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.
June 30, 1999 33-9686
CENTRAL VIRGINIA BANKSHARES, INC.
Virginia 54-1467806
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2036 New Dorset Road
P. O. Box 39
Powhatan, Virginia 23139
(Address of Principal Executive Office)
(804) 598-4216
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No (not subject to filing requirements
for the past 90 days).
As of August 13, 1999, 1,920,103 shares were outstanding.
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
QUARTERLY REPORT ON FORM 10-QSB
August 13, 1999
INDEX
Part I. Financial Information Page No.
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1999
and 1998.............................................................3
Consolidated Statements of Income - Three
Months Ended June 30, 1999 and 1998
and Six Months Ended June 30, 1999 and 1998..........................4
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1999 and 1998..................................5
Notes to Consolidated Financial Statements -
June 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................................................13-14
Item 4 Submission of Matters to a Vote of
Security Holders.................................................14-15
Item 6 Exhibits and Reports on Form 8-K....................................15
Signatures...................................................................16
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, 1999 June 30, 1998
------ ------------- -------------
<S> <C> <C>
Cash and due from banks $4,000,002 $4,742,393
Federal funds sold 0 2,673,000
- ---------
Total cash and cash equivalents $4,000,002 $7,415,393
Securities available for sale 25,784,274 25,009,947
Securities held to maturity (approximate market
value 1999 $26,929,173; 1998 $21,318,779) 26,947,775 20,892,558
Mortgage loans held for sale 361,000 739,350
Loans, net 121,645,849 94,152,981
Bank premises and equipment, net 4,506,273 3,988,048
Accrued interest receivable 1,308,747 1,161,136
Other assets 2,866,934 3,539,169
---------- ----------
Total assets $187,420,854 $156,898,582
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand deposits $23,241,917 $19,547,240
Interest bearing demand deposits and NOW accounts 34,296,538 25,632,235
Savings deposits 19,369,815 15,523,187
Time deposits, $100,000 and over 15,256,141 13,689,170
Other time deposits 65,735,917 59,690,716
----------- -----------
$157,900,328 $134,082,548
Securities sold under repurchase agreements 6,898,741 776,724
FHLB advance 5,000,000 5,000,000
Note payable 27,000 36,000
Accrued interest payable 350,635 325,258
Other liabilities 161,527 207,444
-------- --------
Total liabilities $170,338,231 $140,427,974
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock, common, par value $1.25; authorized 6,000,000 shares;
issued 1,920,103 shares 1999; 1,911,682 shares 1998 $2,400,129 $2,389,603
Surplus 4,306,012 4,207,632
Retained earnings 10,859,339 9,642,083
Accumulated other comprehensive income (482,857) 231,290
--------- -------
Total stockholders' equity $17,082,623 $16,470,608
----------- -----------
Total liabilities and stockholders' equity $187,420,854 $156,898,582
============ ============
Loan to Deposit Ratio 77.04% 70.22%
Book Value $8.90 $8.62
</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 Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,621,538 $2,242,470 $5,115,553 $4,392,832
Interest on securities:
U.S. Government agencies and corporations 369,565 378,561 764,708 759,841
U.S. Treasury notes 31,577 31,750 63,131 58,275
States and political subdivisions 390,967 272,114 789,740 512,724
Other 99,609 34,634 186,541 53,547
Interest on federal funds sold 145 55,128 310 105,689
--- ------ --- -------
Total interest income $3,513,401 $3,014,657 $6,919,983 $5,882,908
---------- ---------- ---------- ----------
Interest expense
Interest on deposits $1,476,670 $1,317,159 $2,961,986 $2,578,867
Interest on federal funds purchased and securities
sold under repurchase agreements 100,278 11,050 193,007 21,356
Interest, FHLB advance 73,938 73,938 147,063 147,063
Interest on note payable 540 720 1,260 1,620
--- --- ----- -----
Total interest expense $1,651,426 $1,402,867 $3,303,316 $2,748,906
---------- ---------- ---------- ----------
Net interest income $1,861,975 $1,611,790 $3,616,667 $3,134,002
Provision for loan losses 49,500 49,500 99,000 98,999
------ ------ ------ ------
Net interest income after provision for
loan losses $1,812,475 $1,562,290 $3,517,667 $3,035,003
Other income
Gain (loss) on sale of securities $3,140 ($121) $3,140 $10,079
Service charges 236,856 160,402 439,372 298,640
