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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

CENTRAL VIRGINIA BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

(804) 403-2000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  X   No __

Indicate by check mark whether the registrant is an accelerated filer (as described in Rule 12b-2 of the Exchange Act). Yes__ No X

As of November 15, 2004, 2,250,279 shares of common stock, par value $1.25 per share, were outstanding.

CENTRAL VIRGINIA BANKSHARES, INC.

QUARTERLY REPORT ON FORM 10-Q

November 15, 2004

INDEX

Part I.  Financial Information

Page No.

Item 1

Financial Statements

Consolidated Balance Sheets - September 30, 2004

and December 31, 2003 (Unaudited)

3

Consolidated Statements of Income

Three Months Ended September 30, 2004 and 2003 and

Nine Months Ended September 30, 2004 and 2003 (Unaudited)

4-5

Consolidated Statements of Cash Flows – Nine Months

Ended September 30, 2004 and 2003 (Unaudited)

6

Notes to Consolidated Financial Statements -

September 30, 2003 and 2002 (Unaudited)

7-11

Item 2

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

12-21

Item 3

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4

Controls and Procedures

22

Part II.  Other Information

Item 5

Other Information

23

Item 6

Exhibits and Reports on Form 8-K

23

Signatures

24

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PART I

FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2004 and December 31, 2003

(Unaudited)

See Notes to Consolidated Financial Statements.

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Continued)

See Notes to Consolidated Financial Statements.

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CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2004 and 2003

(Unaudited)

See Notes to Consolidated Financial Statements.

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CENTRAL VIRGINIA BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004 and 2003

(Unaudited)

Note 1.  Basis of Presentation

The consolidated financial statements include the accounts of Central Virginia Bankshares, Inc and its subsidiaries (the “Company”).  Significant intercompany accounts and transactions have been eliminated in consolidation.

The information contained in the financial statements is unaudited and does not include all of the information and footnotes required by auditing standards generally accepted in the United States of America for completed financial statements. However, in the opinion of management, all adjustments necessary for a fair presentation of the results of the interim periods presented have been made.  All adjustments are of a normal recurring nature.  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.

Note 2.  Comprehensive Income

A reconciliation from net income to total comprehensive income for the three months and nine months ended September 30, 2004 and 2003 is as follows:

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-8-

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Note 5.  FHLB Borrowings

The borrowings from the Federal Home Loan Bank of Atlanta, Georgia, are secured by qualifying first mortgage loans and certain securities.  The borrowings consist of the following:

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Note 6.  Interest Rate Swap Agreement

The Company 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 Company less susceptible to changes in interest rates by effectively converting certain variable rate debt to fixed rate debt.  The unrealized loss on the interest rate swap agreement was $807 and zero at September 30, 2004 and December 31, 2003, respectively.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The Company’s net income totaled a record $1,101,791 in the third quarter of 2004, an increase of 8% over the third quarter of 2003.  These results reflect a continuing improvement in net interest income, adequate non-interest income and normal increases in non-interest expenses. For the quarter, total interest income increased by $462,084 or 9.9% compared to the third quarter of the prior year; while total interest expense grew by $136,805 or 8 %, resulting in net interest income improving by $325,279 or 11% compared to the third quarter 2003. Quarterly non-interest income was $737,893 compared to $838,629 in the prior year’s comparable quarter, a decline of $100,736 or 12%. Non-interest expense for the quarter was $2,544,594 an increase of $174,664 or 7.4% compared to the third quarter of the prior year.

The improvement in profitability is largely attributable to increases in the levels of earning assets, the impact of increases in interest rates on the loan portfolio, and controlled growth in non-interest expenses. For the third quarter of 2004, average interest-earning assets increased by $31.7 million, or 10.2%, compared to the same period in 2003. The increase in total interest expense was comprised of a decrease of $35,838 or 2.3% in interest on deposits and an increase of $172,643 in interest on borrowings. In the quarter, average interest-bearing liabilities increased $28 million, or 10.2%. The decline in non-interest income of 12% was due to lower fees on secondary market mortgage loan sales, and lower commissions on sales of non-deposit investment products, as compared to the prior year’s third quarter. For the quarter, the Company’s return on average assets was 1.19% and the return on average shareholders equity was 15.53% compared to 1.21% and 15.08% respectively in the comparable quarter of 2003.

Net income per common share for the third quarter of 2004 was $.49 compared to $.47 in the same period last year. On a fully diluted basis, quarterly earnings per share were $.48 versus $.45 last year. All prior period per share data has been adjusted for the effect of the 5% stock dividend paid in June 2004.

