<PAGE>
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, 1999
Commission File Number 0-26314
JAMES RIVER BANKSHARES, INC.
Virginia 54-1740210
State of Incorporation IRS Employer Identification No.
1514 Holland Road , Suffolk, Virginia 23434
Registrant's telephone number, including area code: (757) 934-8100
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. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 1, 2000: Common Stock - $47,789,940.
The number of shares outstanding of the registrant's common stock as of
March 1, 2000: 4,609,440.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1999 ("Annual Report") are incorporated by reference in Part
I and Part II of this Form 10-K. Portions of the definitive Proxy Statement
(the "2000 Proxy Statement") to be used in connection with the 2000 Annual
Meeting of Shareholders are incorporated by reference in Part III of this Form
10-K.
<PAGE>
Table of Contents
Part I
Item
- ----
1. Business 1
I. Operations of James River's Banking Subsidiaries 2
A. Loan Portfolio 3
B. Asset Quality 5
C. Non Performing Assets 8
D. Investments 9
E. Deposits 11
F. Short Term Borrowings 12
G. Long Term Borrowings 12
H. Average Balances, Interest Income and Average Yields and Rates 13
I. Rate and Volume Analysis 14
J. Interest Sensitivity Analysis 15
II. Market Area and Competition 17
III. Supervision and Regulation of James River's Banking Subsidiaries 17
A. Analysis of Capital 18
B. Liquidity 19
C. Employees 19
2. Properties 19
3. Legal Proceedings 20
4. Submission of Matters to a Vote of Security Holders 20
Part II
5. Market for Registrant's Common Equity and Related
Shareholder Matters 21
6. Selected Consolidated Financial Data 21
7. Management's Discussion and Analysis of Financial Condition 21
7a. Quantitative and Qualitative Disclosures About Market Risk 21
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
Part III
10. Directors and Executive Officers of the Registrant 22
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners and Management 22
13. Certain Relationships and Related Transactions 22
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 23
<PAGE>
Certain information appearing elsewhere in this report contains forward
looking statements that are subject to risks and uncertainties that could cause
the Company's future 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
profitability, make strategic acquisitions, and other risks, expectations, or
goals. Risks and uncertainties that may affect the financial condition and
results of operations of the Company include, but are not limited to, general
economic and business conditions, interest rate trends, competition from banks
and other financial service providers, new financial products and services,
risks inherent in making loans, including repayment risks and changing
collateral value, 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.
PART I
Item 1. Business
General
James River Bankshares, Inc. ("James River" or the "Company") 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.
In May 1998, FCB converted from a federal savings bank charter to a
Virginia state chartered bank and changed its name to First Colonial Bank.
Prior to its conversion, FCB sold the assets of its consumer finance company
subsidiaries, Family Finance Corporation and Family Finance of Virginia, Inc.,
to the Company. Also, in 1998, BIW changed its name to James River
Bank/Colonial ("JRBC") in conjunction with the opening of two branch offices on
the Hampton Roads Peninsula.
In February 2000, the Company's board of directors approved the
suspension of operations of Mortgage Company of James River, Inc. The decision
to suspend operations was made in view of operating losses sustained in 1999 and
expected losses in 2000. The closing will result in an expected charge of
approximately $105 thousand after taxes to first quarter earnings in 2000.
In August 1999, James River completed its acquisition of State Bank of
Remington, Inc., a Virginia state charted bank in Remington, Virginia ("SBR").
Shareholders of SBR received 2.9 shares of James River common stock for each
outstanding share of SBR common stock. SBR had approximately 291,000 shares of
common stock outstanding, which converted into 843,815 whole shares of James
River's common stock. Also
1
<PAGE>
in 1999, James River purchased Colonial Loans, Inc., a consumer finance company
located in Fredericksburg, Virginia.
James River now has five operating bank subsidiaries with a total of 27
banking offices that conduct operations along the James River basin from
Hopewell, Virginia to Suffolk, Virginia and in the Piedmont area of Virginia in
southern Fauquier County.
Operations of James River's Banking Subsidiaries
General. All of the banking subsidiaries provide a wide range of
financial services primarily to individuals and to small and medium-sized
businesses. These services include individual and commercial demand and time
deposits, commercial and consumer loans, traveler's checks, safe deposit
facilities, U.S. Government Savings Bonds, collection items, and official
checks. BOS and JRBC are authorized to provide trust services but do not
currently do so.
BOS was formed in 1967 and has seven branches in Suffolk, Virginia and
one office in Chesapeake, Virginia, which was opened in October 1998. FCB was
formed in 1972 and commenced operations in 1975. Based in Hopewell, Virginia,
FCB has seven branches located in Hopewell, Petersburg, Colonial Heights, and
the counties of Dinwiddie and Chesterfield. JRB was chartered in 1933. Its main
office is in Waverly, Virginia. It operates a total of six branches in Sussex
and Southhampton Counties and the city of Franklin. JRBC was formed in 1971 in
Smithfield, Virginia. In the fourth quarter of 1998, it opened two additional
offices in Newport News and Grafton, Virginia. SBR was formed in 1913 and has
three branches located in Remington, Bealeton and Catlett, Virginia.
Credit Policies. James River's banking subsidiaries employ written
policies and procedures to manage 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.
2
<PAGE>
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, 1999.
<TABLE>
<CAPTION>
Loan Portfolio by Percentage
December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial 14.3% 12.4% 13.3% 10.2% 12.4%
Real estate-commercial 19.5% 18.2% 19.0% 9.1% 8.9%
Real estate-construction
and land development 5.9% 8.4% 7.2% 5.9% 3.8%
Real estate-mortgage 48.6% 50.0% 49.0% 62.1% 62.6%
Agricultural 1.1% 0.9% 1.8% 0.8% 0.4%
Installment 10.6% 10.1% 9.7% 11.9% 11.9%
---------------------------------------------------------------------
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
Total Loans $333,149 $312,571 $296,648 $277,014 $243,247
---------------------------------------------------------------------
</TABLE>
James River's service area provides lending opportunities to small
businesses, farmers, and a wide range of consumers. Most of the small
businesses are either retail or agribusiness companies. The loan portfolio set
forth above for James River's banking subsidiaries is 74.1% 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 33.8% of James River's total loan
portfolio on December 31, 1999. 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, 1999, agricultural loans totaled $3.6
million or 1.1% of the loan portfolio. 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 5.9% of the loan
portfolio at December 31, 1999. 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. In addition, the Company provides
financing to contractors for residential real estate construction that is not
pre-sold.
Real Estate Mortgage. Real estate mortgage loans amounted to $162.0 million
or 48.6% of the loan portfolio at December 31, 1999. Of the real estate
mortgages, 86.0% 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. $23.0 million
were real estate loans to individuals used for farm purchases and multifamily
residential properties.
Installment. On December 31, 1999, $35.3 million or 10.6% of total loans
were consumer and installment loans. Installment loans include home improvement
loans, automobile loans and personal unsecured loans.
3
<PAGE>
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 $328.9
million at December 31, 1999, 5.40% more than net loans of $312.0 million at
December 31, 1998. The average balance of total loans as a percentage of average
earning assets was 71.5%, 70.2%, 70.2%, 66.5% and 65.6% for 1999, 1998, 1997,
1996 and 1995, respectively. James River's banking subsidiaries had no loans
outstanding to foreign countries or for highly leveraged transactions as of
December 31, 1999, 1998, 1997, 1996, or 1995.
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, 1999, commitments for standby letters of credit
totaled $2.0 million and commitments to extend credit were $59.1 million. At
December 31, 1998, commitments for standby letters of credit totaled $3.0
million and commitments to extend credit totaled $71.5 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.
The following table summarizes the composition of the loan portfolio at
the dates indicated for James River's banking subsidiaries.
<TABLE>
<CAPTION>
Loan Portfolio
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 47,736 $ 38,669 $ 39,511 $ 28,348 $ 30,157
Real estate-commercial 64,816 56,786 56,379 25,206 21,596
Real estate-construction
and land development 19,675 26,417 21,290 16,192 9,158
Real estate-mortgage 162,044 156,372 145,278 172,090 152,395
Agricultural 3,605 2,848 5,236 2,256 1,102
Installment 35,273 31,479 28,954 32,922 28,839
------------------------------------------------------------------
Total Loans 333,149 312,571 296,648 277,014 243,247
Less:
Allowance for loan
Losses 4,788 4,273 3,928 3,769 3,551
Unearned discount 11 18 30 73 167
Deferred loan fees (costs) (161) (129) 50 169 159
--------------------------------------------------------------------
Net loans receivable 328,511 308,409 292,640 273,003 239,370
Loans held for sale 345 3,599 789 1,192 1,483
Net loans $328,856 $312,008 $293,429 $274,195 $240,853
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
Set forth below is information regarding the maturity of loans for James
River's banking subsidiaries at December 31, 1999:
<TABLE>
<CAPTION>
Maturity Schedule of Loans
December 31, 1999
----------------------------------------------------------------------------
Over One
One Year through Over Five Total
or Less Five Years Years Loans
------- ---------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $19,158 $ 19,902 $ 8,676 $ 47,736
Real estate-commercial 5,554 20,988 38,274 64,816
Real estate-construction
and land development 14,152 1,641 3,882 19,675
Real estate-mortgage 18,747 42,363 100,934 162,044
Agricultural 2,044 1,280 281 3,605
Installment 7,802 26,999 472 35,273
------- -------- -------- --------
Total $67,457 $113,173 $152,519 $333,149
======= ======== ======== ========
Loans maturing after one year with
predetermined rates 165,502
Loans maturing after one year with
variable rates 100,190
--------
Total $265,692
========
</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.
5
<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.
<TABLE>
<CAPTION>
Allowance for Loan Losses
December 31,
------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Balance, beginning of
Period $ 4,273 $ 3,928 $ 3,770 $ 3,551 $ 3,338
------------------------------------------------------------------------------------------------------
Less charge offs:
Commercial 52 87 114 60 71
Installment 246 234 261 215 91
Real Estate 134 21 70 173 64
------------------------------------------------------------------------------------------------------
Total Charge offs 432 342 445 448 226
------------------------------------------------------------------------------------------------------
Plus recoveries:
Commercial 1 27 86 23 50
Installment 82 70 45 52 61
Real estate 16 53 3 71 4
------------------------------------------------------------------------------------------------------
Total recoveries 99 150 134 146 115
------------------------------------------------------------------------------------------------------
Net charge offs 333 192 311 302 111
------------------------------------------------------------------------------------------------------
Provision for loan losses 670 537 469 521 341
------------------------------------------------------------------------------------------------------
Adjustment to conform
fiscal year - - - - (17)
------------------------------------------------------------------------------------------------------
Adjustment for allowance
from acquisition 178 - - - -
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Balance end of period $ 4,788 $ 4,273 $ 3,928 $ 3,770 $ 3,551
------------------------------------------------------------------------------------------------------
Allowance for loan losses
to period end total loans 1.44% 1.35% 1.32% 1.36% 1.45%
Allowance for loan losses
to nonaccrual loans 1,071.14 1,095.64 437.90 835.92 476.78
Average total loans 328,259 307,703 292,406 262,510 226,003
Net charge offs
to average loans 0.10% 0.06% 0.11% 0.12% 0.05%
</TABLE>
6
<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.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses in Dollars
December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial $1,837 $ 762 $1,040 $ 862 $ 759
Real estate-commercial 801 1,509 1,191 1,197 1,055
Real estate-construction
and land development 252 165 105 104 101
Real estate-mortgage 635 704 873 927 1,031
Agricultural 233 234 188 33 40
Installment 1,030 899 531 647 565
----------------------------------------------------------------
Total allowance for
loan losses $4,788 $4,273 $3,928 $3,770 $3,551
----------------------------------------------------------------
</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, 1999.
<TABLE>
<CAPTION>
Amount of Loans to Gross Loans by Percentages
December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial 14.3% 12.4% 13.3% 10.2% 12.4%
Real estate-commercial 19.5% 18.2% 19.0% 9.1% 8.9%
Real estate-construction
and land development 5.9% 8.4% 7.2% 5.9% 3.8%
Real estate-mortgage 48.6% 50.0% 49.0% 62.1% 62.6%
Agricultural 1.1% 0.9% 1.8% 0.8% 0.4%
Installment 10.6% 10.1% 9.7% 11.9% 11.9%
---------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
---------------------------------------------------------------
</TABLE>
7
<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.
<TABLE>
<CAPTION>
Non-performing Assets
December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 447 $ 390 $ 897 $ 451 $ 745
Foreclosed assets 1,772 1,640 2,449 2,425 1,868
---------------------------------------------------------------------------------------------------
Total non-performing
Assets $2,219 $2,030 $3,346 $2,876 $2,613
---------------------------------------------------------------------------------------------------
Loans past due 90 or
more days accruing
Interest $ 877 $ 521 $ 591 $ 975 $ 915
Non-performing loans
to total loans, at
period end 0.13% 0.12% 0.30% 0.16% 0.30%
Non-performing loans
to period end loans
and foreclosed assets 0.13% 0.12% 0.30% 0.16% 0.30%
</TABLE>
As of December 31, 1999, loans 30 days or more delinquent for James
River's banking subsidiaries totaled $6.8 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, $5.3 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 were $2,752,000,
$1,408,000 and $2,017,000 at December 31, 1999, 1998 and 1997, respectively. The
impaired loans at December 31, 1999, consisted of $428,000 of commercial,
$820,000 commercial real estate, $1,236,000 real estate mortgage, $145,000 real
estate construction and land development, $120,000 agricultural, and $3,000
personal loans. The impaired loans at December 31, 1998, consisted of $35,000 of
commercial, $78,000 real estate-commercial, $1,151,000 real estate mortgage,
$120,000 agricultural loans, and $24,000 personal loans. The impaired loans at
December 31, 1997, consisted of $227,000 of commercial, $818,000 real estate-
commercial, $386,000 real estate mortgage, and $586,000 agricultural loans. All
of the impaired loans at December 31, 1999, 1998 and 1997, were measured using
the fair value of collateral method. The portion of the allowance for loan
losses allocated to the impaired loan balance was $560,000, $162,000 and
$423,000 at December 31, 1999, 1998 and 1997, respectively.
8
<PAGE>
Investments
The carrying value of the investment portfolio of James River and its
subsidiaries was $115.7 million at December 31, 1999, compared to $110.8 million
at December 31, 1998. The average balance of the investment portfolio increased
$10.2 million or 9.5% in 1999 compared to 1998. The average balance of the
portfolio decreased 5.4%, or $6.1 million, in 1998.
