SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB

            ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 1998      Commission file number: 33-9686


                        CENTRAL VIRGINIA BANKSHARES, INC.
                 (Name of small business issuer in its charter)

                 Virginia                                  54-1467806
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)


     2036 New Dorset Road, Post Office Box 39, Powhatan, Virginia 23139-0039
               (Address of principal executive offices) (Zip Code)

          Issuer's telephone number including area code: (804) 794-6266


         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $1.25 par value


         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  Registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

Yes   X    No       
    -----     -----

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

         State issuer's revenues for its most recent fiscal year: $13.5 million.

         The aggregate  market value of the Common Stock held by  non-affiliates
of the Registrant  was  approximately  $22,374,303  computed by reference to the
last sales price of $12.4375 per share as of March 5, 1999,  on The Nasdaq Stock
MarketSM, as reported in published financial sources.

         At March 5,  1999,  there  were  1,914,147  shares of the  Registrant's
Common Stock outstanding.

         Transitional Small Business Disclosure Format (check one)
         Yes       No  X  
            -----    -----

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE


Document of the Registrant                        Form 10-KSB Reference Location
--------------------------                        ------------------------------

1999 Proxy Statement                              Part III


<PAGE>


                                     PART I

ITEM 1.        DESCRIPTION OF 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") capital stock.  The Bank was incorporated on June 1, 1972 under the
laws 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 located off
Route 60 near the main office.

         Principal  Market  Area.  The Bank's  primary  service area is Powhatan
County  and  extends  into  Chesterfield  and  Cumberland   counties  which  had
populations of 15,328,  209,274 and 7,825,  respectively,  according to the 1990
census.  Both Powhatan and Chesterfield  counties'  populations are projected by
the Virginia  Department  of Planning and Budget to grow faster than the State's
average  through the year 2000. 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.  The Bank's  branch  offices are located in the Village
Marketplace  Shopping  Center in the Village of Midlothian and the Market Square
Shopping Center in Brandermill,  both in Chesterfield  County, and on U.S. Route
60 near the  courthouse  and in  Cartersville,  both in Cumberland  County.  The
Bank's  present  intention is to continue  concentrating  its  activities in its
current service area,  which the Bank believes is an attractive 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 telephone  banking and debit cards.  The Bank
also 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 travelers' checks, safe deposit boxes,  deposit transfer,  customer note
payment,  annuities,  collections,  notary public, escrow, drive-in facility 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 provides 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 real estate market prevailing 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. At the present
time, the Bank does not anticipate  extending operations beyond Powhatan County,
the western portion of Chesterfield County and Cumberland County.

<PAGE>

Lending Activities

         Loan  Portfolio.  The  Company is an active  residential  mortgage  and
residential  construction  lender and also extends consumer loans 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 and western  Chesterfield  Counties.  Consistent  with its
focus on  providing  community-based  financial  services,  the Company does not
attempt to diversify its loan  portfolio  geographically  by making  significant
amounts of loans to borrowers outside of its primary service area. The principal
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.  In
an effort to manage this risk,  the Bank's  policy  gives loan  amount  approval
limits to  individual  loan  officers  based on their level of  experience.  All
unsecured  loans in  excess  of  $100,000  and all  secured  loans in  excess of
$500,000 must be approved by the Board of Directors.  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.

         Residential  Mortgage  Loans.  Residential  mortgage  loans are made in
amounts up to 80.0% of the appraised value of the security property. Residential
mortgage loans are underwritten  using specific  qualification  guidelines which
are intended to assure that such loans are eligible for sale into the  secondary
mortgage  market.  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 mortgage loans that are
sold  in the  secondary  market.  These  loans  are  generally  either  one-year
adjustable  rate  mortgages  ("ARMs")  or  fifteen  to thirty  year  fixed  rate
mortgages. All permanent residential mortgages made for the Bank's own portfolio
are made as three-year ARMs.

         The  Bank's  ARMs are  subject  to  limitations  of 2.0% per three year
period on interest rate  increases and  decreases.  In addition,  ARMs currently
originated  by the Bank  provide  for a  lifetime  cap of 6.0% or less  from the
borrower's initial interest rate. All changes in the interest rate must be based
on the movement of an index agreed to by the Bank and the borrower.

         There are risks  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 pose additional
risks,  primarily because as interest rates rise, the underlying payments by the
borrowers  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 1.0% 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. Such requests from Bank customers
and  concerning  properties  in the  Bank's  established  trade  area  would  be
considered.

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



                                      -2-
<PAGE>

         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  purposes.  The large
majority of the Bank's  construction  loans are to  experienced  builders.  Such
loans  normally  carry an  interest  rate of 1.0% to 3.0%  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 limits loan amounts to 75.0% of appraised value
on unsold homes and 80.0% of appraised  value on pre-sold  homes, 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 and home equity lines of credit.

         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, 1998,  commercial  business loans were $17.7 million or 16.1% of
the  Bank's  total loan  portfolio,  a  majority  of which were  secured by real
estate.  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 carefully 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 his employment and
other  income and are  secured by real  property  whose value tends to be easily
ascertainable.  In contrast, commercial 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,
1998, the majority of the Bank's non-performing loans were commercial loans.

Competition

         The Bank encounters strong  competition for its banking services within
its primary  service  area from other  community  banks and larger  banks in the
Richmond  metropolitan area.  Financial  companies,  mortgage companies,  credit
unions and savings and loan  associations  also  compete with the Bank for loans
and deposits. In addition, in some instances, the Bank must compete for deposits
with money market mutual funds that are marketed nationally.  Most of the Bank's
competitors have  substantially  greater resources than the Bank. 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 Bank had 75  full-time  officers  and  employees  and 17  part-time
employees at December  31, 1998.  Employee  relations  have been good.  The Bank
sponsors a Profit Sharing/Retirement Plan for its employees.

Regulation and Supervision

         Bank holding  companies and banks are extensively  regulated under both
federal and state law. The  following  is a summary of certain  federal laws and
regulations  that govern the Company and the Bank.  However,  to the extent that
the following  information describes statutory or regulatory  provisions,  it is
qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory  provisions.  Any change in



                                      -3-
<PAGE>

applicable  law or  regulation  may have a material  effect on the  business and
prospects of the Company and the Bank.

         Bank Holding  Companies.  The Company is  registered  as a bank holding
company  under the Bank Holding  Company Act of 1956 (the "BHCA") and as such is
subject to  regulation by the Board of Governors of the Federal  Reserve  System
(the  "Federal  Reserve  Board").  As a bank  holding  company,  the  Company is
required  to file  with the  Federal  Reserve  Board an annual  report  and such
additional  information as the Federal Reserve Board may require pursuant to the
BHCA. The Federal Reserve Board may also make examinations of the Company.

         The BHCA  requires the prior  approval of the Federal  Reserve Board in
any case where a bank  holding  company  proposes to acquire  direct or indirect
ownership or control of more than 5% of the voting shares of any bank (unless it
owns a majority of such bank's voting  shares) or otherwise to control a bank or
to merge or  consolidate  with any other bank  holding  company.  The BHCA would
prohibit  the Federal  Reserve  Board from  approving  an  application  from the
Company to acquire shares of a bank located outside of Virginia,  unless such an
acquisition is specifically authorized by statute of the state in which the bank
whose  shares are to be acquired is located.  However,  under  recently  enacted
federal  legislation,   the  restriction  on  interstate  acquisitions  will  be
abolished effective September 1995, and thereafter,  bank holding companies from
any state will be able to acquire  banks and bank holding  companies  located in
any other state,  subject to certain conditions,  including nationwide and state
imposed  concentration  limits.  Banks also will be able to branch  across state
lines by  acquisition,  merger or de novo,  effective June 1, 1997 (unless state
law would  permit  such  interstate  branching  at an earlier  date),  providing
certain  conditions are met,  including the applicable  state law must expressly
permit such interstate branching.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions, from acquiring more than 5% of the voting shares of any company that
is not a bank and from  engaging in any business  other than banking or managing
or controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the  ownership  of shares by a bank  holding  company in any company the
activities of which the Federal  Reserve  Board has  determined to be so closely
related  to  banking  or to  managing  or  controlling  banks  as to be a proper
incident  thereto.  The Federal Reserve Board has by regulation  determined that
certain  activities  are  closely  related to banking  within the meaning of the
BHCA.

         Banks.  The Bank is supervised  and  regularly  examined by the Federal
Reserve  Board and the Bureau of  Financial  Institutions  of  Virginia's  State
Corporation  Commission.  The various laws and  regulations  administered by the
regulatory  agencies affect corporate  practices,  such as payment of dividends,
incurring debt and acquisition of financial  institutions  and other  companies,
and affect  business  practices,  such as payment of interest on  deposits,  the
charging of  interest on loans,  types of  business  conducted  and  location of
offices.

         FDIC  Insurance  Assessments.  The  Bank is  subject  to  FDIC  deposit
insurance assessments.  It is possible that insurance assessments could increase
in  future  years,  and it is  possible  that  there may be  special  additional
assessments.  Additional  assessments  could  have  an  adverse  impact  on  the
Company's results of operations.

         Governmental  Policies.  The operations of the Company and the Bank are
affected not only by general  economic  conditions,  but also by the policies of
various  regulatory  authorities.  In  particular,  the  Federal  Reserve  Board
regulates  money and credit and  interest  rates in order to  influence  general
economic  conditions.  These  policies have a  significant  influence on overall
growth and  distribution of loans,  investments and deposits and affect interest
rates charged on loans or paid for time and savings  deposits.  Federal  Reserve
Board monetary  policies have had a significant  effect on the operating results
of  commercial  banks in the past and are  expected  to continue to do so in the
future.

         Limits on Dividends and Other  Payments.  The Company is a legal entity
separate and distinct from the Bank. Most of the Company's  revenues result from
dividends  paid to the  Company  by the  Bank.  The  right of the  Company,  and
consequently  the  right  of  creditors  and  shareholders  of the  Company,  to
participate  in any  distribution  of the assets or earnings of the Bank through
the payment of such dividends



                                      -4-
<PAGE>

or  otherwise  is  necessarily  subject to the prior  claims of creditors of the
Bank,  except to the extent  that  claims of the  Company in its  capacity  as a
creditor may be recognized.

