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, 1997
Commission File Number 0-26314
JAMES RIVER BANKSHARES, INC.
Virginia 54-1740210
1512 Holland Road Street, Suffolk, Virginia 23434
Registrant's telephone number, including area code: (757) 539-0267
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 by non-affiliates of
the registrant as of March 16, 1998: Common Stock - $62,897,471.
The number of shares outstanding of the registrant's common stock as of
March 16. 1998: 3,680,470.
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 "1998 Proxy Statement") to be used in
connection with the 1998 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, 1997. 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 the
Company's management of credit risk, credit policies generally, and allowances
for loan losses. 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 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 and commenced
operations at this branch in June 1996. FCB also opened a new branch bank office
in Hopewell, Virginia in May, 1996. FCB assumed the lease on the property and
purchased selected equipment from the former tenant.
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, 1997, 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. FCB has filed applications with regulatory authorities
to convert from a federal savings bank to a Virginia state chartered bank. If
these applications are approved, FCB will become subject to regulation by the
Federal Reserve and BFI to the same extent as James River's other banking
subsidiaries.
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.
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, 1997. Prior to 1995, amounts
reported below include FCB's applicable balances as of June 30 for the periods
indicated.
Loan Portfolio by Percentage
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C>
Commercial 13.1% 9.7% 11.6% 8.9% 14.5%
Real estate-commercial 19.2% 8.5% 7.6% 10.2% 10.7%
Real estate-construction
and land development 7.5% 6.0% 4.0% 2.4% 0.7%
Real estate-mortgage 49.4% 64.8% 66.7% 63.9% 59.9%
Agricultural 1.8% 1.0% 0.6% 0.5% 0.7%
Installment 9.0% 10.0% 9.5% 14.1% 13.5%
-----------------------------------------------------------
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
Total Loans 263,219 243,104 208,143 174,225 159,055
-----------------------------------------------------------
</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 75.3% 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 32.3% of James River's total
loan portfolio on December 31, 1997. $36.9 million, or 43.5%, 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, 1997, agricultural loans totaled $4.8
million. These were all farm operating loans including loans secured by farm
equipment. Loans secured by farm equipment 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 $19.7 million or 7.5% of the loan
portfolio at December 31, 1997. 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.
Real Estate Mortgage. At December 31, 1997, 91.8% 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%. $12.4 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, 1997, 9.0% 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%.
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 $260.5
million at December 31, 1997, 8.1% more than net loans of $240.9 million at
December 31, 1996. The average balance of total loans as a percentage of average
earning assets was 72.1%, 67.4%, 66.0%, 61.0% and 59.3% for 1997, 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, 1997, 1996, 1995 or 1994.
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, 1997, commitments for standby letters of credit
totaled $1.6 million and commitments to extend credit were $40.1 million. At
December 31, 1996, commitments for standby letters of credit totaled $1.0
million and commitments to extend credit totaled $34.2 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,
amounts reported below include FCB's applicable balances as of June 30 for the
periods indicated.
<TABLE>
<CAPTION>
Loan Portfolio
December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C>
Commercial $ 34,513 $ 23,689 $ 24,224 $ 15,463 $ 23,103
Real estate-commercial
50,522 20,606 15,780 17,730 17,002
Real estate-construction
and land development
19,683 14,520 8,317 4,151 1,089
Real estate-mortgage
130,055 157,605 138,851 111,403 95,231
Agricultural
4,802 2,256 1,102 945 1,162
Installment
23,644 24,428 19,869 24,533 21,468
-----------------------------------------------------------------------------
Total Loans
263,219 243,104 208,143 174,225 159,055
Less:
Allowance for loan
losses
3,457 3,176 2,891 2,691 2,258
Unearned discount
25 38 60 122 226
Deferred loan fees
50 169 159 106 76
-----------------------------------------------------------------------------
Net loans receivable 259,687 239,721 205,033 171,306 156,495
Loans held for sale 789
1,192 1,483 3,677 1,592
Net loans $ 260,476 $ 240,913 $ 206,516 $ 174,983 $ 158,087
=============== ========= ========= ========== =========
</TABLE>
Set forth below is information regarding the maturity of loans for
James River's banking subsidiaries at December 31, 1997:
<TABLE>
<CAPTION>
Maturity Schedule of Loans
December 31, 1997
-------------------------------------------------------------
Over One
One Year through Over Five Total
or Less Five Years Years Loans
(Dollars in thousands)
<S> <C>
Commercial $ 8,016 $ 18,490 $ 8,007 $ 34,513
Real estate-commercial
5,724 21,652 23,146 50,522
Real estate-construction
and land development
12,773 6,116 794 19,683
Real estate-mortgage
19,769 20,959 89,327 130,055
Agricultural
975 2,791 1,036 4,802
Installment
4,367 17,989 1,288 23,644
------ ------- ------ --------
Total $ 51,624 $ 87,997 $ 123,598 $ 263,219
======== ======== ========= =========
Loans maturing after one year with
predetermined rates
109,649
Loans maturing after one year with
variable rates
101,946
-------
Total $ 211,595
=======
</TABLE>
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.
<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. The amounts reported below for 1994 and 1993 include FCB's
applicable balances as of June 30 for the periods indicated.
<TABLE>
<CAPTION>
Allowance for Loan Losses
December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C>
Balance, beginning of
period $ 3,176 $ 2,891 $ 2,691 $ 2,258 $ 1,821
-----------------------------------------------------------------------------
Less charge offs:
Commercial 12 17 71 25 107
Installment 167 152 73 56 92
Real estate 70 133 64 169 55
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Total charge offs 249 302 208 250 254
-----------------------------------------------------------------------------
Plus recoveries:
Commercial 58 10 23 30 40
Installment 30 15 57 26 22
Real estate 3 71 4 34 36
-----------------------------------------------------------------------------
Total recoveries 91 96 84 90 98
-----------------------------------------------------------------------------
Net charge offs 158 206 124 160 156
-----------------------------------------------------------------------------
Provision for loan losses 439 491 341 593 593
-----------------------------------------------------------------------------
Adjustment to conform
fiscal year - - (17) - -
-----------------------------------------------------------------------------
Balance end of period $ 3,457 $ 3,176 $ 2,891 $ 2,691 $ 2,258
-----------------------------------------------------------------------------
Allowance for loan losses
to period end total loans 1.31% 1.30% 1.38% 1.51% 1.41%
Allowance for loan losses
to nonaccrual loans 385.40 1,091.41 388.05 165.60 99.91
Average total loans 258,988 228,009 191,650 169,096 158,391
Net charge offs
to average loans 0.06% 0.09% 0.06% 0.09% 0.10%
</TABLE>
<PAGE>
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 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. The amounts
reported below for 1994 and 1993 include FCB's applicable balances as of June 30
for the periods indicated.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses in Dollars
December 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C>
Commercial $ 846 $ 625 $ 516 $ 902 $ 670
Real estate-commercial 1,161 1,152 1,004 790 680
Real estate-construction
and land development 85 84 75 8 17
Real estate-mortgage 808 852 950 658 571
Agricultural 176 21 22 92 95
Installment 381 442 324 241 225
-----------------------------------------------------------------------------
Total allowance for
loan losses $ 3,457 $ 3,176 $ 2,891 $ 2,691 $ 2,258
-----------------------------------------------------------------------------
</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, 1997. The amounts reported below for 1994 and
1993 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,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
Commercial 13.1% 9.7% 11.6% 8.9% 14.5%
Real estate-commercial 19.2% 8.5% 7.6% 10.2% 10.7%
Real estate-construction
and land development 7.5% 6.0% 4.0% 2.4% 0.7%
Real estate-mortgage 49.4% 64.8% 66.7% 63.9% 59.9%
Agricultural 1.8% 1.0% 0.6% 0.5% 0.7%
Installment 9.0% 10.0% 9.5% 14.1% 13.5%
-----------------------------------------------------------------------------
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. The amounts reported below for
1994 and 1993 include FCB's applicable balances as of June 30 for the periods
indicated.
<TABLE>
<CAPTION>
Non-performing Assets
December 31,
-----------------------------------------------------------------------------
<S> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
Nonaccrual loans $ 897 $ 291 $ 745 $ 1,625 $ 2,260
Foreclosed assets 573 171 4 496 591
-----------------------------------------------------------------------------
Total non-performing
assets $ 1,470 $ 462 $ 749 $ 2,121 $ 2,851
-----------------------------------------------------------------------------
Loans past due 90 or
more days accruing
inter $ 431 $ 857 $ 683 $ 203 $ 623
Non-performing loans
to total loans, at
period end 0.34% 0.12% 0.36% 0.91% 1.41%
Non-performing loans
to period end loans
and foreclosed assets 0.34% 0.12% 0.36% 0.91% 1.40%
</TABLE>
As of December 31, 1997, loans 30 days or more delinquent for James
River's banking subsidiaries totaled $7.7 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, $6.7 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 $2,017,000,
$3,137,000 and $1,600,000 at December 31, 1997, 1996 and 1995, respectively. The
impaired loans at December 31, 1997, consist of $227,000 of commercial, $818,000
real estate-commercial, $386,000 real estate mortgage, and $586,000 agricultural
loans. The impaired loans at December 31, 1996, consisted of $1,871,000 of
commercial and $1,266,000 real estate-commercial loans. The impaired loans at
December 31, 1995, consisted of $76,000 of commercial and $1,524,000 real
estate-commercial loans. All of the impaired loans at December 31, 1997, 1996
and 1995, were measured using the fair value of collateral method. The portion
of the allowance for loan losses allocated to the impaired loan balance was
$423,000, $558,000 and $170,000 at December 31, 1997, 1996 and 1995,
respectively.
Investments
The carrying value of the investment portfolio of James River and its
subsidiaries was $83.0 million at December 31, 1997, compared to $103.5 million
at December 31, 1996. The average balance of the investment portfolio decreased
$10.3 million or 10.1% in 1997 compared to 1996. The average balance of the
portfolio increased 14.1%, or $12.6 million, in 1996.
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 52.4% of the investments compared
to 31.1% in state and political subdivisions.
At December 31, 1997, 1996, and 1995, 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 Held-to-Maturity
securities was 101.5% and 100.2% of carrying value at years ended December 31,
1997 and 1996, respectively.
The following table summarizes the carrying values of securities for
James River and its subsidiaries for the dates indicated.
<TABLE>
<CAPTION>
Securities Portfolio
December 31,
----------------------------------------------
<S> <C>
1997 1996 1995
---- ---- ----
(dollars in thousands)
U. S. Treasury and other government agencies $ 43,535 $ 62,576 $ 43,551
State and political subdivisions 25,789 26,712 26,828
Other securities 13,701 14,198 15,595
----------------------------------------------
Total Securities $ 83,025 $ 103,486 $ 85,974
----------------------------------------------
</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, 1997. 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, 1997
----------------------------------------------
<S> <C>
Weighted
Amortized Fair average
Cost Value yield
(Dollars in thousands)
U.S. Treasury securities
One year or less $ 3,395 $ 3,405 5.54%
After one year to five years 6,500 6,608 5.68%
After five years to ten years 2,002 2,053 5.75%
After ten years - -
-------- -------
Total 11,897 12,066 5.65%
-------- -------
Federal agency securities
One year or less 3,695 3,676 6.65%
After one year to five years 19,149 19,167 5.93%
After five years to ten years 7,714 7,681 6.58%
After ten years 955 945 6.63%
-------- -------
Total 31,513 31,469 6.30%
-------- -------
State and political subdivisions securities
One year or less 2,051 2,058 6.06%
After one year to five years 9,585 9,787 6.32%
After five years to ten years 12,476 12,784 6.65%
After ten years 1,133 1,186 6.97%
-------- -------
Total 25,245 25,815 6.49%
-------- -------
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 2,488 2,993 7.10%
-------- -------
Total 2,488 2,993 7.10%
-------- -------
Other securities
One year or less 249 250 5.89%
After one year to five years 613 624 6.25%
After five years to ten years 248 250 6.35%
After ten years 9,584 9,728 7.04%
-------- -------
Total 10,694 10,852 6.95%
-------- -------
Total securities 81,837 83,195 6.29%
-------- -------
Unrealized gain on securities available-for-sale 1,188 -
-------- -------
Total securities at period end $ 83,025 $ 83,195
-------- -------
</TABLE>
<PAGE>
Deposits
James River's banking subsidiaries primarily use deposits to fund their
loans and investments portfolio. Since the end of 1995, 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 $259.3 million in
1994 to $268.1 million in 1995, a growth of $8.8 million or 3.4%. For the
comparable 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 was attributable to the deposit base purchased by JRB in the
Franklin and Courtland branches. For the period ending December 31, 1997,
average total deposits increased $22.2 million, or 6.9%.
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,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -----------------------
<S> <C>
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
(Dollars in thousands)
Interest-bearing deposits:
Checking $ 37,023 2.56% $ 36,242 2.67% $ 29,480 3.09%
Money market savings 23,391 3.22% 23,035 3.31% 20,842 3.63%
Regular savings 48,601 3.35% 47,613 3.42% 44,751 3.51%
Certificates of deposit:
$100,000 and over 29,396 4.59% 24,834 5.61% 17,920 5.51%
Under $100,000 165,010 5.75% 155,254 5.66% 126,091 5.45%
---------- ----------- ----------
Total interest-bearing deposits 303,421 4.67% 286,978 4.72% 239,084 4.64%
Non-interest bearing 39,789 34,059 29,035
---------- ----------- ----------
Total deposits $ 343,210 4.12% $ 321,037 4.22% $ 268,119 4.14%
========== =========== ==========
</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, 1997:
Maturities of CDs of $100,000 or More at December 31, 1997
Amount Percent
------- -------
(Dollars in thousands)
Three months or less $ 6,776 20.6%
Over three months to twelve months 14,003 42.6%
Over twelve months 12,089 36.8%
-------------- ------
Total $ 32,868 100.0%
============== ======
Certificates of deposit in amounts of $100,000 or more at December 31,
1997 and 1996 were $32.9 million and $26.1 million, respectively. The balance of
$32.9 million at December 31, 1997, represented 16.9% of total certificates of
deposit. The December 31, 1996 amount represents 13.9% of the total certificates
of deposit balance of $187.9 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. Prior to 1996,
amounts reported below include FCB's applicable balances for the periods
indicated.