At December 31, 1999, 1998, and 1997, 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 98.7% and 102.7% of carrying value at years ended December 31,
1999 and 1998, 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,
---------------------------------------------------------
1999 1998 1997
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
U. S. Treasury and other government agencies $ 73,965 $ 72,942 $ 70,288
State and political subdivisions 33,919 30,122 27,367
Other securities 7,863 7,723 8,163
--------------------------------------------------------
Total Securities $115,747 $110,787 $105,818
---------------------------------------------------------
</TABLE>
9
<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, 1999. 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, 1999
----------------------------------------------------------
Weighted
Book Market average yield
---- ------ -------------
Value Value
----- -----
<S> <C> <C> <C>
(Dollars in thousands)
U.S. Treasury securities
One year or less $ 1,250 $ 1,254 6.47%
After one year to five years 2,297 2,318 6.76%
After five years to ten years - -
After ten years - -
-------- --------
Total 3,547 3,572 6.66%
-------- --------
Federal agency securities
One year or less 5,139 5,044 6.00%
After one year to five years 41,239 40,244 6.10%
After five years to ten years 26,454 25,239 6.35%
After ten years - -
-------- --------
Total 72,832 70,273 6.18%
-------- --------
State and political subdivisions securities
One year or less 2,955 2,959 6.90%
After one year to five years 15,251 15,244 7.11%
After five years to ten years 15,952 15,359 6.50%
After ten years 303 291 7.68%
-------- --------
Total 34,461 33,853 6.82%
-------- --------
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 7,617 7,355 -
-------- --------
Total 7,617 7,355 -
-------- --------
Other debt securities
One year or less 4 4 6.14%
After one year to five years 250 250 6.46%
After five years to ten years 254 254 9.36%
After ten years - - 6.46%
-------- --------
Total 508 508 7.85%
-------- --------
Total securities 118,965 115,561 6.38%
-------- --------
Unrealized gain on securities available-for-sale (3,218) -
-------- --------
Total securities at period end $115,747 $115,561
-------- --------
</TABLE>
10
<PAGE>
Deposits
James River's banking subsidiaries primarily use deposits to fund their
loan and investment portfolios. Since the end of 1996, as demonstrated below,
James River's banking subsidiaries have continued to experience overall deposit
growth, despite a decrease in interest bearing checking and certificates of
deposit. Average balances in total deposits increased from $415.8 million in
1998 to $426.8 million in 1999, a growth of $11.0 million or 2.6%. For the
comparable period ending December 31, 1998, average total deposits increased
$16.9 million or 4.2%.
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.
<TABLE>
<CAPTION>
Average Deposits and Average Rates Paid
Years ended December 31,
---------------------------------------------------------------------------
1999 1998 1997
------------------------- -------------------- --------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-bearing deposits:
Checking $ 56,101 2.25% $ 64,403 2.86% $ 52,314 2.68%
Money market savings 37,878 2.84% 23,787 3.54% 24,089 3.23%
Regular savings 57,092 2.73% 55,672 3.21% 57,818 3.28%
Certificates of deposit:
$100,000 and over 36,854 3.94% 37,294 3.92% 32,750 4.67%
Under $100,000 182,040 5.46% 183,627 5.83% 184,692 5.68%
-------- -------- --------
Total interest-bearing deposits 369,965 4.13% 364,783 4.56% 351,663 4.58%
Non-interest bearing 56,838 51,046 47,237
-------- -------- --------
Total deposits $426,803 3.58% $415,829 4.00% $398,900 4.04%
======== ======== ========
</TABLE>
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, 1999
Maturities of CDs of $100,000 or More
at December 31, 1999
Amount Percent
------ -------
(Dollars in thousands)
Three months or less $ 7,877 22.6%
Over three months to twelve months 15,487 44.3%
Over twelve months 11,564 33.1%
------- -------
Total $34,928 100.0%
======= =======
Certificates of deposit in amounts of $100,000 or more at December 31,
1999 and 1998 were $34.9 million and $38.2 million, respectively. The balance at
December 31, 1999, represented 16.8% of total certificates of deposit. The
December 31, 1998 amount represents 16.9% of the total certificates of deposit
balance of $226.5 million at that date.
James River's banking subsidiaries do not accept brokered deposits, and
all large certificates of deposit are community based.
11
<PAGE>
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. Borrowings of James River's banking
subsidiaries include the purchase and sale of federal funds, and securities sold
under repurchase agreements. Set forth below are short term borrowings for James
River's banking subsidiaries at the periods indicated.
<TABLE>
<CAPTION>
Short-Term Borrowings
Years ended December 31,
----------------------------------------------------------------
1999 1998 1997
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Average daily amount of short-term borrowings
outstanding during the period $ 4,228 $ 953 $ 748
Average interest rate on average
daily short-term borrowings 4.22% 5.60% 6.28%
Maximum outstanding short-term borrowings
outstanding at any month end 8,483 1,801 4,000
Short-term borrowings outstanding at period end $ 4,561 $ 742 $ 200
</TABLE>
Long-Term Borrowings
At December 31, 1999, the Company had borrowings from the Federal Home
Loan Bank system totaling $11 million at interest rates ranging from 4.95% to
5.36%. The borrowings mature between September 29, 2004 and August 7, 2009. The
borrowings are subject to early conversion options by the FHLB and early
termination options by the Company beginning in 2000 for $6 million of the
borrowings and in 2004 for the remaining $5 million. The FHLB has a blanket lien
on real estate loans as collateral on these borrowings. Interest only is payable
on a quarterly basis until maturity.
12
<PAGE>
The following table illustrates average balances of interest-earning assets and
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
<TABLE>
<CAPTION>
Average Balances, Interest Income and Expenses, and Average Yields and Rates
Years Ended December 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ----------------------------- ------------------------------
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> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest bearing assets:
Securities:
U.S. Treasury $ 7,469 $ 481 6.44% $ 14,608 $ 907 6.21% $ 18,568 $ 1,156 6.23%
Federal agency 69,856 4,374 6.26% 56,323 3,563 6.33% 51,379 3,219 6.27%
State and political 32,998 2,347 7.11% 28,927 2,104 7.27% 26,041 1,990 7.64%
subdivisions
Federal reserve stock 2,803 189 6.74% 2,211 150 6.78% 1,879 131 6.97%
Other securities 4,848 271 5.59% 5,702 347 6.09% 15,999 1,062 6.64%
-------- ------- -------- ------- -------- -------
Total Securities 117,974 7,662 6.49% 107,771 7,071 6.56% 113,866 7,558 6.64%
-------- ------- -------- ------- -------- -------
Loans:
Commercial 85,998 7,270 8.45% 74,869 6,615 8.84% 70,774 6,418 9.07%
Real estate-construction 18,790 1,704 9.07% 21,203 1,796 8.47% 18,934 1,822 9.62%
Real estate-mortgage 175,774 14,554 8.28% 171,223 14,896 8.70% 165,360 14,345 8.68%
Installment 47,697 5,105 10.70% 40,407 4,378 10.83% 37,338 4,046 10.84%
-------- ------- -------- ------- -------- -------
Total Loans 328,259 28,633 8.72% 307,702 27,685 9.00% 292,406 26,631 9.11%
-------- ------- -------- ------- -------- -------
Interest bearing deposits in
other banks 5,108 282 5.52% 9,669 553 5.72% 2,161 163 7.54%
Federal funds sold 7,914 369 4.66% 13,054 720 5.52% 8,351 475 5.69%
-------- ------- -------- ------- -------- -------
Total money market 13,022 651 5.00% 22,723 1,273 5.60% 10,512 638 6.07%
investments -------- ------- -------- ------- -------- -------
Total interest-earning
assets/total interest
income 459,255 36,946 8.04% 438,196 36,029 8.22% 416,784 34,827 8.36%
-------- ------- -------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 14,026 15,334 14,937
Other assets 10,998 11,436 11,785
Less: Allowance for loan losses (4,532) (4,088) (3,907)
Fixed assets 11,422 10,481 9,662
-------- -------- --------
Total non-interest 31,914 33,163 32,477
earning assets -------- -------- --------
Total Assets $491,169 $471,359 $449,261
======== ======== ========
Liabilities and shareholders'
equity:
Interest bearing liabilities:
Interest bearing deposits:
Checking $ 56,101 $ 1,261 2.25% $ 64,403 $ 1,841 2.86% $ 52,314 $ 1,402 2.68%
Money market savings 37,878 1,074 2.84% 23,787 842 3.54% 24,089 779 3.23%
Regular savings 57,092 1,560 2.73% 55,672 1,788 3.21% 57,818 1,899 3.28%
Certificates of deposit:
$100,000 and over 36,854 1,453 3.94% 37,294 1,461 3.92% 32,750 1,530 4.67%
Under $100,000 182,040 9,935 5.46% 183,627 10,702 5.83% 184,692 10,486 5.68%
-------- ------- -------- ------- -------- -------
Total interest 369,965 15,283 4.13% 364,783 16,634 4.56% 351,663 16,096 4.58%
bearing deposits
Federal funds purchased & other 9,258 466 5.03% 952 54 5.67% 748 47 6.28%
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities/total
interest expense 379,223 15,749 4.15% 365,735 16,688 4.56% 352,411 16,143 4.58%
-------- ------- -------- ------- -------- -------
Non-interest bearing liabilities:
Demand deposits 56,838 51,046 47,237
Other liabilities 3,993 4,688 3,721
-------- -------- --------
Total non-interest liabilities 60,831 55,734 50,958
-------- -------- --------
Total liabilities 440,054 421,469 403,369
Shareholders' equity 51,115 49,890 45,892
-------- -------- --------
Total Liabilities and
Shareholders' equity $491,169 $471,359 $449,261
======== ======== ========
Interest spread 3.89% 3.66% 3.78%
Net interest income/net
interest margin $21,197 4.62% $19,341 4.41% $18,684 4.48%
======= ======= =======
</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, non-accruing 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.
13
<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.
<TABLE>
<CAPTION>
Rate and Volume Analysis
Years ended December 31,
--------------------------------------------------------------------------
1999 compared to 1998 1998 compared to 1997
------------------------------------ -----------------------------------
Change Due To: Change Due To:
--------------- ---------------
Increase Increase
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ---- ------ ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Securities:
U.S. Treasury $ (426) $ 35 $ (461) $ (249) $ (3) $ (246)
Federal agency 811 (36) 847 344 32 312
State and political
subdivisions 243 (45) 288 114 (88) 202
Federal Reserve stock 39 (1) 40 19 (3) 22
Other equity securities (76) (27) (49) (715) (82) (633)
------- ------- ------ ------ ----- ------
Total Securities 591 (74) 665 (487) (144) (343)
------- ------- ------ ------ ----- ------
Loans:
Commercial 655 (268) 923 197 (157) 354
Real estate-construction (92) 150 (242) (26) (244) 218
Real estate-mortgage (342) (761) 419 551 41 510
Installment 727 (53) 780 332 (1) 333
------- ------- ------ ------ ----- ------
Total Loans 948 (932) 1,880 1,054 (361) 1,415
------- ------- ------ ------ ----- ------
Interest bearing deposits
in other banks (271) (19) (252) 390 (29) 419
Federal funds sold (351) (99) (252) 245 (14) 259
------- ------- ------ ------ ----- ------
Total money market
investments (622) (118) (504) 635 (43) 678
------- ------- ------ ------ ----- ------
Total interest income 917 (1,124) 2,041 1,202 (548) 1,750
------- ------- ------ ------ ----- ------
Interest expense:
Interest bearing deposits:
Checking (580) (362) (218) 439 98 341
Money market savings 232 (117) 349 63 73 (10)
Regular savings (228) (275) 47 (111) (41) (70)
Certificates of deposit:
$100,000 and over (8) 9 (17) (69) (491) 422
Under $100,000 (767) (675) (92) 216 276 (60)
------- ------- ------ ------ ----- ------
Total interest bearing
deposits (1,351) (1,420) 69 538 (85) 623
------- ------- ------ ------ ----- ------
Federal funds purchased 412 (5) 417 7 (4) 11
------- ------- ------ ------ ----- ------
Total interest expense (939) (1,425) 486 545 (89) 634
------- ------- ------ ------ ----- ------
Net interest income $ 1,856 $ 301 $1,555 $ 657 $(459) $1,162
======= ======= ====== ====== ===== ======
</TABLE>
14
<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, 1999, James River and it subsidiaries had $84.3 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. In either scenario,
certain repricing decisions are within management's discretion and can influence
actual results. To reduce the impact of shifts in prevailing interest rates,
$171.6 million of the loan portfolio of James River's banking subsidiaries at
December 31, 1999, had a repricing frequency of less than one year. Moreover, as
of December 31, 1999, James River and its banking subsidiaries collectively held
$102.0 million in investments held as "Available for Sale" which could be sold
quickly to meet any special funding needs.
In addition, the Company measures the effects of changes in interest
rates on the economic value of equity, net interest income, and net income. The
Company's analysis measures hypothetical interest rate changes in a variety of
scenarios. A present value computation is used in determining the effect of the
hypothetical interest rate changes on the fair value of interest sensitive
assets and liabilities. Computations of prospective effects of these
hypothetical interest rate changes are based on many assumptions, including
relative levels of market interest rates, loan prepayments, and deposit decay.
The results of the analyses should not be relied upon as indicative of actual
results. The computations do not contemplate actions that could be undertaken by
management in response to changes in interest rates. In addition, certain
shortcomings, which could affect the actual values of interest sensitive assets
and liabilities, are inherent in this method of analysis. Given these and other
limitations of the analysis, if interest rates increased or decreased 200 basis
points instantaneously, net interest income would decrease by 5.2% and increase
by 4.5%, respectively. The above analysis uses standard present value
methodology and makes assumptions regarding balance sheet growth and mix, market
interest rate levels, and pricing spreads based on instrument type.
15
<PAGE>
The following table illustrates the interest sensitivity gap position of
James River and its subsidiaries as of December 31, 1999. This table presents a
position that existed at one particular day, that changes continually, and that
is not necessarily indicative of James River's position at any other time.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
December 31, 1999
Maturity or Repricing In:
----------------------------------------------------------------
3 Months 4-12 1-5 Over
or Less Months Years 5 Years
------- ------ ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-sensitive assets:
Loans $110,732 $ 60,904 $ 86,821 $ 75,187
Securities 936 6,635 49,029 59,147
Federal Funds sold and other 3,450 - - -
-------- --------- -------- --------
Total interest-sensitive assets $115,118 $ 67,539 $135,850 $134,334
======== ========= ======== ========
Cumulative interest-sensitive assets $115,118 $ 182,657 $318,507 $452,841
======== ========= ======== ========
Interest-sensitive liabilities:
NOW accounts $ 71,549 $ - $ - $ -
Regular savings 54,909 - - -
Certificates of deposit 48,998 88,086 70,877 495
Money market savings 19,393 - - -
Short-term borrowings 4,561 - - -
Long-term borrowings - 6,000 5,000 -
-------- --------- -------- --------
Total interest-sensitive liabilities $199,410 $ 94,086 $ 75,877 $ 495
======== ========= ======== ========
Cumulative interest-sensitive liabilities $199,410 $ 293,496 $369,373 $369,868
======== ========= ======== ========
Period gap $(84,292) $ (26,547) $ 59,973 $133,839
======== ========= ======== ========
Cumulative gap $(84,292) $(110,839) $(50,866) $ 82,973
======== ========= ======== ========
Ratio of cumulative interest-sensitive
assets to interest-sensitive
liabilities 57.73% 62.23% 86.23% 122.43%
Ratio of cumulative gap to total assets (0.17) (0.23) (0.10) 0.17
</TABLE>
Return on Equity and Assets
The following table summarizes ratios for James River and its
subsidiaries considered to be significant indicators of James River's
profitability and financial condition during the periods indicated:
<TABLE>
<CAPTION>
Return on Equity and Assets
Years ended December 31,
----------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average assets 0.88% 0.99% 0.97%
Return on average equity 8.42% 9.33% 9.51%
Dividend payout ratio 49.13% 38.47% 36.77%
Average equity to average asset ratio 10.41% 10.58% 10.22%
</TABLE>
16
<PAGE>
Market Area and Competition
James River has five operating bank subsidiaries with a total of 27
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 and in the Piedmont area of Virginia in
Southern Fauquier County. 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. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of James River.