         The amount of dividends payable by the Bank to the Company depends upon
the Bank's  earnings and capital  position,  and is limited by federal and state
law, regulations and policies.

         As a state  member  bank  subject  to the  regulations  of the  Federal
Reserve  Board,  the Bank must obtain the approval of the Federal  Reserve Board
for any dividend if the total of all  dividends  declared in any  calendar  year
would  exceed the total of its net  profits,  as defined by the Federal  Reserve
Board,  for that year,  combined with its retained net profits for the preceding
two years.  In  addition,  the Bank may not pay a dividend in an amount  greater
than its  undivided  profits  then on hand  after  deducting  its losses and bad
debts.  For this  purpose,  bad debts  are  generally  defined  to  include  the
principal  amount of loans which are in arrears  with respect to interest by six
months or more  unless  such  loans  are fully  secured  and in the  process  of
collection. Moreover, for purposes of this limitation, the Bank is not permitted
to add the balance in its  allowance  for loan losses  account to its  undivided
profits then on hand; however, it may net the sum of its bad debts as so defined
against the  balance in its  allowance  for loan losses  account and deduct from
undivided  profits  only bad debts as so defined in excess of that  account.  At
December  31,  1998,  the Bank had $2.8  million of  retained  earnings  legally
available for the payment of dividends.

         In addition, the Federal Reserve Board is authorized to determine under
certain circumstances  relating to the financial condition of a national bank, a
state member bank or a bank holding  company that the payment of dividends would
be an unsafe or unsound practice and to prohibit payment thereof. The payment of
dividends that deplete a bank's capital base could be deemed to constitute  such
an unsafe or unsound  practice.  The Federal  Reserve Board has  indicated  that
banking  organizations  should  generally  pay  dividends  only  out of  current
operating earnings.

         Borrowings by the Company.  There are various legal restrictions on the
extent to which the Company can borrow or otherwise obtain credit from the Bank.
In general,  these restrictions  require that any such extensions of credit must
be secured by designated amounts of specified  collateral and are limited, as to
the  Company,  to 10% of the Bank's  capital  stock and  surplus,  and as to the
Company and any nonbanking  subsidiaries in the aggregate,  to 20% of the Bank's
capital stock and surplus.  Federal law also requires that transactions  between
the Bank and the Company or any nonbanking subsidiaries, including extensions of
credit,  sales of  securities  or  assets  and the  provision  of  services,  be
conducted  on terms at least as  favorable  to the Bank as those  that  apply or
would apply to comparable transactions with unaffiliated parties.

         Capital   Requirements.   The  Federal   Reserve  Board  has  published
risk-based  capital  guidelines which are applicable to bank holding  companies.
The  Federal  Reserve  Board  guidelines  redefine  the  components  of capital,
categorize  assets into different risk classes and include  certain  off-balance
sheet items in the  calculation of  risk-weighted  assets.  The minimum ratio of
qualified total capital to risk-weighted  assets (including  certain off balance
sheet items,  such as standby  letters of credit) is 8.00%. At least half of the
total  capital  must be  comprised  of common  equity,  retained  earnings and a
limited amount of permanent  preferred stock,  less goodwill ("Tier 1 capital").
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt, other preferred stock,  certain other  instruments and a limited amount of
loan and lease losses reserves. The Company's Tier 1 and Total Capital ratios as
of December 31, 1998 were 13.6% and 14.6%, respectively.

         In addition, the Federal Reserve Board has established minimum Leverage
ratio (Tier 1 capital to quarterly average assets less goodwill)  guidelines for
bank holding  companies.  These guidelines  provide for a minimum ratio of 3.00%
for bank holding companies that meet certain specified criteria,  including that
they have the highest  regulatory  rating.  All other bank holding companies are
required to maintain a Leverage ratio of 3.00% plus an additional  cushion of at
least 100 to 200 basis points.  The Company's  Leverage ratio as of December 31,
1998  was  8.9%.  The  guidelines   also  provide  that  banking   organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions  substantially  above the minimum  supervisory  levels,
without significant reliance on intangible assets.



                                      -5-
<PAGE>

         The Bank is  subject  to capital  requirements  adopted by the  Federal
Reserve Board that are the same as those that apply to the Company.  At December
31, 1998 the Bank's total capital, Tier 1 capital and leverage ratios were 14.4%
13.3% and 10.1%, respectively.

         Each  federal  regulatory  agency is required to revise its  risk-based
capital  standards  to ensure  that those  standards  take  adequate  account of
interest rate risk, concentration of credit risk and the risk of non-traditional
activities,  as well as to reflect the actual  performance  and expected risk of
loss on  multi-family  mortgages.  The Federal  Reserve  Board and the FDIC have
jointly solicited comments on a proposed framework for implementing the interest
rate risk component of the risk-based capital guidelines. Under the proposal, an
institution's  assets,  liabilities,  and  off-balance  sheet positions would be
weighted by risk factors that approximate the instruments'  price sensitivity to
a one hundred basis point change in interest rates.  Institutions  with interest
rate risk  exposure in excess of the  threshold  level would be required to hold
additional  capital  proportional  to that risk.  In 1994,  the Federal  Reserve
Board,  FDIC, and related agencies  solicited comments on a proposed revision to
the risk-based  capital  guidelines to take account of  concentration  of credit
risk and the risk of non-traditional  activities. The revision proposed to amend
each  agency's   risk-based   capital   standards  by   explicitly   identifying
concentration  of  credit  risk  and  the  risk  arising  from   non-traditional
activities,  as well as an  institution's  ability  to manage  those  risks,  as
important  factors  to be taken  into  account  by the  agency in  assessing  an
institution's overall capital adequacy. The proposal was adopted as a final rule
by the Federal Reserve Board and the FDIC and  subsequently  became effective on
January 17, 1995.  The Company and the Bank do not expect the final rule to have
a material impact on their respective capital requirements.

         Under Federal Reserve Board policy,  a bank holding company is required
to serve as a source of  financial  and  managerial  strength to its  subsidiary
banks and may not  conduct its  operations  in an unsafe or unsound  manner.  In
addition,  it is the Federal Reserve Board's policy that, in serving as a source
of strength to its subsidiary  banks, a bank holding  company should stand ready
to use available  resources to provide  adequate capital funds to its subsidiary
banks.  This  support  may be required  during  periods of  financial  stress or
adversity,  in  circumstances  where the  Company  might  not do so absent  such
policy. A bank holding company is expected to maintain the financial flexibility
and  capital-raising  capacity to obtain additional  resources for assisting its
subsidiary  banks. The failure of a bank holding company to serve as a source of
strength to its  subsidiary  banks would  generally be considered by the Federal
Reserve  Board to be an unsafe and unsound  banking  practice,  a  violation  of
Federal Reserve Board regulations, or both.

ITEM 2.        DESCRIPTION OF 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.  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.  The Bank's other branches are
located in the Village of Midlothian in Chesterfield County and on U.S. Route 60
near  the  courthouse  and in  Cartersville,  both  in  Cumberland  County.  The
Midlothian branch is a one and one-half story building with approximately  3,000
square feet. The Cartersville location, which was originally opened in 1985, was
replaced in mid-1994 with a one-story  brick building with  approximately  1,600
square feet. In June 1998 the Bank opened a 4,800 square foot branch  located on
U. S. Route 60 (Anderson  Highway) near the  courthouse  in  Cumberland  County,
Virginia.

         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



                                      -6-
<PAGE>

Corporate  Center  houses  the  computer  operations,  loan  administration  and
bookkeeping departments all of which were formerly located in the main office.

ITEM 3.        LEGAL PROCEEDINGS

         There are no material legal proceedings  pending at this time involving
either  the  Company or the Bank as a party or  affecting  any  property  of the
Company or the Bank.

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.


                                     PART II

ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock

         Central Virginia  Bankshares,  Inc.'s common stock trades on The Nasdaq
Stock MarketSM  under the symbol  "CVBK".  As of March 16, 1999, the Company had
approximately 1,613 shareholders of record.

         The  following  table shows  dividends  paid and the high and low trade
prices  by  quarter  for the past two years  according  to the  Nasdaq  (figures
reflect 2-for-1 stock split issued in August 1998):
<TABLE>
<CAPTION>
                                             1998                                             1997
                         ---------------------------------------------     -------------------------------------------
                                                         Dividends                                        Dividends
                          High Trade     Low Trade         Paid             High Trade      Low Trade        Paid
<S>                          <C>           <C>             <C>                 <C>            <C>             <C> 
First Quarter                $22.813       $14.00          $.095               $10.875        $9.75           $.09
Second Quarter                20.25         16.50           .095                12.25         10.625           .09
Third Quarter                 17.313        12.25           .095                14.125        11.125           .0925
Fourth Quarter                15.50         12.75           .10                 16.50         12.50            .095
</TABLE>

ITEM 6.        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

         The  Company's  net  income for the year ended  December  31,  1998 was
$1,936,367,  an  increase  of 5.6% from  1997.  This  increase  reflects  a 6.2%
increase in net interest income,  which was primarily due to a 17.9% increase in
average  interest  earning  assets for the year. In addition,  other income rose
51.2% primarily due to an 18.2% increase in service charges on deposit  accounts
as well as a 128% increase in other income. The other income increase represents
a $210,213  increase in fees received on mortgage  loans  originated and sold in
the  secondary  market.  The 1998  figures  in this area  reflect a full  year's
results by the staff in the  secondary  mortgage  market  staff hired in October
1997. The Company did not  participate in the secondary  mortgage  market during
most of 1997.  Net income per common share was $1.01 in 1998 compared to $.96 in
1997.  Per share data has been adjusted to reflect a 2-for-1 stock split paid in
August 1998.

         The  Company's  net income  totaled  $1,834,090 in 1997, an increase of
7.2% from 1996.  These  results  also  reflect an increase  in the net  interest
income. Average interest-earning assets increased 7.4% in 1997, which included a
65.3%  decrease  in  lower-yielding   federal  funds  sold.  Average  investment
securities



                                      -7-
<PAGE>
increased 83.7% in 1997 and average loans outstanding increased 5.8% in the same
time period.  Net income per common  share was $.96 in 1997  compared to $.90 in
1996.