The Company’s net income for the nine months ended September 30, 2004 totaled $3,171,026 versus $2,790,612, an increase of 13.6% over the first nine months of 2003. These results are also reflective of similar increases in total interest income and net interest income as mentioned above.  For the first nine months, total non-interest income has remained virtually unchanged at $2.1 million while other non-interest expenses increased 11% to $7.4 million. Net income per common share for the first nine months of 2004 was $1.42 compared to $1.28 for the same period in 2003. Adjusted for dilution, the per share earnings were $1.39 and $1.23 during such periods, respectively. The Company’s annualized return on average equity was 14.6% for the nine months ended September 30, 2004, compared to 14.1% for the nine months ended September 30, 2003. The return on average assets amounted to 1.15% and 1.20% for these same periods, respectively.

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Net Interest Income.  The Company’s net interest income was $3,290,386 for the third quarter of 2004, an increase of $325,279, or 11% compared to $2,965,107 in the third quarter of 2003.  For the nine-month period, net interest income was $9,610,255, an increase of $978,092, or 11.3% versus $8,632,163 over the same period in 2003.  The increase in net interest income in 2004 is reflective of the 10.2% increase in earning assets, which averaged $343.9 million for the third quarter and $339.4 for the first nine months compared to $312.2 million and $285.2 million respectively in the prior year. The major components of this growth were investment securities, which grew by 6.7% to average $164.5 million for the quarter and 26.2% to average $167.6 million for the year to date, and loans which grew by 16.8% to average $177 million in the quarter and 15% to average $169.6 million for the year to date.  

The tax equivalent net interest income in the third quarter 2004 was $3.51 million, an increase of 12.4% compared to $3.12 million in the third quarter of 2003. The tax equivalent net interest margin improved to 4.08% for the quarter compared to 4.0% in third quarter 2003. For the nine months year to date, the tax equivalent net interest income was $10,259,599 compared to $9,000,424 an increase of 14% versus the same prior year period. The tax equivalent net interest margin was 4.03% versus 4.21% in the same prior year period.

The net interest margin is a measure of net interest income performance. It represents the difference between interest income, including the earned portion of net deferred loan fees and costs, and interest expense paid on deposits and borrowings, reflected as a percentage of average interest earning assets. The following table sets forth for the periods indicated the Company’s average interest earning assets (on a tax equivalent basis), average interest bearing liabilities, the average yields earned on such assets and rates paid on such liabilities, and the net interest margin.

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Non-Interest Income.  Non-interest income totaled $737,893 for the quarter, a decline of 12% compared to the prior year’s third quarter total of $838,629. Secondary market mortgage loan fees continue to lag versus both the prior year’s quarter and year to date, due to a significant decline in the volume of mortgage refinancing activity. Non-deposit investment product sales, while even with the same prior year period, were also down when compared to the prior year due to a single nonrecurring large transaction in last year’s third quarter. Gains on sales of securities available for sale of $64,039 were recognized during the quarter as compared to $28,623 in the third quarter 2003, and resulted as part of the Company’s normal portfolio management. Year to date, non-interest income has been virtually even with the same prior year period at $2.13 million versus $2.14  million. The major percentage changes for the nine months year to date 2004 versus the same period in 2003 were deposit fees and charges down 10% to $809,312, bank card fees up 15% to $224,223, secondary market mortgage loan fees down 37% to $181,440, net securities gains and losses up 273% to $186,429, and commissions on sales of non-deposit investment products and insurance essentially unchanged at $348,259.

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Non-Interest Expense.  The Company’s total non-interest expenses for the third quarter ended September 30, 2004 increased $174,664 or 7.4% to $2,544,594 versus $2,369,930 in the prior years third quarter, and for the nine-months ended September 30, 2004 increased $734,938, to $7,392,662 or 11% compared to $6,657,724 in the comparable period for 2003.  Expenses related to salaries and employee benefits not treated as an adjustment to the yield of loans increased $79,233 for the quarter and $420,507 for the first nine months of 2004 compared to the same periods in 2003. This increase has resulted primarily from additions to staff as the result of the growth of the bank, as well as increases in the general cost of maintaining employee health and benefit plans. Of particular note is the impact of the opening of the Company’s Bellgrade branch, which has affected total exp enses for personnel, occupancy, advertising and public relations, and general operating when compared to the prior year’s quarter and year to date, as the branch was opened in March 2004, and accordingly is not reflected in the prior year’s expenses. Occupancy expense increased 32.4% for the quarter and increased 18.8% for the nine-month period.  Equipment depreciation declined 8.1% for the quarter but is up 2.5% for the nine-month period reflecting the equipment fully depreciating out since last year in the quarter. Advertising and public relation is up 36% for the third quarter and 40% for the nine months year to date. Notwithstanding the Bellgrade branch opening, the increase is due to a higher level of general marketing and community involvement promotional activities.