Short-Term Borrowings
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
<S> <C>
1997 1996 1995
---- ---- ----
(dollars in thousands)
Average daily amount of short-term borrowings
outstanding during the period $ 620 $ 396 $ 750
Weighted average interest rate on average
daily short-term borrowings 6.45% 5.81% 6.13%
Maximum outstanding short-term borrowings
outstanding at any month end 4,000 4,456 5,316
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 for 1995
include FCB's applicable balances for the year ended June 30.
RATE AND VOLUME ANALYSIS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1997 compared to 1996 1996 compared to 1995
------------------------------- ------------------------------
Change Due To: Change Due To:
Increase ----------------- Increase ----------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ----- ------ -------- ---- ------
<S> <C>
Interest income:
Securities:
U.S. Treasury $ (193) $ 7 $ (200) $ (564) $ 11 $ (575)
Federal agency 229 (2) 231 755 (131) 886
State and political
subdivisions (137) (11) (126) 126 (92) 218
Federal Reserve stock 32 16 16 18 8 10
Other equity securities (651) (4) (647) 336 (63) 399
------- ----- ------ ------ ------ ------
Total Securities (720) 6 (726) 671 (267) 938
------- ----- ------ ------ ------ ------
Loans:
Commercial 1,353 (110) 1,463 2,241 112 2,129
Real estate-construction 579 (42) 621 912 65 847
Real estate-mortgage 564 277 287 605 261 344
Installment 542 (45) 587 237 306 (69)
------- ----- ------ ------ ------ ------
Total Loans 3,038 80 2,958 3,995 744 3,251
------- ----- ------ ------ ------ ------
Interest bearing deposits
in other banks 16 (25) 41 146 (41) 187
Federal funds sold 10 19 (9) (115) 26 (141)
------- ----- ------ ------ ------ ------
Total money market
investments 26 (6) 32 31 (15) 46
------- ----- ------ ------ ------ ------
Total interest income 2,344 80 2,264 4,697 462 4,235
------- ----- ------ ------ ------ ------
Interest expense:
Interest bearing deposits:
Checking (17) (38) 21 54 (155) 209
Money market savings (9) (21) 12 6 (74) 80
Regular savings (1) (35) 34 58 (42) 100
Certificates of deposit:
$100,000 and over (44) (300) 256 404 23 381
Under $100,000 691 139 552 1,924 336 1,588
------- ----- ------ ------ ------ ------
Total interst bearing
deposits 620 (255) 875 2,446 88 2,358
------- ----- ------ ------ ------ ------
Federal funds purchased 17 4 13 (23) (2) (21)
------- ----- ------ ------ ------ ------
Total interest expense 637 (251) 888 2,423 86 2,337
------- ----- ------ ------ ------ ------
Net interest income $ 1,707 $ 331 $ 1,376 $ 2,274 $ 375 $ 1,899
======= ===== ====== ====== ====== =======
</TABLE>
<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.
Average Balances, Interest Income and Expenses, and Average Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------ -----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Yield/rate Balance Expense Yield/rate Balance Expense Yield/rate
------- ------- ---------- ------- ------- ---------- ------- ------- ----------
<S> <C>
Assets:
Interest bearing assets:
Securities:
U.S. Treasury $ 12,317 $ 784 6.37% $ 15,496 $ 977 6.30% $ 24,719 $ 1,541 6.23%
Federal agency 40,317 2,546 6.31% 36,669 2,317 6.32% 23,302 1,562 6.70%
State and political subdivisions 25,075 1,916 7.64% 26,709 2,053 7.69% 24,000 1,927 8.03%
Federal reserve stock 1,732 123 7.10% 1,476 91 6.17% 1,292 73 5.65%
Other securities 12,185 839 6.89% 21,538 1,490 6.92% 16,002 1,154 7.21%
-------- ------- -------- ------ -------- -------
Total Securities 91,626 6,208 6.78% 101,888 6,828 6.80% 89,315 6,257 7.01%
-------- ------- -------- ------ -------- -------
Loans:
Commercial 66,152 5,959 9.01% 50,209 4,606 9.17% 26,424 2,365 8.95%
Real estate-construction 17,580 1,678 9.54% 11,230 1,099 9.79% 2,031 187 9.21%
Real estate-mortgage 146,564 12,876 8.79% 143,227 12,312 8.60% 139,139 11,707 8.41%
Installment 28,692 3,104 10.82% 23,343 2,562 10.98% 24,056 2,325 9.66%
-------- ------- -------- ------ -------- -------
Total Loans 258,988 23,617 9.12% 228,009 20,579 9.03% 191,650 16,584 8.65%
-------- ------- -------- ------ -------- -------
Interest bearing deposits in
other banks 2,161 163 7.54% 1,690 147 8.70% 9 1 11.11%
Federal funds sold 6,488 373 5.75% 6,653 363 5.46% 9,426 478 5.07%
-------- ------- -------- ------ -------- -------
Total money market investments 8,649 536 6.20% 8,343 510 6.11% 9,435 479 5.08%
-------- ------- -------- ------ -------- -------
Total interest-earning assets/
total interest income 359,263 30,361 8.45% 338,240 28,017 8.28% 290,400 23,320 8.03%
-------- ------- -------- ------ -------- -------
Non-interest earning assets:
Cash and due from banks 12,743 11,608 9,262
Other assets 8,729 7,315 4,062
Less: Allowance for loan losses (3,379) (3,033) (2,801)
Fixed assets 8,477 6,918 5,084
-------- -------- --------
Total non-interest earning assets 26,570 22,808 15,607
-------- -------- --------
Total Assets $385,833 $361,048 $306,007
======== ======== ========
Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing deposits:
Checking $ 37,023 $ 949 2.56% $ 36,242 $ 966 2.67% $ 29,480 $ 912 3.09%
Money market savings 23,391 753 3.22% 23,035 762 3.31% 20,842 756 3.63%
Regular savings 48,601 1,626 3.35% 47,613 1,627 3.42% 44,751 1,569 3.51%
Certificates of deposit:
$100,000 and over 29,396 1,348 4.59% 24,834 1,392 5.61% 17,920 988 5.51%
Under $100,000 165,010 9,481 5.75% 155,254 8,790 5.66% 126,091 6,866 5.45%
-------- ------- -------- ------ -------- -------
Total interest bearing deposits 303,421 14,157 4.67% 286,978 13,537 4.72% 239,084 11,091 4.64%
Federal funds purchased 620 40 6.45% 396 23 5.81% 750 46 6.13%
-------- ------- -------- ------ -------- -------
Total interest bearing liabilities/
total interest expense 304,041 14,197 4.67% 287,374 13,560 4.72% 239,834 11,137 4.64%
-------- ------- -------- ------ -------- -------
Non-interest bearing liabilities:
Demand deposits 39,789 34,059 29,035
Other liabilities 3,267 3,579 2,645
-------- -------- --------
Total non-interest liabilities 43,056 37,638 31,680
-------- -------- --------
Total liabilities 347,097 325,012 271,514
Shareholders' equity 38,736 36,036 34,493
-------- -------- --------
Total Liabilities and
Shareholders'equity $385,833 $361,048 $306,007
======== ======== ========
Interest spread 3.78% 3.56% 3.39%
Net interest income/net interest
margin $16,164 4.50% $14,457 4.28% $12,183 4.20%
======= ======= =======
</TABLE>
(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 securities is computed using the amortized
cost basis.
<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, 1997, James River and it subsidiaries had $59.1 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, $110.6 million of the loan portfolio of
James River's banking subsidiaries at December 31, 1997, had a repricing
frequency of less than one year. Moreover, as of December 31, 1997, James River
and its banking subsidiaries collectively held $72.0 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, 1997. 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.
Interest Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1997
Maturity or Repricing In:
--------------------------------------------------------------
<S> <C>
3 Months 4-12 1-5 Over
or Less Months Years 5 Years
------- ------ ----- -------
(Dollars in thousands)
Interest-sensitive assets:
Loans $ 71,935 $ 38,690 $ 104,660 $ 47,934
Securities 2,376 7,013 36,180 37,456
Federal Funds sold 14,382 - - -
---------- ----------- ------------ ----------
Total interest-sensitive assets $ 88,693 $ 45,703 $ 140,840 $ 85,390
========== ========== =========== ==========
Cumulative interest-sensitive assets $ 88,693 $ 134,396 $ 275,236 $ 360,626
========== ========== =========== ==========
Interest-sensitive liabilities:
NOW accounts $ 37,380 $ - $ - $ -
Regular savings 47,130 - - -
Certificates of deposit 41,082 78,682 73,963 692
Money market savings 22,154 - - -
------- ------- ------- -------
Total interest-sensitive liabilities $ 147,746 $ 78,682 $ 73,963 $ 692
======= ======= ======= =======
Cumulative interest-sensitive liabilities $ 147,746 $ 226,428 $ 300,391 $ 301,083
======= ======= ======= =======
Period gap $ (59,053) $ (32,979) $ 66,877 $ 84,698
======= ======= ======= =======
Cumulative gap $ (59,053) $ (92,032) $ (25,155) $ 59,543
======= ======= ======= =======
Ratio of cumulative interest-sensitive
assets to interest-sensitive
liabilities 60.03% 59.35% 91.63% 119.78%
Ratio of cumulative gap to total assets (0.15) (0.24) (0.06) 0.15
</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:
Return on Equity and Assets
Years ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
Return on average assets 0.99% 0.67% 1.01%
Return on average equity 9.82% 6.71% 8.97%
Dividend payout ratio 36.05% 52.80% 33.40%
Average equity to average asset ratio 10.04% 9.98% 11.27%
Market Area and Competition
James River 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"), 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 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 aspects 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.
FCB has filed applications with regulatory authorities to convert from
a federal savings bank to a Virginia state chartered bank. If these applications
are approved, FCB will become subject to regulation by the Federal Reserve and
BFI to the same extent as James River's other banking subsidiaries.
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.
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 Federal Reserve may require a bank holding company 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
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("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'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.
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. As also
discussed above, FCB has filed applications with regulatory authorities to
convert from a federal savings bank to a Virginia state chartered bank. If these
applications are approved, James River will no longer be a savings and loan
holding company.
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, 1997 were 14.7% and 16.0%, 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, 1997, 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.
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.
Analysis of Capital
December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Tier 1 Capital:
Common stock $ 18,363 $ 12,290 $ 12,243
Additional Paid Capital 3,572 3,521 3,447
Retained earnings 17,663 21,629 20,487
Less: Goodwill (2,504) (2,750) (160)
------- ------- -------
Total Tier 1 capital $ 37,094 $ 34,690 $ 36,017
======= ======= =======
Tier 2 Capital:
Allowance for loan losses 3,151 2,702 2,030
Allowable long-term debt - - -
------- ------- -------
Total Tier 2 capital $ 3,151 $ 2,702 $ 2,030
======= ======= =======
Total Risk-Based Capital $ 40,245 $ 37,392 $ 38,047
======= ======= =======
Risk-weighted assets $ 252,115 $ 216,158 $ 162,438
Capital Ratios:
Tier 1 risk-based capital ratio 14.71% 16.05% 22.17%
Total risk-based capital ratio 15.96% 17.30% 23.42%
Tier 1 capital to average adjusted
total assets 9.68% 9.68% 11.78%
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 Federal Reserve System (the
"Federal Reserve Board") that it is classified as a "well capitalized"
institution for this purpose.
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, 1997, James River and its subsidiaries had the
equivalent of 182 full time employees. None of its employees is represented by
any collective bargaining unit. James River considers relations with its
employees to be good.
Certain Executive Officers
Information regarding certain executive officers is contained in the
1998 Proxy Statement. Set forth below is information regarding Donald W. Fulton,
Jr., James River's Senior Vice President and Chief Financial Officer.
Name Age Business Experience
- ---- --- -------------------
Donald W. Fulton, Jr. 51 For the preceding five years, Mr.
Fulton was an executive officer of
Jefferson Bankshares, Inc. of
Charlottesville, Virginia as its
Vice President Investor Relations.
Jefferson Bankshares was acquired by
Wachovia Corporation on October 31,
1998. From that date through
December 31, 1998, Mr. Fulton was
employed by Wachovia on merger
transition activities pertaining to
financial reporting, corporate
communications, and corporate
securities matters.
Year 2000 Issue
James River and its subsidiaries have undertaken a variety of measures
to ensure that hardware and software systems will be century date compliant.
James River has established a project plan, completed a hardware and software
inventory, and developed a preliminary impact assessment. James River has
initiated contacts with vendors for specific product compliance confirmation.
The Company also has outlined a plan for testing each system. Testing of primary
software applications will be conducted in conjunction with regularly scheduled
testing and is not expected to result in material additional costs. The testing
phase is expected to be completed by year-end 1998. In addition to efforts to
ensure readiness of internal systems, the Company's bank subsidiaries have
informed all retail and commercial customers of the need to address the Year
2000 issue. In 1997, the Company's plan and its progress in implementing that
plan were reviewed by the Federal Reserve in its regular examination process.
Based upon the results of the preliminary impact assessment and information
provided by vendors, management believes that its plan for determining century
date compliance is adequate and that the Company will not incur significant
incremental costs to achieve compliance.
Item 2. Properties
James River's headquarters are located at 1512 Holland Road, Suffolk,
Virginia. The headquarters are owned by BOS. James River does not have any
interest in any other properties other than those owned or leased by its
subsidiaries. James River's four banking subsidiaries collectively own 16 of
their 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 lawsuits, 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, 1997.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The information included under "Market Price for Common Stock"
appearing on page 44 of the Annual Report is incorporated herein by reference.
Item 6. Selected Consolidated Financial Data
The information included under "Five Year Financial Summary" appearing
on page 14 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 Operations" appearing on pages 8 through 13
of the Annual Report is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information captioned "Liquidity and Market Risk" appearing on
pages 11 and 12 of "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Annual Report is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
(a) The Financial Statements and the notes thereto appearing on
pages 16 through 41 of the Annual Report are incorporated herein
by reference.