All five of James River's banking subsidiaries are state chartered banks
and members of the Federal Reserve System. As such, all are subject to
supervision, examination and regulation by the Virginia Bureau of Financial
Institutions and the Federal Reserve. With the exception of FCB, the banking
subsidiaries' deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC"). FCB's deposits continue to be
insured by the Savings Association Insurance Fund ("SAIF") following its
conversion from a federal savings bank to a Virginia state bank.
Federal and state banking laws and regulations govern all areas of the
operations of the banking 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.
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
SAIF or the BIF as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository
17
<PAGE>
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 also is registered under the bank
holding company laws of Virginia. Accordingly, James River and its subsidiaries
are subject to regulation and supervision by the BIF.
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 intangible
assets 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 assets ratios of James
River as of December 31, 1999 were 15.7% and 17.0%, 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, 1999, was 10.3%. 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.
<TABLE>
<CAPTION>
Analysis of Capital
December 31,
--------------------------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Tier 1 Capital:
Common stock $ 23,066 $ 22,827 $ 22,583
Additional paid capital 4,338 4,096 3,789
Retained earnings 25,718 23,531 20,667
Less: Unrealized loss on equity securities (235) (221) (110)
Less: Goodwill (2,324) (2,236) (2,504)
Total Tier 1 capital $ 50,563 $ 47,997 $ 44,425
======== ======== ========
Tier 2 Capital:
Allowance for loan losses 4,028 3,787 3,622
Allowable long-term debt - - -
-------- -------- --------
Total Tier 2 capital $ 4,028 $ 3,787 $ 3,622
======== ======== ========
Risk-weighted assets $321,451 $302,440 $290,497
Capital Ratios:
Tier 1 risk-based capital ratio 15.73% 15.87% 15.29%
Total risk-based capital ratio 16.98% 17.12% 16.54%
Tier 1 capital to average adjusted
total assets 10.31% 9.96% 9.94%
</TABLE>
18
<PAGE>
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.
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.
Liquidity
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale or maturity of existing assets or
the acquisition of additional funds through liability management. Liquid assets
include cash and due from banks, interest-bearing deposits with banks, federal
funds sold, securities available for sale, and investments and loans maturing
within one year. As a result of the Company's management of liquid assets and
the ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity sufficient to satisfy its
depositors' requirements and to meet customers' credit needs.
At December 31, 1999, cash, interest-bearing deposits with banks,
securities classified as available for sale, and federal funds sold were 26.9%
of total earning assets, compared to 30.1% at December 31, 1998.
Employees
At December 31, 1999, James River and its subsidiaries had the
equivalent of 266 full time employees. None of the Company's employees are
represented by any collective bargaining unit. James River considers relations
with its employees to be good.
Item 2. Properties
James River's headquarters are located at 1514 Holland Road, Suffolk,
Virginia. The headquarters are owned by James River. James River does not have
any interest in any other properties other than those owned or leased by its
subsidiaries. James River's five banking subsidiaries collectively own 23 of
their 27 branch banking offices and lease the land for three offices.
19
<PAGE>
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, 1999.
20
<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 40 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 12 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 7 through 11
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 10 and 11 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 14
through 37 of the Annual Report are incorporated herein by
reference.
(b) Unaudited quarterly financial information for the Company is
contained in Note 20 on page 36 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 , JRBC and SBR for the periods
presented.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Information regarding James River's decision to change its independent
accountants is contained in Reports on Form 8-K and 8-K/A previously filed with
the Securities and Exchange Commission on February 3, 1999 and March 8, 1999.
21
<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 2000 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 2000 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 section entitled "Executive Compensation" in the
Company's 2000 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 2000 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 2000 Proxy Statement and is incorporated
herein by reference.
22
<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, 1999 and 1998 and for the three years ending
December 31, 1999, 1998 and 1997, and the auditors' report thereon
are incorporated by reference to the pages indicated in the Annual
Report:
Consolidated Financial Statements Page
--------------------------------- ----
Consolidated Balance Sheets 14
Consolidated Statements of Income 15
Consolidated Statements of Shareholders' Equity 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18
Independent Auditor's Report 13
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 in quarter ended December 31, 1999: None
(c) The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this Form 10-K and such
Exhibit Index is incorporated herein by reference.
(d) Financial Statements excluded from Annual Report pursuant to Rule
14(a)-3(b) - Not applicable.
23
<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 23, 2000.
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 Robert E.
Spencer, Jr. 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 23, 2000
- ------------------------- Director
G. P. Jackson
/s/ Bruce B. Gray Vice Chairman of The March 23, 2000
- ------------------------- Board and Director
Bruce B. Gray
/s/ Harold U. Blythe President and Chief Executive March 23, 2000
- ------------------------- Officer, Director
Harold U. Blythe (Principal Executive Officer)
/s/ Donald W. Fulton, Jr. Senior Vice President and March 23, 2000
- ------------------------- Chief Financial Officer
Donald W. Fulton, Jr. (Principal Financial and Accounting Officer)
/s/ James E. Butler, Jr. Director March 23, 2000
- -------------------------
James E. Butler, Jr.
/s/ John A. Berna Director March 23, 2000
- -------------------------
John A. Berna
/s/ Elmon T. Gray Director March 23, 2000
- -------------------------
Elmon T. Gray
/s/ H. R. Higgins, Jr. Director March 23, 2000
- -------------------------
H. R. Higgins, Jr.
24
<PAGE>
/s/ Ben P. Kanak Director March 23, 2000
- --------------------------
Ben P. Kanak
/s/ John A. Ramsey, Jr. Director March 23, 2000
- --------------------------
John A. Ramsey, Jr.
/s/ Robert E. Spencer, Jr. Director March 23, 2000
- --------------------------
Robert E. Spencer, Jr.
25
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
*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).
*2.4 State Bank of Remington, Inc. Agreement and Plan of Merger dated August
15, 1999 (Incorporated by reference to the Registrant's Registration
Statement of Form S-4, Commission File No. 333-78331, previously filed
with the Commission on May 12, 1999).
*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. (Incorporated by reference to the
Registrant's Form 10-K, Commission File No. 0-26314, previously filed with
the Commission on March 30, 1998.)
*10.7 Early Retirement Agreement dated March 05, 1999, between First Colonial
Bank and James C. Stewart.
***13 Annual Report to security holders.
<PAGE>
*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 Yount, Hyde & Barbour, P.C.
***23.2 Consent of Goodman & Company, L.L.P.
***24.1 Power of Attorney (appears on the signature page hereto)
***27.1 Financial Data Schedule
***99.1 Independent Accountant Report of Goodman & Company, L.L.P.
- --------------------------------------------------------------------------------
* (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.
<PAGE>
Table of Contents
Core Values ............................................................... 2
Financial Highlights ...................................................... 3
Letter to Our Shareholders ................................................ 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................. 7
Five Year Financial Summary ............................................... 12
Report of Independent Auditors ............................................ 13
Consolidated Financial Statements ......................................... 14
Notes to Consolidated Financial Statements ................................ 18
Directors and Officers .................................................... 38
General Information ....................................................... 40
- --------------------------------------------------------------------------------
Annual Report 1999 1
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Core Values
American Companies that have been successful through time and those that
possess the potential to be successful and endure are those that have
established and operate by a set of core values. In 1998, James River
Bankshares' Board of Directors and management developed core values for our
people and the conduct of our business. Every employee and director of our
company endorses and is committed to living our core values, by which we,
collectively and individually, will attempt always:
. To do the right thing;
. To be fair in all that we do;
. To be trustworthy; o To have respect for every individual;
. To provide opportunities for others;
. To first serve rather than be served; and
. To take time to appreciate others and the world in which we live.
Living these values within our company and our lives, we will earn the right to
control our independence and our destiny.
- --------------------------------------------------------------------------------
2 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
<TABLE>
<CAPTION>
Percent
(Dollars in thousands, except per share data) 1999 1998 Change
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Net Interest Income $ 20,455 $18,638 9.75
Net Income 4,304 4,655 (7.54)
Per Share Net Income
Basic $0.94 $1.02 (7.84)
Diluted 0.94 1.00 (6.00)
Dividends 0.48 0.42 14.29
Book Value at Period End 11.05 11.21 (1.43)
At Year Loans, Net $328,856 $312,008 5.40
End Securities 115,747 110,787 4.48
Total Earning Assets 452,841 454,248 (0.31)
Total Assets 487,364 488,873 (0.31)
Total Deposits 418,020 433,899 (3.66)
Shareholders' Equity 50,998 51,179 (0.35)
Ratios Return on Average Assets 0.88% 0.99%
Return on Average Equity 8.42 9.33
Allowance for Loan Losses to
Loans, Net of Unearned Income 1.44 1.35
Leverage Capital Ratio 10.31 9.96
</TABLE>
[GRAPH] [GRAPH] [GRAPH]
<TABLE>
<CAPTION>
NET INCOME TOTAL ASSETS SHAREHOLDERS' EQUITY
thousands) (millions) (millions)
<S> <C> <C> <C> <C> <C>
1995 3,704 1995 388.3 1995 43.5
1996 3,003 1996 443.5 1996 44.6
1997 4,365 1997 454.8 1997 47.7
1998 4,655 1998 488.9 1998 51.2
1999 4,304 1999 487.4 1999 51.0
</TABLE>
- --------------------------------------------------------------------------------
Annual Report 1999 3
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
To Our Shareholders, Customers and Friends
Your company, James River Bankshares, has entered the new millennium with
high expectations and enthusiasm for our franchise. We envision opportunities to
build on the successes of 1999 to improve earnings and, potentially, to continue
to expand the franchise through mergers and acquisitions. In the life of our
five-year old company, 1999 was a year of growth and development. We expanded
the geographic boundaries of our existing franchise through the merger of State
Bank of Remington, Inc. in Fauquier County and the acquisition of Colonial
Loans, Inc., a consumer finance company located in Fredericksburg.
Additionally, we began the year with four newly opened bank branch offices, one
in Chesterfield County in the Tri-Cities market near Hopewell; one in the
Churchland area of Chesapeake; and two on the Peninsula in Newport News and York
County. All of the new branches are located in excellent growth markets and are
part of our strategy to develop our franchise along the golden crescent
stretching from Tidewater through Richmond to Northern Virginia.
We also began the year with a new mortgage company, a venture that we considered
important to our strategy of being a one-stop financial services company.
Unfortunately, our entry into the mortgage market was ill timed, and we down-
sized the mortgage company's operations and instituted other cost cutting
measures in the fall of 1999.
Earnings Results
With this aggressive growth agenda, we achieved steady improvements in
terms of core profitability. Net income and profitability ratios increased
quarter by quarter during 1999, culminating in record net income in the fourth
quarter. We were encouraged by increases in both net interest income and non-
interest income. After experiencing a contraction in the net interest margin
early in the year, we were successful in reversing that trend and ultimately
increased net interest income 10% in 1999 compared with 1998. We also improved
non-interest income 18% on a core basis, excluding non-recurring income recorded
in 1998. However, higher expense levels associated with the growth initiatives
and merger expenses, as well as an increase in the loan loss provision in 1999
more than offset these improvements. The overall result was net income of $4.3
million, or $.94 per fully diluted share in 1999 compared with $4.7 million, or
$1.00 per fully diluted share, in 1998. These and other factors that affected
net income in 1999 are addressed more fully in the discussion of the financial
statements.
Mergers and Acquisitions
We were pleased to add State Bank of Remington to James River's family of
community banks and financial services companies in August 1999. With
approximately $74 million in assets and three banking offices, State Bank is
based in Southern Fauquier County. The bank has solid financial fundamentals and
a strong management team and experienced staff. In addition, it is situated
adjacent to growth markets with favorable demographics. In 2000 we plan to
explore opportunities to expand further into these nearby markets.
We also added Colonial Loans, Inc., a consumer finance company, to our franchise
in October 1999. Although the company has only $3 million in receivables, it
added profitability to the Company in the fourth quarter. Colonial has a single
office in Fredericksburg and has served that community for over 50 years.
Year 2000 Focus
Now that we have survived the millennium date changeover with minimal
impact, it is time to focus attention on our plans and goals for the year ahead.
In assessing the economic environment and the Company's current position, we
have returned to fundamentals. Our first priority is to maintain strong levels
of credit quality. A rising interest rate environment potentially may lead to a
slowing economy and ultimately to
NET
INCOME
[GRAPH]
1st quarter 782
2nd quarter 976
3rd quarter 1,039
4th quarter 1,507
NET INTEREST
MARGIN
[GRAPH]
1st quarter 4.36
2nd quarter 4.48
3rd quarter 4.69
4th quarter 4.94
- --------------------------------------------------------------------------------
4 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
impaired credit. We want to ensure that our loan underwriting standards continue
to function well and that our borrowers are able to adjust to economic changes
without significant difficulty.
Our next priority is to improve sales and, consequently, revenues. To meet this
objective, we plan to develop sales training programs, review and modify as
needed our products and services, and strengthen our marketing efforts. We have
appointed an internal task force to address these and other sales issues. We
also expect to create a position within the Company for a marketing director in
2000.
The third priority, which also is fundamental, is to continue to explore ways to
reduce overhead expense. We implemented a variety of initiatives in 1998 and
1999 that consolidated a number of back-office operational functions. In 2000,
we will integrate many of the back-office functions of State Bank of Remington.
We also plan to take initial steps towards the consolidation of loan processing
activities this year. In addition, we have identified other expense items that
we will target for possible improvements. Finally, in 2000 we will examine our
branch office structure to determine the viability of some of our smaller
offices. As a first step towards greater efficiency, we consolidated James River
Support, our operations subsidiary, into the holding company's parent company at
year-end.
Strategic Considerations
As we have noted previously, we believe that continued expansion of the
Company's franchise through mergers and acquisitions of both banks and
non-banking financial services companies is in the long-term best interests of
the Company and our shareholders. We also agree with the premise that a major
Virginia-based financial institution would have a significant marketing
advantage following the acquisition of most of Virginia's large banking
institutions by out of state buyers. In addition, a proposed accounting rule
change that would eliminate the favored method of accounting for mergers is
expected to be effective at the end of the year. Because of this proposed
change, it is anticipated that companies will try to complete more mergers in
2000 in advance of the rule change.
While these and other factors are favorable for expansion through mergers and
acquisitions, we enter the new year with greater caution than customary. First,
we are committed to continuing to improve the Company's earnings performance.
Premiums paid in merger transactions as well as the costs of completing them
normally have a short-term dilutive impact. In addition, the valuation of bank
stocks, and in particular community bank stocks, is not conducive for completing
transactions. Thus, we will continue to explore this means of growth, but we
will do so in consideration of the financial factors that will contribute to
shareholder value.
In Closing
Throughout most of 1999, the progress that we were making in core profitability
was obscured by the start-up costs of our growth initiatives, merger expenses,
and comparisons with 1998 that included non-recurring income. Our efforts and
patience were rewarded in the fourth quarter of 1999 as the Company achieved
record quarterly profits.
The coming year promises its own set of challenges. Higher interest rates are
expected to raise funding costs and may result in pressure on the net interest
margin. Higher interest rates also could lead to credit quality issues. In
addition, we expect increased competition from internet based financial service
providers and from recent federal legislation that allows cross-industry
affiliations. Finally, we will continue to grapple with the issue of unfair
competition from credit unions, which pay no federal or state income taxes.
