate, certain equipment acquisition costs have been
capitalized in 1999, in accordance with generally accepted accounting
principles. In several instances the Company's investment in new or upgraded EDP
equipment that occurred in 1999
-12-
<PAGE>
would have occurred regardless of Year 2000 issues, as part of its regular
equipment replacement and system upgrade process, and therefore is not
considered a Year 2000 related cost.
The Company believes that the most likely worst case Year 2000 scenario
would not have a material effect on the Company's results of operation,
liquidity and financial condition for the year ended December 31, 2000. The
Company does not foresee a material loss of revenue resulting from any Year 2000
related issue. However, while the contingency plan is based on assessments of
the likelihood of occurrence of various scenarios, the Company believes that no
entity can reasonably 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 external 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
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Part II. Other Information
- ----------------------------
ITEM 1 LEGAL PROCEEDINGS
In May 1999, Old Republic National Title Insurance Company, in its own
name and on behalf of twelve mortgage lenders insured by Old Republic
(collectively "Old Republic"), commenced an action against the Bank that is now
pending in the Circuit Court for the County of Chesterfield, Virginia. Old
Republic alleges that after a title agency and real estate settlement business,
Alliance Title Escrow, Ltd., failed, Old Republic discovered that the president
of Alliance Title had misappropriated approximately $1.6 million entrusted to
Alliance Title by various lenders in connection with residential real estate
closings in which Old Republic had issued or agreed to issue title insurance
policies. Old Republic alleges that the Bank knew or should have known of the
misappropriation of funds from the Alliance Title accounts maintained with the
Bank and that the Bank and the co-defendant were involved in a conspiracy. Old
Republic claims compensatory damages of $1.6 million, and further claims that
these damages can be trebled and that Old Republic can recover its attorney's
fees. Old Republic has also made a claim to recover punitive damages in the
amount of $350,000. The Bank has denied all liability and is vigorously
defending the case. The Bank has made a motion to dismiss the entire case which
is pending at this time. Although the Bank is vigorously defending the case, the
outcome of the litigation is uncertain.
-13-
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith)
(b) Form 8-K. No reports were filed on Form 8-K in the
period for which this report is filed.
-14-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTRAL VIRGINIA BANKSHARES, INC.
(Registrant)
Date: November 15, 1999 /s/ Ralph Larry Lyons
------------------------------------------------
Ralph Larry Lyons, President and Chief Executive
Officer (Chief Financial Officer)
-15-
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,670,014
<INT-BEARING-DEPOSITS> 177,491
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,599,615
<INVESTMENTS-CARRYING> 27,079,306
<INVESTMENTS-MARKET> 27,008,221
<LOANS> 129,210,669
<ALLOWANCE> 1,411,747
<TOTAL-ASSETS> 190,288,492
<DEPOSITS> 156,735,439
<SHORT-TERM> 10,796,987
<LIABILITIES-OTHER> 506,572
<LONG-TERM> 5,027,000
0
0
<COMMON> 2,403,945
<OTHER-SE> 14,818,549
<TOTAL-LIABILITIES-AND-EQUITY> 190,288,492
<INTEREST-LOAN> 7,931,912
<INTEREST-INVEST> 2,593,036
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,524,948
<INTEREST-DEPOSIT> 4,448,517
<INTEREST-EXPENSE> 4,965,576
<INTEREST-INCOME-NET> 5,559,372
<LOAN-LOSSES> 159,000
<SECURITIES-GAINS> 5,400,372
<EXPENSE-OTHER> 4,383,423
<INCOME-PRETAX> 1,999,887
<INCOME-PRE-EXTRAORDINARY> 1,999,887
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,414,865
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 4.31
<LOANS-NON> 312,211
<LOANS-PAST> 335,126
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,267,192
<CHARGE-OFFS> 39,240
<RECOVERIES> 24,795
<ALLOWANCE-CLOSE> 1,411,747
<ALLOWANCE-DOMESTIC> 845,731
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 566,016
</TABLE>
