<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 0-26314
---------
JAMES RIVER BANKSHARES, INC.
-------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1740210
-------------------- ------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1514 HOLLAND ROAD, SUFFOLK, VIRGINIA 23434
------------------------------------------
(Address of principal executive offices)(Zip Code)
(757) 934-8100
------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At November 1, 2000, the
issuer had 4,562,219 outstanding shares of its $5.00 par value common stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JAMES RIVER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
(unaudited)
September 30,
------------------------------------ December 31,
2000 1999 1999
---- ---- ----
<S> <C>
ASSETS
Cash and due from banks $ 11,693 $ 13,962 $ 16,374
Interest bearing deposits with banks 1,385 229 1,290
Federal funds sold - 300 2,160
Securities available-for-sale, at fair value (amortized cost
of $103,150 on September 30, 2000, $109,625 on September
30, 1999, and $105,210 on December 31, 1999) 100,892 107,373 101,992
Securities held-to-maturity, at amortized cost (fair value
of $12,600 on September 30, 2000, $14,254 on September
30, 1999, and $13,569 on December 31, 1999) 12,692 14,312 13,755
Loans, net of allowance for loan losses 354,343 330,990 328,511
Loans held for sale, net - 283 345
Premises and equipment, net 10,517 11,143 10,995
Accrued interest receivable 4,100 3,904 3,434
Intangible assets, net 3,305 2,154 2,411
Other assets 6,674 5,839 6,097
------ ------ ------
Total Assets $ 505,601 $ 490,489 $ 487,364
========== ========== ==========
LIABILITIES
Non-interest bearing deposits $ 64,442 $ 58,180 $ 63,713
Interest bearing deposits 365,733 361,037 354,307
-------- -------- --------
Total deposits 430,175 419,217 418,020
Accrued interest payable 1,208 993 998
Federal funds purchased and other short-term borrowings 12,700 7,153 4,561
Long-term borrowings 5,000 11,000 11,000
Accounts payable and other liabilities 3,058 2,009 1,787
------ ------ ------
Total Liabilities 452,141 440,372 436,366
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $5 par, 2,000,000 shares authorized,
none issued - - -
Common stock, $5 par, 10,000,000 shares authorized,
4,574,719 issued and outstanding at September 30, 2000,
4,576,344 at September 30, 1999, and 4,613,203 at
December 31, 1999 22,874 22,881 23,066
Additional paid-in capital 4,003 3,957 4,338
Retained earnings 28,072 24,765 25,718
Accumulated other comprehensive income (loss) (1,489) (1,486) (2,124)
------- ------- -------
Total Shareholders' Equity 53,460 50,117 50,998
-------- ------- ---------
Total Liabilities and Shareholders' Equity $ 505,601 $ 490,489 $ 487,364
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
JAMES RIVER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- --------------------------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S><C>
INTEREST INCOME
Loans $ 8,030 $ 7,194 $ 23,041 $ 21,086
Investment securities:
Taxable 1,370 1,512 4,175 4,206
Exempt from federal income taxes 330 332 1,006 990
Federal funds sold and other 176 79 290 585
---- --- ---- ----
Total Interest Income 9,906 9,117 28,512 26,867
------ ------ ------- -------
INTEREST EXPENSE
Deposits 3,902 3,766 10,964 11,672
Federal funds purchased and other borrowings 314 60 596 80
Long-term borrowings 107 92 335 142
---- --- ---- ----
Total Interest Expense 4,323 3,918 11,895 11,894
------ ------ ------- -------
Net Interest Income 5,583 5,199 16,617 14,973
Provision for Loan Losses 139 197 427 533
---- ---- ---- ----
Net Interest Income after Provision for Loan Losses 5,444 5,002 16,190 14,440
------ ------ ------- -------
NON-INTEREST INCOME
Service charges on deposit accounts 646 541 1,808 1,468
Other fees and commissions 169 153 498 491
Net realized gains (losses) on disposition of securities (3) 7 (1) 13
Other income 76 27 234 106
--- --- ---- ----
Total Non-Interest Income 888 728 2,539 2,078
---- ---- ------ ------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,321 2,106 7,032 6,556
Occupancy 314 297 924 922
Equipment 333 299 1,002 902
Directors' fees 83 66 218 239
Deposit insurance premiums 22 31 65 91
Other 1,176 1,172 3,383 3,314
------ ------ ------ ------