         The Company's  return on average equity was 12.2% in 1998,  compared to
12.6%  and  12.5% in 1997 and  1996,  respectively.  Return  on  average  assets
amounted to 1.23%, 1.38% and 1.37% for these same years.

         Net Interest  Income.  The Company's net interest income was $6,466,420
in 1998, compared to $6,090,879 and $5,498,547 for 1997 and 1996, respectively.

         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.
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                         1998                          1997                        1996
                                             ---------------------------  ----------------------------- --------- --------- --------
                                              Average             Yield/    Average             Yield/   Average             Yield/
                                              Balance  Interest    Rate     Balance  Interest    Rate    Balance  Interest    Rate
                                             --------- --------- --------  --------- --------- -------- --------- --------- --------
                                                           (Dollars in thousands)
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>      <C>       <C>       <C>   
Interest earning assets:
Federal funds sold                              $3,747      $210    5.60%     $5,510      $315    5.72%   $15,862     $848     5.35%
                                                ------      ----              ------      ----            -------     ----
Securities: (5)                               
  U.S. Treasury securities                       2,032       122    6.00         863        54    6.26          -        -        -
  Obligations of other U.S.                   
    governmental agencies and                 
    corporations                                23,514     1,556    6.62      16,415     1,116    6.80      6,812      473     6.94
  Obligations of states and                   
    political subdivisions(3)                   19,101     1,168    7.81      12,544       727    8.03      9,747      553     8.60
  Other securities                               1,821       141    7.74       1,012        72    7.11        227       11     4.85
                                                 -----       ---               -----        --                ---       --
    Total securities (3)                        46,468     2,987    7.12      30,834     1,969    7.29     16,786    1,037     7.88
                                                ------     -----              ------     -----             ------    -----
Loans (1)(2)(4)                                 96,560     9,131    9.46      88,180     8,657    9.82     83,323    8,207     9.85
                                                ------     -----              ------     -----             ------    -----
  Total interest-earning assets               $146,775   $12,328    8.40%   $124,524   $10,941    8.79%  $115,971  $10,092     8.70%
                                              ========   =======            ========   =======           ========  =======
Interest bearing liabilities:                 
Deposits:                                     
  Interest bearing demand                      $26,219      $754    2.88%    $21,668      $637    2.94%   $20,630     $611     2.96%
  Savings                                       15,361       497    3.24      13,602       441    3.24     12,189      394     3.23
  Other time                                    75,083     4,266    5.68      62,634     3,568    5.70     61,985    3,544     5.72
                                                ------     -----              ------     -----             ------    -----
    Total deposits                             116,663     5,517    4.73      97,904     4,646    4.75     94,804    4,549     4.80
Federal funds purchased                       
  and securities sold under                   
  repurchase agreements                            754        44    5.84       1,101        55    5.00        815       39     4.79
FHLB advance                                     5,000       297    5.94       2,480       145    5.85          -        -        -
Long-term debt                                      38         3    7.89          47         4    8.51         56        5     8.93
                                                    --         -                  --         -                 --        -
  Total interest-bearing                      
    liabilities                               $122,455    $5,861    4.79%   $101,532    $4,850    4.78%   $95,675   $4,593     4.80%
                                              ========    ======            ========    ======            =======   ======
Net interest margin                                       $6,467    3.61%               $6,091    4.01%             $5,499     3.90%
                                                          ======                        ======                      ======
Net interest yield                                                  4.63%                         5.12%                        4.99%
</TABLE>
______________________

(1)  Installment loans are stated net of unearned income.
(2)  Average loan balances include non-accrual 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 $514,033 in 1998,  $429,851
     in 1997, and $425,320 in 1996.
(5)  Includes investment securities and securities available for sale.

         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

                                      -8-
<PAGE>

percentage of average interest earning assets. The Company's net interest margin
was 3.61% in 1998,  compared  to 4.01%  during  1997 and 3.90% in 1996.  The net
interest  margin  decreased  in 1998  primarily  due to the  general  decline in
interest  rates charged on loans and offered on securities.  The  tax-equivalent
yield on interest earning assets declined to 8.4% in 1998 from 8.79% in 1997. In
1997,  the net interest  margin  increased  primarily due to the decrease in the
average  balance of  lower-yielding  federal funds sold and the  reinvestment of
these funds into loans and securities.

         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.
<TABLE>
<CAPTION>
                                                   1998 Compared to 1997                 1997 Compared to 1996
                                              Volume        Rate         Net         Volume       Rate         Net
<S>                                          <C>           <C>        <C>          <C>           <C>        <C>
Interest income:
Federal funds sold                            ($101)         ($4)      ($105)        ($553)         $20       ($533)
                                              ------         ----      ------        ------        ----       ------
Securities:  (1)
  U. S. Treasury securities                       73          (5)          68            54           0           54
  Obligations of other U. S.
    government agencies and
    corporations                                 483         (42)         440           666        (23)          643
  Obligations of states and
    political subdivisions                       505         (64)         441           159          15          174
  Other                                           58           11          69            38          23           61
                                                 ---          ---         ---           ---         ---           --
    Total  securities                          1,118        (100)       1,018           917          15          932
                                              ------        -----       -----          ----         ---          ---

Loans                                            823        (349)         474           477        (27)          450
                                                ----        -----         ---          ----        ----          ---
    Total interest income                     $1,840       ($453)      $1,387          $841          $8         $849
                                              ======       ======      ======         =====         ===         ====

Interest expense:
Deposits:
  Interest bearing demand                       $134        ($17)        $117           $31        ($5)          $26
  Savings                                         56            0          56            46           1           47
  Other time                                     711         (13)         698            36        (12)           24
                                                ----         ----         ---           ---        ----           --
    Total deposits                               901         (30)         871           113        (16)           97
Federal funds purchased and securities
   sold under repurchase agreements             (17)            6        (11)            14           2           16
FHLB advances                                    147            4         152           145           0          145
Long-term debt                                   (1)          (0)         (1)           (1)         (0)          (1)
                                                 ---          ---         ---           ---         ---          ---
    Total interest expense                    $1,031        ($20)      $1,011          $271       ($14)         $257
                                              ======        =====      ======         =====       =====         ====
Increase (decrease) in net
   interest income                             $809        ($433)        $376          $570         $22         $592
                                               =====       ======        ====         =====        ====         ====
</TABLE>
______________________
(1)   Includes securities available for sale and securities held to maturity

         Non-Interest  Income.  In  1998,  the  Company's   non-interest  income
increased to $1,157,677  from $765,583 in 1997, a 51.2% gain. This is the result
of a $105,800  (18.2%)  increase in service charges on deposit  accounts,  and a
$214,305 (128.1%) increase in other income.  Included in the other income is the
$210,213  increase  in fees  received  on loans sold in the  secondary  mortgage
market.  Gains  realized  on the sale of  securities  available  for  sale  also
increased to $88,342 in 1998 from $16,353 in 1997 as the Company took  advantage
of  existing  gains in  securities  to  reinvest  the  funds in  higher-yielding
securities.


                                      -9-
<PAGE>

         In 1997 the Company's total non-interest  income decreased 11.3% due to
a decrease in the amount of fees  collected on checking  accounts for overdrafts
as well as a  decrease  in the  fees  received  on loans  sold in the  secondary
mortgage  market.  The Company was not an active  participant  in the  secondary
mortgage market during much of 1997.

         Non-Interest   Expenses.  The  Company's  total  non-interest  expenses
increased  16.4% in 1998 to  $4,846,376.  Increases  in salaries and benefits of
21.8%,  occupancy  expenses  of 4.5%,  equipment  expenses  of 9.5%,  and office
supplies, telephone, and postage expense of 19.1%, primarily reflect the opening
of the new branch  location  in  Cumberland  Courthouse  in June  1998.  A 44.3%
increase in advertising  and public  relations is partially  attributable to the
new  branch but is  primarily  due to  increased  advertising  efforts  directed
towards former customers of larger  institutions  that had recently been sold to
out of state banks.

         In 1997, the Company's total  non-interest  expenses  increased 9.5% or
$361,892  compared  to 1996.  Included in this  increase  is a 9.8%  increase in
salaries and benefits,  as well as a 13.7% increase in occupancy  expenses and a
12.7% increase in equipment and office supplies  expenses,  both attributable to
the first full year of operation of the Corporate Center office.

         Income Taxes.  The Company  reported  income taxes of $643,355 in 1998,
compared  to  $659,239  in 1997 and  $684,917  in 1996.  These  amounts  yielded
effective tax rates of 24.9%, 26.4%, and 28.6%, respectively.

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  and  western  Chesterfield  Counties.  Consistent  with its focus on
providing  community-based  financial services,  the Company does not attempt to
diversify its loan portfolio  geographically  by making  significant  amounts of
loans to borrowers outside of its primary service area.

         The principal  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.

         Loans  increased  $20.7 million or 23.3% from year-end 1997 to year-end
1998  compared to an increase of $4.5  million,  or 5.3% from  year-end  1996 to
year-end  1997.  The loan to  deposit  ratio was  70.8% at  December  31,  1998,
compared to 72.4% at December 31, 1997 and 76.8% at December 31, 1996.


                                      -10-
<PAGE>
         The following  table  summarizes the Company's loan  portfolio,  net of
unearned income:
<TABLE>
<CAPTION>
                                                                 At December 31
                                                 -----------------------------------------------
                                                      1998            1997            1996
                                                             (Dollars in Thousands)
<S>                                               <C>             <C>             <C>
         Real Estate:
           Mortgage                                 $51,564         $42,158         $37,884
           Home equity                                4,831           5,769           6,315
           Construction                              14,330           8,472          10,078
                                                     ------           -----          ------
         Total Real Estate                          $70,725         $56,399         $54,237
         Commercial                                  17,674          17,816          15,314
         Installment                                 22,734          16,134          16,400
                                                     ------          ------          ------
                                                   $111,133         $90,349         $85,951
         Less unearned discount                       (300)           (341)           (401)
                                                      -----           -----           -----
                                                    110,833          90,008          85,550
         Allowance for loan losses                  (1,267)         (1,176)         (1,212)
                                                    -------         -------         -------
         Loans, net                                $109,566         $88,832         $84,338
                                                   ========         =======         =======
</TABLE>

         As shown in the above  table,  the total  amount  of  outstanding  real
estate  loans  increased  by $14.3  million in 1998 and by $2.2 million in 1997.
During  1998,  the  amount  of  outstanding  installment  loans  to  individuals
increased by $6.6  million,  compared to a decrease of $266,000 in 1997 compared
to 1996.  Commercial,  financial and agricultural loans decreased by $142,000 in
1998 compared to an increase of $2.5 million in 1997.

