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, 2000 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 14, 2000, 1,931,684 shares were outstanding.
<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
QUARTERLY REPORT ON FORM 10-QSB
November 14, 2000
INDEX
Part I. Financial Information Page No.
------------------------------ --------
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 2000
and 1999..............................................................3
Consolidated Statements of Income - Three
Months Ended September 30, 2000 and 1999
and Nine Months Ended September 30, 2000 and 1999.....................4
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2000 and 1999..............................5
Notes to Consolidated Financial Statements -
September 30, 2000 and 1999 (Unaudited).............................6-7
Item 2 Management's Discussion and Analysis or
Plan of Operation..................................................8-13
Part II. Other Information
---------------------------
Item 1 Legal Proceedings.................................................13-14
Item 6 Exhibits and Reports on Form 8-K.....................................14
Signatures....................................................................15
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<PAGE>
PART I
ITEM 1 FINANCIAL STATEMENTS
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS Sept. 30, 2000 Sept. 30, 1999
------ -------------- --------------
<S> <C> <C>
Cash and due from banks $ 4,819,226 $ 5,671,789
Federal funds sold 3,583,000 -
-------------- --------------
Total cash and cash equivalents $ 8,402,226 $ 5,671,789
Securities available for sale 18,768,293 19,599,615
Securities held to maturity (approximate market value 2000 $24,635,847;
1999 $27,008,221) 25,046,038 27,079,306
Mortgage loans held for sale 136,000 345,000
Total loans 134,896,208 130,884,686
Less: Unearned income (370,085) (262,270)
Reserve for loan losses (1,571,700) (1,411,747)
-------------- --------------
Loans, net 132,954,423 129,210,669
-------------- --------------
Bank premises and equipment, net 4,273,933 4,631,976
Accrued interest receivable 1,741,052 1,354,445
Other assets 3,564,558 2,395,692
-------------- --------------
Total assets $ 194,886,523 $ 190,288,492
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand deposits $ 22,563,877 $ 21,840,979
Interest bearing demand deposits and NOW accounts 31,947,968 35,469,295
Savings deposits 18,180,973 19,314,632
Time deposits, $100,000 and over 16,171,314 14,719,665
Other time deposits 71,887,937 65,390,868
-------------- --------------
$ 160,752,069 $ 156,735,439
Federal funds purchased and securities sold under repurchase agreements 284,747 10,796,987
FHLB advance 15,000,000 5,000,000
Note payable 18,000 27,000
Accrued interest payable 459,986 363,753
Other liabilities 106,402 142,819
-------------- --------------
Total liabilities $ 176,621,204 $ 173,065,998
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $1.25 par value; 6,000,000 shares authorized;
1,931,684 and 1,923,156 shares issued and outstanding in
2000 and 1999, respectively $ 2,414,605 $ 2,403,945
Surplus 4,400,845 4,337,689
Retained earnings 12,419,648 11,150,568
Accumulated other comprehensive income (969,779) (669,708)
-------------- --------------
Total stockholders' equity $ 18,265,319 $ 17,222,494
-------------- --------------
Total liabilities and stockholders' equity $ 194,886,523 $ 190,288,492
============== ==============
Loan to Deposit Ratio 82.71% 82.44%
Book Value Per Share $ 9.46 $ 8.96
</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,
---------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 3,155,714 $ 2,816,359 $ 9,218,766 $ 7,931,912
Interest on securities:
U.S. Government agencies and corporations 264,863 267,356 803,085 1,032,064
U.S. Treasury securities 0 31,442 23,378 94,573
States and political subdivisions 405,071 391,796 1,142,278 1,181,536
Other 133,733 96,624 395,010 283,165
Interest on federal funds sold 42,538 1,388 73,524 1,698
----------- ----------- ----------- -----------
Total interest income $ 4,001,919 $ 3,604,965 $11,656,041 $10,524,948
----------- ----------- ----------- -----------
Interest expense
Interest on deposits $ 1,713,186 $ 1,486,531 $ 4,737,659 $ 4,448,517
Interest on federal funds purchased and securities
