UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-K
-----------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 0-26314
JAMES RIVER BANKSHARES, INC.
Virginia 54-1740210
101 East Washington Street, Suffolk, Virginia 23434
Registrant's telephone number, including area code: (757) 539-0241
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act: Common Stock, $5.00 par value
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 -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held be non-affiliates of
the registrant as of March 20, 1997: Common Stock - $39,692,280.
The number of shares outstanding of the registrant's common stock as of
March 20. 1997: 2,458,292.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders' ("Annual
Report") are incorporated by reference in Part II of this Form 10-K. Portions of
the definitive Proxy Statement (the "1997 Proxy Statement") to be used in
connection with the 1997 Annual Meeting of Shareholders are incorporated by
reference in Part III of this Form 10-K.
<PAGE>
The following discussion is intended to assist readers in understanding
and evaluating the financial condition and results of operations of James River
Bankshares, Inc. ("James River" or the "Company") and it subsidiaries as of
December 31, 1996. In addition to historical information, the following
discussion contains forward looking statements that are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those anticipated in these forward looking statements. Readers are
cautioned not to place undue reliance on these forward looking statements, which
reflect management's analysis only as of the date hereof.
PART I
Item 1. Business
General
James River is a Virginia bank holding company that commenced
operations June 1, 1995. James River was capitalized pursuant to a share
exchange ("Share Exchange") between Bank of Suffolk, a Virginia state chartered
bank ("BOS"), and James River Bank ("JRB"), also a Virginia state chartered
bank. In the Share Exchange, shareholders of BOS and JRB exchanged their shares
of common stock of BOS and JRB, respectively, for shares of James River Common
Stock. BOS and JRB became wholly owned subsidiaries of James River on May 31,
1995.
In the first quarter of 1996, James River and its subsidiaries
consummated several significant transactions. First, in two separate
transactions that both closed on March 1, 1996, James River acquired Bank of
Isle of Wight, a Virginia state chartered bank in Smithfield, Virginia ("BIW")
and First Colonial Bank, FSB, a federal savings bank in Hopewell, Virginia
("FCB"). In the aggregate, these two transactions more than doubled James
River's total assets and net loans. JRB also consummated the acquisition of
three branch banking offices from First Union National Bank of Virginia on March
23, 1996, one of which is located in the City of Franklin, Virginia, and two of
which are located in Courtland, Virginia, in Southampton County. JRB assumed
aggregate deposit liabilities of approximately $34 million in connection with
the branch acquisitions. In addition, BOS purchased a branch bank facility in
Suffolk from Central Fidelity Bank and commenced operations at this branch in
June 1996. FCB also opened a new branch bank office in Hopewell, Virginia. The
facility was formerly operated by NationsBank of Virginia in a leased building.
FCB assumed the lease on the property and purchased selected equipment from the
former tenants. FCB opened the full service banking office in May 1996.
As a result of the various transactions described above, James River
now has four operating bank subsidiaries with a total of 19 banking offices that
conduct operations from the Tidewater region of southeastern Virginia to the
tri-city areas of Hopewell, Petersburg and Colonial Heights in south-central
Virginia.
Reported financial results in James River's Annual Report and Form 10-K
are as of December 31, 1996, and include the results of operations of James
River and all of its subsidiaries on a restated consolidated basis.
<PAGE>
Operations of James River's Banking Subsidiaries
General. BOS was organized and chartered under the laws of the
Commonwealth of Virginia on January 11, 1967, and commenced operations on June
27, 1967. BOS is a member of the Federal Reserve System. BOS's deposits are
insured by the Bank Insurance Fund ("BIF"), which is a division of the FDIC. BOS
is subject to the supervision, examination and regulation of the Federal Reserve
and the Virginia Bureau of Financial Institutions ("BFI"). BOS provides a wide
range of financial services principally to individuals and to small and
medium-sized businesses, including individual and commercial demand and time
deposit accounts, commercial and consumer loans, travelers' checks, safe deposit
facilities, sales of United States Saving Bonds, collection items and official
checks. While BOS is authorized to provide trust services, it has elected not to
provide such services presently. BOS operates six full service banking offices
in the city of Suffolk, Virginia.
JRB was organized and chartered under the laws of the Commonwealth of
Virginia on June 12, 1933, and commenced operations on that day. JRB is a member
of the Federal Reserve System. JRB's deposits are insured by the BIF. JRB is
subject to the supervision, examination, and regulation of the Federal Reserve
and the BFI. JRB provides a wide range of financial services similar to those
provided by BOS. JRB operates one full service banking office and one drive-up
facility in the town of Waverly, Virginia, one full service banking office in
Sussex, Virginia, one full service banking office in the city of Franklin,
Virginia, and one full service banking office and one drive-up facility in the
town of Courtland, Virginia.
BIW was organized and chartered under the laws of the Commonwealth of
Virginia on August 10, 1971, and commenced operations on November 28, 1973. BIW
is a member of the Federal Reserve System. BIW's deposits are insured by the
BIF. BIW is subject to the supervision, examination, and regulation of the
Federal Reserve and the BFI. BIW provides a wide range of financial services
similar to those provided by BOS and JRB. BIW is authorized to provide trust
services, but does not currently do so. BIW operates one full service banking
office in the town of Smithfield, Virginia.
FCB is a stock corporation that was incorporated under the laws of the
Commonwealth of Virginia in 1972. FCB commenced operations in 1975 as First
Colonial Savings and Loan Association and converted from a state chartered
association to a federal savings bank in 1990. FCB is a member of the Federal
Home Loan Bank of Atlanta. FCB's deposits are insured by the Savings Association
Insurance Fund ("SAIF") which is a division of the FDIC. FCB is subject to the
supervision, examination, and regulation of the Office of Thrift Supervision
("OTS"). FCB provides a wide range of financial services similar to those
provided by BOS, JRB and BIW. FCB operates in the Southside Virginia area from a
main office located in Hopewell, Virginia. Including the main office, FCB has
six full service branches located primarily in the tri-city area in Hopewell,
Colonial Heights, Chester, Dinwiddie, Petersburg and a mortgage division in
Prince George, Virginia.
Credit Policies. James River's banking subsidiaries employ extensive
written policies and procedures to enhance management of credit risk. This
process includes formulation of portfolio management strategy, guidelines for
underwriting standards and risk assessment, procedures for on-going
identification and management of credit deterioration, and regular portfolio
reviews to estimate loss exposure and to ascertain compliance with internal
policies.
<PAGE>
A major element of credit risk management is the diversification of
risk. The objective of each subsidiary is to maintain a diverse loan portfolio
to minimize the impact of any single event or set of circumstances.
Concentration parameters are based upon individual risk factors, policy
constraints, economic conditions, collateral, and products. James River's
subsidiaries generally do not make loans outside their market area unless the
borrower has an established relationship with the bank and conducts its
principal business operations within the bank's market area. Consequently, James
River's banking subsidiaries and their borrowers are directly affected by the
economic conditions prevailing in their respective market areas.
The following table sets forth the composition of the loan portfolio of
James River's banking subsidiaries on a restated consolidated basis (by
percentage) for the five years ended December 31, 1996. Prior to 1995 and 1996,
amounts reported below include FCB's applicable balances as of June 30 for the
periods indicated.
Loan Portfolio by Percentage
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
(dollars in thousands)
Commercial 9.7% 11.6% 8.9% 14.5% 14.7%
Real estate-commercial 8.5% 7.6% 10.2% 10.7% 11.1%
Real estate-construction
and land development 6.0% 4.0% 2.4% 0.7% 1.0%
Real estate-mortgage 64.8% 66.7% 63.9% 59.9% 58.5%
Agricultural 1.0% 0.6% 0.5% 0.7% 0.6%
Installment 10.0% 9.5% 14.1% 13.5% 14.1%
--------------------------------------------------------
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
Total Loans 243,104 208,143 174,225 159,055 160,253
--------------------------------------------------------
</TABLE>
James River's service area provides lending opportunities to small
businesses, farmers, and a wide range of consumers. Most of the small business
are either retail or agribusiness companies. The loan portfolio set forth above
for James River's banking subsidiaries is 73.3% collateralized by first and
second deeds of trust on residential and commercial real estate. This heavy
collateralization by real estate requires an ascertainment of property values in
the service areas and lending on the appropriate loan-to-value ratios.
Commercial. Commercial loans represented 18.2% of James River's total
loan portfolio on December 31, 1996. $20.6 million, or 46.5%, of these loans
were secured by first and second deeds of trust on commercial real estate.
Commercial loans are used to purchase commercial real estate, to purchase
capital equipment, to support letters of credit and to fund inventory purchases.
To support all of the commercial business credits, borrowers' financials are
kept current and are analyzed to determine repayment through cash flows and
annual earnings. Because most of these businesses are small, principal owners
generally are asked to personally guarantee the credit.
Agricultural. At December 31, 1996, agricultural loans totaled $2.3
million. These were all farm operating loans including loans secured by farm
equipment. Loans secured by farm
<PAGE>
equipment loans have annual payments and are part of the loan portfolio with
maturities of up to five years.
Real Estate Construction and Land Development. Real estate construction
and land development loans amounted to $14.5 million or 6.0% of the loan
portfolio at December 31, 1996. Most of these loans were made to either
homeowners who were having their own home built or to contractors who were
building a residence under contract. Loans totaling $2.0 million were for
commercial development.
Real Estate Mortgage. At December 31, 1996, 74.3% of the real estate
mortgages were residential mortgages on one to four family units. These loans
were either open ended adjustable rate mortgages ("ARMS"), amortized monthly,
predominately on a 20 year amortized basis, or closed end balloon loans, monthly
amortized and based on 15 or 20 year amortization. Both the ARMs and the
balloons have one, three or five year adjustable rates. Loan to value ratios are
consistently 75%. $2.8 million were real estate loans to individuals used for
farm purchases and multifamily residential properties. These loans are generally
handled by a loan specialist whose expertise is in the area of real estate
lending.
Installment. On December 31, 1996, 10.0% of total loans were consumer
and installment loans. Installment loans include home improvement loans,
automobile loans and personal unsecured loans. James River's banking
subsidiaries, on consumer collaterized loans, generally use loan to value ratios
of 75%, and none of James River's current bank subsidiaries are involved in
indirect dealer lending.
Loan Portfolio
As described above, the portfolio of James River's banking subsidiaries
is comprised of commercial loans, agricultural loans, real estate loans, and
installment loans. Net loans consist of total loans minus the allowance for loan
losses, unearned discounts, and deferred loan fees. Net loans were $240.9
million at December 31, 1996, 16.7% more than net loans of $206.6 million at
December 31, 1995. The average balance of total loans as a percentage of average
earning assets was 67.4%, 66.0%, 61.0% and 59.3% for 1996, 1995, 1994 and 1993,
respectively. James River's banking subsidiaries had no loans outstanding to
foreign countries or for highly leveraged transactions as of December 31, 1996,
1995, 1994 or 1993.
In the normal course of business, James River's banking subsidiaries
make various commitments and incur certain contingent liabilities which are
disclosed but not reflected in its financial statements. These commitments and
contingent liabilities include commitments to extend credit and standby letters
of credit. At December 31, 1996, commitments for standby letters of credit
totaled $1.0 million and commitments to extend credit were $34.2 million. At
December 31, 1995, commitments for standby letters of credit totaled $802,000
and commitments to extend credit totaled $35.4 million.
Interest income on installment, commercial, and real estate mortgage
loans is computed on the principal balance outstanding. Most loans carry an
interest rate tied to the base rate of James River's banking subsidiaries, which
is generally the Wall Street Journal prime rate.
<PAGE>
The following table summarizes the composition of the loan portfolio at
the dates indicated for James River's banking subsidiaries. Prior to 1995 and
1996, amounts reported below include FCB's applicable balances as of June 30 for
the periods indicated.
<TABLE>
<CAPTION>
Loan Portfolio
December 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial 23,689 24,224 15,463 23,103 23,498
Real estate-commercial 20,606 15,780 17,730 17,002 17,784
Real estate-construction
and land development 14,520 8,317 4,151 1,089 1,673
Real estate-mortgage 157,605 138,851 111,403 95,231 93,806
Agricultural 2,256 1,102 945 1,162 822
Installment 24,428 19,869 24,533 21,468 22,670
----------------------------------------------------------------------
Total Loans 243,104 208,143 174,225 159,055 160,253
Less:
Allowance for loan
losses 3,176 2,891 2,691 2,258 1,821
Unearned discount 38 60 122 226 514
Deferred loan fees 169 159 106 76 79
----------------------------------------------------------------------
Net loans receivable 239,721 205,033 171,306 156,495 157,839
Loans held for sale 1,192 1,483 3,677 1,592 -
Net loans $240,913 $206,516 $174,983 $ 158,087 $ 157,839
========== ======== ========= ========== ==========
</TABLE>
<PAGE>
Asset Quality
James River's banking subsidiaries attempt to maintain the allowance
for loan losses at a sufficient level to provide for potential losses in the
loan portfolio. The provision for loan losses is determined periodically by
senior management and lending officers based upon consideration of several
factors, including changes in the character and size of the loan portfolio and
related loan loss experience, a review and examination of overall loan quality
which includes the assessment of problem loans, and an analysis of anticipated
economic conditions in the market area. In addition, bank regulatory agencies
that regularly review the loan portfolio as part of their examination process,
internal loan review personnel, and advice from James River's independent
accountants are considered in reviewing and assessing the adequacy of the
allowance for loan losses. Set forth below is information regarding the maturity
of loans for James River's banking subsidiaries at December 31, 1996:
Maturity Schedule of Loans
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------
Over One
One Year through Over Five Total
or Less Five Years Years Loans
------- ---------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 9,445 $ 12,568 $ 1,676 $ 23,689
Real estate-commercial 5,349 10,055 5,202 20,606
Real estate-construction
and land development 11,422 3,073 25 14,520
Real estate-mortgage 59,463 44,677 53,465 157,605
Agricultural 1,164 1,092 - 2,256
Installment 7,901 16,082 445 24,428
------ ------- ---- --------
Total 94,744 87,547 60,813 243,104
======= ======= ======= ========
Loans maturing after one year with
predetermined rates 108,766
Loans maturing after one year with
variable rates 39,594
--------
Total $148,360
========
</TABLE>
<PAGE>
An analysis of the allowance for loan losses, including charge off
activity is presented below for James River's banking subsidiaries for the
periods indicated. Prior to 1995 and 1996, amounts reported below include FCB's
applicable balances as of June 30 for the periods indicated.
Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average total loans $ 228,009 $ 191,650 $169,096 $ 158,391 $ 158,877
-----------------------------------------------------------------------------
Balance, beginning of
period 2,891 2,691 2,258 1,821 1,039
-----------------------------------------------------------------------------
Less charge offs:
Commercial 17 71 25 107 119
Installment 152 73 56 92 95
Real estate 133 64 169 55 169
-------------------------------------------------------------------------
Total charge offs 302 208 250 254 383
-----------------------------------------------------------------------------
Plus recoveries:
Commercial 10 23 30 40 51
Installment 15 57 26 22 17
Real estate 71 4 34 36 91
-----------------------------------------------------------------------------
Total recoveries 96 84 90 98 159
-----------------------------------------------------------------------------
Net charge offs 206 124 160 156 224
-----------------------------------------------------------------------------
Provision for loan losses 491 341 593 593 1,006
-----------------------------------------------------------------------------
Adjustment to conform
fiscal year - (17) - - -
-----------------------------------------------------------------------------
Balance end of period $ 3,176 2,891 2,691 2,258 1,821
-----------------------------------------------------------------------------
Allowance for loan losses
to period end total loans 1.30% 1.38% 1.51% 1.41% 1.14%
Allowance for loan losses
to nonaccrual loans 1,091.41 388.05 165.60 99.91 107.37
Net charge offs(recoveries)
to average loans 0.09% 0.06% 0.09% 0.10% 0.14%
</TABLE>
A breakdown of the allowance for loan losses for James River's banking
subsidiaries at the periods indicated is provided in the following table;
however, management of James River does not believe that the allowance for loan
losses can be fragmented by category with any precision that would be useful to
investors. The breakdown of the allowance for loan losses is based primarily
upon those factors discussed above in computing the allowance for loan losses
<PAGE>
as a whole. Because all of these factors are subject to change, the breakdown is
not necessarily indicative of the category of future loan losses. Prior to 1995
and 1996, amounts reported below include FCB's applicable balances as of June 30
for the periods indicated.
Allocation of Allowance for Loan Losses in Dollars
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 625 $ 516 $ 902 $ 670 $ 641
Real estate-commercial 264 190 109 98 112
Real estate-construction
and land development 84 75 8 17 13
Real estate-mortgage 1,740 1,764 1,339 1,153 808
Agricultural 21 22 92 95 23
Installment 442 324 241 225 224
-----------------------------------------------------------------------------
Total allowance for
loan losses $ 3,176 $ 2,891 $ 2,691 $ 2,258 $ 1,821
-----------------------------------------------------------------------------
</TABLE>
The following table sets forth the composition of the loan portfolio of
James River's banking subsidiaries on a consolidated basis (by percentage) for
the five years ended December 31, 1996. Prior to 1995 and 1996, amounts reported
below include FCB's applicable balances as of June 30 for the periods indicated.
<TABLE>
<CAPTION>
Amount of Loans to Gross Loans by Percentages
December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial 9.7% 11.6% 8.9% 14.5% 14.7%
Real estate-commercial 8.5% 7.6% 10.2% 10.7% 11.1%
Real estate-construction
and land development 6.0% 4.0% 2.4% 0.7% 1.0%
Real estate-mortgage 64.8% 66.7% 63.9% 59.9% 58.5%
Agricultural 1.0% 0.6% 0.5% 0.7% 0.6%
Installment 10.0% 9.5% 14.1% 13.5% 14.1%
----------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
----------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table details information concerning nonaccrual,
restructured and past due loans, as well as foreclosed assets for James River's
banking subsidiaries, for the dates indicated. Prior to 1995 and 1996, amounts
reported below include FCB's applicable balances as of June 30 for the periods
indicated.
<TABLE>
<CAPTION>
Non-performing Assets
December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 291 $ 745 $1,625 $2,260 $1,696
Foreclosed assets 171 4 496 591 750
-----------------------------------------------------------------------------
Total non-performing
assets $ 462 $ 749 $ 2,121 $ 2,851 $ 2,446
-----------------------------------------------------------------------------
Loans past due 90 or
more days accruing
interest $ 857 $ 683 $ 203 $ 623 $ 565
Non-performing loans
to total loans, at
period end 0.12% 0.36% 0.91% 1.41% 1.06%
Non-performing loans
to period end loans
and foreclosed assets 0.12% 0.36% 0.91% 1.40% 1.06%
</TABLE>
As of December 31, 1996, loans 30 days or more delinquent for James
River's banking subsidiaries totaled $7.0 million, which includes those
non-performing loans above that have possible credit problems and cause
management to have concerns about the borrowers' continuing ability to comply
with existing repayment terms. Of these potential problem loans, $4.6 million
are secured by security interests in real estate.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," on January
1, 1995. Under this standard, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Increases and decreases in the
allowance due to changes in the measurement of impaired loans, if applicable,
are included in the provision for loan losses. Loans continue to be classified
as impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable. When a loan or portion
of a loan is determined to be uncollectible, the portion deemed uncollectible is
charged against the allowance and subsequent recoveries, if any, are credited to
the allowance.
The recorded investments in impaired loans requiring an allowance for
loan losses as determined in accordance with SFAS No. 114 was $3,137,000 and
$1,600,000 at December 31, 1996 and 1995, respectively. The impaired loans at
December 31, 1996, consist of $1,871,000 of commercial and $1,266,000 real
estate-commercial loans. The impaired loans at December 31, 1995, consist of
$76,000 of commercial and $1,524,000 real estate-commercial loans. All of the
impaired loans at December 31, 1996 and 1995 were measured using the fair value
of collateral method. The portion of the allowance for loan losses allocated to
the
<PAGE>
impaired loan balance was $558,000 and $170,000 at December 31, 1996 and
1995, respectively.
Investments
The carrying value of the investment portfolio of James River and its
subsidiaries was $103.5 million at December 31, 1996, compared to $86.0 million
at December 31, 1995. The average balance of the investment portfolio increased
$12.6 million or 14.1% in 1996 compared to 1995. The average balance of the
portfolio decreased 11.8%, or $12.0 million, in 1995.
Since 1992, management of BOS, JRB, BIW and FCB has made adjustments in
the mix of the investment portfolio by moving investments from U.S. Treasury and
federal agencies to tax-exempt state and political subdivisions. U.S. Treasury
and federal agency securities now account for 60.5% of the investments compared
to 25.8% in state and political subdivisions.
At December 31, 1996, 1995, and 1994, there was no obligation of any
issuer in the investment portfolio, exclusive of obligations of the U.S.
Government or U.S. agencies and corporations, which in the aggregate exceeded
10% of shareholders' equity.
The market value of James River and its subsidiaries investment
portfolio was 103.0% and 100.2% of carrying value, respectively, at years ended
December 31, 1996 and 1995.
The following table summarizes the carrying values of securities for
James River and its subsidiaries for the dates indicated. Prior to 1995 and
1996, amounts reported below include FCB's applicable balances as of June 30 for
the periods indicated.