Other 89,659 90,675 189,529 171,044
------ ------ ------- -------
Total other income $329,655 $250,956 $632,041 $479,763
Other expenses
Salaries and wages $617,100 $493,900 $1,234,900 $959,800
Pensions and other employee benefits 94,436 70,224 188,037 155,939
Occupancy expense 65,767 64,935 134,212 126,680
Equipment depreciation 112,731 84,784 209,581 168,460
Equipment repairs and maintenance 67,870 41,477 113,851 84,778
Advertising and public relations 47,368 75,314 96,902 135,080
Federal insurance premiums 5,591 4,684 11,067 9,231
Office supplies, telephone and postage 113,454 90,662 229,250 182,760
Taxes and licenses 32,078 31,248 67,295 60,894
Other operating expenses 301,337 223,503 545,154 394,885
------- ------- ------- -------
Total other expenses $1,457,732 $1,180,731 $2,830,249 $2,278,507
---------- ---------- ---------- ----------
Income before income taxes $684,398 $632,515 $1,319,459 $1,236,259
Income taxes 203,875 180,480 387,837 341,419
------- ------- ------- -------
Net income $480,523 $452,035 $931,622 $894,840
======== ======== ======== ========
Per share of common stock:
Income before income taxes $0.36 $0.33 $0.69 $0.65
Net income $0.25 $0.24 $0.49 $0.47
Weighted average shares 1,916,240 1,910,134 1,916,240 1,908,970
Return on average assets 1.03% 1.19% 1.01% 1.20%
Return on average equity 11.73% 11.51% 11.41% 11.49%
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows for Operating Activities
Net Income $931,622 $894,840
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 255,502 209,530
Provision for loans losses 99,000 98,999
Amortization and accretion on securities 39,554 24,991
Realized gain on sales of securities available for sale (3,140) (10,079)
Change in operating assets and liabilities:
(Increase) decrease in assets:
Mortgage loans held for sale 398,466 (408,000)
Accrued interest receivable 158,848 157,744
Other assets (658,515) (1,938,096)
Increase (decrease) in liabilities:
Accrued interest payable (25,142) (2,505)
Other liabilities (132,066) 68,604
--------- ------
Net cash provided by operating activities $1,064,129 ($903,972)
---------- ----------
Cash Flows from Investing Activities
Proceeds from maturities of securities held to maturity $1,125,000 $250,000
Purchase of securities held to maturity (455,400) (3,784,351)
Proceeds from sales and maturities of securities available for sale 3,037,860 5,101,369
Purchase of securities available for sale (597,500) (6,915,490)
Net (increase) decrease in loans made to customers (12,176,096) (5,394,480)
Net purchases of premises and equipment (480,088) (657,273)
Net expenditures on foreclosed real estate (5,436) (1,465)
------- -------
Net cash (used in) investing activities ($9,551,660) ($11,401,690)
------------ -------------
Cash Flows from Financing Activities
Net increase in deposits $3,173,527 $11,409,007
Repayment of note payable (9,000) (9,000)
Net proceeds from issuance of common stock 74,768 76,412
Net increase (decrease) in federal funds purchased and securities
sold under repurchase agreements 1,818,549 (417,163)
Dividends paid (383,115) (362,616)
--------- ---------
Net cash provided by financing activities $4,674,729 $10,696,640
---------- -----------
Increase (decrease) in cash and cash equivalents ($3,812,802) ($1,609,022)
Cash and cash equivalents:
Beginning 7,812,804 9,024,415
--------- ---------
Ending $4,000,002 $7,415,393
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $3,328,458 $2,751,411
========== ==========
Income Taxes $369,403 $293,925
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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.
-6-
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's net income totaled $480,523 in the second quarter of
1999, an increase of 6.3% from the second quarter of 1998. These results reflect
an increase in net interest income. For the quarter, total interest income rose
24.8%, while net interest income rose 15.5%. The primary source of the increases
in interest income was in interest and fees on loans, which rose 16.9%, compared
to the same quarter in 1998. This was the result of a 32.4% increase in the
balance of loans outstanding from June 30, 1998 to June 30, 1999. Net income per
common share for the second quarter of 1999 was $.25 compared to $.24 for the
same period in 1998. All per share calculations reflect the 2-for-1 stock split
paid in August 1998. The Company's annualized return on average equity was
11.73% in the second quarter of 1999, compared to 11.51% for the second quarter
of 1998, while the return on average assets amounted to 1.03% and 1.19% for
these periods, respectively.