         At December 31, 1998, no  concentrations  of loans  exceeding  10.0% of
total loans existed which were not disclosed as a separate category of loans.

         The  following  table  shows the  maturity of loans  outstanding  as of
December 31, 1998. Also provided are the amounts due classified according to the
sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
                                                                  Maturing
                                            ------------------------------------------------------
                                                            After One
                                             Within         but Within      After Five
                                            One Year        Five Years         Years         Total
                                            --------        ----------         -----         -----
                                                           (Dollars in Thousands)
<S>                                          <C>            <C>              <C>          <C>    
         Real estate mortgage                   $770         $43,709          $7,085        $51,564
         Installment                             933          19,615           2,186         22,734
         Other (1)                            33,645           3,190               -         36,835
                                             -------         -------          ------       --------
                                             $35,348         $66,514          $9,271       $111,133
                                             =======         =======          ======       ========
         Loans maturing with:                              
           Fixed interest rates                                                             $35,960
           Variable interest rates                                                           75,173
                                                                                           $111,133
</TABLE>
_____________________                                     
(1)   Includes home equity, real estate construction and commercial loans.

         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 $595,000 at December 31, 1998, compared to
$734,000 at December 31, 1997 and  $1,643,000 at December 31, 1996. The decrease
in non-performing loans in 1998

                                      -11-
<PAGE>

reflects  an  increase  in loans  accounted  for on a  non-accrual  basis  and a
decrease in loans contractually past due 90 days or more.

         Management  forecloses on  delinquent  real estate loans when all other
repayment  possibilities  have been  exhausted.  Real  estate  acquired  through
foreclosure  (OREO) was $479,725 at December 31, 1998,  compared to $313,000 and
$372,546 at December 31, 1997 and 1996,  respectively.  All foreclosed  property
held at  December  31,  1998  was in the  Company's  primary  service  area  and
consisted of two single-family dwellings, a former day-care center, ten building
lots,  and a  5-acre  parcel  of  improved  land.  The  Bank  has  not  incurred
significant  current period expenses  related to carrying OREO on its books. 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.  The Bank is
actively  marketing all foreclosed real estate and does not anticipate  material
write-downs in value before disposition.

         Management does not believe that the level of  non-performing  loans in
1998  reflects  any  systematic  problem in the  Company's  loan  portfolio.  At
December 31, 1998,  non-accrual  loans totaled  $237,000  compared to $38,000 at
December  31, 1997 and  $708,000  at  December  31,  1996.  Management  does not
anticipate a material increase in non-performing assets, although it may move to
foreclose on borrowers whose loans were on a non-accrual  status at December 31,
1998.

         The following table summarizes non-performing loans:
<TABLE>
<CAPTION>
                                                                                           At December 31
                                                                                --------------------------------------
                                                                                   1998         1997         1996
                                                                                   ----         ----         ----
                                                                                       (Dollars in Thousands)
<S>                                                                                <S>         <C>        <C>  
Loans accounted for on a non-accrual basis                                         $237          $38         $708
Loans contractually past due 90 days or more as to interest or 
  principal payments (not included in non-accrual loans above)                      358          696          935
Loans restructured and in compliance with modified terms (not included in
  non-accrual loans or loans contractually past due 90 days or more above)            -            -            -
                                                                                   ----         ----       ------
    Total                                                                          $595         $734       $1,643
                                                                                   ====         ====       ======
</TABLE>

         Loans 90 days or more past due are placed on non-accrual  status unless
well  secured  and in the  process of  collection.  In 1998,  $8,602 of interest
income  was  reversed  when  loans  were  placed on  non-accrual  status or upon
foreclosure.  In 1997 and 1996,  $10,895  and  $3,502  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 recover a sufficient  amount
of loans previously  charged off so that the provision for loan losses each year
exceeds net charge-offs.



                                      -12-
<PAGE>

         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:
<TABLE>
<CAPTION>
                                                                                   For the Year Ended December 31
                                                                               ----------------------------------------
                                                                                   1998          1997         1996
                                                                                   ----          ----         ----
                                                                                       (Dollars in Thousands)
<S>                                                                                <C>           <C>          <C>
Gross interest income that would have been recorded if the loans
  had been current and in accordance with their original terms                     $19            $4          $56
Interest income included in income on the loans                                      -             -            -
</TABLE>

         Management is not aware of any other loans at December 31, 1998,  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 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 closely  monitored on an ongoing basis as part of the Company's  loan review
process.  Management  reviews the loan loss  allowance at the end of each month.
Based primarily on the Company's loan  classification  system,  which classifies
problem credits as substandard,  doubtful,  or loss,  additional  provisions for
losses  are made  monthly.  Furthermore,  past  experiences  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 1.14% at
December 31, 1998,  compared to 1.31% at December 31, 1997 and 1.42% at December
31,  1996.  The  decrease in the ratios  reflects  the growth of the  portfolio.
Management feels that the growth of the allowance for loans losses, while not at
the same rate as the portfolio growth, is adequate to provide for future losses.
As  evidence  of this  belief,  the ratio of the  allowance  for loan  losses to
non-performing  assets has  increased.  At  December  31,  1998 the ratio of the
allowance for loan losses to non-performing loans was 212.9%, compared to 160.2%
and 73.8% at December  31,  1997 and 1996,  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.



                                      -13-
<PAGE>

         The  following  table  summarizes  changes  in the  allowance  for loan
losses:
<TABLE>
<CAPTION>
                                                                                1998            1997           1996
                                                                                ----            ----           ----
                                                                                      (Dollars in Thousands)
<S>                                                                         <C>             <C>            <C>   
Balance at beginning of period                                                 $1,176          $1,212         $1,127

Charge-offs:
   Commercial, financial and agricultural                                          24              74              8
   Real estate mortgage                                                            61              60             30
   Installment loans to individuals                                                70             134             64
                                                                                   --             ---             --
      Total                                                                       155             268            102
Recoveries on previous loan losses:
   Commercial, financial and agricultural                                          $8              $-             $-
   Installment loans to individuals                                                40              32             22
                                                                                   --              --             --
      Total                                                                        48              32             22
                                                                                  ---             ---            ---
Net charge-offs                                                                 (107)           (236)           (80)
 Provision charged to operations                                                  198             200            165
                                                                                  ---             ---            ---
Balance at end of period                                                       $1,267          $1,176         $1,212
                                                                               ======          ======         ======
Ratio of net loan losses to average net loans outstanding:
   Net charge-offs                                                               $107            $236            $80
   Average net loans                                                           97,066          86,616         81,701
                                                                               ------          ------         ------
                                                                                0.11%           0.27%          0.10%
                                                                                -----           -----          -----
Ratio of allowance for loan losses to total loans, net of 
   unearned income:
   Allowance for loan losses                                                   $1,267          $1,176         $1,212
   Total loans at period end                                                  110,833          90,008         85,550
                                                                              -------          ------         ------
                                                                                1.14%           1.31%          1.42%
                                                                                -----           -----          -----
Ratio of allowance for loan losses to non-performing loans:
   Allowance for loan losses                                                   $1,267          $1,176         $1,212
   Non-performing loans                                                           595             734          1,643
                                                                                  ---             ---          -----
                                                                              212.94%         160.22%         73.77%
                                                                              -------         -------         ------
</TABLE>

         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 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.

         The  provision  for loan  losses  totaled  $198,000  for the year ended
December 31, 1998,  $200,000 and $165,000 for the years ended  December 31, 1997
and 1996, 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 future loan losses.


                                      -14-
<PAGE>

         The following  table shows the balance and  percentage of the Company's
allowance for loan losses allocated to each category of loans:
<TABLE>
<CAPTION>

                                                                       At December 31
                         ----------------------------------------------------------------------------------------------------------
                                      1998                                  1997                               1996
                         ---------------------------------    ---------------------------------   ---------------------------------
                                   Percentage                            Percentage                         Percentage   
                         Reserve   of Reserve   Percentage     Reserve   of Reserve  Percentage   Reserve   of Reserve   Percentage
                         for Loan   for Loan     of Total      for Loan   for Loan    of Total    for Loan   for Loan     of Total 
                          Losses     Losses       Loans        Losses      Losses       Loans      Losses     Losses        Loans   
                          ------     ------       -----        ------      ------       -----      ------     ------        -----   
                                                                (Dollars in Thousands)                                   
<S>                       <C>        <C>          <C>        <C>          <C>         <C>         <C>         <C>         <C>
Commercial                   $211        17%        16%         $197        17%         20%         $212         18%        19%
Real estate                   131         10         13           94          8          9           125         10         12
construction
Real estate mortgage (1)      693         55         51          721         61         53           660         54         47
Installment                   232         18         20          164         14         18           215         18         22
                              ---         --         --          ---         --         --           ---         --         --
                           $1,267       100%       100%       $1,176       100%       100%        $1,212       100%       100%
                           ======       ====       ====       ======       ====       ====        ======       ====       ====
</TABLE>
--------------
(1) Includes home-equity loans.

         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 securities portfolio serves several purposes. Portions of
the portfolio secure certain public and trust deposits.  The remaining  portions
are held as  investments  or used to assist the Company in  liquidity  and asset
liability management.  During 1998, total securities increased to $56.5 million,
or 30.9% of total  assets at December 31, 1998.  During 1997,  total  securities
increased to $40.6 million, or 27.9% of assets at December 31, 1997.

         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  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 the lower of cost or 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 high credit quality with short to medium term maturities.



