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UNITED STATES
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)

2036 New Dorset Road

P. O. Box 39

Powhatan, Virginia 23139

(Address of principal executive offices, Zip Code)

(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 May 13, 2005, 2,265,321 shares of common stock were outstanding.

CENTRAL VIRGINIA BANKSHARES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

Part I.  Financial Information

Page No.

  Item 1

Financial Statements

Consolidated Balance Sheets -  

March 31, 2005 (Unaudited) and December 31, 2004

3

Consolidated Statements of Income - Three

Months Ended March 31, 2005 and 2004 (Unaudited)

4

Consolidated Statements of Cash Flows - Three

Months Ended March 31, 2005 and 2004 (Unaudited)

6

Notes to Consolidated Financial Statements -

March 31, 2005 and 2004 (Unaudited)

7

  Item 2

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

13

  Item 3

Quantitative and Qualitative Disclosures About Market Risk

22

  Item 4

Controls and Procedures

22

Part II.  Other Information

  Item 6

Exhibits

22

2

PART I

FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2005 and December 31, 2004

See Notes to Consolidated Financial Statements.

3

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

4

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Continued)

See Notes to Consolidated Financial Statements.

5

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2005 and 2004

(Unaudited)

See Notes to Consolidated Financial Statements.

6

CENTRAL VIRGINIA BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2005 and 2004

(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. All earnings per share data reflects the 5% common stock dividend paid June 15, 2004.

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.

Recent Accounting Pronouncements: On December 16, 2004, the Financial Accounting Standards Board issued Statement No. 123R (revised 2004), “Share-Based Payment,” (FAS 123R) that addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments.  FAS 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method and requires that such transactions be accounted for using a fair-value-based method and recognized as expense in the consolidated statement of income.  The effective date of FAS 123R (as amended by the SEC) is for annual periods beginning after June 15, 2005.  The provisions of FAS 123R do not have an impact on the Company’s results of operations at the present time.

In March 2005, the SEC issued Staff Accounting Bulleting No. 107 (SAB 107).  SAB 107 expresses the views of the SEC staff regarding the interaction of FAS 123R and certain SEC rules and regulations and provides the SEC staff’s view regarding the valuation of share-based payment arrangements for public companies.  SAB 107 does not impact the Company’s results of operations at the present time.

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Note 2.  Comprehensive Income (Loss)

A reconciliation from net income to total comprehensive income (loss) for the three months ended March 31, 2005 and 2004 is as follows:

Note 3.  Securities

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

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Carrying amounts and approximate market value of securities classified as held to maturity are as follows:

The following table sets forth securities classified as available for sale and securities classified as held to maturity with unrealized losses for less than twelve months and twelve months or longer at March 31, 2005 and December 31, 2004.

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The unrealized loss positions at March 31, 2005 were primarily related to interest rate movements as there is minimal credit risk exposure in these investments.  All securities are investment grade or better and all losses are temporary.  No impairment has been recognized on any of the securities in a loss position as management has the intent and demonstrated ability to hold such securities indefinitely or to scheduled maturity or call dates.

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Note 4.  Loans

Major classifications of loans are summarized as follows:

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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:

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 gain on the interest rate swap agreement was $145,564 at March 31, 2005 and $39,611 at December 31, 2004, respectively.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies

General.  The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“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.  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 significantly 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.

Allowance for Loan Losses.  The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio.  The allowance is based on two basic principles of accounting:  (1) Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (2) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.  The use of these values is inherently subjective and our actual losses could be greater or less than the estimates.

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).  Management’s periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

The following discussion is intended to assist in understanding the results of operations and financial condition of the Company.  This discussion should be read in conjunction with the accompanying consolidated financial statements.