Total Non-Interest Expense 4,249 3,971 12,624 12,024
------ ------ ------- -------
Income Before Income Taxes and Discontinued Operations 2,083 1,759 6,105 4,494
Provision for Income Taxes 588 542 1,694 1,254
---- ---- ------ ------
Income From Continuing Operations 1,495 1,217 4,411 3,240
Loss From Discontinued Operations (27) (178) (219) (443)
---- ----- ----- -----
Net Income $ 1,468 $ 1,039 $ 4,192 $ 2,797
======== ======== ======== ========
Net Income per Common Share
Basic from Continuing Operations $ 0.33 $ 0.27 $ 0.96 $ 0.71
Basic from Discontinued Operations (0.01) (0.04) (0.05) (0.10)
------ ------ ------ ------
Basic Earnings per Common Share $ 0.32 $ 0.23 $ 0.91 $ 0.61
======= ======= ======= =======
Diluted from Continuing Operations $ 0.33 $ 0.26 $ 0.96 $ 0.70
Diluted from Discontinued Operations (0.01) (0.04) (0.05) (0.10)
------ ------ ------ ------
Diluted Earnings per Common Share $ 0.32 $ 0.22 $ 0.91 $ 0.60
======= ======= ======= =======
Cash Dividends Paid per Common Share $ 0.14 $ 0.12 $ 0.40 $ 0.36
======= ======= ======= =======
Weighted Average Number of Shares Outstanding
Basic 4,591,346 4,582,783 4,604,254 4,579,099
========== ========== ========== ==========
Diluted 4,603,588 4,605,043 4,616,496 4,601,360
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
JAMES RIVER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
For The Nine Months Ended September 30, 2000
<TABLE>
<CAPTION>
Accumulated
Shares of Additional Other
Common Common Paid-in Retained Comprehen-
Stock Stock Capital Earnings sive Income Total
----- ----- ------- -------- ----------- -----
<S> <C>
Balance - December 31, 1999 4,613,203 $ 23,066 $ 4,338 $ 25,718 $ (2,124) $ 50,998
Comprehensive income:
Net income - - - 4,192 - 4,192
Other comprehensive income (loss) - - - - 635 635
---------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 4,192 635 4,827
---------------------------------------------------------------------------------------------------------------------------------
Common stock issued 2,516 13 16 - - 29
Common stock repurchased (41,000) (205) (351) - - (556)
Cash dividends declared
($0.40 per share) - - - (1,838) - (1,838)
---------- --------- -------- --------- -------- ---------
Balance - September 30, 2000 4,574,719 $ 22,874 $ 4,003 $ 28,072 $ (1,489) $ 53,460
========== ========= ======== ========= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
JAMES RIVER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
For The Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Accumulated
Shares of Additional Other
Common Common Paid-in Retained Comprehen-
Stock Stock Capital Earnings sive Income Total
----- ----- ------- -------- ----------- -----
<S> <C>
Balance - December 31, 1998 4,565,326 $ 22,827 $ 4,096 $ 23,531 $ 725 $ 51,179
Comprehensive income:
Net income - - - 2,797 - 2,797
Other comprehensive income - - - - (2,211) (2,211)
-----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 2,797 (2,211) 586
-----------------------------------------------------------------------------------------------------------------------------------
Common stock issued 1,592 8 18 - - 26
Stock options exercised 48,804 244 257 - - 501
Common stock surrendered and
repurchased (39,378) (198) (414) - - (612)
Cash dividends declared
($0.36 per share) - - - (1,563) - (1,563)
---------- ---------- -------- --------- --------- ---------
Balance - September 30, 1999 4,576,344 $ 22,881 $ 3,957 $ 24,765 $ (1,486) $ 50,117
========== ========= ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
JAMES RIVER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
September 30, September 30,
2000 1999
---- ----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 4,411 $ 3,240
Net loss from discontinued operations (219) (443)
Adjustments to reconcile to net cash provided
by operating activities:
Provision for loan and other real estate losses 427 533
Depreciation and amortization 1,111 1,126
Amortization of bond (discounts) and premiums 8 25
(Gain) Loss on disposition of securities 1 (13)
(Gain) Loss on disposition of other real estate (23) -
(Gain) Loss on disposition of fixed assets (13) (222)
Changes in:
Loans held for sale 345 3,532
Interest receivable (666) (531)
Other assets (529) 147
Interest payable 210 11