sold under repurchase agreements 5,117 100,439 60,342 293,446
Interest on FHLB borrowings 256,170 74,750 836,826 221,813
Interest on note payable 360 540 1,260 1,800
----------- ----------- ----------- -----------
Total interest expense $ 1,974,833 $ 1,662,260 $ 5,636,087 $ 4,965,576
----------- ----------- ----------- -----------
Net interest income $ 2,027,086 $ 1,942,705 $ 6,019,954 $ 5,559,372
Provision for loan losses 120,500 60,000 240,500 159,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses $ 1,906,586 $ 1,882,705 $ 5,779,454 $ 5,400,372
----------- ----------- ----------- -----------
Other income
Deposit fees and charges $ 286,244 $ 266,282 $ 839,040 $ 705,654
Realized gain on sales of securities available for sale - 2,763 - 5,903
Other 142,999 81,852 322,849 271,381
----------- ----------- ----------- -----------
Total other income $ 429,243 $ 350,897 $ 1,161,889 $ 982,938
----------- ----------- ----------- -----------
Other expenses
Salaries and wages $ 771,300 $ 657,600 $ 2,203,300 $ 1,892,500
Pensions and other employee benefits 125,741 117,494 335,838 305,531
Occupancy expense 76,365 67,668 222,269 201,880
Equipment depreciation 134,614 136,655 406,066 346,236
Equipment repairs and maintenance 55,611 55,986 161,696 169,837
Advertising and public relations 26,652 39,074 84,886 135,976
Federal insurance premiums 7,619 5,589 23,279 16,656
Office supplies, telephone and postage 89,299 98,009 299,019 327,259
Taxes and licenses 30,165 33,450 97,300 100,745
Legal and professional fees (1,577) 80,625 255,152 162,325
Other operating expenses 224,844 261,024 707,136 724,478
----------- ----------- ----------- -----------
Total other expenses $ 1,540,633 $ 1,553,174 $ 4,795,941 $ 4,383,423
----------- ----------- ----------- -----------
Income before income taxes $ 795,196 $ 680,428 $ 2,145,402 $ 1,999,887
Income taxes 266,938 197,185 650,999 585,022
----------- ----------- ----------- -----------
Net income $ 528,258 $ 483,243 $ 1,494,403 $ 1,414,865
=========== =========== =========== ===========
Per share of common stock:
Income before income taxes $ 0.41 $ 0.35 $ 1.11 $ 1.04
Net income $ 0.27 $ 0.25 $ 0.77 $ 0.74
Dividends paid per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
Weighted average shares 1,931,684 1,920,800 1,928,145 1,917,776
Return on average assets 1.09% 1.04% 1.03% 1.02%
Return on average equity 11.88% 11.86% 11.37% 11.55%
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,494,403 $ 1,414,865
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 473,640 415,113
Provision for loans losses 240,500 159,000
Amortization and accretion on securities 39,132 62,437
Realized gain on sales of securities available for sale - (5,903)
Loss on sale of foreclosed real estate 4,040 32,775
Change in operating assets and liabilities:
(Increase) decrease in assets:
Mortgage loans held for sale 224,772 414,466
Accrued interest receivable (335,000) 113,150
Other assets (425,712) (187,273)
Increase (decrease) in liabilities:
Accrued interest payable 65,262 (12,024)
Other liabilities (233,270) (150,774)
-------------- --------------
Net cash provided by operating activities $ 1,547,767 $ 2,255,832
-------------- --------------
Cash Flows from Investing Activities
Proceeds from maturities of securities held to maturity $ 1,435,000 $ 1,830,000
Purchase of securities held to maturity - (1,304,824)
Proceeds from sales and maturities of securities available for sale 486,790 8,926,183
Purchase of securities available for sale (66,600) (597,500)
Net increase in loans made to customers (4,905,526) (19,892,766)
Net purchases of premises and equipment (145,366) (765,132)
Proceeds from sale of foreclosed real estate 361,696 163,950
Net expenditures on foreclosed real estate (15,142) (8,326)
-------------- --------------
Net cash (used in) investing activities $ (2,849,148) ($ 11,648,415)
-------------- --------------
Cash Flows from Financing Activities
Net increase in deposits $ 8,541,068 $ 2,008,638
Net increase (decrease) in federal funds purchased and securities
sold under repurchase agreements 11,705 5,716,795
Repayment of FHLB borrowings (4,000,000) -
Repayment of note payable (9,000) (9,000)
Net proceeds from issuance of common stock 73,816 110,261
Dividends paid (578,234) (575,126)
-------------- --------------
Net cash provided by financing activities $ 4,039,355 $ 7,251,568
-------------- --------------
