Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

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

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission file number:  000-24002

CENTRAL VIRGINIA BANKSHARES, INC.

(Name of registrant in its charter)

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

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 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 [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes [    ]    No [ X ]

The aggregate market value of the Common Stock held by non-affiliates, computed by reference to the closing sale price of the Common Stock as reported on The Nasdaq National Market on June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, was $55,780,517.

At March 15, 2005, there were 2,261,926 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2005 definitive proxy statement for the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

PART I

ITEM 1.

BUSINESS

1

ITEM 2.

PROPERTIES

8

ITEM 3.

LEGAL PROCEEDINGS

8

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

8

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

SECURITIES

9

ITEM 6.

SELECTED FINANCIAL DATA

10

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

11

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

28

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

30

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

30

ITEM 9A.

CONTROLS AND PROCEDURES

30

ITEM 9B.

OTHER INFORMATION

31

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

31

ITEM 11.

EXECUTIVE COMPENSATION

31

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

31

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

31

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

31

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

32

PART I

ITEM 1.

BUSINESS

General

The Company and the Bank.  Central Virginia Bankshares, Inc. (the “Company”) was incorporated as a Virginia corporation on March 7, 1986, solely to acquire all of the issued and outstanding shares of Central Virginia Bank’s (the “Bank”).  The Bank was incorporated on June 1, 1972 under the laws of the Commonwealth of Virginia and, since opening for business on September 17, 1973, its main and administrative office has been located on U.S. Route 60 at Flat Rock, in Powhatan County, Virginia.  In May 1996, the administrative offices were relocated to the Corporate Center in the Powhatan Commercial Center on New Dorset Road located off Route 60 less than one mile from the main office.

The Company maintains an internet website at www.centralvabank.com, which contains information relating to it and its business. The Company makes available free of charge through its website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these documents as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the Securities and Exchange Commission. Copies of the Company’s Audit Committee Charter, Nominating Committee Charter and Code of Conduct are available upon written request to the Company’s Corporate Secretary.

Principal Market Area.  The Bank’s primary service areas are Powhatan and Cumberland Counties, Goochland County and western Chesterfield and western Henrico Counties. These counties had populations of 22,377; 9,017; 16,863; 259,903 and 262,300 respectively, according to the 2000 census.  The growth rate of these counties was 46.0%, 15.2%, 19.1%, 24.2%, and 20.4%, respectively, from the 1990 census.  Similar growth rates are expected for the foreseeable future. The Bank’s main office is located in the Village of Flat Rock in Powhatan County, which is on U.S. Route 60, eight miles west of the Village of Midlothian in Chesterfield County.  Flat Rock is the commercial hub of Powhatan County.  Two of the Bank’s branch offices are located in Chesterfield County, one in the Village Marketplace Shopping Center in the Village of Midlothia n and the other in the Market Square Shopping Center in Brandermill, two are in Cumberland County on U.S. Route 60 near the courthouse and in Cartersville, and there is one branch in Wellesley in the Short Pump area of western Henrico County.  The Wellesley location was acquired from another financial institution and opened in July 2001 while the Bellgrade location was acquired from another financial institution in October 2003 and was opened for business in March 2004.  The Bank’s present intention is to continue its activities in its current service area, and expand its franchise in the higher growth areas of the markets it serves. The Bank’s primary markets are considered to be an attractive and desirable area in which to operate.

Banking Services.  The principal business of the Bank is to attract deposits and to loan or invest those deposits on profitable terms.  The Bank engages in a general community and commercial banking business, targeting the banking needs of individuals and small to medium sized businesses in its primary service area.  The Bank offers all traditional loan and deposit banking services as well as newer services such as Internet banking, telephone banking, debit cards, and other ancillary services such as the sales of non-deposit investment products through a partnership with UVEST, a registered broker-dealer and member of NASD, SIPC.  The Bank makes seasonal and term loans, both alone and in conjunction with other banks or governmental agencies.  The Bank also offers other related services, such as ATMs, travelers’ checks, safe deposit boxes, deposit transfer, notary public, escrow, drive-in facilities and other customary banking services.  The Bank’s lending policies, deposit products and related services are intended to meet the needs of individuals and businesses in its market area.  The Bank may provide trust services to its customers through an affiliation with The Trust Company of Virginia.

The Bank’s plan of operation for future periods is to continue to operate as a community bank and to focus its lending and deposit activities in its primary service area.  As the Bank’s primary service area shifts from rural to suburban in nature, the Bank will compete aggressively for customers through its traditional personal service and extended hours of operation.  The Bank will also emphasize the origination of residential mortgages and construction loans as the area becomes more developed.  Consistent with its

focus on providing community based financial services, the Bank does not plan to diversify its loan portfolio geographically by making significant loans outside of its primary service area.  While the Bank and its borrowers will be directly affected by the economic conditions and the prevailing real estate market in the area, the Bank is better able to monitor the financial condition of its borrowers by concentrating its lending activities in its primary service area.  The Bank will continue to evaluate the feasibility of entering into other markets as opportunities to do so become available.

Lending Activities

Loan Portfolio.  The Company is an active residential mortgage and residential construction lender and also extends consumer loans to individuals and commercial loans to small and medium sized businesses within its primary service area.  The Company’s commercial lending activity extends across its primary service area of Powhatan, Cumberland, Goochland, western Chesterfield and western Henrico 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, however, there are a number of lending relationships outside of the primary service area.  The principal risks associated with each of the categories of loans in the Company’s portfolio is the creditworthiness of its borrowers, followed closely by the general local economic environment.  In an effort to manage this risk, the Bank’s policy gives loan approval limits to individual loan officers based on their level of experience.  Loans where the total borrower exposure to the Bank is less than $1,250,000 may be approved by the Bank’s Senior Loan Committee.  The Board of Directors of the Bank must approve loans where the total borrower exposure is in excess of $1,250,000.  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 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 primary market areas.  The risk associated with real estate construction loans varies based upon the supply of and demand for the type of real estate under construction, the mortgage loan interest rate environment and the number of speculative properties under constructions. The Bank manages that risk by focusing on pre-sold or contract homes and limiting the number of “speculative” homes in its portfolio.