Income Taxes.  The Company reported income taxes of $288,394 for the current quarter compared to $323,532 for the third quarter 2003 and for the nine months year to date 2004, $803,641 compared to $1,032,284 for the first nine months of 2003. These amounts yielded effective tax rates of 20.7% for the quarter and 20.2% for the first nine months of 2004, compared to 24.1% and 27.0% for the same periods in 2003, respectively.  The 2004 effective rates were positively impacted by increased investments in various securities where a significant amount of the dividends received were not subject to tax, a tax accrual adjustment, as well as the pro-rata application of certain tax credits resulting from the Company’s investment in a Community Reinvestment Act eligible housing project LLC in December 2003.

Financial Condition

Loan Portfolio.  The Company is an active residential mortgage and residential construction lender and generally extends commercial loans to small and medium sized businesses within its primary service area.  The Company’s commercial and consumer lending activity extends across its primary service area of  Powhatan, Cumberland, Chesterfield, Henrico, and Goochland Counties. Consistent with its focus on providing community-based financial services, the Company does not attempt to diversify its loan portfolio geographically by making significant amounts of loans to borrowers outside of its primary service area.

The principal risk associated with each of the categories of loans in the Company’s portfolio is the creditworthiness of its borrowers.  Within each category, such risk is increased or decreased depending on prevailing economic conditions.  The risk associated with real estate mortgage loans and installment loans to individuals varies based upon employment levels, consumer confidence, fluctuations in value of residential real estate, interest rates, and other conditions that affect the ability of consumers to repay indebtedness.  The risk associated with commercial, financial and agricultural loans varies based upon the strength and activity of the local economies of the Company’s market areas.  The risk associated with real estate construction loans varies based upon the supply of the type of real estate under construction, and demand for such, which in turn is d irectly affected by the prevailing interest rate environment.  Many of the Company’s real estate construction loans are for pre-sold or contract homes. Builders are limited as to the number and dollar amount of loans for speculative home construction based on the financial strength of the borrower and the prevailing market conditions.

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At September 30, 2004, total loans net of unearned income increased 12.3% or $19.5 million to $178 million from $158.5 million at December 31, 2003 and 16.3% or $24.9 million from $153.1 million at September 30, 2003.  The loan-to-deposit ratio was 58.3% at September 30, 2004, compared to 52.7% at December 31, 2003, and 51.3% at September 30, 2003.  At September 30, 2004, loans secured by real estate accounted for 74.1% of the loan portfolio, consumer loans were 6.3%, and commercial and industrial loans totaled 19.6%.

Asset Quality.  Non-performing loans include non-accrual loans, loans 90 days or more past due, restructured loans, and other non-performing assets.  Non-accrual loans are loans on which interest accruals have been discontinued.  Loans which reach non-accrual status may not be restored to accrual status until all delinquent principal and interest has been paid, or the loan becomes both well secured and in the process of collection.  Restructured loans are loans with respect to which a borrower has been granted a concession on the interest rate or the original repayment terms because of financial difficulties.  Other non-performing assets include any non loan-related earning asset, which is no longer earning interest but in the opinion of management should be otherwise collectable.

The following table summarizes non-performing loans:

Management does not believe that the current level of non-performing loans reflects any systemic problems in the Company’s loan portfolio. The significant decrease in the level of non-performing assets from March 31, 2004 reflects the resolution of the dispute between principals involved in a large 90 day past due loan. The Company has been an active and successful local residential construction lender for over 25 years.  In the event of a sudden significant increase in interest rates, which remain at that level for a protracted time, thereby causing mortgage interest rates to remain high, and further creating a decline in the demand for, and sales of, new homes, it is possible that such a scenario could be detrimental to some of the Company’s larger builder/borrowers.  Management is not aware of any other material lending relationships at September 30, 2004 that involve se rious doubts as to the ability of such borrowers to comply with their existing repayment terms.