Increase (decrease) in cash and cash equivalents $ 2,737,974 ($ 2,141,015)
Cash and cash equivalents:
Beginning 5,664,252 7,812,804
-------------- --------------
Ending $ 8,402,226 $ 5,671,789
============== ==============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 5,570,825 $ 4,977,600
============== ==============
Income Taxes $ 560,992 $ 583,856
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
CENTRAL VIRGINIA BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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 Comprehensive Income
A reconciliation from net income to total comprehensive income for the three
months and nine months ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net income $528,258 $483,243 $1,494,403 $1,414,865
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising
during the period on securities available
for sale, net of deferred income taxes 137,538 (186,851) 188,534 (844,635)
------------ ------------ -------------- --------------
Total comprehensive income $665,796 $296,392 $1,682,937 $570,230
============ ============ ============== ==============
</TABLE>
Note 3 Commitments and Contingencies
As previously reported in the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 2000, the Bank was a party to lawsuits filed by Old
Republic National Title Insurance Company, in its own name and on behalf of
twelve mortgage lenders insured by Old Republic, in the Circuit Court for the
County of Chesterfield, Virginia and by the trustee in bankruptcy for Alliance
Title and Escrow, Ltd. in the United States Bankruptcy Court for the Eastern
District of Virginia. Both lawsuits arose primarily from the alleged
misappropriation of funds by the president of Alliance Title from the Alliance
Title accounts maintained with the Bank.
In August 2000, the Bank, Old Republic and Alliance Title reached an agreement
to settle the lawsuits. The settlement agreement has been signed and all
proceedings in the United States Bankruptcy Court have been dismissed. The
consummation of the settlement in the state court cases is in progress. Although
the parties are required to keep the terms of the settlement confidential, the
settlement does not have a material adverse impact on the Company.
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<PAGE>
Note 4 New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard ("FAS") 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. Certain provisions of FAS 133
were amended by FAS 137 and FAS 138. Under FAS 133, as amended, derivatives are
recognized on the balance sheet at fair value as an asset or liability. Changes
in the fair value of derivatives will be reported as a component of other
comprehensive income or recognized as earnings through the income statement
depending on the nature of the instrument. FAS 133 is effective for all quarters
of fiscal years beginning after June 15, 2000, with earlier adoption permitted.
The Company has not adopted FAS 133 yet and is currently evaluating FAS 133's
effect on its financial position and results of operation, but it is not
expected to have a material impact.
-7-
<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's net income totaled $528,258 in the third quarter of 2000,
an increase of 9.3% from the third quarter of 1999. The earnings for the third
quarter of 2000 were positively affected by increased interest and fee income
from loans as well as increased other income and a decrease in the total of
other expenses. The increase in interest and fee income on loans is attributable
to a 3.1% increase in the volume of loans since September 30, 1999 as well as an
increase in interest rates.
The primary cause of the decrease in other expenses resulted from the
settlement of litigation, which has been ongoing since early 1999. Legal
expenses for the defense of this litigation has impacted earnings since that
time. While the terms of the settlement agreement may not be disclosed, the
Company received partial reimbursement for previously expensed legal fees.
Net income per common share for the third quarter of 2000 was $.27
compared to $.25 in the same period last year. The Company's annualized return
on average equity was 11.88% in the third quarter of 2000, compared to 11.86%
for the third quarter of 1999, while the return on average assets amounted to
1.09% and 1.04% for these same periods respectively.