                                      -15-
<PAGE>

         The  following  table  summarizes  the  book  value  of  the  Company's
securities held to maturity at the date indicated:
<TABLE>
<CAPTION>
                                                                      Book Value at December 31
                                                              ------------------------------------------
                                                                  1998           1997          1996
                                                                  ----           ----          ----
                                                                       (Dollars in Thousands)
<S>                                                             <C>             <C>          <C>  
          U. S. government agencies and corporations              $ 998           $ 998        $   -
          States and political subdivisions                      24,794          15,817       10,208
          Corporate debt                                            828               -            -
          U. S. treasury notes                                    1,025           1,042            -
                                                                  -----           -----      -------
                                                                $27,645         $17,857      $10,208
                                                                =======         =======      =======
</TABLE>

         The  following  table  summarizes  the  book  value  of  the  Company's
securities available for sale at the dates indicated.
<TABLE>
<CAPTION>

                                                                      Book Value at December 31
                                                              ------------------------------------------
                                                                  1998           1997          1996
                                                                  ----           ----          ----
                                                                       (Dollars in Thousands)
<S>                                                             <C>             <C>           <C>   
          U. S. government agencies and corporations            $17,912         $15,230       $6,717
          Equities                                                3,983             712            -
          Mortgage-backed securities                              6,727           6,450          962
                                                                  -----           -----       ------
                                                                $28,622         $22,392       $7,679
                                                                =======         =======       ======
</TABLE>

         The book value and average yield of the Company's securities, including
securities  available for sale, at December 31, 1998, by  contractual  maturity,
are  reflected  in the  following  table.  Actual  maturities  will  differ from
contractual  maturities  because certain borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                                                           U. S. Government
                                         States and political      U. S. Treasury            Agencies and
                                            Subdivisions             Securities              Corporations           Corporate Debt
                                         --------------------    --------------------    ---------------------    ------------------
                                       
                                                  Weighted                 Weighted                 Weighted               Weighted
                                                   Average                  Average                 Average                 Average
                                         Amount     Yield         Amount     Yield        Amount     Yield         Amount   Yield
                                         ------     -----         ------     -----        ------     -----         ------   -----
                                                                           (Dollars in Thousands)
<S>                                      <C>        <C>           <C>                      <C>     <C>             <C>       
Due in one year or less                   $1,988     5.82%          $  -        -            $12     6.47%           $  -        -
Due after one year through five years      2,988     6.21%             -        -          2,648     6.15%              -        -
Due after five years through ten years     4,152     4.79%         1,025     6.28%         6,426     6.88%             97     7.50%
Due after ten years                       15,666     6.60%             -        -         16,550     6.33%            730     8.13%
                                          ------                     ---                  ------                      ---
                                         $24,794     6.19%        $1,025     6.28%       $25,636     6.44%           $827     8.06%
                                         =======                  ======                 =======                     ====
</TABLE>

         As shown in the table above,  approximately $2.0 million or 3.8% of the
total portfolio will mature in one year or less while $5.6 million or 10.7% will
mature  after one year but  within  five  years.  The fully  taxable  equivalent
average yield on the entire portfolio was 7.12% for 1998,  compared to 7.29% for
1997 and 7.88% for 1996.  The market  value of the  portfolio  exceeded the book
value by $1.1 million at December 31, 1998.



                                      -16-
<PAGE>

Deposits and Short-Term Borrowings

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

         As shown in the following  table,  average total deposits grew by 18.2%
in 1998 and 4.7% in 1997. The average  aggregate  interest rate paid on deposits
was 4.05% in 1998, compared to 4.03% for 1997 and 4.13% in 1996. The majority of
the Company's  deposits are higher  yielding  time deposits  because most of its
customers are  individuals  who seek higher yields than those offered on savings
and demand accounts.

         The following table is a summary of average  deposits and average rates
paid:
<TABLE>
<CAPTION>

                                                             For the Year Ended December 31
                           ----------------------------------------------------------------------------------------------------
                                        1998                               1997                              1996
                           -------------------------------    -------------------------------    ------------------------------
                            Average    Interest  Average       Average   Interest   Average       Average   Interest  Average
                            Balance      Paid      Rate        Balance     Paid      Rate         Balance    Paid      Rate
                            -------      ----      ----        -------     ----      ----         -------    ----      ----
                                                                 (Dollars in Thousands)
<S>                         <C>          <C>       <C>        <C>          <C>        <C>        <C>         <C>        <C>
Non-interest bearing
  demand deposits             $19,645       $ -        -%       $17,434       $ -         -%       $15,371      $ -         -%
Interest bearing demand
  deposits                     26,219       754     2.88%        21,668       637      2.94%        20,630      611      2.96%
Savings deposits               15,361       497     3.24%        13,602       441      3.24%        12,189      394      3.23%
Time deposits                  75,083     4,266     5.68%        62,634     3,568      5.70%        61,985    3,544      5.72%
                               ------     -----                  ------     -----                   ------    -----
    Total                    $136,308    $5,517     4.05%      $115,338    $4,646      4.03%      $110,175   $4,549      4.13%
                             ========    ======                ========    ======                 ========   ======
</TABLE>

         The  following  table is a summary of time deposits of $100,000 or more
by remaining maturities at December 31, 1998:

                             Time Deposits > $100,000
                             ------------------------
                                  (in Thousands)

                    Three months or less                  $1,756
                    Three to six months                    5,507
                    Six to twelve months                   5,272
                    Over twelve months                     2,768
                                                        --------
                                                         $15,303

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 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 Company's Tier 1 Capital ratio was 13.3% at December 31, 1998,
compared to 16.2% at December 31, 1997 and 16.4% at December 31, 1996. The Total
Capital  ratio was 14.4% at December  31,  1998,  compared to 17.4% and 17.7% at
December  31,  1997 and 1996,  respectively.  These  ratios are in excess of the
mandated  minimum  requirements of 4.00% and 8.00%,  respectively.  The Leverage
ratio  consists  of



                                      -17-
<PAGE>

Tier 1 capital divided by quarterly  average  assets.  At December 31, 1998, the
Bank's Leverage ratio was 10.1% compared to 11.2% at December 31, 1997 and 11.3%
at December 31, 1996. Each of these exceeds the required  minimum leverage ratio
of 3.00%.

         The following  table shows risk based capital  ratios and  stockholders
equity to total assets:
<TABLE>
<CAPTION>

                                                                            December 31
                                                  -----------------------------------------------------------------
                                                    Regulatory
                                                      Minimum           1998             1997            1996
                                                      -------           ----             ----            ----
<S>                                                      <C>            <C>              <C>             <C>  
        Tier 1 risk-based capital                        4.0%           13.3%            16.2%           16.4%
        Total risk-based capital                         8.0%           14.4%            17.4%           17.7%
        Leverage ratio                                   3.0%           10.1%            11.2%           11.3%
        Stockholders' equity to total assets             N/A             9.4%            10.9%           11.4%
</TABLE>

         The capital management function is an ongoing process.  Central to this
process is internal equity generation accomplished by earnings retention. During
1998, total stockholders' equity increased by $1,277,338,  primarily as a result
of earnings  retention.  Total  stockholders'  equity increased by $1,396,186 in
1997 also due to earnings  retention.  The return on average equity was 12.2% in
1998,  compared to 12.6% in 1997 and 12.5% in 1996.  Total cash  dividends  were
paid representing 38% of net income for 1998, which was also the same percentage
of net income for both 1997 and 1996. Book value per share was $8.94 at December
31, 1998, compared to $8.30 at December 31, 1997 and $7.61 at December 31, 1996.

         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,  1998,  the Bank  had $2.8  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 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 and the
purchasing of federal funds.  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  sufficient to
fund the net increase in loans.

         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 interval.

         At December 31, 1998,  the Company had a positive 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 and  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



                                      -18-
<PAGE>

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  contractual  repayment  terms or
nearest  repricing dates of the Company's  interest  earning assets and interest
bearing liabilities at December 31, 1998:
<TABLE>
<CAPTION>
                                                                     Maturing or Repricing In:
                                              ----------------------------------------------------------------------
                                                 Within         4-12            1-5           Over
                                                3 Months       Months          Years         5 Years        Total
                                                --------       ------          -----         -------        -----
                                                                      (Dollars in Thousands)
<S>                                            <C>             <C>            <C>            <C>          <C>      
Interest Earning Assets
  Securities available for sale                   $7,378         $9,105         $9,964         $2,441       $28,888
  Securities held to maturity                        429          1,559          9,760         15,897        27,645
  Loans                                           34,037          1,311         64,947          9,271       109,566
                                                  ------          -----         ------          -----       -------
    Total interest-earning assets                $41,844        $11,975        $84,671        $27,609      $166,099
                                                 =======        =======        =======        =======      ========

Interest Bearing Liabilities
  Deposits:
    Interest bearing demand                      $31,769            $ -            $ -            $ -       $31,769
    Savings                                       17,305              -              -              -        17,305
    Time deposits, $100,000 and over               1,756          5,507          8,040              -        15,303
    Other time deposits                           13,889         30,370         22,523              -        66,782
  Federal funds purchased and securities
    sold under repurchase agreements               5,080              -              -              -         5,080
  FHLB advances                                        -          5,000              -              -         5,000
  Long-term debt                                       -              9             27              -            36
                                                 -------        -------        -------            ---      --------
    Total interest-bearing liabilities           $69,799        $40,886        $30,590             $0      $141,275
                                                 =======        =======        =======            ===      ========
Period gap                                     ($27,955)      ($28,911)        $54,081        $27,609       $24,824
                                               =========      =========        =======        =======       =======
Cumulative gap                                 ($27,955)      ($56,866)       ($2,785)        $24,824
                                               =========      =========       ========        =======
Ratio of cumulative gap to total earning
  assets                                        (16.83%)       (34.24%)        (1.68%)         14.95%
</TABLE>

         Of the amount of loans due after 12 months,  $38.2 million had floating
or adjustable rates of interest and $36.0 million had fixed rates of interest.

Year 2000 Issue

         With the  approach of the  beginning  of the new  millennium,  there is
increasing  public  awareness and attention  being directed toward the Year 2000
problem.  The Year 2000 problem stems from the inability of certain computerized
systems and  devices to either  recognize  or process  data on a year date later
than 1999.