<TABLE>
<CAPTION>
Securities Portfolio
December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
U. S. Treasury and other government agencies $ 62,576 $ 43,551 $ 55,991
State and political subdivisions 26,712 26,828 23,770
Other securities 14,198 15,595 17,242
----------------------------------------------
Total Securities $ 103,486 $ 85,974 $ 97,003
----------------------------------------------
</TABLE>
<PAGE>
The following table sets forth the maturity distribution and weighted
average yields of the investment portfolio of James River and it subsidiaries at
December 31, 1996. The weighted average yields are calculated on the basis of
book value of the investments portfolio and on the interest income of
investments adjusted for amortization of premium and accretion of discount.
Yields on tax-exempt investments have been computed on a tax equivalent basis
assuming a federal tax rate of 34%.
<TABLE>
<CAPTION>
Maturities of Investments
December 31, 1996
----------------------------------------------
Weighted
--------
Amortized Fair average
--------- ----- --------
Cost Value yield
--------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Treasury securities
One year or less 1,508 1,513 6.25%
After one year to five years 9,879 9,967 6.29%
After five years to ten years 2,996 3,029 6.61%
After ten years - -
Total
14,383 14,509 6.36%
------ -------
Federal agency securities
One year or less 1,096 1,100 5.44%
After one year to five years 25,773 25,604 6.07%
After five years to ten years 17,629 17,502 6.63%
After ten years 3,867 3,861 6.54%
------ ------
Total 48,365 48,067 6.29%
------ ------
State and political subdivisions securities
One year or less 1,382 1,393 9.11%
After one year to five years 10,493 10,670 7,93%
After five years to ten years 12,877 12,994 6.97%
After ten years 1,651 1,673 8.35%
------ ------
Total 26,403 26,730 7.45%
------ ------
Federal Reserve Bank Stock and other Equity Stock
One year or less - -
After one year to five years - -
After five years to ten years - -
After ten years 1,953 2,039 5.14%
------ -----
Total 1,953 2,039 5.14%
------ -----
Other securities
One year or less 50 51 7.20%
After one year to five years 864 875 7.00%
After five years to ten years 249 251 7.17%
After ten years 10,982 10,990 7.34%
------ ------
Total 12,145 12,167 0.67%
------ ------
Total Securities 103,249 103,512 5.67%
------- -------
Unrealized gain on securities available-for-sale 237 -
-------- --------
Total securities at period end $103,486 $103,512
--------- -------- -
</TABLE>
<PAGE>
Deposits
James River's banking subsidiaries primarily use deposits to fund their
loans and investments portfolio. Since the end of 1994, as demonstrated below,
James River's banking subsidiaries have continued to experience deposit growth,
especially in interest bearing checking, non-interest bearing checking, and time
deposits. Average balances in total deposits increased from $251.0 million in
1993 to $259.3 million in 1994, a growth of $8.3 million or 3.3%. For the
comparable period ending December 31, 1995, average total deposits increased
$8.8 million or 3.4%. For the period ending December 31, 1996, average total
deposits increased $52.9 million, or 19.7%. Approximately 60% of the increase in
average total deposits in 1996 is attributable to the First Union deposit base
purchased by JRB in the Franklin and Courtland branches.
James River's banking subsidiaries offer individuals and
small-to-medium-sized businesses a variety of deposit services. These accounts,
including checking, savings, money market, and certificates of deposit, are
obtained primarily from the communities which James River's banking subsidiaries
service. Management believes that this provides a stable core deposit base. The
following table details the average amount of, and the average rate paid on, the
following primary deposit categories for James River's banking subsidiaries for
the periods indicated. Prior to 1996, amounts reported below include FCB's
applicable balances as of June 30 for the periods indicated.
<TABLE>
<CAPTION>
Average Deposits and Average Rates Paid
Years ended December 31,
--------------------------------------------------------------------------
1996 1995 1994
----------------------- ------------------------ -----------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------ ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Checking $ 36,242 2.67% $ 29,480 3.09% $ 31,271 2.82%
Money market savings 23,035 3.31% 20,842 3.63% 23,199 3.25%
Regular savings 47,613 3.42% 44,751 3.51% 51,391 3.32%
Certificates of deposit:
$100,000 and over 24,834 5.61% 17,920 5.51% 15,292 4.56%
Under $100,000 155,254 5.66% 126,091 5.45% 112,720 4.96%
------- ------- -------
Total interest-bearing deposits 286,978 4.72% 239,084 4.64% 233,873 4.12%
Non-interest bearing 34,059 29,035 25,465
------- ------- --------
Total deposits $321,037 4.22% $ 268,119 4.14% $ 259,338 3.71%
======== ========= ========
</TABLE>
<PAGE>
The following is a summary of the maturity distribution of certificates
of deposit in amounts of $100,000 or more for James River's banking subsidiaries
as of December 31, 1996:
Maturities of CDs of $100,000 or More at December 31, 1996
Amount Percent
------ -------
(Dollars in thousands)
Three months or less 4,672 17.9%
Over three months to twelve months 10,602 40.7%
Over twelve months 10,805 41.4%
------- ------
Total $ 26,079 100.0%
========= ======
Certificates of deposit in amounts of $100,000 or more at December 31,
1996 and 1995 were $26.1 million and $26.7 million, respectively. The balance of
$26.1 million at December 31, 1996, represented 13.9% of total certificates of
deposit. The December 31, 1995 amount represents 16.8% of the total certificates
of deposit balance of $158.4 million at that date.
James River's banking subsidiaries do not accept brokered deposits, and
all large certificates of deposit are community based.
Short-Term Borrowings
James River's banking subsidiaries occasionally find it necessary to
purchase federal funds on a short-term basis due to fluctuations in loan and
deposit levels. James River's banking subsidiaries have several arrangements
pursuant to which they may purchase funds. The only borrowings of James River's
banking subsidiaries involve the purchase and sale of federal funds, and is
often an intercompany borrowing. Set forth below are short term borrowings for
James River's banking subsidiaries at the periods indicated. Amounts reported
below include FCB's applicable balances for the years ended June 30, 1995 and
1994.
<TABLE>
<CAPTION>
Short-Term Borrowings
Years ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Average daily amount of short-term borrowings
outstanding during the period 396 750 1,386
Weighted average interest rate on average
daily short-term borrowings 5.81% 6.13% 6.06%
Maximum outstanding short-term borrowings
outstanding at any month end 4,456 5,316 4,437
Short-term borrowings outstanding at period end - - -
</TABLE>
<PAGE>
The following tables illustrate average balances of total
interest-earning assets and total interest-bearing liabilities for James River
and its subsidiaries for the period indicated, showing the average distribution
of assets, liabilities, shareholders' equity, and the related income, expense,
and corresponding weighted average yields and costs. The average balances used
for the purposes of these tables and other statistical disclosures were
calculated by using the daily average balances. Amounts reported below include
FCB's applicable balances for the years ended June 30, 1995 and 1994.
<PAGE>
Average Balances, Interest Income and Expenses,
and Average Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1996 1995
--------------------------------------- ------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield/rate Balance Expense Yield/rate
------- ------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing assets:
Securities:
U.S. Treasury $ 15,496 $ 977 6.30% $ 24,719 $ 1,541 6.23%
Federal agency 36,669 2,317 6.32% 23,302 1,562 6.70%
State and political subdivisions 26,709 2,053 7.69% 24,000 1,927 8.03%
Collateralized mortgage obligations 19,806 1,382 6.98% 14,343 1,045 7.29%
Federal reserve stock 1,476 91 6.17% 1,292 73 5.65%
Other equity securities 1,732 108 6.24% 1,659 109 6.57%
--------- ------- ------- ------
Total Securities 101,888 6,928 6.80% 89,315 6,257 7.01%
--------- ------- ------- ------
Loans:
Commercial 50,209 4,606 9.17% 26,424 2,365 8.95%
Real estate-construction 11,230 1,099 9.79% 2,031 187 9.21%
Real estate-mortgage 143,227 12,312 8.60% 139,139 11,707 8.41%
Installment 23,343 2,562 10.98% 24,056 2,325 9.66%
--------- ------- ------- ------
Total Loans 228,009 20,579 9.03% 191,650 16,584 8.65%
--------- ------- ------- ------
Interest bearing deposits in
other banks 1,690 147 8.70% 1 9 1 1.11%
Federal funds sold 6,653 363 5.46% 9,426 478 5.07%
--------- ------- ------- ------
Total money market investments 8,343 510 6.11% 9,435 479 5.08%
--------- ------- ------- ------
Total interest-earning assets/
total interest income 338,240 28,017 8.28% 290,400 23,320 8.03%
--------- ------- ------- ------
Non-interest earning assets:
Cash and due from banks 11,608 9,262
Other assets 7,315 4,062
Less: Allowance for loan losses (3,033) (2,801)
Fixed assets 6,918 5,084
--------- --------
Total non-interest earning assets 22,808 15,607
--------- --------
Total Assets $361,048 $306,007
========= ========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Interest bearing deposits:
Checking $ 36,242 $ 966 2.67% $ 29,480 $ 912 3.09%
Money market savings 23,035 762 3.31% 20,842 756 3.63%
Regular savings 47,613 1,627 3.42% 44,751 1,569 3.51%
Certificates of deposit:
$100,000 and over 24,834 1,392 5.61% 17,920 988 5.51%
Under $100,000 155,254 8,790 5.66% 126,091 6,866 5.45%
--------- ------- ------- ------
Total interest bearing deposits 286,978 13,537 4.72% 239,084 11,091 4.64%
Federal funds purchased 396 23 5.81% 750 46 6.13%
--------- ------- ------- ------
Total interest bearing liabilities/
total interest expense 287,374 13,560 4.72% 239,834 11,137 4.64%
--------- ------- ------- ------
Non-interest bearing liabilities:
Demand deposits 34,059 29,035
Other liabilities 3,579 2,645
--------- -------
Total non-interest liabilities 37,638 31,680
--------- -------
Total liabilities 325,012 271,514
Shareholders' equity 36,036 34,493
--------- -------
Total Liabilities and Shareholders'
equity $361,048 $306,007
========== ========
Interest spread 3.56% 3.39%
Net interest income/net interest margin 14,457 4.28% 12,183 4.20%
</TABLE>
---------------------------------------------
1994
---------------------------------------------
Interest
Average Income/ Average
Balance Expense Yield/rate
------- -------- -----------
Assets:
Interest bearing assets:
Securities:
U.S. Treasury $ 27,025 $ 1,588 5.88%
Federal agency 25,074 1,524 6.08%
State and political subdivisions 21,910 1,767 8.06%
Collateralized mortgage obligations 16,175 1,196 7.39%
Federal reserve stock 1,316 68 5.17%
Other equity securities 9,836 424 4.31%
--------- ----------
Total Securities 101,336 6,567 6.48%
--------- ----------
Loans:
Commercial 35,806 3,080 8.60%
Real estate-construction 273 25 9.16%
Real estate-mortgage 114,422 9,376 8.19%
Installment 18,595 1,666 8.96%
--------- -------
Total Loans 169,096 14,147 8.37%
--------- -------
Interest bearing deposits in
other banks 474 43 9.07%
Federal funds sold 6,116 268 4.38%
--------- -------
Total money market investments 6,590 311 4.72%
--------- -------
Total interest-earning assets/
total interest income 277,022 21,025 7.59%
--------- -------
Non-interest earning assets:
Cash and due from banks 9,477
Other assets 6,147
Less: Allowance for loan losses (2,523)
Fixed assets 4,601
------
Total non-interest earning assets 17,702
-------
Total Assets $294,724
========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Interest bearing deposits:
Checking $ 31,271 $ 881 2.82%
Money market savings 23,199 753 3.25%
Regular savings 51,391 1,707 3.32%
Certificates of deposit:
$100,000 and over 15,292 697 4.56%
Under $100,000 112,720 5,591 4.96%
--------- ------
Total interest bearing deposits 233,873 9,629 4.12%
Federal funds purchased 1,386 84 6.06%
---------
Total interest bearing liabilities/
total interest expense 235,259 9,713 4.13%
--------- ------
Non-interest bearing liabilities:
Demand deposits 25,465
Other liabilities 2,602
--------
Total non-interest liabilities 28,067
--------
Total liabilities 263,326
Shareholders' equity 31,398
--------
Total Liabilities and Shareholde
equity $294,724
========
Interest spread 3.46%
Net interest income/net interest margin 11,312 4.08%
(1) Tax equivalent adjustments (using 34% federal income tax rates) have been
made in calculating the yields on tax-free loans and investments.
(2) For the purposes of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(3) Daily average balances are calculated using the aggregate daily average
balances on a monthly basis.
(4) The yield/rate of the investment securties is computed using the amortized
cost basis.
<PAGE>
The following table describes the impact on the interest income of
James River and its subsidiaries resulting from changes in average balances and
average rates for the periods indicated. The change in interest due to both
volume and rate has been allocated to volume and rate changes in proportion to
the relationship of the absolute dollar amounts of the change in each.
<PAGE>
<TABLE>
<CAPTION>
Rate and Volume Analysis
Years ended December 31,
------------------------------------------------------------------------------------------
1996 compared to 1995 1995 compared to 1994
------------------------------------------- ---------------------------------------------
Change Due To: Change Due To:
------------- -------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ---- ------ ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities:
U.S. Treasury $ (564) $ 11 $ (575) $ (47) $ 89 $ (136)
Federal agency 755 (141) 896 38 146 (108)
State and political
subdivisions 126 (92) 218 160 (9) 169
Collateralized mortgage
obligations 337 (61) 398 (151) (16) (135)
Federal Reserve stock 18 8 10 5 6 (1)
Other equity securities (1) (6) 5 (315) 37 (352)
-------- --------- -------- -------- --------- ---------
Total Securities $ 671 $ (281) $ 952 $ (310) $ 254 $ (564)
-------- --------- -------- -------- --------- ---------
Loans:
Commercial 2,241 112 2,129 (715) 92 (807)
Real estate-construction 912 65 847 162 1 161
Real estate-mortgage 605 261 344 2,331 306 2,025
Installment 237 306 (69) 659 170 489
-------- --------- -------- -------- --------- ---------
Total Loans 3,995 744 3,251 2,437 568 1,869
-------- --------- -------- -------- --------- ---------
Interest bearing deposits
in other banks 146 (41) 187 (42) 0 (42)
Federal funds sold (115) 26 (141) 210 65 145
-------- --------- -------- -------- --------- ---------
Total money market
investments 31 (15) 46 168 65 103
-------- --------- -------- -------- --------- ---------
Total interest income 4,697 448 4,249 2,295 887 1,408
-------- --------- -------- -------- --------- ---------
Interest expense:
Interest bearing deposits:
Checking 54 (155) 209 31 81 (50)
Money market savings 6 (74) 80 3 80 (77)
Regular savings 58 (42) 100 (138) 83 (221)
Certificates of deposit:
$100,000 and over 404 23 381 291 171 120
Under $100,000 1,924 336 1,588 1,275 612 663
-------- --------- -------- -------- --------- ---------
Total interest bearing
deposits 2,446 88 2,358 1,462 1,027 435
-------- --------- -------- -------- --------- ---------
Federal funds purchased (23) (1) (22) (38) 1 (39)
-------- --------- -------- -------- --------- ---------
Total interest expense 2,423 86 2,337 1,424 1,027 397
-------- --------- -------- -------- --------- ---------
Net interest income $ 2,274 $ 362 $ 1,912 $ 871 $ (140) $ 1,011
======== ========= ======== ======== ========= =========
</TABLE>
<PAGE>
Interest Sensitivity
An important element of both earnings performance and liquidity is
management of the interest sensitivity gap. The interest sensitivity gap is the
difference between interest-sensitive assets and interest-sensitive liabilities
in a specific time interval. The gap can be managed by repricing assets or
liabilities, by selling investments held for sale, by replacing an asset or
liability at maturity, or by adjusting the interest rate during the life of an
asset or liability. Matching the amounts of assets and liabilities repricing in
the same time interval helps to hedge the interest rate risk and minimize the
impact on net interest income in periods of rising or falling interest rates.
James River's banking subsidiaries evaluate interest sensitivity risk
and then formulate guidelines regarding asset generation and pricing, funding
sources and pricing, and off-balance sheet commitments in order to decrease
sensitivity risk. These guidelines are based upon management's outlook regarding
future interest rate movements, the state of the regional and national economy,
and other financial and business risk factors.
On December 31, 1996, James River and it subsidiaries had $100.6
million more in liabilities than assets that repriced within three months or
less and was, therefore, in a liability-sensitive position. Positive gaps can
affect earnings adversely in a period of falling rates, while negative gaps can
adversely impact earnings in a period of rising rates. To reduce the impact of
shifts in prevailing interest rates, $134.3 million of the loan portfolio of
James River's banking subsidiaries at December 31, 1996, had a repricing
frequency of less than one year. Moreover, as of December 31, 1996, James River
and its banking subsidiaries collectively held $91.3 million in investments held
as "Available for Sale" which could be sold quickly to meet any special funding
needs.
<PAGE>
The following table illustrates the interest sensitivity gap position
of James River and its subsidiaries as of December 31, 1996. This table presents
a position that existed at one particular day, that changes continually, and
that is not necessarily indicative of James River's position at any other time.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
December 31, 1996
Maturity or Repricing In:
--------------------------------------------------------------
3 Months 4-12 1-5 Over
or Less Months Years 5 Years
------- ------ ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-sensitive assets:
Loans $ 45,024 $ 49,720 $ 87,547 $ 60,813
Securities 756 3,301 47,116 52,313
Federal Funds sold 3,327 - - -
------- ------- ------- -------
Total interest-sensitive assets $ 49,107 $ 53,021 134,663 113,126
======= ======= ======= =======
Cumulative interest-sensitive assets $ 49,107 $ 102,128 236,791 349,917
======= ======= ======= =======
Interest-sensitive liabilities:
NOW accounts $ 40,759 - $ - $ -
Regular savings 49,551 - - -
Certificates of deposit 33,991 71,293 59,935 2,464
Money market savings 21,319 - - -
IRA and Keoghs 4,099 8,597 7,525 -
------ ------- ------- -------
Total interest-sensitive liabilities $ 149,719 $ 79,890 $ 67,460 $ 2,464
======= ======= ======== =======
Cumulative interest-sensitive liabilities $ 149,719 $ 229,609 229,609 299,533
======= ======== ======== =======
Period gap $(100,612) $ (26,869) $ 67,203 $ 110,662
======== ======== ======== =======
Cumulative gap $(100,612) $ (127,481) $ (60,278) $ 50,384
======== ======== ======== ======
Ratio of cumulative interest-sensitive
assets to interest-sensitive
liabilities 32.80% 44.48% 79.71% 116.82%
Ratio of cumulative gap to total assets (0.26) (0.33) (0.16) 0.13
</TABLE>
<PAGE>
Return on Equity and Assets
The following table summarizes ratios for James River and its
subsidiaries considered to be significant indicators of James River's
profitability and financial condition during the periods indicated:
<TABLE>
<CAPTION>
Return on Equity and Assets
Years ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average assets 0.67% 1.01% 1.19%
Return on average equity 6.71% 8.97% 11.15%
Dividend payout ratio 52.80% 33.40% 25.80%
Average equity to average asset ratio 9.98% 11.27% 10.65%
</TABLE>
Market Area and Competition
James River now has four operating bank subsidiaries with a total of 19
banking offices that conduct operations from the Tidewater region of
southeastern Virginia to the tri-city areas of Hopewell, Petersburg and Colonial
Heights in south-central Virginia. All of James River's subsidiaries operate in
highly competitive environments, competing for deposits and loans with other
financial institutions, many of which possess greater financial resources than
those available to James River's subsidiaries. Certain of these institutions
have higher lending limits than James River's subsidiaries and may provide
various services for their customers which James River's subsidiaries do not
offer directly to their customers. In addition, there can be no assurance that
other financial institutions, with substantially greater resources than James
River's subsidiaries, will not establish operations in their respective service
areas.
Supervision and Regulation of James River's Banking Subsidiaries
James River's subsidiaries are subject to state and federal banking
laws and regulations which impose specific requirements or restrictions and
provide for general regulatory oversight with respect to virtually all aspects
of their operations. The following is a brief summary of certain statutes and
regulations affecting James River's banking subsidiaries. This summary is
qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below, and it is not intended to be an
exhaustive description of all laws applicable to the business of James River's
subsidiaries. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of James River.
State Chartered Banks. BOS, JRB, and BIW (the "Bank Subsidiaries") are
all state-chartered banks organized under Virginia law. They are also members of
the Federal Reserve System and, therefore, are supervised and examined by the
Federal Reserve, their primary federal regulator. The Federal Reserve and BFI
conduct regular examinations of the Bank Subsidiaries, reviewing the adequacy of
their allowance for loan losses, quality of loans and investments, propriety of
management practices, compliance with laws and regulations and other aspects of
their operations. In addition to these regular examinations, the Bank
Subsidiaries must furnish the Federal Reserve with quarterly reports containing
detailed financial statements and schedules. The Federal Deposit Insurance
Corporation ("FDIC"),
<PAGE>
which provides deposit insurance, also has authority to examine and regulate the
Bank Subsidiaries.