The Company's net income for the nine months ended September 30, 2000
totaled $1,494,403, an increase of 5.6% over the first nine months of 1999. This
increase is also primarily the result of an increase in interest income and
other income. Net income per common share for the first nine months of 2000 was
$.77 compared to $.74 for the same period in 1999. The Company's annualized
return on average equity was 11.37% for the nine months ended September 30,
2000, compared to 11.55% for the nine months ended September 30, 1999. The
return on average assets amounted to 1.03% and 1.02% for these same periods,
respectively.
Net Interest Income. The Company's net interest income was $2,027,086
for the third quarter of 2000, compared to $1,942,705 for the third quarter of
1999. The increase in net interest income in 2000 was attributable primarily to
the increase in the loans outstanding component of Company's average interest
earning assets. Average interest earning assets were $182.4 million for the
third quarter of 2000, compared to $173.3 million for the third quarter of 1999.
Average loans outstanding increased $7.7 million, or 6.1% to an average of
$133.3 million for the quarter ended September 30, 2000. Average investment
securities decreased 2.1% to $46.6 million for the quarter ended September 30,
2000. For the nine months ended September 30, 2000, average interest earning
assets rose 5.8% to $181.9 million compared to the same period in 1999.
For the quarter ended September 30, 2000, fully taxable-equivalent net
interest income was $2,051,635 compared to $2,017,879 at September 30, 1999. For
the nine month periods, net interest income on a fully taxable-equivalent basis
was $6,194,890 and $5,791,952, respectively.
The net interest margin is a measure of net interest income
performance. It represents the difference between interest income (on a fully
taxable-equivalent basis), including net loan fees earned, and interest expense,
reflected as a percentage of average interest earning assets. The Company's net
interest margin was 4.50% for the third quarter of 2000 compared to 4.64% in
1999. For the nine months ended September 30, 2000 the net interest margin was
4.54% compared to 4.46% for the same period of 1999.
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<PAGE>
Non-Interest Income. In the third quarter of 2000, the Company's total
non-interest income totaled $429,243, an increase of 22.3%, or $78,346, compared
to 1999. 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 accounts as well as changes in the amount of the various charges. Also
included in the increase in non-interest income are revenues from our recently
established non-deposit investment sales program. For the first nine months of
2000, non-interest income increased by $178,951 or 18.2% compared to 1999. This
increase is also related to the increase in service charges on deposit accounts
and the revenue from the non-deposit investment sales program.
Non-Interest Expense. The Company's total non-interest expenses for the
third quarter ended September 30, 2000 decreased $12,541, or .8%, and for the
nine month period ended September 30, 2000 increased $412,518, or 9.4% compared
to the same periods in 1999. Expenses related to salaries and employee benefits
not treated as an adjustment to the yield of loans originated increased $121,947
for the quarter and $341,107 for the first nine months of 2000 compared to the
same periods in 1999. These increases result from staff turnover and subsequent
replacement as well as general increases in the cost of benefits. Occupancy and
equipment expenses increased 2.4% for the quarter and 10.0% for the nine-month
period primarily due to continued investment in new technology. Expenses for
advertising and public relations decreased 31.8% for the quarter and 37.6% for
the nine months ended September 30, 1999. The previously mentioned litigation
settlement in the third quarter of 2000 resulted in a 102.0% decrease in legal
and professional fees for the quarter ended September 30, 2000. For the first
nine months of 2000, legal and professional fees increased 57.2% as a result of
fees incurred from the litigation.
Income Taxes. The Company reported income taxes of $266,938 for the
third quarter and $650,999 for the first nine months of 2000, compared to
$197,185 and $585,022 for the same periods in 1999, respectively. These amounts
yielded effective tax rates of 33.6% for the quarter and 30.3% for the first
nine months of 2000, compared to 29.0% and 29.3% for the same periods in 1999,
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 September 30, 2000 total loans increased $4.55 million from December
31, 1999 and $4.01 million from September 30, 1999. The loan-to-deposit ratio
was 82.7% at September 30, 2000,
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<PAGE>
compared to 84.5% at December 31, 1999, and 82.4% at September 30, 1999. As of
September 30, 2000, real estate loans accounted for 52.9% of the loan portfolio,
consumer loans were 24.8%, and commercial and industrial loans totaled 22.3%.
