Central Virginia Bankshares, Inc.

10KSB/A 1 f10ka2.htm Central Virginia Bankshares, Inc.

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

(Amendment No. 1)

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number: 000-24002

CENTRAL VIRGINIA BANKSHARES, INC.

(Name of small business issuer in its charter)

Virginia

(State or other jurisdiction of

incorporation or organization)

54-1467806

(I.R.S. Employer

Identification No.)

2036 New Dorset Road, Post Office Box 39, Powhatan, Virginia 23139-0039

(Address of principal executive offices) (Zip Code)

Issuer’s telephone number including area code: (804) 403-2000

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $1.25 par value

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ]

State issuer’s revenues for its most recent fiscal year: $21.5 Million

The aggregate market value of the Common Stock held by non-affiliates of the Registrant was approximately $54,264,235 computed by reference to the last sales price of $28.08 per share as of March 15, 2004, on The Nasdaq Stock Market^SM, as reported in published financial sources.

At March 15, 2004, there were 2,129,314 shares of the Registrant’s Common Stock outstanding.

Transitional Small Business Disclosure Format (check one)

Yes No X

DOCUMENTS INCORPORATED BY REFERENCE

2003 Annual Report to Shareholders – Part II

Proxy Statement for the 2004 Annual Meeting of Shareholders – Part III

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-KSB/A is being filed in accordance with Exchange Act Rule 12b-15 solely for the purpose of including a page (page 30) that was inadvertently omitted from the notes to the Registrant’s consolidated financial statements included in Part II, Item 7 of the Form 10-KSB filed on March 31, 2004. Pursuant to Rule 12b-15, the Exhibit List included in Part III, Item 13 and the Exhibit Index also are amended to reflect the inclusion of an updated Consent from Mitchell, Wiggins & Company, LLP and updated certifications of certain executive officers. This Form 10-KSB/A does not reflect events occurring after the filing of the original Form 10-KSB or modify or update those disclosures affected by subsequent events.

Part II

ITEM 7.

FINANCIAL STATEMENTS

The following consolidated financial statements and independent auditors’ report thereon are filed as a part of this report following Item 14:

Independent Auditors’ Report;

Consolidated Balance Sheets as of December 31, 2003 and 2002;

Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001;

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2003,

2002 and 2001;

Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, 2001; and

Notes to Consolidated Financial Statements.

Part III

ITEM 13.

EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

The following documents are attached hereto or incorporated herein by reference as Exhibits:

3.1

Articles of Incorporation, including amendments thereto (incorporated herein by reference to Exhibit 2 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

3.2

Bylaws (incorporated herein by reference to Exhibit 3 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

4.1

Specimen of Registrant’s Common Stock Certificate (incorporated herein by reference to Exhibit 1 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

14.1

Code of Ethics (filed previously).

21.1

Subsidiaries of the Registrant (filed previously).

23.1

Consent of Mitchell, Wiggins & Company, LLP (filed herewith).

31.1

Rule 13a-14(a) Certification of Chief Executive Officer (filed herewith).

31.2

Rule 13a-14(a) Certification of Chief Financial Officer (filed herewith).

32.1

Statement of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).

(b)

Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31, 2003.

With the exception of the information herein expressly incorporated by reference, the 2004 Proxy Statement of the Registrant is not to be deemed filed as part of this Annual Report on Form 10-KSB.

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2003

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders

Central Virginia Bankshares, Inc.

Powhatan, Virginia

We have audited the accompanying consolidated balance sheets of Central Virginia Bankshares, Inc., and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Central Virginia Bankshares, Inc., and subsidiary as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Richmond, Virginia

January 21, 2004

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002

ASSETS				2003	2002
Cash and due from banks				$ 8,029,151	$ 9,304,664

Federal funds sold				5,000,000	7,542,000

			Total cash and cash equivalents	13,029,151	16,846,664

Securities available for sale (Note 3)				165,832,951	99,789,868

Securities held to maturity (approximate market value
	2003 $11,635,661; 2002 $13,499,461) (Note 3)			11,152,337	12,999,437
			Total securities	176,985,288	112,789,305

Mortgage loans held for sale				762,400	1,246,580

Loans (Notes 4, 14, and 15)
	Commercial			29,807,926	26,727,552
	Real estate:
		Mortgage		67,216,322	66,745,774
		Home equity		5,227,258	5,639,913
		Construction		45,096,386	30,006,442
	Bank cards			891,207	836,852
	Installment			10,292,040	11,625,033
		Less unearned discount		(26,773)	(87,893)
			Loans, net of unearned discount	158,504,366	141,493,673
	Allowance for loan losses			(2,454,443)	(2,101,698)
			Loans, net	156,049,923	139,391,975

Bank premises and equipment, net (Note 5)				5,050,090	5,036,663
Accrued interest receivable				2,443,082	1,792,668
Other assets				11,514,768	7,982,205
				$ 365,834,702	$ 285,086,060
See Notes to Consolidated Financial Statements.

-2-

LIABILITIES AND STOCKHOLDERS' EQUITY				2003	2002
Liabilities
	Deposits:
		Demand deposits		$ 36,150,140	$ 29,472,821
		Interest bearing demand deposits, MMDA
			and NOW accounts	49,930,596	44,207,270
		Savings deposits		57,593,668	42,086,783
		Time deposits: (Note 7)
			$100,000 and over	39,102,855	29,247,441
			Other	117,943,255	92,974,062

				300,720,514	237,988,377


	Federal funds purchased and securities
		sold under repurchase agreements		4,214,000	438,000
	FHLB borrowings (Note 8)			26,000,000	21,000,000
	Long-term debt, capital trust preferred securities (Note 9)			5,000,000	-
	Accrued interest payable			404,909	380,810
	Other liabilities			1,152,541	779,662
				337,491,964	260,586,849


Commitments and Contingencies (Note 14)


Stockholders' Equity
	Common stock, $1.25 par value;
		6,000,000 shares authorized; 2,113,274
		and 2,059,197 shares issued and out-
		standing in 2003 and 2002, respectively		2,641,593	2,573,997
	Surplus			6,886,930	6,082,371
	Retained earnings			17,393,695	14,541,849
	Accumulated other comprehensive
		income		1,420,520	1,300,994
				28,342,738	24,499,211

				$ 365,834,702	$ 285,086,060

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003, 2002, and 2001

					2003	2002	2001
Interest income:
	Interest and fees on loans				$ 10,360,271	$ 10,875,799	$ 11,748,661
	Interest on securities and federal funds sold:
		U.S. government agencies and corporations			3,440,100	3,010,418	1,688,414
		U.S. Treasury securities			130,798	6,163	14,727
		States and political subdivisions			1,430,454	1,420,429	1,426,744
		Corporate and other			3,150,632	2,010,031	955,352
		Federal funds sold			30,802	85,469	231,469
					8,182,786	6,532,510	4,316,706
					18,543,057	17,408,309	16,065,367
Interest expense:
	Interest on deposits				5,928,852	6,824,791	7,715,126
	Interest on borrowings:
		Federal funds purchased and
			securities sold under repurchase agreements		15,272	26,248	7,266
		FHLB borrowings			694,233	696,282	465,796
		Capital trust preferred securities			13,344	-	-
		Note payable			-	180	900
					722,849	722,710	473,962
					6,651,701	7,547,501	8,189,088
			Net interest income		11,891,356	9,860,808	7,876,279