Federal and state banking laws and regulations govern all areas of the
operations of the Bank Subsidiaries, including maintenance of cash reserves,
loans, mortgages, maintenance of minimum capital, payment of dividends, and
establishment of branch offices. Federal and state bank regulatory agencies also
have the general authority to eliminate dividends paid by insured banks if such
payment is deemed to constitute an unsafe or unsound practice. The Federal
Reserve has authority to impose penalties, initiate civil administrative
actions, and take other steps to prevent the Bank Subsidiaries from engaging in
unsafe or unsound practices. In this regard, the Federal Reserve has adopted
capital adequacy requirements applicable to its member banks. See "Supervision
and Regulation of James River - Capital Requirements" below.
Federal Savings Banks. As a federally chartered savings bank, FCB is
subject to regulation, supervision, and periodic examination by the Office of
Thrift Supervision ("OTS") and the FDIC. The regulations of these agencies
govern most aspects of FCB's business and operations. FCB's deposits are insured
by the SAIF and administered by the FDIC to the maximum amount permitted by law,
which is currently $100,000 per depositor in most cases. See "Supervision and
Regulation of James River - Deposit Insurance" below.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") effected sweeping changes in the regulatory structure applicable to
federally insured savings institutions. FIRREA abolished the Federal Home Loan
Bank Board and the role of its Chairman as the chief regulator of the savings
and loan industry. The primary regulator for federal and state savings
institutions is now the OTS, an office in the United States Department of the
Treasury. The Director of the OTS is responsible for the examination and
supervision of all savings institutions.
The OTS has authority to issue regulations, conduct examinations and
supervise the operation of savings institutions. The OTS regulatory scheme is
comprehensive and governs, among other things, capital requirements, equity
investments, affordable housing, liquidity, securities issuances, the form of
savings instruments issued by savings institutions, certain aspect of a savings
association's lending activities, including appraisal requirements, maximum loan
amounts, private mortgage insurance coverage, lending authority and
nondiscriminatory lending practices. OTS regulations also restrict transactions
between savings institutions and affiliated parties which are deemed to be a
conflict of interest under the regulations. In addition, the OTS' consent is
required prior to any major corporate reorganization, including a merger.
Supervision and Regulation of James River
General. As a bank holding company, James River is subject to state and
federal banking and bank holding company laws and regulations which impose
specific requirements or restrictions and provide for general regulatory
oversight with respect to virtually all aspects of its operations. The following
is a brief summary of certain statutes and regulations affecting James River.
This summary is qualified in its entirety by reference to the particular
statutory and regulatory provisions referred to below, and is not intended to be
an exhaustive description of all laws applicable to James River's operations.
Any change in applicable laws or regulations may have a material effect on the
business and prospects of James River.
<PAGE>
Bank Holding Companies. As a bank holding company registered under the
Bank Holding Company Act ("BHC Act"), James River is subject to regulation by
the Federal Reserve. The Federal Reserve has jurisdiction under the BHC Act to
approve any bank or non-bank acquisition, merger or consolidation proposed by a
bank holding company. The BHC Act generally limits the activities of a bank
holding company and its subsidiaries to that of banking, managing or controlling
banks, or any other activity which is so closely related to banking or to
managing or controlling banks as to be a proper incident thereto.
The BHC Act formerly prohibited the Federal Reserve from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries were principally conducted, unless such an acquisition was
specifically authorized by statute of the state in which the bank whose shares
were to be acquired was located. However, the restriction on interstate
acquisitions was abolished effective September 29, 1995, and bank holding
companies from any state may now acquire banks and bank holding companies
located in any other state. Banks also will be able to branch across state lines
effective June 1, 1997, provided certain conditions are met, including the
condition that applicable state law must expressly permit such interstate
branching. Under Virginia law effective July 1, 1995, Virginia banks can branch
across state lines in those states with which Virginia has reciprocal
agreements.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve with respect to bank holding
company operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. In addition, the "cross-guarantee" provisions of the federal
law require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by either the SAIF or
the BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of shareholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
The Federal Deposit Insurance Act also provides that amounts received
from the liquidation or other dissolution of any insured depository institution
by any receiver must be distributed (after payment of secured claims) to pay the
deposit liabilities of the institution prior to payment of any other general or
unsecured senior liability, subordinated liability, general creditor or
shareholder. This provision would give depositors a preference over general and
subordinated creditors and shareholders in the event a receiver is appointed to
distribute the assets of any of James River's subsidiaries.
<PAGE>
James River is registered under the bank holding company laws of
Virginia. Accordingly, James River and its subsidiaries are also subject to
regulation and supervision by the BFI.
Savings and Loan Holding Companies. Since James River's acquisition of
FCB, James River has been a savings and loan holding company under federal law
in addition to being a bank holding company. For a discussion of the supervision
and regulation of FCB as a federal savings bank, see "Supervision and Regulation
of James River's Banking Subsidiaries - Federal Savings Banks" above.
FIRREA amended the Home Owner's Loan Act to establish new provisions
governing savings and loan holding companies. A savings and loan holding company
is defined as any company which directly or indirectly controls a savings
institution or controls another company which is a savings and loan holding
company. Under FIRREA, "control" exists where a person (a) directly or
indirectly, or acting in concert with one or more other persons or through one
or more subsidiaries, owns, controls or holds the power to vote (or holds
proxies representing) more than 25% of the voting shares of a savings
institution, (b) controls in any manner the election of a majority of the
directors of the savings bank, or (c) directly or indirectly exercises a
controlling influence over the management or policies of the savings bank. Once
control of a savings bank has been established, various provisions of FIRREA
govern the activities of savings and loan holding companies.
OTS regulations prohibit companies from acquiring control of a savings
institution without prior written approval of the OTS. Persons acquiring control
of a savings institution must provide written notice to the OTS, which the OTS
may disapprove or allow to take effect after the expiration of a certain waiting
period. Certain types of acquisitions by companies or persons are exempt from
the OTS application and notice requirements.
OTS regulations establish two categories of control definitions:
conclusive control and rebuttable control. Control is conclusively established
where an acquirer directly or indirectly, through one or more subsidiaries or
transactions or acting in concert with one or more persons or companies: (i)
acquires more than 25% of any class of voting stock of the institution; (ii)
acquires any combination of voting stock and irrevocable proxies representing
more than 25% of any class of voting stock of an institution; or (iii) controls
in any manner the election of a majority of the directors of the savings
institution.
"Rebuttable control" describes circumstances with respect to stock
ownership that could enable an investor to direct the management or policies of
a savings bank. Under OTS regulations, a rebuttable control determination arises
upon the acquisition of any combination of voting stock of a savings bank, which
proxies would enable the acquirer to elect one-third more of the bank's board of
directors, or otherwise exert a controlling influence on the bank and its
business.
Alternatively, a rebuttable control determination may arise either upon
an acquisition of more than 10% of any class of voting stock of a savings bank,
or upon an acquisition of more than 25% of any class of voting or non-voting
stock of a savings bank if other "control factors" are present. Such "control
factors" include that, as a result of acquisition, the acquirer would be one of
the two largest holders of any class of voting stock of the bank, that the
acquirer would hold more than 25% of the bank's total shareholders' equity, that
the acquirer and/or his
<PAGE>
or her representative would constitute more than one member of the bank's board
of directors, or that the acquirer would serve as the chairperson of the board
of directors, as an executive officer or in a similar policy-making position
with the savings bank.
The regulations also specify the criteria with which the OTS evaluates
control applications. The OTS is empowered to disapprove an acquisition of
control upon a consideration of, among other things, the following factors: (i)
whether the acquisition would result in or tend to result in a monopoly or would
substantially lessen competition; (ii) whether the financial and managerial
resources and future prospects of the acquirer and savings bank involved would
be detrimental to the bank or the insurance risk of the SAIF or BIF, and (iii)
the convenience and needs of the community to be served. Detailed regulations
state factors to be considered when determining if an acquirer fails to satisfy
the financial and managerial resources and future prospects tests.
Capital Requirements. The Federal Reserve, the Office of the
Comptroller of the Currency and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to United States banking
organizations. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels
because of its financial condition or actual or anticipated growth. Under the
risk-based capital requirements of these federal bank regulatory agencies, James
River and its subsidiaries are required to maintain a minimum ratio of total
capital to risk-weighted assets of at least 8%. At least half of the total
capital is required to be "Tier 1 capital," which consists principally of common
and certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder, "Tier 2 capital," consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of James River as of
December 31, 1996 were 16.1% and 17.3%, respectively, exceeding the minimums
required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The leverage ratio
of James River as of December 31, 1996, was 9.7%. The guidelines also provide
that banking organizations experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
<PAGE>
The following table sets forth in detail the various capital ratios of
James River and its subsidiaries on a consolidated basis at the dates indicated.
The year of 1994 reflects FCB's June 30 analysis of capital and capital ratios
due to their previous fiscal year end.
Analysis of Capital
December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Tier 1 Capital:
Common stock $ 12,290 $ 12,243 $ 12,002
Additional Paid Capital 3,521 3,447 3,290
Retained earnings 21,629 20,487 18,391
Less: Goodwill (2,750) (160) (176)
------------------------------------
Total Tier 1 capital $ 34,690 $ 36,017 $ 33,507
======== ======== =========
Tier 2 Capital:
Allowance for loan losses 2,702 2,030 2,082
Allowable long-term debt - - -
-------- -------- ----------
Total Tier 2 capital $ 2,702 $ 2,030 $ 2,082
======== ======== ==========
Risk-weighted assets $ 216,158 $ 162,438 $ 166,546
Capital Ratios:
Tier 1 risk-based capital ratio 16.05% 22.17% 20.12%
Total risk-based capital ratio 17.30% 23.42% 21.37%
Tier 1 capital to average adjusted
total assets 9.68% 11.78% 11.38%
Deposit Insurance. The deposits of the Company's banking subsidiaries
are insured up to $100,000 per insured depositor (as defined by law and
regulation) by the FDIC through the SAIF and the BIF. The SAIF and the BIF are
administered and managed by the FDIC. As insurer, the FDIC is authorized to
conduct examinations of and to require reporting by SAIF and BIF-insured
institutions. FIRREA also authorizes the FDIC to prohibit any SAIF and
BIF-insured institution from engaging in any activity that the FDIC determines
by regulation or order to pose a serious threat to the SAIF and BIF. The FDIC
also has the authority to initiate enforcement actions against savings
institutions, after first giving the OTS an opportunity to take such action.
Through the SAIF, the FDIC insures deposits at savings institutions
such as FCB, and through the BIF, the FDIC insures deposits at other financial
institutions (principally commercial banks, state-chartered banks such as BOS,
JRB and BIW, and certain federally chartered savings banks).
Section 38 of the Federal Deposit Insurance Act, as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), requires that
the federal banking agencies establish five capital levels for insured
depository institutions - "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and, "critically
undercapitalized" - and requires or permits such agencies to take certain
supervisory actions as an insured institution's capital level falls. The Company
has been notified by the Board of Governors of the
<PAGE>
Federal Reserve System (the "Federal Reserve Board") that it is classified as a
"well capitalized" institution for this purpose. An "adequately capitalized"
institution is restricted from accepting brokered deposits. A "significantly
undercapitalized" institution must develop a capital restoration plan and is
subject to a number of mandatory and discretionary supervisory actions. These
powers and authorities are in addition to the traditional powers of the federal
banking agencies to deal with undercapitalized institutions. As more fully
disclosed in the following paragraph, the FDIC deposit insurance premiums
required to be paid by institutions depend, in part, on their capital levels,
and "undercapitalized" institutions will be required to pay significantly
greater premiums than more capitalized institutions.
The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Effective January 1, 1996, depository
institutions insured by the BIF ranked in the top risk classification category
of well capitalized, are required to pay only the statutory minimum assessment
of $2,000 annually for deposit insurance, while all other banks are required to
pay premiums ranging from .03% to .30% of domestic deposits. These rate
schedules are subject to future adjustment by the FDIC. In addition, as more
fully disclosed in the following paragraph, the FDIC has authority to impose
special assessments from time to time.
The Deposit Insurance Funds Act of 1996 (the "Funds Act") was enacted
on September 30, 1996. Among other provisions, the Funds Act: (1) requires that
certain depository institutions pay a one-time special assessment (65.7 cents
per $100 of SAIF-assessable deposits) to the FDIC to capitalize the Savings
Association Insurance Fund ("SAIF") at its statutorily required reserve ratio of
1.25% of insurable deposits; (2) exempts certain depository institutions with
SAIF assessable deposits that meet any of several specified criteria from paying
the special assessment; (3) authorizes the Financing Corporation ("FICO") to
impose periodic assessments on depository institutions that are member of BIF,
in addition to institutions that are members of the SAIF, in order to spread the
cost of the interest payments on the outstanding FICO bonds over a larger number
of institutions. Until this change in the law, only SAIF-member institutions
bore the cost of funding these interest payments. FICO assessment rates for the
first semiannual period of 1997 were set at 1.30% annually for BIF-assessable
deposits and 6.48% annually for SAIF-assessable deposits. These rates may be
adjusted quarterly to reflect changes in assessment bases for the BIF and the
SAIF. By law, the FICO rate on BIF-assessable deposits must be one-fifth the
rate on SAIF-assessable deposits until the insurance funds are merged or until
January 1, 2000, whichever occurs first. In 1996, FCB paid a one-time assessment
of $479,000, after taxes.
Additional Regulation. On December 15, 1994, the Federal Reserve Board,
the Office of Thrift Supervision, the Office of the Controller of the of the
Currency ("OCC"), and the FDIC (collectively the "agencies") issued a final rule
entitled, Risk Based Capital Standards; Concentration of Credit Risk and Risks
of Nontraditional Activities. The final rule amends the risk-based capital
standards by explicitly identifying concentrations of credit risk and certain
risks arising from nontraditional activities, as well as an institution's
ability to manage these risks, as important factors in assessing an
institution's overall capital adequacy. While no quantitative measure of such
risk is included in the final rule, to the extent appropriate, the agencies will
issue examination guidelines on new developments in nontraditional activities or
concentrations of credit to ensure that adequate account is taken of the risks
of these activities. Moreover, the agencies also believe that institutions
identified through the examination process
<PAGE>
as having significant exposure to concentration of credit risk or as not
adequately managing concentration risks should hold capital in excess of
regulatory minimums. Therefore, due to the subjective nature of this final rule,
the Company is unable to determine what effect, if any, this rule may have on
regulatory capital requirements.
On August 2, 1995, the OCC, the Federal Reserve Board, and the FDIC
(collectively the "banking agencies") issued a final rule entitled, Risk-Based
Capital Standards; Interest Rate Risk. The final rule implements minimum capital
standards for interest rate risk exposures in a two-step process. The final rule
implements the first step of that process by revising the capital standards of
the banking agencies to explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor that
the banking agencies will consider in evaluating a bank's capital adequacy. The
banking agencies intend to implement this rule on a case-by-case basis during
the examination process. The second step of the banking agencies' process will
be to issue a proposed rule that would establish an explicit minimum capital
charge for interest rate risk, based on the level of the bank's measured
interest rate risk exposure. Due to the subjective nature of the first phase of
this final rule, the Company is unable to determine what effect, if any, this
rule may have on its regulatory capital requirements.
On November 16, 1995, the Federal Reserve Board issued guidelines
entitled, Federal Reserve Guidelines for Rating Risk Management at State Member
Banks and Bank Holding Companies (the "Guidelines"). The Guidelines specify that
principles of sound management should apply to the entire spectrum of risks
facing a banking institution including, but not limited to, credit, market,
liquidity, operational, legal, and reputational risk and that, for state member
banks, a single numerical rating for risk management should be provided as part
of the examination process. The Guidelines also specify that examination reports
should make reference to the types and nature of corrective actions that need to
be taken by institutions to address noted risk management and internal control
deficiencies. Where appropriate, institutions should also be advised that the
Federal Reserve Board will initiate supervisory actions if the failure to
separate critical operational duties creates the potential for serious losses or
if material deficiencies or situations that threaten the safe and sound conduct
of their activities are not adequately addressed in a timely manner. Due to the
subjective nature of the risk-management evaluation, the Company is not able to
determine what effect, if any, this rule may have on the operation of the
Company.
On October 1, 1996, the banking agencies issued new guidelines amending
the Interagency Guidelines Establishing Standards for Safety and Soundness (the
"Guidelines") to include asset quality and earnings standards. The Guidelines
were adopted pursuant to the requirements of Section 39 of the Federal Deposit
Insurance Act. The Guidelines require financial institutions to identify problem
assets and estimate inherent losses. In order to comply with these Guidelines a
financial institution shall: (1) consider the size and potential risks of
material concentrations of credit risk; (2) compare the level of problem assets
to the level of capital and establish reserves sufficient to absorb anticipated
losses on those and other assets; (3) take appropriate corrective action to
resolve problem assets, as appropriate; and (4) provide periodic assets quality
reports to the board of directors to assess the level of asset risk. The
earnings standards specified by the Guidelines require an institution to compare
its earnings trends (relative to equity, assets, and other common benchmarks)
with its historical experience and with the earnings trends of its peers. The
Guidelines, relative to the earnings standards, require the institution to: (1)
evaluate the adequacy of earnings with regard to the institution's
<PAGE>
relative size and complexity, and the risk profile of the institution's assets
and operations; (2) assess the source, volatility, and sustainability of
earnings; (3) evaluate the effect of non-recurring or extraordinary income or
expense; (4) take steps to ensure that earnings are sufficient to maintain
adequate capital and reserves after considering asset quality and the
institution's rate of growth; and (5) provide periodic reports with adequate
information for management and the board of directors to assess earnings
performance. The Guidelines note that the complexity and sophistication of an
institution's monitoring, reporting systems, and corrective actions should be
commensurate with the size, nature and scope of the institution's operations.
The Company does not believe that these Guidelines will materially effect its
operations or financial condition.
The Federal Financial Institutions Examination Council ("FFIEC") has
approved revisions to the reporting requirements for the Reports of Condition
and Income (Call Report) that will take effect as of March 31, 1997. The
revisions that are expected to have the greatest impact on most financial
institutions will be the adoption of generally accepted accounting principles
("GAAP") as the reporting basis for the balance sheet, income statement and
related Call Report schedules. This will involve the revision of Call Report
instructions that currently depart from GAAP, the addition of a small number of
new items to meet supervisory data needs resulting from the adoption of GAAP,
and the modification of other existing Call Report items or instructions. In the
March 31, 1997 Call Report, financial institutions are required to adopt the
provisions of Financial Accounting Standards Board ("FASB") Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, for transfers and servicing of assets occurring after December
31, 1996. As FASB 125 provides standards for distinguishing the transfer of
financial assets from secured borrowings and, therefore, the recognition and
derecognition of financial assets, regulatory capital calculations could be
significantly impacted. The Company is currently considering the relevant
provisions of FASB 125, and assessing the accounting treatment and legal
ramifications of modifying participation agreements.
On December 20, 1996, the FDIC Board of Directors adopted the FFIEC's
updated statement of policy entitled Uniform Financial Institutions Rating
System ("UFIRS"). The updated UFIRS replaces the previous rating system
established in the 1979 statement of policy, and is effective January 1, 1997.
Under the existing UFIRS, each financial institution is assigned a composite
rating based on an evaluation and rating of five essential components of an
institution's financial condition and operations. The five component areas are
Capital adequacy, Asset quality, Management, Earnings and Liquidity ("CAMEL").
The updated UFIRS includes the addition of a sixth component for Sensitivity to
market risk ("CAMELS"). The new sixth component addresses the degree to which
changes in interest rates, foreign exchange rates, commodity prices or equity
prices can adversely affect a financial institution's earnings or capital. The
new component focuses on an institution's ability to monitor and manage its
market risk, and will provide an institution's management with a clearer and
more focused indication of supervisory concerns in this area. The Company does
not believe that this statement of policy will materially effect its operations.
Community Reinvestment Act. The federal supervisory agencies share
authority to implement regulations under the Community Reinvestment Act of 1979,
as amended ("CRA"). The general purpose of the CRA is to encourage lenders,
while operating safely and soundly, to meet the credit needs of their
communities. The CRA specifically directs regulators, when examining a lender,
to assess the lender's record of helping to meet the credit needs of it entire
<PAGE>
community, including low and moderate-income neighborhoods. For example, the
regulators will evaluate and take into account a lender's record of meeting its
community credit needs when evaluating a lender's application for creation of a
new branch. BOS, JRB, BIW and FCB have always had a "Satisfactory" rating with
respect to their compliance with the CRA. James River itself has not been
examined or received a CRA rating.
As a result of a Presidential initiative, each of the federal banking
agencies, including the FDIC, issued a notice of proposed rulemaking in October
of 1994 to replace the current CRA assessment system with a new evaluation
system that would rate institutions based on their actual performance (rather
than efforts) in meeting community credit needs. The final rule retains, to a
significant extent, the principles and structure underlying the 1994 proposal
and will be phased in over 1996 and 1997. James River anticipates few if any
changes in its CRA plans to remain in compliance with the new program.