Residential Mortgage Loans.  Residential mortgage loans are made in amounts generally up to 80.0% of the appraised value of the property pledged as security for the loan.  Residential mortgage loans are underwritten using specific qualification guidelines that are intended to assure that such loans may be eligible for sale into the secondary mortgage market.  The Bank generally requires an appraisal by a licensed outside appraiser for all loans secured by real estate.  In some isolated instances where the Bank is familiar with the subject property, the current locality’s tax assessed value or an assessment by Bank lenders may be accepted.  The Bank requires that the borrower obtain title, fire and casualty insurance coverage in an amount equal to the loan amount and in a form acceptable to the Bank.  The Bank originates residential mortga ge loans that are sold in the secondary market, or are carried in the Bank’s loan portfolio.  These loans are generally either one-year, three-year, or five-year adjustable rate mortgages (“ARMs”) or fifteen to thirty year fixed rate mortgages.  Substantially all permanent owner occupied residential mortgages made for the Bank’s own portfolio are made as three-year and five-year ARMs.

The Bank’s ARMs generally are subject to limitations of 2.0% per three-year period on interest rate adjustments over the life of the loan with rate changes not to exceed 6.0%.  All changes in the interest rate are based on the movement of an external index contractually agreed to by the Bank and the borrower at the origination of the loan.

There are risks to the Bank resulting from increased costs to a borrower as a result of the periodic repricing mechanisms of these loans.  Despite the benefits of ARMs to an institution’s asset/liability management, they may pose additional risks, primarily because as interest rates rise, the underlying

2

payments by the borrower rise, increasing the potential for default.  At the same time, the marketability of the underlying property may be adversely affected by higher interest rates.

The Bank charges origination fees on its residential mortgage loans.  These fees vary among loan products and with market conditions.  Generally such fees amount to .5% to 3.0% of the loan principal amount.  In addition, the Bank charges fees to its borrowers to cover the cost of appraisals, credit reports and certain expenses related to the documentation and closing of loans.

Commercial Mortgage Loans.  The Bank does not actively seek commercial permanent mortgage loans on income-producing properties such as apartments, shopping centers, hotels and office buildings.  Any such requests from Bank customers concerning properties in the Bank’s established trade area are considered.

Real Estate Construction Lending.  In general, the Bank does not actively solicit or originate construction loans on income-producing properties such as apartments, shopping centers, hotels and office buildings.

In order to promote its permanent mortgage lending business and because of the attractive adjustable interest rates available, the Bank makes construction and small development loans for residential housing purposes.  The large majority of the Bank’s construction loans are to experienced builders.  Such loans normally carry an interest rate of .5% to 1.5% over the prime bank lending rate, adjusted daily. Construction lending entails significant risk as compared with residential mortgage lending.  Construction loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers.  Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of the home under construction, which is of uncertain value prior to the completion of construction.  Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios.  To minimize risks associated with construction lending, the Bank, as a rule limits loan amounts to 75.0% of appraised value on unsold homes and 80.0% of appraised value on pre-sold homes, and performs or causes to be performed periodic inspections of the construction to ensure there are sufficient undisbursed loan proceeds in order to complete the building, in addition to its usual credit analysis of its borrowers.  The Bank always obtains a first lien on the property as security for its construction loans.

Consumer Lending.  The Bank currently offers most types of consumer demand, time and installment loans for a variety of purposes, including automobile loans, home equity lines of credit, and credit cards.

Commercial Business Lending.  As a full-service community bank, the Bank makes commercial loans to qualified small businesses in the Bank’s market area.  At December 31, 2004, commercial business loans were $34.1 million or 18.9% of the Bank’s total loan portfolio. Commercial business loans generally have a higher degree of risk than residential mortgage loans but have commensurately higher yields.  To manage these risks, the Bank secures appropriate collateral and monitors the financial condition of its business borrowers and the concentration of such loans in the Bank’s portfolio.  Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment income and other sources and are secured by real property whose value tends to be easily ascertainable.  In contrast, commercia l business loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of its business and are either unsecured or secured by business assets, such as accounts receivable, equipment and inventory.  As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself.  Further, the collateral for secured commercial business loans may depreciate over time, and cannot be appraised with as much precision as residential real estate. At December 31, 2004, the Bank had approximately $19,000 of non-performing commercial loans.

3

Competition

Based on FDIC deposit statistics as of June 30, 2004, the Bank dominates both Powhatan and Cumberland Counties with greater than 50% of the deposits in each locality. However, in both Chesterfield and Henrico Counties, the Bank encounters stronger competition for its banking services from larger banks and other community banks located in the Richmond metropolitan area.  In addition, financial companies, mortgage companies, credit unions and savings and loan associations also compete with the Bank for loans and deposits.  The Bank must also compete for deposits with money market mutual funds that are marketed nationally.  Many of the Bank’s competitors have substantially greater resources than the Bank.  The internet is also providing an increasing amount of price oriented competition which the Bank anticipates to become more intense.  The success of the Bank in the past and its plans for success in the future is dependent upon providing superior customer service and convenience.  

Employees

The Company and the Bank had 103 full-time and 19 part-time employees at December 31, 2004.  Employee relations have and continue to be good.  The Bank sponsors a qualified discretionary Profit Sharing/Retirement Plan for its employees as well as a 401(k) plan, in addition, the Company subsidizes a short-term disability plan, group term life insurance, and group medical, dental, and vision insurance.

Regulation and Supervision

General.  As a bank holding company, the Company is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve Board.  The BHCA also generally limits the activities of a bank holding company to that of banking, managing or controlling banks, or any other activity which is determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities.

As a state-chartered commercial bank, the Bank is subject to regulation, supervision and examination by the Virginia State Corporation Commission’s Bureau of Financial Institutions.  It also is subject to regulation, supervision and examination by the Federal Reserve Board.  State and federal law also governs the activities in which the Bank engages, the investments that it makes and the aggregate amount of loans that may be granted to one borrower.  Various consumer and compliance laws and regulations also affect the Bank’s operations.

The earnings of the Company’s subsidiaries, and therefore the earnings of the Company, are affected by general economic conditions, management policies, changes in state and federal legislation and actions of various regulatory authorities, including those referred to above.  The following description summarizes the significant state and federal laws to which the Company and the Bank are subject.  To the extent that statutory or regulatory provisions or proposals are described, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals.

Payment of Dividends.  The Company is a legal entity separate and distinct from the Bank.  The majority of the Company’s revenue will result from dividends paid to the Company by the Bank.  The Bank is subject to laws and regulations that limit the amount of dividends that it can pay.  In addition, both the Company and the Bank are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums.  Banking regulators have indicated that banking organizations should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to

4

fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.  The Company does not expect that any of these laws, regulations or policies will materially affect the ability of the Bank to pay dividends.  During the year ended December 31, 2004, due to the cash on hand and proceeds from the sale of marketable securities held by the Company, it was not necessary for the Bank to declare dividends payable to the Company.