(b) Unaudited quarterly financial information for the Company is
contained in Note 16 on page 41 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<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 1998 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 1998 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 1998 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 Management and Certain
Beneficial Owners" in the Company's 1998 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 1998 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, 1997 and 1996 and for the three years
ending December 31, 1997, 1996 and 1995, and the auditors'
report thereon are incorporated by reference to the pages
indicated in the Annual Report:
Consolidated Financial Statements Page
--------------------------------- ----
Consolidated Balance Sheets 16
Consolidated Statements of Income 17
Consolidated Statements of Shareholders' Equity 18
Consolidated Statements of Cash Flows 19
Notes to Consolidated Financial Statements 20
Report of Independent Auditors 15
2. Financial Statement 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 in 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, 1998.
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.
Signature Title Date
/s/ G. P. Jackson Chairman of The Board March 26, 1998
- --------------------------
G. P. Jackson Director
/s/ Bruce B. Gray Vice Chairman of The March 26, 1998
- --------------------------
Bruce B. Gray Board and Director
/s/ Harold U. Blythe President and Chief Executive March 26, 1998
- --------------------------
Harold U. Blythe Officer, Director
/s/ Donald W. Fulton, Jr. Senior Vice President and March 26, 1998
- --------------------------
Donald W. Fulton, Jr. Chief Financial Officer
/s/ Glenn T. McCall Senior Vice President and March 26, 1998
- --------------------------
Glenn T. McCall Director
/s/ James E. Butler, Jr. Director March 26, 1998
- --------------------------
James E. Butler, Jr.
/s/ Elmon T. Gray Director March 26, 1998
- --------------------------
Elmon T. Gray
/s/ Ben P. Kanak Director March 26, 1998
- --------------------------
Ben P. Kanak
/s/ John A. Ramsey, Jr. Director March 26, 1998
- --------------------------
John A. Ramsey, Jr.
/s/ Robert E. Spencer, Jr. Director March 26, 1998
- --------------------------
Robert E. Spencer, Jr.
/s/ E. V. Stephenson, Jr. Director March 26, 1998
- --------------------------
E. V. Stephenson, Jr.
/s/ James C. Stewart Director March 26, 1998
- --------------------------
James C. Stewart
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
No. Description Number
--- ----------- ------
<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).
***10.6 Employment Agreement between James River Bankshares, Inc. and Donald W.
Fulton, Jr. dated January 1, 1998.
***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.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of January 1, 1998,
between James River Bankshares, a Virginia corporation ("James River"), and
Donald W. Fulton, Jr. ("Employee").
WHEREAS, James River desires Employee to serve as a Senior Vice
President and Chief Financial Officer, and Employee is willing to accept such
employment in accordance with the terms of this Agreement,
NOW, THEREFORE, it is agreed as follows:
1. TERM OF EMPLOYMENT. Subject to the provisions of this Agreement,
James River will employ Employee as Senior Vice President and Chief Financial
Officer for a term of one (1) year, beginning on January 1, 1998, and
terminating on December 31, 1998, renewable for successive one (1) year periods
thereafter upon the mutual agreement of James River and Employee.
Notwithstanding anything in this Agreement to the contrary, James River reserves
the right to make changes to or restructuring of Employee's title and duties
provided that such changes and restructuring do not reduce Employee's base pay
and are appropriate to an executive officer position of James River.
2. DUTIES. During the period of employment hereunder, Employee will
devote his best efforts and substantially his full time to the business and
affairs of James River, perform such services not inconsistent with his position
as are designated by James River's board of directors (the "Board of
Directors"), and use his best efforts to promote the interests of James River.
Employee pledges that during the term of this Agreement, Employee shall not,
directly or indirectly, engage in any business that could detract from
Employee's ability to apply his best efforts to the performance of his duties
hereunder. Employee further agrees to comply with all rules, regulations and
policies established or issued by James River.
3. COMPENSATION.
3.1 James River will pay Employee an annual salary
commensurate with his position and performance, such salary to be determined by
the Board of Directors. The starting salary will be $4,250 per semi-monthly pay
period, subject to mandatory deductions and equivalent to an annualized amount
of $102,000. The compensation will be reviewed from time to time by the Board of
Directors and is intended to compensate Employee for all of his duties. Employee
may also be eligible for a year-end cash bonus. It is understood that the
amount, nature and timing of this bonus is at the sole discretion of the Board
of Directors.
3.2 On or before June 30, 1998, management shall recommend to
the Board of Directors that Employee participate in the James River Bankshares,
Inc. 1996 Employee Stock Option Plan ("Plan"). Such recommendation shall be for
Employee to be granted options to purchase no less than 22,500 shares of stock
and that 20 percent of such options shall vest following each completed year of
service for five (5) years, subject to and all as more particularly set forth in
the Plan.
3.3 On or before June 30, 1998, Employee shall be offered a
Deferred Compensation Agreement providing for deferred compensation following
his resignation or retirement from James River provided he has remained
continually in James River's employ until or past his sixtieth birthday. Such
agreement shall provide for not less than $2,000 per month of deferred
compensation to Employee or his estate for a period of not less than ten (10)
years, all subject to and as more particularly set forth in the agreement.
<PAGE>
4. BENEFITS. Employee will participate in the various employee benefit,
disability and retirement plans provided for similarly situated employees
according to the terms and conditions of those plans, as determined by the Board
of Directors. James River reserves the right to modify, add or eliminate
benefits for its employees as it deems appropriate. Employee shall have four (4)
weeks paid vacation per year.
5. DEATH. If Employee should die during the term of this Agreement,
James River will, in lieu of payments due under other provisions of this
Agreement, pay to Employee's estate the regular compensation of the Employee for
the ninety (90) day period following the date on which Employee's death occurs
plus any previously accrued and unpaid compensation. Thereafter, James River
will have no further obligation to Employee or his estate under this Agreement.
6. DISABILITY. In the event that Employee, by reason of physical or
mental incapacity or disability ("Disability"), is unable to, with or without
reasonable accommodation, perform his duties and responsibilities under this
Agreement, then James River will pay to Employee his regular compensation for up
to ninety (90) days following the date on which the Disability first begins and
remains in effect. It is intended that payments under the disability insurance
policy maintained by James River for Employee will commence thereafter provided
the Disability continues and Employee timely elects such coverage. Other than
described herein, James River will have no obligation to pay Employee any
compensation under this Agreement; provided, however, that for a period of one
(1) year following the date the Disability first begins, Employee shall have the
right to return to employment under this Agreement if Employee, with or without
reasonable accommodation, is again able to perform the essential functions of
his duties. Upon such a return to employment, Employee shall receive the same
compensation and benefits as are set forth in this Agreement, subject to
appropriate proration of compensation if Employee works less than the same
schedule he had previously worked.
7. TERMINATION WITHOUT CAUSE; SEVERANCE PAY.
7.1 James River may terminate Employee's employment without
"cause," as defined in Section 8 below. However, if James River terminates
Employee's employment pursuant to this section 7.1, his regular compensation
shall be payable, in periodic installments on the same schedule as other
executive employees of James River, for a period of one (1) year ("Severance
Pay"). Notwithstanding the foregoing, in the event Employee elects to compete
with James River or any of its subsidiaries as described below, James River's
obligation to pay the Severance Pay shall terminate immediately.
7.2 Employee agrees that for as long as Employee receives
Severance Pay, he will not, directly or indirectly, compete with James River or
any of its subsidiaries within a 25 mile radius of any of James River's or any
of its subsidiaries' offices that exist on the date of such termination.
Violation of this Section 7 due to Employee's improper competition shall result
in Employee's forfeiture of any remaining Severance Pay and liability to repay
to James River all Severance Pay which has already been received.
7.3 It is the specific intent of the parties that as long as
Employee is receiving Severance Pay, Employee shall be restricted from
competing, directly or indirectly, with any segment of James River's or its
subsidiaries' business in which Employee engaged prior to the termination of
<PAGE>
employment and from any segment of James River's and its subsidiaries' business
that Employee acquired proprietary or confidential information about during the
course of his employment. This business shall include the business of banking
and mortgage lending. Employee agrees that competition shall include, but not be
limited to, engaging in competitive activity, either as an individual, as a
partner, as a joint venturer with any other person or entity, or as an employee,
agent, or representative of any other person or entity, or otherwise being
associated in a competitive capacity with any business entity which directly or
indirectly competes with James River or any of its subsidiaries.
7.4 James River and Employee have examined in detail this
Section 7 and agree that the restraint imposed upon Employee is reasonable in
light of the legitimate interests of Employer, and it is not unduly harsh upon
Employee's ability to earn a livelihood.
8. TERMINATION FOR CAUSE. The Employee's employment may be terminated
at any time by James River for "cause." As used in this Agreement, the term
"cause" means either disloyalty, dishonesty, willful disregard or gross neglect
in relation to the duties, interests and/or obligations Employee owes to James
River. Termination for cause may also occur if Employee's conduct constitutes a
criminal act related to his duties or position with James River, or
substantially damages James River's reputation among its customers, shareholders
and/or in the community banking industry. Termination by James River for cause
shall be determined by the vote of at least 51% of all of the members of the
Board of Directors. If the employment is so terminated, Employee will be
entitled to receive any compensation and benefits accrued as of the date of such
termination, but James River will have no further obligation to Employee
hereunder from and after such date.
9. TERMINATION BY EMPLOYEE. Employee may resign from the employment of
James River without liability for doing so by providing ninety (90) days prior
written notice. Upon such resignation, Employee shall have no rights to any
further compensation or benefits after the ninety (90) day notice period has
expired. James River reserves the right to require Employee not to work for
James River during this period, but in such event, James River shall be
obligated to pay Employee the Employee's base salary, and nothing more, for the
entire 90 day notice period.
10. CHANGE OF CONTROL. If there shall occur a change of control of
James River ("Change of Control") as defined below, the Employee may be assigned
such other duties or responsibilities as would be reasonably equivalent under
the circumstances and acceptable to the Employee in his reasonable discretion.
Alternatively, if Employee is not given reasonably equivalent duties and
responsibilities, he may resign or be terminated. In either such case, Employee
shall receive, in lieu of any payments pursuant to Section 7, a one time payment
of 2.99 times the annual base compensation currently being provided to Employee
pursuant to this Agreement. As used in this Section 10, a Change of Control of
James River shall be deemed to have occurred if any of the events described in
subparagraphs 10.1 through 10.3 occur.
10.1 Any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the beneficial
owner, directly or indirectly, of securities of James River representing
twenty-five percent (25%) or more of the combined voting power of James River's
then outstanding securities; or
10.2 During any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute a majority thereof unless the
election or the nomination for election by James River's Shareholders of each
new director was approved by a vote of at least two-thirds of the James River
directors then still in office who were directors at the beginning of the
period; or
<PAGE>
10.3 The approval by James River's shareholders of the merger
or consolidation of James River with any other corporation or business
organization, the sale of substantially all of the assets of James River or the
liquidation or dissolution of James River, unless, in the case of a merger or
consolidation, the directors of James River in office immediately prior to such
merger or consolidation will constitute at least two-thirds of the directors of
the surviving corporation or business organization of such merger or
consolidation and any parent (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of such corporation or business organization.
11. NONDISCLOSURE.
11.1 Employee agrees to hold and safeguard any information
about James River and its subsidiaries gained by Employee during the course of
Employee's employment. Employee shall not, without the prior written consent of
James River, misappropriate, disclose or make available to anyone for use
outside James River's and its subsidiaries' organization at any time, either
during his employment or subsequent to any termination of his employment,
however such termination is effected, whether by Employee or James River, with
or without cause, or expiration or nonrenewal of this Agreement, any information
about James River and its subsidiaries or its customers or suppliers, whether or
not such information was developed by Employee, except as required in the
performance of Employee's duties for James River and its subsidiaries.
11.2 Employee understands and agrees that any information
about James River and its subsidiaries or James River's and its subsidiaries'
customers is the property of James River or its subsidiaries and is essential to
the protection of James River's and its subsidiaries' goodwill and to the
maintenance of James River's and its subsidiaries' competitive position and
accordingly should be kept secret. Such information shall include, but not be
limited to, information containing James River's and its subsidiaries'
promotional plans and strategies, pricing strategies, customers and prospective
customers, customer lists, identity of key personnel in the employ of customers
and prospective customers, computer programs, system documentation, manuals,
ideas, or any other records or information belonging to James River and its
subsidiaries or relating to James River's and its subsidiaries' business.
12. ARBITRATION. Except for injunctive relief sought to enforce an
ongoing violation resulting in irreparable harm, any dispute arising hereunder
shall be settled or resolved exclusively by mediation and/or arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. If arbitration is used, the arbitrator shall not have the
authority to modify this Agreement or to award punitive damages. The arbitration
shall occur at a mutually convenient location or if none can be agreed upon, in
the City of Norfolk, Virginia. The arbitrator's decision shall be final and
enforceable by a court of competent jurisdiction.
13. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by James River or any affiliate of James River and
contains all the covenants and agreements between the parties, or between or
among the parties and any other persons, with respect to such employment in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement will be valid or binding. Any modification of this Agreement
will be effective only if it is in writing signed by the party to be charged.
<PAGE>
14. BINDING EFFECT AND ASSIGNMENT. This Agreement will be binding upon
and inure to the benefit of each of the parties and their successors. James
River may assign this Agreement, subject to the provisions of Section 10, and
such assignee shall then acquire all the rights and obligations of James River
hereunder.
15. LAW GOVERNING AGREEMENT. This Agreement will be governed and
construed in accordance with the laws of the Commonwealth of Virginia.
16. PARTIAL INVALIDITY. If, in any proceeding seeking injunctive
relief, any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, such court is hereby
authorized and requested by the parties to modify such provision to the extent
the court deems necessary to award appropriate injunctive relief.
17. SEVERABILITY. If any clause or provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, then the remainder of this Agreement shall not be
affected thereby, and in lieu of each clause or provision of this Agreement
which is illegal, invalid or unenforceable, there shall be added, as a part of
this Agreement, a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and as may be
legal, valid, and enforceable.
18. NOTICES. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices will be addressed to the parties at the addresses appearing herein, but
each party may change his address by written notice in accordance with this
Section 18. Notices delivered personally will be deemed communicated as of
actual receipt; mailed notices will be deemed communicated as of five (5) days
after mailing:
TO: James River Bankshares, Inc.
1512 Holland Road
Suffolk, Virginia 23434
Attention: Harold U. Blythe
TO: Donald W. Fulton, Jr.
c/o Bank of Isle of Wight
1803 South Church Street
Smithfield, Virginia 23431
19 COUNTERPARTS. This Agreement may be executed in counterparts,
together which shall constitute one and the same instrument.