Provision for loan losses (Note 4)					410,000	440,000	288,000
			Net interest income after
				provision for loan losses	11,481,356	9,420,808	7,588,279
Noninterest income:
	Deposit fees and charges				1,166,198	1,291,770	1,186,536
	Bank card fees				258,754	241,015	167,020
	Increase in cash surrender value of life insurance				275,297	288,125	3,531
	Secondary mortgage market loan fees				353,317	279,498	256,056
	Investment and insurance commissions				458,715	174,578	51,027
	Realized gain on sales of securities
		available for sale			287,688	114,359	28,460
	Other				203,822	158,135	156,061
					3,003,791	2,547,480	1,848,691
Noninterest expenses:
	Salaries and wages				4,018,674	3,239,570	2,748,789
	Pensions and other employee benefits				1,311,799	1,088,910	816,585
	Occupancy expense				364,074	361,295	308,360
	Equipment depreciation				632,500	591,389	587,890
	Equipment repairs and maintenance				289,956	281,889	264,957
(Continued)

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years Ended December 31, 2003, 2002, and 2001

		2003	2002	2001
Noninterest expenses (Continued):
	Advertising and public relations	170,533	159,529	131,303
	Federal insurance premiums	38,678	35,862	27,548
	Office supplies, telephone, and postage	561,134	474,088	455,036
	Taxes and licenses	165,491	150,591	146,446
	Legal and professional fees	146,992	160,867	108,936
	Other operating expenses	1,434,628	1,287,821	1,074,391
		9,134,459	7,831,811	6,670,241
	Income before income taxes	5,350,688	4,136,477	2,766,729

Income taxes (Note 11)		1,436,923	1,131,313	747,429

	Net income	$ 3,913,765	$ 3,005,164	$ 2,019,300

Basic earnings per share		$ 1.88	$ 1.46	$ 0.99

Diluted earnings per share		$ 1.81	$ 1.40	$ 0.99



See Notes to Consolidated Financial Statements.

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2003, 2002, and 2001
								Accumulated
								Other
					Common		Retained	Comprehensive
					Stock	Surplus	Earnings	Income	Total
Balance, January 1, 2001					$ 2,419,749	$ 4,433,755	$ 12,773,209	$ (449,952)	$ 19,176,761
	Comprehensive income:
		Net income			-	-	2,019,300	-	2,019,300
		Other comprehensive income, net of tax:
			Unrealized holding gains arising during the period,
				net of deferred income taxes of $179,284	-	-	-	348,021	348,021
			Less reclassification adjustment for gains included in
				net income, net of deferred income taxes of $9,676	-	-	-	(18,784)	(18,784)
			Total comprehensive income						2,348,537
	Issuance of common stock:
		13,430 shares pursuant to dividend
			reinvestment plan		16,788	139,458	-	-	156,246
	Cash dividends declared, $.44 per share				-	-	(854,020)	-	(854,020)
Balance, December 31, 2001					2,436,537	4,573,213	13,938,489	(120,715)	20,827,524
	Comprehensive income:
		Net income			-	-	3,005,164	-	3,005,164
		Other comprehensive income, net of tax:
			Unrealized holding gains arising during the period,
				net of deferred income taxes of $771,278	-	-	-	1,497,186	1,497,186
			Less reclassification adjustment for gains included in
				net income, net of deferred income taxes of $38,882	-	-	-	(75,477)	(75,477)
			Total comprehensive income						4,426,873
	Issuance of common stock:
		97,732 shares pursuant to 5% stock dividend			122,165	1,346,747	(1,468,912)	-	-
		12,236 shares pursuant to dividend
			reinvestment plan		15,295	162,411	-	-	177,706
	Payment for 191 fractional shares of common stock				-	-	(2,875)	-	(2,875)
	Cash dividends declared, $.47 per share				-	-	(930,017)	-	(930,017)
Balance, December 31, 2002					2,573,997	6,082,371	14,541,849	1,300,994	24,499,211
	Comprehensive income:
		Net income			-	-	3,913,765	-	3,913,765
		Other comprehensive income, net of tax:
			Unrealized holding gains arising during the period,
				net of deferred income taxes of $159,388	-	-	-	309,400	309,400
			Less reclassification adjustment for gains included in
				net income, net of deferred income taxes of $97,814	-	-	-	(189,874)	(189,874)
			Total comprehensive income						4,033,291
	Issuance of common stock:
		43,330 shares pursuant to exercise of stock options			55,412	515,394	-	-	570,806
		Income tax benefit of deduction for tax purposes
			attributable to exercise of stock options		-	105,312	-	-	105,312
		9,747 shares pursuant to dividend
			reinvestment plan		12,184	183,853	-	-	196,037
	Cash dividends declared, $.51 per share				-	-	(1,061,919)	-	(1,061,919)
Balance, December 31, 2003					$ 2,641,593	$ 6,886,930	$ 17,393,695	$ 1,420,520	$ 28,342,738

See Notes to Consolidated Financial Statements.

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002, and 2001
					2003	2002	2001
Cash Flows From Operating Activities
	Net income				$ 3,913,765	$ 3,005,164	$ 2,019,300
	Adjustments to reconcile net income
		to net cash provided by operating activities:
		Depreciation			736,096	695,370	683,956
		Amortization			14,678	14,678	6,116
		Deferred income taxes			(8,434)	(30,073)	(84,249)
		Provision for loan losses			410,000	440,000	288,000
		Amortization and accretion on securities			195,496	114,862	21,021
		Realized gain on sales of securities
			available for sale		(287,688)	(114,359)	(28,460)
		(Gain) loss on disposal of premises and equipment			(2,995)	21,320	-
		(Gain) on sale of foreclosed real estate			-	-	(10,462)
		Increase in cash value, life insurance			(286,400)	(299,839)	(15,245)
		Change in operating assets and liabilities:
			(Increase) decrease in assets:
				Mortgage loans held for sale	484,180	(1,246,580)	222,996
				Accrued interest receivable	(650,414)	(122,798)	(26,408)
				Other assets	(71,934)	(228,605)	(68,398)
			Increase (decrease) in liabilities:
				Accrued interest payable	24,099	(56,317)	(27,575)
				Other liabilities	298,980	118,699	145,417
				Net cash provided by operating
				activities	4,769,429	2,311,522	3,126,009
Cash Flows From Investing Activities
	Proceeds from calls and maturities of
		securities held to maturity			2,881,300	2,238,800	985,000
	Purchase of securities held to maturity				(1,033,641)	(1,538,846)	(1,295,925)
	Proceeds from calls and maturities of
		securities available for sale			46,097,449	22,940,895	19,131,558
	Proceeds from sales of securities available for sale				10,421,113	20,033,415	4,971,791
	Purchase of securities available for sale				(122,279,218)	(67,151,685)	(66,146,300)
	Purchase of bank owned life insurance				-	-	(4,750,000)
	Net increase in loans made to customers				(17,067,949)	(421,249)	(7,315,254)
	Proceeds from sale of premises and equipment				22,255	15,175	-
	Net purchases of premises and equipment				(768,783)	(556,366)	(1,472,101)
	Proceeds from sale of foreclosed real estate				-	-	159,962
	Acquisition of other assets				(3,072,529)	-	-
			Net cash (used in) investing activities		(84,800,003)	(24,439,861)	(55,731,269)
(Continued)