Insurance of Accounts and Regulation by the FDIC.  The deposits of the Bank are insured by the FDIC up to the limits set forth under applicable law. The deposits of the Bank are subject to the deposit insurance assessments of the Bank Insurance Fund (“BIF”) of the Federal Deposit Insurance Corporation (the “FDIC”).  

The FDIC is authorized to prohibit any BIF-insured institution from engaging in any activity that the FDIC determines by regulation or order to pose a serious threat to the respective insurance fund.  Also, the FDIC may initiate enforcement actions against banks, after first giving the institution’s primary regulatory authority an opportunity to take such action.  The FDIC may terminate the deposit insurance of any depository institution if it determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed in writing by the FDIC.  It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital.  If deposit insurance is terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined by the FDIC.  Management is not aware of any existing circumstances that could result in termination of any Bank’s deposit insurance.

Capital.  The Federal Reserve Board has issued risk-based and leverage capital guidelines applicable to banking organizations that it supervises.  Under the risk-based capital requirements, the Company and the Bank are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%.  At least half of the total capital must be composed of common equity, retained earnings, qualifying perpetual preferred stock and minority interests in common equity accounts of consolidated subsidiaries, less certain intangibles (“Tier 1 capital”).  The remainder may consist of specific subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of loan loss allowance and pre-tax net unrealized holding gain s on certain equity securities (“Tier 2 capital,” which, together with Tier 1 capital, composes “total capital”).

On December 17, 2003, Central Virginia Bankshares, Inc. issued a $5 million debenture to its single purpose capital trust subsidiary, which in turn issued $5 million in trust preferred securities. With the proceeds of this issuance, the Company made a $5 million capital injection to its principal subsidiary, Central Virginia Bank.

In addition, each of the federal banking regulatory agencies has established minimum leverage capital requirements for banking organizations.  Under these requirements, banking organizations must maintain a minimum ratio of Tier 1 capital to adjusted average quarterly assets equal to 3% to 5%, subject to federal bank regulatory evaluation of an organization’s overall safety and soundness.

The risk-based capital standards of the Federal Reserve Board explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agency in assessing an institution’s overall capital adequacy.  The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization’s capital adequacy.

5

Other Safety and Soundness Regulations.  There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or is in danger of becoming insolvent.  For example, under the requirements of the Federal Reserve Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise.  In addition, the “cross-guarantee” provisions of federal law require insured depository inst itutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure.  The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the deposit insurance funds.  The FDIC’s claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institutions.

The federal banking agencies also have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions.  The extent of these powers depends upon whether the institution in question is well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized, as defined by the law.  As of December 31, 2004, the Company and the Bank were classified as well capitalized.

State banking regulators also have broad enforcement powers over the Bank, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator.

The Bank Secrecy Act.  Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction.  Financial institutions are generally required to report cash transactions involving more than $10,000 to the United States Treasury.  In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect, involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.  The USA PATRIOT Act of 2001, enacted in response to the September 11, 2001 terrorist attacks, requires bank regulators to consider a financial institution’s compliance with the BSA when reviewing applications from a fi nancial institution.  As part of its BSA program, the USA PATRIOT Act also requires a financial institution to follow recently implemented customer identification procedures when opening accounts for new customers and to review lists of individuals and entities who are prohibited from opening accounts at financial institutions.

Interstate Banking and Branching.  Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation.  Effective June 1, 1997, a bank headquartered in one state was authorized to merge with a bank headquartered in another state, as long as neither of the states had opted out of such interstate merger authority prior to such date.  After a bank has acquired a branch in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law.

Gramm-Leach-Bliley Act of 1999.  The Gramm-Leach-Bliley Act of 1999 (the “Act”) was signed into law on November 12, 1999.  The Act covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies.  The following description summarizes some of its significant provisions.

6

The Act repeals sections 20 and 32 of the Glass-Stegall Act, thus permitting unrestricted affiliations between banks and securities firms.  The Act also permits bank holding companies to elect to become financial holding companies.  A financial holding company may engage in or acquire companies that engage in a broad range of financial services, including securities activities such as underwriting, dealing, brokerage, investment and merchant banking; and insurance underwriting, sales and brokerage activities.  In order to become a financial holding company, the bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed, and have at least a satisfactory Community Reinvestment Act rating.

The Act provides that the states continue to have the authority to regulate insurance activities, but prohibits the states in most instances from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage insurance sales, solicitations or cross-marketing activities.  Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain areas identified in the Act.  The Act directs the federal bank regulatory agencies to adopt insurance consumer protection regulations that apply to sales practices, solicitations, advertising and disclosures.

The Act adopts a system of functional regulation under which the Federal Reserve Board is confirmed as the umbrella regulator for financial holding companies, but financial holding company affiliates are to be principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the Securities and Exchange Commission for securities affiliates and state insurance regulators for insurance affiliates.  The Act repeals the broad exemption of banks from the definitions of “broker” and “dealer” for purposes of the Securities Exchange Act of 1934, as amended, but identifies a set of specific activities, including traditional bank trust and fiduciary activities, in which a bank may engage without being deemed a “broker”, and a set of activities in which a bank may engage without being deemed a “dealer”.  The Act also make s conforming changes in the definitions of “broker” and “dealer” for purposes of the Investment Company Act of 1940, as amended, and the investment Advisers Act of 1940, as amended.

The Act contains extensive customer privacy protection provisions.  Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information.  The Act provides that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure.  An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes.  The Act also provides that t he states may adopt customer privacy protections that are more strict than those contained in the Act.  The Act also makes a criminal offense, except in limited circumstances, obtaining or attempting to obtain customer information of a financial nature by fraudulent or deceptive means.

7

ITEM 2.