IN WITNESS WHEREOF, James River has caused this Agreement to be
executed in its name and behalf by its proper officers, thereunto duly
authorized, and Employee has set his hand and seal as of the date first above
written.
JAMES RIVER BANKSHARES, INC.
By /s/ Harold U. Blythe
----------------------------
Its President
----------------------------
/s/ Donald W. Fulton, Jr.
--------------------------
Donald W. Fulton, Jr.
James River Bankshares
1997
ANNUAL REPORT
<PAGE>
Table of Contents
Mission Statement 2
Consolidated Financial Highlights 3
Letter to Our Shareholders 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Five Year Financial Summary 14
Report of Independent Auditors 15
Consolidated Financial Statements 16
Notes to Consolidated Financial Statements 20
Directors and Officers 42
General Information 44
Annual Report 1996
Annual Report 1997 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>
Consolidated Financial Highlights
<TABLE>
<CAPTION> Percent
1997 1996 Change
- --------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C>
Earnings Net Interest Income $ 15,539 $ 13,795 12.64
Net Income 3,805 2,417 57.43
Per Share Net Income
Basic $ 1.04 $ 0.66 57.58
Diluted $ 1.02 $ 0.65 56.92
Dividends 0.37 0.35 5.71
Book Value at Period End 11.00 10.20 7.84
At Year Loans, Net $ 260,476 $ 240,913 8.12
End Securities 83,025 103,486 (19.77)
Total Earning Assets 364,060 351,345 3.62
Total Assets 390,076 381,608 2.22
Total Deposits 347,573 342,332 1.53
Shareholders' Equity 40,384 37,603 7.40
Ratios Return on Average Assets 0.99% 0.67%
Return on Average Equity 9.82 6.71
Allowance for Loan Losses to
Loans, Net of Unearned Income 1.31 1.30
Leverage Capital Ratio 9.68 9.68
</TABLE>
NET INCOME TOTAL ASSETS SHAREHOLDER'S EQUITY
(thousands) (millions) (millions)
1993 3,449 1993 3,449 1993 3,449
1994 3,502 1994 3,502 1994 3,502
1995 3,093 1995 3,093 1995 3,093
1996 2,417 1996 2,417 1996 2,417
1997 3,805 1997 3,805 1997 3,805
Annual Report 1997 3
<PAGE>
James River Bankshares
To Our Shareholders, Customers and Friends
In many respects, 1997 can be viewed as a pivotal time in the brief
history of James River Bankshares as well as in the financial services
sector of the Virginia economy. For James River, which was formed on
June 1, 1995, 1997 stands out as a year in which initiatives implemented
in our first two years as a bank holding company began to have a
noticeable effect on the company's earnings. Still in what can be
considered as James River's formative stages, the company posted its
highest earnings to date and improved levels of profitability. Based
upon the earnings increase, the board of directors raised the December
quarterly dividend 11% to $.10 per share, or $.40 per share on an
annualized basis.
Net income in 1997 rose 57% to $3.805 million from $2.417 million in
1996. Excluding non-recurring expenses recorded in 1996 for FDIC
assessments on the company's thrift deposits and certain merger related
expenses, net income improved 11% in 1997. Diluted net income per share
showed a similar improvement increasing to $1.02 in 1997 from $.65 in
1996.
Profitability ratios were stronger in 1997 also. The return on
average assets increased to .99% in 1997 from .67% in 1996. The
company's return on average shareholders' equity advanced to 9.82% in
1997 from 6.71% in 1996. While these ratios remain below our target
levels, we were pleased with the progress in 1997 and are dedicated to
continued improvement.
Higher net income and profitability ratios in 1997 resulted in part
from a 14% increase in average loans, which led to a 13% increase in net
interest income. The increased loan volume also was reflected in the net
interest margin, which rose in 1997 to 4.50% from 4.28% in 1996. In
addition, non-interest income, which increased 15% in 1997, contributed
to the 1997 earnings increase.
G. P. Jackson
Chairman
While loan growth was strong in 1997, overall asset growth was
modest. Total assets at year-end 1997 were $390 million compared with
$382 million one year earlier. Loan growth was funded largely by
maturing investment securities as deposits increased only $5 million in
1997 to $348 million at year-end. Two factors contributed to the lack of
deposit growth in 1997. First, our banking affiliates, purposely, were
less aggressive in pricing deposits, focusing instead on the net
interest margin. Second, the securities markets attracted some funds
that otherwise would have been invested in deposits. With interest rates
falling in the early stages of 1998, we will renew our efforts to build
the deposit base consistent with our net interest margin objectives.
INDUSTRY CONSOLIDATION
The news in financial services in 1997 was the continuing industry
consolidation story but at a much accelerated pace. Three major Virginia
bank holding companies, several of Virginia's largest remaining thrifts,
two Virginia-based brokerage firms, and a large insurance agency either
announced or completed plans to be
4 James River Bankshares, Inc.
<PAGE>
acquired by out-of-state financial institutions. These acquisitions will
have far reaching effects on the competitive structure of financial
services in Virginia.
For James River and the community banks it operates, we recognize the
financial clout the larger financial institutions bring to our markets.
We also recognize an opportunity to grow and expand our market niche of
community banking. As the larger banks close branches and eliminate
familiar bank personnel, we will aim to attract customers who become
disenchanted with the changes occurring at their present banks.
LEADERSHIP CHANGES
Of interest to our shareholders are certain leadership changes that
have occurred at James River. Following the annual shareholders meeting
last April, G. P. Jackson was elected Chairman of the Board. He
succeeded Senator Elmon T. Gray who continues to chair the Executive
Committee of the Board. Bruce B. Gray was elected Vice Chairman of the
Board.
Mr. Jackson was the founder of Bank of Suffolk and has been
associated with James River and one of its subsidiary banks for over 30
years. We are fortunate to have the leadership of these three
outstanding individuals, Mr. Jackson, Senator Gray, and Bruce Gray.
As was mutually agreed in the earliest formation of James River's
Board of Directors, E. V. Stephenson, Jr. will not stand for re-election
to James River's Board of Directors. He has served this Board faithfully
since the formation of James River and continues to serve on Bank of
Suffolk's Board of Directors of which he has been a member since 1973.
We acknowledge with gratitude his many contributions to James River and
are pleased that he will continue his association on Bank of Suffolk's
Board. Horace R. Higgins, Jr. has been nominated to serve as a director
of James River and is owner of Higgins Trucking Company in Waverly,
Virginia.
James River also made changes to its executive management team.
Robert E. Spencer, Jr., who was President and CEO of Bank of Isle
of Wight, was named by the Board as Senior Vice President of James River
and is responsible for bank investments and asset/liability management.
He also chairs James River's loan committee and oversees human
resources. His former position at Bank of Isle of Wight was filled by
Oliver D. Creekmore who has been with that subsidiary for more than
eight years.
In addition, Donald W. Fulton, Jr. joined James River's
executive management team in January 1998 as Senior Vice President and
CFO. He succeeds Glenn T. McCall who will retire April 30, 1998. Mr.
Fulton brings to James River nearly 30 years of banking experience with
an extensive background in financial reporting, mergers and
acquisitions, and investor relations. We welcome Mr. Fulton and believe
that with his experience and expertise, he will be an outstanding member
of the management team.
Harold U. Blythe
President & CEO
Annual Report 1997 5
<PAGE>
James River Bankshares
Rendering of future James River Bankshares Administrative Building
Mr. McCall was one of the organizers of James River Bankshares and
has been an outstanding banker for more than 30 years. At the inception
of James River, he served as both President and CEO of James River Bank
and CFO of James River Bankshares. He also has served the Company as a
member of its Board of Directors. Mr. McCall had announced his
retirement as of December 31, 1997, but agreed to stay until April 30,
1998 at management's request. Mr. McCall has been unselfish, committed,
and an outstanding member of the holding company management team. While
he will be missed, we wish for him a long, healthy, and happy
retirement.
Also, John G. Sebrell joined James River in 1997 as President and CEO of Bank
of Suffolk. He has more than 25 years of banking experience and brings special
expertise in commercial lending and loan administration.
CORPORATE STRUCTURE
In addition to leadership changes, we will modify our organizational
structure in 1998. Applications have been filed with regulatory
authorities to convert First Colonial Bank's charter to a state member
bank charter from a federal thrift charter. The change is expected to
open new commercial banking opportunities for First Colonial. It also
will provide management efficiencies with respect to regulatory
reporting and compliance. In conjunction with the charter conversion,
two finance subsidiaries of First Colonial will become wholly owned
subsidiaries of James River. These companies are involved in consumer
finance and home equity lending.
BUILDING PLANS
Another change on the horizon for James River is the construction of
a new administrative office building. The building will be shared by
James River and Bank of Suffolk and will be located adjacent to the
bank's Oak Ridge office. The new facility will house executive and
support functions for both the holding company and the bank. We look
forward to the building's completion, as it will alleviate crowded
working conditions and will allow us to implement plans to improve
productivity and operational efficiency.
YEAR 2000 PROGRESS REPORT
There is a tremendous amount of information in the press these days
regarding the attention of the public sector and private sector with the
need to adapt computer systems for the pending year 2000. We are pleased
to report to you, our shareholders, that James River is well on its way
to completing the necessary research for our systems and to begin the
appropriate testing to be sure that we are in full compliance and ready
for the year 2000. At this stage, all of our research indicates that our
costs for meeting the year 2000 requirements should be relatively
insignificant, primarily because our computer and network
6 James River Bankshares, Inc.
<PAGE>
systems were established in 1996 and were year 2000 compliant at the time of
installation.
LEGISLATIVE MATTERS
There are a number of legislative issues currently under
consideration by Congress that will continue to alter the face of
banking as we currently know it. However, none threaten community banks
more than the pending legislation that would allow credit unions to
expand beyond their common bond membership restrictions, which recently
were validated by the United States Supreme Court. If the strategy of
larger credit unions is allowed to continue unchallenged, then many
credit unions effectively will become banks, but without any obligation
to pay taxes or to have the regulatory over sight that now exists in our
banking industry.
Those credit unions that adhere to the common bond membership should
be allowed to continue to serve their members as they have always done,
but those that want to be "bank-like" should be willing to play on the
same playing field with banks - that is, they should be appropriately
regulated and should pay their fair share of income taxes. We ask our
shareholders to help James River by contacting your congressman on this
issue.
IN CLOSING
We are very optimistic and excited about 1998 and the opportunities
that we believe exist for James River. We expect to continue our
strategy to become a full service financial company and, where possible,
to make appropriate acquisitions to this end. We do expect more
consolidation within the Virginia banking industry and will be
aggressively seeking strategic acquisition partners.
Your board of directors and senior management of James River and its
subsidiaries will be finalizing a three year strategic plan in the first
quarter of 1998. With appropriate goal setting and strategies for obtaining
such goals, we are committed to make every effort to position James River
among the highest performing bank holding companies in the state.
In closing, we wish to acknowledge and express our deepest appreciation to
the many wonderful customers who truly have made our progress and success
possible. Without each one of them, there would be no James River Bankshares.
Moreover, it is incumbent to recognize and express our
appreciation to each of our employees who everyday serve our customers,
help build our respective communities, and truly are James River
Bankshares. Hand in hand with our employees are our subsidiary and
Bankshares directors who, all together, are responsible for our 1997
success.
We sincerely hope that you, our shareholders, are pleased with
1997's progress. We are very optimistic about 1998, and with your
continued patience, your business, and your support, we will continue to
steer a steady, successful course.
G. P. Jackson
Chairman
Harold U. Blythe
President and C.E.O.
Annual Report 1997 7
<PAGE>
James River Bankshares
RETURN ON RETURN ON DILUTED EARNINGS
AVERAGE ASSETS AVERAGE EQUITY PER SHARE
(percent) (percent) (dollars)
1993 1.22 1993 13.09 1993 1.04
1994 1.19 1994 11.15 1994 1.00
1995 1.01 1995 8.97 1995 0.84
1996 .67 1996 6.71 1996 0.65
1997 .99 1997 9.82 1997 1.02
Management's Discussion & Analysis of
Financial Condition & Results of Operations
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 its subsidiaries for the
periods presented. In addition to historical information, the following
discussion, as well as certain information appearing elsewhere in this report,
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
goals to improve interest rate margins, increase the loan portfolio, make
strategic acquisitions, minimize Year 2000 compliance costs, and other future
expectations. Readers are cautioned not to place undue reliance on these forward
looking statements, which reflect management's analysis only as of the date
hereof.
In the first quarter of 1996, James River and its subsidiaries consummated
several significant transactions. First, in two separate transactions that both
closed February 29, 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 in the first quarter of 1996. JRB assumed aggregate
deposit liabilities of approximately $34,360,000 in connection with these branch
acquisitions.
EARNINGS PERFORMANCE
James River's net income was $3,805,000 in 1997, a 57.4% increase from
consolidated 1996 net income of $2,417,000. The increase was partially
attributable to several non-recurring factors. During 1996, 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. James River also
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. Excluding these non-recurring items, net
income still improved 11.1% in 1997 compared to 1996. Net income decreased
21.9%, or $677,000, in 1996 from the $3,093,000 earned in 1995, largely as a
result of the non-recurring expenses incurred in 1996 as discussed above.
Diluted net income per share equaled $1.02 in 1997 compared to $.65 in 1996
and $.84 in 1995. The return on average assets was .99% in 1997, compared to
.67% and 1.01% in 1996 and 1995, respectively. Return on average equity was
9.82%, 6.71%, and 8.97% in 1997, 1996, and 1995, respectively. Cash dividends
declared were $0.37, $0.35, and $0.29 and represented 36.1%, 52.8%, and 33.4% of
earnings for each of the respective years.
8 James River Bankshares, Inc.
<PAGE>
Management's Discussion & Analysis of
Financial Condition & Results of Operations
NET INTEREST INCOME
During 1997, James River's loan portfolio increased $19,844,000 or 8.1%,
producing additional interest income of $3,023,000. Investments decreased
$20,460,000 with decreased income of $667,000. Total interest income increased
8.7% to $29,736,000 from $27,355,000 in 1996. Interest expense increased
$637,000, or 4.7%, to $14,197,000 in 1997 from $13,560,000 in 1996. The tax
equivalent yield on average earning assets increased 17 basis points to 8.45%,
while the cost of funds decreased 5 basis points to 4.67%. As a result, the net
interest margin increased to 4.50% in 1997 from 4.28% in 1996. Net interest
income was $15,539,000 in 1997, 12.6% greater than the $13,795,000 reported in
1996. Average earning assets increased 6.2% to $359,263,000 in 1997 from
$338,240,000 in 1996. In 1998, management will strive to improve interest rate
margins by increasing loans and lowering the cost of funds.