Our strategy for dealing with the challenges of 2000 is to focus on the
fundamentals. We are proud of the accomplishments of 1999 and believe that the
Company is well positioned for the year ahead. Our achievements are attributable
to
RETURN ON
AVERAGE ASSETS
[GRAPH]
1st quarter 0.64
2nd quarter 0.79
3rd quarter 0.85
4th quarter 1.22
RETURN ON
AVERAGE EQUITY
[GRAPH]
1st quarter 6.08
2nd quarter 7.61
3rd quarter 8.24
4th quarter 11.76
- --------------------------------------------------------------------------------
Annual Report 1999 5
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
the collective efforts of the boards of directors and management teams of the
holding company and its subsidiaries, and to the excellent staff that executes
our plans and strategies. We are thankful for and grateful to all of the people
who comprise James River Bankshares.
For our shareholders, we express a special note of thanks this year. It has been
painful to watch the declining market for the Company's stock over the past
year. Pricing for bank stocks fell dramatically throughout the year. Smaller
banking companies, such as James River, were among the hardest hit. While
Company earnings played a role in the lower stock price, declining valuations
for the industry had a significant impact. Our efforts will be directed towards
earnings improvements while we await improved valuation levels from the market.
/s/ G. P. Jackson /s/ Harold U. Blythe
G. P. Jackson Harold U. Blythe
Chairman President and C.E.O.
- --------------------------------------------------------------------------------
6 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 future results to differ materially from those
anticipated in such forward looking statements. These forward looking statements
include, but are not limited to, statements regarding management's goals to
improve profitability, make strategic acquisitions, and other future plans,
expectations, or goals. Risks and uncertainties that may affect the financial
condition and results of operations of the Company include, but are not limited
to, general economic and business conditions, competition from banks and other
financial service providers, interest rate trends, 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.
Business Combinations
During 1999, the Company merged with a community bank and acquired a consumer
finance company. On August 15, 1999, the Company completed a merger with State
Bank of Remington, Inc. ("State Bank"). The Company exchanged 2.9 shares of its
common stock for each of the approximately 291,000 shares outstanding of State
Bank common stock. The merger was accounted for as a pooling of interests, and,
accordingly, all historical financial information for prior periods has been
restated to give effect to the acquisition as if it had occured at the earliest
date presented. On October 1, 1999, the Company acquired Colonial Loans, Inc.
This acquisition was accounted for as a purchase. Additional information
concerning these transactions is contained in Note 2 of the Notes to
Consolidated Financial Statements.
Earnings Performance
James River's net income decreased 8% in 1999 to $4.3 million. In 1998, net
income was $4.7 million. Diluted net income per share decreased 6% in 1999 to
$.94 from $1.00 in 1998. A 3% decrease in non-interest income and a 14% increase
in non-interest expense offset a 10% increase in net interest income in 1999
over 1998. Although net income decreased, core profitability showed steady
improvements throughout the year, culminating in record quarterly net income in
the fourth quarter of the year. In 1999, net non-recurring expenses totaled $207
thousand after taxes, while 1998 included net non-recurring income of $81
thousand after taxes. Excluding these non-recurring items, net income was $4.5
million in 1999 and $4.6 million in 1998. Start-up costs and other expenses
associated with four new branch offices and a new mortgage company also affected
earnings results in both 1999 and 1998.
Lower net income in 1999 produced lower profitability ratios. The return on
average assets decreased in 1999 to .88% from .99% in 1998. The return on
average shareholders' equity was 8.42% in 1999 compared to 9.33% in 1998. On the
basis of recurring net income, the return on average assets was .92% in 1999
compared with .97% in 1998 and the return on average equity was 8.83% in 1999
compared with 9.17% in 1998. The Company's efficiency ratio increased to 69.91%
in 1999 from 66.33% in 1998. The efficiency ratio measures operating expenses as
a percent of income (tax-equivalent net interest income plus non-interest
income).
Net income in 1998 of $4.7 million represented a 7% increase over 1997 net
income of $4.4 million. Diluted net income per share was $1.00 in 1998 compared
with $.95 in 1997. The increase in net income in 1998 was attributable partially
to $352 thousand after taxes of non-recurring income associated with gains on
the sale of securities and mortgage servicing rights. In addition, in 1998 the
Company incurred non-recurring expense of $271 thousand after taxes related to a
charge for foreclosed properties. Excluding these non-recurring items, net
income improved 5% in 1998 over 1997.
[GRAPH]
RETURN ON
AVERAGE ASSETS
(percent)
1995 1.01
1996 0.71
1997 0.97
1998 0.99
1999 0.88
[GRAPH]
RETURN ON
AVERAGE EQUITY
(percent)
1995 9.08
1996 7.02
1997 9.51
1998 9.33
1999 8.42
[GRAPH]
DILUTED EARNINGS
PER SHARE
(dollars)
1995 0.81
1996 0.66
1997 0.95
1998 1.00
1999 0.94
- --------------------------------------------------------------------------------
Annual Report 1999 7
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
[GRAPH]
NET INTEREST MARGIN
(percent)
1995 4.31
1996 4.29
1997 4.48
1998 4.41
1999 4.62
[GRAPH]
NET LOANS
(millions)
1995 240.9
1996 274.2
1997 293.4
1998 312.0
1999 328.9
[GRAPH]
DEPOSITS
(millions)
1995 342.4
1996 396.8
1997 404.3
1998 433.9
1999 418.0
Management's Discussion & Analysis of
Financial Condition & Results of Operations
Net Interest Income
Net interest income is the difference between interest income and interest
expense and represents the Company's gross profit margin. In 1999, net interest
income increased 10% to $20.5 million from $18.6 million in 1998. Interest
income increased 2% and interest expense decreased 6% in 1999 over 1998. The
increase in interest income was attributable primarily to a 5% growth in earning
assets. The decrease in interest expense was attributable to a 2% decline in
interest bearing liabilities, a change in the mix of interest bearing
liabilities, and lower rates paid on certain liabilities.
The net interest margin represents tax-equivalent net interest income divided
by average earning assets and reflects the effective rate earned by the Company
on its average earning assets. For comparative purposes, the income from tax-
exempt securities and loans is adjusted to a tax-equivalent basis, which results
in presenting such income on a comparable basis with fully taxable income. In
1999, the Company's net interest margin increased to 4.62% from 4.41% in 1998.
Yields on earning assets declined to 8.04% in 1999 from 8.22% in 1998, while
rates paid on interest-bearing liabilities decreased to 4.15% in 1999 from 4.56%
in 1998. Interest rate changes in 1999 and 1998 influenced the net interest
margin comparison. In the fall of 1998, short-term rates began to move lower.
The initial impact was to lower asset yields more than liability costs and to
compress the net interest margin. In early 1999, the cost of funds decreased as
a result of market conditions as well as management pricing decisions. By mid-
year, short-term interest rates began to rise, and higher asset yields
contributed to additional expansion of the net interest margin. The trend to
higher interest rates continued throughout the remainder of 1999, but increases
in funding costs began to mitigate the positive effects of higher asset yields.
In 1998, net interest income increased 3% to $18.6 million from $18.0 million
in 1997. Interest income grew 3% in 1998, and interest expense also increased
3%. This increase was due to a combination of volume increase and rate decrease.
The net interest margin decreased in 1998 to 4.41% from 4.48% in 1997. The
tax-equivalent yield on earning assets decreased 14 basis points to 8.22% in
1998, and the cost of funds decreased 2 basis points to 4.56%. Declining market
rates, primarily in the second half of 1998, influenced loans and other earning
assets more than deposits and other interest-bearing liabilities.
Provision for Loan Losses
The provision for loan losses is the amount charged to expense that is
intended to maintain an adequate allowance, or reserve, for loan losses in the
future. The amount of the provision for loan losses in any given period is
dependent upon a variety of factors including the size, growth, and composition
of the loan portfolio, historical and expected loan loss experience, and an
analysis of the quality of the loan portfolio and general economic conditions.
In 1999, the Company increased its provision for loan losses to $670 thousand
from $537 thousand in 1998. In 1997, the provision was $469 thousand. The higher
provision in 1999 over 1998 reflected a 5% increase in the loan portfolio,
changes in the composition and risk characteristics of the portfolio, an
increase in loan losses and non-performing assets, and certain concerns over the
longevity of the economic expansion.
Non-Interest Income
Non-interest income includes service charges and other related income from
services rendered by the Company. It also includes gains and losses realized
from the sale of securities, loans, and fixed assets and other income items. In
1999, non-interest income decreased $101 thousand to $3.1 million from $3.2
million in 1998. Service charges on deposit accounts increased 26% to $2.2
million in 1999 from $1.7 million in 1998. In 1998, the Company recorded $128
thousand from mortgage servicing rights and $457 thousand in income from the
sale of securities, of which $439 thousand was a non-recurring sale of equity
securities. Excluding these non-recurring items, non-interest income increased
18% in 1999 over 1998.
In 1998, non-interest income increased 42% to $3.2 million from $2.3 million
recorded in 1997. The increase was attributable primarily to the non-recurring
items discussed above.
Non-Interest Expense
Non-interest expense represents the overhead expenses of the Company. In
1999, non-interest expense increased 14% to $17.0 million from $14.9 million in
1998. Salaries and employee benefits increased 17%, occupancy expense increased
30%, and equipment expense was 13% higher in 1999 compared with 1998. The forma-
- --------------------------------------------------------------------------------
8 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis of Financial Condition & Results of
Operations
tion of a mortgage company, the addition of four new branch offices, and the
completion of the Company's new administrative building in 1998 affected
overhead expense increases. These factors were prevalent throughout 1999 and the
fourth quarter of 1998. In 1999, non-recurring items consisted of merger
expenses of $274 thousand and restructuring expenses of $142 thousand. These
expenses were offset partially by a fourth quarter pension liability termination
for State Bank, resulting in net non-recurring expense of $208 thousand in 1999.
In 1998, non-recurring charges for foreclosed properties were $410 thousand.
Exclusive of non-recurring items for 1999 and 1998, non-interest expense would
have increased 15%.
In 1998, non-interest expense increased $1.2 million, or 9%, to $14.9 million
from $13.7 million in 1997. Salaries and employee benefits increased 7%,
occupancy expense increased 16%, and other expense was 14% higher in 1998
compared with 1997. The increase in other expense was attributable principally
to the non-recurring expense for foreclosed properties. On a recurring basis,
total non-interest expense was $14.5 million, or 6%, greater than the 1997
amount.
Income Taxes
Income tax expense in 1999 was $1.6 million, down 6% from $1.7 million
recorded in 1998. In 1997, income tax expense was also $1.7 million. The
decrease in expense in 1999 related primarily to lower taxable income. The
effective tax rates in 1999, 1998, and 1997 were 26.99%, 26.64%, and 28.36%
respectively.
Financial Condition
The Company's financial condition is measured in terms of its asset and
liability composition, asset quality, capital resources, and liquidity. At
December 31, 1999, total assets were $487 million, or .3% lower than the year
earlier total of $489 million. Average assets in 1999 of $491 million were 4%
above the year earlier average of $471 million.
Loans
Loans, net of unearned income, at year-end 1999 totaled $329 million, or 5%
above the year earlier total of $312 million. Loans averaged $328 million in
1999 and $308 million in 1998. Loan growth in 1999 was concentrated principally
in commercial loans, commercial real estate loans and real estate mortgage
loans.
Investments
At December 31, 1999, investment securities totaled $116 million, or 4% above
the year earlier total of $111 million. In 1999 investment securities averaged
9% higher than in 1998. In 1999, the portfolio produced a tax-equivalent yield
of 6.5% compared with 6.6% in 1998. At year-end, 97.9% of all securities were
rated "A" or better or were issued by the U.S. Government or its agencies.
Deposits
Total deposits decreased 4% to $418 million at year-end 1999 compared with
$434 million one year earlier. Average deposits increased 3% in 1999 to $427
million compared with the 1998 average of $416 million. Non-interest bearing
demand deposits increased to $64 million in 1999 compared to $56 million in
1998, while time deposits decreased $19 million from $227 million in 1998 to
$208 million in 1999. The decrease in time deposits, and, consequently, in total
deposits was related to increased competition, continued outflow of funds to
securities markets, and to pricing strategies deployed by the Company to improve
the net interest margin.
Asset Quality
The Company strives to maintain asset quality by emphasizing strong credit
underwriting and by monitoring the portfolio's repayment performance, among
other measures. The Company maintains an allowance for loan losses that it
believes is sufficient to absorb losses that might be incurred. In determining
the adequacy of the allowance for loan losses, management considers the size and
composition of the loan portfolio, historical loss experience, economic
conditions, the value and adequacy of collateral and guarantors, and the current
level of the allowance. In addition, consideration is given to potential losses
associated with non-accrual loans, impaired loans, and delinquent loans.
Management believes that the allowance for loan losses is maintained at a
sufficient level to provide for potential losses in the portfolio.
At December 31, 1999, the allowance totaled $4.8 million, or 1.44% of loans.
The allowance totaled $4.3 million, or 1.35% of loans at the end of 1998. Net
loans charged off were $333 thousand in 1999 and $192 thousand in 1998. The
ratio of net charged off loans to average loans was .10% in 1999, .06% in 1998,
and .11% in 1997. Non-performing loans as a percent of
[GRAPH]
LOAN TO DEPOSIT
RATIO
(percent)
1995 71.38
1996 70.06
1997 73.55
1998 72.89
1999 79.82
[GRAPH]
SECURITIES
(millions)
1995 104.7
1996 124.8
1997 105.8
1998 110.8
1999 115.7
[GRAPH]
RESERVES AS PERCENT
OF LOANS
1995 1.45
1996 1.36
1997 1.32
1998 1.35
1999 1.44
- --------------------------------------------------------------------------------
Annual Report 1999 9
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
[GRAPH]
NON-PERFORMING
LOANS / TOTAL LOANS
(percent)
1995 0.30
1996 0.16
1997 0.30
1998 0.12
1999 0.13
[GRAPH]
NET CHARGED-OFF
LOANS TO AVERAGE LOANS
(percent)
1995 0.05
1996 0.12
1997 0.11
1998 0.06
1999 0.10
Management's Discussion & Analysis of Financial Condition & Results of
Operations
total loans at year-end were .13%, .12%, and .30% in 1999, 1998, and 1997,
respectively. Additional information concerning impaired loans and the allowance
for loan losses is contained in Note 5 of the Notes to Consolidated Financial
Statements.
Shareholders' Equity and Capital Resources
Shareholders' equity at year-end 1999 was $51.0 million, or .4% lower than
the year earlier total of $51.2 million. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, shareholders' equity includes an
adjustment for the mark to market value of securities available for sale, net of
deferred taxes. In 1999, the adjustment represented an unrealized loss, net of
deferred taxes, of $2.1 million. Shareholder's equity in 1998 included an
unrealized gain, net of deferred taxes, of $725 thousand. In 1999, shareholder's
equity averaged $51.1 million, which was 2% above the 1998 average of $49.9
million.
In the third quarter of 1999, the Company's board of directors authorized the
repurchase of 50 thousand shares of the Company's common stock. The
authorization approximated the number of shares issued in the acquisition of
Colonial Loans. Through year-end 1999, the Company had purchased 36 thousand
shares of the authorization at a cost of $468 thousand.
Federal banking law sets forth certain regulatory capital requirements that
apply to the Company and its banking subsidiaries. Within the framework
established by this law, the Company and its banking subsidiaries qualify for
the classification "well capitalized," which is the highest regulatory
classification. At year-end 1999, the Company's regulatory capital ratios were
as follows: Tier 1 Capital to Risk Weighted Assets - 15.7%; Total Capital to
Risk Weighted Assets - 17.0%; and Tier 1 Capital to Quarterly Average Assets (
leverage ratio) - 10.3%. Additional information concerning regulatory capital
requirements is contained in Note 13 of the Notes to Consolidated Financial
Statements. At December 31, 1999 and 1998, the Company's equity to asset ratio
was 10.4% and 10.5%, respectively.