Management forecloses on delinquent real estate loans when all other repayment possibilities have been exhausted. OREO has declined from $97,000 at December 31, 2003 to $10,000 at September 30, 2004 due to the sales of two properties. The one remaining parcel of OREO is in the Company’s primary service area and consisted of one building lot, which was written down to its current $10,000 balance in the second quarter 2004, and is currently under contract for sale. Management believes, if the sale is consummated, a recovery of the current carrying value as well as some of the prior write-down should occur. The Bank’s

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practice is to value OREO at the lower of  (i) an independent current appraisal or market analysis less anticipated costs of disposal, or (ii) the existing loan balance both at the time of acquisition as well as periodically throughout the holding period.  The Bank actively markets all foreclosed real estate and does not anticipate material write-downs in value prior to disposition. Other non-performing assets consist of a small business financing revenue bond that had defaulted on its interest payments during 2003.  In accordance with the trust indenture, the trustee has foreclosed on the underlying collateral securing the bond and the property is currently being marketed for sale.  The purchase price of the bond in January 1999 was $190,000, which was written down during 2003 and 2004 to an anticipated liquidation value of $140,000. During the third quar ter 2004 a payment of $15,000 from the rental of the property was received and applied to the carrying value of the asset.  

Management periodically evaluates non-performing assets relative to their collateral value and makes appropriate reductions, if warranted, in the carrying value of those assets based on that review.  Management believes, based on its review, that the Company has adequate reserves to cover any future write down that may be required on non-performing assets.

Management has analyzed the potential risk of loss on the Company’s loan portfolio, given the loan balances and the value of the underlying collateral, and has recognized losses where appropriate.  Non-performing loans are monitored on a monthly basis as part of the Company’s ongoing loan review process.  Management reviews the adequacy of the loan loss allowance at the end of each month. Based primarily on the Company’s loan classification system, which classifies watch list and problem credits as special mention, substandard, doubtful or loss, additional provisions may be made monthly. Furthermore, past experience has led management to conclude that as a general matter it is prudent to operate with a high level or reserves.  The ratio of the allowance for loan losses to total loans was 1.50% at September 30, 2004, 1.51% at June 30, 2004, 1.51% at December 31, 20 03, and 1.54% at September 30, 2003. Management feels that the allowance for loan losses, while it may not increase or decrease at exactly the same rate as the loan portfolio, is prudent and adequate given the quantified risks associated with potential losses within the loan portfolio.  At September 30, 2004 the ratio of the allowance for loan losses to total non-performing assets was 288%, compared to 125% at December 31, 2003 and 177% at September 30, 2003, and is reflective of the decline in the overall level of non-performing assets.

For each period presented, the provision for loan losses charged to operations is based on management’s judgment after taking into consideration numerous factors connected with both the risks inherent with the granting of credit and the collectibility of the existing portfolio. Management evaluates the loan portfolio in light of general market economic conditions, changes in the nature and value of the portfolio, industry standards and any other factors deemed relevant.  Specific factors considered by management in determining the amounts charged to operations include internally generated loan review reports, previous loan loss experience with the borrower, the status of past due interest and principal payments on the loan, the quality of financial information supplied by the borrower and the general financial condition of the borrower.

The provision for loan losses charged to expenses totaled $93,500 for the quarter ended September 30, 2004 versus $90,000 for the same period in 2003.  For the nine-month period ended September 30, 2004 and 2003, the provision for loan losses totaled $371,500 and $290,000, respectively.  In the opinion of management, the provision charged to operations has been sufficient to absorb the current year’s net loan losses while continuing to provide for potential specific and general credit risks within the loan portfolio.

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Securities

The Company’s investment securities portfolio serves primarily as a source of liquidity, safety and yield.  Certain of the securities are pledged to secure public deposits and others are specifically identified as collateral for borrowings from the Federal Home Loan Bank or repurchase agreements with customers.  The remaining portion of the portfolio is held for investment yield, availability for sale in the event liquidity is needed and for general asset/liability management purposes.  During the first nine months of 2004, total securities decreased by $17.6 million or 9.9% to $159.4 million or 42.7% of total assets at September 30, 2004.  At December 31, 2003, total securities were $177.0 million or 48.4% of total assets and at September 30, 2003, total securities were $161.8 million, or 46.5 % of total assets.