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2003, 2002, and 2001

					2003	2002	2001
Cash Flows From Financing Activities
	Net increase in demand deposits, MMDA, NOW
		and savings accounts			27,907,530	27,973,406	14,448,125
	Net increase in time deposits				34,824,607	1,987,594	27,768,221
	Net increase (decrease) in federal funds
		purchased and securities sold
		under repurchase agreements			3,776,000	(4,325,000)	4,514,054
	Net proceeds on FHLB borrowings				5,000,000	6,000,000	-
	Proceeds from issuance of capital trust preferred securities				5,000,000	-	-
	Repayment of note payable				-	(9,000)	(9,000)
	Net proceeds from issuance
		of common stock			766,843	177,706	156,246
	Payment for purchase of fractional
		shares of common stock			-	(2,875)	-
	Dividends paid				(1,061,919)	(930,017)	(854,020)
			Net cash provided by financing
				activities	76,213,061	30,871,814	46,023,626

			Increase (decrease) in cash and
				cash equivalents	(3,817,513)	8,743,475	(6,581,634)

Cash and cash equivalents, beginning					16,846,664	8,103,189	14,684,823

Cash and cash equivalents, ending					$ 13,029,151	$ 16,846,664	$ 8,103,189

Supplemental Disclosures of Cash Flow
	Information
		Interest paid			$ 6,627,603	$ 7,603,818	$ 8,216,663
		Income taxes paid			1,396,493	1,274,170	691,690

Supplemental Disclosure of Noncash Investing
	and Financing Activities
		Unrealized gain on securities available for sale			181,100	2,154,105	498,845


See Notes to Consolidated Financial Statements.

-8-

CENTRAL VIRGINIA BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

Principles of consolidation: The accompanying consolidated financial statements include the accounts of Central Virginia Bankshares, Inc., and its subsidiary, Central Virginia Bank, including its subsidiary, CVB Title Services, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with generally accepted accounting principles.

Nature of operations: Central Virginia Bankshares, Inc., is a one bank holding company headquartered in Powhatan County, Virginia. The Corporation’s subsidiary, Central Virginia Bank, provides a variety of financial services to individuals and corporate customers through its seven branches located in the Virginia counties of Powhatan, Chesterfield, Henrico, and Cumberland. The Bank’s primary deposit products are checking accounts, savings accounts, and certificates of deposit. Its primary lending products are residential mortgage, construction, installment, and commercial business loans.

Central Virginia Bank’s subsidiary, CVB Title Services, Inc., is a corporation organized under the laws of the Commonwealth of Virginia. The Corporation’s primary purpose is to own membership interests in two insurance-related limited liability companies.

Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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.

A majority of the Bank’s loan portfolio consists of single-family residential loans in the Virginia counties of Powhatan, Chesterfield, Henrico, and Cumberland. There is also a significant concentration of loans to builders and developers in the region. Accordingly, the ultimate collectibility of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions.

-9-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowances for losses on loans and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans and foreclosed real estate may change materially in the near term.

Cash and cash equivalents: For purposes of reporting the consolidated statements of cash flows, the Corporation includes cash on hand, amounts due from banks, federal funds sold and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying consolidated balance sheets. Cash flows from deposits and loans are reported net.

The Bank maintains amounts due from banks which, at times, may exceed federally insured limits. The Bank has not experienced any losses in such accounts.

The Bank is required to maintain average reserve and clearing balances in cash or on deposit with the Federal Reserve Bank. The total of these balances was approximately $2,997,000 and $2,463,000 at December 31, 2003 and 2002, respectively.

Securities: Securities are classified as held to maturity when management has the intent and the Bank has the ability at the time of purchase to hold them until maturity or on a long-term basis. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the interest method over their contractual lives. Gains and losses on the sale of such securities are determined by the specific identification method.

Securities to be held for indefinite periods of time and not intended to be held to maturity or on a long-term basis are classified as available for sale and accounted for at market value on an aggregate basis. These include securities used as part of the Bank's asset/liability management strategy and may be sold in response to changes in interest rates, prepayment risk, the need or desire to increase capital, to satisfy regulatory requirements and other similar factors. Unrealized gains or losses are reported as increases or decreases in stockholders' equity, net of the related deferred tax effect. Realized gains and losses of securities available for sale are included in net securities gains (losses) based on the specific identification method.

Trading securities, which are generally held for the short term in anticipation of market gains, are carried at fair value. Realized and unrealized gains and losses on trading account assets are included in interest income on trading account securities. The Corporation held no trading securities during the years ended December 31, 2003, 2002, and 2001.

-10-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Declines in the fair value of individual securities classified as either held to maturity or available for sale below their amortized cost that are determined to be other than temporary result in write-downs of the individual securities to their fair value with the resulting write-downs included in current earnings as realized losses.

Mortgage loans held for sale: Mortgage loans originated and held for sale in the secondary market are reported at the lower of cost or market value determined on an aggregate basis. Gains and losses on sales of loans are recognized at settlement dates and are determined by the difference between the sales proceeds and the carrying value of the loans. All sales are made without recourse.

Loans: Loans are stated at the amount of unpaid principal, reduced by unearned discount and fees and an allowance for possible loan losses.

Unearned interest on discounted loans is amortized to income over the life of the loans, using the interest method. For all other loans, interest is accrued daily on the outstanding balances.

Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan's yield. The Bank is generally amortizing these amounts over the average contractual life.

For impaired loans, accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are credited to the loan receivable balance, and no interest income is recognized on those loans until the principal balance has been collected.

A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. Loans, including impaired loans, are generally classified as nonaccrual 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. Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt.

All interest accrued in the current calendar year but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. Uncollected interest accrued in prior years is charged off to the allowance for loan losses. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. On charged-off loans, cash receipts in excess of the amount charged to the allowance for loan losses are recognized as income on a cash basis.

-11-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Allowance for loan losses: The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, credit concentrations, trends in historical loss experience, review of specific problem loans, and current economic conditions.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is impaired when it is probable the creditor will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of payments expected to be received, using the historical effective loan rate as the discount rate. Alternatively, measurement also may be based on observable market prices or, for loans that are solely dependent on the collateral for repayment, measurement may be based on the fair value of the collateral. The Bank does not aggregate loans for risk classification. Loans that are to be foreclosed are measured based on the fair value of the collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. Changes in the allowance for loan losses relating to impaired loans are charged or credited to the provision for loan losses.