PROPERTIES

The main office of the Company and the Bank was built in 1978 and is a two-story building of brick construction, with approximately 8,500 square feet of floor space.  It is located on Route 60 in the Village of Flat Rock in Powhatan County. The Cartersville location, in Cumberland County, which originally opened in 1985, was replaced in mid-1994 with a one-story brick building with approximately 1,600 square feet. The Midlothian branch is located in Chesterfield County at the Village Marketplace shopping center and was built in 1988 and opened in May of that year. It is a one and one-half story building with approximately 3,000 square feet.  On March 6, 1992, the Bank purchased the deposits of the Powhatan office of the former Coreast Federal Savings Bank from the Resolution Trust Corporation assuming approximately $9.0 million in deposit liabilities.  The Bank also negotiated the purchase of that branch site and its furniture and equipment at a price at or slightly below market value.  The branch facility is located in the Village of Flat Rock across Route 60 from the Bank’s main office.  This facility allows the Bank to service westbound traffic on Route 60 with its drive-in teller facility, and also houses the Bank’s secondary mortgage market loan origination operation.  In April 1993, the Bank acquired the branch facility of the former Investors Federal Savings Bank located in the Market Square Shopping Center in Brandermill in Chesterfield County, through the Resolution Trust Corporation. This one-story building contains approximately 1,600 square feet and opened for business on November 1, 1993.  In June 1998 the Bank completed construction of and opened a 4,800 square foot branch located on U. S. Route 60 (Anderson Highway) near the courthouse in Cumberland County, Virginia.  In July 2001, the Bank acquired a one-story, 2,800 square foot, two-year old branch facility from another financial institution located on Lauderdale Drive in Wellesley in Henrico County.  In December 2003, the Bank purchased a 2,800 square foot, seven-year old branch bank building from another financial institution.  This branch is located at 2500 Promenade Parkway in the Bellgrade shopping center located in the Midlothian area of Chesterfield County.

In May 1996 the Company moved its administrative staff to a 15,000 square foot two-story Corporate Center in the Powhatan Commercial Center located off U.S. Route 60 near the main office.  The Corporate Center houses the executive offices, finance and accounting, computer operations, loan administration and bookkeeping departments all of which were formerly located in the main office.

In January 2003 the Company acquired a 6.95 acre tract if land at the intersection of New Dorset Road and Route 60 in Powhatan County. Construction of a 16,000 square foot building to relocate the Main Office as well as house all lending operations began in August 2004. It is anticipated that the building will be completed and occupied in June 2005.

ITEM 3.

LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of securities holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year covered by this report.

8

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock and Dividends

Central Virginia Bankshares, Inc common stock trades on The Nasdaq National Market (“Nasdaq”) under the symbol “CVBK”.

The following table sets forth the high and low trade prices of the Company’s Common Stock on Nasdaq, based on published financial sources, and the dividends paid on the Common Stock for each calendar quarter indicated.

The Company’s future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including future consolidated earnings, financial condition, liquidity and capital requirements of the Company and the Bank, applicable governmental regulations and policies and other factors deemed relevant by the board of directors.

The Company’s ability to distribute cash dividends will depend primarily on the abilities of its subsidiary bank to pay dividends to the Company. As a state member bank, the Bank is subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations. Furthermore, neither the Company nor the Bank may declare or pay a cash dividend on any capital stock if it is insolvent or if the payment of the dividend would render it insolvent or unable to pay its obligations as they become due in the ordinary course of business. For additional information on these limitations, see “Regulation and Supervision - Payment of Dividends” in Item 1 above.

9

ITEM 6.

SELECTED FINANCIAL DATA

10

ITEM 7.

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

Results of Operations

Net income for the year ended December 31, 2004 increased $450,559, or 11.5%, to $4,364,324. This increase was primarily due to an increase in net interest income, which increased 9.1% to $13.0 million as interest rates began to rise during the last half of the year.  Total interest income increased $1.8 million, or 9.6%, as the Company’s average interest-earning assets, primarily loans and investment securities, increased by 45.5 million or 15.4% from December 31, 2003.  Interest expense increased 10.4% to $7.3 million from $6.7 million in 2003.  This increase is reflective of a 10.4% increase in average interest-bearing deposits as well as a full year of expense related to the $5 million trust preferred securities issued in December 2003.  Other income decreased 5.5% in 2004 as mortgage loan refinancing slowed resulting in a 32.6%, or $115,118 decrease in secondary mortgage market loan income. Also decreasing in 2004 compared to 2003 were deposit fees and charges, income from the investment in bank-owned life insurance, and commissions from the sale of non-deposit investment products.  Non-interest expenses increased 9.2% primarily due to increases in salaries and benefits, in addition, other areas contributing to the increase were occupancy expense, advertising, and office supplies principally due to the opening of the Bellgrade branch in March 2004.

For the year ended December 31, 2003, net income increased $908,601, or 30.2%, to $3,913,765. The major source of this increase was net interest income, which increased 20.6% to $11.9 million due to the steady, but lower, interest rate environment throughout the year.  Total interest income increased $1.1 million, or 6.5%, as the Company’s interest-earning assets, most notably loans and investment securities, rose 30.0% from December 31, 2002.  Funding for this asset growth was provided by a $62.7 million, or 26.4%, increase in deposits, as well as a $5 million increase in Federal Home Loan Bank advances and $5 million in proceeds from the issuance of trust preferred securities.  Also showing an increase for the year was other income, which rose 17.9% reflecting increased activity in the secondary mortgage market loan area as well as in co mmissions from the sales of non-deposit investment products.  Non-interest expenses increased 16.6% primarily due to increases in salaries and benefits as the Company added personnel to support the growth.

Basic earnings per share in 2004 were $1.95 compared to $1.79 in 2003 and $1.39 in 2002.  Diluted earnings per share were $1.91, $1.72, and $1.33, respectively, for the same periods.  All per share amounts presented reflect the 5% stock dividend paid June 15, 2004.

The Company’s return on average equity was 14.8% in 2004, compared to 14.7% and 13.5% in 2003 and 2002, respectively.  Return on average assets amounted to 1.18%, 1.22%, and 1.12% for these same periods.

Net Interest Income. The Company’s net interest income was $12,971,996 in 2004, compared to $11,891,356 and $9,860,808 for 2003 and 2002, respectively.  The 9.1% increase in 2004 reflects an increase in the average balance of interest-earning assets, while the 20.6% increase in 2003 reflects the effects of declining interest rates over the previous two years.   Total interest income increased 9.6% to $20.3 million in 2004 as the average balance of interest-earning assets increased 15.4% to $341.8 million while the taxable equivalent yield dropped to 6.20% from 6.46% in 2003.  Total interest expense increased 10.4% to $7.3 million in 2004 as a full year of interest expense was recognized related to the capital trust preferred securities issued in December 2003.  In addition, the Company increased its borrowings from the Federal Home Loan Bank to $30.5 million from $26.0 million in 2003.  In 2003, net interest income increased 6.5% as interest rates declined throughout the year.

11

The following table sets forth the Company’s average interest earning assets (on a tax-equivalent basis) and average interest bearing liabilities, the average yields earned on such assets and rates paid on such liabilities, and the net interest margin, all for the periods indicated.