                                      -19-
<PAGE>

         The  Company  began its  review of the Year 2000  problem  in late 1997
through its Year 2000 Project  Committee,  which is  comprised of the  Company's
senior managers and representatives from each major business line and functional
area of the Company. The committee manages and monitors the process to determine
that all areas and systems have been  reviewed,  certified  compliant and tested
and ensures that the Company remains in compliance  with  regulatory  guidelines
promulgated  by the Federal  Financial  Institutions  Examination  Council  (the
"FFIEC") regarding Year 2000 preparedness.  The objective of these guidelines is
to  eliminate  or  minimize  the  impact  from Year 2000  problems  to  internal
operations that could affect the Company's customers and its ability to maintain
basic banking services.

         Under current  banking  regulations  relating to the Year 2000 problem,
all financial  institutions  must meet several  required  processes and critical
dates, as follows:

         Review Mission-Critical Systems for Year 2000 Readiness.

         o     Identify    and    prioritize    all    internal   and   external
               mission-critical systems.
         o     Identify   and/or  obtain  all  financial  and  human   resources
               necessary to correct deficiencies.
         o     Develop   and  adopt  a  formal   project   plan  to   accomplish
               remediation.
         o     Conduct a due  diligence  process to  monitor  and  evaluate  the
               efforts of external third party vendors and service  providers in
               becoming Year 2000 compliant.

         Renovate and Test Systems.

         o     Certification  of  Year  2000  compliance  and  testing  for  all
               internally   supported    mission-critical    systems   must   be
               substantially completed by December 31, 1998.
         o     Certification  of  Year  2000  compliance  and  testing  for  all
               externally   supported    mission-critical    systems   must   be
               substantially completed by March 31, 1999.
         o     Certification  and  testing  for  Year  2000  compliance  of  any
               internal or external supported non  mission-critical  system must
               be substantially completed by June 30, 1999.

         Business Resumption Contingency Planning.

         o     A  documented  business  resumption  contingency  plan must be in
               place that defines  scenarios and evaluates  options in the event
               that  a  mission-critical  system  fails  to  achieve  Year  2000
               readiness.

         Customer Risk Assessment.

         o     Develop a due diligence  process to identify any customers and/or
               counterparties  that  represent a material  risk  exposure to the
               Company.
         o     Evaluate these customers' Year 2000 preparedness.
         o     Assess these customers'  existing and potential Year 2000 risk to
               the Company.
         o     Implement  risk  controls to manage and  mitigate  this Year 2000
               risk to the Company.

         The status of the  Company's  current  schedule to meet all  regulatory
mandated requirements for Year 2000 readiness as of March 1, 1999 is as follows:

         o     The   Company   has   certified   compliant   over   85%  of  its
               mission-critical   systems  and  services,   and  it  anticipates
               substantially   completing  all   certification  and  testing  as
               required by March 31, 1999.

         o     The Company expects to certify compliant and  appropriately  test
               the remaining non mission-critical systems by June 30, 1999. This
               process is currently over 40% completed, and the Company does not
               anticipate any significant problems in meeting this requirement.



                                      -20-
<PAGE>

         o     The Company has  developed  and continues to revise its Year 2000
               business  resumption  plan  that  will  outline  and  direct  its
               operations in the event of any  mission-critical  system failures
               effecting  a core  business  process.  This plan  identifies  the
               minimum  service  levels  associated  with  these  core  business
               processes.

         o     The anticipated  cost of the entire process of becoming Year 2000
               compliant should not exceed, in the aggregate  $250,000,  some of
               which has already been  expensed in the normal course of business
               during 1998. A portion of these costs may be  capitalized  to the
               extent that they relate to purchase of new hardware or equipment.
               Net book value of  previously  capitalized  assets  replaced as a
               direct  result of Year 2000  compliance  will be  written  off in
               accordance  with generally  accepted  accounting  principles.  In
               addition, costs associated with personnel assigned to work on the
               Year 2000 project are not included in the above figure. Personnel
               costs  are  expensed  as  incurred  and no  personnel  have  been
               assigned to the Year 2000 project on a full-time  basis.  At this
               time,  it is the opinion of  management  that the total impact to
               1999 earnings for Year 2000 remediation and compliance should not
               be material.

         o     The Company is engaged in a  comprehensive  internal  information
               and education  process with all of its associates  regarding Year
               2000 issues and contingency plans.

         The Company  relies on external  sources for its computer  hardware and
software  needs.  The  Company  is  evaluating  and  monitoring,  to the  extent
possible,  the  progress of external  vendors and service  providers in becoming
Year 2000 compliant.  The Company has been  communicating with these third party
vendors,  and such  vendors  either  are  already  Year 2000 ready or are in the
process of modifying,  upgrading or replacing  their  computer  applications  to
ensure Year 2000  compliance.  There are many  services and  functions  that are
beyond the direct  control  of the  Company,  and the  Company is  developing  a
detailed  contingency plan that will address what the Company will do should any
problems with these  external  providers  occur.  This plan will include,  among
other  things,  moving to new vendors if  existing  vendors  cannot  continue to
provide services or stay in business.

         At this time, the Company believes that the most likely worst case Year
2000  scenario  would not have a  material  effect on the  Company's  results of
operations,  liquidity and financial  condition for the year ending December 31,
2000.  The Company  does not foresee a material  loss of revenue due to the Year
2000 issue.  However,  while the contingency plan is based on assessments of the
likelihood  of occurrence of possible  scenarios,  the Company  believes that no
entity can address the unlimited  possible  circumstances  relating to Year 2000
issues.  While unlikely,  it is acknowledged  that the failure of the Company to
successfully  implement  its  Year  2000  plan,  or  to  adequately  assess  the
likelihood  of various  events  relating  to the Year 2000  issue,  could have a
material  adverse  effect on the Company's  results of operations  and financial
condition.

Forward-Looking Statements

         Certain   information   contained  in  this   discussion   may  include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "the  Company  expects,"  "the  Company  believes"  or words of  similar
import.  Such  forward-looking   statements  involve  known  and  unknown  risks
including,  but not  limited  to,  changes  in  general  economic  and  business
conditions, interest rate fluctuations,  competition within and from outside the
banking  industry,  new  products  and  services in the banking  industry,  risk
inherent in making  loans such as  repayment  risks and  fluctuating  collateral
values,  problems with  technology  utilized by the Company,  changing trends in
customer profiles and changes in 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



                                      -21-
<PAGE>

materially  from any future results,  performance or  achievements  expressed or
implied by such forward-looking statements.

ITEM 7.      FINANCIAL STATEMENTS

         The  following   consolidated   financial  statements  and  independent
auditors' report thereon are filed as a part of this report following Item 13:

         Independent Auditors' Report
         Consolidated Balance Sheets as of December 31, 1998 and 1997
         Consolidated  Statements  of Income for the Years  Ended  December  31,
           1998, 1997 and 1996 
         Consolidated  Statements of Stockholders' Equity
           for the Years Ended December 31, 1998, 1997 and 1996 
         Consolidated Statements of Cash Flows for the Years Ended  December 31,
           1998, 1997 and 1996 
         Notes to Consolidated Financial Statements

ITEM 8.      CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

         There  were  no  changes  in  or  disagreements   with  accountants  on
accounting and financial disclosure as defined by Item 304 of Regulation S-B.


                                    PART III

ITEM 9.      DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSON;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Information  set  forth  under  the  caption  "ELECTION  OF  DIRECTORS;
SECURITY  OWNERSHIP  OF  MANAGEMENT  AND CERTAIN  BENEFICIAL  OWNERS" on pages 2
through 6 of the definitive 1999 Proxy Statement of the Registrant  furnished to
shareholders  in connection with its Annual Meeting to be held on April 27, 1999
(the "1999 Proxy Statement") is hereby incorporated by reference.

ITEM 10.     EXECUTIVE COMPENSATION

         Information  set forth  under  the  heading  "Remuneration"  on pages 6
through 7 of the 1999 Proxy Statement is hereby incorporated by reference.

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  set  forth  under  the  heading  "Security   Ownership  of
Management" and "Security Ownership of Certain Beneficial Owners" on pages 4 and
5,  respectively,  of the  1999  Proxy  Statement,  is  hereby  incorporated  by
reference.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information set forth under the heading "Certain  Transactions" on page
7 of the 1999 Proxy Statement is hereby incorporated by reference.



                                      -22-
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

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

         3.1      Articles  of  Incorporation,   including   amendments  thereto
                  (incorporated   herein  by  reference  to  Exhibit  2  to  the
                  Registrant's Form 8-A filed with the SEC on May 2, 1994).
         3.2      Bylaws  (incorporated  herein by reference to Exhibit 3 to the
                  Registrant's Form 8-A filed with the SEC on May 2, 1994).
         4.1      Specimen   of    Registrant's    Common   Stock    Certificate
                  (incorporated   herein  by  reference  to  Exhibit  1  to  the
                  Registrant's Form 8-A filed with the SEC on May 2, 1994).
         21.1     Subsidiaries of the Registrant (filed herewith).
         23.1     Consent of Mitchell, Wiggins & Company, LLP (filed herewith)
         27       Financial Data Schedule (filed electronically only)


(b)      Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended December 31,
1998.

         With the exception of the information herein expressly  incorporated by
reference,  the 1999 Proxy Statement of the Registrant is not to be deemed filed
as part of this Annual Report on Form 10-KSB.



                                      -23-
<PAGE>

                        CENTRAL VIRGINIA BANKSHARES, INC.

                          CONSOLIDATED FINANCIAL REPORT

                                DECEMBER 31, 1998


<PAGE>

                                 C O N T E N T S



--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT                                                  1
--------------------------------------------------------------------------------

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated balance sheets                                          2 - 3

     Consolidated statements of income                                    4 - 5

     Consolidated statements of stockholders' equity                          6

     Consolidated statements of cash flows                                7 - 8

     Notes to consolidated financial statements                          9 - 27
--------------------------------------------------------------------------------




<PAGE>




                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Central Virginia Bankshares, Inc.
Powhatan, Virginia

We have audited the accompanying consolidated balance sheets of Central Virginia
Bankshares,  Inc.,  and  subsidiary  as of December  31, 1998 and 1997,  and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits 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, 1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.