Bank premises and equipment: Bank premises and equipment are stated at cost less accumulated depreciation. Expenditures for betterments and major renewals are capitalized and ordinary maintenance and repairs are charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives.

	Years
Buildings and improvements	5 - 39
Furniture and equipment	3 - 10

-12-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Foreclosed real estate: Foreclosed real estate represents properties acquired through foreclosure or other proceedings. Foreclosed real estate is held for sale and is recorded at the lower of the recorded amount of the loan or fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to foreclosed real estate is charged to the allowance for loan losses. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances to reduce the carrying amount to fair value less estimated costs to dispose are recorded as necessary. At December 31, 2003 and 2002, foreclosed real estate totaling $97,000 is included with other assets on the accompanying consolidated balance sheets.

Advertising costs: Advertising costs are expensed as incurred.

Intangible assets: Intangible assets, which for the Bank are the cost of acquired customer accounts, are amortized on a straight-line basis over the expected periods of benefit.

Income taxes: The provision for income taxes relates to items of revenue and expenses recognized for financial accounting purposes during each of the years. The actual current liability may be more or less than the charge against earnings due to the effect of deferred income taxes.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

-13-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies (Continued)

Earnings per share: The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. Options on 123,926 shares of common stock as of December 31, 2001, were not included in computing diluted EPS because their effect was antidilutive.

		2003	2002	2001
Income available to common stockholders
	used in basic EPS	$ 3,913,765	$3,005,164	$2,019,300
Weighted average number of common
	shares used in basic EPS	2,081,931	2,054,410	2,038,683

Effect of dilutive securities:
	Stock options	79,897	96,504	1,654

Weighted number of common shares and
	dilutive potential stock used in diluted EPS	2,161,828	2,150,914	2,040,337

Derivative financial instruments: All derivatives are recognized on the balance sheet at their fair value as an asset or liability. On the date the derivative contract is entered into, the Corporation designates the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability "cash flow" hedge. Changes in the fair value of a derivative that is highly effective as, and that is designated and qualifies as, a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings).

At December 31, 2003, the Corporation’s only derivative financial instrument consisted of an interest-rate swap agreement used to lock-in the interest cash outflows on certain floating-rate debt incurred in 2003.

Note 2. Reclassifications

Certain reclassifications were made to the accompanying prior year financial statements, with no effect on net income or financial position, to conform with classifications adopted in the current year.

-14-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Securities

Carrying amounts and approximate market values of securities available for sale are as follows:

		December 31, 2003
			Gross	Gross	Approximate
		Amortized	Unrealized	Unrealized	Market
		Cost	Gains	Losses	Value
U. S. treasuries		$ 8,006,252	$ -	$ (113,773)	$ 7,892,479
U. S. government agencies
	and corporations	70,732,187	579,711	(651,536)	70,660,362
Bank eligible preferred and
	equities	21,465,271	381,336	(673,367)	21,173,240
Mortgage-backed securities		8,287,179	74,031	(80,297)	8,280,913
Corporate and other debt		34,723,263	2,644,171	(55,872)	37,311,562
States and political subdivisions		20,452,881	289,246	(227,732)	20,514,395
		$163,667,033	$ 3,968,495	$(1,802,577)	$ 165,832,951

		December 31, 2002
			Gross	Gross	Approximate
		Amortized	Unrealized	Unrealized	Market
		Cost	Gains	Losses	Value
U. S. government agencies
	and corporations	$ 41,724,276	$ 500,732	$ (87,500)	$ 42,137,508
Bank eligible preferred and
	equities	5,679,518	100,981	(73,477)	5,707,022
Mortgage-backed securities		8,771,172	225,208	(1,016)	8,995,364
Corporate and other debt		29,867,298	1,272,181	(180,060)	30,959,419
States and political subdivisions		11,772,482	297,324	(79,251)	11,990,555
		$ 97,814,746	$ 2,396,426	$ (421,304)	$ 99,789,868

-15-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Securities (Continued)

The amortized cost and approximate market value of securities available for sale at December 31, 2003, by contractual maturity, are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary. Additionally, many of the U. S. Government agency securities held have quarterly or semiannual call provisions that allow the agency to redeem the debt substantially in advance of the contractual maturity.

		Approximate
	Amortized	Market
	Cost	Value
Due in one year or less	$ 993,600	$ 1,034,860
Due after one year through five years	18,546,344	19,416,590
Due after five years through ten years	45,749,102	47,212,648
Due after ten years	68,625,537	68,714,700
Bank eligible preferred and equities	21,465,271	21,173,240
Mortgage-backed securities	8,287,179	8,280,913
	$ 163,667,033	$ 165,832,951

Gross gains of $445,202 and $203,664 were realized on sales and redemptions of securities available for sale in 2003 and 2002, respectively. Gross losses of $157,514 and $89,305 were realized on the sale of securities available for sale in 2003 and 2002, respectively.

Securities available for sale with unrealized losses at December 31, 2003, were as follows:

		December 31, 2003
		Less than Twelve Months		Twelve Months or Longer		Total
		Approximate		Approximate		Approximate
		Market	Unrealized	Market	Unrealized	Market	Unrealized
		Value	Losses	Value	Losses	Value	Losses
U. S. treasuries		$ 7,892,479	$ 113,773	$ -	$ -	$ 7,892,479	$ 113,773
U. S. government agencies
	and corporations	20,473,690	651,536	-	-	20,473,690	651,536
Bank eligible preferred and
	equities	13,452,250	673,367	-	-	3,452,250	673,367
Mortgage-backed securities		5,885,595	80,297	-	-	5,885,595	80,297
Corporate and other debt		4,467,875	55,872	-	-	4,467,875	55,872
States and political
	subdivisions	6,531,677	210,037	977,358	17,695	7,509,035	227,732
		$58,703,566	$ 1,784,882	$ 977,358	$ 17,695	$ 59,680,924	$1,802,577

-16-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Securities (Continued)

Market changes in interest rates and market changes in credit spreads will result in temporary unrealized losses as a normal fluctuation in the market price of securities. The majority of the gross unrealized losses, $1,784,882 out of total unrealized losses of $1,802,577, have been in an unrealized loss position for less than 12 months. These are temporary losses due primarily to increases in interest rates on securities purchased in 2002 and 2003. The $17,695 in unrealized losses which have been in a loss position for more than twelve months are primarily fixed rate bonds of states and political subdivisions. The reason for the temporary loss is that the market rate on these securities is higher than the market rate when they were originally purchased. The Corporation has determined that there were no other than temporary impairments associated with the above securities at December 31, 2003.