Other liabilities 1,271 (63)
------ -------
Net cash provided by operating activities 6,334 7,342
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of available-for-sale securities 8,593 20,724
Purchase of available-for-sale securities (6,530) (36,754)
Redemption of held-to-maturity securities 1,054 2,386
Purchase of held-to-maturity securities - (617)
Purchases of property and equipment (928) (532)
Proceeds from disposition of property and equipment 659 29
Net assets acquired in branch aquisition,
(net of cash and cash equivalents) 9,066 -
Net increase in loans (20,552) (23,318)
-------- --------
Net cash used in investing activities (8,638) (38,082)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing deposits (1,726) 1,818
Net (decrease) in interest bearing deposits (2,490) (16,499)
Issuance of common stock 29 527
Common stock repurchased and surrendered (556) (612)
Cash dividends paid (1,838) (1,563)
Proceeds from short-term borrowings 8,139 6,411
Proceeds from (repayments of) long-term borrowings (6,000) 11,000
------- -------
Net cash provided by (used in) financing activities (4,442) 1,082
------- -------
Net decrease in cash and cash equivalents $ (6,746) $(29,658)
CASH AND CASH EQUIVALENTS
Beginning 19,824 44,149
------- ---------
Ending $ 13,078 $ 14,491
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid $ 11,685 $ 7,981
========= ========
Income taxes $ 1,834 $ 986
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Real estate acquired in settlement of loans $ 450 $ 128
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
JAMES RIVER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the nine month
periods ended September 30, 2000 and 1999 are not necessarily indicative of
results that may be expected for the entire year or any interim period. The
interim financial statements should be read in conjunction with the December 31,
1999 Annual Report to Shareholders on Form 10-K, including the 1999 consolidated
financial statements of James River Bankshares, Inc. ("James River" or the
"Company").
Note 2. Mergers and Acquisitions
On August 15, 1999, James River completed its merger with State Bank of
Remington, Inc. ("State Bank"). Under the terms of the Merger Agreement, State
Bank became a wholly owned banking subsidiary of James River. The Merger
Agreement provided that shareholders of State Bank receive 2.9 shares of James
River common stock for each outstanding share of State Bank common stock. State
Bank had approximately 291,000 shares of common stock outstanding, which
converted to 843,815 whole shares of James River's common stock. The merger was
accounted for as a pooling of interests. All historical information presented
in this Form 10-Q has been restated to reflect this transaction.
Note 3. Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and displaying comprehensive income
and its components. All of James River's other comprehensive income relates to
net unrealized gains (losses) on available-for-sale securities.
Comprehensive income consists of the following for the nine months ended
September 30:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------- -----------
Income from Continuing Operations $4,411,000 $ 3,240,000
Loss from Discontinued Operations (219,000) ( 443,000)
Other comprehensive income 635,000 (2,211,000)
---------- -----------
Total comprehensive income (loss) $4,827,000 $ 586,000
========== ===========
</TABLE>
7
<PAGE>
The components of other comprehensive income and related tax effects for
the nine months ended September 30 are shown in the following table.
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
-------- -----------
Unrealized gain/(loss) on available-for-sale securities $961,000 $(3,364,000)
Reclassification adjustment for gains (losses) realized in income ( 1,000) 13,000
-------- -----------
Net unrealized gain/(loss) $960,000 (3,351,000)
Tax effect 325,000 (1,140,000)
-------- -----------
Net of tax amount $635,000 $(2,211,000)
======== ===========
</TABLE>
Note 4. Discontinued Operations
During the first quarter of 2000, the board of directors voted to suspend
operations of Mortgage Company of James River, Inc. ("MCJR"). MCJR was
established in the fourth quarter of 1998 and began operations in January 1999.