Governmental Monetary Policies and Economic Controls. James River and
its banking subsidiaries are affected by monetary policies of regulatory
authorities, including the Federal Reserve, which regulates the national money
supply in order to mitigate recessionary and inflationary pressures. Among the
techniques available to the Federal Reserve are engaging in open market
transactions in United States Government securities, changing the discount rate
on bank borrowings, and changing reserve requirements against bank deposits.
These techniques are used in varying combinations to influence the overall
growth of bank loans, investments and deposits. Their use may also affect
interest rates charged on loans or paid on deposits. The effect of governmental
policies on the earnings of James River cannot be predicted.
Employees
At December 31, 1996, James River and its subsidiaries had the
equivalent of 164 full time employees. None of its employees is represented by
any collective bargaining unit. James River considers relations with its
employees to be good.
<PAGE>
Item 2. Properties
James River's headquarters is located at 101 East Washington Street,
Suffolk, Virginia, which is also the location of the main office of BOS. James
River does not have any interest in any properties other than those owned or
leased by its subsidiaries. James River's four banking subsidiaries collectively
own 16 of the 19 branch banking offices and lease the land for three offices.
Item 3. Legal Proceedings
In the course of its operation, James River and its subsidiaries are
parties to various legal proceedings. James River does not believe that the
outcome of these law suits, individually or in the aggregate, will have a
material adverse effect on James River's business, financial position or results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to James River's shareholders for a vote
during the fourth quarter of the year ended December 31, 1996.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
James River was capitalized on June 1, 1995, pursuant to a share
exchange between BOS and JRB. See "Item 1. Business - General." James River
Common Stock began trading on NASDAQ/NMS on June 7, 1995. The following table
sets forth the high and low sales prices of James River Common Stock as reported
on NASDAQ/NMS for the periods listed. James River Common Stock is thinly traded.
1996
---- Sales Price
High Low
---- ---
First Quarter (January 1 through March 31, 1996) $24.25 $22.75
Second Quarter (April 1 through June 30, 1996) $25.00 $22.75
Third Quarter (July 1 through September 30, 1996) $24.25 $20.25
Fourth Quarter (October 1 through December 31, 1996) $21.50 $19.50
1995
---- Sales Price
High Low
---- ---
Second Quarter (June 7 through June 30, 1995) $19.75 $18.75
Third Quarter (July 1 through September 30, 1995) $23.50 $20.25
Fourth Quarter (October 1 through December 31, 1995) $24.25 $22.25
On a pro forma combined basis, based on the dividend history of BOS,
JRB, BIW and FCB, James River paid dividends of $0.52 and $0.43 per share during
the years ended December 31, 1996 and 1995, respectively. On February 20, 1996,
James River had approximately 1,753 shareholders of record.
Item 6. Selected Consolidated Financial Data
The information included under "Five Year Financial Summary" appearing
on page 13 of the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information included under "Management's Discussion and Analysis of
Financial Condition and Results of Operation" appearing on pages 7 through 12 of
the Annual Report is incorporated herein by reference.
<PAGE>
Item 8. Financial Statements and Supplementary Data
(a) The Financial Statements and the notes thereto appearing
on pages 14 through 40 of the Annual Report are incorporated herein by
reference.
(b) Unaudited quarterly financial information for the Company is
contained in Note 15 on page 39 of the Financial Statements included in
the Annual Report and is incorporated herein by reference. The
quarterly financial information in the Annual Report is presented on a
restated basis and reflects consolidated results of operations of BOS,
JRB, FCB and BIW for the periods presented. Because the Company did not
acquire FCB or BIW until February of 1996, financial results reported
by the Company on its Forms 10-Q and 10-Q/A for the second and third
quarters of 1995 differ from the results presented in the Annual Report
for the comparable periods. Set forth below is a chart that reconciles
financial results reported on these Forms 10-Q and 10-Q/A with the
quarterly information presented in the Annual Report.
RECONCILIATION OF 1995 FORMS 10-Q/A
TO QUATERLY FINANCIAL INFORMATION
REPORTED IN 1996 ANNUAL REPORT
<TABLE>
<CAPTION>
Reported First Bank of Reported
in 1995 Colonial Isle of in 1996
Form 10Q-A Savings Bank Wight Annual Report
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Second Quarter, 1995:
Interest Income $ 2,812 $ 2,484 $ 625 $ 5,921
Net Interest Income $ 1,617 $ 978 $ 363 $ 2,958
Net Income $ 305 $ 151 $ 105 $ 561
Earnings per Share $ 0.13 $ 0.08 $ 0.04 $ 0.23
Third Quarter, 1995:
Interest Income $ 2,857 $ 2,489 $ 666 $ 6,012
Net Interest Income $ 1,664 $ 914 $ 406 $ 2,984
Net Income $ 552 $ 228 $ 125 $ 905
Earnings per Share $ 0.22 $ 0.09 $ 0.05 $ 0.36
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Information regarding changes in accountants is set forth in the
section entitled "Ratification of Appointment of Auditors" in the Company's 1997
Proxy Statement.
<PAGE>
PART III
The information required by Part III, Items 10, 11, 12 and 13 has been
incorporated herein by reference to the Company's 1997 Proxy Statement as set
forth below in accordance with General Instruction G(3) of Form 10-K.
Item 10. Directors and Executive Officers of the Registrant
Information relating to directors and executive officers of the Company
and compliance with Section 16(a) of the Securities Exchange Act of 1934 is set
forth in the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 1997 Proxy Statement
and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding compensation of officers and directors of the
Company is set forth in the sections entitled "Election of Directors" and
"Executive Compensation" in the Company's 1997 Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding ownership of the Company's Common Stock is set
forth in the section entitled "Security Ownership of Managment and Certain
Beneficial Owners" in the Company's 1997 Proxy Statement and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions
with the Company is set forth in the section entitled "Certain Relationships and
Related Transactions" in the Company's 1997 Proxy Statement and is incorporated
herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. The following consolidated financial statements of the
Company at December 31, 1996 and 1995 and for the three years
ending December 31, 1996, 1995 and 1994, and the auditors'
report thereon are incorporated by reference to the pages
indicated in the Annual Report:
Consolidated Financial Statements Page
--------------------------------- ----
Consolidated Balance Sheets 14
Consolidated Statements of Income 15
Consolidated Statements of Shareholders' Equity 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18
Report of Independent Auditors 40
2. Financial Statements Schedules - None.
3. The exhibits listed on the accompanying Exhibit Index are
filed or incorporated by reference as part of this Form 10-K
and such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K - None.
(c) The exhibits listed on the accompanying Exhibit Index are
filed or incorporated by reference as part of this Form 10-K
and such Exhibit Index is incorporated herein by reference.
(d) Financial Statements excluded from Annual Report pursuant to
Rule 14(a)-3(b) - Not applicable.
<PAGE>
Signatures
In accordance with Section 13 of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, in the City of
Suffolk, State of Virginia, on March 27, 1997.
JAMES RIVER BANKSHARES, INC.
By: /s/ Harold U. Blythe
---------------------------
Harold U. Blythe, President
In accordance with the Exchange Act, this Report has been signed by the
following persons in the capacities and on the dates stated. Each person, in so
signing, also makes, constitutes and appoints Harold U. Blythe and Glenn T.
McCall and each of them individually, his true and lawful attorney-in-fact in
his place and stead, with full power of substitution, to execute and cause to be
filed with the Securities and Exchange Commission, any and all amendments to
this Report, including any exhibits or other documents filed in connection
therewith.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Elmon T. Gray Chairman of The Board March 27, 1997
- ------------------------------------ and Director
Elmon T. Gray
/s/ G. P. Jackson Vice Chairman of The March 27, 1997
- ------------------------------------ Board and Director
G. P. Jackson
/s/ Harold U. Blythe President and Chief Executive March 27, 1997
- ------------------------------------ Officer, Director
Harold U. Blythe
/s/ Glenn T. McCall Senior Vice President and March 27, 1997
- ------------------------------------ Chief Financial Officer, Director
Glenn T. McCall
/s/ James E. Butler, Jr. March 27, 1997
- ------------------------------------ Director
James E. Butler, Jr.
/s/ Bruce B. Gray Director March 27, 1997
- ------------------------------------
Bruce B. Gray
/s/ Ben P. Kanak Director March 27, 1997
- ------------------------------------
Ben P. Kanak
/s/ John A. Ramsey, Jr. Director March 27, 1997
- ------------------------------------
John A. Ramsey, Jr.
<PAGE>
/s/ Robert E. Spencer, Jr. Director March 27, 1997
- ------------------------------------
Robert E. Spencer, Jr.
/s/ E. V. Stephenson, Jr. Director March 27, 1997
- ------------------------------------
E. V. Stephenson, Jr.
/s/ James C. Stewart Director March 27, 1997
- ------------------------------------
James C. Stewart
<PAGE>
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
*2.1 Agreement and Plan of Reorganization dated November 21, 1994 (Incorporated
by reference to the Registrant's Registration Statement of Form S-4,
Commission File No. 33-88322, previously filed with the Commission on
January 6, 1995).
*2.2 First Colonial Bank Agreement and Plan of Merger dated June 30, 1995, as
amended (Incorporated by reference to the Registrant's Registration Statement
on Form S-4, Commission File No. 33-99254, previously filed with the
Commission on November 13, 1995).
*2.3 Bank of Isle of Wight Agreement and Plan of Merger dated June 30, 1995
(Incorporated by reference to the Registrant's Registration Statement on Form
S-4, Commission File No. 33-99254, previously filed with the Commission on
November 13, 1995).
*3.1 Articles of Incorporation of James River Bankshares, Inc. (Incorporated by
reference to the Registrant's Registration Statement on Form S-4, Commission
File No. 33-88322, previously filed with the Commission on January 6, 1995.)
*3.2 Amended and Restated Bylaws of James River Bankshares, Inc. (Incorporated by
reference to the Registrant's Form 10-K/A, Commission File No. 0-26314,
previously filed with the Commission on August 12, 1996).
*4 Form of Common Stock certificate of James River Bankshares, Inc. (Incorporated
by reference to the Registrant's Registration Statement on Form S-4, Commission
File No. 33-88322, previously filed with the Commission on January 6, 1995).
*10.1 Agreement between The Bank of Waverly and First Union National Bank,
dated November 13, 1995, regarding branch acquisitions (Incorporated
by reference to the Registrant's Registration Statement on Form S-4,
Commission File No. 33-99254, previously filed with the Commission on
December 22, 1995).
*10.2 Employment Agreement between James River Bankshares, Inc. and Harold U. Blythe
dated July 18, 1995 (Incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4, Commission File No. 33-99254,
previously filed with the Commission on December 22, 1995).
*10.3 Employment Agreement between James River Bankshares, Inc. and Glenn T. McCall
dated July 18, 1995 (Incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4, Commission File No. 33-99254,
previously filed with the Commission on December 22, 1995).
*10.4 Employment Agreement between First Colonial Bank and James C. Stewart
dated February 29, 1996 (Incorporated by reference to the
Registrant's Form 10-K, Commission File No. 0-26314, previously filed
with the Commission on April 15, 1996).
*10.5 Employment Agreement between Bank of Isle of Wight and Robert E. Spencer, Jr.
dated February 29, 1996 (Incorporated by reference to the Registrant's Form 10-K,
Commission File No. 0-26314, previously filed with the Commission on April 15, 1996).
***13 Annual Report to security holders.
*21 List of Subsidiaries. (Incorporated by reference to the Registrant's Form 10-K,
Commission File No. 0-26314, previously filed with the Commission on April 15, 1996.)
***23.1 Consent of Goodman & Company, L.L.P.
***27.1 Financial Data Schedule
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* (Not filed herewith. In accordance with Rule 12b-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934, the
exhibit is incorporated by reference.)
*** Filed herewith.
[LOGO]
JAMES RIVER BANKSHARES
1996
ANNUAL REPORT
<PAGE>
JAMES RIVER BANKSHARES
Table of Contents
Mission Statement .................................................... 2
Consolidated Financial Highlights .................................... 3
Letter to Our Shareholders ........................................... 4
1996 Initiatives ..................................................... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 7
Five Year Financial Summary ......................................... 13
Consolidated Financial Statements ................................... 14
Notes to Consolidated Financial Statements .......................... 18
Report of Independent Auditors ...................................... 40
Board of Directors .................................................. 41
Directors and Officers, Member Banks ................................ 41
General Information ................................................. 44
Annual Report 1996 1
<PAGE>
JAMES RIVER BANKSHARES
Mission Statement
James River Bankshares, Inc. is an alliance of community based
financial institutions and related subsidiaries whose sole purpose is to
provide its customers and service areas with the best in competitive
financial services. This is done in a cost effective manner to allow all
service area citizens the opportunity to have needed financial services
at a fair price. The delivery for these services is done in the
following manner:
o Quick, efficient, responsiveness to requests--decisions within 24 to
48 hours.
o Concerned, friendly, and fair personal service, while striving always
to personally recognize our customers and serve them as we would like to
be served.
o Commitment to inform our customers and provide them with new,
constantly changing services to meet their needs at a fair price.
James River Bankshares, Inc., in turn, will make a fair profit which will
provide a reasonable return to shareholders.
2 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Consolidated Financial Highlights
<TABLE>
<CAPTION>
Percent
1996 1995 Change
- -------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Earnings Net Interest Income $ 13,795 $ 11,660 18.31
Net Income 2,417 3,093 (21.86)
Per Share Net Income $ 0.97 $ 1.25 (22.40)
Dividends 0.52 0.43 20.93
Book value at period end 15.30 15.06 1.59
At Year Loans, Net $ 240,913 $ 206,516 16.66
End Securities 103,486 85,974 20.37
Total Earning Assets 351,346 307,213 14.37
Total Assets 381,608 326,280 16.96
Total Deposits 342,332 287,364 19.13
Shareholders' Equity 37,603 36,885 1.95
Ratios Return on Average Assets 0.67% 1.01% (33.66)%
Return on Average Equity 6.71 8.97 (25.20)
Allowance for Loan Losses to
Net Loans 1.32 1.40 (5.71)
Leverage Capital Ratio 9.68 11.78 (17.83)
</TABLE>
[BAR CHART] [BAR CHART]
NET INCOME TOTAL ASSETS
(thousands) (millions)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
2,382 3,449 3,502 3,093 2,417 282.1 291.2 306.1 326.3 381.6
[BAR CHART]
SHAREHOLDERS' EQUITY
(millions)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
24.9 27.8 32.5 36.9 37.6
Annual Report 1996 3
<PAGE>
JAMES RIVER BANKSHARES
To Our Shareholders, Customers and Friends
As you are aware, James River Bankshares commenced operations on June 1, 1995,
and has come a very long way in a short span of nineteen months. With everything
that has been accomplished, your company has had a solid performance in 1996.
Mergers were completed with First Colonial Bank, FSB, and Bank of Isle of Wight
in March of 1996. At the same time, James River Bank purchased three new
branches in two new markets from First Union Bank which brought our total number
of banking offices to seventeen in ten southeastern Virginia towns, counties,
and cities.
Additionally, Bank of Suffolk opened a de novo branch in its service area and
First Colonial opened one in its service area just prior to the end of the first
half of the year. In August, the new consolidated operation center for
processing all of the company's EDP work started up, and in the course of the
remainder of the year, three of the four banks were converted to this new
system, thus creating efficiencies with the ultimate goal of producing cost
savings.
[PHOTO] Elmon T. Gray
Chairman
On a consolidated basis, James River's total assets at year end were $381.6
million, an increase of 17.0% from the consolidated 1995 total assets of $326.3
million. Approximately six percent of this growth was internal growth in the
assets of its subsidiary banks. Eleven percent of the growth came from the
purchase of three First Union branches and their deposit base. Net income after
taxes for the 1996 year was $2.417 million, down 21.9% from 1995 net income
after taxes of $3.093 million. However, two non-recurring costs, net after
taxes, totaling $l.009 million accounted for the decease in earnings. These two
expenses were organizational costs of $530,000 incurred in the merger process of
First Colonial Bank and Bank of Isle of Wight, and $479,000, a one time
assessment by the FDIC on First Colonial Bank. Had these expenses not occurred,
earnings would have been $3.425 million or 10.7% greater than 1995.
On a consolidated basis, our return on average assets was .67%, and return on
average equity was 6.71% compared to ratios in 1995 of 1.01% return on average
assets and 8.97% return on average equity. Your holding company continues to be
very
4 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
well capitalized with a primary capital ratio of 9.85 percent.
Management has worked diligently to consolidate a large number of internal
operating areas in order to establish as many efficiencies as possible and
reduce cost. This effort is expected to be continued in 1997, and more cost
efficiencies should be derived as a result of these actions. Moreover,
management's primary goal in 1997 will be to increase loans as a percent of
earning assets in order to increase interest rate margins and improve the bottom
line of the company.
While providing our individual markets greater financial resources and
services, your Board of Directors and management remain committed to offering
their communities and customers the same personal services and responsiveness
through the company's community bank system. With the continuing change in the
financial services environment and Congress' very aggressive efforts to change
the face of financial institutions, our company is well positioned and has the
financial wherewithal to develop the technology and expertise to compete
efficiently and profitably as we approach the Twenty-First Century. We are
committed to steering a steady, conservative, but progressive course, and we
will continue to be profitable and successful.
[PHOTO] Harold U. Bylthe
President & CEO
As 1995 was a year of tremendous change and hard work for your Board, your
Management, and your employees, 1996 has been equally so. Together, everyone has
shouldered the increased load of this process, and a special word of sincere
thanks goes to each member of our team, whether director or employee.
As you read this report, we hope you can appreciate the commitment and
undertaking your company has assumed. So much has been accomplished in a very
short time frame. Your continued patience, your business, and your support are
needed to enable James River Bankshares to continue its work so that each of you
may share equitably in your company through dividends and increased stock
prices.
/s/ Elmon T. Gray
--------------------
Elmon T. Gray
Chairman
/s/ Harold U. Blythe
---------------------
Harold U. Blythe
President & CEO
Annual Report 1996 5
<PAGE>
JAMES RIVER BANKSHARES
1996 Initiatives
1996 continued to be a transition year following the formation of James River
Bankshares in 1995, and there were a number of efforts worthy of note:
MARCH 1, 1996 - First Colonial Bank, FSB, and Bank of Isle of Wight were merged
into James River Bankshares, increasing the assets of the holding company to
$328.0 million on that date and extending the holding company's franchise from
Suffolk, Virginia through the tri-city areas of Petersburg, Hopewell, and
Colonial Heights, Virginia along the southern border of the James River.
MARCH 23, 1996 - James River Bank purchased from First Union Bank three branches
in Courtland, Virginia, and Franklin, Virginia, with deposits of $34.4 million.
This brought the total number of banking offices of the company to seventeen.
APRIL 10, 1996 - Bank of Isle of Wight and Bank of Suffolk, through their
service corporations, invested in Bankers Title of Hampton Roads, LLC.
MAY 15, 1996 - First Colonial Bank opened a de novo bank in downtown Hopewell,
Virginia, and during 1996 experienced excellent deposit growth in the bank's
service area.
JUNE 10, 1996 - Bank of Suffolk opened a de novo branch in the Crittenden area
of the City of Suffolk, and has experienced solid loan growth in that new
market.
JULY 25, 1996 - The Board of Directors approved preliminary plans for the
establishment of a corporate headquarters building to be leased with
expectations of moving management into the facility prior to the end of 1997.
This facility will be located in the Oak Ridge area of the City of Suffolk.
AUGUST 1, 1996 - James River Support, the company's electronic data processing
subsidiary, began operations to provide services for the bank subsidiaries.
SEPTEMBER 13, 1996 - Bank of Suffolk was converted to the new operation center.
OCTOBER 25, 1996 - James River Bank was converted to the new operation center.
NOVEMBER 15, 1996 - Bank of Isle of Wight was converted to the new operation
center.
DECEMBER 15, 1996 - Management task force committees were reviewed with the
following decisions made:
INVESTMENTS - All bank investments will be consolidated under a single manager
prior to the end of 1997.
LOANS - Centralized loan policy for underwriting standards and certain
procedures will be complete for Board review prior to June 30, 1997.
DEPOSITS - A software vendor for establishing similar documentation to be used
by all subsidiary banks was selected and committed to in 1996, and was to be in
place in the first half of 1997.
HUMAN RESOURCES - A study and establishing of a common policy for all holding
company employees was started and a number of areas were consolidated in 1996,
and it is anticipated that policies will be complete in 1997 and Human Resources
consolidated under a company department.
PURCHASES - Purchases are being consolidated in order to leverage the volume of
supplies such as drive-in envelopes, paper, and many other common supplies, and
this area of such purchases will be expanded in 1997.
6 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Results of Operations
In the first quarter of 1996, James River Bankshares, Inc. ("James River or
the Company") and its subsidiaries consummated several significant transactions.