The securities portfolio is segregated into two components: securities held to maturity and securities available for sale.  Securities are classified as held to maturity when management has the intent and the Company has the ability at the time of purchase to hold the securities to their maturity.  Securities held to maturity are carried at cost adjusted for amortization of premiums and accretion of discounts.  Securities to be held for indefinite periods of time are classified as available for sale and accounted for at market value. Securities available for sale include securities that may be sold in response to changes in market interest rates, changes in the security’s prepayment or credit risk, increases in loan demand, general liquidity needs and other similar factors.  The Company’s recent purchases of investment securities have been limited to securities of investment grade credit quality with short to medium term maturities. The types of securities purchased consist of U.S. Treasury securities, U.S. Government Agency securities, shorter term Agency adjustable rate mortgage backed securities, bank eligible Agency (FNMA, FHLMC, SLM) Preferred stock, and bank qualified tax-free municipal securities.   As the general interest rate levels have fallen over the past eighteen months and now seem to have stabilized, there has been a steady increase in the number of higher yielding securities in the portfolio that contained call options, being called by the issuers.  This has caused a decline in the overall yield of the investment portfolio year to date, as those funds must be reinvested at the current lower yields.  We anticipate this trend to continue.

The fully taxable equivalent annualized average yield on the entire securities portfolio was 6.04% for the third quarter and 6.0% for the first nine months of 2004, compared to 5.75% and 6.14% for the same periods in 2003. The market value of the available for sale portfolio exceeded the book value by $1.69 million at September 30, 2004, $2.17 million at December 31, 2003, and $1.74 million at September 30, 2003.

Deposits and Short-Term Borrowings

The Company’s predominate source of funds is depository accounts.  The Company’s deposit base is comprised of demand deposits, interest checking, savings and money market accounts and other time deposits, also referred to as certificates of deposit.  The Company’s deposits are provided by individuals, businesses, and organizations located within the communities served. The Company does not accept out of market deposits, nor does it solicit or accept any brokered deposits.

Total deposit growth was $7 million or 2.3% between September 30, 2004 and September 30, 2003.  Total deposits grew by $4.4 million or 1.5% between December 31, 2003 and September 30, 2004.  The average aggregate interest rate paid on deposits was 1.98% in the third quarter of 2004 and 1.98% for the first nine months of 2004, compared to 2.15% and 2.25% respectively for the same periods in 2003.  The Company’s deposit mix consists of demand, interest checking, MMDA, and savings deposits, which together comprise 47.7% of total deposits.  The remaining 52.3% of deposits consists of higher yielding time deposits as many Company customers are individuals who seek higher yields than those offered on savings and money market accounts.

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The following table is a summary of time deposits of $100,000 or more by remaining maturities at September 30, 2004:

Borrowings from the Federal Home Loan Bank have changed in structure in both overnight and term advances in order to take advantage of the prevailing low interest rates.  Term advances were $26 million at September 30, 2004, $21 million at and December 31, 2003, and $16 million at September 30, 2003. The increase is a result of new five-year fixed rate borrowings entered into to extend the Company’s liabilities at a time of low interest rates. Overnight advances were $4.5 million at September 30, 2004 compared to $5 million at December 31, 2003 and $5 million at September 30, 2003. Several of the Company’s original term borrowings have call options and will in all probability be called when interest rates rise above the rate of the borrowing later this year or in 2005.

Capital Resources

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance and changing competitive conditions and economic forces.  The Company seeks to maintain a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence.

The capital position of Central Virginia Bank, a wholly-owned subsidiary of the Company (the “Bank”), continues to exceed regulatory minimums.  The primary indicators relied on by the Federal Reserve Board and other bank regulators in measuring strength of capital position are the Tier 1 Capital, Total Capital, and Leverage ratios.  Tier 1 Capital consists of common and qualifying preferred stockholders’ equity less goodwill.  Total Capital consists of Tier 1 Capital, qualifying subordinated debt and a portion of the allowance for loan losses.  Risk-based capital ratios are calculated with reference to risk-weighted assets, which consist of both on and off-balance sheet assets.  The Leverage Ratio consists of Tier 1 Capital divided by quarterly average assets.  The Company, in view of the significant growth experienced over the past several years and the resulting impact on various capital ratios, was cognizant of the eventual need for additional capital to support further expansion or acquisitions and used all of the $5 million proceeds from the issuance of the capital trust preferred securities in December 2003 to invest in the Bank, thereby significantly increasing the Bank’s capital position.

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Banking regulations also require the Bank to maintain certain minimum capital levels in relation to Bank Assets.  Capital is measured using a leverage ratio as well as based on risk-weighting assets according to regulatory guidelines.  A comparison of the Bank’s actual regulatory capital at September 30, 2004, with minimum requirements, as defined by regulation, is shown below:

Liquidity and Interest Rate Sensitivity

Liquidity.  Liquidity is the 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, interest-bearing deposits with banks, federal funds sold, investments and loans maturing within one year.  The Company’s ability to obtain deposits and purchase funds at favorable rates determines its liability liquidity.  As a result of the Company’s management of liquid assets and its ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs in the foreseeable future.

Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, the ability to obtain deposits through the adjustment of interest rates, borrowing from the Federal Home Loan Bank, purchasing of federal funds, and selling securities under repurchase agreements. To further meet its liquidity needs, the Company also has access to the Federal Reserve System discount window.  Historically, growth in deposits and proceeds from the maturity of investment securities has been sufficient to fund the net increase in loans. However, in 2000 the Company had to make use of its borrowing availability as the inflow of deposits slowed.  Since 2001, the flow of deposits has increased sufficiently to fund loan growth, however, due to low loan demand, the Company used portions of its borrowing availability to purchase marketable securities in an effort to incre ase net interest income.    

Interest Rate Sensitivity.  In conjunction with maintaining a satisfactory level of liquidity, management must also control the degree of interest rate risk assumed on the balance sheet. Managing this risk involves regular monitoring of the interest sensitive assets relative to interest sensitive liabilities over specific time intervals.  Simulation modeling results for various interest rate scenarios are reviewed by the Company’s asset-liability management committee to assist in modifying current pricing strategies for loans and deposits, as well as the general composition of the Company’s earning assets and interest-bearing liabilities.  

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Effects of Inflation

Inflation significantly affects industries having high proportions of fixed assets or high levels of inventories.  Although the Company is not significantly affected in these areas, inflation does have an impact on the growth of assets.  As assets grow rapidly, it becomes necessary to increase equity capital at proportionate levels to maintain the appropriate equity to asset ratios.  Traditionally, the Company’s earnings and high capital retention levels have enabled the Company to meet these needs.

The Company’s reported earnings results have been affected by inflation, but isolating the effect is difficult.  The different types of income and expense are affected in various ways.  Interest rates are affected by inflation, but the timing and magnitude of the changes may not coincide with changes in the consumer price index. Management actively monitors interest rate sensitivity in order to minimize the effects of inflationary trends on interest rates.  Other areas of non-interest expenses may be more directly affected by inflation.

Forward-Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.  Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans such as repayment risks and fluctuating collateral values, problems with technology utilized by the Company, changing trends in customer profiles and changes in la ws and regulations applicable to the Company. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

RISK

Not applicable pursuant to Instructions to Item 305(c) of Regulation S-K.

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ITEM 4

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings with the Securities and Exchange Commission.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting.  There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Since the date of this evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls.

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PART II

OTHER INFORMATION

ITEM 5

OTHER INFORMATION

On November 10, 2004, the Company’s independent registered public accounting firm, Mitchell, Wiggins & Company, LLP (“Mitchell Wiggins”), informed the Company that the firm had made a business decision that beginning January 1, 2005, they will no longer perform services as the external independent auditor for publicly traded companies registered with the Securities and Exchange Commission.  As a result, Mitchell Wiggins may not stand for re-appointment as the Company’s independent auditor for the fiscal year ending December 31, 2005.  Mitchell Wiggins also informed the Company that it intends to complete its audit of the Company’s financial statements for the fiscal year ending December 31, 2004.

Mitchell Wiggins’ report on the Company’s financial statements for either of the past two fiscal years did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.  During the two most recent fiscal years and through November 15, 2004, there have been no disagreements with Mitchell Wiggins on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.  

In response to the Company’s request, Mitchell Wiggins has furnished the Company with a letter addressed to the Securities and Exchange Commission stating its agreement with the above statements.  A copy of such letter is attached as Exhibit 16.1 to this Form 10-Q.

The Company’s Audit Committee has commenced a search to select the Company’s new independent auditor for the fiscal year ending December 31, 2005.

ITEM 6

EXHIBITS

Exhibits:

16.1

Concurrence Letter from Mitchell, Wiggins & Company, LLP

31.1

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

31.2

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

32.1

Statement of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CENTRAL VIRGINIA BANKSHARES, INC.

                          (Registrant)

Date:  November 15, 2004

/s/ Ralph Larry Lyons

Ralph Larry Lyons, President and Chief Executive

Officer (Principal Executive Officer)

Date:  November 15, 2004

/s/ Charles F. Catlett, III

Charles F. Catlett, III, Senior Vice President and

Chief Financial Officer (Principal Financial

Officer)

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EXHIBIT INDEX

16.1

Concurrence Letter from 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)