The Company's common stock is traded on the NASDAQ Stock Market's National
Market System under the trading symbol JRBK. At December 31, 1999, the book
value of a share of common stock was $11.05 compared with the year earlier book
value of $11.21. The decline in book value from year-end 1998 to year-end 1999
was attributable principally to the market value adjustment of securities
available for sale included in equity and as discussed above. Cash dividends
paid on the Company's common stock totaled $2.1 million in 1999 and $1.8 million
in 1998. The cash dividend paid in 1999 was $.48 per share compared to $.42 per
share in 1998. The quarterly cash dividend was increased 20% per share in the
fourth quarter of 1998.
Liquidity and Market Risk
Liquidity in a banking company measures the ability of the company to
generate sufficient cash to meet its daily obligations, pay dividends to
shareholders, and to provide funds for customer's demands for loans and deposit
withdrawals without impairing profitability. To meet these needs, the Company
maintains cash reserves and readily marketable investment securities in addition
to regular fund flows provided from loan repayments and maturing securities.
Funds also can be obtained through increasing deposits or short-term borrowings
and through the banks' borrowing privileges at the Federal Reserve and the
Federal Home Loan Bank. In addition, the Company has a $1 million line of credit
of which $.5 million was available at year-end 1999. At year-end 1999, the
Company's federal funds sold and interest-bearing deposits totaled $3.5 million,
and securities with maturities of one year or less totaled $9.3 million.
Management believes that its liquidity is adequate to meet its projected needs.
A related concern of liquidity management is interest rate sensitivity.
Changes in interest rates may affect funding requirements, the liquidity of
certain assets, and, potentially, the income stream of the Company. The Company
currently uses traditional asset and liability management techniques to manage
its interest rate risk. As such, it monitors the difference, or gap, between the
volume of interest sensitive assets and liabilities that will mature or reprice
over various time intervals. At December 31, 1999, the Company had $84.3 million
more in liabilities than assets that mature or reprice within three months or
less, and, therefore, was in a liability sensitive position. In a period of
declining interest rates, this position could have a positive impact on the
Company's earnings. Conversely, in a rising rate
- --------------------------------------------------------------------------------
10 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis of
Financial Condition & Results of Operations
environment a liability sensitive position could adversely affect
earnings. In either scenario, certain repricing decisions are within
management's discretion and can influence actual results.
In addition, the Company measures the effects of changes in interest rates on
the economic value of equity, net interest income, and net income. The Company's
analysis measures hypothetical interest rate changes in a variety of scenarios.
A present value computation is used in determining the effect of the
hypothetical interest rate changes on the fair value of interest sensitive
assets and liabilities. Computations of prospective effects of these
hypothetical interest rate changes are based on many assumptions, including
relative levels of market interest rates, loan prepayments, and deposit decay.
The results of the analyses should not be relied upon as indicative of actual
results. The computations do not contemplate actions that could be undertaken by
management in response to changes in interest rates. In addition, certain
shortcomings, which could affect the actual values of interest sensitive assets
and liabilities, are inherent in this method of analysis. Given these and other
limitations of the analysis, if interest rates increased or decreased 200 basis
points instantaneously, net interest income would decrease by 5.2% and increase
by 4.5%, respectively. The above analysis uses standard present value
methodology and makes assumptions regarding balance sheet growth and mix, market
interest rate levels, and pricing spreads based on 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.
Year 2000
The Company's preparation for the Year 2000 changeover proved to be fully
adequate, as no technical difficulties were experienced. The cost associated
with Year 2000 readiness was $82 thousand, and is considered immaterial to the
results of James River.
- --------------------------------------------------------------------------------
Annual Report 1999 11
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
Five Year Financial Summary
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Interest Income $ 36,204 $ 35,326 $ 34,150 $ 31,722 $ 27,250
Interest Expense 15,749 16,688 16,143 15,505 12,956
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 20,455 18,638 18,007 16,217 14,294
Provision for Loan Losses 670 537 469 521 342
- ------------------------------------------------------------------------------------------------------------
Net Interest Income after
Provision for Loan Losses 19,785 18,101 17,538 15,696 13,952
Non-Interest Income 3,087 3,188 2,252 2,023 1,564
Non-Interest Expense 16,977 14,944 13,697 13,575 10,405
- ------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,895 6,345 6,093 4,144 5,111
Income Taxes 1,591 1,690 1,728 1,141 1,407
- ------------------------------------------------------------------------------------------------------------
Net Income $ 4,304 $ 4,655 $ 4,365 $ 3,003 $ 3,704
============================================================================================================
Per Share Data*
Net Income - Basic $ 0.94 $ 1.02 $ 0.97 $ 0.66 $ 0.82
Net Income - Diluted 0.94 1.00 0.95 0.66 0.81
Cash Dividends 0.48 0.42 0.37 0.35 0.29
Book Value at Period End 11.05 11.21 10.57 9.85 9.63
Tangible Book Value at Period End 10.53 10.70 10.02 9.30 9.59
Balance Sheet Data
Total Assets $ 487,364 $ 488,873 $ 454,812 $ 443,537 $ 388,387
Loans, Net 328,856 312,008 293,429 274,196 240,854
Securities 115,747 110,787 105,818 124,803 104,668
Deposits 418,020 433,899 404,277 396,756 342,418
Shareholders' Equity 50,998 51,179 47,743 44,576 43,495
Performance Ratios
Return on Average Assets 0.88% 0.99% 0.97% 0.71% 1.01%
Return on Average Shareholders'
Equity 8.42 9.33 9.51 7.02 9.08
Efficiency Ratio 69.91 66.33 65.42 71.57 63.32
Net Interest Margin 4.62 4.41 4.48 4.29 4.31
Credit Quality Ratios
Allowance for Loan Losses to
Non-Performing Loans 1071.14% 1095.64% 437.90% 835.92% 476.78%
Allowance for Loan Losses to
Non-Performing Assets 215.77 210.49 117.39 138.81 135.94
Allowance for Loan Losses to
Year-End Loans, Net of
Unearned Income 1.44 1.35 1.32 1.36 1.45
Net Charged-off Loans to Average
Loans, Net of Unearned Income 0.10 0.06 0.11 0.12 0.05
Capital and Liquidity Ratios
Leverage 10.31% 9.96% 9.94% 9.92% 11.05%
Risk Based:
Tier 1 Capital 15.73 15.87 15.29 16.39 21.15
Total Capital 16.98 17.12 16.54 17.64 22.40
Average Loans to
Average Deposits 76.91 74.00 73.30 69.91 70.38
Average Shares Outstanding*
Basic 4,588,608 4,547,436 4,519,179 4,520,012 4,500,126
Diluted 4,594,643 4,633,133 4,577,192 4,581,035 4,546,542
============================================================================================================
</TABLE>
* Restated to reflect three-for-two stock split in the form of a stock
dividend in November 1997.
- --------------------------------------------------------------------------------
12 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 sheet of James River
Bankshares, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of James River Bankshares, Inc. and Subsidiaries for the years ended
December 31, 1998 and 1997 were audited by other auditors whose report, dated
January 28, 1999, expressed an unqualified opinion on those statements. We
audited the 1998 and 1997 financial statements of State Bank of Remington, Inc.,
a company which was pooled with James River Bankshares, Inc. in 1999, as
explained in Note 2 to the consolidated financial statements. Our report dated
January 27, 1999, expressed an unqualified opinion of those statements. Those
statements are included in the restated 1998 and 1997 consolidated financial
statements and reflect total assets and revenue constituting 14.1% and 13.3%,
respectively in 1998, and 13.5% of revenue in 1997, of the related consolidated
totals.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 audit provides 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, 1999, and the results of
their operations and their cash flows for the year ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Certified Public Accountants and Consultants
Winchester, Virginia
January 13, 2000
- --------------------------------------------------------------------------------
Annual Report 1999 13
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 16,374 $ 16,969
Interest bearing deposits with banks 1,290 12,031
Federal funds sold 2,160 15,149
Securities available-for-sale, at fair value 101,992 94,691
Securities held-to-maturity, at amortized cost (fair value
approximates $13,569 and $16,523 at
December 31, 1999 and 1998) 13,755 16,096
Loans, net of allowance for loan losses of $4,788 in 1999 and $4,273 in 1998 328,511 308,409
Loans held for sale, net 345 3,599
Accrued interest receivable 3,434 3,373
Foreclosed assets, net 1,772 1,639
Premises and equipment, net 10,995 11,468
Intangible assets, net 2,411 2,342
Other assets 4,325 3,107
- -----------------------------------------------------------------------------------------------------------------------
$ 487,364 $ 488,873
=======================================================================================================================
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest bearing $ 63,713 $ 56,362
Interest bearing 354,307 377,537
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 418,020 433,899
Accrued interest payable 998 982
Short-term borrowings 4,561 742
Long-term borrowings 11,000 -
Other liabilities 1,787 2,071
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 436,366 437,694
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock, $5 par value per share
(2,000,000 shares authorized; none issued) - -
Common stock, $5 par value per share (10,000,000
shares authorized; 4,613,203 and 4,565,326 shares
issued and outstanding at December 31, 1999 and
1998, respectively) 23,066 22,827
Additional paid-in-capital 4,338 4,096
Retained earnings 25,718 23,531
Accumulated other comprehensive income (loss) (2,124) 725
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 50,998 51,179
$ 487,364 $ 488,873
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
14 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income
Loans $ 28,569 $ 27,646 $ 26,589
Securities:
Taxable 5,667 5,119 5,690
Exempt from federal income taxes 1,317 1,288 1,233
Federal funds sold and other 651 1,273 638
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 36,204 35,326 34,150
- -----------------------------------------------------------------------------------------------------------------------
Interest expense
Deposits 15,283 16,634 16,096
Federal funds purchased and other 466 54 47
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 15,749 16,688 16,143
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 20,455 18,638 18,007
Provision for loan losses 670 537 469
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 19,785 18,101 17,538
- -----------------------------------------------------------------------------------------------------------------------
Non-interest income
Service charges on deposit accounts 2,180 1,737 1,388
Other fees and commissions 515 563 558
Net realized gains on disposition
of securities 14 457 109
Other income 378 431 197
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest income 3,087 3,188 2,252
- -----------------------------------------------------------------------------------------------------------------------
Non-interest expense
Salaries and employee benefits 9,283 7,945 7,430
Occupancy expense 1,346 1,035 891
Equipment 1,265 1,116 1,130
Other expense 5,083 4,848 4,246
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 16,977 14,944 13,697
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,895 6,345 6,093
Provision for income taxes 1,591 1,690 1,728
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 4,304 $ 4,655 $ 4,365
=======================================================================================================================
Net income per common share
Basic $ 0.94 $ 1.02 $ 0.97
Diluted $ 0.94 $ 1.00 $ 0.95
=======================================================================================================================
Weighted average number of shares
outstanding during the year
Basic 4,588,608 4,547,436 4,519,179
Diluted 4,594,643 4,633,133 4,577,192
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
Annual Report 1999 15
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
Years Ended December 31, 1999, 1998 and 1997
ACCUMULATED
SHARES OF OTHER
COMMON COMMON ADDITIONAL RETAINED COMPREHENSIVE
STOCK STOCK PAID-IN-cAPITAL EARNINGS INCOME (LOSS) TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 3,301,928 $ 16,510 $ 3,739 $ 24,306 $ 22 $ 44,577
Comprehensive income:
Net income -- -- -- 4,365 -- 4,365
Change in unrealized gain (loss)
on securities available-for-sale,
net of taxes -- -- -- -- 682 682
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 4,365 682 5,047
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued 1,699 9 27 -- -- 36
ESOP termination (18,352) (92) -- (281) -- (373)
Stock options exercised 7,783 39 27 -- -- 66
Cash paid in lieu of fractional
shares (209) (1) (3) -- -- (4)
Cash dividends declared ($0.37 per
share) -- -- -- (1,605) -- (1,605)
Stock split effected in the form
of a stock dividend 1,223,686 6,118 -- (6,118) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 4,516,535 22,583 3,790 20,667 704 47,744
Comprehensive income:
Net income -- -- -- 4,655 -- 4,655
Change in unrealized gain (loss)
on securities available-for-sale,
net of taxes -- -- -- -- 21 21
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 4,655 21 4,676
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued 1,681 9 26 -- -- 35
Stock options exercised 47,110 235 280 -- -- 515
Cash dividends declared ($0.42 per
share) -- -- -- (1,791) -- (1,791)
- ------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 4,565,326 22,827 4,096 23,531 725 51,179
Comprehensive income:
Net income -- -- -- 4,304 -- 4,304
Change in unrealized gain
(loss) on securities available-for-sale,
net of taxes -- -- -- -- (2,849) (2,849)
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 4,304 (2,849) 1,455
- ------------------------------------------------------------------------------------------------------------------------------
Common stock issued 2,765 14 28 -- -- 42
Common stock issued in acquisition 52,665 263 537 -- -- 800
Stock options exercised 57,488 287 343 -- -- 630
Common stock surrendered and
repurchased (64,878) (324) (664) -- -- (988)
Cash paid in lieu of fractional
shares (163) (1) (2) -- -- (3)
Cash dividends declared ($0.48 per
share) -- -- -- (2,117) -- (2,117)
- ------------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 4,613,203 $ 23,066 $ 4,338 $ 25,718 $ (2,124) $ 50,998
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
16 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands)
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 4,304 $ 4,655 $ 4,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 670 537 469
Depreciation and amortization 1,590 1,424 1,427
Gain on disposition of securities (14) (457) (109)
Gain on sale of fixed assets (7) (99) (1)
Loss on other real estate owned -- 410 --
Changes in:
Loans held for sale 3,254 (2,810) 403
Interest receivable (61) 11 211
Other assets 331 (497) 93
Interest payable 16 66 132
Other liabilities (342) 424 340
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,741 3,664 7,330
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from dispositions of available-
for-sale securities 25,394 35,574 32,222
Purchase of available-for-sale securities (37,008) (42,452) (11,924)
Redemption of held-to-maturity securities 2,939 4,592 4,034
Purchase of held-to-maturity securities (617) (2,227) (4,258)
Net increase in loans (18,023) (16,402) (20,542)
Net assets acquired in purchase, net of cash and cash equivalents (1,210) -- --
Purchase of property and equipment (738) (3,653) (1,066)
Proceeds from sale of property and equipment 29 198 824
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (29,234) (24,370) (710)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Cash dividends paid (2,117) (1,791) (1,605)
Net increase (decrease) in deposits (15,879) 29,623 7,521
Issuance of common stock 672 550 101
Common stock repurchased and surrendered (988) -- (373)
Purchase of fractional shares (3) -- (4)
Proceeds from short-term borrowings 2,483 542 95
Proceeds from long-term borrowings 11,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (4,832) 28,924 5,735
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (24,325) 8,218 12,355
Cash and cash equivalents - beginning 44,149 35,931 23,576
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 19,824 $ 44,149 $ 35,931
====================================================================================================================================
Cash paid during the year for:
Interest $ 15,733 $ 16,713 $ 16,011
====================================================================================================================================
Income taxes $ 1,266 $ 1,993 $ 1,602
====================================================================================================================================
Noncash financing activities:
Real estate acquired in settlement of loans $ 273 $ 300 $ 436
====================================================================================================================================
Issuance of common stock in exchange for net assets in acquisition $ 800 $ -- $ --
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
Annual Report 1999 17
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
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, Hopewell, Virginia; James River
Bank/Colonial, Smithfield, Virginia; State Bank of Remington, Remington,
Virginia (collectively the "Banking Subsidiaries"); and Family Finance
Corporation, a consumer loan company, Family Finance of Virginia, Inc., a
consumer equity lender, Colonial Loans, Inc., a consumer loan company, and James
River Support, Inc., an operations support center. In addition, James River Bank
owns Mortgage Company of James River, Inc., which is a residential mortgage loan
company formed in the fourth quarter of 1998. The Banking Subsidiaries operate
twenty-seven banking offices in southeastern Virginia and in the Piedmont area
of Virginia in Southern Fauquier county. 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 mergers had occurred at the earliest date presented. Certain
previously reported amounts have been reclassified to conform to current
presentations.