____________________

(1)  Installment loans are stated net of unearned income.

(2)  Average loan balances include nonaccrual loans.

(3)  Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 34%.

(4)  Interest income on loans includes loan fees of $418,884 in 2004, $543,756 in 2003 and $565,453 in 2002.

(5)  Includes securities available for sale and securities held to maturity.

(6)  Includes mortgage loans held for sale.

The tax-equivalent net interest margin is a measure of net interest income performance. It represents the difference between interest income with any non-taxable interest adjusted to a fully tax-equivalent basis, including net loan fees earned, and interest expense, reflected as a percentage of average interest earning assets. The Company’s tax-equivalent net interest margin was 4.05% in 2004, compared to 4.21% in 2003 and 4.11% in 2002. The net interest margin decreased in 2004 as the tax-equivalent yield on interest-earning assets fell from 6.46% in 2003 to 6.20% in 2004, while the yield on interest-bearing liabilities only decreased 10 basis points from 2.55% in 2003 to 2.45% in 2004.  The tax-equivalent yield on securities dropped from 6.12% in 2003 to 5.99% in 2004 as higher-yielding securities were called and were replaced with securities bearing the lower current market interest rates. In 2003, interest rates were relatively stable compared to the continual reduction of rates during 2002.  The tax-equivalent yield on average interest-earning assets was 6.46% in 2003 compared to 7.17% in 2002 while the average balance of interest-earning assets increased 20.2% to $296.2 million.

12

Net interest income is affected by changes in both average interest rates and average volumes of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total change in interest income that can be attributed to rate (change in rate multiplied by old volume) and volume (change in volume multiplied by old rate) for the periods indicated. The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the relative size of the rate and volume changes.

____________________

(1)  Includes securities available for sale and securities held to maturity.

(2)  Fully taxable equivalent basis.

13

Non-Interest Income.  Non-interest income decreased $165,407, or 5.5%, in 2004 from 2003 for various reasons.  Deposit fees and charges were down 7.1% as fees charged on overdrawn checking accounts declined.  The increase in cash surrender value of bank-owned life insurance declined 3.9%, reflecting decreases in interest rates.  A downturn in mortgage loan refinancing activity resulted in a decline of 32.6% in income and fees from the sale of mortgage loans in the secondary market.  Commissions earned from the sales of non-deposit investment products decreased 10.6% in spite of an increase in overall activity as the 2003 results included one large non-recurring commission.  These decreases were partially offset by a 16.9% increase in bank card fees, a 7.9% increase in gains realized on the sale of securities and a 12.6% increase in other income.  

During 2003, increased mortgage loan refinancing activity resulted in a 26.4% increase in secondary mortgage market fees for the year compared to 2002.  In addition, the efforts of the Company’s investment personnel resulted in an increase in investment and insurance commissions of $284,137, or 162.8% over 2002.  These increases along with an increase in gains on sales of securities helped offset a small 9.7% decrease in deposit fees and charges as total non-interest income increased $456,311 or 17.9% for the year.     

Non-Interest Expenses.  Total non-interest expenses increased $840,746 or 9.2% for the year ended December 31, 2004.  Increases in salaries, employee benefits, occupancy expense, equipment depreciation, advertising, and office supplies were all impacted by the addition of the Bellgrade branch in March 2004.  Employee benefit expense, up 11.3%, also reflected a general increase in the cost of group insurance coverage.  The 25.7% increase in occupancy expense also reflected the costs of building repairs necessitated by weather-related damage as well as routine maintenance such as painting.  Taxes and license expense, which increased 39.7%, reflects the additional state taxes paid on the capital of the Bank after the addition of the $5 million capital contribution from the Company in December 2003.

 For the year ended December 31, 2003, a modest decrease of $13,875, or 8.6%, in legal and professional fees was the only category of non-interest expenses not to show an increase.  However, the overall increase in non-interest expenses for the year of $1,302,648, or 16.6%, was not unexpected given the growth of the Company.  The largest dollar and percentage increases occurred in the salary and benefits categories as the Company added lending staff in the middle of 2002 as well as other staff necessary to support the growth of the Company.  Also, benefit costs, such as health care, continued to rise.  Salaries and benefits combined rose $1,001,993 or 23.1%.  This also represented 76.9% of the total increase in non-interest expenses for the year.

Income Taxes.  The Company reported income taxes of $1,056,351 in 2004, compared to $1,436,923 in 2003 and $1,131,313 in 2002. These amounts yielded effective tax rates of 19.5%, 26.9%, and 27.4%, respectively.  The 2004 effective tax rate was positively impacted by increased investments in various securities where a significant amount of the dividends received were not subject to income taxes and the recognition of certain annual tax credits resulting from the Company’s investment in a Community Reinvestment Act eligible housing project 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 lending activity extends across its primary service area of Powhatan, Cumberland, western Chesterfield, and western Henrico Counties. Consistent with its focus on providing community-based financial services, the Company generally does not attempt to diversify its loan portfolio geographically by making significant amounts of loans to borrowers outside of its primary service area.

14

The principal economic 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 the real estate mortgage loans and installment loans to individuals varies based upon employment levels, consumer confidence, fluctuations in value of residential real estate 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 and demand for the type of real estate under construction. 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.

Net loans outstanding increased $21.2 million from year-end 2003 to year-end 2004 compared to an increase of $16.7 million from year-end 2002 to year-end 2003.  The loan to deposit ratio was 58.1% at December 31, 2004, compared to 52.7% at December 31, 2003 and 59.5% at December 31, 2002.

The following table summarizes the Company’s loan portfolio, net of unearned income:

As shown in the above table, the total amount of real estate loans outstanding increased by $17.4 million in 2004 and by $15.1 million in 2003. During 2004, the amount of installment loans increased by $715 thousand from 2003, compared to a decrease of $1.3 million in 2003 from 2002. Commercial, financial and agricultural production loans increased by $3.4 million in 2004 compared to an increase of $3.1 million in 2003.

At December 31, 2004, no concentrations of loans exceeding 10.0% of total loans existed which were not disclosed as a separate category of loans.

15

The following table shows the contractual maturity distribution of loan balances outstanding as of December 31, 2004. Also provided are the amounts due classified according to the sensitivity to changes in interest rates.

Asset Quality.  Non-performing loans include non-accrual loans, loans 90 days or more past due and restructured loans. 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.