The Company's net income for the six months ended June 30, 1999 totaled
$931,622, an increase of $36,782, or 4.1%, over the first six months of 1998.
The 1999 results reflect primarily a 15.4% increase in net interest income as
well as a 31.7% increase in other income. Net income per common share for the
first six months of 1999 was $.49 compared to $.47 for the same period in 1998.
The Company's annualized return on average equity was 11.41% for the six months
ended June 30, 1999, compared to 11.49% for the six months ended June 30, 1998.
The return on average assets amounted to 1.01% and 1.20% for these same periods,
respectively.
Net Interest Income. The Company's net interest income was $1,861,975
for the second quarter of 1999, compared to $1,611,790 for the second quarter of
1998. The increase in net interest income in 1999 was attributable primarily to
an increase in interest earning assets. Average interest earning assets were
$172.6 million for the second quarter of 1999, compared to $140.6 million for
the second quarter of 1998. Average loans increased $26 million, or 28.1%, to
account for the majority of the increase. For the six months ended June 30,
1998, average interest earning assets rose 22.2% to $170.5 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 4.32% for the
second quarter of 1999 and 4.24% for the first six months of 1999, compared to
4.59% and 4.49% for the same periods in 1998, respectively.
Non-Interest Income. In the second quarter of 1999, the Company's total
non-interest income totaled $329,655, an increase of 31.4%, or $78,699, compared
to 1998. For the first six months of 1999, non-interest income increased by
$152,278 or 31.7%, compared to 1998. Included in the results for the first six
months of 1999 are fees collected on a successful packaged checking account
product that was introduced late in June 1998. In addition, service charges on
other deposit products increased as the volume of the accounts increased.
Non-Interest Expense. The Company's total non-interest expenses for the
second quarter and six months ended June 30, 1999 increased $277,001 and
$551,742, respectively, 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 by 26.1% for the quarter and 27.5% for the
first six months compared to 1998. These increases reflect the staffing of the
Cumberland branch office, which opened
-7-
<PAGE>
in June 1998, as well as additional back-office support required as the Bank has
grown. Expenses for advertising and public relations decreased 37.1% for the
quarter and 28.2% for the six months as the Company had, in 1998, increased its
efforts to attract new customers. Increases in equipment depreciation and
equipment repairs and maintenance reflect the upgrade of much of the Company's
processing equipment over the past year. This equipment had either become
outdated or lacked the capacity to efficiently handle the increased number of
transactions occurring daily as the Company has grown in size.
Income Taxes. The Bank reported income taxes of $203,875 for the second
quarter and $387,837 for the first six months of 1999, compared to $180,480 and
$341,419 for the same periods in 1998, respectively. These amounts yielded
effective tax rates of 29.8% for the quarter and 29.4% for the first six months
of 1999, compared to 28.5% and 27.6% for the same periods in 1998, 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 Bank's real estate construction loans are for pre-sold
or contract homes.
At June 30, 1999 loans increased $12.1 million from December 31, 1998
and $27.5 million from June 30, 1998. The loan to deposit ratio was 77.04% at
June 30, 1999, compared to 70.81% at December 31, 1998, and 70.22% at June 30,
1998. As of June 30, 1999, real estate loans accounted for 54.3% of the loan
portfolio, consumer loans were 23.8%, and commercial and industrial loans
totaled 21.9%.
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.
-8-
<PAGE>
The following table summarizes non-performing loans:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis $230 $237 $146
Loans contractually past due 90 days or more as to
interest or principal payments (not included in
non-accrual loans above) 402 358 446
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 $632 $595 $592
==== ==== ====
</TABLE>
Management is not aware of any other loans at June 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 1.11%, 1.14% and 1.32% at June 30, 1999, December 31, 1998 and June
30, 1998, respectively. At June 30, 1999 the ratio of the allowance for loan
losses to non-performing loans was 215.8%, compared to 212.9% at December 31,
1998 and 207.9% at June 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 payments on the loan, the quality of financial information supplied by
the borrower and the general financial condition of the borrower.