First, in two separate transactions that both closed on March 1, 1996, James
River acquired Bank of Isle of Wight, a Virginia state chartered bank in
Smithfield, Virginia ("BIW"), and First Colonial Bank, FSB, a federal savings
bank in Hopewell, Virginia ("FCB"). In the aggregate, these two transactions
more than doubled James River's total assets and net loans. The transactions
were accounted for using the pooling of interests method of accounting and all
financial information has been restated accordingly. The financial results of
James River for the year ended December 31, 1995 contain an adjustment to
conform FCB's fiscal year end of June 30 to James River's fiscal year end of
December 31. See Note 12 to Consolidated Financial Statements for a complete
description of this adjustment. In addition, James River Bank ("JRB"), one of
the Company's banking subsidiaries, consummated the acquisition of three branch
banking offices from First Union National Bank of Virginia in the first quarter
of 1996, which are located in the City of Franklin, Virginia and Courtland,
Virginia in Southampton County. JRB assumed aggregate deposit liabilities of
approximately $34,360,000 in connection with these branch acquisitions.
The following discussion is intended to assist readers in understanding and
evaluating the financial condition and results of operations of James River and
its subsidiaries as of December 31, 1996. In addition to historical information,
the following discussion contains forward looking statements that are subject to
risks and uncertainties that could cause the Company's actual results to differ
materially from those anticipated in these forward looking statements. These
forward looking statements include, but are not limited to, statements regarding
management's expectations that non-recurring charges will decline in 1997
compared to 1996, and statements regarding management's goals to improve
interest rate margins, increase the loan portfolio, and limit capital
expenditures. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date
hereof.
[GRAPH]
1992 1993 1994 1995 1996
RETURN ON
AVERAGE ASSETS
(percent) .89 1.22 1.19 1.01 .67
[GRAPH]
1992 1993 1994 1995 1996
RETURN ON
AVERAGE EQUITY
(percent) 9.89 13.09 11.15 8.97 6.71
[GRAPH]
1992 1993 1994 1995 1996
EARNINGS PER SHARE
(dollar) 1.09 1.56 1.51 1.25 .97
EARNINGS PERFORMANCE
James River's net income was $2,417,000 in 1996, a 21.9% decrease from
consolidated 1995 net earnings of $3,093,000. The decrease was attributable to
several significant factors. James River incurred $530,000 of organizational
expenses in connection with the acquisitions of BIW and FCB. FCB also incurred a
one time Federal Deposit Insurance Corporation ("FDIC") assessment of $479,000
after taxes. In addition, expenses were incurred with the opening of two new de
novo branches in Hopewell and Suffolk, and the purchase of three branches in
Franklin and Courtland, Virginia, from First Union Bank. James River formed and
funded James River Support ("JRS"), a non-bank subsidiary, to provide data
processing services for the Company's bank subsidiaries. Three of the four bank
subsidiaries were converted in 1996 to the new system, creating current expenses
for future cost savings. The Company believes that the major non-recurring
expenses related to JRS occurred in 1996. While James River will continue to
incur expenses necessary to build an infrastructure for holding company
operations, management anticipates a decrease in non-recurring expenses during
1997 compared to 1996. Net income decreased 11.7%, or $408,000, in 1995 from the
$3,502,000 earned in 1994. This decrease was primarily attributed to
non-recurring organizational expenses on the holding company of $227,000 in
1995, and the cumulative effects of accounting method changes for income taxes
and debt and equity securities reported in 1994.
Net income per share equaled $.97 for 1996 compared to $1.25 for 1995 and $1.51
Annual Report 1996 7
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Result of Operations
for 1994. The return on average assets was .67% for 1996, compared to 1.01% and
1.19% for 1995 and 1994, respectively. Return on average equity was 6.71%,
8.97%, and 11.15% for 1996, 1995, and 1994, respectively. Cash dividends paid
were $0.52, $0.43, and $0.38 and represented 52.8%, 33.4%, and 25.8% of earnings
for each of the respective years.
NET INTEREST INCOME
During 1996, James River's loan portfolio increased by $34,961,000 or
16.8%, generating additional income of $3,958,000. Investments increased
$17,512,000 with increased income of $570,000. Total interest income increased
20.0% to $27,355,000 from total interest income of $22,797,000 in 1995. The cost
of funds increased by 8 basis points to 4.72%, while the tax equivalent yield on
average earning assets increased 25 basis points to 8.28%. As a result, net
interest spread increased to 3.56% from 3.39% in 1995. Net interest income was
$13,795,000 in 1996, 18.3% greater than the $11,660,000 reported in 1995. The
dollar increase in interest income can be directly attributed to the net
interest yield of 17 basis points on average earning assets which increased
16.5% in 1996 to $338,240,000. In 1997, management will strive to improve
interest rate margins by increasing loans and lowering the cost of funds.
Net interest income was $11,660,000 in 1995, 7.1% greater than the $10,891,000
reported in 1994. Interest income increased 10.6% in 1995 from the $20,605,000
earned in 1994. For the same period, interest expense increased $1,424,000, or
14.6%, to $11,137,000. This increase in net interest income was primarily
attributable to an increase in total interest earning assets, which, on average,
increased $13,378,000, or 4.8% to $290,400,000 from $277,022,000 in 1994. The
average balance of securities decreased $12,021,000 or 11.9% to $89,315,000
while the average balance of higher yielding loans gained 13.3% to $191,650,000.
In 1995, in a period of rising interest rates, the average yield on interest
earning assets increased 44 basis points from 7.59% in 1994 to 8.03% in 1995.
NON-INTEREST INCOME
For 1996, non-interest income was $1,524,000, a $284,000, or 22.9% increase
from 1995. The increase was primarily attributable to an increase in customer
service fees. Also, income on sale and disposition of securities increased
$172,000 to a $41,000 gain in 1996 compared to a $131,000 loss in 1995. James
River disposed of such investments in 1995 to meet the demand for higher
yielding loans.
For the year ended December 31, 1995, non-interest income was $1,240,000,
decreasing 9.2% from $1,365,000 in 1994. Gains on investments decreased by
$279,000 from income of $148,000 in 1994 to a loss of $131,000 in 1995. The gain
in 1994 was also generated by the need to fund loan demand.
NON-INTEREST EXPENSE
Non-interest expense increased $3,184,000, or 38.3%, to $11,503,000 in 1996
from $8,319,000 in 1995. Expenses for the acquisitions of BIW and FCB and the
one time assessment on FCB accounted for 40.3%, or $1,283,000, of this increase.
The increase in occupancy and equipment expenses of $321,000, or 22.7%, was due
primarily to additional depreciation, renovations and additions, and new
equipment, including JRS. Management does not anticipate incurring significant
direct occupancy and equipment expenditures in 1997.
In the acquisitions by JRB on March 23, 1996, the Company acquired the land,
buildings, equipment, furniture and fixtures, and assumed the deposits of three
branches. The property and equipment were purchased for $1,035,000. In addition,
the Company paid a premium for the branches' deposits of $2,817,000 based on
combined deposits of $34,360,000. Amortization of core deposit intangibles
[BAR CHART] [BAR CHART]
NET INTEREST MARGIN NET LOANS
(percent) (millions)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
3.73 3.96 4.08 4.20 4.28 157.8 158.1 175.0 206.5 240.9
[BAR CHART]
DEPOSITS
(millions)
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
249.7 257.6 270.9 287.4 342.3
8 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Results of Operations
for the purchase of the First Union branches was $211,000 for the nine month
period of ownership in 1996. These intangible expenses are being amortized over
a fifteen year period.
Non-interest expenses increased $780,000, or 10.4%, in 1995 to $8,319,000 from
$7,538,000 in 1994. Salaries and employee benefit costs increased 9.5%, or
$373,000, in 1995 over 1994. Equipment and occupancy expenses increased 14.2%,
to $1,416,000 in 1995 over 1994's $1,240,000 due to remodeling and expansion of
existing offices. The increase in other operating expenses was $231,000, or
9.8%, in 1995 over 1994.
INCOME TAXES
Income tax expense for 1996 was $909,000, or 20.7% less than the $1,146,000
for 1995. The reduction is directly related to the reduction in income from 1995
to 1996. Income tax expense in 1995 was 7.4% more than 1994. This increase can
be traced to the 6.9% increase in operating income before taxes for 1995, and
non-deductible merger costs of $227,000. These amounts correspond to an
effective tax rate of 27.3%, 27.0% and 25.9%, respectively, for the three years
ended December 31, 1996, 1995, and 1994.
BALANCE SHEET ANALYSIS
James River's total assets grew $55,328,000 to $381,608,000 at December 31,
1996, from $326,280,000 at December 31, 1995, an increase of 17.0%. The
increase was primarily attributable to the purchase of cash deposits in 1996 in
connection with JRB's branch acquisitions.
LOANS
Total loans, net of unearned income, at year end totaled $243,066,000, an
increase of 16.8% over 1995. The largest increase was in real estate mortgage
lending which rose $18,754,000 while commercial real estate lending increased
$4,826,000, or 30.6%. The ratio of loans-to-deposits at year end 1996 was 71.3%,
compared to 72.9% at year end 1995. Given the effect of the First Union deposit
purchases of approximately $34 million, the Company sustained a satisfactory
loan to deposit ratio. Management's goal for 1997 is to better utilize its asset
base by increasing its loan portfolio. While striving to expand the Company's
loan portfolio, management intends to maintain high standards in underwriting
new loans.
INVESTMENTS
In 1996, the size of the investment securities portfolio increased by 20.4%,
or $17,512,000 as a result of deposit growth exceeding loan growth by
$19,985,000. At year end 1996, the carrying value of the investment portfolio
totaled $103,486,000, and 80.3% of all securities were rated "A" or better or
were issued by the U.S. Government or its agencies. The portfolio has an average
taxable equivalent yield of 6.80% for 1996, a decrease of 21 basis points from
the average taxable equivalent yield of 7.01% in 1995. The decrease in yields
can be attributed to lower market rates in 1996.
DEPOSITS
Total deposits increased $54,968,000, or 19.1% to $342,332,000 at year end
1996. Average deposits were $321,037,000 and $268,119,000 in 1996 and 1995,
respectively. JRB's purchase of First Union National Bank's deposit base in
three branch offices located in Franklin, Virginia, and Courtland, Southampton
County, Virginia, accounted for 62.5% of this increase. Excluding the purchase
of these deposits, James River's deposit growth in 1996 was $21,568,000, or
7.3%, over 1995.
[BAR CHART] [BAR CHART]
LOAN TO DEPOSIT
RATIO SECURITIES
(percent) (million)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
63.95 62.24 65.59 72.87 71.30 87.9 102.5 97.0 86.0 103.5
[BAR CHART]
RESERVES AS PERCENT
OF LOANS
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
1.14 1.41 1.51 1.38 1.30
Annual Report 1996 9
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Results of Operations
SHAREHOLDERS' EQUITY
Shareholders' equity at year end 1996 was $37,603,000 compared to $36,885,000
at year end 1995. Since 1993, Statement of Financial Accounting Standards (SFAS)
115 requires a monthly adjustment to capital, for financial reporting purposes,
equal to the net increase or decrease in the market value of the
available-for-sale portfolio. As of year end 1996, this adjustment increased
capital by $163,000. At year end, the leverage capital ratio was 9.68%, a
decrease from 1995's ratio of 11.78%. Generally, leverage capital is the ratio
of total shareholders' equity--exclusive of unrealized gains/losses on
investments--to average assets. For additional information with respect to
regulatory capital ratios, see Note 8 to the Consolidated Financial Statements.
For 1996 and 1995, cash dividends were $1,275,000 and $1,035,000,
respectively.
ASSET QUALITY
LOAN MONITORING
James River strives to continually maintain excellent asset quality.
Management places great emphasis on strong credit underwriting and monitoring
the loan portfolio repayment performance. Aggressive efforts are made in
collecting problem loans. Non-performing loans were 0.12% of total loans at year
end 1996 compared to 0.36% at year end 1995 and 0.91% for year end 1994. At
December 31, 1996, 64.8% of the Company's loan portfolio consisted of
residential real estate mortgages. Management anticipates that the historical
emphasis of its banking subsidiaries on this type of lending will continue
through 1997.
ALLOWANCE FOR LOAN LOSSES
Net loans charged off in 1996 were $206,000 as compared to $124,000 in 1995.
To maintain an adequate reserve balance, a provision of $491,000 was made in
1996. In 1995, a provision of $341,000 was made, a decrease of $252,000 over the
1994 provision. At year end 1996, the allowance for loan losses was $3,176,000,
or 1.30% of total loans. The allowance at the end of 1995 was 1.38%.
The provision for loan losses is determined periodically by senior management
and lending officers of each of the subsidiary banks based upon consideration of
several factors, including changes in the character and size of the loan
portfolio and related loan loss experience, a review and examination of overall
loan quality which includes the assessment of problem loans, and an analysis of
anticipated economic conditions in the market area. Management believes that the
allowance for loan losses is maintained at a sufficient level to provide for
potential losses in the loan portfolio.
LIQUIDITY & CAPITAL REQUIREMENTS
At year end, federal funds and investments maturing within one year amounted
to $7,384,000 or 2.2% of deposits. In addition, 45.5%, or $47,116,000, of
investment securities mature in the 1-5 year range. 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. The Company has no long term debt.
At December 31, 1996, James River has $100.6 million more in liabilities than
assets that repriced within three months or less and was, therefore, in a
liability-sensitive position. In a period of rising rates, this position would
adversely affect the Company's earnings. To reduce the impact of shifts in
prevailing interest rates, $94.7 million of the loan portfolio has a repricing
frequency of less than one year. Moreover, as of December 31, 1996, James
River's subsidiaries held $91.3 million of its investment portfolio as
"Available for Sale" which could be sold quickly to meet any special funding
needs.
[BAR CHART] [BAR CHART]
NET CHARGED-OFF
NON-PERFORMING LOANS TO AVERAGE
LOANS/TOTAL LOANS LOANS
(percent) (percent)
1992 1993 1994 1995 1996 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
1.06 1.41 .91 .36 .12 0.14 0.10 0.09 0.06 0.09
10 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Results of Operations
At December 31, 1996, the Company's equity to asset ratio was 9.85%. For
additional information with respect to regulatory capital ratios and
dividend restrictions, see Note 8 to the Consolidated Financial
Statements.
In 1997, management anticipates leasing a 12,000 square foot administrative
center to be used jointly for Bank of Suffolk and holding company operations.
Management does not anticipate incurring any significant capital expenditures in
1997, nor does management believe that leasing the new administrative center
will materially impact James River's financial performance in 1997.
INFLATION
Unlike most industrial companies, virtually all of the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or with the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates.
BUSINESS COMBINATION
The Company acquired FCB and BIW in two separate transactions on March 1,
1996. A total of 914,941 shares of James River Common Stock were issued to
former shareholders of FCB and BIW in the transactions. At March 1, 1996, FCB
had total assets of approximately $136,831,000 and shareholders' equity of
approximately $8,298,000. At March 1, 1996, BIW had total assets of
approximately $33,442,000 and shareholders' equity of approximately $3,275,000.
Both transactions were accounted for using the pooling of interests method of
accounting, which is more fully explained in the Notes to the Consolidated
Financial Statements.
ACCOUNTING RULE CHANGES
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities, and provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Except for certain provisions affecting repurchase agreements and other similar
transactions, this Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is applied prospectively. Earlier or retroactive application is not
permitted. The effective date of the provisions affecting repurchase agreements
and similar transactions, including related transfers of collateral, is delayed
for one year, to allow more time for accounting systems to be put in place to
properly reflect the requirements and guidance of this Statement.
This Statement also provides implementation guidance for assessing isolation
of transferred assets (one of the requirements for recognizing transfers), and
for accounting for transfers of partial interests, servicing of financial
assets, securitizations, transfers of sales-type and direct financing lease
receivables, securities lending transactions, repurchase agreements including
"dollar rolls", "wash sales", loan syndications and participations, risk
participations in banker's acceptances, factoring arrangements, transfers of
receivables with recourse, and extinguishments of liabilities. Except for the
provisions affecting loan participations, the Statement is not expected to
materially affect financial condition or results of operations. However,
pursuant to the Statement's provisions, if a loan
Annual Report 1996 11
<PAGE>
JAMES RIVER BANKSHARES
Management's Discussion & Analysis of
Financial Condition & Results of Operations
participation agreement constrains the transferees (participating bank) from
pledging or exchanging their participations, the transferor (originating bank)
has not relinquished control over the loan and shall account for the transfer as
a secured borrowing. The Statement also provides that a transferor's right of
first refusal on a bona fide offer from a third party, a requirement to obtain
the transferor's permission that shall not be unreasonably withheld, or a
prohibition on sale to the transferor's competitor is a limitation on the
transferee's rights but presumptively does not constrain a transferee from
exercising its right to pledge or exchange. The Company is currently considering
these provisions, and assessing the accounting treatment and legal ramifications
of modifying participation agreements.
On November 14, 1996, the Emerging Issues Task Force (EITF) of the FASB
reached consensus on Issue No. 96-12 (the Issue), Recognition of Interest Income
and Balance Sheet Classification of Structured Notes. Structured notes are debt
instruments whose cash flows are linked to the movement in one or more indexes,
interest rates, foreign exchange rates, commodities prices, prepayment rates, or
similar variables. They are issued by U.S. government-sponsored enterprises,
multilateral development banks, municipalities, and private corporations. The
Issue addresses the accounting for certain structured notes that are in the form
of debt securities. The EITF reached a consensus that investors should use the
retrospective interest method for recognizing income on structured note
securities that are classified as Available for Sale and Held to Maturity debt
securities under FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, and that meet certain conditions. Under the
retrospective interest approach, income on the structured notes for the current
period is measured based on changes in estimates of future cash flows between
periods, and cash receipts of interest income in the current period and,
therefore, is different from recognizing income on the interest method of
accounting for securities. The EITF observed that changes in accounting for this
Issue should be applied to all structured notes within the scope of this Issue
either currently as a change in accounting principle, or prospectively to new
securities acquired after November 14, 1996. Management believes the Company
does not hold securities within the scope of the Issue, and does not plan to
invest in such securities in the foreseeable future. Therefore, the EITF Issue
is not expected to materially affect financial condition or results of operation
in the foreseeable future.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position (SOP) 96-1,
Environmental Remediation Liabilities. SOP 96-1 provides guidance on accounting
for environmental remediation liabilities within the framework established by
FASB Statement No. 5, Accounting for Contingencies. It includes benchmarks to
aid in the determination of when environmental remediation liabilities should be
recognized in accordance with FASB No. 5, and guidance on measurement, display,
and disclosure of such liabilities. The SOP is effective for fiscal years
beginning after December 15, 1996, with earlier application encouraged.
Management does not believe this SOP will materially affect financial condition
or results of operation of the Company in the foreseeable future.