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, 1999 and 1998 were $3,345,000 and $2,047,000,
respectively.
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 unrealized gains and losses
excluded from earnings and reported in other comprehensive income. 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 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
- -------------------------------------------------------------------------------
1999 Annual Report 18
- -------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
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 allowance for loan losses is established through charges to earnings in the
form of a 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.
Manage-ment'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 also are 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.
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. 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.
Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
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 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.
EARNINGS PER COMMON SHARE
Basic earnings per share represents income available to common shareholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options, and are determined using the treasury stock method.
On September 25, 1997, the Board of Directors declared a 3-for-2 stock split
effected in the form of a 50% stock dividend,
- --------------------------------------------------------------------------------
Annual Report 1999 19
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
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 allowance may be necessary based on changes in local economic
conditions and other factors.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components. Comprehensive income is displayed in
the Company's Consolidated Statements of Changes in Shareholders' Equity. The
Company's comprehensive income includes net income and net unrealized gains or
losses on available-for-sale securities. The adoption of SFAS No. 130 had no
effect on the Company's net income or shareholders' equity.
NOTE 2 - MERGERS AND ACQUISITIONS
On August 15, 1999, James River formed a subsidiary that merged with State
Bank of Remington, Inc. (State Bank), headquartered in Remington, Virginia. Each
outstanding share of State Bank common stock was converted into and exchanged
for 2.9 shares of James River common stock, resulting in the issuance of 843,815
whole shares. The merger was accounted for as a pooling of interests business
combination, and, accordingly, all historical financial information for periods
before the merger have been restated to include the combined results of both
James River and State Bank. State Bank had total assets of $73.8 million, total
deposits of $65.8 million, and shareholders' equity of $7.5 million at the date
of acquisition. Certain reclassifications were made to the State Bank financial
statements to conform to James River's presentation.
Net interest income and net income for James River and State Bank for the
years ended December 31, 1999, 1998, and 1997, prior to restatement for the
pooling of interests merger, are presented below:
Net Interest Income 1999 1998 1997
- --------------------------------------------------------------------------------
James River $17,548 $15,929 $15,410
State Bank $ 2,907 $ 2,709 $ 2,597
Net Income
- --------------------------------------------------------------------------------
James River $ 3,640 $ 4,309 $ 3,805
State Bank $ 664 $ 346 $ 560
On October 1, 1999, James River acquired Colonial Loans, Inc. headquartered in
Fredericksburg, Virginia. The purchase price was allocated to the net assets
acquired based on estimates of fair value and resulted in $321,000 of goodwill.
At the date of acquisition, Colonial Loans had total assets of $3.2 million. The
tranaction was accounted for as a purchase, and, accordingly, operating results
of Colonial Loans have been included in the consolidated financial statements
since the date of acquisition. The results of operations of Colonial Loans for
the periods prior to the purchase were not material to the results of James
River.
- --------------------------------------------------------------------------------
20 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
Note 3 - Securities
The carrying amount of securities and their approximate fair values at December
31 were as follows:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Gross Unrealized Fair
(In thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale Securities:
December 31, 1999
U.S. Government and
agency securities $ 66,782 $ 34 $ 2,448 $ 64,368
State and municipal securities 30,303 122 664 29,761
Other debt securities 508 -- -- 508
Equity securities 7,617 -- 262 7,355
- ------------------------------------------------------------------------------------------------------------------------------------
$105,210 $ 156 $ 3,374 $101,992
====================================================================================================================================
December 31, 1998
U.S. Government and
agency securities $ 60,143 $ 691 $ 117 $ 60,717
State and municipal securities 25,543 716 8 26,251
Other debt securities 609 15 -- 624
Equity securities 7,298 26 225 7,099
- ------------------------------------------------------------------------------------------------------------------------------------
$ 93,593 $ 1,448 $ 350 $ 94,691
====================================================================================================================================
Held-to-Maturity Securities:
December 31, 1999
U.S. Government and
agency securities $ 9,597 $ 19 $ 139 $ 9,477
State and municipal securities 4,158 1 67 4,092
- ------------------------------------------------------------------------------------------------------------------------------------
$ 13,755 $ 20 $ 206 $ 13,569
====================================================================================================================================
December 31, 1998
U.S. Government and
agency securities $ 12,225 $ 352 $ -- $ 12,577
State and municipal securities 3,871 81 6 3,946
- ------------------------------------------------------------------------------------------------------------------------------------
$ 16,096 $ 433 $ 6 $ 16,523
====================================================================================================================================
</TABLE>
Equity securities include restricted investments of $2,777,000 and $2,531,000 at
December 31, 1999 and 1998, 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.
The scheduled maturities of securities held-to-maturity and securities
available-for-sale at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Securities Held-to-Maturity Securities Available-for-Sale
--------------------------- ------------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 505 $ 505 $ 8,843 $ 8,756
Due from one to five years 4,967 4,974 54,070 53,081
Due from five to ten years 8,283 8,090 34,377 32,509
Due after ten years -- -- 303 291
Equity securities -- -- 7,617 7,355
- ------------------------------------------------------------------------------------------------------------------------------------
$13,755 $ 13,569 $ 105,210 $101,992
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Annual Report 1999 21
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares, Inc.
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Securities with a carrying amount of approximately $16,980,000 at December
31, 1999 and $17,516,000 at December 31, 1998 were pledged to secure public
deposits and for other purposes required or permitted by law.
Gross realized gains and losses on dispositions of securities
available-for-sale were as follows:
(In thousands)
Available-for-Sale 1999 1998 1997
- --------------------------------------------------------------------------------
Gross realized gains $ 15 $ 474 $ 174
Gross realized losses (1) (17) (65)
- --------------------------------------------------------------------------------
Net realized gain $ 14 $ 457 $ 109
================================================================================
Note 4 - Components of Comprehensive Income
Comprehensive income consists of the following for the years ended December 31:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income $ 4,304 $ 4,655 $ 4,365
Other comprehensive income (loss) (2,849) 21 682
- --------------------------------------------------------------------------------
$ 1,455 $ 4,676 $ 5,047
================================================================================
The components of other comprehensive income and related tax effects for the
years ended December 31 are as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Unrealized gains (losses) on
available-for-sale-securities $(4,302) $ 492 $ 1,150
Reclassification adjustment for
gains realized in income 14 457 109
- --------------------------------------------------------------------------------
Net unrealized gains (losses) (4,316) 35 1,041
Tax effect (1,467) 14 359
- --------------------------------------------------------------------------------
Net-of-tax-amount $(2,849) $ 21 $ 682
================================================================================
Note 5 - Loans Receivable
Loans receivable are summarized below:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Commercial $ 47,736 $ 38,669
Real estate - commercial 64,816 56,786
Real estate - construction 19,675 26,417
Real estate - mortgage 162,044 156,372
Agricultural 3,605 2,848
Installment 35,273 31,479
- --------------------------------------------------------------------------------
Total loans 333,149 312,571
Less:
Allowance for loan losses (4,788) (4,273)
Unearned discount (11) (18)
Deferred loan expenses 161 129
- --------------------------------------------------------------------------------
Net loans receivable $ 328,511 $ 308,409
Loans held for sale 345 3,599
- --------------------------------------------------------------------------------
$ 328,856 $ 312,008
================================================================================
- --------------------------------------------------------------------------------
22 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated financial Statements
The allowance for loan losses is summarized below:
1999 1998 1997
- --------------------------------------------------------------------------------
Balance - beginning of year $ 4,273 $ 3,928 $ 3,770
Provision charged to operations 670 537 469
Allowance from acquisition 178 -- --
Charge-offs (432) (342) (445)
Recoveries 99 150 134
- --------------------------------------------------------------------------------
Balance - end of year $ 4,788 $ 4,273 $ 3,928
================================================================================
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 $2,752,000 and
$1,408,000 at December 31, 1999 and 1998, respectively. The portion of the
allowance for loan losses allocated to the impaired loan balance was $560,000
and $162,000 at December 31, 1999 and 1998, respectively. The recorded
investment in impaired loans that do not have a portion of the allowance for
loan losses allocated was $684,000 and $660,000 at December 31, 1999 and 1998,
respectively. For the year ended December 31, 1999, the average recorded
investment in impaired loans was $1,861,000, and interest income recognized on
impaired loans was $251,000. For the year ended December 31, 1998, the average
recorded investment in impaired loans was $1,524,000, and interest income
recognized on impaired loans was $149,000. 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.
Mortgage loans serviced for others are not included in the consolidated
balance sheets. The unpaid principal balances of these loans at December 31,
1999, 1998, and 1997 were $16,648,000, $18,969,000, and $28,814,000,
respectively.
Note 6 - Related Parties
The Company has had and expects to have in the future, lending transactions
in the ordinary course of its business with directors, principal 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, 1999 and 1998 was $13,333,000 and $13,346,000, respectively. During
1999, new loans to such related parties amounted to $5,418,000 and repayments
amounted to $5,431,000.
Note 7 - Premises and Equipment
Major classifications of premises and equipment are summarized as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Land $ 2,315 $ 2,315
Buildings 8,969 8,722
Furniture and equipment 7,934 7,433
- --------------------------------------------------------------------------------
19,218 18,470
Accumulated depreciation and amortization (8,223) (7,002)
- --------------------------------------------------------------------------------
Net book value $ 10,995 $ 11,468
================================================================================
- --------------------------------------------------------------------------------
Annual Report 1999 23
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
Note 8 - Deposits
Deposits are summarized as follows:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Non-interest bearing demand $ 63,713 $ 56,362
Interest bearing demand 71,549 75,729
Money market 19,393 21,347
Savings 54,909 53,934
Time deposits $100,000 and greater 34,928 38,215
Other time deposits 173,528 188,312
- --------------------------------------------------------------------------------
$ 418,020 $ 433,899
================================================================================
At December 31, 1999, the scheduled maturities of time deposits are as follows:
(In thousands)
- --------------------------------------------------------------------------------
2000 $136,377
2001 30,770
2002 20,578
2003 15,590
2004 4,646
Thereafter 495
- --------------------------------------------------------------------------------
$208,456
================================================================================
Note 9 - Short-Term Borrowings
Short-term borrowings consist of securities sold under agreements to
repurchase, which are secured transactions with customers, and generally mature
the day following the date sold. Short-term borrowings may also include federal
funds purchased, which are unsecured overnight borrowings from other financial
institutions, and advances from the FHLB of Atlanta, which are secured either by
a blanket floating lien on all real estate mortgage loans secured by 1 to 4
family residential properties, FHLB stock, or other mortgage related assets.
The Company has unused lines of credit for short-term borrowings totaling
approximately $46.8 million at December 31, 1999.
The table below presents selected information on the combined totals of
repurchase agreements and other short-term borrowings for the years ended
December 31:
1999 1998
- --------------------------------------------------------------------------------
Maximum balance at any month end during the year $8,483 $1,801
Average balance for the year 4,228 953
Average rate for the year 4.22% 5.60%
Weighted average rate on borrowings at year end 5.59% 3.75%
Estimated fair value $4,561 $ 742
================================================================================
The weighted average rates shown for borrowings at year-end were calculated
by multiplying the effective rate for each transaction by the principal amount
and dividing the aggregate product by the total principal outstanding.
Due to the short maturities of these financial instruments, the carrying
amounts for both repurchase agreements and other short-term borrowings were
deemed to approximate fair values at December 31, 1999 and 1998.
- --------------------------------------------------------------------------------
24 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Note 10 - Long-Term Debt
At December 31, 1999, the Company had borrowings from the Federal Home Loan
Bank system totaling $11,000,000 at interest rates ranging from 4.95% to 5.36%.
The borrowings mature between September 29, 2004 and August 7, 2009. The FHLB
has a blanket lien on real estate loans as collateral on these borrowings.
Interest only is payable on a quarterly basis until maturity.
The borrowings are subject to early conversion options by the FHLB and
early termination options by the Company beginning in 2000 for $6,000,000 of the
borrowings and in 2004 for the remaining $5,000,000. The conversions allow the
debt to be converted into three-month LIBOR-based floating rate advances at
three month LIBOR flat. The Company can elect to terminate the borrowings on the
applicable termination dates regardless of whether FHLB converts the debt under
the conversion option and will pay a prepayment penalty only if the FHLB has
elected not to convert the borrowings.
Note 11 - 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, 1999 and 1998.
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Commitments to extend credit:
Commercial real estate $ 4,929 $12,189
Commercial 26,904 24,737
Real estate mortgage 19,679 19,491
Other 7,569 15,099
- --------------------------------------------------------------------------------
$59,081 $71,516
================================================================================
Standby letters of credit $ 1,980 $ 2,965
================================================================================
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.
Unfunded commitments under commercial lines of credit, revolving credit
lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit are
uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Company is committed.
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.
- --------------------------------------------------------------------------------
Annual Report 1999 25
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares
- --------------------------------------------------------------------------------
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 74% and 76% of total loans
at year-end 1999 and 1998, respectively. Approximately 56% and 62% of these real
estate loans in 1999 and 1998, respectively, are secured by 1-4 family
residential real estate. Commercial and standby letters of credit are granted
primarily to commercial borrowers.
Operating Leases
The Company has several noncancelable operating leases for branch offices.
The expirations of these leases range from one to fifteen years. Rent expense
charged to operations under operating lease agreements totaled $270,000,
$145,000, and $105,000 in 1999, 1998, and 1997, respectively.
Future minimum rentals are as follows:
(In thousands)
- --------------------------------------------------------------------------------
2000 $ 250
2001 205
2002 194
2003 198
2004 98
Thereafter 237
- --------------------------------------------------------------------------------
Total minimum lease payments $1,182
================================================================================
Legal Proceedings
There were no material legal proceedings other than ordinary routine
litigation incidental to the business at December 31, 1999.
Note 12 - Stock Compensation Plans
At December 31, 1999, 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. 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>
(Dollars in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income - basic and diluted As reported $ 4,304 $ 4,655 $ 4,365
Pro-forma 4,108 4,455 4,205
- -------------------------------------------------------------------------------------------------
Basic earnings per share As reported $ 0.94 $ 1.02 $ 0.97
Pro-froma 0.90 0.98 0.93
- -------------------------------------------------------------------------------------------------
Diluted earnings per share As reported $ 0.94 $ 1.00 $ 0.95
Pro-forma 0.89 0.96 0.92
- -------------------------------------------------------------------------------------------------
</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 one year following the date of grant. 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.