Results of Operations

The Company’s net income in the first quarter of 2005 was $1,170,669, an increase of 14.6% or $148,845 as compared to 1,021,824 in the first quarter of 2004.  The improved results for 2005 are primarily due to an increase in net interest income, which rose $263,305 or 8.3% from the previous year. Other significant components of the current quarter’s results were other non-interest income, which decreased by $57,708 or 8.9% in 2005 compared to 2004, a decrease of $142,500 in the provision for loan losses, an increase in other non-interest expense of $253,261, an increase of  11.0% over the prior year’s first quarter, and a decrease in income taxes of $54,009. For the first quarter of 2005, basic earnings per share were $.52 and diluted earnings per share were $.51, compared to $.46 and $.45, respectively, for the same period in 2004, increases of 13% each. The Company’s annualized return on average equity was 14.61% in the first quarter of 2005, compared to 13.85% for the first quarter of 2004, while the return on average assets was 1.23% and 1.12% for the same periods, respectively.

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Net Interest Income.  The Company’s net interest income was $3,420,282 for the first quarter of 2005, compared to $3,156,977 for the first quarter of 2004, an increase of $263,305 or 8.3%.  This increase in net interest income can be attributed primarily to interest and fees earned on loans increasing by $505,984 or 19.5%.   This increase is primarily attributable to increases in market levels of interest rates during the quarter, coupled with growth in the average volume of loans outstanding. Interest on investment securities and federal funds sold declined by $65,523 or 2.8%. The combined total of interest on the aforementioned earning assets exceeded the prior year’s comparable quarter by $440,461 or 8.9%. Interest expense on both deposits and borrowings also increased during the quarter. Interest expense on deposits increased by $145,579 or 10.0% while interest expense on borrowings increased by $31,577 or 9.6% when compared to the first quarter of the prior year. The increase in interest expense is the result of continuing upward repricing of interest rates on deposit accounts, including certificates of deposit, again, largely in response to rising market interest rates, as well as growth in the balances of interest paying deposit accounts. The interest expense on borrowings was principally impacted by the rising market interest rates, and to a lesser extent, a change in the mix as the total borrowings remained essentially unchanged as compared to the first quarter of the prior year. The steady measured increases in prevailing interest rates from the historically low levels of the prior year, and continuing growth in deposits which provided funding for the increase in the volume of earning assets that are sensitive to interest rates growth, are the primary factors contributing to the improvement in net interest income. Average interest earning assets rose by $15.5 million or 4.6% to $351.9 million from $336.5 million in the first quarter of 2004.  Of this increase in interest earning assets, for the first quarter, average investment securities declined by $3.5 million to average $169.1 million in 2005 from $172.5 million in 2004, while average loans increased by $18.5 million to $181.0 million from $162.5 million in 2004.  The fully taxable equivalent annualized yield on investment securities in the first quarter 2005 was 5.89%, compared to 5.95% in the prior year’s first quarter, and the yield on loans increased to 6.85% from 6.39% in the comparable quarter of 2004. Average total deposits for the quarter rose 5.7% or $16.6 million to $309.9 million when compared to the same period in 2004. Total interest bearing deposits averaged $270.6 million for the first quarter, an increase of 5% or $12.9 million, as compared to an average of $257.7 million in the comparable period of the prior year.

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The following table sets forth the Company’s average interest earning assets (on taxable 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.

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The net interest margin is a measure of net interest income performance.  It represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average interest earning assets.  The Company’s net interest margin was 4.13% for the first quarter of 2005, compared to 4.01% for the first quarter of 2004.

Non-Interest Income.  For the first three months of 2005, non-interest income totaled $591,049 a decrease of 8.9%, or $57,708 versus $648,757 in the first quarter 2004. This decline is attributable to lower volume and revenue from sales of non-deposit investment products, the absence of any net securities gains resulting from normal investment portfolio management, a decline in the volume and resulting fees from our secondary market mortgage loan activity, and lower deposit fees and charges.

Non-Interest Expenses.  The Company’s total non-interest expenses of $2,554,181 for the first quarter of 2005 reflect an increase of $253,261 or 11.0% compared to $2,300,920 the same period in 2004. Expenses related to salaries and employee benefits were up $61,875 or 6.1% and $56,501 or 16.5% respectively as compared to the first quarter 2004. This increase reflects costs associated with additions to staff required as the Company grows as well as the impact of employee health and welfare plans. Other areas with significant increases were occupancy expense, which increased by 28.5% to $121,460 primarily due to the Bellgrade branch, which was not open in the first quarter 2004; legal and professional fees, which increased to $68,128 from $23,847 in the prior year, while other miscellaneous expense increased by $49,007 to $387,241, and comprises the remainder of the more significant increases.