The provision for loan losses totaled $49,500 for each of the quarters
ended June 30, 1999 and 1998. For the six month periods ended June 30, 1999 and
1998, the provision for loan losses was $99,000 and $98,999, 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.
-9-
<PAGE>
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 six months of 1999, total securities
decreased 6.7% to $52.7 million or 28.1% of total assets at June 30, 1999. At
December 31, 1998, total securities were $56.5 million, or 31.0% of total assets
and at June 30, 1998, total securities were $45.9 million, or 29.3% of total
assets.
The securities portfolio consists of two components, securities held to
maturity and securities available for sale. 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 held to maturity
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.
The fully taxable equivalent annualized average yield on the entire
portfolio was 7.06% for the second quarter of 1999 and 7.05% for the first six
months of 1999, compared to 7.07% and 6.84% for the same periods in 1998. The
book value of the portfolio exceeded the market value by $750,099 at June 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 2.1% between December 31, 1998 and June 30,
1999. The average aggregate interest rate paid on deposits was 3.79% in the
second quarter of 1999 and 3.83% for the first six months of 1999, compared to
4.04% and 3.99% 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.
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at June 30, 1999:
June 30, 1999
Time Deposits
-------------
(Dollars in Thousands)
Three months or less $2,232
Three to twelve months 6,156
Over twelve months 6,868
-----
Total $15,256
=======
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<PAGE>
Capital Resources
The assessment of capital adequacy depends on a number of factors such
as asset quality, liquidity, earnings performance and changing competitive
conditions and economic forces. The Company seeks to maintain a strong capital
base to support its growth and expansion activities, to provide stability to
current operations and to promote public confidence.
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 June 30,
1999, with minimum requirements, as defined by regulation, is shown below:
Minimum Actual
Requirements June 30, 1999
------------ -------------
Tier 1 risk-based capital 4.0% 12.48%
Total risk-based capital 8.0% 13.51%
Leverage ratio 3.0% 8.90%
Liquidity and Interest Rate Sensitivity
Liquidity. Liquidity is the ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its
depositors' requirements and meet its customers' credit needs.
Additional sources of liquidity available to the Company include, but
are not limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company also has access to the Federal Reserve
System. In the past, growth in deposits and proceeds from the maturity of
investment securities have been sufficient to fund the net increase in loans.
Interest Rate Sensitivity. In conjunction with maintaining a
satisfactory level of liquidity, management must also control the degree of
interest rate risk assumed on the balance sheet. Managing this risk involves
regular monitoring of the interest sensitive assets relative to interest
sensitive liabilities over specific time intervals.
Effects of Inflation
Inflation significantly affects industries having high proportions of
fixed assets or high levels of inventories. Although the Company is not
significantly affected in these areas, inflation does have an impact on the
growth of assets. As assets grow rapidly, it becomes necessary to increase
equity capital at proportionate levels to maintain the appropriate equity to
asset ratios. Traditionally, the Company's earnings and high capital retention
levels have enabled the Company to meet these needs.
The Company's reported earnings results have been affected by
inflation, but isolating the effect is difficult. The different types of income
and expense are affected in various ways. Interest rates are affected
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<PAGE>
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 is now confident that it should not have any significant
Year 2000 related problems. The Year 2000 Project Committee, continues to manage
and monitor the process to ensure that all areas and systems have been reviewed,
certified compliant and where practicable, tested. The objective as previously
stated is to eliminate or minimize the impact to internal bank operations from
Year 2000 problems that could affect any of our individual or business
customers, as well as our ability to deliver basic banking services. The
required processes pursuant to current banking regulations, with regard to "Year
2000 Standards for Safety and Soundness," have been substantially completed. The
Company's current status regarding the several major processes is as follows:
<TABLE>
<CAPTION>
Process Completion Date CVB Status
<S> <C> <C>
Review Mission-Critical Systems for Y2K Readiness 12-31-98 Complete
Renovate and Test Mission-Critical Systems 03-31-99 Complete
Renovate and Test Non Mission-Critical Systems 06-30-99 Complete
Business Resumption Contingency Planning 09-30-99 Complete
Perform Customer Risk Assessments 03-31-99 Complete
Engage in Customer and Employee Awareness 09-30-99 In Process
</TABLE>
The Company continues to evaluate and monitor, to the extent possible,
the progress of external vendors and service providers in becoming Year 2000
compliant. Considering the services and functions that are beyond the direct
control of Central Virginia Bank, a detailed contingency plan has been developed
that addresses what will be done should any problems with these external
providers occur. The plan includes, among other things, contracting with new
vendors if the existing vendor can not continue to provide services or stay in
business.