Non-performing loans totaled $875,329 at December 31, 2004, compared to $1,723,421 at December 31, 2003 and $1,229,609 at December 31, 2002.  Non-performing loans decreased in 2004 primarily due to a decline in loans past due 90 days or more from $1.7 million in 2003 to $604,783 in 2004.  The higher level of non-performing loans in both 2003 and 2002 is reflective of an increase in loans 90 days past due and still accruing interest.  There were $270,546 in loans classified as non-accrual at December 31, 2004 compared to none at December 31, 2003 and $258,281 at December 31, 2002.  The majority of these loans are well secured by real estate and no significant losses are anticipated regardless of the resolution.

16

Other non-performing assets consist of a Virginia Small Business Financing Authority Industrial Development Revenue bond where the underlying business, in 2001, defaulted on its interest payments.  The trustee, in accordance with the terms of the indenture, subsequently foreclosed on the underlying real estate collateral securing the bond and the property was listed for sale.  The security was initially placed in non-accrual status, but is currently classified as a component of other assets at a value approximating its anticipated liquidation value.  The property is presently leased to a tenant who has a multi-year lease-purchase option on the property.  The original principal investment was $190,000 and has been written down to a value of $140,000.  Rental payments from the lessee were received in 2004 totaling $15,480 that was applied to reduce the carrying value to its present balance of $124,520.  Management anticipates future lease payments will be received and applied t o further reduce the principal carrying value, accordingly, there are no additional write-downs contemplated.

Management forecloses on delinquent real estate loans when all other repayment possibilities have been exhausted. There was no real estate acquired through foreclosure (OREO) at December 31, 2004 compared to $97,000 at both December 31, 2003 and 2002.  Sales of the properties held at December 31, 2003 resulted in net losses of approximately $1,380.  The Bank has incurred current period expenses related to carrying OREO on its books of $780 in 2004, $1,200 in 2003, and $2,400 in 2002. The Bank’s practice is to value real estate acquired through foreclosure at the lower of (i) an independent current appraisal or market analysis less anticipated costs of disposal, or (ii) the existing loan balance.

Management does not believe that the level of non-performing loans in 2004 reflects any systemic problem in the Company’s loan portfolio.  At December 31, 2004, there were $270,546 in non-accrual loans compared to none at December 31, 2003 and $258,281 at December 31, 2002. Based on our present knowledge of the status of individual and corporate creditors and the overall economy, management does not anticipate a material increase in non-performing assets, although it may move to foreclose on borrowers whose loans are placed on a non-accrual status.

The following table summarizes non-performing assets:

Loans 90 days or more past due are placed on non-accrual status unless well secured and in the process of collection.

In 2004, $8,165 of interest income was reversed when loans were placed on non-accrual status. In 2003 and 2002, $0 and $5,952 of interest income was reversed under the same circumstances, respectively. Since the Company operates in a rural to suburban area, it has generally been well acquainted with its principal borrowers and has not had such a large number of problem credits that management has not been able to stay well informed about, and in contact with, troubled borrowers. Additionally, because the Company generally requires collateral for loans, the Company has been able to

17

recover a sufficient amount of loans previously charged off so that the provision for loan losses each year usually exceeds net charge-offs.

The following table sets forth the amounts of contracted interest income and interest income reflected in income on loans accounted for on a non-accrual basis and loans restructured and in compliance with modified terms:

Management is not aware of any other loans at December 31, 2004, which involve serious doubts as to the ability of such borrowers to comply with the existing payment terms.

Management has analyzed the potential risk of loss within the Company’s loan portfolio, given the loan balances, quality trends, value of the underlying collateral, and current local market economic and business conditions and has recognized losses where appropriate. Loans, including non-performing loans are monitored on an ongoing basis as part of the Company’s periodic loan review process. Management reviews the adequacy of its loan loss allowance at the end of each month. Based primarily on the Company’s loan risk classification system, which classifies all loans, including problem credits as substandard, doubtful, or loss, according to a scale of 1-8 with 8 being a loss, additional provisions for losses may be made monthly. Management evaluates non-performing loans relative to their collateral value and makes appropriate reductions in the carrying value of those loans based on that review.  Furthermore, past experiences had led management to conclude that as a general matter it is prudent to operate with a high level of reserves. The ratio of the allowance for loan losses to total loans was 1.50% at December 31, 2004, compared to 1.55% at December 31, 2003 and 1.49% at December 31, 2002.  Management feels that the growth of the allowance for loan losses, while not at the same rate as the portfolio growth, is adequate to provide for future losses. At December 31, 2004, the ratio of the allowance for loan losses to non-performing loans was 308.3%, compared to 142.4% and 171.0% at December 31, 2003 and 2002, respectively. Management evaluates non-performing loans relative to their collateral value and makes appropriate reductions in the carrying value of those loans based on that review.

18

The following table summarizes changes in the allowance for loan losses:

For each period presented, the provision for loan losses charged to operations is based on management’s judgment after taking into consideration all factors connected with the collectability of the existing portfolio. Management evaluates the loan portfolio in light of local business and economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors.

19

Assumptions and 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.  Despite management’s best efforts, the reserve may be adjusted in future periods if there are significant changes in the assumptions or factors utilized when making valuations, or conditions differ materially from the assumptions originally utilized.  Any such adjustments are made in the reporting period when the relevant factor(s) become known and when applied as part of the analysis indicate a change in the level of potential loss is warranted.

The provision for loan losses totaled $414,500 for the year ended December 31, 2004, $410,000 and $440,000 for the years ended December 31, 2003 and 2002, 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 future loan losses in view of a somewhat uncertain economy.

The following table shows the balance and percentage of the Company’s allowance for loan losses allocated to each category of loans:

20

____________________

(1)  Includes home-equity loans.

(2)  Includes bank cards.

The Company has allocated the allowance according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within each of the above categories of loans. The allocation of the allowance as shown in the table above should not be interpreted as an indication that loan losses in future years will occur in the same proportions or that the allocation indicates future loss trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories since the total allowance is a general allowance applicable to the entire portfolio.

Securities

The Company’s investment securities portfolio serves several purposes, primarily, liquidity, safety and yield. Certain of the securities are pledged to secure public deposits and others are specifically identified as collateral for 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 2004, total securities decreased $7.9 million, or 4.5%, to $169.0 million, or 44.6% of total assets, principally due to the $21.5 million, or 13.5%, increase in loans. In prior years, the Company had consciously increased its marketable securities holdings supported by deposit growth and borrowings, in light of weak loan demand and growth, and the historically low interest rate environment, to increase net interest income. During the prior year 2003, total securities increased by 56.9% to $177.0 million, or 48.4% of total assets.