Net interest income was $13,795,000 in 1996, 18.3% greater than the
$11,660,000 reported in 1995. Interest income increased 20.0% in 1996 from the
$22,797,000 earned in 1995. For the same period, interest expense increased
$2,423,000, or 21.8%, to $13,560,000. This increase in net interest income was
attributable primarily to an increase in total interest earning assets, which,
on average, increased $47,840,000, or 16.5% to $338,240,000 from $290,400,000 in
1995. The average balance of securities increased $12,573,000 or 14.1% to
$101,888,000, while the average balance of higher yielding loans gained 19.0% to
$228,009,000. In 1996, the average yield on interest earning assets increased 25
basis points to 8.28% from 8.03% in 1995. The net interest margin increased from
4.20% in 1995 to 4.28% in 1996.
NON-INTEREST INCOME
In 1997, non-interest income was $1,756,000, an increase of $232,000, or
15.3% higher than the 1996 amount. The increase was attributable primarily to an
increase in other customer charges and fees. Also, income on the sale of
securities available-for-sale increased $59,000 to a gain of $100,000 in 1997
compared to $41,000 in 1996. James River disposed of such investments in 1997 to
meet the demand for higher yielding loans.
In the year ended December 31, 1996, non-interest income was $1,524,000,
increasing 22.9% from $1,240,000 in 1995. This increase was attributable
primarily to an increase in other customer charges and fees, and a decrease in
other income. Also, gains on investments increased $172,000 from a loss of
$131,000 in 1995 to a gain of $41,000 in 1996.
NON-INTEREST EXPENSE
Non-interest expense increased $54,000, or 0.5%, to $11,557,000 in 1997 from
$11,503,000 in 1996. Personnel expense increased $977,000, or 18.6%, in 1997.
This increase was partially offset by an 89.1%, or $916,000, reduction in
deposit insurance premiums in 1997 due to the one time assessment on FCB in
1996. Also affecting the non-interest expense comparison between 1997 and 1996
were previously noted merger related expenses in 1996 of $530,000.
Non-interest expense increased $3,184,000, or 38.3%, in 1996 to $11,503,000
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 expense of $264,000, or 23.6%, was due
primarily to additional depreciation, renovations and additions, and new
equipment, including JRS. 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 Company paid a premium for the
branches' deposits of $2,817,000, which is being amortized over 15 years.
NET INTEREST MARGIN NET LOANS DEPOSITS
(percent) (millions) (millions)
1993 3.96 1993 158.1 1993 257.6
1994 4.08 1994 175.0 1994 270.9
1995 4.20 1995 206.5 1995 287.4
1996 4.28 1996 240.9 1996 342.3
1997 4.50 1997 260.5 1997 347.6
Annual Report 1997 9
<PAGE>
James River Bankshares
LOAN TO DEPOSIT RESERVES AS PERCENT
RATIO SECURITIES OF LOANS
(percent) (millions)
1993 62.24 1993 102.5 1993 1.41
1994 65.59 1994 97.0 1994 1.51
1995 72.87 1995 86.0 1995 1.38
1996 71.30 1996 103.5 1996 1.30
1997 75.94 1997 83.0 1997 1.31
Management's Discussion & Analysis of
Financial Condition & Results of Operations
INCOME TAXES
Income tax expense in 1997 was $1,494,000, or 64.5% more than the
$909,000 in 1996. The increase was related primarily to the increase in income
from 1996 to 1997. Income tax expense in 1996 was 20.7% less than 1995. This
reduction can be traced to the reduction of income from 1995 to 1996. These
amounts correspond to an effective tax rate of 28.2%, 27.3% and 27.0%,
respectively, for the three years ended December 31, 1997, 1996, and 1995.
BALANCE SHEET ANALYSIS
James River's total assets grew $8,469,000 to $390,076,000 at December 31,
1997, from $381,608,000 at December 31, 1996, an increase of 2.2%. Total average
assets increased 6.9% in 1997 to $385,833,000 from $361,048,000 in 1996.
LOANS
Loans, net of unearned income, at year-end totaled $263,223,000, an increase
of 8.3% over 1996. The largest increase was in commercial real estate lending
which rose $29,916,000 while commercial lending increased $10,824,000, or 45.7%.
The ratio of loans-to-deposits at year-end 1997 was 75.9%, compared to 71.3% at
year-end 1996. While striving to expand the Company's loan portfolio, management
intends to maintain high standards in underwriting new loans.
INVESTMENTS
In 1997, the investment securities portfolio decreased 19.8%, or $20,460,000,
partially as a result of loan growth exceeding deposit growth by $14,602,000. At
year-end 1997, the carrying value of the investment portfolio totaled
$83,025,000, and 84.0% of all securities were rated "A" or better or were issued
by the U.S. Government or its agencies. The portfolio had an average taxable
equivalent yield of 6.77% in 1997, a decrease of 3 basis points from the average
taxable equivalent yield of 6.80% in 1996.
DEPOSITS
Total deposits increased $5,241,000 to $347,573,000 at year-end 1997. Average
deposits were 6.9% higher in 1997 at $343,210,000 compared with $321,037,000 in
1996. In an attempt to improve the Company's net interest margin and,
consequently, its profitability, deposits were priced less aggressively in 1997.
In addition, the Company continued to experience the effects of funds being
invested by consumers in the securities market rather than in deposits, a trend
that may continue depending on the performance of the securities market.
SHAREHOLDERS' EQUITY
AND CAPITAL REQUIREMENTS
Shareholders' equity at year-end 1997 was $40,384,000 compared to $37,603,000
at year-end 1996. See "Note 8 to Consolidated Financial Statements." Since 1993,
Statement of Financial Accounting Standards ("SFAS") No. 115 requires an
adjustment to capital for financial reporting purposes equal to the increase or
decrease, net of the tax effect, in the market value of the securities
available-for-sale portfolio. As of year-end 1997, this adjustment increased
capital $786,000. The Tier 1 risk-based capital ratio was 14.71% in 1997
compared to 16.05% in 1996. Generally, Tier 1 risk-based capital is the ratio of
Tier 1 capital to risk-weighted assets. Tier 1 capital is total shareholders'
equity, exclusive of unrealized gains or losses on investment securities
available-for-sale and period end intangible assets. At year-end 1997 and 1996,
the leverage capital ratio was 9.68%. Leverage capital is the ratio of Tier 1
capital to average assets, net of period end intangible assets. At December 31,
1997, the Company's equity to asset ratio was 10.35%.
In 1997 and 1996, cash dividends were $1,372,000 and $1,275,000,
respectively.
ASSET QUALITY
LOAN MONITORING
James River strives to continually maintain excellent asset quality.
Management
10 James River Bankshares, Inc.
<PAGE>
Management's Discussion & Analysis of
Financial Condition & Results of Operations
places great emphasis on strong credit underwriting and monitoring the
loan portfolio's repayment performance. Aggressive efforts are made in
collecting problem loans. Non-performing loans were 0.34% of total loans
at year-end 1997 compared to 0.12% at year-end 1996 and 0.36% at
year-end 1995. At December 31, 1997, 50.4% of the Company's loan
portfolio consisted of residential real estate mortgages.
ALLOWANCE FOR LOAN LOSSES
Net loans charged off in 1997 were $158,000 as compared to
$206,000 in 1996. The ratio of net loans charged off to average loans
was 0.06%, 0.09% and 0.06% in 1997, 1996 and 1995, respectively. To
maintain an adequate allowance for loan losses, a provision of $439,000
was charged to expense in 1997. In 1996, a provision of $491,000 was
made, an increase of $150,000 over the 1995 provision. At year-end 1997,
the allowance for loan losses was $3,457,000, or 1.31% of total loans.
The allowance at the end of 1996 represented 1.30% of total loans.
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 & MARKET RISK
At year-end, federal funds and investments maturing within one year
amounted to $23,771,000 or 6.8% of deposits. In addition, 43.6%, or $36,180,000,
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, including borrowings from the Federal Reserve Bank
and the Federal Home Loan Bank, 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.
Market risk relates broadly to economic losses due to adverse changes in the
fair value of market sensitive instruments. It includes risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices, and other market changes that affect market sensitive
instruments. As a community-based financial institution, substantially all of
the Company's market risk pertains to changes in interest rates. The Company
currently uses traditional asset/liability management techniques to manage
interest rate risk by measuring its asset/liability gap - that is, the
difference between the cash flow amounts of interest-sensitive assets and
liabilities that will be refinanced (or repriced) during a given period.
At December 31, 1997, James River had $59,053,000 more in liabilities than
assets that reprice within three months or less and was, therefore, in a
liability-sensitive position. In a period of rising rates, this position could
adversely affect the Company's earnings. To reduce the impact of shifts in
prevailing interest rates, $110,625,000 of the loan portfolio has a repricing
frequency of less than one year. Moreover, as of December 31, 1997, James
River's subsidiaries held $71,952,000 of its investment portfolio as
"Available-for-Sale," which could be sold quickly to meet any special funding
needs or in response to interest rate changes. In addition, management could
decide to match repricing periods for new assets and liabilities - for example,
by shortening terms of new loans or investments.
NON-PERFORMING NET CHARGED-OFF
LOANS / TOTAL LOANS LOANS TO AVERAGE
(percent) LOANS
(percent)
1993 1.41 1993 0.10
1994 0.91 1994 0.09
1995 0.36 1995 0.06
1996 0.12 1996 0.09
1997 0.34 1997 0.06
Annual Report 1997 11
<PAGE>
James River Bankshares
Management's Discussion & Analysis of
Financial Condition & Results of Operations
Another way to measure interest rate sensitivity is to analyze the potential
gain or loss in future fair values of interest rate sensitive instruments. The
Company's analysis assumes a hypothetical 200 basis point instantaneous and
parallel shift in the yield curve in interest rates. A present value computation
is used in determining the effect of the hypothetical interest rate changes on
the fair value of its interest rate sensitive instruments as of December 31,
1997. Computations of prospective effects of hypothetical interest rate changes
are based on many assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay. They should not be relied upon as
indicative of actual results. Further, the computations do not contemplate
certain actions management could undertake in response to changes in interest
rates, which are discussed more fully in the preceding paragraph. Certain
shortcomings are inherent in this method of analysis. If market conditions vary
from assumptions used in the calculation of present value, actual values may
differ from amounts disclosed. However, if a hypothetical, parallel and
instantaneous 200 basis point increase and decrease were experienced, net fair
values of interest sensitive instruments would be decreased by $3,857,000 and
increased by $2,040,000, respectively.
The standard algebraic formula for calculating present value is utilized.
The calculation discounts the future cash flows of the Company's portfolio of
interest rate sensitive instruments to present value utilizing techniques
designed to approximate current market rates for securities, current offering
rates for loans, and the cost of alternative funding for the given maturity of
deposits, and then assumes a 200 basis point instantaneous and parallel shift
in these rates. The difference between these numbers represents the resulting
hypothetical change in the fair value of interest rate sensitive instruments.
Other significant assumptions used in the calculation include: (1) no growth
in volume (i.e., replacement of maturities in like instruments, with no change
in balance sheet mix); (2) constant market interest rates reflecting the average
rate from the last month of the given quarter; and (3) pricing spreads to market
rates derived from an historical analysis, or from assumptions by instrument
type.
The Company is not engaged in investment strategies involving derivative
financial instruments. Asset and liability management is conducted without the
use of forward-based contracts, options, swap agreements, or other synthetic
financial instruments.
BUSINESS COMBINATIONS
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 and are more fully explained in the Notes to Consolidated Financial
Statements.
ACCOUNTING RULE CHANGES
During June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." This pronouncement established standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 is effective for financial statement periods
12 James River Bankshares, Inc.
<PAGE>
Management's Discussion & Analysis of
Financial Condition & Results of Operations
beginning after December 15, 1997. As the Company's only known item of
comprehensive income is the unrealized appreciation or depreciation on
investment securities available-for-sale, management does not expect the
application of this pronouncement to have a material impact on the Company's
financial statements.
Additionally during June of 1997, SFAS No. 131, "Disclosures about Segment
of an Enterprise and Related Information," was issued. This pronouncement
established standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operation segments in annual and
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. This statement becomes effective for financial statements for periods
beginning after December 31, 1997. Management is currently assessing the impact
of this statement on the Company's future disclosures.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post Retirement Benefits" was issued. It revises disclosures regarding
pension and other post retirement benefits and standardizes certain disclosure
requirements regarding these items. This Statement is effective for fiscal years
beginning after December 31, 1997. Management will asses the impact, if any, of
this Statement on the Company's future disclosures.
YEAR 2000 PROJECT
James River and its subsidiaries have undertaken a variety of measures to
ensure that hardware and software systems will be century date compliant.
James River has established a project plan, completed a hardware and software
inventory, and developed a preliminary impact assessment. James River has
initiated contacts with vendors for specific product compliance confirmation.
The Company also has outlined a plan for testing each system. Testing of primary
software applications will be conducted in conjunction with regularly scheduled
testing and is not expected to result in material additional costs. The testing
phase is expected to be completed by year-end 1998. In addition to efforts to
ensure readiness of internal systems, the Company's bank subsidiaries have
informed all retail and commercial customers of the need to address the Year
2000 issue. In 1997, the Company's plan and its progress in implementing that
plan were reviewed by the Federal Reserve in its regular examination process.
Based upon the results of the preliminary impact assessment and information
provided by vendors, management believes that its plan for determining century
date compliance is adequate and that the Company will not incur significant
incremental costs to achieve compliance.