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,
2000 1999 1999
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis $ 532 $ 109 $ 312
Loans contractually past due 90 days or more as to
interest or principal payments (not included in
non-accrual loans above) 605 1,680 334
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 $1,137 $1,789 $ 646
====== ====== ======
</TABLE>
Management is not aware of any other loans at September 30, 2000 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 1.17%, 1.14% and 1.08% at September 30, 2000, December 31, 1999 and
September 30, 1999, respectively. At September 30, 2000 the ratio of the
allowance for loan losses to non-performing loans was 138.2%, compared to 83.1%
at December 31, 1999 and 218.1% at September 30, 1999.
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
-10-
<PAGE>
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 $120,500 for the quarter ended
September 30, 2000 and $60,000 for the same period in 1999. For the nine month
periods ended September 30, 2000 and 1999, the provision for loan losses totaled
$240,500 and $159,000, 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 2000, total securities
decreased 3.5% to $43.8 million, or 22.5% of total assets at September 30, 2000.
At December 31, 1999, total securities were $45.4 million, or 24.0% of total
assets and at September 30, 1999, total securities were $46.7 million, or 24.5%
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. Held 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 investment securities have generally been limited
to securities of high credit quality with short to medium term maturities or
securities with longer maturities and short to medium term call features.
The fully taxable equivalent annualized average yield on the entire
portfolio was 7.44% for the third quarter and 7.27% for the first nine months of
2000, compared to 6.94% and 7.13% for the same periods in 1999. The book value
of the portfolio exceeded the market value by $1,883,747 at September 30, 2000.
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 5.6% between December 31, 1999 and September 30,
2000. The average aggregate interest rate paid on deposits was 4.26% in the
third quarter of 2000 and 3.92% for the first nine months of 2000, compared to
3.79% and 3.82% for the same periods in 1999. 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.
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<PAGE>
The following table is a summary of time deposits of $100,000 or more
by remaining maturities at September 30, 2000:
September 30, 2000
Time Deposits
-------------
(Dollars in Thousands)
Three months or less $ 2,989
Three to twelve months 4,797
Over twelve months 8,385
-------
Total $16,171
=======
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, 2000, with minimum requirements, as defined by regulation, is shown below:
Minimum Actual
Requirements September 30, 2000
------------ ------------------
Tier 1 risk-based capital 4.0% 12.35%
Total risk-based capital 8.0% 13.45%
Leverage ratio 3.0% 9.20%
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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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.
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
As previously reported in the Company's Quarterly Report on Form 10-QSB
for the period ended June 30, 2000, the Bank was a party to lawsuits filed by
Old Republic National Title Insurance Company, in its own name and on behalf of
twelve mortgage lenders insured by Old Republic, in the Circuit Court for the
County of Chesterfield, Virginia and by the trustee in bankruptcy for Alliance
Title and Escrow, Ltd. in the United States Bankruptcy Court for the Eastern
District of Virginia. Both lawsuits arose primarily from the alleged
misappropriation of funds by the president of Alliance Title from the Alliance
Title accounts maintained with the Bank.
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In August 2000, the Bank, Old Republic and Alliance Title reached an
agreement to settle the lawsuits. The settlement agreement has been signed and
all proceedings in the United States Bankruptcy Court have been dismissed. The
consummation of the settlement in the state court cases is in progress. Although
the parties are required to keep the terms of the settlement confidential, the
settlement does not have a material adverse impact on the Company.
ITEM 6 EXHIBITS AND REPORTS ON 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Form 8-K. No reports were filed on Form 8-K in the period for
which this report is filed.
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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.
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(Registrant)
Date: November 14, 2000 /s/ Ralph Larry Lyons
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Ralph Larry Lyons, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 /s/ Charles F. Catlett, III
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Charles F. Catlett, III, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
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