The securities portfolio consists of two components, securities available for sale and securities held to maturity. 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 maturity. Securities so classified 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 risk, increases in loan demand, general liquidity needs and other similar factors. The Company’s recent purchases of securities have generally been limited to securities of investment grade credit quality with short to intermediate term maturities.

21

The following table summarizes the book value of the Company’s securities held to maturity at the date indicated:

The following table summarizes the book value of the Company’s securities available for sale at the dates indicated.

The book value and average yield of the Company’s securities, including securities available for sale, at December 31, 2004 by contractual maturity are reflected in the following table. Actual maturities, and the resulting cashflows, can differ significantly from contractual maturities because certain issuers may have the right to call or prepay debt obligations with or without call or prepayment penalties. The table below categorizes securities according to their contractual maturity, without regard for certain issuers having unilateral optional call provisions prior to the bond’s contractual maturity, which they may or may not exercise depending on the overall market level of interest rates at the call date.  Mortgage-backed securities are also reported according to the contractual final maturity, without regard for the pre-payment characteristics of the underlying mortgages.

22

____________________

(1)  Yield on tax-exempt obligations have not been computed on a tax-equivalent basis.

As shown in the table above, approximately $388 thousand, or 0.3%, of the total portfolio will mature in one year or less while $18 million, or 12.2%, will mature after one year but within five years. The fully taxable equivalent average yield on the entire portfolio was 5.99% for 2004, compared to 6.12% for 2003 and 6.93% for 2002. The market value of the entire portfolio exceeded the book value by approximately $1.2 million at December 31, 2004 compared to approximately $2.6 million and $2.5 million at December 31, 2003 and December 31, 2002, respectively.

Deposits and Short-Term Borrowings

The Company’s predominate source of funds is deposit accounts. The Company’s deposit base is comprised of demand deposits, savings and money market accounts and other time deposits. The Company’s deposits are provided by individuals and businesses generally located within the principal markets served.

As shown in the following table, average total deposits grew by 11.2% in 2004 and 21.74% in 2003. The average aggregate interest rate paid on deposits was 1.99% in 2004, compared to 2.19% in 2003 and 3.07% in 2002. The majority (52%) of the Company’s deposits are higher yielding time deposits because many of its customers are individuals who seek higher yields than those offered on savings and demand accounts.

23

The following table is a summary of average deposits and average rates paid:

The company does not solicit nor does it have any brokered deposits. The following table is a summary of time deposits of $100,000 or more by remaining maturities at December 31, 2004:

The Company had no short-term borrowings with an average balance outstanding of more than 30% of stockholders’ equity for the years ended December 31, 2004, 2003 and 2002.

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 Bank’s capital position continues to exceed regulatory requirements. 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 and minority interests in common equity accounts of consolidated subsidiaries, less goodwill. Total Capital consists of Tier 1 Capital, qualifying subordinated debt, some hybrid capital instruments and other qualifying preferred stock and a limited amount of the allowance for loan losses and pre-tax net unrealized holding gains on certain equity securities. Risk-based capital ratios are calculated with reference to risk-weighted assets, which consist of both on and off-balance sheet risks. The Bank’s Tier 1 Capital ratio was 12.5% at December 31, 2004, compared to 12.8% at December 31, 2003 and 10.6% at December 31, 2002. The Total Capital ratio was 13.6% at December 31, 2004, compared to 13.9% and 11.6% at December 31, 2003 and 2002, respectively. These ratios are in excess of the mandated minimum requirements of 4% and 8%, respectively. The Leverage ratio consists of Tier 1 capital divided by quarterly average assets. At December 31, 2004, the Bank’s Leverage ratio was 8.7% compared to 8.3% at December 31, 2003 and 7.6% at December 31, 2002. Each of these exceeds the required minimum leverage ratio of 3%.  The Company, in view of the significant

24

growth experienced over the past several years and the resulting impact on various capital ratios, recognized the eventual need for additional capital to support further expansion or acquisitions and used the proceeds from the issuance of the $5 million capital trust preferred securities in December 2003 to increase the capital position of the Bank.  

The following tables show risk based capital ratios and stockholders equity to total assets for the Company and the Bank:

The capital management function is an ongoing process. Central to this process is internal equity generation accomplished by earnings retention. Total stockholders’ equity increased by $3.0 million in 2004 primarily due to earnings retention, and by $3.8 million during 2003 primarily as the result of earnings retention and improvement in accumulated other comprehensive income.  The return on average equity was 14.8% in 2004, compared to 14.7% in 2003 and 13.5% in 2002. Total cash dividends were paid representing 29% of net income for 2004, while dividends represented 27% of net income for 2003 and 31% for 2002. Book value per share was $13.87 at December 31, 2004, compared to $12.77 at December 31, 2003 and $11.33 at December 31, 2002.

The Company’s principal source of cash income is dividend payments from the Bank. Certain limitations exist under applicable law and regulation by regulatory agencies regarding dividend payments to a parent by its subsidiaries. As of December 31, 2004, the Bank had $9.6 million of retained earnings available for distribution to the Company as dividends without prior regulatory approval.

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.

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. In the past, growth in deposits and proceeds from the maturity of investment securities has been

25

sufficient to fund the net increase in loans. The Bank, over the past three years, has experienced 63% growth in deposits.  During the same period, notwithstanding the $5 million long-term Capital Trust Preferred issue in December 2003, the Bank has increased its borrowings from $19.8 million at the beginning of 2002 to $31.4 million at the end of 2004.  In view of the historically low interest rate environment, coupled with the opportunity to lengthen maturities, the Bank has been able to lock-in low rate cost of funds for up to five years.  These funds have been deployed at favorable yields in the investment portfolio, and more recently as funding for loan growth.

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.  

At December 31, 2004, the Company had a negative 12-month gap position. Since the largest amount of interest sensitive assets and liabilities reprice within 12 months, the Company monitors this area closely. The Company does not emphasize interest sensitivity analysis beyond this time frame because it believes various unpredictable factors could result in erroneous interpretations. Early withdrawal of deposits, prepayments of loans and loan delinquencies are some of the factors that could have such an effect. In addition, changes in rates on interest sensitive assets and liabilities may not be equal, which could result in a change in net interest margin. While the Company does not match each of its interest sensitive assets against specific interest sensitive liabilities, it does seek to enhance the net interest margin while minimizing exposure to interest rate fluctuations.

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, as illustrated by the Gap Analysis, 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.