Income Taxes.  The Company reported income taxes of $286,481 in the first quarter of 2005, compared to $340,490 for the first quarter of 2004. These amounts yielded effective tax rates of 19.7% and 25.0%, respectively.  The improvement in tax efficiency is due largely to the impact of recognition of tax credits generated by investments in Community Reinvestment Act eligible housing projects.

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 in Virginia.  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 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 Bank’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.

At March 31, 2005, total loans net of unearned income declined $1.1 million from December 31, 2004, but increased $8.8 million from March 31, 2004.  The loan to deposit ratio was 56.8% at March 31,

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2005, compared to 58.1% at December 31, 2004 and 57% at March 31, 2004.  As of March 31, 2005, real estate loans accounted for 76.4% of the loan portfolio, consumer loans were 5.9% of the loan portfolio, and commercial and industrial loans totaled 17.7% of the loan portfolio.

Asset Quality.  Non-performing assets include non-accrual loans, loans 90 days or more past due, restructured loans, other real estate owned, 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 real estate owned (OREO) is real estate acquired through foreclosure.

The following table summarizes non-performing assets:

As of March 31, 2005, management is not aware of any other credits that involve significant doubts as to the ability of such borrowers to comply with the existing payment terms.

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 March 31, 2005, and December 31, 2004; however, at March 31, 2004, OREO totaled $18,000.  The OREO at March 31, 2004 was in the Company’s primary service area and consisted of one building lot. 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.  Other non-performing assets consist of a small business financing revenue bond that had defaulted on its interest payments during 2001.  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 and its current carrying value is $140,000. The property is presently leased to a tenant whose lease contains an option to purchase the property through the lease expiration date of June 2006. The Company is receiving its pro-rata portion of the lease payments on a semi-annual basis, and does not anticipate the need for further adjustments of the property’s carrying value.

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 an ongoing basis as part of the Company’s regular loan review process. Management reviews the adequacy of its loan loss allowance at the end of each month.  Based primarily on the Company’s internal loan risk classification system, which classifies credits as substandard, doubtful, or

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loss, additional provisions for losses may be made monthly.  Additionally, 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.  Management believes, based on its review, that the Company has adequate reserves to cover any future write down that may be required on these loans.  The ratio of the allowance for loan losses to total loans was 1.52% at March 31, 2005; 1.50% at December 31, 2004; and 1.53% at March 31, 2004, respectively.  Management believes that the allowance for loan losses, which may likely not increase at the same rate as the loan portfolio grows, is adequate to provide for future losses. At March 31, 2005 the ratio of the allowance for loan losses to total non-performing assets was 467% compared to 270% at December 31, 2004 and 87.1% at March 31, 2004.

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 collectibility of the existing portfolio. Management evaluates the loan portfolio in light of economic conditions, changes in the nature and value of the portfolio, industry standards and other relevant factors.  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. In view of the decline in the total loan balances since December 31, 2004, the improvement in the overall asset quality as evidenced by the reduction in the balance of non-performing loans, net charged-off loans, and the ratio of the reserve for loan losses to outstanding loans, management concluded that further additions to the reserve were not warranted at the present time. Accordingly, there was no provision for loan losses in the first quarter 2005. In future periods, management will continue to evaluate the adequacy of its reserve for loan losses and if indicators would suggest that additional provisions should be made, then provisions may be resumed. The provision for loan losses totaled $43,000 for the quarter ended December 31, 2004 and $142,500 for the first quarter 2004.  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.

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 or government 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 to fund loan growth or cover deposit outflows, and for general asset/liability management purposes.  At the end of the first quarter 2005, total securities had decreased by $203,900 to $168.8 million or 44.0% of total assets compared to $169.0 million or 44.6% at December 31, 2004 and have increased by $6.7 million from $162.1 million or 44.0% of assets at March 31, 2004.