12 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Five Year Financial Summary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest Income $ 27,355 $ 22,797 $ 20,605 $ 20,692 $ 21,966
Interest Expense 13,560 11,137 9,714 10,157 12,462
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 13,795 11,660 10,891 10,535 9,504
Provision for Loan Losses 491 342 593 593 1,006
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 13,304 11,318 10,298 9,942 8,498
Non-Interest Income 1,524 1,240 1,808 2,088 1,601
Non-Interest Expense 11,503 8,319 7,538 7,202 6,858
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,325 4,239 4,568 4,828 3,241
Income taxes - current 889 1,244 1,238 1,350 924
Income taxes - deferred 19 (98) (172) 29 (65)
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,417 $ 3,093 $ 3,502 $ 3,449 $ 2,382
===========================================================================================================================
PER SHARE DATA
Net Income $ 0.97 $ 1.25 $ 1.51 $ 1.56 $ 1.09
Cash Dividends 0.52 0.43 0.38 0.29 0.29
Book value at period end 15.30 15.06 13.53 12.62 11.42
Tangible book value at
period end 14.18 15.00 13.45 12.53 11.32
BALANCE SHEET DATA
Total Assets $ 381,608 $ 326,280 $ 306,148 $ 291,168 $ 282,071
Loans, Net 240,913 206,516 174,983 158,087 157,839
Securities 103,486 85,974 97,003 102,505 87,920
Deposits 342,332 287,364 270,906 257,632 249,667
Shareholders' Equity 37,603 36,885 32,473 27,816 24,871
PERFORMANCE RATIOS
Return on Average Assets 0.67% 1.01% 1.19% 1.22% 0.89%
Return on Average Shareholders'
Equity 6.71 8.97 11.15 13.09 9.89
Efficiency Ratio 77.79 65.56 63.04 56.43 61.05
Net Interest Margin 4.28 4.20 4.08 3.96 3.73
CREDIT QUALITY RATIOS
Allowance for Loan Losses to
Non-Performing Loans 1,091.41% 388.05% 165.60% 99.91% 107.37%
Allowance for Loan Losses to
Non-Performing Assets 687.45 385.98 126.87 79.20 74.45
Allowance for Loan Losses to
Year-End Loans, Net of
Unearned Income 1.30 1.38 1.51 1.41 1.14
Net Charged-off Loans to Average
Loans, Net of Unearned Income .09 .06 .09 .10 .14
CAPITAL AND LIQUIDITY RATIOS
Leverage 9.68% 11.78% 11.38% 9.55% 8.82%
Risk based:
Tier 1 capital 16.05 22.17 20.12 18.57 16.33
Total capital 17.30 23.42 21.73 20.09 17.56
Average loans to 71.02 71.48 65.20 68.33 72.24
average deposits
Average shares outstanding 2,491,371 2,468,376 2,325,754 2,204,884 2,178,637
</TABLE>
Annual Report 1996 13
<PAGE>
JAMES RIVER BANKSHARES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,674,875 $ 12,264,118
Interest bearing deposits with banks 444,131 1,804,907
Federal funds sold 3,327,000 10,027,000
Securities available-for-sale, at fair value 91,268,494 63,107,033
Securities held-to-maturity, at amortized cost (fair value
approximates $12,243,155 and $23,072,928 at
December 31, 1996 and 1995) 12,217,079 22,866,989
Loans, net of allowance for loan losses 239,720,940 205,033,148
Loans held for sale, net 1,192,000 1,483,000
Accrued interest receivable 3,124,150 2,777,940
Premises and equipment, net 8,323,595 5,439,583
Intangible assets, net 2,750,200 160,182
Deferred income taxes 589,672 317,949
Other assets 1,975,461 997,827
- ---------------------------------------------------------------------------------------------------------------------------
$ 381,607,597 $ 326,279,676
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 42,798,620 $ 32,837,557
Interest bearing 299,533,313 254,526,280
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 342,331,933 287,363,837
Accrued interest payable 612,390 419,192
Other liabilities 1,060,597 1,611,808
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 344,004,920 289,394,837
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock, $5 par value per share (10,000,000
shares authorized; 2,457,950 and 2,448,502 shares
issued and outstanding at December 31, 1996 and 12,289,750 12,243,465
1995, respectively)
Additional paid-in-capital 3,520,938 3,447,293
Retained earnings 21,629,411 20,486,740
Net unrealized gain on securities available-for-sale,
net of income taxes 162,578 707,341
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 37,602,677 36,884,839
- ---------------------------------------------------------------------------------------------------------------------------
$ 381,607,597 $326,279,676
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans $ 20,579,463 $ 16,621,910 $ 14,141,643
Investment securities:
Taxable 4,979,874 4,424,512 4,991,630
Exempt from federal income taxes 1,285,278 1,270,968 1,203,123
Federal funds sold and other 510,111 479,656 268,640
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 27,354,726 22,797,046 20,605,036
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits 13,530,471 11,090,865 9,628,732
Federal funds purchased 29,091 46,274 84,808
- ---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 13,559,562 11,137,139 9,713,540
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 13,795,164 11,659,907 10,891,496
Provision for loan losses 491,063 341,734 592,804
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 13,304,101 11,318,173 10,298,692
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income
Service charges on deposit accounts 1,063,873 807,113 799,965
Other fees and commissions 92,221 97,523 95,897
Net realized gains (losses) on disposition
of securities 40,992 (130,977) 147,635
Other Income 326,950 466,038 321,762
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,524,036 1,239,697 1,365,259
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expenses
Salaries and employee benefits 5,254,257 4,306,590 3,933,246
Occupancy expense 704,114 664,446 551,602
Equipment 1,032,652 751,242 688,275
Other expenses 4,511,831 2,596,461 2,365,368
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 11,502,854 8,318,739 7,538,491
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,325,283 4,239,131 4,125,460
Provision for income taxes 908,500 1,145,588 1,066,697
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principles 2,416,783 3,093,543 3,058,763
Cumulative effect of changing to a different
method of computing income taxes - - 276,863
Cumulative effect of change in accounting
method for debt and equity securities, net
of income taxes of $101,744 - - 166,286
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 2,416,783 $ 3,093,543 $ 3,501,912
===========================================================================================================================
Earnings per common and common
equivalent share
Income before cumulative effect of
change in accounting principles $ 0.97 $ 1.25 $ 1.32
Cumulative effect of changing to a
different method of computing
income taxes - - 0.12
Cumulative effect of change in
accounting method for debt
and equity securities, net of
income taxes - - 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common and common
equivalent share $ 0.97 $ 1.25 $ 1.51
===========================================================================================================================
Weighted average number of shares
outstanding during the year 2,491,371 2,468,376 2,325,754
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Annual Report 1996 15
<PAGE>
JAMES RIVER BANKSHARES
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SHARES OF SECURITIES
COMMON COMMON ADDITIONAL RETAINED AVAILABLE-
STOCK STOCK PAID-IN CAPITAL EARNINGS FOR-SALE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1993 2,194,220 $10,971,100 $ 1,095,565 $15,749,332 $ - $27,815,997
Implementation of change
in accounting for securities,
net of taxes - - - - 178,144 178,144
Net income - - - 3,501,912 - 3,501,912
Net proceeds from public offering 200,000 1,000,000 2,158,718 - - 3,158,718
Common stock issued 6,250 31,250 35,625 - - 66,875
Cash dividends declared ($0.38 per
share) - - - (904,858) - (904,858)
Other - - - 44,294 - 44,294
Change in unrealized gain (loss) on
securities available-for-sale, net
of taxes - - - (1,388,153) (1,388,153)
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1994 2,400,470 12,002,350 3,289,908 18,390,680 (1,210,009) 32,472,929
Net income - - - 3,093,543 - 3,093,543
Common stock issued 14,484 72,420 29,549 - - 101,969
Cash dividends declared ($0.43 per
share) - - - (1,035,307) - (1,035,307)
Cash paid in lieu of fractional shares (87) (435) - (2,994) - (3,429)
Stock dividend 28,408 142,040 127,836 (269,876) - -
Transfer of held-to-maturity securities
to available-for-sale, net of taxes - - - - 421,874 421,874
Change in unrealized gain (loss)
on securities available-for-sale,
net of taxes - - - - 1,468,600 1,468,600
Adjustments to conform fiscal years 5,418 27,090 - 310,694 26,876 364,660
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1995 2,448,693 12,243,465 3,447,293 20,486,740 707,341 36,884,839
Net income - - - 2,416,783 - 2,416,783
Common stock issued 9,257 46,285 73,645 1,332 - 121,262
Cash dividends declared ($0.52 per
share) - - - (1,275,444) - (1,275,444)
Transfer of held-to-maturity securities
to available-for-sale, net of taxes, in
conjunction with business
combinations - - - - (99,169) (99,169)
Change in unrealized gain (loss) on
securities available-for-sale, net of
taxes - - - - (445,594) (445,594)
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 2,457,950 $12,289,750 $ 3,520,938 $21,629,411 $ 162,578 $37,602,677
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,416,783 $ 3,093,543 $ 3,501,912
Adjustments to reconcile to net cash
provided by operating activities:
Provision for loan losses 491,063 341,734 592,804
Depreciation and amortization 856,850 440,846 328,682
(Gain) loss on disposition of securities (40,992) 130,977 (415,665)
Gain on sale of loans (55,968) (10,849) (4,039)
FHLB stock dividend - - (49,600)
Changes in:
Loans held for sale 291,000 2,958,009 (2,084,959)
Interest receivable (346,210) (66,856) 60,033
Other assets (989,190) 1,056,269 89,157
Interest payable 193,198 44,701 (81,026)
Other liabilities (551,211) (650,469) 408,754
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,265,323 7,337,905 2,346,053
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from dispositions of available-
for-sale securities 29,665,826 32,859,800 48,934,249
Purchase of available-for-sale securities (49,340,809) (22,873,608) (33,784,523)
Redemption of held-to-maturity securities 2,630,617 3,817,120 10,749,481
Purchase of held-to-maturity securities (1,235,000) (352,735) (21,648,535)
Net increase in loans (35,122,887) (28,026,617) (15,822,175)
Purchase of property and equipment (2,475,089) (266,618) (1,570,513)
Net cash and cash equivalents received
in acquisition of branches 30,484,000 - -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,393,342) (14,842,658) (13,142,016)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayment of borrowed funds - - (3,000,000)
Cash dividends paid (1,275,444) (1,035,307) (904,858)
Net increase in deposits 20,632,182 10,474,219 13,273,907
Issuance of stock 125,814 101,969 3,225,593
Purchase of fractional shares (4,552) (3,429) -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,478,000 9,537,452 12,594,642
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (3,650,019) 2,032,699 1,798,679
Adjustment to conform fiscal year of subsidiary - (709,133) -
Cash and cash equivalents - beginning 24,096,025 22,772,459 20,973,780
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 20,446,006 $ 24,096,025 $ 22,772,459
===========================================================================================================================
Cash paid during the year for
Interest $ 13,366,364 $ 11,081,571 $ 9,784,279
===========================================================================================================================
Income taxes $ 1,448,594 $ 698,302 $ 1,856,144
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Annual Report 1996 17
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
December 31, 1996, 1995, and 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
James River Bankshares, Inc. ("the Company") is a Virginia multi-Bank holding
company headquartered in Suffolk, Virginia that commenced operations June 1,
1995. The Company owns James River Bank, (formerly known as The Bank of
Waverly), Waverly, Virginia; Bank of Suffolk, Suffolk, Virginia; First Colonial
Bank, FSB, Hopewell, Virginia; Bank of Isle of Wight, Smithfield, Virginia
(collectively the "Banking Subsidiaries"); and James River Support, Inc., an EDP
operation center. The Banking Subsidiaries were merged into the Company in
pooling of interests transactions consummated on and subsequent to June 1, 1995,
which are more fully explained in subsequent footnotes. There are a total of
nineteen banking offices in ten southeastern Virginia towns, counties, and
cities. The Company's primary source of revenue is providing loans to customers
who are predominantly small and middle-market businesses and individuals.
PRINCIPLES OF CONSOLIDATION AND
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of James River
Bankshares, Inc. and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in the consolidation. The
consolidation has been prepared using the pooling of interests method of
accounting. All information included in the financial statements has been
combined as if the merger had occurred at the earliest date presented.
The consolidated balance sheet of the Company and its subsidiaries as of
December 31, 1995, and the consolidated statement of shareholders' equity for
the year then ended, include an adjustment to conform the fiscal year of its
subsidiary, First Colonial Bank, FSB to that of the Company and its other
subsidiaries. The adjustment to conform fiscal years is disclosed throughout the
financial statements where applicable.
CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet captions,
cash and due from banks, interest bearing deposits with banks and Federal funds
sold.
The Company is required to maintain reserves with the Federal Reserve Bank.
The reserves required for 1996 and 1995 were $605,000.
INVESTMENT SECURITIES
Investment securities are classified into three categories: held-to-maturity,
available-for-sale and trading. Securities that management has both the positive
intent and ability to hold to maturity are classified as securities
held-to-maturity and are carried at cost, adjusted for amortization of premium
or accretion of discount using the interest method. Securities that may be sold
prior to maturity for asset/liability management purposes, or that may be sold
in response to changes in interest rates, changes in prepayment risk, to
increase regulatory capital or other similar factors, are classified as
securities available-for-sale and carried at fair value with any adjustments to
fair value, after tax, reported as a separate component of shareholders' equity.
The Company has no trading securities. Declines in the fair value of individual
held-to-maturity and available-for-sale securities below their cost that are
other than temporary, if any, are included in earnings as realized losses.
Interest and dividends on securities, including the amortization of premiums
and the accretion of discounts, are reported as interest and dividends on
securities using the interest method. Gains and losses on the sale of securities
are recorded on the trade date and are calculated using the specific
identification method.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
18 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
LOANS
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are stated at their outstanding
unpaid principal balances net of any deferred fees or costs on originated loans,
or unamortized premiums or discounts on purchased loans. Interest income is
accrued on the unpaid principal balance. Discounts and premiums are amortized to
income using the interest method. Loan origination fees, net of certain direct
origination costs, are deferred and recognized as an adjustment of the yield
(interest income) on the related loans.
Loans, including impaired loans, are generally classified as non-accrual if
they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is classified as non-accrual.
Loans that are on a current payment status or past due less than 90 days may
also be classified as non-accrual, if repayment in full of principal and/or
interest is in doubt. Loans may be returned to accrual status when all principal
and interest amounts contractually due (including arrearage) are reasonably
assured of repayment.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis.
ALLOWANCE FOR LOAN LOSSES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," on January 1, 1995.
Under this standard, a loan is considered impaired, based on current information
and events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral. The
adoption of SFAS No. 114 did not result in an additional provision for loan
losses.
The adequacy of the allowance for loan losses is periodically evaluated by the
Company, in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for losses on loans. Such agencies
may require the Company to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of impaired loans, if applicable,
are included in the provision for loan losses. Loans continue to be classified
as impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and
Annual Report 1996 19
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
subsequent recoveries, if any, are credited to the allowance.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and amortization
computed principally by the straight-line method. Net gains and losses on
disposal or retirement of premises and equipment are included in other income.
REAL ESTATE OWNED
Real estate acquired in settlement of loans is initially recorded at estimated
fair value at the date of foreclosure. Subsequent to foreclosure, the carrying
value of real estate owned is reduced when it exceeds fair value minus estimated
costs to sell. Costs relating to improvement of the property are capitalized,
while holding costs of the property are charged to expense in the period
incurred.
Other real estate acquired and held for sale is stated at the lower of cost or
net realizable value. Valuations are periodically performed by management, and
an allowance for losses is established by a charge to income if the carrying
value of a property exceeds its estimated net realizable value.
INTANGIBLE ASSETS
Intangible assets are amortized using accelerated methods over their estimated
periods of benefit.
INCOME TAXES
The Company files a consolidated tax return. The provision for income taxes
reflects tax expense incurred as a consolidated group. The expense is allocated
among the members of the consolidated group, in accordance with an intercompany
agreement for tax expense. Income taxes are provided for the tax effects of the
transactions reported in the consolidated financial statements and consist of
taxes currently due plus deferred taxes related primarily to differences between
the basis of available-for-sale securities, deferred loan fees, allowance for
loan losses, accumulated depreciation and deferred compensation for financial
and income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year. Earnings
per share for the years ended December 31, 1995 and 1994, have been
retroactively restated to reflect the effects of the stock dividend declared
during the year ended December 31, 1995. Stock options are regarded as common
stock equivalents and are therefore considered in earnings per share
calculations, if dilutive. Common stock equivalents are computed using the
treasury stock method. There is no material difference between primary and
fully-diluted earnings per share.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties. While management uses available
information to recognize losses on loans and foreclosed real estate, future
additions to the allowances may be necessary based on changes in local economic
conditions and other factors.
20 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
NOTE 2 - INVESTMENT SECURITIES
The carrying amount of securities and their approximate fair values
at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities:
December 31, 1996
U.S. Government and
agency securities $ 62,747,895 $ 306,922 $ 478,888 $ 62,575,929
State and municipal securities 25,168,287 434,439 126,200 25,476,526
Other debt securities 1,162,728 14,582 125 1,177,185
Equity securities 1,953,354 85,500 - 2,038,854
- ---------------------------------------------------------------------------------------------------------------------------
$ 91,032,264 $ 841,443 $ 605,213 $ 91,268,494
===========================================================================================================================
December 31, 1995
U.S. Government and
agency securities $ 33,360,033 $ 524,622 $ 78,183 $ 33,806,472
State and municipal securities 26,232,151 642,661 46,666 26,828,146
Other debt securities 948,268 30,106 809 977,565
Equity securities 1,494,850 - - 1,494,850
- ---------------------------------------------------------------------------------------------------------------------------
$ 62,035,302 $ 1,197,389 $ 125,658 $ 63,107,033
===========================================================================================================================
Held-to-Maturity securities:
December 31, 1996
State and municipal securities $ 1,235,000 $ 18,052 $ - $ 1,253,052
Other debt securities 10,982,079 21,694 13,670 10,990,103
- ---------------------------------------------------------------------------------------------------------------------------
$ 12,217,079 $ 39,746 $ 13,670 $ 12,243,155
===========================================================================================================================
December 31, 1995
U.S. Government and $ 9,744,815 $ 26,798 $ 94,579 $ 9,677,034
agency securities
Other debt securities 13,122,174 285,857 12,137 13,395,894
- ---------------------------------------------------------------------------------------------------------------------------
$ 22,866,989 $ 312,655 $ 106,716 $ 23,072,928
===========================================================================================================================
</TABLE>
Equity securities include restricted investments of $1,279,600 and
$1,233,750 at December 31, 1996 and 1995, respectively. These securities
do not have a readily determinable fair value and lack a market.
Therefore, they are carried at cost and periodically evaluated for
impairment.
Annual Report 1996 21
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The scheduled maturities of securities held-to-maturity and securities
available-for-sale at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Securities Held-To-Maturity Securities Available-for-Sale
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 4,036,035 $ 4,057,177
Due from one to five years - - 47,008,763 47,115,989
Due from five to ten years 1,235,000 1,253,052 32,515,821 32,523,147
Due after ten years 10,982,079 10,990,103 5,518,291 5,533,327
Equity securities - - 1,953,354 2,038,854
- -------------------------------------------------------------------------------------------------------------------
$ 12,217,079 $ 12,243,155 $ 91,032,264 $ 91,268,494
===================================================================================================================
</TABLE>
Investment securities with a carrying amount of approximately $9,914,636 at
December 31, 1996 and $8,133,977 at December 31, 1995 were pledged to secure
public deposits.
Gross realized gains and losses on dispositions of securities
available-for-sale were as follows:
<TABLE>
<CAPTION>
Available-For-Sale 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $ 102,609 $ 138,486 $ 481,819
Gross realized losses (61,617) (298,552) (69,497)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) $ 40,992 $ (160,066) $ 412,322
======================================================================================================================
</TABLE>
Gross realized gains and losses on dispositions of securities
held-to-maturity were as follows:
<TABLE>
<CAPTION>
Held-To-Maturity 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $ - $ 30,416 $ 5,182
Gross realized losses - (1,327) (1,839)
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain $ - $ 29,089 $ 3,343
=========================================================================================================================
</TABLE>
First Colonial Bank, FSB recognized no realized gains or losses on
dispositions of investment securities for the six months ended December 31,
1995. Therefore, no adjustment to conform fiscal years is needed for the
disposition of investment securities.
In connection with the business combination of the Company and First
Colonial Bank, FSB, First Colonial Bank, FSB transferred most of its investment
portfolio from the held-to-maturity category to available-for-sale on March 1,
1996, in order to maintain the Company's existing interest rate risk position
and credit risk policy. The transfer consisted of the entire investment
portfolio of U.S. Government agency and corporation obligations (except
mortgage-backed securities). The transfers are shown separately on the
consolidated statement of changes in shareholders' equity, as follows:
<TABLE>
<S> <C>
Fair market value at date of transfer $ 9,094,689
Amortized cost 9,244,858
- ------------------------------------------------------------------------------------
Unrealized loss (150,169)
Related income tax effect 51,000
- ------------------------------------------------------------------------------------
Net decrease to shareholders' equity $ (99,169)
====================================================================================
</TABLE>
22 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
During the third quarter of 1995, the Company reassessed its management
philosophy regarding investment securities. Management determined that, due to
proposed acquisitions, the Company would need to have funds available to meet
liquidity needs and future loan demand. Accordingly, all investments
held-to-maturity by Bank of Suffolk were reclassified as available-for-sale. All
securities held-to-maturity were transferred to available-for-sale as of
September 30, 1995. The effect of these transfers was to increase the net
unrealized gain on securities available for sale by $517,874.
During the first quarter of 1995, James River Bank sold three
held-to-maturity securities as follows:
<TABLE>
<CAPTION>
Gross Selling
Price Cost Gain
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agencies (2) $ 763,031 $ 751,270 $ 11,761
Municipals (1) 258,750 245,396 13,354
- ------------------------------------------------------------------------------------------------------
$ 1,021,781 $ 996,666 $ 25,115
=======================================================================================================
</TABLE>
Management determined that with the demand for agricultural loans in March
1995, it was necessary for James River Bank to fund such loans through the sale
of investment securities. One particular available-for-sale security was sold at
a loss of $27,862. To offset this loss and increase available funding, two U.S.
Government Agency held-to-maturity securities and one municipal held-to-maturity
security were sold at a combined profit of $25,115. As a result of the above
action, all investments at James River Bank in the held-to-maturity
classification were reclassified during 1995 to available-for-sale. The effect
of this reclassification was to reduce the net unrealized gain on securities
available-for-sale by $96,000.