At September 30, 2000, MCJR had total assets of $500 thousand and total
liabilities of $39 thousand. The assets consisted primarily of cash. During
the nine month periods ended September 30, 2000 and September 30, 1999, the
Company recognized losses of $219 thousand and $443 thousand, net of taxes,
respectively, from discontinued operations.
In February, 2000, the Company began implementing the plan of suspension. The
estimated charge for disposal booked during the first quarter of 2000 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Employee severance and benefits $ 158,000
Fixed asset write-downs 28,000
Provision for lease expense 26,000
Anticipated income from operations through disposal date ( 6,000)
---------
Total 206,000
Income tax benefit ( 78,000)
---------
Net after-tax charge for disposal $ 128,000
=========
</TABLE>
The disposal costs are estimates and are subject to change. Changes in
estimates will be accounted for prospectively and included in income (loss) from
discontinued operations in the Company's consolidated financial statements
during the year ended December 31, 2000.
8
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Information contained in this Form 10-Q may contain forward looking statements
with respect to James River Bankshares, Inc.'s ("James River" or the "Company")
financial condition and results of operations, including the anticipated effect
of changes in interest rates on net interest income. These forward looking
statements may involve certain risks and uncertainties that may cause actual
results to differ materially from those contemplated by such forward looking
statements. Risks and uncertainties that may affect the financial condition and
results of operations of James River include, but are not limited to, general
economic and business conditions, interest rate fluctuations, competition from
banks and other financial service providers, new financial products and
services, risks inherent in making loans including, repayment risks and changing
collateral values, changing trends in customer profiles, technological changes,
and changes in laws and regulations applicable to James River and its
subsidiaries. Although James River believes that its expectations with respect
to any forward looking statements are based upon reasonable assumptions within
the limits of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from any future results
that may be expressed or implied by forward looking statements.
FINANCIAL CONDITION
-------------------
Assets
------
Total assets of James River at September 30, 2000 were $506 million
compared to $487 million at December 31, 1999, an increase of $19 million. On
August 11, 2000, James River Bank, a subsidiary of the Company, purchased
approximately $6 million in loans and $16 million in deposits in a branch
acquisition.
Net loans increased to $354 million on September 30, 2000, or $25 million
higher than the year-end 1999 total of $329 million. Business loans led the
loan growth, increasing $31 million to $119 million at September 30, 2000.
Credit lines increased $3 million in the first nine months of 2000 while
installment loans decreased $443 thousand. Real estate loans decreased $7
million to $175 million at September 30, 2000, and loans held for sale decreased
$345 thousand over the same period.
Investment securities decreased $2 million, from $116 million at December
31, 1999 to $114 million at September 30, 2000. At September 30, 2000, the
Company had no Federal funds sold compared with $2 million at year-end 1999.
Interest bearing deposits were $1 million at September 30, 2000, unchanged from
the December 31, 1999 total. Total earning assets increased to $469 million at
September 30, 2000, $21 million or 5%, above the year-end 1999 total.
At September 30, 2000, James River's total assets were $506 million, $16
million, or 3%, more than the comparable date in 1999. Net loans were $354
million at September 30, 2000, an increase of $23 million over September 30,
1999. Business loans increased 33% or $30 million, and installment loans
increased 5%, or $2 million. Credit lines increased $2 million or 16% over the
comparable period in 1999. Real estate loans decreased 6% or $10 million, and
loans held for sale decreased $283 thousand for the same period. Investment
securities were $114 million at September 30, 2000, a decrease of $8 million
from September 30, 1999. Interest-bearing deposits increased $1 million and
federal funds sold decreased $300 thousand, respectively at September 30, 2000
over September 30,1999.
Average total assets for the nine months ended September 30, 2000 increased
to $493 million from $490 million for the nine months ended September 30, 1999.
Average investment securities decreased from $118 million for the nine months
ended September 30, 1999 to $114 million for the same period in 2000. Average
total loans increased $17 million to $342 million during the same period.
Average interest bearing deposits decreased $1 million to $5 million while
average Federal funds sold decreased to $691 thousand in the first nine months
of 2000 compared with $9 million in the same period in 1999.