/s/ Mitchell, Wiggins & Company, LLP


Richmond, Virginia
January 15, 1999





                                       -1-


<PAGE>

<TABLE>
<CAPTION>

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

ASSETS                                                                             1998               1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>        
Cash and due from banks                                                            $ 7,812,804         $ 5,239,415






Federal funds sold                                                                           -           3,785,000
                                                                            ---------------------------------------

           Total cash and cash equivalents                                           7,812,804           9,024,415



Securities available for sale                                                       28,888,350          22,713,173


Securities held to maturity                                                         27,645,062          17,857,400


Mortgage loans held for sale                                                           759,466             331,350


Loans, net                                                                         109,566,111          88,832,228


Bank premises and equipment, net                                                     4,281,687           3,540,305


Accrued interest receivable                                                          1,467,595           1,318,880


Other assets                                                                         2,208,419           1,601,073
                                                                            ---------------------------------------
                                                                                 $ 182,629,494       $ 145,218,824
                                                                            ---------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements.



                                      -2-
<PAGE>


<TABLE>
<CAPTION>


LIABILITIES AND STOCKHOLDERS' EQUITY                                               1998               1997
------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                <C>
Liabilities
     Deposits:
        Demand deposits                                                           $ 23,566,911       $ 19,614,855
        Interest bearing demand deposits
           and NOW accounts                                                         31,769,395         20,991,218
        Savings deposits                                                            17,305,350         13,973,955
        Time deposits, $100,000 and over                                            15,302,914         11,997,704
        Other time deposits                                                         66,782,231         56,095,809
                                                                            --------------------------------------

                                                                                   154,726,801        122,673,541

     Federal funds purchased and securities
        sold under repurchase agreements                                             5,080,192          1,193,887
     FHLB advance                                                                    5,000,000          5,000,000
     Note payable                                                                       36,000             45,000
     Accrued interest payable                                                          375,777            327,763
     Other liabilities                                                                 293,593            138,840
                                                                            --------------------------------------
                                                                                   165,512,363        129,379,031
                                                                            --------------------------------------

Commitments and Contingencies (Note 11)

Stockholders' Equity
     Common stock, $1.25 par value;
        6,000,000 shares authorized; 1,914,147
        and 1,907,276 shares issued and out-
        standing in 1998 and 1997, respectively                                      2,392,684          2,384,095
     Surplus                                                                         4,238,689          4,136,728
     Retained earnings                                                              10,310,831          9,109,861
     Accumulated other comprehensive
        income                                                                         174,927            209,109
                                                                            --------------------------------------
                                                                                    17,117,131         15,839,793
                                                                            --------------------------------------

                                                                                 $ 182,629,494      $ 145,218,824
                                                                            --------------------------------------
</TABLE>



                                      -3-
<PAGE>

<TABLE>
<CAPTION>

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1998, 1997, and 1996

                                                                     1998             1997             1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>
Interest income:
     Interest and fees on loans                                      $9,131,040       $8,656,580        $8,206,531
     Interest on securities:
        U. S. government agencies and corporations                    1,555,869        1,115,884           473,056
        U. S. Treasury securities                                       121,716           54,349                 -
        States and political subdivisions                             1,168,126          726,564           553,370
        Other                                                           140,588           72,207            10,916
     Interest on federal funds sold                                     210,513          314,940           847,727
                                                               ----------------------------------------------------
                                                                     12,327,852       10,940,524        10,091,600
                                                               ----------------------------------------------------

Interest expense:
     Interest on deposits                                             5,517,379        4,646,081         4,549,567
     Interest on federal funds purchased and
        securities sold under repurchase agreements                      44,431           55,159            38,986
     Interest on FHLB advance                                           296,562          144,625                 -
     Interest on note payable                                             3,060            3,780             4,500
                                                               ----------------------------------------------------
                                                                      5,861,432        4,849,645         4,593,053
                                                               ----------------------------------------------------
           Net interest income                                        6,466,420        6,090,879         5,498,547

Provision for loan losses                                               197,999          200,000           165,000
                                                               ----------------------------------------------------
           Net interest income after
               provision for loan losses                              6,268,421        5,890,879         5,333,547
                                                               ----------------------------------------------------

Other income:
     Service charges                                                    687,696          581,896           598,981
     Realized gain on sales of securities
        available for sale                                               88,342           16,353            25,000
     Other                                                              381,639          167,334           239,427
                                                               ----------------------------------------------------
                                                                      1,157,677          765,583           863,408
                                                               ----------------------------------------------------

Other expenses:
     Salaries and wages                                               1,935,153        1,572,054         1,434,644
     Pensions and other employee benefits                               500,156          427,134           386,712
     Occupancy expense                                                  260,884          249,622           219,579
     Equipment depreciation                                             354,477          319,210           258,635
     Equipment repairs and maintenance                                  181,304          170,000           165,222
</TABLE>



                                   (Continued)




                                      -4-
<PAGE>

<TABLE>
<CAPTION>
CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Continued)
Years Ended December 31, 1998, 1997, and 1996

                                                                         1998            1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>            <C>            <C>    
     Advertising and public relations                                       252,977        175,359        140,841
     Federal insurance premiums                                              18,872         12,375         69,869
     Office supplies, telephone, and postage                                403,106        338,354        310,174
     Taxes and licenses                                                     116,718        130,186        119,408
     Other operating expenses                                               822,729        768,839        696,157
                                                                    ----------------------------------------------
                                                                          4,846,376      4,163,133      3,801,241
                                                                    ----------------------------------------------
           Income before income taxes                                     2,579,722      2,493,329      2,395,714

Income taxes                                                                643,355        659,239        684,917
                                                                    ----------------------------------------------

           Net income                                                   $ 1,936,367    $ 1,834,090    $ 1,710,797
                                                                    ----------------------------------------------

Basic earnings per share                                                     $ 1.01         $ 0.96         $ 0.90
                                                                    ----------------------------------------------

Diluted earnings per share                                                   $ 1.01         $ 0.96         $ 0.90
                                                                    ----------------------------------------------

</TABLE>


See Notes to Consolidated Financial Statements.




                                      -5-
<PAGE>


CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>

                                                                                                         Accumulated
                                                                                                            Other
                                                                    Common                  Retained    Comprehensive
                                                                     Stock       Surplus     Earnings       Income         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>         <C>             <C>         <C>        
Balance, January 1, 1996                                           $2,359,332   $3,996,803  $ 6,917,211     $ 40,148    $13,313,494
                                                                                                                        -----------
    Comprehensive income:
      Net income                                                            -            -    1,710,797            -      1,710,797
      Other comprehensive income, net of tax:
         Unrealized holding losses arising during the period
           net of deferred income taxes of $9,938                           -            -            -      (19,291)       (19,291)
         Less reclassification adjustment for gains included in
           net income, net of deferred income taxes of $8,500               -            -            -      (16,500)       (16,500)
                                                                                                                           --------

         Total comprehensive income                                                                                       1,675,006
                                                                                                                          ---------
    Issuance of common stock:
      18 shares in employee bonuses                                        23          153            -            -            176
      10,796 shares pursuant to dividend
         reinvestment plan                                             13,495       94,063            -            -        107,558
    Cash dividends declared, $.345 per share                                -            -     (652,627)           -       (652,627)
                                                                  -----------------------------------------------------------------
Balance, December 31, 1996                                          2,372,850    4,091,019    7,975,381        4,357     14,443,607
                                                                                                                         ----------
    Comprehensive income:
      Net income                                                            -            -    1,834,090            -      1,834,090
      Other comprehensive income, net of tax:
         Unrealized holding gains arising during the period,
           net of deferred income taxes of $111,038                         -            -            -      215,545        215,545
         Less reclassification adjustment for gains included in
           net income, net of deferred income taxes of $5,560               -            -            -      (10,793)       (10,793)
                                                                                                                          ---------

         Total comprehensive income                                                                                       2,038,842
                                                                                                                          ---------
    Issuance of common stock:
      6,222 shares pursuant to exercise
         of stock options                                               7,778       20,221            -            -         27,999
      10 shares in employee bonuses                                        12           92            -            -            104
      2,764 shares pursuant to dividend
         reinvestment plan                                              3,455       25,396            -            -         28,851
    Cash dividends declared, $.368 per share                                -            -     (699,610)           -       (699,610)
                                                                  -----------------------------------------------------------------
Balance, December 31, 1997                                          2,384,095    4,136,728    9,109,861      209,109     15,839,793
                                                                                                                         ----------
    Comprehensive income:
      Net income                                                            -            -    1,936,367            -      1,936,367
      Other comprehensive income, net of tax:
         Unrealized holding gains arising during the period,
           net of deferred income taxes of $12,428                          -            -            -       24,124         24,124
         Less reclassification adjustment for gains included in
           net income, net of deferred income taxes of $30,036              -            -            -      (58,306)       (58,306)
                                                                                                                           --------

         Total comprehensive income                                                                                       1,902,185
                                                                                                                          ---------
    Issuance of common stock:
      36 shares in employee bonuses                                        45          445            -            -            490
      6,835 shares pursuant to dividend
         reinvestment plan                                              8,544      101,516            -            -        110,060
    Cash dividends declared, $.385 per share                                -            -     (735,397)           -       (735,397)
                                                                  -----------------------------------------------------------------
 Balance, December 31, 1998                                        $2,392,684   $4,238,689  $10,310,831    $ 174,927    $17,117,131
                                                                  -----------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.