The net effect of the 1995 transfers and reclassification are shown on the
consolidated statement of changes in shareholders' equity for the year ended
December 31, 1995, as follows:
<TABLE>
<S> <C>
Fair market value at date of transfer $ 34,903,954
Amortized cost (34,264,751)
- ----------------------------------------------------------------------------------------------
Unrealized gain 639,203
Related income tax effect (217,329)
- ----------------------------------------------------------------------------------------------
Net increase to shareholders' equity $ 421,874
==============================================================================================
</TABLE>
NOTE 3 - LOANS RECEIVABLE
Loans receivable are summarized below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 23,689,062 $ 24,223,777
Real estate - commercial 20,606,000 15,780,000
Real estate - construction 14,519,978 8,317,352
Real estate - mortgage 157,604,754 138,850,295
Agricultural 2,255,650 1,102,066
Installment 24,428,530 19,869,177
- ---------------------------------------------------------------------------------------------
Total loans 243,103,974 208,142,667
Less:
Allowance for loan losses (3,176,491) (2,891,190)
Unearned discount (38,088) (59,784)
Deferred loan (fees) expenses (168,455) (158,545)
- ---------------------------------------------------------------------------------------------
$239,720,940 $ 205,033,148
=============================================================================================
</TABLE>
Annual Report 1996 23
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance - beginning of year $ 2,891,190 $ 2,690,412 $ 2,258,292
Provision charged to operations 491,063 341,734 592,804
Charge-offs (301,803) (208,062) (250,157)
Recoveries 96,041 84,309 89,473
Adjustment to conform fiscal year - (17,203) -
- --------------------------------------------------------------------------------------------------------
Balance - end of year $ 3,176,491 $ 2,891,190 $ 2,690,412
========================================================================================================
</TABLE>
The adjustment to conform fiscal year consists of First Colonial Bank, FSB's
activity for the six months ended December 31, 1995, and is summarized as
follows:
<TABLE>
<S> <C>
Provision charged to operations $ (14,779)
Charge-offs (6,744)
Recoveries 4,320
- ------------------------------------------------------------------------------------------------
Adjustment to conform fiscal year $ (17,203)
================================================================================================
</TABLE>
The recorded investment in impaired loans requiring an allowance for loan
losses as determined in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," was $3,136,753 and $1,600,298 at
December 31, 1996 and 1995, respectively. The portion of the allowance for loan
losses allocated to the impaired loan balance was $557,969 and $170,000 at
December 31, 1996 and 1995, respectively. For the year ended December 31, 1996,
the average recorded investment in impaired loans was $3,249,550 and interest
income recognized on impaired loans was $150,699. For the year ended December
31, 1995, the average recorded investment in impaired loans was $350,000 and
interest income recognized on impaired loans was $26,800.
Mortgage loans serviced for others are not included in the consolidated
balance sheets. The unpaid principal balances of these loans at December 31,
1996 and 1995 were $23,473,529 and $20,282,208, respectively.
NOTE 4 - RELATED PARTIES
The Company has had and expects to have in the future, lending transactions
in the ordinary course of its business with directors, officers, principal
shareholders, and their associates, on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others. Such extensions of credit do not involve
more than the normal risk of collectibility or present other unfavorable
features. The aggregate amount of loans to such individuals as of December 31,
1996 and 1995 was $8,944,171 and $7,317,527, respectively. During 1996, new
loans to such related parties amounted to $7,033,207 and repayments amounted to
$5,406,563. The amount of deposits from related parties held by the Company at
December 31, 1996 was $4,702,849.
24 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
NOTE 5 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,553,378 $ 1,237,962
Buildings 5,559,707 4,081,067
Furniture and equipment 4,825,851 3,945,880
Construction in process 36,000 36,771
- ---------------------------------------------------------------------------------------------------------------------------
11,974,936 9,301,680
Accumulated depreciation and amortization (3,651,341) (3,862,097)
- ---------------------------------------------------------------------------------------------------------------------------
Net book value $ 8,323,595 $ 5,439,583
===========================================================================================================================
</TABLE>
NOTE 6 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand $ 42,798,620 $ 32,837,557
Interest bearing demand 40,759,438 34,424,290
Money market 21,319,078 18,629,749
Savings 49,550,466 43,031,022
Time deposits $100,000 and greater 26,078,973 26,670,232
Other time deposits 161,825,358 131,770,987
- ---------------------------------------------------------------------------------------------------------------------------
$ 342,331,933 $ 287,363,837
===========================================================================================================================
</TABLE>
The scheduled maturities of time deposits at December 31, 1996 and 1995, were
as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than one year $ 117,980,000 $ 102,661,000
One to five years 67,460,000 50,873,000
Over five years 2,464,331 4,907,219
- ---------------------------------------------------------------------------------------------------------------------------
$ 187,904,331 $ 158,441,219
===========================================================================================================================
</TABLE>
NOTE 7 - COMMITMENTS, CONTINGENT LIABILITIES AND
LEGAL PROCEEDINGS
COMMITMENTS AND STANDBY LETTERS OF CREDIT
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of the Company's involvement in
particular classes of financial instruments.
Annual Report 1996 25
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The following table summarizes the Company's balance sheet financial
instruments as of December 31,1996 and 1995.
Contract or Notional Amount
---------------------------
1996 1995
- ------------------------------------------------------------------------------
Financial instruments whose contract amounts
represent credit risk:
Commercial real estate $ 10,135,000 $ 8,656,000
Commercial 7,991,000 7,222,000
Real estate mortgage 9,177,000 6,305,000
Other 6,861,000 13,214,000
- ------------------------------------------------------------------------------
$ 34,164,000 $ 35,397,000
==============================================================================
Standby letters of credit $ 1,036,000 $ 802,000
==============================================================================
Commitments to extend credit are agreements to lend to a customer, as long as
there is no violation of any condition established in the contract, and includes
unutilized credit card lines. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
majority of commitments to extend credit have terms up to one year with variable
interest rates. There are no significant fixed rate commitments. Management
evaluates each customer's credit worthiness in determining the amount of
collateral to obtain. Collateral held varies but may include accounts
receivable, inventory, property, plant, and equipment and real estate.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support the financing needs of the Company's commercial
customers, and have varying terms. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk (whether on or off balance sheet) arising from
financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counter parties have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Company
does not have significant exposure to any individual customer or counter party.
However, the Company's loan portfolio is comprised of credit extensions
principally to customers in the Central and Southeastern areas of Virginia. Most
of these customers are also depositors of the Company.
Loans secured by real estate are approximately 79% and 78% of total loans for
1996 and 1995. Approximately 74% and 75% of these real estate loans in 1996 and
1995, respectively, are secured by 1-4 family residential real estate.
Commercial and standby letters of credit were granted primarily to commercial
borrowers.
26 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
OPERATING LEASES
The Company has several operating leases for branch offices. The expirations
of these leases range from three to seventeen years.
Future minimum rentals are as follows:
1997 $ 84,469
1998 85,095
1999 76,606
2000 64,740
2001 45,203
Thereafter 431,523
- -------------------------------------------------------------------------
Total minimum lease payments $ 787,636
=========================================================================
LEGAL PROCEEDINGS
There are no material legal proceedings other than ordinary routine litigation
incidental to the business.
CREDIT AVAILABILITY
At December 31, 1996, First Colonial Bank, FSB had $17,000,000 available under
a line of credit with Federal Home Loan Bank.
NOTE 8 - SHAREHOLDERS' EQUITY
During 1994, 200,000 additional shares were sold in a rights and public
offering at an average issue price of $17.00 per share. This offering raised
$3,158,718, net of offering costs of $241,282.
At December 31, 1996, the Company had three stock-based compensation plans,
which are described below. The Company accounts for its grants under those plans
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, no compensation cost has been recognized. All
three of the Company's plans are fixed option plans. Under the 1996 Employee
Stock Option Plan, the Company may grant options to its employees for up to 10
percent of the issued and outstanding common stock of the Company at any time.
Under this plan, the exercise price of each option equals the market price of
the Company's stock on the date of the grant and an option's maximum term is ten
years. At December 31, 1996, there were options outstanding to purchase 125,000
shares, all of which were granted in 1996, and are exercisable at $20.17 to
$20.33 per share, and have a weighted-average exercise price of $20.30 per
share. None of these options were exercisable at December 31, 1996.
The Company's other two plans were plans of subsidiaries prior to joining the
Company, and granting of options under both plans has been terminated. At
December 31, 1996, for both plans combined, there were options outstanding to
purchase 53,037 shares, of which 51,037 were exerciseable in a range of $4.46
to $10.90 per share, and have a weighted-average exercise price of $10.52 per
share. During 1996, 7,513 options were exercised and 678 options forfeited for
both plans combined. At December 31, 1995, for both plans combined, there were
options outstanding to purchase 61,228 shares. No options were granted in 1995.
As required by SFAS No. 123, "Accounting for Stock-Based Compensation," after
December 31, 1994, the fair value of $7.05 of each option granted is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 2 percent, expected
volatility of 37 percent, risk-free interest rate of 6.2 percent and expected
lives of 5 years. Had compensation cost for the Company's plans been determined
based on the fair
Annual Report 1996 27
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
value at the grant dates for awards under those plans consistent with the method
prescribed by SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro-forma amounts indicated below at December 31,
1996:
Net income As reported $2,416,783
Pro-forma $2,300,909
Earnings per common and common equivalent share
As reported $0.97
Pro-forma $0.92
RESTRICTIONS ON RETAINED EARNINGS AND DIVIDENDS
The Company is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. Based upon these restrictions,
the Company could have declared dividends for 1996 of $6,834,000 without prior
regulatory approval.
Each of the Banking Subsidiaries also is subject to certain restrictions on
the amount of dividends that it may declare without prior regulatory approval.
The following is a summary that, based upon these restrictions, the various
Banking Subsidiaries could have declared for 1996:
Bank of Suffolk $2,583,000
James River Bank $1,267,000
First Colonial Bank, FSB $2,281,000
Bank of Isle of Wight $1,008,000
REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and, possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Company meets all capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the Federal
Reserve Bank of Richmond categorized the Company and its subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Company and its subsidiaries must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. The Office of Thrift Supervision ("OTS") also notified the
Company that its thrift subsidiary, First Colonial Bank, FSB is categorized as
well capitalized on March 31, 1996. First Colonial Bank, FSB also complied with
OTS requirements to maintain core capital and tangible capital ratios of 3.0%
and 1.5%, respectively. Its core capital and tangible capital ratios are not
materially different from its Tier 1 capital to average assets ratios disclosed
in the table. There are no conditions or events since that notification that
management believes has changed the institution's category.
28 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The Company's actual and required capital amounts and ratios as of December
31, 1996, are also presented in the table.
<TABLE>
<CAPTION>
To be Well
Capitalized
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets):
Consolidated $37,382,000 17.30% $17,293,000 >8.00% N/A N/A
-
Bank of Suffolk $12,960,000 19.30% $ 5,385,000 >8.00% $ 6,731,000 >10.00%
- -
James River Bank $ 9,902,000 18.55% $ 4,421,000 >8.00% $ 5,526,000 >10.00%
- -
Bank of Isle of Wight $ 3,675,000 17.89% $ 1,645,000 >8.00% $ 2,056,000 >10.00%
- -
First Colonial Bank, FSB $ 9,551,000 11.02% $ 6,931,000 >8.00% $ 8,664,000 >10.00%
- -
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $34,690,000 16.05% $ 8,646,000 >4.00% N/A N/A
- -
Bank of Suffolk $12,140,000 18.07% $ 2,692,000 >4.00% $ 4,031,000 >6.00%
- -
James River Bank $ 9,211,000 17.54% $ 2,210,000 >4.00% $ 3,315,000 >6.00%
- -
Bank of Isle of Wight $ 3,418,000 16.64% $ 823,000 >4.00% $ 1,234,000 >6.00%
- -
First Colonial Bank, FSB $ 8,731,000 10.08% $ 3,465,000 >4.00% $ 4,332,000 >6.00%
- -
Tier 1 Capital (to Average Assets)
Consolidated $34,690,000 9.68% $14,332,000 >4.00% $ N/A N/A
- -
Bank of Suffolk $12,140,000 11.88% $ 4,088,000 >4.00% $ 5,110,000 >5.00%
- -
James River Bank $ 9,211,000 11.13% $ 3,311,000 >4.00% $ 4,139,000 >5.00%
- -
Bank of Isle of Wight $ 3,418,000 9.18% $ 1,489,000 >4.00% $ 1,861,000 >5.00%
- -
First Colonial Bank, FSB $ 8,731,000 6.25% $ 5,588,000 >4.00% $ 6,985,000 >5.00%
- -
</TABLE>
NOTE 9 - INCOME TAXES
The significant components of the provision for income taxes for the years
ended December 31 were as follows:
1996 1995 1994
- ---------------------------------------------------------------------------
Current tax provision:
Federal $ 875,184 $ 1,227,062 $ 1,202,322
State 13,792 17,101 36,315
- ---------------------------------------------------------------------------
888,976 1,244,163 1,238,637
Deferred tax provision 19,524 (98,575) (171,940)
- ----------------------------------------------------------------------------
$ 908,500 $ 1,145,588 $ 1,066,697
============================================================================
Annual Report 1996 29
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The adjustment to conform fiscal years includes an income tax provision for
First Colonial Bank, FSB for the six months ended December 31, 1995, as follows:
Current tax provision:
Federal $ 128,110
State 19,907
- ----------------------------------------------------------------------
148,017
Deferred tax provision (7,064)
- ----------------------------------------------------------------------
$ 140,953
======================================================================
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows:
1996 1995 1994
- -------------------------------------------------------------------------
Federal statutory income tax rates 34.00% 34.00% 34.00%
State income taxes 0.47 0.40 0.88
Tax exempt interest income (12.14) (10.19) (9.39)
Nondeductible merger costs 5.10 1.82 -
Other (0.11) 1.00 0.37
- -------------------------------------------------------------------------
27.32% 27.03% 25.86%
=========================================================================
The significant components of deferred income tax assets and liabilities at
December 31 consist of the following:
1996 1995
- --------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 994,452 $ 903,295
Deferred compensation 151,685 125,914
Accrued pension/ESOP expense 10,731 54,004
Other 31,212 36,560
- --------------------------------------------------------------
Total deferred tax assets 1,188,080 1,119,773
==============================================================
Deferred tax liabilities:
Depreciation $ 218,941 $ 155,434
Deferred loan fees 119,197 73,261
Dividends on FHLB/FHLMC stock 122,440 122,305
Unrealized gain on AFS securities 73,143 364,389
Discount accretion on securities 36,961 19,329
Other 9,042 9,630
- --------------------------------------------------------------
Total deferred tax liabilities 579,724 744,348
- --------------------------------------------------------------
Net deferred income tax asset 608,356 375,425
Less valuation allowance (18,684) (57,476)
- --------------------------------------------------------------
$ 589,672 $ 317,949
==============================================================
Included in retained earnings is $1,081,541 at December 31, 1996 and 1995 for
which no provision for income taxes has been made. This represents allocations
of income to bad debt deductions for tax purposes only in years prior to 1988
related to First Colonial Bank, FSB and its subsidiaries. Since the Company does
not intend to use the reserves for purposes other than to absorb its tax bad
debt losses, deferred income taxes have not been provided on such reserves. The
approximate amount of
30 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
unrecognized tax liability allocated with these historical additions is
$410,553. For years after 1988, deferred income taxes have been provided on the
difference between tax and book bad debt deductions in accordance with SFAS 109,
"Accounting for Income Taxes." If the amounts that qualify as deductions for
federal income tax purposes only are used for purposes other than bad debt
losses or operations losses, they will be subject to federal income tax at the
then current corporate rate.
NOTE 10 - RETIREMENT PLANS
Prior to joining the Company, each of the Company subsidiaries had qualified
retirement plans for the future benefit of their employees. All of these plans,
which consisted of defined benefit, defined contribution, employee stock
ownership and 401(k) plans, have been terminated effective before December 31,
1996. The following is a summary of the terminated plans and their respective
costs included in salaries and employee benefits on the consolidated statement
of income for the year ended:
1996 1995 1994
- ------------------------------------------------------------------------------
Defined benefit plan - terminated effective
December 31, 1995 $ 9,600 $ 16,076 $ 75,974
Defined contribution plan - terminated
effective December 31, 1995 $ - $ 65,069 $ 62,873
Employee stock ownership plan -
terminated effective May 31, 1996 $ 55,671 $ 110,053 $ 87,400
401(k) plans - terminated with various
effective dates $ - $ 50,300 $ 36,453
The employee stock ownership plan costs for First Colonial Bank, FSB for the
six months ended December 31, 1995 was $48,000.
All of the terminated plans were fully funded at December 31, 1996, except the
employee stock ownership plan, of which the estimated required funding of
$16,450 is included in other liabilities on the consolidated balance sheet.
Effective December 31, 1995, the Company adopted a defined contribution plan
with 401(K) features, which covers substantially all employees who have
completed six months of service. Employees may contribute up to 15% of their
salaries, and the Company matches 50% of the first 4% and 25% of the next 4% of
employee contributions. Additional contributions can be made by the Company at
the discretion of the Board of Directors. The Company contributed $49,752 in
matching funds for 1996, and contributed an additional $121,290, or 5% of
eligible salaries for 1996, both of which are included in salaries and employee
benefits on the consolidated statements of income. No contributions were made to
this plan in 1995 or 1994.
The Company has entered into deferred compensation agreements providing
retirement for certain officers and employees. Vested benefits under the
agreements are payable in installments over a ten or fifteen year period upon
death or retirement. The present value of the liabilities for the benefits is
being accrued over the expected term of active service of the employees. The
deferred compensation expense for the officers and employees was $103,914,
$59,327 and $53,327 for the year ended December 31, 1996, 1995 and 1994,
respectively. The adjustment to conform fiscal years includes deferred
compensation expense for First Colonial Bank, FSB for the six months ended
December 31, 1995 of $24,685.
Annual Report 1996 31
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
NOTE 11- OTHER EXPENSES
The following items shown in the other expense category are disclosed because
their amounts exceed one percent of total income:
December 31, 1996 1995 1994
- --------------------------------------------------------------------------
Deposit insurance premiums $1,028,123 $ 444,723 $ 592,070
Directors' fees $ 378,819 $ 265,891 $ 192,958
Merger expenses $ 530,233 $ 227,280 $ -
The adjustment to conform fiscal years includes other expenses for First
Colonial Bank, FSB for the six months ended December 31, 1995 as follows:
Deposit insurance premiums $ 150,519
Directors' fees $ 44,642
NOTE 12 - COMPANY FORMATION AND ACQUISITIONS
The Company was capitalized pursuant to a share exchange effective June 1,
1995, between Bank of Suffolk and James River Bank, both Virginia
state-chartered banks. Each of the 916,040 outstanding shares of Bank of Suffolk
common stock was converted to one share of the Company stock, and each of the
100,000 outstanding shares of James River Bank common stock was converted to
6.15 shares of the Company stock.
Effective March 1, 1996, in two separate transactions, the Company merged with
First Colonial Bank, FSB, a federal-chartered savings bank, and Bank of Isle of
Wight, a Virginia state-chartered bank. Each of the 1,244,895 outstanding shares
of First Colonial Bank, FSB common stock was converted to .4816 shares of the
Company stock, and each of the 78,850 outstanding shares of Bank of Isle of
Wight common stock was converted to four shares of the Company stock. The
acquisitions of these two financial institutions were treated as a pooling of
interests, and the historical financial information included in these
consolidated financial statements is presented on this basis.
Prior to joining the Company, First Colonial Bank, FSB reported its financial
condition, and the results of its operations and its cash flows on a fiscal year
ended June 30. However, upon joining the Company, First Colonial Bank, FSB
conformed its reporting year end to that of the Company, December 31. The
statement of financial condition of the Company reported on the consolidated
balance sheets at December 31, 1996 and 1995, includes the balance sheet of
First Colonial Bank, FSB at December 31, 1996 and 1995, respectively. The
results of operations reported on the Company's consolidated statements of
income and cash flows for the years ended December 31, 1996, 1995 and 1994,
include the results of operations and cash flows of First Colonial Bank, FSB for
the years ended December 31, 1996, June 30, 1995 and June 30, 1994,
respectively. In order to conform the fiscal year of its subsidiary to the
Company's fiscal year, an adjustment was made to reflect First Colonial Bank,
FSB's results of operations and cash flows as described below.
32 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
Included in the consolidated statement of shareholders' equity, for the year
ended December 31, 1995, is an adjustment to conform First Colonial Bank, FSB's
year end to December 31. The following is a summary of the adjustment:
Net income for the six month period ended December 31, 1995 $ 412,488
Cash dividends paid during the period ($0.04 per share) (98,892)
Common stock issued 24,188
Appreciation of available-for-sale securities, net of income taxes 26,876
- --------------------------------------------------------------------------------
Total adjustment $ 364,660
================================================================================
Included in the consolidated statement of cash flows, for the year ended
December 31, 1995, is an adjustment to conform First Colonial Bank, FSB year end
to December 31. The following is a summary of the adjustment for the activity
for the six month period ended December 31, 1995:
Net cash provided by operating activities $ 1,001,967
Net cash used in investment activities (7,269,373)
Net cash provided by financing activities 5,558,273
- --------------------------------------------------------------------------------
Total adjustment $ (709,133)
================================================================================
The effective date of the mergers of First Colonial Bank, FSB and Bank of Isle
of Wight was March 1, 1996. Prior to the mergers, each respective bank reported
earnings for the two months ended February 29, 1996, as follows, which are
incorporated into the total earnings on the consolidated statement of income for
1996.
First Colonial Bank of
Bank, FSB Isle of Wight
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------
Interest income $ 1,788,258 $ 417,713
Interest expense 1,068,233 178,626
- ---------------------------------------------------------------------
Net interest income 720,025 239,087
Provision for loan losses 30,000 10,000
Noninterest income 86,151 33,359
Noninterest expense 500,626 160,207
- ---------------------------------------------------------------------
Income before income taxes 275,550 102,239
Provision for income taxes 113,822 30,000
- ---------------------------------------------------------------------
Net income $ 161,728 $ 72,239
=====================================================================
Annual Report 1996 33
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
First Colonial Bank, FSB's total shareholders' equity increased from
$8,133,926 at December 31, 1995 to $8,298,346 at March 1, 1996. This increase
resulted from $161,728 of net income during the period, and a $2,692 increase in
the net unrealized gain on securities available-for-sale, net of income taxes.