9
<PAGE>
Average total assets increased 2% to $505 million for the quarter ended
September 30, 2000 from $492 million for the same period in 1999. Average
investment securities decreased to $112 million for the quarter ended September
30, 2000 from $125 million for the quarter ended September 30, 1999. Average
total loans increased 6% to $351 million during the same period. Average
interest bearing deposits increased $9 million and Federal funds sold decreased
$3 million in the third quarter of 2000 over the same period of 1999,
respectively.
Liabilities
-----------
Total liabilities at September 30, 2000 were $452 million compared to $436
million at December 31, 1999, a $16 million increase. Deposits at September 30,
2000 were $430 million compared to $418 million at December 31, 1999, an
increase of 3% or $12 million. During the first nine months of 2000, non-
interest bearing deposits increased $730 thousand to $64 million, while interest
bearing deposits increased $11 million to $366 million. The increase in time
deposits reverses a pattern of decreases and reflects the previously noted
deposit purchase in the third quarter of 2000 as well as marketing efforts
directed at increasing certificates of deposit. Short-term borrowings increased
$8 million to $13 million at September 30, 2000 compared to December 31, 1999,
while long term-borrowings decreased $6 million to $5 million in the same
period.
At September 30, 2000, total liabilities were $12 million greater than
total liabilities at September 30, 1999. Deposits of $430 million at September
30, 2000 were $11 million greater than the $419 million at September 30, 1999.
Non-interest bearing deposits increased $6 million while interest-bearing
deposits increased $5 million for the same period. At September 30, 2000,
short-term borrowings were $13 million, $6 million more than the $7 million at
September 30, 1999. Long-term borrowings also decreased $6 million over the
comparable period in 1999. The debt was incurred by the Company's subsidiary
banks through the Federal Home Loan Bank.
Average total liabilities for the nine months ended September 30, 2000
increased to $1 million compared to $439 million for the same period in 1999.
Average interest bearing deposits decreased 5% to $354 million for the same
period, while average non-interest bearing deposits increased 9% to $61 million.
Average Federal funds purchased and other short-term borrowings increased to $12
million in the first nine months of 2000 compared with $926 thousand for the
same period in 1999.
Average total liabilities for the quarter ended September 30, 2000 were
$452 million compared to $442 million for the quarter ended September 30, 1999,
a increase of $10 million. Average interest bearing deposits decreased $12
million for the same period, while average non-interest bearing deposits
increased $7 million. Average Federal funds purchased and other short-term
borrowings increased $14 million in the same period.
Non-performing Assets
---------------------
Non-performing assets of James River consist of non-accrual loans and
property acquired through foreclosure or repossession. Non-performing assets
totaled $2.6 million on September 30, 2000 compared to $2.2 million on December
31, 1999. On September 30, 2000, non-accrual loans totaled $822 thousand, of
which $443 thousand was secured by real estate. Non-accrual loans totaled $447
thousand on December 31, 1999, of which $280 thousand was secured by real
estate. Foreclosed real estate accounted for $1.8 million of non-performing
assets at September 30, 2000, unchanged from December 31, 1999.
Loans past due 90 days or more and still accruing were $1.1 million and
$877 thousand on September 30, 2000 and December 31, 1999, respectively. Of
these loans, loans secured by real estate totaled $325 thousand on September 30,
2000 and $775 thousand on December 31, 1999.
The recorded investment in impaired loans requiring an allowance for loan
losses as determined in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
10
<PAGE>
as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures," was $4.2 million and $2.8 million at
September 30, 2000, and December 31, 1999, respectively. The portion of the
allowance for loan losses allocated to the impaired loan balance was $618
thousand and $560 thousand at September 30, 2000, and December 31, 1999,
respectively.
The allowance for loan losses is maintained by James River at what
management considers to be a realistic level consistent with the level and type
of loans, and taking into consideration the non-accrual and past due loans
detailed above. James River's allowance for loan losses of $5.0 million was
1.40% of total loans on September 30, 2000 compared with $4.5 million, or 1.35%
of total loans, on September 30, 1999. On December 31, 1999, the allowance for
loan losses of $4.8 million was 1.44% of total loans.