Carrying amounts and approximate market values of securities being held to maturity are as follows:

	December 31, 2003
		Gross	Gross	Approximate
	Amortized	Unrealized	Unrealized	Market
	Cost	Gains	Losses	Value
States and political subdivisions	$ 11,152,337	$ 483,324	$ -	$ 11,635,661

	December 31, 2002
		Gross	Gross	Approximate
	Amortized	Unrealized	Unrealized	Market
	Cost	Gains	Losses	Value
States and political subdivisions	$ 12,999,437	$ 507,242	$ (7,218)	$ 13,499,461

The amortized cost and approximate market value of securities being held to maturity at December 31, 2003, by contractual maturity, are shown below.

		Approximate
	Amortized	Market
	Cost	Value
Due in one year or less	$ 452,100	$ 462,380
Due after one year through five years	2,552,173	2,668,435
Due after five years through ten years	2,991,413	3,182,615
Due after ten years	5,156,651	5,322,231
	$ 11,152,337	$ 11,635,661

Securities with an amortized cost of $2,416,511 and $2,253,285 and a market value of $2,523,169 and $2,328,445 at December 31, 2003 and 2002, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

-17-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Loans

Major classifications of loans are summarized as follows:

		December 31,
		2003	2002
Commercial		$ 29,807,926	$ 26,727,552
Real estate:
	Mortgage	67,216,322	66,745,774
	Home equity	5,227,258	5,639,913
	Construction	45,096,386	30,006,442
Bank cards		891,207	836,852
Installment		10,292,040	11,625,033
		158,531,139	141,581,566
Less unearned discount		(26,773)	(87,893)
		158,504,366	141,493,673
Allowance for loan losses		(2,454,443)	(2,101,698)
Loans, net		$ 156,049,923	$ 139,391,975

Changes in the allowance for loan losses were as follows:

		Years Ended December 31,
		2003	2002	2001
Balance, beginning		$ 2,101,698	$ 1,839,398	$ 1,657,979
	Provision charged to operations	410,000	440,000	288,000
	Loans charged off	(112,055)	(209,369)	(229,305)
	Recoveries	54,800	31,669	122,724
Balance, ending		$ 2,454,443	$ 2,101,698	$ 1,839,398

At December 31, 2003, the Bank had no loans that were specifically classified as impaired. The average balance of impaired loans amounted to approximately $99,397 for the year ended December 31, 2003. The allowance for loan losses related to impaired loans amounted to $0 at December 31, 2003.

Nonaccruing loans (principally installment, commercial, and mortgage loans) totaled $0, $258,281 and $484,460 at December 31, 2003, 2002, and 2001, respectively, which had the effect of reducing net income $0, $22,263 ($.01 per common share), and $35,738 ($.02 per common share) for the years then ended, respectively. Loans past due ninety days or more and still accruing interest amounted to $1,723,421, $971,328, and $382,201 at December 31, 2003, 2002, and 2001, respectively.

-18-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Bank Premises and Equipment

Major classifications of bank premises and equipment and the total accumulated depreciation are summarized as follows:

	December 31,
	2003	2002
Land	$ 900,270	$ 900,270
Buildings and improvements	3,669,191	3,665,499
Furniture and equipment	6,310,104	6,082,034
	10,879,565	10,647,803
Less accumulated depreciation	5,829,475	5,611,140
	$ 5,050,090	$ 5,036,663

Note 6. Investment in Bank Owned Life Insurance

The Bank is owner and designated beneficiary on life insurance policies in the face amount of approximately $15,975,810 maintained on certain of its officers and directors. The earnings from these policies will be used to offset increases in employee benefit costs. The cash surrender value of these policies of $5,303,762 and $5,032,297 at December 31, 2003 and 2002, respectively, is included in other assets on the accompanying consolidated balance sheets.

Note 7. Maturities of Time Deposits

The scheduled maturities of time deposits at December 31, 2003, are as follows:

Year Ending
December 31
2004		$ 87,200,688
2005		27,132,289
2006		12,887,496
2007		11,460,972
2008 and later		18,364,665
		$ 157,046,110

-19-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. FHLB Borrowings

The borrowings from the Federal Home Loan Bank of Atlanta, Georgia, are secured by qualifying first mortgage loans. The borrowings at December 31, 2003 and 2002, consist of the following:

		2003	2002
Interest payable quarterly at a fixed rate
	of 4.45%, principal due and payable
	on January 5, 2011, callable quarterly
	beginning January 7, 2002	$ 5,000,000	$ 5,000,000
Interest payable quarterly at a fixed rate
	of 4.03%, principal due and payable
	on March 8, 2011, callable quarterly
	beginning September 10, 2001	5,000,000	5,000,000
Interest payable quarterly at a fixed rate
	of 3.14%, principal due and payable
	on December 5, 2011, callable quarterly
	beginning December 5, 2003	5,000,000	5,000,000
Interest payable and adjusts quarterly
	to LIBOR, currently 1.48%, principal
	due and payable on December 4, 2003	-	1,000,000
Overnight borrowing, due and payable
	on January 2, 2003, interest adjusted
	daily, currently 1.30%	-	5,000,000
Short-term borrowing, due and payable
	on January 22, 2004, interest adjusted
	daily, currently 1.15%	5,000,000	-
Interest payable and adjusts quarterly
	to LIBOR, currently 1.26%, principal
	due and payable on December 6, 2004	1,000,000	-
Interest payable quarterly at a fixed rate
	of 3.71%, principal due and payable
	on November 14, 2013, callable on
	November 14, 2008	5,000,000	-
		$ 26,000,000	$ 21,000,000

-20-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Long-Term Debt, Capital Trust Preferred Securities

Capital trust preferred securities represent preferred beneficial interests in the assets of Central Virginia Bankshares, Inc. Statutory Trust I (Trust). The Trust holds certain floating rate junior subordinated debentures due December 17, 2033, issued by the Corporation on December 17, 2003. Distributions on the Preferred Securities is payable quarterly at an annual rate of LIBOR plus 2.85% (4.00% at December 31, 2003). However, the Corporation has the option to defer distributions for up to five years. Cash distributions on the Preferred Securities are made to the extent interest on the debentures is received by the Trust. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the Preferred Securities are redeemable in whole. Otherwise, the Preferred Securities are generally redeemable by the Corporation in whole or in part on or after December 17, 2008, at 100% of the liquidation amount. The Trust’s obligations under the Preferred Securities are fully and unconditionally guaranteed by the Corporation. For regulatory purposes, the Preferred Securities are considered a component of Tier I capital.

Note 10. Interest Rate Swap Agreement

The Corporation has entered into an interest rate swap agreement related to the issuance of the trust preferred securities. The swap is utilized to manage interest rate exposure and is designated as a highly effective cash flow hedge. The differential to be paid or received on all swap agreements is accrued as interest rates change and is recognized over the life of the agreement in interest expense. The swap agreement expires December 17, 2008, and has an interest rate of 6.405%. The notional amount is $5,000,000. The effect of these agreements is to make the Corporation less susceptible to changes in interest rates by effectively converting certain variable rate debt to fixed rate debt. As of December 31, 2003, the estimated fair value of the interest rate swap agreement was zero.