Annual Report 1997 13
<PAGE>
Five Year Financial Summary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
INCOME STATEMENT DATA (Dollars in thousands, except per share data)
Interest Income $ 29,736 $ 27,355 $ 22,797 $ 20,605 $ 20,692
Interest Expense 14,197 13,560 11,137 9,714 10,157
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income 15,539 13,795 11,660 10,891 10,535
Provision for Loan Losses 439 491 342 593 593
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 15,100 13,304 11,318 10,298 9,942
Non-Interest Income 1,756 1,524 1,240 1,808 2,088
Non-Interest Expense 11,557 11,503 8,319 7,538 7,202
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,299 3,325 4,239 4,568 4,828
Income Taxes 1,494 908 1,146 1,066 1,379
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,805 $ 2,417 $ 3,093 $ 3,502 $ 3,449
===========================================================================================================================
PER SHARE DATA*
Net Income - Basic $ 1.04 $ 0.66 $ 0.85 $ 1.01 $ 1.05
Net Income - Diluted 1.02 0.65 0.84 1.00 1.04
Cash Dividends 0.37 0.35 0.29 0.25 0.19
Book Value at Period End 11.00 10.20 10.04 9.02 8.41
Tangible Book Value at Period End 10.78 9.45 10.00 8.97 8.35
BALANCE SHEET DATA
Total Assets $ 390,076 $ 381,608 $ 326,280 $ 306,148 $ 291,168
Loans, Net 260,476 240,913 206,516 174,983 158,087
Securities 83,025 103,486 85,974 97,003 102,505
Deposits 347,573 342,332 287,364 270,906 257,632
Shareholders' Equity 40,384 37,603 36,885 32,473 27,816
PERFORMANCE RATIOS
Return on Average Assets 0.99% 0.67% 1.01% 1.19% 1.22%
Return on Average Shareholders'
Equity 9.82 6.71 8.97 11.15 13.09
Efficiency Ratio 67.18 77.79 65.56 63.04 56.43
Net lnterest Margin 4.50 4.28 4.20 4.08 3.96
CREDIT QUALITY RATIOS
Allowance for Loan Losses to
Non-Performing Loans 385.40% 1,091.41% 388.05% 165.60% 99.91%
Allowance for Loan Losses to
Non-Performing Assets 235.17 687.45 385.98 126.87 79.20
Allowance for Loan Losses to
Year-End Loans, Net of
Unearned Income 1.31 1.30 1.38 1.51 1.41
Net Charged-off Loans to Average
Loans, Net of Unearned Income 0.06 0.09 0.06 0.09 0.10
CAPITAL AND LIQUIDITY RATIOS
Leverage 9.68% 9.68% 11.78% 11.38% 9.55%
Risk Based:
Tier 1 Capital 14.71 16.05 22.17 20.12 18.57
Total Capital 15.96 17.30 23.42 21.73 20.09
Average Loans to
Average Deposits 75.43 71.02 71.48 65.20 68.33
Average Shares Outstanding*
Basic 3,675,201 3,676,034 3,656,148 3,477,177 3,295,858
Diluted 3,733,214 3,737,057 3,702,564 3,488,631 3,307,326
===========================================================================================================================
</TABLE>
* Restated to reflect three-for-two stock split in the form of a stock dividend
in November 1997.
14 James River Bankshares, Inc.
<PAGE>
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, 1997 and
1996, 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, 1997. 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, 1997
and 1996, and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
GOODMAN&COMPANY, L.L.P.
Certified Public Accountants
5 Holly Hill Drive
Petersburg, Virginia 23805
January 30, 1998
Annual Report 1997 15
<PAGE>
James River Bankshares
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
ASSETS
Cash and due from banks $ 14,086,456 $ 16,674,875
Interest bearing deposits with banks 2,720,281 444,131
Federal funds sold 14,382,000 3,327,000
Securities available-for-sale, at fair value 71,951,880 91,268,494
Securities held-to-maturity, at amortized cost (fair value
approximates $11,243,581 and $12,243,155 at
December 31, 1997 and 1996) 11,073,617 12,217,079
Loans, net of allowance for loan losses 259,686,964 239,720,940
Loans held for sale, net 789,111 1,192,000
Accrued interest receivable 2,938,980 3,124,150
Premises and equipment, net 7,480,182 8,323,595
Intangible assets, net 2,503,588 2,750,200
Other assets 2,463,219 2,565,133
- ---------------------------------------------------------------------------------------------------------------------------
$ 390,076,278 $ 381,607,597
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 46,489,705 $ 42,798,620
Interest bearing 301,083,581 299,533,313
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 347,573,286 342,331,933
Accrued interest payable 752,394 612,390
Other liabilities 1,366,895 1,060,597
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 349,692,575 344,004,920
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common stock, $5 par value per share (10,000,000
shares authorized; 3,672,557 and 2,457,950 shares
issued and outstanding at December 31, 1997 and
1996, respectively) 18,362,785 12,289,750
Additional paid-in-capital 3,572,082 3,520,938
Retained earnings 17,662,836 21,629,411
Net unrealized gain on securities available-for-sale,
net of income taxes 786,000 162,578
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 40,383,703 37,602,677
- ---------------------------------------------------------------------------------------------------------------------------
$ 390,076,278 $ 381,607,597
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16 James River Bankshares, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Interest income
Loans $ 23,602,043 $ 20,579,463 $ 16,621,910
Investment securities:
Taxable 4,413,934 4,979,874 4,424,512
Exempt from federal income taxes 1,184,014 1,285,278 1,270,968
Federal funds sold and other 535,840 510,111 479,656
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 29,735,831 27,354,726 22,797,046
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits 14,156,685 13,530,471 11,090,865
Federal funds purchased 39,897 29,091 46,274
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 14,196,582 13,559,562 11,137,139
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 15,539,249 13,795,164 11,659,907
Provision for loan losses 439,475 491,063 341,734
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 15,099,774 13,304,101 11,318,173
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest income
Service charges on deposit accounts 1,099,409 1,088,562 807,113
Other fees and commissions 353,342 231,190 97,523
Net realized gains (losses) on disposition
of securities 99,742 40,992 (130,977)
Other income 203,989 163,292 466,038
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 1,756,482 1,524,036 1,239,697
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense
Salaries and employee benefits 6,231,741 5,254,257 4,306,590
Occupancy expense 756,299 704,114 555,075
Equipment 931,750 680,257 564,857
Other expense 3,636,938 4,864,226 2,892,217
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 11,556,728 11,502,854 8,318,739
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,299,528 3,325,283 4,239,131
Provision for income taxes 1,494,386 908,500 1,145,588
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,805,142 $ 2,416,783 $ 3,093,543
===========================================================================================================================
Net income per common share
Basic $ 1.04 $ 0.66 $ 0.85
Diluted $ 1.02 $ 0.65 $ 0.84
===========================================================================================================================
Weighted average number of shares
outstanding during the year
Basic 3,675,201 3,676,034 3,656,148
Diluted 3,733,214 3,737,057 3,702,564
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Annual Report 1997 17
<PAGE>
James River Bankshares
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<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>
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 ($0.29 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 year 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 ($0.35 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
Net income - - - 3,805,142 - 3,805,142
Common stock issued 1,699 8,495 27,391 - - 35,886
ESOP Termination (18,352) (91,760) - (281,702) - (373,462)
Stock options exercised 7,783 38,915 26,470 - - 65,385
Cash paid in lieu of fractional
shares (209) (1,045) (2,717) - - (3,762)
Cash dividends declared ($0.37 per
share) - - - (1,371,585) - (1,371,585)
Stock split effected in the form
of a stock dividend 1,223,686 6,118,430 - (6,118,430) - -
Change in unrealized gain (loss)
on securities available-for-sale,
net of taxes - - - - 623,422 623,422
- ---------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 3,672,557 $18,362,785 $3,572,082 $17,662,836 $786,000 $40,383,703
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18 James River Bankshares, Inc.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Cash flows from operating activities
Net income $ 3,805,142 $ 2,416,783 $ 3,093,543
Adjustments to reconcile to net cash
provided by operating activities:
Provision for loan losses 439,475 491,063 341,734
Depreciation and amortization 1,247,378 856,850 440,846
(Gain) loss on disposition of securities (99,742) (40,992) 130,977
Gain on sale of loans (32,133) (55,968) (10,849)
Changes in:
Loans held for sale 435,022 291,000 2,958,009
Interest receivable 185,170 (346,210) (66,856)
Other assets 65,374 (989,190) 1,056,269
Interest payable 140,004 193,198 44,701
Other liabilities 306,298 (551,211) (650,469)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,491,988 2,265,323 7,337,905
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from dispositions of available-
for-sale securities 25,472,858 29,665,826 32,859,800
Purchase of available-for-sale securities (5,135,571) (49,340,809) (22,873,608)
Redemption of held-to-maturity securities 1,390,754 2,630,617 3,817,120
Purchase of held-to-maturity securities (255,000) (1,235,000) (352,735)
Net increase in loans (20,841,499) (35,122,887) (28,026,617)
Purchase of property and equipment (334,614) (2,475,089) (266,618)
Proceeds from sale of property and equipment 360,000 - -
Net cash and cash equivalents received
in acquisition of branches - 30,484,000 -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 656,928 (25,393,342) (14,842,658)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Cash dividends paid (1,371,585) (1,275,444) (1,035,307)
Net increase in deposits 5,241,353 20,632,182 10,474,219
Issuance of stock 101,271 125,814 101,969
Common stock repurchased (373,462) - -
Purchase of fractional shares (3,762) (4,552) (3,429)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,593,815 19,478,000 9,537,452
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 10,742,731 (3,650,019) 2,032,699
Adjustment to conform fiscal year of subsidiary - - (709,133)
Cash and cash equivalents - beginning 20,446,006 24,096,025 22,772,459
Cash and cash equivalents - ending $ 31,188,737 $ 20,446,006 $ 24,096,025
===========================================================================================================================
Cash paid during the year for:
Interest $ 14,056,578 $ 13,366,364 $ 11,081,571
===========================================================================================================================
Income taxes $ 1,426,000 $ 1,448,594 $ 698,302
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Annual Report 1997 19
<PAGE>
James River Bankshares
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
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, 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 mergers had occurred at
the earliest date presented. Certain previously reported amounts have
been reclassified to conform to current presentations.
The consolidated statement of shareholders' equity for the year ended
December 31, 1995 includes 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 aggregate daily average reserves required for the final
reporting period in the years ended December 31, 1997 and 1996 were
$1,153,000 and $605,000, respectively.
INVESTMENT SECURITIES
Investment securities are classified into three categories:
held-to-maturity, available-for-sale and trading. Securities that
management has both the 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.
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
20 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statements
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 non-accrual and the future
collectibility of the recorded loan balance is doubtful, collections of
interest and principal generally are 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 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 based
generally 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
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
Annual Report 1997 21
<PAGE>
James River Bankshares
Notes to Consolidated Financial Statements
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 investment 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, and the deferred tax
asset or liability created by the difference in market value and
carrying value of available-for-sale securities.
EARNINGS PER COMMON SHARE
The company adopted SFAS No. 128, "Earnings per Share," on December
31, 1997. This Statement establishes standards for computing and
presenting earnings per share (EPS). This Statement supersedes standards
previously set in APB Opinion No. 15, "Earnings per Share." The
Statement requires dual presentation of basic and diluted EPS on the
face of the income statement, and it requires a reconciliation of the
numerator and denominator of the basic EPS with the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity.
This Statement is effective for financial statements issued for
periods ending after December 15, 1997. In accordance with the
requirements of the Statement, all prior period EPS data has been
restated to reflect the change in reporting requirements.
On September 25, 1997, the Board of Directors declared a 3-for-2
stock split effected in the form of a 50% stock dividend, which was
distributed on November 7, 1997. Accordingly, the average number of
shares outstanding and per share amounts for earnings, dividends
declared, and book value have been restated for all periods presented to
give effect to the split.
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.
22 James River Bankshares, Inc.
<PAGE>
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 Fair Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Available-for-Sale Securities:
December 31, 1997
U.S. Government and
agency securities $ 43,410,040 $ 330,159 $ 204,962 $ 43,535,237
State and municipal securities 23,755,529 561,498 17,513 24,299,514
Other debt securities 1,110,121 14,274 - 1,124,395
Equity securities 2,488,375 504,359 - 2,992,734
- ---------------------------------------------------------------------------------------------------------------------------
$ 70,764,065 $ 1,410,290 $ 222,475 $ 71,951,880
===========================================================================================================================
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
===========================================================================================================================
Held-to-Maturity Securities:
December 31, 1997
State and municipal securities $ 1,490,000 $ 25,640 $ - $ 1,515,640
Other debt securities 9,583,617 174,515 30,191 9,727,941
- ---------------------------------------------------------------------------------------------------------------------------
$ 11,073,617 $ 200,155 $ 30,191 $ 11,243,581
===========================================================================================================================
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
===========================================================================================================================
</TABLE>
Equity securities include restricted investments of $1,932,000 and
$1,279,600 at December 31, 1997 and 1996, 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 1997 23
<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, 1997 were as follows:
<TABLE>
<CAPTION>
Securities Held-to-Maturity Securities Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Due in one year or less $ - $ - $ 9,390,482 $ 9,389,488
Due from one to five years 645,000 650,645 35,200,962 35,535,052
Due from five to ten years 845,000 864,995 21,596,517 21,903,967
Due after ten years 9,583,617 9,727,941 2,087,729 2,130,639
Equity securities - - 2,488,375 2,992,734
- ---------------------------------------------------------------------------------------------------------------------------
$ 11,073,617 $ 11,243,581 $ 70,764,065 $ 71,951,880
===========================================================================================================================
</TABLE>
Investment securities with a carrying amount of approximately
$15,174,000 at December 31, 1997 and $9,914,636 at December 31, 1996
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 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Gross realized gains $ 164,924 $ 102,609 $ 138,486
Gross realized losses (65,182) (61,617) (298,552)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) $ 99,742 $ 40,992 $ (160,066)
===========================================================================================================================
</TABLE>
Gross realized gains and losses on dispositions of securities
held-to-maturity were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Gross realized gains $ - $ - $ 30,416
Gross realized losses - - (1,327)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain $ - $ - $ 29,089
===========================================================================================================================
</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>
24 James River Bankshares, Inc.
<PAGE>
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, 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. In addition, 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>
Agencies $ 763,031 $ 751,270 $ 11,761
Municipals 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 $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>
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Commercial $ 34,513,407 $ 23,689,062
Real estate - commercial 50,521,949 20,606,000
Real estate - construction 19,683,023 14,519,978
Real estate - mortgage 130,054,627 157,604,754
Agricultural 4,801,973 2,255,650
Installment 23,644,032 24,428,530
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 263,219,011 243,103,974
Less:
Allowance for loan losses (3,457,189) (3,176,491)
Unearned discount (24,607) (38,088)
Deferred loan (fees) expenses (50,251) (168,455)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans receivable $ 259,686,964 $ 239,720,940
Loans held for sale 789,111 1,192,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 260,476,075 $ 240,912,940
===========================================================================================================================
</TABLE>
Annual Report 1997 25
<PAGE>
Notes to Consolidated Financial Statements
The allowance for loan losses is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Balance - beginning of year $ 3,176,491 $ 2,891,190 $ 2,690,412
Provision charged to operations 439,475 491,063 341,734
Charge-offs (249,215) (301,803) (208,062)
Recoveries 90,438 96,041 84,309
Adjustment to conform fiscal year - - (17,203)
- ---------------------------------------------------------------------------------------------------------------------------
Balance - end of year $ 3,457,189 $ 3,176,491 $ 2,891,190
===========================================================================================================================
</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 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 $2,017,000 and
$3,137,000 at December 31, 1997 and 1996, respectively. The portion of the
allowance for loan losses allocated to the impaired loan balance was $423,000
and $558,000 at December 31, 1997 and 1996, respectively. For the year ended
December 31, 1997, the average recorded investment in impaired loans was
$2,346,000, and interest income recognized on impaired loans was $199,000. For
the year ended December 31, 1996, the average recorded investment in impaired
loans was $3,250,000, and interest income recognized on impaired loans was
$151,000. 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 $27,000.