RESULTS OF OPERATIONS
---------------------
Net Operating Results
---------------------
As a result of the Company's decision to suspend operations of Mortgage
Company of James River, Inc., ("MCJR"), results of operations are presented on
the basis of continuing and discontinued operations in accordance with generally
accepted accounting principles. Historical presentation of continuing
operations reflects the Company's results of operations as if the disposition of
MCJR had occurred for all periods presented. Discontinued operations represents
MCJR's operating losses for the periods presented. Going forward, income or
loss from discontinued operations will consist of changes to estimates of income
and expense previously recorded as net losses from discontinued operations and
will be accounted for prospectively.
Continuing Operations - For the quarter ended September 30, 2000, James
River's net income from continuing operations was $1.5 million compared with
$1.2 million for the same period of 1999, a 23% increase. Diluted earnings per
share from continuing operations in the third quarter increased 27% to $.33 in
2000 from $.26 in 1999. The annualized return on average assets and return on
average equity for continuing operations were 1.18% and 11.24%, respectively, in
the third quarter of 2000 compared to 0.99% and 9.65% in the comparable period
in 1999. The increase in net income was attributable to increases in net
interest income and non-interest income.
For the nine months ended September 30, 2000, net income from continuing
operations was $4.4 million compared to $3.2 million for the same period of
1999, a 36% increase. Diluted earnings per share from continuing operations
increased 37% to $.96 in the first nine months of 2000 from $.70 in the same
1999 period. In the first nine months of 2000, the annualized return on average
assets and return on average equity from continuing operations were 1.19% and
11.29%, respectively, compared to 0.88% and 8.46% in the comparable period in
1999. The increase in net income was attributable to increases in net interest
income and non-interest income and a decrease in the provision for loan losses.
Discontinued Operations - Losses from discontinued operations for the three
months ended September 30, 2000 and 1999 were $27 thousand and $178 thousand,
net of income taxes, respectively.
Losses from discontinued operations for the nine months ended September 30,
2000 and 1999 were $219 thousand and $443 thousand, net of income taxes,
respectively.
Net Interest Income
-------------------
Net interest income during the quarter ended September 30, 2000 increased
$384 thousand to $5.6 million, up 7% from the $5.0 million for the quarter ended
September 30, 1999. Interest income on loans was $8 million, an increase of 12%
from the $7.2 million for the quarter ended September 30, 1999. During the
third quarter of 2000, income on investment securities decreased $144 thousand,
or 8%, to $1.7 million, compared to the third quarter of 1999. Interest expense
on deposits increased 4% in the third quarter from $3.8 million in 1999 to $3.9
million for the same period in 2000. The net interest margin increased in the
third quarter of 2000 to 4.91% from 4.69% in same period in 1999.
11
<PAGE>
Net interest income during the nine months ended September 30, 2000
increased $1.6 million to $16.6 million, up 11% from $15.0 million in the same
period in 1999. Interest and fee income on loans increased 9% to $23.0 million
in the first nine months of 2000, an increase of $1.9 million over the
comparable period in 1999. During the first nine months of 2000, income on
investment securities was unchanged at $5.2 million compared to the first nine
months of 1999. Interest expense on deposits decreased 6% from $11.7 million in
the first nine months of 1999 to $11.0 million in 2000. For the nine months
ended September 30, 2000, interest expense on Federal funds purchased and other
short-term borrowings increased $516 thousand and interest expense on long-term
borrowings increased $193 thousand over the comparable period in 1999,
respectively. The net interest margin was 4.96% in the first nine months of
2000 compared to 4.51% in the same period in 1999.
Provision for Loan Losses
-------------------------
The provision for loan losses during the quarter ended September 30, 2000
was $139 thousand, down $58 thousand, or 29%, from the respective period in
1999. The higher provision in the 1999 period was related to higher loan
losses.
The provision for loan losses during the first nine months of 2000 was $427
thousand, down $106 thousand or 20% from the respective period in 1999. The
reduction in the loan loss provision in the first nine months of 2000 was
attributable to loan loss recoveries in 2000 and higher loan losses in the 1999
period.