Note 11. Income Tax Matters

The Corporation and Subsidiary file a consolidated federal income tax return. The consolidated provision for income taxes for the years ended December 31, 2003, 2002, and 2001, are as follows:

	2003	2002	2001
Currently payable	$ 1,445,357	$ 1,161,386	$ 831,678
Deferred	(8,434)	(30,073)	(84,249)
	$ 1,436,923	$ 1,131,313	$ 747,429

-21-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Income Tax Matters (Continued)

A reconciliation of the expected income tax expense computed at 34% to the income tax expense included in the consolidated statements of income is as follows:

		Years Ended December 31,
		2003	2002	2001
Computed "expected" tax expense		$ 1,819,234	$ 1,406,402	$ 940,688
Tax-exempt interest		(236,794)	(171,929)	(160,368)
Tax-exempt loan interest		(222)	(5,592)	(14,325)
Disallowance of interest expense
	deduction for the portion attributable
	to carrying tax-exempt obligations	22,841	20,324	24,276
Dividends received deduction		(167,530)	(35,470)	(37,395)
Increase in cash value of life insurance		(52,307)	(51,800)	(1,200)
Other		51,701	(30,622)	(4,247)
		$ 1,436,923	$ 1,131,313	$ 747,429

-22-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Income Tax Matters (Continued)

The deferred income tax provision consists of the following items:

		Years Ended December 31,
		2003	2002	2001
Difference between loan loss provision charged
	to operating expense and the bad debt
	deduction taken for income tax purposes	$(92,662)	$(74,798)	$(80,123)
Interest income on nonaccrual loans recognized
	for federal income tax purposes, but not
	recognized for financial statements until received	15,867	10,214	1,165
Decrease in value of foreclosed real estate and
	other assets recognized for financial statements,
	but not recognized for income tax purposes until
	realized	(3,400)	-	(13,600)
Deduction for uncollectible late charges recognized
	for financial statements, but not recognized for
	income tax purposes until realized	20	(51)	7,335
Deduction for accrued supplemental retirement expense
	recognized for financial statements, but not
	recognized for income tax purposes until paid	(50,222)	(44,053)	-
Deduction for accrued professional fees recognized
	for financial statements, but not recognized for
	income tax purposes until paid	(3,117)	(19,045)	-
Increase in cash surrender value of Bank owned life
	insurance recognized for financial statements, but
	not recognized for alternative minimum tax purposes
	until realized	41,294	46,163	-
Accretion of discount recognized for financial
	statements, but not recognized for income
	tax purposes until realized	20,534	4,654	(2,024)
Difference between the depreciation methods
	used for financial statements and for income
	tax purposes	63,252	46,843	2,998
		$ (8,434)	$(30,073)	$(84,249)

-23-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Income Tax Matters (Continued)

The components of the net deferred tax liability included in other liabilities are as follows at December 31:

			2003	2002
Deferred tax assets:
	Allowance for loan losses		$ 777,273	$ 653,724
	Less valuation allowance		(194,318)	(163,431)
			582,955	490,293
	Devaluation reserve on foreclosed property
		and other assets	31,120	27,720
	Accrued professional fees		22,162	19,045
	Accrued supplemental retirement expense		94,275	44,053
	Reserve for uncollectible late charges		8,284	8,304
	Interest income on nonaccrual loans		-	15,867
			738,796	605,282

Deferred tax liabilities:
	Property and equipment		236,785	173,533
	Unrealized gain on securities
		available for sale	745,396	674,127
	Cumulative increase in cash surrender value		87,457	46,163
	Securities		33,598	13,064
			1,103,236	906,887

Net deferred tax liability			$(364,440)	$(301,605)

Note 12. Profit-Sharing and Retirement and 401K Plan

Profit-Sharing and Retirement Plan: The Bank provides a qualified defined contribution profit-sharing and retirement plan covering substantially all active full-time and part-time employees of the Bank. Contributions to this plan, administered through the Virginia Bankers Association Benefits Corporation, are made annually to the credit of the participant’s individual accounts, at the discretion of the Board of Directors. The plan may be amended or terminated by the Board of Directors at any time. Participants vest over a five-year period. Contributions for 2003 represented 8.25 percent of each participant’s eligible salary.

-24-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Profit-Sharing and Retirement and 401K Plan (Continued)

401K Plan: The Bank also provides a qualified 401K plan in conjunction with the defined contribution plan discussed above. Eligible employees may, subject to statutory limitations, contribute a portion of their salary on a pre and post-tax basis. The Bank provides a matching contribution of $0.75 for every $1.00 the participant contributes up to 3 percent of their salary. Participants are 100 percent vested in their contributions at all times, and vest in the employer contributions over a five-year period.

The total contributions to both the above plans for the years ended December 31, 2003, 2002, and 2001, were $351,036, $264,802, and $265,765, respectively.

Note 13. Supplemental Executive Retirement Plan

During the year ended December 31, 2002, the Bank established a Supplemental Executive Retirement Plan, (the “SERP”), a nonqualified, unfunded, defined benefit plan for certain executive and senior officers of the Bank as designated by the Board of Directors. The current participants covered by the SERP include three executive officers as well as five other senior officers. The costs associated with this plan, as well as several other general employee benefit plans are partially offset by earnings attributable to the Bank’s purchase of single premium Bank Owned Life Insurance (“BOLI”). The SERP provides an annual benefit equal to 25 percent of the participant’s final compensation payable monthly over a 15-year period, following normal retirement at age 65, provided the participant has been employed by the Bank for a minimum of 8 years. A further provision exists for early retirement beginning at age 60, subject to the same 8-year service requirement, but with reduced benefits depending on the number of years preceding age 65 the participant elects to retire. Should the participant’s employment terminate due to disability or death, and he has otherwise met the requirements necessary to receive a supplemental benefit under the SERP, the benefit shall be paid to the participant or his spouse. No benefits are payable should the participant’s employment terminate for any reason other than retirement, disability, death, or a change in control.

-25-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Supplemental Executive Retirement Plan (Continued)

The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31, 2003 and 2002:

		2003	2002
Projected benefit obligation:
	Beginning obligation	$ 129,569	$ -
	Service cost	129,569	121,093
	Interest cost	18,140	8,476
	Ending obligation	$ 277,278	$ 129,569

Funded status of the plan		$(277,278)	$(129,569)

Net consolidated balance sheet liability		$(277,278)	$(129,569)

Net pension cost includes the following components:
	Service cost	$ 129,569	$ 121,093
	Interest cost	18,140	8,476
		$ 147,709	$ 129,569

Assumptions used in the determination of the supplemental executive retirement plan information consist of the following:

	2003	2002
Discount rate	7.0%	7.0%
Rate of increase in compensation levels	5.0%	5.0%

Note 14. Commitments and Contingencies

Financial instruments with off-balance-sheet risk: The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

-26-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Commitments and Contingencies (Continued)

The Bank'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 amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. A summary of the Bank's commitments at December 31, 2003 and 2002, is as follows:

	2003	2002
Commitments to extend credit	$ 38,841,693	$ 49,966,190
Standby letters of credit	4,037,883	2,206,089
	$ 42,879,576	$ 52,172,279

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. 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 Bank evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Bank deems necessary.