Mortgage loans serviced for others are not included in the consolidated
balance sheets. The unpaid principal balances of these loans at December 31,
1997, 1996, and 1995 were $28,814,000, $23,474,000, and $20,282,000,
respectively.
Non-cash additions to real estate owned were $436,000 for the year ended
December 31,1997.
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,
1997 and 1996 was $8,682,000 and $8,999,000, respectively. During 1997, new
loans to such related parties amounted to $3,531,000 and repayments amounted to
$3,849,000. During 1996, new loans and repayments amounted to $7,033,000 and
$5,407,000, respectively. The amount of deposits from related parties held by
the Company at December 31, 1997 and 1996 were $8,645,000 and $4,703,000,
respectively.
NOTE 5 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
<1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Land $ 1,432,412 $ 1,553,378
Buildings 5,216,295 5,559,707
Furniture and equipment 5,068,655 4,825,851
Construction in process - 36,000
- ---------------------------------------------------------------------------------------------------------------------------
11,717,362 11,974,936
Accumulated depreciation and amortization (4,237,180) (3,651,341)
- ---------------------------------------------------------------------------------------------------------------------------
Net book value $ 7,480,182 $ 8,323,595
===========================================================================================================================
</TABLE>
26 James River Bankshares, Inc.
<PAGE>
NOTE 6 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand $ 46,489,705 $ 42,798,620
Notes to Consolidated Financial Statements
Interest bearing demand 37,380,108 40,759,438
Money market 22,154,244 21,319,078
Savings 47,129,849 49,550,466
Time deposits $100,000 and greater 32,868,369 26,078,973
Other time deposits 161,551,011 161,825,358
- ---------------------------------------------------------------------------------------------------------------------------
$ 347,573,286 $ 342,331,933
===========================================================================================================================
</TABLE>
The scheduled maturities of time deposits at December 31, 1997 and 1996, were
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Less than one year $ 119,764,535 $ 117,980,000
One to five years 73,962,805 67,460,000
Over five years 692,040 2,464,331
- ---------------------------------------------------------------------------------------------------------------------------
$ 194,419,380 $ 187,904,331
===========================================================================================================================
</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. These 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.
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 off-balance sheet financial
instruments by type as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Commitments to extend credit:
Commercial real estate $ 9,763,000 $ 10,135,000
Commercial 11,320,000 7,991,000
Real estate mortgage 15,085,000 9,177,000
Other 3,890,000 6,861,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 40,058,000 $ 34,164,000
===========================================================================================================================
Standby letters of credit $ 1,629,000 $ 1,036,000
===========================================================================================================================
</TABLE>
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.
Annual Report 1997 27
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
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 may exist in relation to certain groups of customers. A
group concentration arises when a number of counterparties 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 counterparty.
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 75% and 79% of total loans at
year-end 1997 and 1996, respectively. Approximately 60% and 74% of these real
estate loans in 1997 and 1996, respectively, are secured by 1-4 family
residential real estate. Commercial and standby letters of credit were granted
primarily to commercial borrowers.
OPERATING LEASES
The Company has several noncancellable operating leases for branch offices.
The expirations of these leases range from three to seventeen years. Rent
expense charged to operations under operating lease agreements totaled $94,840,
$80,605, and $58,946 in 1997, 1996, and 1995, respectively.
Future minimum rentals are as follows:
1998 $ 113,607
1999 108,431
2000 96,102
2001 78,363
2002 79,161
Thereafter 502,694
- ------------------------------------------------------------------------------
Total minimum lease payments $ 978,358
==============================================================================
LEGAL PROCEEDINGS
There are no material legal proceedings other than ordinary routine
litigation incidental to the business.
CREDIT AVAILABILITY
At December 31, 1997, the Company had $17,500,000 available under lines of
credit with the Federal Home Loan Bank.
CAPITAL EXPENDITURE
The Company is in the process of constructing a building to be used jointly
by the parent company and Bank of Suffolk. The total cost is expected to be
$1,200,000, and the building is expected to be placed in service during the
third quarter of 1998.
NOTE 8 - SHAREHOLDERS' EQUITY
At December 31, 1997, the Company had three qualified incentive stock-based
compensation plans. The Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for its plans.
As required by SFAS No. 123, "Accounting for Stock-Based Compensation," the
fair value of $4.70 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
28 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statements
rate of 6.2 percent, and expected lives of 5 years. The effect of applying SFAS
No. 123 for pro-forma disclosures is not likely to be representative of the
effects on basic and diluted earnings per share for future years. However, had
compensation cost for the Company's plans been determined based on the fair
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 as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net income - basic and diluted As reported $ 3,805,142 $ 2,416,783
Pro-forma $ 3,699,989 $ 2,300,909
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Basic earnings per share As reported $ 1.04 $ 0.66
Pro-froma $ 1.01 $ 0.63
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share As reported $ 1.02 $ 0.65
Pro-forma $ 0.99 $ 0.62
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the 1996 Stock Option Plan, the Company may grant options to its
employees 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 10 years with 20 percent of the options becoming
exerciseable annually beginning in 1997. 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. The options for the three plans are vested
upon the commencement date of the exercise periods.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
1997 Per Share 1996 Per Share 1995 Per Share
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Options outstanding -
beginning of year: 267,058 $ 11.68 91,845 $ 7.41 120,662 $ 5.58
Granted - - 187,500 13.53 - -
Exercised (11,000) 5.94 (11,270) 6.78 (28,817) 4.03
Lapsed (600) 10.20 (1,017) 11.08 - -
- ---------------------------------------------------------------------------------------------------------------------------
Options outstanding -
end of year 255,458 $ 11.88 267,058 $ 11.68 91,845 $ 7.41
===========================================================================================================================
Options exercisable -
end of year 104,708 $ 9.51 76,558 $ 7.07 86,595 $ 6.90
===========================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Exercise Remaining Exercise Exercise
Prices Number Contractual Price Number Price
Per Share Outstanding Life (years) Per Share Exercisable Per Share
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
$ 7.27 67,208 4 $ 7.27 67,208 $ 7.27
$ 10.20 750 1 $ 10.20 - -
$ 13.45 30,000 9 $ 13.45 6,000 $ 13.45
$ 13.56 157,500 9 $ 13.56 31,500 $ 13.56
- ---------------------------------------------------------------------------------------------------------------------------
$7.27 - 13.56 255,458 8 $ 11.88 104,708 $ 9.51
===========================================================================================================================
</TABLE>
Annual Report 1997 29
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
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 and its Banking Subsidiaries must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
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 and its Banking Subsidiaries to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1997, that the Company meets all capital adequacy requirements to which it is
subject.
As of September 30, 1997, the most recent notification, the Federal Reserve
Bank of Richmond categorized the Company and its Banking Subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Company and its Banking Subsidiaries must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 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.
The Company's actual and required capital amounts and ratios as of December
31, 1997 and 1996, are also presented in the table.
<TABLE>
<CAPTION>
To be Well
Capitalized
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31, 1997 Amount Ratio Amount Ratio Amount Ratio
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Consolidated $40,245,000 15.96% $20,169,000 > 8.00% $ N/A > N/A %
Bank of Suffolk 13,258,000 18.15 5,843,000 8.00 7,303,000 10.00
James River Bank 10,565,000 18.38 4,599,000 8.00 5,749,000 10.00
Bank of Isle of Wight 3,413,000 16.01 1,705,000 8.00 2,132,000 10.00
First Colonial Bank, FSB 11,959,000 12.26 7,801,000 8.00 9,751,000 10.00
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $37,094,000 14.71% $10,085,000 > 4.00% $ N/A > N/A %
Bank of Suffolk 12,343,000 16.90 2,921,000 4.00 4,382,000 6.00
James River Bank 9,815,000 17.07 2,300,000 4.00 3,450,000 6.00
Bank of Isle of Wight 3,146,000 14.76 853,000 4.00 1,279,000 6.00
First Colonial Bank, FSB 10,739,000 11.01 3,900,000 4.00 5,851,000 6.00
Tier 1 Capital (to Average Assets)
Consolidated $37,094,000 9.68% $15,433,000 > 4.00% $ N/A > N/A %
Bank of Suffolk 12,343,000 11.64 4,249,000 4.00 5,311,000 5.00
James River Bank 9,815,000 11.03 3,655,000 4.00 4,568,000 5.00
Bank of Isle of Wight 3,146,000 8.27 1,521,000 4.00 1,901,000 5.00
First Colonial Bank, FSB 10,739,000 7.17 5,992,000 4.00 7,490,000 5.00
</TABLE>
30 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION> To be Well
Capitalized
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
December 31,1996 Amount Ratio Amount Ratio Amount Ratio
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
Consolidated $37,392,000 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
Notes to Consolidated Financial Statements
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:
<TABLE>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Current tax provision:
Federal $ 1,426,336 $ 875,184 $ 1,227,062
State 89,259 13,792 17,101
- ---------------------------------------------------------------------------------------------------------------------------
1,515,595 888,976 1,244,163
Deferred tax provision (21,209) 19,524 (98,575)
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,494,386 $ 908,500 $ 1,145,588
===========================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Current tax provision:
Federal $ 128,110
State 19,907
- ---------------------------------------------------------------------------------------------------------------------------
148,017
Deferred tax provision (7,064)
- ---------------------------------------------------------------------------------------------------------------------------
$ 140,953
===========================================================================================================================
</TABLE>
Annual Report 1997 31
<PAGE>
JAMES RIVER BANKSHARES
Notes to Consolidated Financial Statements
The reasons for the differences between the statutory federal income tax
rates and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Federal statutory income tax rates 34.00 % 34.00 % 34.00 %
State income taxes 1.65 0.47 0.40
Tax exempt interest income (7.26) (12.14) (10.19)
Nondeductible merger costs - 5.10 1.82
Other (0.19) (0.11) 1.00
- ---------------------------------------------------------------------------------------------------------------------------
28.20 % 27.32 % 27.03 %
===========================================================================================================================
</TABLE>
The significant components of deferred income tax assets and liabilities as
of December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 1,105,065 $ 994,452
Deferred compensation 191,422 151,685
Accrued pension/ESOP expenses - 10,731
Other 26,936 31,212
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 1,323,423 1,188,080
===========================================================================================================================
Deferred tax liabilities:
Depreciation 285,094 218,941
Deferred loan fees 156,270 119,197
Dividends on FHLB/FHLMC stock 122,440 122,440
Unrealized gain on AFS securities 401,816 73,143
Discount accretion on securities 45,219 36,961
Other 32,899 9,042
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 1,043,738 579,724
Net deferred income tax asset 279,685 608,356
Less valuation allowance (18,684) (18,684)
- ---------------------------------------------------------------------------------------------------------------------------
$ 261,001 $ 589,672
===========================================================================================================================
</TABLE>
Included in retained earnings is $1,082,000 at December 31, 1997 and 1996 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 unrecognized tax liability allocated with these historical
additions is $411,000. 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.
32 James River Bankshares, Inc.
<PAGE>
Notes To Consolidated Financial Statements
NOTE 10 - RETIREMENT PLANS
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. Prior to joining the Company, each of
the Company's 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, were terminated
before December 31, 1996. Costs of these plans included in salaries and employee
benefits in the consolidated statements of income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Defined contribution/401(k) plan $ 404,891 $ 171,042 $ -
Defined benefit plan - terminated effective
December 31, 1995 $ - $ 9,600 $ 16,076
Defined contribution plan - terminated
effective December 31, 1995 $ - $ - $ 65,069
Employee stock ownership plan -
terminated effective May 31, 1996 $ - $ 55,671 $ 110,053
401(k) plans - terminated with various
effective dates $ - $ - $ 50,300
</TABLE>
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.
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 $115,781,
$103,914 and $59,327 for the years ended December 31, 1997, 1996 and 1995,
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 1997 33
<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:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Deposit insurance premiums $ 112,497 $ 1,028,123 $ 444,723
Directors' fees $ 362,550 $ 378,819 $ 265,891
Merger expenses $ - $ 530,233 $ 227,280
</TABLE>
The adjustment to conform fiscal years includes other expenses for First
Colonial Bank, FSB for the six months ended December 31, 1995 as follows:
Notes to Consolidated Financial Statements
Deposit insurance premiums $ 150,519
Directors' fees $ 44,642
NOTE 12 - COMPANY FORMATION AND ACQUISITIONS
POOLING OF INTERESTS TRANSACTIONS
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's 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's stock.
The acquisitions of these two financial institutions and the prior merger of
Bank of Suffolk and James River Bank were treated as pooling of interests
transactions, 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
results of operations reported on the Company's consolidated statements of
income and cash flows for the years ended December 31, 1996 and 1995, include
the results of operations and cash flows of First Colonial Bank, FSB for the
years ended December 31, 1996 and June 30, 1995, 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.