Non-Interest Income
-------------------
For the three months ended September 30, 2000, non-interest income was $888
thousand, up $160 thousand, or 22%, compared to the respective period in 1999.
This increase was attributable primarily to a $105 thousand increase in service
charges on deposit accounts.
For the nine months ended September 30, 2000, non-interest income was $2.5
million, up 22% compared to the same period of 1999. The increase was partially
attributable to a 23% increase in service charges on deposit accounts. Service
charges on deposit accounts included an increase in the volume of deposit
accounts as well as income from charges for insufficient funds and overdrafts.
Non-Interest Expense
--------------------
Non-interest expense during the third quarter of 2000 increased $278
thousand, or 7%, to $4.2 million compared with $4.0 million in the comparable
1999 quarter. This increase was attributable primarily to a 10% increase in
salaries and employee benefits. The increase in salaries is a result of higher
salaries along with an increased cost for employee benefits. In the 1999
quarter, the Company recorded $244 thousand in merger related expenses.
Non-interest expense during the first nine months of 2000 increased $600
thousand, or 5%, to $12.6 million compared with the same period of 1999. The
increase was attributable primarily to a $476 thousand increase in salaries and
employees benefits.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Liquidity and Interest Sensitivity
----------------------------------
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
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the acquisition of additional funds through liability management. Liquid assets
include cash, interest- bearing deposits with banks, federal funds sold,
investments, and loans maturing within one year. As a result of James River's
management of liquid assets and the ability to generate liquidity through
liability funding, management believes that James River maintains overall
liquidity sufficient to satisfy its depositors' requirements and meet its
customers' credit needs.
At September 30, 2000, James River had $56.8 million in undisbursed loan
commitments and expects to have sufficient funds available to meet both current
and future loan commitments. Funding is expected to be in the normal course of
business primarily through loan repayments, prepayments, and deposit growth. As
additional funding, James River holds $114 million in investment securities. Of
this amount, only $13 million is classified as held-to-maturity and is not
readily available for sale. Approximately $9 million of the investment
securities portfolio will mature in less than one year, with an additional $48
million maturing between 1 and 5 years.
James River has $5 million in long-term debt. Almost the entire deposit
base is made up of core deposits, with only 10% of total deposits composed of
certificates of deposit of $100,000 and over.
Capital Resources
-----------------
Total shareholders' equity amounted to $53.4 million at September 30, 2000
compared to $51.0 million at December 31, 1999. Reference is made to the
Consolidated Statements of Changes in Shareholders' Equity, included elsewhere
in this 10-Q. In August of 1999, James River implemented a stock repurchase
plan authorizing a buyback of up to 50,000 shares. In April of 2000, James
River authorized a stock repurchase plan authorizing the purchase of up to an
additional 250,000 shares. As of September 30, 2000, James River had
repurchased 77,000 shares at a cost of $1.02 million. At September 30, 2000,
James River's leverage ratio was 10.34%, with a tier 1 risk-based capital ratio
of 14.78% and a total risk-based capital ratio of 16.04%. Each of these ratios
is above the level required to be classified for regulatory purposes as "well
capitalized".
RECENT ACCOUNTING CHANGES
-------------------------
Financial Accounting Standards Board (FASB) Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", was issued in
September 1998. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative information embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This Statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. James River does not expect
this Statement to materially affect its financial condition or results of
operations.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
James River's primary market risk is exposure to interest rate risk.
Fluctuations in interest rates will impact both the level of interest income and
interest expense and the market value of James River's interest-earning assets
and interest-bearing liabilities. There were no material changes in James
River's market risk management strategy during the nine months ended September
30, 2000. James River is monitoring its interest rate risk in view of increases
in both short and long-term interest rates. Based on current assessments and
the level of changes in interest rates, the effects are not expected to be
material.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings to which James River or its
subsidiaries are parties in other than nonmaterial legal proceedings occurring
in the ordinary course of business.
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other Information - None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - Financial Data Schedule, Exhibit 27
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAMES RIVER BANKSHARES, INC.
Date: November 10, 2000 /s/ Donald W. Fulton, Jr.
------------------ ----------------------------------------
Donald W. Fulton, Jr., Sr. Vice President
and Chief Financial Officer