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 generally consist of U.S. Government Agency securities, shorter term Agency

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adjustable rate mortgage backed securities, corporate bonds, and bank qualified tax-free municipal securities. As the general interest rate levels are no longer falling, and in fact have been increasing since mid year 2004, there has been a decline in the number of securities in the portfolio being called by the issuers. This has slowed the decline in the overall yield of the investment portfolio year to date, as called bond proceeds no longer must be reinvested at the current lower yields. We anticipate this trend will continue.

The fully taxable equivalent annualized average yield on the entire portfolio was 5.89% for the first quarter of 2005, compared to 5.95% for the same period in 2004.  This decline in yield is principally due to reinvestment at lower rates of proceeds of called securities, as mentioned above.

Deposits and 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 located within the communities served.  The Company generally does not accept out of market deposits, nor does it solicit or accept any brokered deposits.

Total deposits were $315.1 million as of March 31, 2005, an increase of $5.1 million since December 31, 2004. Total deposits have increased by $16.8 million from March 31, 2004’s level of $298.3 million. The average aggregate interest rate paid on interest bearing deposits was 2.38% in the first quarter of 2005, compared to 2.27% for the corresponding period in 2004.  The majority (53.4%) 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.

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 March 31, 2005:

Borrowings from the Federal Home Loan Bank have changed in structure in both overnight and term advances in order to take advantage of the current low interest rate environment.  Term advances were $30.5 million at March 31, 2005, $26.0 million at and December 31, 2004, and $26.0 million at March 31, 2004. The increase at March 31, 2005 is a result of a new five year borrowing entered into to extend the Company liabilities at a time of low interest rates.   There were no overnight advances at March 31, 2005 compared to $4.5 million at December 31, 2004 and March 31, 2004.

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.  

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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 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 risks.  The Leverage Ratio consists of Tier 1 Capital divided by quarterly average assets.

Banking regulations also require the Bank to maintain certain minimum capital levels in relation to Bank Assets.  A comparison of the Bank’s actual regulatory capital as of March 31, 2005, 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 the 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 discount window.  In the past, growth in deposits and proceeds from the maturity of investment securities has been more than sufficient to fund the net increase in loans. The Company has previously used portions of its borrowing availability when interest rates were favorable, to purchase marketable securities in an effort to increase net interest income. Total borrowings as of March 31, 2005 are $36.2 million, a decline of $0.3 million from $36.5 million at December 31, 2004.    

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 periodic monitoring of the interest sensitive assets relative to interest sensitive liabilities over specific time intervals.

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.

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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 both the sensitivity of earnings as well as the theoretical market value of equity 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 Company utilizes 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.

In the period since December 31, 2004, the prime interest rate has increased twice, each time by 25 basis points, notwithstanding these increases, the composition of the Company’s loan portfolio has not changed materially in so far as its sensitivity to interest rate changes is concerned. In addition, there has not been a material change in the overall interest rate sensitivity of the Company’s investment portfolio over this same period. Accordingly, management has concluded that since December 31, 2004, there have been no significant or material changes in the Company’s overall sensitivity to interest rate changes, and market risk.

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

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Company, changing trends in customer 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.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

The information required by this Item is set forth under the caption “Management’s Discussion and Analysis of Financial and Results of Operations - Liquidity and Interest Rate Sensitivity” in Part I, Item 2 of this report.

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 operating effectively 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 significant 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 are reasonably likely to materially affect, internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 6

EXHIBITS

Exhibit No.

Document

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. § 1350

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CENTRAL VIRGINIA BANKSHARES, INC.

(Registrant)

Date:  May 16, 2005

/s/ Ralph Larry Lyons

Ralph Larry Lyons, President and Chief Executive

Officer (Principal Executive Officer)

Date:  May 16, 2005

/s/ Charles F. Catlett, III

Charles F. Catlett, III, Senior Vice President and

Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX

Exhibit No.

Description

31.1

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

31.2

Rule 13(a)-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.