Borrowing facilities: The Bank has entered into various borrowing arrangements with other financial institutions for Fed Funds, and other borrowings. The total amount of borrowing facilities available at December 31, 2003, was approximately $24,900,000.

Concentrations of credit risk: All of the Bank's loans, commitments to extend credit, and standby letters of credit have been granted to customers within the state and, more specifically, the area surrounding Richmond, Virginia. The concentrations of credit by type of loan are set forth in Note 4. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon the agribusiness and construction sectors of the economy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Related Party Transactions

The Corporation's subsidiary, Central Virginia Bank, has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers, their immediate families, and affiliated companies in which they are principal stockholders (commonly referred to as related parties), all of which have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others.

Aggregate loan transactions with related parties were as follows:

		Years Ended December 31,
		2003	2002
Balance, beginning		$ 2,193,248	$ 2,208,275
	New loans	1,225,401	1,150,692
	Repayments	(1,645,603)	(1,165,719)
Balance, ending		$ 1,773,046	$ 2,193,248

Note 16. Stock Dividend

On December 13, 2002, the Corporation issued 97,732 shares of common stock pursuant to a 5% stock dividend for stockholders of record as of November 15, 2002. As a result of the stock dividend, common stock was increased by $122,165, surplus was increased by $1,346,747, and retained earnings was decreased by $1,468,912. All references in the accompanying consolidated financial statements to the number of common shares and per-share amounts for 2001 have been restated to reflect this stock dividend.

Note 17. Incentive Stock Option Plan

The Corporation has a Stock Plan that provides for the grant of Incentive Stock Options up to a maximum of 199,500 shares of common stock. This Plan was adopted to foster and promote the long-term growth and financial success of the Corporation by assisting in recruiting and retaining directors and key employees by enabling individuals who contribute significantly to the Corporation to participate in its future success and to associate their interests with those of the Corporation. The options were granted at the market value on the date of each grant. The maximum term of the options is ten years.

-28-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Incentive Stock Option Plan (Continued)

The following table presents a summary of options under the Plan at December 31:

			Shares Under Options
		Option Price	2003	2002	2001
Outstanding, beginning		$8.67-$13.31	142,862	135,464	142,079
	Options granted	17.61	10,650	8,343	-
	Options exercised	8.67-17.61	(44,330)	-	-
	Options forfeited	8.67-17.61	-	(945)	(6,615)
Outstanding, ending		$8.67-$17.61	109,182	142,862	135,464

Options exercisable at December 31, 2003, 2002, and 2001, were 109,182, 142,862, and 135,464, respectively.

The Corporation applies APB Opinion 25 and related interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Corporation’s stock option plan been determined based on the fair value at the grant date consistent with the methods of FASB Statement 123, the Corporation’s net income and net income per share would have been reduced to the pro forma amounts indicated below. In accordance with the transition provisions of FASB Statement 123, the pro forma amounts reflect options with grant dates subsequent to January 1, 1995. There were 10,650 and 8,343 options granted during the years ended December 31, 2003 and 2002, respectively.

		2003	2002	2001
Net income
	As reported	$ 3,913,765	$ 3,005,164	$ 2,019,300

	Pro forma	$ 3,889,057	$ 3,001,096	$ 1,976,668

Basic earnings per share
	As reported	$ 1.88	$ 1.46	$ 0.99

	Pro forma	$ 1.87	$ 1.46	$ 1.02

Diluted earnings per share
	As reported	$ 1.81	$ 1.40	$ 0.99

	Pro forma	$ 1.80	$ 1.40	$ 0.97

For purposes of computing the pro forma amounts indicated above, the fair value of each option on the date of grant is estimated using the Black-Scholes option-pricing model with the following assumptions for the grants in 2003 and 2002: dividend yield of 2.45% and 3.43%, respectively, expected volatility of 20%, risk-free interest rate of 3.0%, and an expected option life of 5 years. The fair value of each option granted in 2003 was $2.32. The fair value of each option granted in 2002 was $1.15.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Regulatory Matters

The Corporation is subject to various regulatory capital requirements administered by its primary federal regulator, the Federal Reserve Bank. 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 Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also 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 Corporation to maintain minimum amounts and ratios as set forth in the table below of total and Tier I capital as defined in the regulations to risk-weighted assets as defined, and of Tier I capital as defined to average assets as defined. Management believes, as of December 31, 2003, that the Corporation meets all capital adequacy requirements to which it is subject.

As of December 31, 2003, the most recent notification from the Federal Reserve Bank categorized the Corporation as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Corporation must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Regulatory Matters (Continued)

The Corporation’s and Bank’s actual capital amounts and ratios are also presented in the table.

							To Be Well Capitalized
					For Capital		Under Prompt Corrective
			Actual		Adequacy Purposes		Action Provisions
			Amount	Ratio	Amount	Ratio	Amount	Ratio
			(Dollars in Thousands)
As of December 31, 2003:
	Total Capital (to Risk Weighted Assets)
		Consolidated	$ 34,093	14.93%	$ 18,268	8.00%	N/A
		Central Virginia Bank	31,580	13.92%	18,149	8.00%	$ 22,687	10.00%

	Tier I Capital (to Risk Weighted Assets)
		Consolidated	26,537	11.62%	$ 9,135	4.00%	N/A
		Central Virginia Bank	29,126	12.84%	9,074	4.00%	13,610	6.00%

	Tier I Capital (to Average Assets)
		Consolidated	26,537	7.48%	$ 14,191	4.00%	N/A
		Central Virginia Bank	29,126	8.27%	14,088	4.00%	17,609	5.00%

As of December 31, 2002:
	Total Capital (to Risk Weighted Assets)
		Consolidated	$ 25,062	12.38%	$ 16,195	8.00%	N/A
		Central Virginia Bank	23,382	11.63%	16,083	8.00%	$ 20,104	10.00%

	Tier I Capital (to Risk Weighted Assets)
		Consolidated	22,960	11.34%	8,099	4.00%	N/A
		Central Virginia Bank	21,280	10.58%	8,042	4.00%	12,062	6.00%

	Tier I Capital (to Average Assets)
		Consolidated	22,960	8.17%	11,241	4.00%	N/A
		Central Virginia Bank	21,280	7.62%	11,165	4.00%	13,957	5.00%

Banking laws and regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agency. Under that limitation, the Bank could have declared additional dividends of approximately $6,254,058 in 2003 without regulatory approval.

Note 19. Fair Value of Financial Instruments

FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation and subsidiary.

-31-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Fair Value of Financial Instruments (Continued)

The following methods and assumptions were used by the Corporation and subsidiary in estimating the fair value of financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate their fair values.