- --------------------------------------------------------------------------------
26 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
1999 Per Share 1998 Per Share 1997 Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding -
beginning of year: 240,868 $ 13.52 255,458 $ 11.88 267,058 $ 11.68
Granted - - - 37,500 21.45 -- --
Exercised (57,488) 9.80 (47,110) 13.10 (11,000) 5.94
Expired (4,487) 13.54 (4,980) 13.53 (600) 10.20
- ---------------------------------------------------------------------------------------------------------------------------------
Options outstanding -
end of year 178,893 $ 14.72 240,868 $ 13.52 255,458 $ 11.88
=================================================================================================================================
Options exercisable -
end of year 95,843 $ 13.26 107,428 $ 10.74 104,708 $ 9.51
=================================================================================================================================
</TABLE>
The weighted average fair value of options granted was $5.29 in 1998. Fair value
is estimated using the Black-Scholes option pricing model with the following
assumptions:
1999 1998 1997
- --------------------------------------------------------------------------------
Dividend yield - 2.2 --
Expected life - 5 years --
Expected volatility - 24% --
Risk-free interest rate - 5.5 --
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:
<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> <C> <C> <C> <C>
$ 7.27 13,683 2 $ 7.27 13,683 $ 7.27
$ 13.45 26,530 7 $ 13.45 15,480 $ 13.45
$ 13.56 101,180 7 $ 13.56 59,180 $ 13.56
$ 21.45 37,500 9 $ 21.45 7,500 $ 21.45
- ------------------------------------------------------------------------------------------------
$ 7.27-21.45 178,893 7 $ 14.72 95,843 $ 13.26
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Annual Report 1999 27
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 13 - Minimum Regulatory Capital Requirements
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 also are subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding companies.
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,
1999, that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, 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. There are no conditions or events since that
notification that management believes has changed the institution's category.
The actual and required capital amounts and ratios of the Company and its
banking subsidiaries as of December 31, 1999 and 1998, are presented in the
table.
<TABLE>
<CAPTION>
Minimum to be
Minimum Well Capitalized Under
Capital Prompt Corrective
Actual Requirements Action Provisions
(Dollars in thousands) ------ ------------ -----------------
December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets)
greater than greater than
Consolidated $54,591 17.0% $25,716 or equal to 8.0% $ N/A or equal to N/A %
Bank of Suffolk 14,087 17.4 6,480 8.0 8,100 10.0
James River Bank 9,165 14.6 5,025 8.0 6,281 10.0
James River Bank/Colonial 3,889 12.8 2,426 8.0 3,033 10.0
First Colonial Bank 14,143 14.4 7,851 8.0 9,814 10.0
State Bank of Remington 7,849 17.4 3,601 8.0 4,502 10.0
Tier 1 Capital (to Risk-Weighted Assets)
greater than greater than
Consolidated $50,563 15.7% $12,858 or equal to 4.0% $ N/A or equal to N/A %
Bank of Suffolk 13,073 16.1 3,240 4.0 4,860 6.0
James River Bank 8,378 13.3 2,513 4.0 3,769 6.0
James River Bank/Colonial 3,510 11.6 1,213 4.0 1,820 6.0
First Colonial Bank 12,912 13.2 3,925 4.0 5,888 6.0
State Bank of Remington 7,412 16.5 1,801 4.0 2,701 6.0
Tier 1 Capital (to Average Assets)
greater than greater than
Consolidated $50,563 10.3% $19,612 or equal to 4.0% $ N/A or equal to N/A %
Bank of Suffolk 13,073 10.7 4,866 4.0 6,083 5.0
James River Bank 8,378 9.3 3,596 4.0 4,495 5.0
James River Bank/Colonial 3,510 8.4 1,681 4.0 2,101 5.0
First Colonial Bank 12,912 8.1 6,413 4.0 8,016 5.0
State Bank of Remington 7,412 10.2 2,893 4.0 3,617 5.0
===============================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
28 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Minimum to be
Minimum Well Capitalized Under
Capital Prompt Corrective
Actual Requirements Action Provisions
------ ------------ -----------------
December 31, 1998 Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets)
greater than greater than
Consolidated $51,784 17.1% $24,195 or equal to 8.0% $ N/A or equal to N/A %
Bank of Suffolk 13,987 19.1 5,866 8.0 7,332 10.0
James River Bank 8,631 14.1 4,910 8.0 6,138 10.0
James River Bank/Colonial 3,723 14.4 2,070 8.0 2,588 10.0
First Colonial Bank 12,734 12.5 8,143 8.0 10,179 10.0
State Bank of Remington 7,779 18.5 3,365 8.0 4,206 10.0
Tier 1 Capital (to Risk-Weighted Assets)
greater than greater than
Consolidated $47,997 15.9% $12,098 or equal to 4.0% $ N/A or equal to N/A %
Bank of Suffolk 13,069 17.8 2,933 4.0 4,399 6.0
James River Bank 7,862 12.8 2,455 4.0 3,683 6.0
James River Bank/Colonial 3,412 13.2 1,035 4.0 1,553 6.0
First Colonial Bank 11,460 11.3 4,072 4.0 6,107 6.0
State Bank of Remington 7,333 17.4 1,683 4.0 2,524 6.0
Tier 1 Capital (to Average Assets)
greater than greater than
Consolidated $47,997 10.0% $19,275 or equal to 4.0% $ N/A or equal to N/A %
Bank of Suffolk 13,069 11.3 4,645 4.0 5,807 5.0
James River Bank 7,862 8.6 3,657 4.0 4,571 5.0
James River Bank/Colonial 3,412 8.5 1,611 4.0 2,014 5.0
First Colonial Bank 11,460 7.0 6,523 4.0 8,154 5.0
State Bank of Remington 7,333 10.7 2,740 4.0 3,425 5.0
==================================================================================================================================
</TABLE>
Note 14 - Income Taxes
The significant components of the provision for income taxes for the years ended
December 31 were as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current tax provision:
Federal $ 1,786 $ 1,822 $ 1,622
State (51) 32 89
- --------------------------------------------------------------------------------
1,735 1,854 1,711
Deferred tax provision (144) (164) 17
- --------------------------------------------------------------------------------
$ 1,591 $ 1,690 $ 1,728
================================================================================
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Federal statutory income tax rates 34.00 % 34.00 % 34.00 %
State income taxes (0.29) 0.17 0.50
Tax-exempt interest income (8.24) (7.48) (7.34)
Other 1.52 (0.05) 1.20
- --------------------------------------------------------------------------------
26.99 % 26.64 % 28.36 %
================================================================================
- --------------------------------------------------------------------------------
1999 Annual Report 29
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The significant components of deferred income tax assets and liabilities as of
December 31 consist of the following:
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 1,366 $ 1,252
Deferred compensation 321 248
Pension -- 55
Allowance for other real estate owned 146 146
Unrealized loss on AFS securities 1,094 --
Other 31 16
- --------------------------------------------------------------------------------
Total deferred tax assets 2,958 1,717
================================================================================
Deferred tax liabilities:
Depreciation $ 285 $ 321
Deferred loan fees 317 258
Dividends on FHLB/FHLMC stock 110 110
Unrealized gain on AFS securities -- 373
Discount accretion on securities 47 49
Other 38 45
- --------------------------------------------------------------------------------
Total deferred tax liabilities 797 1,156
- --------------------------------------------------------------------------------
Net deferred income tax asset 2,161 561
Less valuation allowance (3) (14)
- --------------------------------------------------------------------------------
$ 2,158 $ 547
================================================================================
Included in retained earnings is $1,082,000 at December 31, 1999 and 1998
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 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.
- --------------------------------------------------------------------------------
30 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
Note 15 - Retirement Plans
The Company has 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, State Bank had a qualified retirement
plan for the future benefit of its employees. This plan was a defined benefit
and was fully funded. In accordance with the agreement and plan of merger, the
defined benefit plan for State Bank was terminated as of September 30, 1999. All
benefit accruals were reversed which resulted in increasing net income by
$137,000 for the year ended December 31, 1999. Any surplus of plan assets over
plan liabilities will be used to increase participants' benefits. Costs of these
plans included in salaries and employee benefits in the consolidated statements
of income are as follows:
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Defined contribution/401(k) plan $ 349 $ 342 $ 405
Defined benefit plan - terminated effective
September 30, 1999 $ -- $ 25 $ 32
================================================================================
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 $253,000,
$116,000 and $104,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Note 16 - Other Expenses
Other expenses that exceed one percent of total income for the years ended
December 31, 1999, 1998 and 1997, were Directors' fees expense of $303,000,
$397,000 and $420,000, respectively.
Note 17 - Parent Company
The Parent 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, 1999: (In thousands)
Bank of Suffolk $ 893,000
James River Bank $ -
First Colonial Bank $ 2,446,000
James River Bank/Colonial $ 91,000
State Bank of Remington $ 536,000
In 1998, the Company sought and received approval from the Federal Reserve
Bank for James River Bank to pay dividends to the Company in excess of its
regulatory limit. Accordingly, in the year 2000, any dividends paid to the
Company by James River Bank must be approved by the Federal Reserve Bank.
- --------------------------------------------------------------------------------
Annual Report 1999 31
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The parent company's condensed balance sheets as of December 31, 1999 and
1998, and the related condensed statements of income and cash flows for each of
the years in the three year period ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,404 $ 1,598
Securities available-for-sale 187 194
Investments in subsidiaries:
Bank 45,410 46,323
Bank-related 3,251 1,641
Other assets 2,014 1,772
- -------------------------------------------------------------------------------------
$52,266 $51,528
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 1,268 $ 349
Shareholders' equity 50,998 51,179
- -------------------------------------------------------------------------------------
$52,266 $51,528
=====================================================================================
<CAPTION>
Condensed Statements of Income
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiaries $ 3,724 $ 4,822 $ 2,733
Management fees from subsidiaries:
Bank 1,924 1,308 964
Bank-related 81 50 13
Interest income 28 2 2
Other income 52 474 74
- -------------------------------------------------------------------------------------
Total income 5,809 6,656 3,786
Expenses
Salaries and benefits 1,325 1,010 559
Directors fees 97 128 140
Other expense 881 672 472
- -------------------------------------------------------------------------------------
Total expense 2,303 1,810 1,171
- -------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 3,506 4,846 2,615
Income tax (expense) benefit (6) 17 44
- -------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiaries 3,500 4,863 2,659
Equity in undistributed net income of
subsidiaries (1) 804 (208) 1,706
- -------------------------------------------------------------------------------------
Net income $ 4,304 $ 4,655 $ 4,365
=====================================================================================
</TABLE>
(1) Amount in parentheses represents the excess of dividends declared by the
subsidiaries to the Parent over the net income of the subsidiaries.
- --------------------------------------------------------------------------------
32 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statement
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 4,304 $ 4,655 $ 4,365
Adjustments:
Depreciation 60 29 16
Gain on sale of securities -- (439) (65)
Equity in undistributed net income of
subsidiaries (804) 208 (1,706)
Change in other assets (190) (94) (18)
Change in other liabilities 414 10 294
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 3,784 4,369 2,886
- ------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of equipment (28) (1,239) (9)
Proceeds from sale of securities -- 745 175
Purchase of available-for-sale securities -- (198) --
Net assets acquired in purchase (1,305) -- --
Capitalization of subsidiaries (825) (1,501) (1,150)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,158) (2,193) (984)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from short-term borrowings 1,000 -- --
Repayments of short-term borrowings (500) -- --
Cash dividends paid (2,001) (1,558) (1,372)
Common stock issued 152 550 98
Common stock repurchased (471) -- (373)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,820) (1,008) (1,647)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (194) 1,168 255
Cash and cash equivalents - beginning 1,598 430 175
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - ending $ 1,404 $ 1,598 $ 430
====================================================================================================================================
Noncash financing activities:
Issuance of common stock in exchange for
net assets in acquisition $ 800 $ -- $ --
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Annual Report 1999 33
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 18 - 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, 1999 and 1998.
Financial Instruments Valued at Carrying Value
The carrying amounts of cash and cash equivalents approximate their fair
value. The carrying amounts of accrued interest receivable and payable
approximate their fair values.
Available-for-Sale and Held-to-Maturity Securities
Fair values for securities, excluding restricted equity securities, are
based on available quoted market prices. If quoted market prices are
unavailable, fair values are based on quoted market prices of comparable
instruments. For unquoted securities for which no comparable instruments exist,
the reported fair value is estimated on the basis of cost, book or appraised
value as deemed appropriate by management. Available-for-sale securities are
carried at their aggregate fair value.
Loans
For variable rate commercial loans that reprice frequently (within a
relatively short time frame) and have no significant change in credit risk, fair
values are based on carrying values. Residential first mortgages are based on
quoted market prices of similar loans. Fair values for certain junior mortgage
loans, consumer installment loans, credit-card loans, and other consumer loans
are estimated using discounted cash flows models. The discount rates are based
on current market interest rates for similar types of loans. Fair values for
commercial real estate and commercial loans that do not reprice or do not mature
within relatively short time frames are estimated using discounted cash flow
analysis. The discount rates used are those currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying
collateral values, where applicable.
Deposits
The fair values of demand deposits and deposits with no defined maturity
are taken to be the amount payable on demand at the reporting date. The fair
values for fixed-maturity deposits are estimated using discounted cash flow
models based on rates currently offered for the relevant product types with
similar remaining maturities.
Short-term Borrowings
The carrying amounts of short-term borrowings approximate their fair
values.
Long-term Borrowings
The fair values of the Company's long-term borrowings are estimated using
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
- --------------------------------------------------------------------------------
34 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
The carrying amount in the table below is the amount at which the financial
instruments are reported in the financial statements.
1999 1998
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 16,374 $ 16,374 $ 16,969 $ 16,969
Interest bearing deposits
with banks 1,290 1,290 12,031 12,031
Federal funds sold 2,160 2,160 15,149 15,149
Investment securities 115,747 115,561 110,787 111,214
Loans 328,856 339,738 312,008 319,940
Interest receivable 3,434 3,434 3,373 3,373
- --------------------------------------------------------------------------------
$467,861 $478,557 $470,317 $478,676
================================================================================
Liabilities
Non-interest bearing
deposits $ 63,713 $ 63,713 $ 56,362 $ 56,362
Interest bearing deposits 354,307 353,184 377,537 378,732
Short-term borrowings 4,561 4,561 742 742
Long-term borrowings 11,000 10,978 -- --
Interest payable 998 998 982 982
- --------------------------------------------------------------------------------
$434,579 $433,434 $435,623 $436,818
================================================================================
Note 19 - Earnings Per Share Reconciliation
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
(Dollars in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net Income (Numerator, Basic and Diluted) $4,304 $4,655 $4,365
Basic average shares outstanding (Denominator) 4,589 4,547 4,519
Basic net income per share $ 0.94 $ 1.02 $ 0.97
================================================================================
Effect of dilutive securities:
Basic average shares outstanding 4,589 4,547 4,519
Effect of stock options 6 86 58
- --------------------------------------------------------------------------------
Diluted average shares outstanding (Denominator) 4,595 4,633 4,577
Diluted net income per share $ 0.94 $ 1.00 $ 0.95
================================================================================
- --------------------------------------------------------------------------------
Annual Report 1999 35
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 20 - Quarterly Financial Information (Unaudited)
(Dollars in thousands,
except per share data) 1999
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- --------- ---------
Interest income $8,767 $8,997 $9,144 $9,296
Net interest income $4,761 $5,017 $5,217 $5,460
Net income $ 782 $ 976 $1,039 $1,507
Basic Earnings per share $ 0.17 $ 0.21 $ 0.23 $ 0.33
Diluted Earnings per share $ 0.17 $ 0.21 $ 0.23 $ 0.33
1998
- --------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- --------- ---------
Interest income $8,617 $8,893 $8,934 $8,882
Net interest income $4,556 $4,727 $4,711 $4,644
Net income $1,463 $1,242 $1,177 $ 773
Basic Earnings per share $ 0.32 $ 0.27 $ 0.26 $ 0.17
Diluted Earnings per share $ 0.31 $ 0.27 $ 0.25 $ 0.17
Quarterly financial information is restated to account for the pooling of
interests merger of State Bank of Remington, Inc. on August 15, 1999.