Bank of Isle of Wight's total shareholders' equity increased from $3,254,536 at
December 31, 1995 to $3,274,587 at March 1, 1996. This increase resulted from
$72,239 of net income during the period, and a $52,188 decrease in net
unrealized gain on securities available-for-sale, net of income taxes.
For 1995, each respective bank reported earnings as follows, which are
incorporated into the total earnings on the consolidated statement of income for
1995. Prior to the merger, First Colonial Bank, FSB reported earnings based on a
fiscal year ended June 30. Therefore, the reported earnings of First Colonial
Bank, FSB for 1995 are for the year ended June 30, 1995.
First Colonial Bank of
Bank, FSB Isle of Wight
- ---------------------------------------------------------------------
Interest income $ 8,978,257 $ 2,495,602
Interest expense 5,363,999 1,042,376
- ---------------------------------------------------------------------
Net interest income 3,614,258 1,453,226
Provision for loan losses 209,582 36,000
Noninterest income 527,356 163,183
Noninterest expense 2,863,250 999,716
- ---------------------------------------------------------------------
Income before income taxes 1,068,782 580,693
Provision for income taxes 366,222 156,154
- ---------------------------------------------------------------------
Net income $ 702,560 $ 424,539
=====================================================================
The effective date of the mergers of Bank of Suffolk and James River Bank was
June 1, 1995. Prior to the mergers, each respective bank reported earnings for
the five months ended May 31, 1995, as follows, which are incorporated into the
total earnings on the consolidated statement of income for 1995.
Bank of James River
Suffolk Bank
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------
Interest income $ 2,911,764 $ 1,720,668
Interest expense 1,326,279 622,573
- ---------------------------------------------------------------------------
Net interest income 1,585,485 1,098,095
Provision for loan losses 28,000 -
Noninterest income 81,361 88,353
Noninterest expense 1,064,992 730,208
- ---------------------------------------------------------------------------
Income before income taxes 573,854 456,240
Provision for income taxes 90,380 99,467
- ---------------------------------------------------------------------------
Net income $ 483,474 $ 356,773
===========================================================================
34 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
Bank of Suffolk's total shareholders' equity increased from $11,492,730 at
December 31, 1994 to $12,145,006 at June 1, 1995. This increase resulted from
$483,474 of net income during the period, and a $168,802 decrease in the net
unrealized loss on securities available-for-sale, net of income taxes. James
River Bank's total shareholders' equity increased from $11,379,326 at December
31, 1994 to $12,159,352 at June 1, 1995. This increase resulted from $356,773
of net income during the period, and a $423,253 decrease in net unrealized loss
on securities available-for-sale, net of income taxes.
For the year ended December 31, 1995, the separate entities' historical
results of operations were, as follows which includes the historical results of
operations of First Colonial Bank, FSB for the year ended June 30, 1995:
<TABLE>
<CAPTION>
First
Bank of James River Colonial Bank of Parent
Suffolk Bank Bank, FSB Isle of Wight Company Combined
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $3,986,073 $2,606,350 $3,614,258 $1,453,226 $ - $11,659,907
Net income (loss) $1,244,393 $ 802,287 $ 702,560 $ 424,539 $ (80,236) $ 3,093,543
</TABLE>
For the year ended December 31, 1994, the separate entities' historical
results of operations were, as follows which includes the historical results of
operations of First Colonial Bank, FSB are for the year ended June 30, 1994:
<TABLE>
<CAPTION>
First
Bank of James River Colonial Bank of Parent
Suffolk Bank Bank, FSB Isle of Wight Company Combined
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $3,791,776 $2,569,233 $3,222,103 $1,308,384 $ - $10,891,496
Net income $1,334,850 $ 840,949 $1,002,317 $ 323,796 $ - $ 3,501,912
</TABLE>
On March 23, 1996, James River Bank acquired three branch banking offices from
First Union National Bank, one of which is located in the City of Franklin,
Virginia and two of which are located in Courtland, Virginia, in Southampton
County. James River Bank assumed aggregate deposit liabilities of approximately
$34 million in connection with the three branch acquisitions. In addition,
equipment valued at $210,000 and land and buildings valued at $825,000 were
purchased. Also, in connection with the acquisition, intangible assets of
approximately $2,817,000 were capitalized and include goodwill, an inseparable
component of core deposit intangible, and other costs incurred directly related
to the acquisition.
Effective July 1996, the Company formed and capitalized James River Support,
Inc., an EDP operation center. The Company owns all of the outstanding common
stock of James River Support, Inc.
Annual Report 1996 35
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
NOTE 13 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY
The parent company's condensed balance sheets as of December 31, 1996 and
1995, and the related condensed statements of income and cash flows for each of
the years in the three year period ended December 31, 1996, are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 175,319 $ 195,153
Securities available-for-sale 501,375 330,000
Investments in wholly-owned subsidiaries:
Bank of Suffolk 12,418,830 12,463,880
James River Bank 11,827,440 12,218,742
First Colonial Bank, FSB 8,626,155 8,133,926
Bank of Isle of Wight 3,490,985 3,254,536
James River Support 455,129 -
Other assets 180,159 288,602
- ------------------------------------------------------------------------------------
$37,675,392 $36,884,839
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 72,715 $ -
Shareholders' equity 37,602,677 36,884,839
- ------------------------------------------------------------------------------------
$37,675,392 $36,884,839
====================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 1,800 $ - $ -
Interest expense - - -
Net interest income 1,800 - -
Noninterest income:
Management fees from subsidiaries 633,213 - -
Dividends from subsidiaries 2,398,626 1,651,490 -
Noninterest expense 1,436,739 121,569 -
- -----------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiary 1,596,900 1,529,921 -
Income tax benefit 71,235 41,333 -
- -----------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiaries 1,668,135 1,571,254 -
Equity in undistributed net income of
subsidiaries 748,648 1,522,289 3,501,912
- ------------------------------------------------------------------------------------
Net income $ 2,416,783 $ 3,093,543 $ 3,501,912
====================================================================================
</TABLE>
36 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 2,416,783 $ 3,093,543 $ 3,501,912
Adjustments:
Depreciation 6,525 - -
Equity in undistributed net income of
subsidiaries (748,648) (1,522,289) (3,501,912)
Change in other assets 81,471 (260,342) -
Change in liabilities 72,715 - -
- ------------------------------------------------------------------------------------
Net provided from operations 1,828,846 1,310,912 -
- ------------------------------------------------------------------------------------
Investing activities:
Purchase of equipment (8,123) (28,260) -
Purchase of available-for-sale securities (86,375) (330,000) -
Capitalization of James River Support, Inc. (600,000) - -
- ------------------------------------------------------------------------------------
Net used by investing activities (694,498) (358,260) -
- ------------------------------------------------------------------------------------
Financing activities:
Cash dividends paid (1,275,444) (797,633) -
Common stock issued 121,262 40,134 -
- ------------------------------------------------------------------------------------
Net cash used in financing activities (1,154,182) (757,499) -
- ------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (19,834) 195,153 -
Cash and cash equilavents--beginning 195,153 - -
- ------------------------------------------------------------------------------------
Cash and cash equivalents--ending $ 175,319 $ 195,153 $ -
====================================================================================
</TABLE>
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Company's financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amounts
the Company could have realized in a sales transaction on the dates indicated.
The estimated fair value amounts have been measured as of year end, and have not
been reevaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the fair
value of the Company since a fair value calculation is only provided for a
limited portion of its assets. Due to a wide range of valuation techniques and
the degree of subjectivity used in making the estimates, comparisons between the
Company's disclosures and those of other companies may not be meaningful. The
following methods and assumptions were used to estimate the fair values of the
Company's financial instruments at December 31, 1996 and 1995.
Annual Report 1996 37
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
FINANCIAL INSTRUMENTS VALUED AT CARRYING VALUE
The carrying amounts of cash and cash equivalents approximate their fair
value. The carrying amounts of accrued interest receivable and payable
approximate their fair values.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES
Fair values for securities, excluding restricted equity securities, are based
on available quoted market prices. If quoted market prices are unavailable, fair
values are based on quoted market prices of comparable instruments. For unquoted
securities for which no comparable instruments exist, the reported fair value is
estimated on the basis of cost, book or appraised value as deemed appropriate by
management. Available-for-sale securities are carried at their aggregate fair
value.
LOANS
For variable-rate commercial loans that reprice frequently (within a
relatively short time frame) and have no significant change in credit risk, fair
values are based on carrying values. Residential first mortgages are based on
quoted market prices of similar loans. Fair values for certain junior mortgage
loans, consumer installment loans, credit-card loans, and other consumer loans
are estimated using discounted cash flows models. The discount rates are based
on current market interest rates for similar types of loans. Fair values for
commercial real estate and commercial loans that do not reprice or do not mature
within relatively short time frames are estimated using discounted cash flow
analysis. The discount rates used are those currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying
collateral values, where applicable.
DEPOSITS
The fair values of demand deposits and deposits with no defined maturity are
taken to be the amount payable on demand at the reporting date. The fair values
for fixed-maturity deposits are estimated using discounted cash flow models
based on rates currently offered for the relevant product types with similar
remaining maturities.
The carrying amount in the table below are the amounts at which the financial
instruments are reported in the financial statements.
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $ 16,674,875 $ 16,674,875 $ 12,264,118 $ 12,264,118
Interest bearing deposits
with banks 444,131 444,131 1,804,907 1,804,907
Federal funds sold 3,327,000 3,327,000 10,027,000 10,027,000
Investment securities 103,485,573 103,511,649 85,974,022 86,179,961
Loans 240,912,940 241,271,000 206,516,148 209,188,622
Interest receivable 3,124,150 3,124,150 2,777,940 2,777,940
- ----------------------------------------------------------------------------------------
$367,968,669 $368,352,805 $319,364,135 $322,242,548
========================================================================================
</TABLE>
38 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
----------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities
Non-interest bearing
deposits $ 42,798,620 $ 42,798,620 $ 32,837,557 $ 32,837,557
Interest bearing deposits 299,533,313 297,375,007 254,526,280 257,043,851
Interest payable 612,390 612,390 419,192 419,192
- ----------------------------------------------------------------------------------------
$342,944,323 $340,786,017 $287,783,029 $290,300,600
========================================================================================
</TABLE>
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1996
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Interest income $ 6,275 $ 6,766 $ 7,088 $ 7,226
Net interest income $ 3,158 $ 3,326 $ 3,597 $ 3,714
Net income $ 458 $ 832 $ 353 $ 774
Earnings per share $ 0.19 $ 0.33 $ 0.14 $ 0.31
1995
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Interest income $ 5,627 $ 5,921 $ 6,012 $ 5,237
Net interest income $ 2,864 $ 2,958 $ 2,984 $ 2,854
Net income $ 806 $ 561 $ 905 $ 822
Earnings per share $ 0.33 $ 0.23 $ 0.36 $ 0.33
Annual Report 1996 39
<PAGE>
<PAGE>
JAMES RIVER BANKSHARES
Report of Independent Auditors
The Board of Directors and Shareholders
James River Bankshares, Inc.
Suffolk, Virginia
We have audited the accompanying consolidated balance sheets of James River
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of James River
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Goodman & Company, L.L.P.
- -----------------------------
GOODMAN & COMPANY, L.L.P.
Certified Public Accountants
5 Holly Hill Drive
Petersburg, Virginia 23805
January 31, 1997
40 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Directors and Officers
BOARD OF DIRECTORS
JAMES RIVER BANKSHARES
DIRECTORS: JAMES RIVER BANKSHARES
Harold U. Blythe -- President & CEO, James River Bankshares
James E. Butler, Jr. -- President, Butler Paper Company, Inc.
Bruce B. Gray -- Vice President, Gray Land & Timber Company
Elmon T. Gray, Chairman -- Retired; Former President, Gray Lumber Company
G. P. Jackson, Vice Chairman -- President, G.P.Jackson, Inc. (Real Estate
Rentals & Contractor)
Ben P. Kanak -- Farmer; Board Member of Plant Foods Products, Inc.
Glenn T. McCall -- Senior Vice President & Chief Financial Officer, James River
Bankshares
John A. Ramsey, Jr. --Farmer; President, Ramsey Brothers, Inc.
Robert E. Spencer, Jr. -- President and CEO, Bank of Isle of Wight
E. V. Stephenson, Jr., Corporate Secretary -- Retired; Former General Insurance
Underwriter, Nurney - Stephenson
Corp.
James C. Stewart -- President & CEO, First Colonial Bank, FSB
EXECUTIVE OFFICERS: JAMES RIVER BANKSHARES
Harold U. Blythe
President & Chief Executive Officer
Glenn T. McCall
Senior Vice President & Chief Financial Officer
DIRECTORS AND OFFICERS
MEMBER BANKS
DIRECTORS: BANK OF ISLE OF WIGHT
John A. Ramsey, Jr., Chairman
Diana F. Beale
A. Dwight Doggett
R. L. Magette
Robert E. Spencer, Jr.
R. L. Thompson
W. G. Yeoman, III
OFFICERS: BANK OF ISLE OF WIGHT
Robert E. Spencer, Jr.
President & CEO
Oliver D. Creekmore
Executive Vice President & Cashier
Linda J. Dunning
Vice President
Terry M. Gray
Assistant Cashier
Rosa Lee Copeland
Loan Administration Officer
DIRECTORS: BANK OF SUFFOLK
G. P. Jackson, Chairman
Harold U. Blythe
R. H. Braford
James E. Butler, Jr.
Larry L. Felton
Douglas C. Naismith
E. V. Stephenson, Jr.
OFFICERS: BANK OF SUFFOLK
Harold U. Blythe
President & Chief Executive Officer
Robert H. Johnson
Executive Vice President
Susan H. Simpkins
Senior Vice President & Cashier
James R. A. Stanley, Jr.
Senior Vice President-Lending
Peter C. Jackson
Assistant Vice President
Jeffrey H. Noblin
Assistant Vice President
Gleason C. Snow
Assistant Vice President
Julie T. Stephenson
Assistant Vice President
Annual Report 1996 41
<PAGE>
JAMES RIVER BANKSHARES
Directors and Officers
J. Frank Taylor
Assistant Vice President
Dorothy B. Demiel
Assistant Cashier
Elizabeth M. Kessinger
Assistant Cashier
Patricia A. McClenny
Assistant Cashier
Mark U. McGahee
Assistant Cashier
DIRECTORS: FIRST COLONIAL BANK
Ben P. Kanak, Chairman
William F. Binford, Jr.
William L. Canada
Riley E. Ingram
C. Bishop Knott, Jr.
Fred C. Morene
James C. Stewart
OFFICERS: FIRST COLONIAL BANK
James C. Stewart
President & CEO
A. Wayne Beasley
Senior Vice President &
Chief Operations Officer
Beverly A. Adams
Vice President &
Chief Financial Officer
Joyce A. Wallace
Corporate Secretary
James L. Hart
Vice President
John H. Jones
Vice President
G. Alvin Payne, Jr.
Vice President
Betty W. Clack
Assistant Vice President
Cecelia M. Lewis
Assistant Vice President
James M. Stewart
Assistant Vice President
Sally H. Tucker
Assistant Vice President
Wanda M. Whitney
Assistant Vice President
Mark S. Zuskin
Assistant Vice President
Laura A. Bowmar
Assistant Secretary
Sally Cornwell
Assistant Secretary
Virginia W. Peters
Assistant Secretary
DIRECTORS: JAMES RIVER BANK
Bruce B. Gray, Chairman
C. Taylor Everett
Garland Gray, II
Horace R. Gray, III
Dr. Clarence W. Griffin
Wayne M. Harrell
Horace R. Higgins, Jr.
John R. Marks
Glenn T. McCall
Lynne Rabil
Bruce C. Spencer
John W. Terry
Bobby B. Worrell
OFFICERS: JAMES RIVER BANK
Bruce B. Gray
Chairman
Glenn T. McCall
President & CEO
42 James River Bankshares, Inc.
<PAGE>
JAMES RIVER BANKSHARES
Directors and Officers
Jerry R. Bryant
Senior Vice President / President-Elect
Kathy O. Peebles
Executive Vice President, Cashier
& Operations Officer
O. Leroy Stables, Jr.
Senior Vice President
F. Edward Pearson, II
Vice President
Ida Louise S. West
Vice President
Donna D. Clarke
Assistant Vice President
Doris M. Ellis
Assistant Vice President
C. Thomas Harry
Assistant Vice President
Shirley W. Snyder
Assistant Vice President
Linda C. Buhls
Assistant Cashier
Nagha W. Dunn
Assistant Cashier
Ruth (Cindy) A. Price
Corporate Secretary
DIRECTORS AND OFFICERS
OTHER SUBSIDIARIES
DIRECTORS: JAMES RIVER SUPPORT
Harold U. Blythe, Chairman
Beverly A. Adams
Oliver D. Creekmore
Glenn T. McCall
Tracy J. Nelms
Kathy O. Peebles
Susan H. Simpkins
Benjamin I. Wainwright, Jr.
OFFICERS: JAMES RIVER SUPPORT
Benjamin I. Wainwright, Jr.
President & CEO
Tracy J. Nelms
Executive Vice President & Corporate Secretary
Annual Report 1996 43
<PAGE>
JAMES RIVER BANKSHARES
General Information
ANNUAL MEETING
The annual meeting of shareholders will be held at 2:00 p.m. on Thursday, April
24, 1997, at the Holiday Inn Suffolk, 2864 Pruden Boulevard, Suffolk, Virginia.
Executive Office
101 East Washington Street
P.O. Box 410
Suffolk, Virginia 23434
REQUEST FOR INFORMATION
Earleen B. Sylvia, Administrative Assistant
(757) 539-0241
FORM 10-K
A form 10-K Report filed with the Securities and Exchange Commission is
available to shareholders without charge upon written request.
STOCK TRANSFER AGENT
First Union National Bank of North Carolina
230 South Tryon Street, 11th floor
Charlotte, North Carolina 28288-1154
STOCK LISTING
The common stock of James River Bankshares, Inc. is traded on the
over-the-counter (OTC) Market and is quoted on the National Association of
Securities Dealers Automated Quotations (NASDAQ) National Market System under
the symbol JRBK.
MARKET PRICE FOR COMMON STOCK
James River was capitalized on June 1, 1995, pursuant to a share exchange
between Bank of Suffolk and James River Bank, formerly The Bank of Waverly.
James River Bankshares, Inc.'s Common Stock began trading on NASDAQ/NMS on June
7, 1995. The following table sets forth the high and low sales prices of the
Common Stock as reported on NASDAQ/NMS for the periods listed. The Common Stock
is thinly traded.
<TABLE>
<CAPTION>
1996 Sales Prices
- ---------------------------------------------------------------------------------------------------------------------------
HIGH LOW CLOSING DIVIDEND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fourth Quarter 21 1/2 19 1/2 20 1/4 $0.13
Third Quarter 24 1/4 20 1/4 21 1/4 $0.13
Second Quarter 25 22 3/4 23 1/2 $0.26
First Quarter 24 1/4 22 3/4 24 1/4 $0.00
At December 31, 1996:
COMMON SHARES 52 WEEK DIVIDEND DIVIDEND
52 WEEK RANGE CLOSING PRICE OUTSTANDING VOLUME PER SHARE TO AVG. PRICE
- ---------------------------------------------------------------------------------------------------------------------------
25 - 19 1/2 20 1/4 2,457,950 160,500 $0.52 2.34%
</TABLE>
44 James River Bankshares, Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
James River Bankshares, Inc.
We consent to incorporation by reference in the Registration Statement on Forms
S-8 (Registration Nos. 33-99156, 333-07997 and 333-07999) of James River
Bankshares, Inc. of our report dated January 31, 1997, relating to the
consolidated balance sheets of James River Bankshares, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity and cash flows and related schedules for each of
the years in the three-year period ended December 31, 1996, which report appears
in the December 31, 1996 Annual Report of James River Bankshares, Inc.
GOODMAN & COMPANY, L.L.P.
5 Holly Hill Drive
Petersburg, Virginia
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,675
<INT-BEARING-DEPOSITS> 444
<FED-FUNDS-SOLD> 3,327
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,268
<INVESTMENTS-CARRYING> 12,217
<INVESTMENTS-MARKET> 12,243
<LOANS> 243,104
<ALLOWANCE> 3,176
<TOTAL-ASSETS> 381,608
<DEPOSITS> 342,332
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,673
<LONG-TERM> 0
<COMMON> 12,290
0
0
<OTHER-SE> 25,313
<TOTAL-LIABILITIES-AND-EQUITY> 381,608
<INTEREST-LOAN> 20,580
<INTEREST-INVEST> 6,265
<INTEREST-OTHER> 510
<INTEREST-TOTAL> 27,355
<INTEREST-DEPOSIT> 13,630
<INTEREST-EXPENSE> 13,560
<INTEREST-INCOME-NET> 13,795
<LOAN-LOSSES> 491
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 11,503
<INCOME-PRETAX> 3,325
<INCOME-PRE-EXTRAORDINARY> 908
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,417
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
<YIELD-ACTUAL> 6.71
<LOANS-NON> 291
<LOANS-PAST> 857
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,891
<CHARGE-OFFS> 302
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 3,176
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,176
</TABLE>