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:
<TABLE>
<S> <C>
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
===========================================================================================================================
</TABLE>
34 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statement
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)
======================================================================
First Colonial Bank, FSB's net interest income was $720,000, and 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 net
interest income was $239,000, and 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 the year ended December 31, 1995, the separate entities' historical results
of operations were as follows, which include the historical results of
operations of First Colonial Bank, FSB for the year ended June 30, 1995:
<TABLE>
First
Bank of James River Colonial Bank of Parent
Suffolk Bank Bank, FSB Isle of Wight Company Combined
<S> <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>
Bank of Suffolk's net interest income was $1,585,000, and 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 net interest income was $1,098,000, and
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.
BRANCH AQUISITIONS
On March 23, 1996, James River Bank acquired three branch banking offices,
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 1997 35
<PAGE>
JAMES RIVER BANKSHARES
Notes To Consolidated Financial Statements
NOTE 13 - PARENT COMPANY
The Company, in the ordinary course of business, provides its subsidiaries
with certain centralized management services and staff support. The cost of
these services is allocated to each subsidiary based on analyses of the services
rendered and on analyses of each subsidiary's total assets and net income.
The primary source of funds for the dividends paid by the Company is
dividends received from its subsidiaries. Each of the Banking Subsidiaries 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 at
December 31, 1997:
Bank of Suffolk $ 592,797
James River Bank $ 330,708
First Colonial Bank, FSB $ 2,342,023
Bank of Isle of Wight $ 430,507
The parent company's condensed balance sheets as of December 31, 1997 and
1996, and the related condensed statements of income and cash flows for each of
the years in the three year period ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1997 1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
ASSETS
Cash and due from banks $ 429,822 $ 175,319
Securities available-for-sale 798,234 501,375
Investments in wholly owned subsidiaries:
Bank of Suffolk 12,707,508 12,418,830
James River Bank 12,307,586 11,827,440
First Colonial Bank, FSB 10,737,213 8,626,155
Bank of Isle of Wight 3,257,209 3,490,985
James River Support 460,791 455,129
Other assets 191,191 180,159
- ---------------------------------------------------------------------------------------------------------------------------
$ 40,889,554 $ 37,675,392
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 505,851 $ 72,715
Shareholders' equity 40,383,703 37,602,677
- ---------------------------------------------------------------------------------------------------------------------------
$ 40,889,554 $ 37,675,392
===========================================================================================================================
</TABLE>
36 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Income
Dividends from subsidiaries $ 2,732,888 $ 2,398,626 $ 1,651,490
Management fees from subsidiaries 976,667 633,213 -
Interest income 2,612 1,800 -
Other income 74,238 - -
- ---------------------------------------------------------------------------------------------------------------------------
Total income 3,786,405 3,033,639 1,651,490
Expenses
Salaries and benefits 559,235 344,334 -
Directors fees 140,400 158,150 -
Other expense 471,985 934,255 121,569
- ---------------------------------------------------------------------------------------------------------------------------
Total expense 1,171,620 1,436,739 121,569
Income before income taxes and equity in
undistributed net income of subsidiaries 2,614,785 1,596,900 1,529,921
Income tax benefit 43,815 71,235 41,333
- ---------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiaries 2,658,600 1,668,135 1,571,254
Notes to Consolidated Financial Statements
Equity in undistributed net income of
subsidiaries 1,146,542 748,648 1,522,289
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,805,142 $ 2,416,783 $ 3,093,543
===========================================================================================================================
</TABLE>
Annual Report 1997 37
<PAGE>
JAMES RIVER BANKSHRES
Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 3,805,142 $ 2,416,783 $ 3,093,543
Adjustments:
Depreciation 15,642 6,525 -
Gain on sale of securities (64,990) - -
Equity in undistributed net income of
subsidiaries (1,146,542) (748,648) (1,522,289)
Change in other assets (17,586) 81,471 (260,342)
Change in liabilities 294,475 72,715 -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 2,886,141 1,828,846 1,310,912
- ---------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of equipment (9,088) (8,123) (28,260)
Proceeds from sale of securities 174,990 - -
Purchase of available-for-sale securities - (86,375) (330,000)
Capitalization of subsidiaries (1,150,000) (600,000) -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (984,098) (694,498) (358,260)
- ---------------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Financing activities:
Cash dividends paid (1,371,586) (1,275,444) (797,633)
Common stock issued 97,509 121,262 40,134
Common stock repurchased (373,463) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,647,540) (1,154,182) (757,499)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 254,503 (19,834) 195,153
Cash and cash equivalents - beginning 175,319 195,153 -
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 429,822 $ 175,319 $ 195,153
===========================================================================================================================
</TABLE>
38 James River Bankshares, Inc.
<PAGE>
Notes to Consolidated Financial Statements
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, 1997 and 1996.
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
Notes to Consolidated Financial Statements
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.
Annual Report 1997 39
<PAGE>
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 is the amount at which the financial
instruments are reported in the financial statements.
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Cash and due from banks $ 14,086,456 $ 14,086,456 $ 16,674,875 $ 16,674,875
Interest bearing deposits
with banks 2,720,281 2,720,281 444,131 444,131
Federal funds sold 14,382,000 14,382,000 3,327,000 3,327,000
Investment securities 83,025,497 83,195,461 103,485,573 103,511,649
Loans 260,476,075 265,923,342 240,912,940 241,271,000
Interest receivable 2,938,980 2,938,980 3,124,150 3,124,150
- ---------------------------------------------------------------------------------------------------------------------------
$377,629,289 $383,246,520 $367,968,669 $368,352,805
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities
Notes to Consolidated Financial Statements
Non-interest bearing
deposits $ 46,489,705 $ 46,489,705 $ 42,798,620 $ 42,798,620
Interest bearing deposits 301,083,581 303,301,295 299,533,313 297,375,007
Interest payable 752,394 752,394 612,390 612,390
- ---------------------------------------------------------------------------------------------------------------------------
$ 348,325,680 $ 350,543,394 $ 342,944,323 $340,786,017
===========================================================================================================================
</TABLE>
NOTE 15 - EARNINGS PER SHARE RECONCILIATION
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
<TABLE>
1997 1996 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net Income (Numerator, Basic and Diluted) $ 3,805,142 $ 2,416,783 $ 3,093,543
Basic average shares outstanding (Denominator)3,675,201 3,676,034 3,656,148
Basic net income per share $ 1.04 $ 0.66 $ 0.85
===========================================================================================================================
Effect of dilutive securities:
Basic average shares outstanding 3,675,201 3,676,034 3,656,148
Effect of stock options 58,013 61,023 46,416
- ---------------------------------------------------------------------------------------------------------------------------
Diluted average shares outstanding (Denominator) 3,733,214 3,737,057 3,702,564
Diluted net income per share $ 1.02 $ 0.65 $ 0.84
===========================================================================================================================
</TABLE>
Notes to Consolidated Financial Statements
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
1997
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Interest income $ 7,154 $ 7,429 $ 7,549 $ 7,604
Net interest income $ 3,668 $ 3,890 $ 3,965 $ 4,016
Net income $ 876 $ 908 $ 968 $ 1,053
Basic Earnings per share $ 0.24 $ 0.25 $ 0.26 $ 0.29
Diluted Earnings per share $ 0.24 $ 0.24 $ 0.26 $ 0.28
</TABLE>
<TABLE>
1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
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
Basic Earnings per share $ 0.12 $ 0.23 $ 0.10 $ 0.21
Diluted Earnings per share $ 0.13 $ 0.22 $ 0.09 $ 0.21
</TABLE>
Annual Report 1997 41
<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 Chairman --
Vice President,Gray Land &
Timber Company
Elmon T. Gray -- Retired;
Former President,
Gray Lumber Company
G. P. Jackson, 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, James River
Bankshares
John A. Ramsey, Jr. --Farmer;
President, Ramsey Brothers, Inc.
Robert E. Spencer, Jr. -- Senior
Vice President, James River
Bankshares
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 & CEO
Donald W. Fulton, Jr.
Senior Vice President & CFO
Glenn T. McCall
Senior Vice President
Robert E. Spencer, Jr.
Senior Vice President
DIRECTORS AND
OFFICERS
MEMBER BANKS
DIRECTORS: BANK OF ISLE OF WIGHT
John A. Ramsey, Jr., Chairman
Diana F. Beale
Oliver D. Creekmore
A. Dwight Doggett
R. L. Magette
R. L. Thompson
W. G. Yeoman, III
OFFICERS: BANK OF ISLE OF WIGHT
Oliver D. Creekmore
President & CEO
Linda J. Dunning
Vice President
Jeffrey H. Noblin
Vice President
Terry M. Gray
Cashier & Corporate Secretary
DIRECTORS: BANK OF SUFFOLK
G. P. Jackson, Chairman
R. H. Braford
James E. Butler, Jr.
Larry L. Felton
Douglas C. Naismith
John G. Sebrell
E. V. Stephenson, Jr.
OFFICERS: BANK OF SUFFOLK
John G. Sebrell
President & CEO
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
Vice President
Gleason C. Snow
Vice President
J. Frank Taylor
Vice President
Julie T. Stephenson
Assistant Vice President
C. Thomas Harry
Assistant Vice President
Darlene Blankenship
Assistant Cashier
Elizabeth D. Byrum
Assistant Cashier
Dorothy B. Demiel
Assistant Cashier
Elizabeth M. Kessinger
Assistant Cashier
Mark U. McGahee
Assistant Cashier
DIRECTORS: FIRST COLONIAL BANK
Ben P. Kanak, Chairman
William L. Canada
Riley E. Ingram
C. Bishop Knott, Jr.
Fred C. Morene
James C. Stewart
Fred J. Swearingen, Jr.
OFFICERS: FIRST COLONIAL BANK
James C. Stewart
President & CEO
A. Wayne Beasley
Executive Vice President & COO
Beverly A. Adams
Vice President & CFO
(Reflects changes through February 28, 1998)
42 James River Bankshares, Inc.
<PAGE>
Directors and Officers
OFFICERS: FIRST COLONIAL BANK
(continued)
Joyce A. Wallace
Corporate Secretary
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 D. Cornwell
Assistant Secretary
Tammie M. Frazier
Assistant Secretary
Scott A. Loshkreff
Assistant Secretary
John Z. Lukomski
Assistant Secretary
Virginia W. Peters
Assistant Secretary
DIRECTORS: JAMES RIVER BANK
John W. Terry, Chairman
Jerry R. Bryant
C. Taylor Everett
Garland Gray, II
Horace R. Gray, III
Dr. Clarence W. Griffin
Wayne M. Harrell
Horace R. Higgins, Jr.
John R. Marks
Lynne Rabil
Bruce C. Spencer
Bobby B. Worrell
OFFICERS: JAMES RIVER BANK
Jerry R. Bryant
President & CEO
Kathy O. Peebles
Executive Vice President,
Cashier & Operations Officer
O. Leroy Stables, Jr.
Senior Vice President
F. Edward Pearson, II
Vice President
Donna D. Clarke
Assistant Vice President
Doris M. Ellis
Assistant Vice President
Shirley W. Snyder
Assistant Vice President
Linda C. Buhls
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
James W. Nicol
Assistant Vice President/
Network Administration
(Reflects changes through February 28, 1998)
Annual Report 1997 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
30, 1998, at the Holiday Inn Suffolk, 2864 Pruden Boulevard, Suffolk, Virginia.
EXECUTIVE OFFICE
1512 Holland Road
P.O. Box 410
Suffolk, Virginia 23434
REQUESTS FOR INFORMATION
Earleen B. Sylvia, Administrative Assistant
(757) 539-0267
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
The following table sets forth the high and low sales prices of the Common Stock
as reported on NASDAQ/NMS for the periods listed. Sales prices have been
restated to reflect the Company's three-for-two stock split effected in the form
of a 50% stock dividend in November 1997. The Common Stock is thinly traded. On
February 28, 1998, there were approximately 1,732 shareholders of record.
<TABLE>
<CAPTION>
1997 Sales Prices
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
HIGH LOW CLOSING DIVIDEND
- ---------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 21.00 16.83 21.00 $0.10
Third Quarter 18.17 15.00 16.00 $0.09
Second Quarter 15.17 13.33 15.17 $0.09
First Quarter 14.17 13.17 13.33 $0.09
</TABLE>
<TABLE>
1996
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
HIGH LOW CLOSING DIVIDEND
- ---------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 14.33 13.00 13.50 $0.09
Third Quarter 16.17 13.50 14.17 $0.09
Second Quarter 16.67 15.17 15.67 $0.17
First Quarter 16.17 15.17 16.17 $0.00
</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 30, 1998, relating to the
consolidated balance sheets of James River Bankshares, Inc. and subsidiaries as
of December 31, 1997 and 1996, 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, 1997, which report appears in the December
31, 1997 Annual Report of James River Bankshares, Inc.
GOODMAN & COMPANY, L.L.P.
5 Holly Hill Drive
Petersburg, Virginia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,086
<INT-BEARING-DEPOSITS> 2,720
<FED-FUNDS-SOLD> 14,382
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,952
<INVESTMENTS-CARRYING> 11,074
<INVESTMENTS-MARKET> 11,244
<LOANS> 263,219
<ALLOWANCE> 3,457
<TOTAL-ASSETS> 390,076
<DEPOSITS> 347,573
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,119
<LONG-TERM> 0
0
0
<COMMON> 18,363
<OTHER-SE> 22,021
<TOTAL-LIABILITIES-AND-EQUITY> 390,076
<INTEREST-LOAN> 23,602
<INTEREST-INVEST> 5,598
<INTEREST-OTHER> 536
<INTEREST-TOTAL> 29,736
<INTEREST-DEPOSIT> 14,157
<INTEREST-EXPENSE> 14,197
<INTEREST-INCOME-NET> 15,539
<LOAN-LOSSES> 439
<SECURITIES-GAINS> 100
<EXPENSE-OTHER> 11,557
<INCOME-PRETAX> 5,299
<INCOME-PRE-EXTRAORDINARY> 1,494
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,805
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 9.82
<LOANS-NON> 897
<LOANS-PAST> 431
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,176
<CHARGE-OFFS> 249
<RECOVERIES> 91
<ALLOWANCE-CLOSE> 3,457
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,457
</TABLE>