The following table summarizes the Company’s interest earning assets and interest bearing liabilities with respect to the earlier of their contractual repayment date or nearest repricing date at December 31, 2004:

26

_____________

(1) Of the amount of loans due after 12 months, $60.0 million had floating or adjustable rates of interest and $27.7 million had fixed rates of interest.

Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers.  These off-balance sheet arrangements include commitments to extend credit and standby letters of credit which would impact the Company’s liquidity and capital resources to the extent customer’s accept and or use these commitments.  These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.  See Note 13 to the Consolidated Financial Statements for further discussion of the nature, business purpose and elements of risk involved with these off-balance sheet arrangements.  In addition to these off-balance sheet arrangements, the Company has entered into an interest rate swap contract in connection with its capital trust preferred securities.  The Company has no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.  For further information see Notes 8, 9 and 13 to the Consolidated Financial Statements.

27

Contractual Obligations

The following table presents the Company’s contractual obligations at December 31, 2004 and the scheduled payment amounts due at various intervals over the next five years and beyond.

 Forward-Looking Statements

Certain information contained in this discussion and elsewhere in this filing 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 custom er profiles and changes in laws 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.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. For example, we use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ substantially from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.  A summary of the significant accounting policies of the Company is set forth in Note 1 to the Company’s consolidated financial statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General

An important element of both earnings performance and liquidity is the management of our interest-sensitive assets and our interest-sensitive liabilities maturing or repricing within specific time intervals and the risks involved with them. Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Our market risk is composed primarily of interest rate risk. The asset and liability management committee at the Bank is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to this risk. Our board of directors reviews the guidelines established by the committee.  Interest rate risk is monitored through the use of three complimentary modeling tools: static gap analysis, earnings simulation modeling and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk measures has limitations, taken together they represent a reasonably comprehensive view of the magnitude of our interest rate risk, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Static gap, which measures aggregate repricing values, is less utilized since it does not

28

effectively measure the earnings impact on us. Earnings simulation and economic value models, however, which more effectively reflect the earnings impact, are utilized by management on a regular basis.

Earnings Simulation Analysis

We use simulation analysis to measure the sensitivity of net income to changes in interest rates. The model utilized calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a more realistic analysis of the sensitivity of earnings to changes in interest rates than other analysis such as the static gap analysis.

Assumptions used in the model, including loan and deposit growth rates, are derived from seasonal trends and management’s outlook, as are the assumptions used to project the yields and rates for new loans and deposits. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are accounted for in the different rate scenarios.

The following table represents the interest rate sensitivity of our net income on a 12-month horizon using different rate scenarios as of December 31, 2004. There have been no material changes in quantitative and qualitative disclosures about market risk since this information was developed using December 31, 2004 data.

Economic Value Simulation

We use economic value simulation to calculate the estimated fair value of assets and liabilities under different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in economic value of equity over different rate environments is an indication of the longer term repricing risk in the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation.

The following chart reflects the change in net market value of equity by using December 31, 2004 data, over different rate environments with a one-year horizon.

29

Management of the Interest Sensitivity Gap

The interest sensitivity gap is the difference between interest-sensitive assets and interest-sensitive liabilities maturing or repricing within a specific time interval. The gap can be managed by repricing assets or liabilities, by selling investments, by replacing an asset or liability prior to maturity, or by adjusting the interest rate during the life of an asset or liability. Matching the amounts of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net income due to changes in market interest rates. We evaluate interest rate risk and then formulate guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments in order to decrease sensitivity risk. These guidelines are based upon management’s outlook regarding future interest rate movements, the state of the regional and nat ional economy, and other financial and business risk factors.

Our asset and liability committee reviews deposit pricing, changes in borrowed money, investment and trading activity, loan sale activities, liquidity levels and the overall interest sensitivity. The actions of the committee are reported to the board of directors regularly. The periodic monitoring of interest rate risk, investment and trading activity, along with any other significant transactions are managed by the chief executive officer of the Bank with input from other committee members.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and independent auditors’ report thereon are filed as a part of this report following Item 15:

Independent Auditors’ Report

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company evaluated the effectiveness of the design and operations of its disclosure controls and procedures that are designed to insure that the  Company records, processes, summarizes and reports in a timely and effective manner the information

30

required to be disclosed in reports filed with or submitted to the Securities and Exchange Commission.  In designing and evaluating the disclosure controls and procedures, management recognizes any controls and procedures, no matter how well designed and operated, can provide on reasonable assurance of achieving the desired control objectives, and management believes it has applied prudent judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 The Company carried out its evaluation under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer.  Based upon this evaluation, they concluded that, as of the date of this evaluation, the Company’s disclosure controls are effective and adequate to ensure the clarity and material completeness of the Company’s disclosure in its periodic reports filed with or submitted to the Securities and Exchange Commission.  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.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information set forth under the heading “ELECTION OF DIRECTORS”; “Committees”; “Code of Ethics”; and “Section 16(a) Beneficial Ownership Reporting Compliance” of the definitive 2005 Proxy Statement of the registrant furnished to shareholders in connection with its Annual Meeting to be held on April 26, 2005  (the “2005 Proxy Statement”) is hereby incorporated by reference.

ITEM 11.

EXECUTIVE COMPENSATION

Information set forth under the heading “REMUNERATION” (except for the information set forth under the heading “Compensation Committee Report on Executive Compensation”) of the 2005 Proxy Statement is hereby incorporated by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information set forth under the heading “SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS” and “Equity Compensation Plan Information” of the 2005 Proxy Statement are hereby incorporated by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information set forth under the heading “Certain Transactions” of the 2005 Proxy Statement is hereby incorporated by reference.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

Information set forth under the heading “Fees of Independent Public Accountants” and “Pre-Approval Services” of the 2005 Proxy Statement is hereby incorporated by reference.

31

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)

The response to this portion of Item 15 is included in Item 8 above.

(a)(2)

The response to this portion of Item 15 is included in Item 8 above.

(a)(3)

Exhibits

The following documents are filed herewith 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).

21.1

Subsidiaries of the Registrant (filed herewith).

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)

See Item 15(a)(3) above.

(c)

See Item 15(a)(2) above.

32

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2004

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders

Central Virginia Bankshares, Inc.

Powhatan, Virginia

We have audited the consolidated balance sheets of Central Virginia Bankshares, Inc., and subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ Mitchell, Wiggins & Company LLP

Richmond, Virginia

February 2, 2005

F-1

F-2

F-3

F-4

F-5