The Company has substantially meet all regulatory mandated requirements
for Year 2000 readiness, specifically:
* At this time 100% of the externally supported mission-critical systems
and services have been certified compliant and the Company has
substantially completed all required testing.
* Virtually all non mission-critical systems have been certified
compliant and where practicable, tested. The process is currently 98%
completed, and the Company anticipates no remaining significant
problems.
* The Company has developed a Year 2000 Business Resumption Plan that
outlines and directs our operations in the event of any
mission-critical system failures effecting a core business process. The
plan identifies the minimum service levels associated with these core
business processes. Real time tests of the Retail Banking Business
Resumption Plan have been successfully conducted and further more
extensive tests are scheduled for the plan in August. These tests
ensure the plan's viability, and provide valuable experience for our
branch personnel.
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<PAGE>
* The cost of the entire process of becoming Year 2000 compliant should
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. There is the likelihood that some small
final portion may be expensed in the first quarter of 2000.
* We are currently engaged in conducting a comprehensive internal
information and education process for all associates regarding Year
2000 issues, contingency plans, and customer relations.
* Additional Y2K awareness correspondence and consumer information
intended to alert customers of potential Y2K consumer fraud will be
available to customers through the retail branch network, and future
mailings, which will continue through the end of the year.
The Company has well-planned and managed process to ensure all systems
and core business functions are ready for the Year 2000. The Company believes
that the most likely worst case Y2K 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 Y2K related 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 reasonably address the
unlimited possible circumstances relating to Y2K issues. While unlikely, it is
acknowledged that the failure of the Company to successfully implement its Y2K
plan, or to adequately assess the likelihood of various external events relating
to the Y2K issue, could have a material adverse effect on the Company's results
of operations and financial condition.
Forward-Looking Statements
Certain information contained in this discussion may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "the Company expects," "the Company believes" or words of similar
import. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest rate fluctuations, competition within and from outside the
banking industry, new products and services in the banking industry, risk
inherent in making loans such as repayment risks and fluctuating collateral
values, problems with technology utilized by the Company, changing trends in
customer profiles and changes in laws and regulations applicable to the Company.
Although the Company believes that its expectations with respect to the
forward-looking statements are based upon reliable assumptions within the bounds
of its knowledge of its business and operations, there can be no assurance that
actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
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, VA. Old Republic
alleges that after a title agency and real estate settlement business, Alliance
Title
-13-
<PAGE>
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 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.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Shareholders meeting was held on April 27, 1999.
(b) Directors elected at the meeting for a three year term were:
1. Ralph Larry Lyons
2. Garland L. Blanton, Jr.
3. Fleming V. Austin
Directors with continuing terms were:
1. Elwood C. May
2. Charles B. Goodman
3. Charles W. Binford
4. John B. Larus
5. James T. Napier
(c) Matters voted upon:
1. Election of Ralph Larry Lyons as a director for a
three year term:
Votes for...................1,593,872
Votes withheld..................5,707
2. Election of Garland L. Blanton, Jr. as a director for
a three year term:
Votes for...................1,593,872
Votes withheld..................5,707
3. Election of Fleming V. Austin as a director for a
three year term:
Votes for...................1,590,868
Votes withheld..................8,711
-14-
<PAGE>
4. Ratification of Auditors:
Votes for...................1,593,090
Votes against...................2,730
Votes abstained.................3,759
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.
-15-
<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: August 16, 1999 /s/ Ralph Larry Lyons
------------------------------------------------
Ralph Larry Lyons, President and Chief Executive
Officer (Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR CENTRAL VIRGINIA BANKSHARES, INC. FOR THE
PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,000,002
<INT-BEARING-DEPOSITS> 114,675
<FED-FUNDS-SOLD> 0
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0
0
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