Note 21 - Business Segments
James River has two reportable segments, retail banking and mortgage
banking. Revenues from retail banking operations consist primarily of interest
earned on loans and investment securities. Mortgage banking operating revenues
consist mainly of interest earned on mortgage loans held for sale, gains on
sales of loans in the secondary mortgage market, and loan origination fee
income. The company also has two consumer loan companies, a consumer equity
lender, and an operations support center. The results of these subsidiaries are
not material to James River as a whole and have been included in Other. The
following table presents segment information for the years ended December 31,
1999 and 1998. The mortgage banking segment was formed in the fourth quarter of
1998 and began operations in January, 1999, and therefore segment information
for the year ended December 31, 1997 has not been included.
- --------------------------------------------------------------------------------
36 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Retail Mortgage
1999 Banking Banking Other Eliminations Consolidated
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income $35,309 $ 32 $ 1,334 $ (471) $ 36,204
Gain on sale of loans 13 255 -- -- 268
Other 2,890 21 3,468 (3,560) 2,819
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating income 38,212 308 4,802 (4,031) 39,291
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Interest expense 15,779 22 419 (471) 15,749
Salaries & employee benefits 6,154 803 2,326 -- 9,283
Other 9,294 299 2,331 (3,560) 8,364
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 31,227 1,124 5,076 (4,031) 33,396
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,985 (816) (274) -- 5,895
==================================================================================================================================
Total assets 486,953 768 62,661 (63,018) 487,364
Capital expenditures $ 474 $ 145 $ 119 $ -- $ 738
==================================================================================================================================
1998
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Interest income $34,860 $ -- $ 751 $ (285) $ 35,326
Gain on sale of loans 63 -- -- -- 63
Other 2,721 -- 3,479 (3,075) 3,125
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating income 37,644 -- 4,230 (3,360) 38,514
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Interest expense 16,673 -- 300 (285) 16,688
Salaries & employee benefits 6,066 64 1,815 -- 7,945
Other 8,397 37 2,177 (3,075) 7,536
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 31,136 101 4,292 (3,360) 32,169
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,508 (101) (62) -- 6,345
==================================================================================================================================
Total assets 487,817 1,196 49,983 (50,123) 488,873
Capital expenditures $ 2,337 $ 48 $ 1,268 $ -- $ 3,653
==================================================================================================================================
</TABLE>
Note 22 - Common Stock Transactions
On August 26, 1999, the Company's board of directors authorized a share
repurchase program to buy back 50 thousand shares of its common stock. The
repurchase program has no expiration date and allows the Company to buy shares
of its common stock from time to time in the open market or in privately
negotiated transactions, depending on market conditions and other factors. As of
December 31, 1999, the Company had repurchased and retired 36 thousand shares at
an aggregate purchase price of $468 thousand and at an average price per share
of $13.01.
- --------------------------------------------------------------------------------
Annual Report 1999 37
- --------------------------------------------------------------------------------
<PAGE>
JAMES RIVER BANKSHARES
- --------------------------------------------------------------------------------
Directors and Officers
BOARD OF DIRECTORS
JAMES RIVER BANKSHARES
Harold U. Blythe -- President & CEO,
James River Bankshares
G. P. Jackson, Chairman --
President, G.P. Jackson, Inc.
(Real Estate Rentals & Contractor)
John A. Berna -- Partner,
Accounting and Financial Associates
James E. Butler, Jr.-- Chairman,
Butler Paper Recycling, Inc.
Bruce B. Gray, Vice Chairman --
Vice President, Gray Land &
Timber Company
Elmon T. Gray -- Retired;
Former President,
Gray Lumber Company
Horace R. Higgins, Jr. --
President & CEO,
Higgins Trucking
Ben P. Kanak -- Farmer;
Board Member of Plant
Food Products, Inc.
John A. Ramsey, Jr. -- Farmer;
President, Ramsey Brothers, Inc.
Robert E. Spencer, Jr. -- Senior Vice
President, James River Bankshares
EXECUTIVE OFFICERS:
JAMES RIVER BANKSHARES
Harold U. Blythe
President & CEO
Donald W. Fulton, Jr.
Senior Vice President & CFO
Robert E. Spencer, Jr.
Senior Vice President
Officers:
James River Bankshares
Beverly A. Adams
Vice President & Controller
Kathy O. Peebles
Vice President -- Operations/
Support
Barbara S. Scheepers
Vice President -- Human Resources
Mary G. Swann
Vice President -- Audit/Compliance
Benjamin I. Wainwright, Jr.
Chief Technology Officer/
Purchasing Officer
James W. Nicol
Assistant Vice President --
Network Admin.
Anne W. Smith
Assistant Vice President --
Loan Review
Elizabeth D. Byrum
Assistant Cashier --
Asset Liability Mgmt.
DIRECTORS AND OFFICERS
MEMBER BANKS
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
Adam J. Goldblatt, Vice President
Gleason C. Snow, Vice President
J. Frank Taylor, Vice President
C. Thomas Harry
Assistant Vice President
John T. Mounie
Assistant Vice President
Julie T. Stephenson
Assistant Vice President
Darlene L. Blankenship, Assistant Cashier
Monica G. Greene, Assistant Cashier
Mark U. McGahee, Assistant Cashier
Jane N. Revelle, Assistant Cashier
David J. Williams, Assistant Cashier
Directors: First Colonial Bank
Ben P. Kanak, Chairman
A. Wayne Beasley
William L. Canada
Riley E. Ingram
C. Bishop Knott, Jr.
Fred C. Morene
Fred J. Swearingen, Jr.
Officers: First Colonial Bank
A. Wayne Beasley, President & CEO
John H. Jones, Senior Vice President
Joyce A. Wallace
Vice President, Corporate Secretary,
Cashier,
James M. Stewart, Vice President
Mark S. Zuskin, Vice President
Betty W. Clack
Assistant Vice President
Kimberly N. Gerner
Assistant Vice President
Robert T. Hawks, III
Assistant Vice President
Cecelia H. Lewis
Assistant Vice President
Scott A. Loshkreff
Assistant Vice President
Betsy M. Stafford
Assistant Vice President
Wanda M. Whitney
Assistant Vice President
Elizabeth Boykins, Assistant Cashier
Forrest B. Cleveland, Assistant Cashier
Jennifer M. Faulknier, Assistant Cashier
Tammie M. Frazier, Assistant Cashier
Cornelia M. Henderson, Assistant Cashier
Virginia W. Peters, Assistant Cashier
Directors: James River Bank
John W. Terry, Chairman
Jerry R. Bryant
C. Taylor Everett
Garland Gray II
Horace A. Gray, III
Dr. Clarence W. Griffin
Wayne M. Harrell
John R. Marks
- --------------------------------------------------------------------------------
38 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS: JAMES RIVER BANK
(CONT'D)
Lynne Rabil
Bruce C. Spencer
Bobby B. Worrell
Officers: James River Bank
Jerry R. Bryant, President & CEO
O. LeRoy Stables, Jr.
Senior Vice President
F. Edward Pearson, II, 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: JAMES RIVER BANK/
COLONIAL
John A. Ramsey, Jr., Chairman
Diana F. Beale
Oliver D. Creekmore
A. Dwight Doggett
W. G. Yeoman, III
OFFICERS: JAMES RIVER BANK/
COLONIAL
Oliver D. Creekmore, President & CEO
Gil G. Via, III, Senior Vice President
Linda J. Dunning, Vice President
Jeffrey H. Noblin, Vice President
L. J. (Buzz) Upton, II, Vice President
Terry M. Gray
Assistant Vice President,
Secretary, Cashier
JoElla E. Lawrence
Assistant Vice President
DIRECTORS: STATE BANK OF REMINGTON
John A. Berna, Chairman
Richard M. Barb
James W. Craun
J. Arnold Helm -- Emeritus
Janice N. Kehoe -- Emeritus
Eugene R. Longerbean -- Emeritus
T. Leo McCarthy
Robert A. Niles -- Emeritus
Larry B. Olinger
Jeffrey W. Parker
James A. Rankin, Sr.
J. Mark Rohrbaugh, Jr.
OFFICERS: STATE BANK OF REMINGTON
Larry B. Olinger, President & CEO
James E. Underhill
Senior Vice President & Cashier
George P. Burgwyn, Vice President
Sharon G. Lee, Vice President
Daniel Q. Pagan
Business Development Officer
Dianne C. Blush, Assistant Vice President
Lyle F. Cameron, Assistant Vice President
Lois C. Welch, Assistant Vice President
Sandra H. Abel, Assistant Cashier
Michael T. Yelken
Data Processing Manager
Deborah A. Olinger
Administrative Assistant
DIRECTORS AND OFFICERS --
OTHER SUBSIDIARIES
Directors: Family Finance Corp.
A. Wayne Beasley, Chairman
Harold U. Blythe
W. W. Clark, Jr.
Robert H. Johnson
Charles D. Quann
James E. Underhill
OFFICERS: FAMILY FINANCE CORP.
W. W. Clark, Jr., President & CEO
Jean M. Janeka, Secretary/Treasurer
Brenda J. White, Assistant Vice President
DIRECTORS: COLONIAL LOANS, INC.
A. Wayne Besley, Chairman
Harold U. Blythe
W. W. Clark, Jr.
Robert H. Johnson
James E. Underhill
William L. Nuckols
Officers: Colonial Loans, Inc.
W. W. Clark, Jr., President & CEO
Jean M. Janeka, Secretary & Treasurer
Charles D. Quann
Asst. Vice President & Manager
DIRECTORS: MORTGAGE COMPANY OF JAMES RIVER, INC.
Harold U. Blythe, Chairman
A. Wayne Beasley
Jerry R. Bryant
George P. Burgwyn
Oliver D. Creekmore
Betty J. Forbes
John G. Sebrell
Robert E. Spencer, Jr.
OFFICERS: MORTGAGE COMPANY OF JAMES RIVER, INC.
Betty J. Forbes, President & CEO
Donald W. Fulton, Jr., Treasurer
Linda T. Coleman, Vice President
William J. Collins, III, Vice President
Judith O. Foltz, Vice President
William A. Walton, III, Vice President
Burr Henderson, IV
Assistant Vice President
- --------------------------------------------------------------------------------
Annual Report 1999 39
- --------------------------------------------------------------------------------
<PAGE>
James River Bankshares, Inc.
- --------------------------------------------------------------------------------
General Information
Executive Office
1514 Holland Road
P.O. Box 440
Suffolk, Virginia 23439-0440
Requests for Information
Deborah R. Scott, Administrative Assistant
(757) 934-8100, Fax (757) 934-8612
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 Listing
The common stock of James River Bankshares, Inc. is traded on the NASDAQ Stock
Market's National Market System under the symbol JRBK.
Market Price for Common
Stock The following table sets forth the high, low, and closing sales prices of
the Common Stock as reported by the NASDAQ Stock Market's National Market System
for the periods listed. The Common Stock is thinly traded. On February 18, 2000,
there were approximately 1,993 shareholders of record.
1999 Sales Prices
- --------------------------------------------------------------------------------
High Low Closing Dividends
- --------------------------------------------------------------------------------
Fourth Quarter 13.50 10.75 11.63 $ 0.12
Third Quarter 16.00 13.13 13.25 $ 0.12
Second Quarter 18.00 15.00 15.63 $ 0.12
First Quarter 18.75 16.00 17.63 $ 0.12
1998 Sales Prices
- --------------------------------------------------------------------------------
High Low Closing Dividends
- --------------------------------------------------------------------------------
Fourth Quarter 19.50 16.50 17.50 $ 0.12
Third Quarter 24.00 17.50 18.25 $ 0.10
Second Quarter 26.00 21.50 22.00 $ 0.10
First Quarter 23.00 19.63 21.25 $ 0.10
- --------------------------------------------------------------------------------
40 James River Bankshares, Inc.
- --------------------------------------------------------------------------------
<PAGE>
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 Form
S-8 (Registration Nos. 33-99156, 333-07997, 333-07999, and 333-61329) of James
River Bankshares, Inc. of our report dated January 13, 2000, relating to the
consolidated balance sheets of James River Bankshares, Inc. and subsidiaries as
of December 31, 1999 and the related statements of income, shareholders' equity
and cash flows for the year then ended, which report appears in the December 31,
1999 Annual Report of James River Bankshares, Inc.
YOUNT, HYDE & BARBOUR, P.C.
50 South Cameron Street
Winchester, Virginia 22601
March 23, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
The Board of Directors
James River Bankshares, Inc.
Suffolk, Virginia
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Registration Nos. 33-99156, 333-07999 and 333-61329) of James River
Bankshares, Inc. of our report dated January 28, 1999, relating to the
consolidated balance sheets of James River Bankshares, Inc. and Subsidiaries as
of December 31, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1998 and
1997, which report appears in the December 31, 1999 Annual Report on Form 10-K.
/s/ Goodman & Company, L.L.P.
Colonial Heights, Virginia
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,374
<INT-BEARING-DEPOSITS> 1,290
<FED-FUNDS-SOLD> 2,160
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,992
<INVESTMENTS-CARRYING> 13,755
<INVESTMENTS-MARKET> 13,569
<LOANS> 333,644
<ALLOWANCE> 4,788
<TOTAL-ASSETS> 487,364
<DEPOSITS> 418,020
<SHORT-TERM> 4,561
<LIABILITIES-OTHER> 2,785
<LONG-TERM> 11,000
0
0
<COMMON> 23,066
<OTHER-SE> 27,932
<TOTAL-LIABILITIES-AND-EQUITY> 487,364
<INTEREST-LOAN> 28,569
<INTEREST-INVEST> 6,984
<INTEREST-OTHER> 651
<INTEREST-TOTAL> 36,204
<INTEREST-DEPOSIT> 15,283
<INTEREST-EXPENSE> 15,749
<INTEREST-INCOME-NET> 20,455
<LOAN-LOSSES> 670
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 16,977
<INCOME-PRETAX> 5,895
<INCOME-PRE-EXTRAORDINARY> 5,895
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,304
<EPS-BASIC> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 8.42
<LOANS-NON> 447
<LOANS-PAST> 6,333
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,273
<CHARGE-OFFS> 432
<RECOVERIES> 99
<ALLOWANCE-CLOSE> 4,788
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,788
</TABLE>
<PAGE>
Exhibit 99.1
Report of Independent Accountants
The Stockholders and Directors
James River Bankshares, Inc.
Suffolk, Virginia
We have audited the accompanying consolidated balance sheet of James
River Bankshares and Subsidiaries as of December 31, 1998, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years ended December 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of State Bank of Remington, Inc., which
statements reflect total assets and revenue constituting 14.1% and 13.3%,
respectively, in 1998, and 13.5% of revenue in 1997, of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for State Bank of Remington, Inc. is based solely on the report of other
auditors.
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of James River
Bankshares, Inc. and Subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Goodman & Company, L.L.P.
Colonial Heights, Virginia
January 28, 1999