Investment securities (including mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Mortgage loans held for sale: The carrying amount of mortgage loans held for sale approximate their fair values.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are determined using estimated future cash flows, discounted at the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.

Accrued interest receivable and accrued interest payable: The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair values.

Deposit liabilities: The fair values of demand deposits equal their carrying amounts which represents the amount payable on demand. The carrying amounts for variable-rate fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected maturities on time deposits.

Federal funds purchased and securities sold under repurchase agreements: The carrying amounts for federal funds purchased and securities sold under repurchase agreements approximate their fair values.

FHLB borrowings: The carrying amount of FHLB borrowings approximate their fair values.

Capital trust preferred securities: The carrying amount of the capital trust preferred securities approximates their fair values.

-32-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Fair Value of Financial Instruments (Continued)

The following is a summary of the carrying amounts and estimated fair values of the Corporation and subsidiary’s financial assets and liabilities at December 31, 2003 and 2002:

		2003		2002
		Carrying	Estimated	Carrying	Estimated
		Amount	Fair Value	Amount	Fair Value
Financial assets:
	Cash and cash equivalents	$ 13,029,151	$ 13,029,151	$ 16,846,664	$ 16,846,664
	Securities available for sale	165,832,951	165,832,951	99,789,868	99,789,868
	Securities held to maturity	11,152,337	11,635,661	12,999,437	13,499,461
	Mortgage loans held for sale	762,400	762,400	1,246,580	1,246,580
	Loans, net	156,049,923	161,253,923	139,391,975	148,306,975
	Accrued interest receivable	2,443,082	2,443,082	1,792,668	1,792,668

Financial liabilities:
	Demand and variable rate deposits	143,674,404	143,674,404	115,766,874	115,766,874
	Fixed-rate certificates of deposits	157,046,110	159,471,110	122,221,503	125,944,503
	Federal funds purchased and
	securities sold under repurchase
	agreements	4,214,000	4,214,000	438,000	438,000
	FHLB borrowings	26,000,000	26,000,000	21,000,000	21,000,000
	Capital trust preferred securities	5,000,000	5,000,000	-	-
	Accrued interest payable	404,909	404,909	380,810	380,810

At December 31, 2003 and 2002, the Corporation had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed, and, therefore, they were deemed to have no current fair market value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Condensed Parent-Only Financial Statements

Financial statements for Central Virginia Bankshares, Inc., (not consolidated) are presented below.

BALANCE SHEETS
			December 31,
Assets			2003	2002
	Cash		$ 968,082	$ 254,874
	Investment in subsidiary		30,932,041	22,777,580
	Securities available for sale		1,374,540	1,412,073
	Other assets		167,546	79,473
			$ 33,442,209	$ 24,524,000

Liabilities
	Capital trust preferred securities		$ 5,000,000	$ -
	Accrued interest payable		13,344	-
	Other liabilities		86,127	24,789
			5,099,471	24,789

Stockholders' Equity
	Common stock, $1.25 par value;
		6,000,000 shares authorized;
		2,113,274 and 2,059,197 shares
		issued and outstanding in 2003
		and 2002, respectively	2,641,593	2,573,997
	Surplus		6,886,930	6,082,371
	Retained earnings		17,393,695	14,541,849
	Accumulated other comprehensive income		1,420,520	1,300,994
			28,342,738	24,499,211
			$ 33,442,209	$ 24,524,000

-34-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Condensed Parent-Only Financial Statements (Continued)

STATEMENTS OF INCOME

			Years Ended December 31,
			2003	2002	2001
Income:
	Management fees		$ 36,000	$ 36,000	$ 36,000
	Dividends received from subsidiary		788,517	932,892	854,020
	Equity in undistributed earnings of subsidiary		3,029,873	2,058,905	1,112,307
	Dividend income		89,580	77,686	81,433
	Gain (loss) on sale of securities available for sale		104,096	(12,661)	6,371
			4,048,066	3,092,822	2,090,131
Expenses:
	Operating expenses		98,404	108,265	72,215
	Interest expense		13,344	-	-
			111,748	108,265	72,215
		Income before income taxes	3,936,318	2,984,557	2,017,916

Income taxes			22,553	(20,607)	(1,384)
		Net income	$ 3,913,765	$ 3,005,164	$ 2,019,300

-35-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20. Condensed Parent-Only Financial Statements (Continued)

STATEMENTS OF CASH FLOWS

				Years Ended December 31,
				2003	2002	2001
Cash Flows From Operating Activities
	Net income			$ 3,913,765	$ 3,005,164	$ 2,019,300
	Adjustments to reconcile net income to net
		cash provided by operating activities:
		Undistributed earnings of subsidiary		(3,029,873)	(2,058,905)	(1,112,307)
		Realized (gain) loss on sales of securities
			available for sale	(104,096)	12,661	(6,371)
		Change in operating assets and liabilities:
			Decrease in other assets	(88,073)	(19,624)	-
			Increase in accrued interest payable	13,344	-	-
			Decrease in other liabilities	-	(983)	(1,384)
Net cash provided by operating activities				705,067	938,313	899,238

Cash Flows From Investing Activities
	Proceeds from sales of securities available
		for sale		353,698	306,770	325,471
	Investment in subsidiary			(5,000,000)	-	-
	Purchase of securities available for sale			(50,481)	(487,388)	(464,431)
Net cash (used in) investing activities				(4,696,783)	(180,618)	(138,960)

Cash Flows From Financing Activities
	Net proceeds from issuance of common stock			766,843	177,706	156,246
	Net proceeds from issuance of capital trust
		preferred securities		5,000,000	-	-
	Payment for 191 fractional shares of
		common stock		-	(2,875)	-
	Dividends paid			(1,061,919)	(930,017)	(854,020)
Net cash provided by (used in) financing activities				4,704,924	(755,186)	(697,774)

Increase in cash				713,208	2,509	62,504
Cash, beginning				254,874	252,365	189,861

Cash, ending				$ 968,082	$ 254,874	$ 252,365

-36-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CENTRAL VIRGINIA BANKSHARES, INC.

Date: April 20, 2004

By: /s/ Ralph Larry Lyons

Ralph Larry Lyons

President and Chief Executive Officer

EXHIBITS INDEX

Item No.

Description

3.1

Articles of Incorporation, including amendments thereto (incorporated herein by reference to Exhibit 2 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

3.2

Bylaws (incorporated herein by reference to Exhibit 3 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

4.1

Specimen of Registrant’s Common Stock Certificate (incorporated herein by reference to Exhibit 1 to the Registrant’s Form 8-A filed with the SEC on May 2, 1994).

14.1

Code of Ethics (filed previously).

21.1

Subsidiaries of the Registrant (filed previously).

23.1

Consent of Mitchell, Wiggins & Company, LLP (filed herewith).

31.1

Rule 13a-14(a) Certification of Chief Executive Officer (filed herewith).

31.2

Rule 13a-14(a) Certification of Chief Financial Officer (filed herewith).

32.1

Statement of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).