                                      -6-
<PAGE>

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>

                                                                         1998            1997             1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>               <C>
Cash Flows From Operating Activities
    Net income                                                       $ 1,936,367     $ 1,834,090       $ 1,710,797
    Adjustments to reconcile net income
       to net cash provided by operating activities:
       Depreciation                                                      441,044         400,281           330,092
       Amortization                                                            -           2,766            16,600
       Deferred income taxes                                             (45,356)         50,496           (28,623)
       Provision for loan losses                                         197,999         200,000           165,000
       Amortization and accretion on securities                           51,131          71,930            (2,093)
       Realized gain on sales of securities
          available for sale                                             (88,342)        (16,353)          (25,000)
       Gain on sale of equipment                                               -          (7,430)                -
       Loss on sale of foreclosed real estate                                  -           9,362            16,211
       Change in operating assets and liabilities:
          (Increase) decrease in assets:
             Mortgage loans held for sale                               (428,116)       (129,552)          666,796
             Accrued interest receivable                                (148,715)       (515,689)          (15,647)
             Other assets                                               (372,636)        (33,737)         (592,763)
          Increase (decrease) in liabilities:
             Accrued interest payable                                     48,014          94,817           (30,474)
             Other liabilities                                           154,753         (30,704)           56,419
                                                                 --------------------------------------------------
             Net cash provided by operating activities                 1,746,143       1,930,277         2,267,315
                                                                 --------------------------------------------------

Cash Flows From Investing Activities
    Proceeds from maturities of
       securities held to maturity                                     1,785,000         440,000           910,000
    Purchase of securities held to maturity                          (11,588,886)     (8,087,324)       (1,104,736)
    Proceeds from sales and maturities of
       securities available for sale                                  13,578,242       7,180,442         3,031,996
    Purchase of securities available for sale                        (19,754,346)    (21,951,343)       (5,787,595)
    Net increase in loans made to customers                          (21,099,882)     (5,007,369)       (1,796,896)
    Proceeds from sale of equipment                                            -           7,600                 -
    Net purchases of premises and equipment                           (1,171,349)       (336,866)       (1,771,900)
    Proceeds from sale of foreclosed real estate                               -         360,109           291,233
    Net expenditures on foreclosed real estate                                 -               -           (22,978)
    Proceeds received from cancellation
       of life insurance policies                                              -               -            19,564
    Increase in cash value, life insurance                               (12,251)        (17,385)          (12,651)
                                                                 --------------------------------------------------
          Net cash (used in) investing activities                    (38,263,472)    (27,412,136)       (6,243,963)
                                                                 --------------------------------------------------
</TABLE>

                                   (Continued)



                                      -7-

<PAGE>

CENTRAL VIRGINIA BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>

                                                                       1998             1997             1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>              <C>
Cash Flows From Financing Activities
     Net increase in deposits                                        32,053,260      12,792,601         2,074,735
     Net increase (decrease) in federal funds
        purchased and securities sold
        under repurchase agreements                                   3,886,305        (340,592)           99,172
     Net proceeds from FHLB advance                                           -       5,000,000                 -
     Repayment of note payable                                           (9,000)         (9,000)           (9,000)
     Net proceeds from issuance
        of common stock                                                 110,550          56,954           107,734
     Dividends paid                                                    (735,397)       (699,610)         (652,627)
                                                             -----------------------------------------------------
           Net cash provided by financing
               activities                                            35,305,718      16,800,353         1,620,014
                                                             -----------------------------------------------------

           (Decrease) in cash and
               cash equivalents                                      (1,211,611)     (8,681,506)       (2,356,634)

Cash and cash equivalents, beginning                                  9,024,415      17,705,921        20,062,555
                                                             -----------------------------------------------------

Cash and cash equivalents, ending                                   $ 7,812,804     $ 9,024,415      $ 17,705,921
                                                             -----------------------------------------------------

Supplemental Disclosures Of
     Cash Flow Information
        Interest paid                                               $ 5,813,418     $ 4,754,828       $ 4,623,527
        Income taxes paid                                               635,927         664,064           692,356

Supplemental Schedule Of Noncash
     Investing Activities
        Other real estate, equipment
           and investments acquired
           in settlement of loans                                       168,000         313,000           369,189

</TABLE>


See Notes to Consolidated Financial Statements.




                                      -8-
<PAGE>


CENTRAL VIRGINIA BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              
--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies

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

Central Virginia Bank's subsidiary,  CVB Title Services,  Inc., is a corporation
organized  under the laws of the  Commonwealth  of Virginia.  The  Corporation's
primary purpose is to own a partnership interest in a title insurance company.

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

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

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

The Bank is required to maintain  average reserve and clearing  balances in cash
with the Federal  Reserve Bank.  The total of these  balances,  after  receiving
credit for vault cash on hand,  was  approximately  $50,000 at December 31, 1998
and 1997.

Use of estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate  to the  determination  of the  allowance  for  losses  on loans  and the
valuation  of  real  estate  acquired  in  connection  with  foreclosures  or in
satisfaction of loans. In connection  with the  determination  of the allowances
for losses on loans and foreclosed real estate,  management obtains  independent
appraisals for significant properties.




                                      -9-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies (Continued)

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

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

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

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

Trading securities,  which are generally held for the short term in anticipation
of market gains,  are carried at fair value.  Realized and unrealized  gains and
losses on trading  account  assets are  included in  interest  income on trading
account securities.  The Corporation held no trading securities during the years
ended December 31, 1998, 1997, and 1996.

Mortgage loans held for sale: Mortgage loans originated and held for sale in the
secondary market are reported at the lower of cost or market value determined on
an aggregate basis.



                                      -10-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies (Continued)

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

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

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management  believes  that  collectibility  of the  principal is  unlikely.  The
allowance  is an amount  that  management  believes  will be  adequate to absorb
estimated  losses on  existing  loans  that may become  uncollectible,  based on
management's  evaluation of the collectibility of the loan portfolio,  including
the nature of the portfolio,  credit  concentrations,  trends in historical loss
experience,  specific impaired loans, and economic conditions.  The allowance is
increased  by a provision  for loan  losses,  which is charged to  expense,  and
reduced by charge-offs, net of recoveries.

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

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

The basic policy of the Bank is to charge off loans when the loss can be readily
determined.  Changes in the allowance for loan losses relating to impaired loans
are charged or credited to the provision for loan losses.

Loans,  including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of  principal or interest for a period of
more than 90 days,  unless  such loans are well  secured  and in the  process of
collection.  Loans that are on a current payment status or past due less than 90
days may also be  classified  as  nonaccrual  if  repayment in full of principal
and/or  interest is in doubt.  Loans may be returned to accrual  status when all
principal  and interest  amounts  contractually  due are  reasonably  assured of
repayment.



                                      -11-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies (Continued)

When a loan  is  classified  as  nonaccrual,  all  interest  receivable  on that
particular  loan is  charged  back to  income  at that  time.  When  the  future
collectibility of the recorded loan balance is expected,  interest income may be
recognized on a cash basis. On charged-off loans, cash receipts in excess of the
amount  charged to the allowance for loan losses are recognized as income on the
cash basis.

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

                                     Years
                                     -----

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

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

Advertising costs:  Advertising costs are expensed as incurred.

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

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




                                      -12-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 1.  Significant Accounting Policies (Continued)

Earnings per share: In 1997, the Financial Accounting Standards Board issued its
Statement of Financial  Accounting  Standards  No. 128 (SFAS 128)  "Earnings per
Share." This Statement  specifies the  computation,  presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. Statement 128 replaced the calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Basic earnings per share excludes any dilutive effects of options,  warrants and
convertible  securities.  Diluted  earnings  per  share is very  similar  to the
previously  reported  fully diluted  earnings per share.  All earnings per share
amounts for all periods have been presented and, where appropriate,  restated to
conform to the Statement 128 requirements.

The following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock.
<TABLE>
<CAPTION>

                                                            1998               1997              1996
                                                   -------------------------------------------------------
<S>                                                    <C>                 <C>               <C>
Income available to common stockholders
     used in basic EPS                                   $ 1,936,367        $ 1,834,090       $ 1,710,797
                                                   -------------------------------------------------------

Weighted average number of common
     shares used in basic EPS                              1,910,484          1,903,672         1,892,154

Effect of dilutive securities:
     Stock options                                                 -                  -                 -
                                                   -------------------------------------------------------

Weighted number of common shares and
     dilutive potential stock used in diluted
     EPS                                                   1,910,484          1,903,672         1,892,154
                                                   -------------------------------------------------------
</TABLE>

Note 2.  Stock Split

On July 14, 1998,  the Board of Directors  authorized a 2-for-1 stock split.  In
connection  with the stock split,  the number of issued and  outstanding  shares
increased by 955,847 shares,  and the par value of each share decreased to $1.25
per share. All references in the accompanying financial statements to the number
of common  shares and per share  amounts for prior  years have been  restated to
reflect the stock split.



                                      -13-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 3.  Securities

Carrying amounts and approximate market values of securities  available for sale
are as follows:
<TABLE>
<CAPTION>

                                                                    December 31, 1998
                                         -----------------------------------------------------------------------
                                                                   Gross            Gross          Approximate
                                               Amortized         Unrealized      Unrealized           Market
                                                 Cost              Gains           Losses             Value
                                         -----------------------------------------------------------------------
<S>                                          <C>               <C>               <C>             <C>
U. S. government agencies
     and corporations                         $ 17,911,720        $218,920         $112,769        $ 18,017,871
Equities                                         3,983,230         100,889           11,880           4,072,239
Mortgage-backed securities                       6,726,685          85,359           13,804           6,798,240
                                         -----------------------------------------------------------------------
                                              $ 28,621,635        $405,168         $138,453        $ 28,888,350
                                         -----------------------------------------------------------------------

                                                                    December 31, 1997
                                         -----------------------------------------------------------------------
                                                                   Gross            Gross          Approximate
                                               Amortized         Unrealized      Unrealized           Market
                                                 Cost              Gains           Losses             Value
                                         -----------------------------------------------------------------------
U. S. government agencies
     and corporations                         $ 15,229,999        $171,918          $ 7,644        $ 15,394,273
Equities                                           712,125          80,750                -             792,875
Mortgage-backed securities                       6,449,972          92,419           16,366           6,526,025
                                         -----------------------------------------------------------------------
                                              $ 22,392,096        $345,087          $24,010        $ 22,713,173
                                         -----------------------------------------------------------------------
</TABLE>


The amortized cost and approximate market value of securities available for sale
at December 31, 1998, by contractual maturity,  are shown below.  Maturities may
differ from contractual  maturities in  mortgage-backed  securities  because the
mortgages  underlying  the  securities  may be  called  or  repaid  without  any
penalties.  Therefore,  these  securities  are  not  included  in  the  maturity
categories in the following maturity summary.

                                                                     Approximate
                                                  Amortized            Market
                                                     Cost               Value
                                               ---------------------------------
Due in one year or less                                   $ -               $ -
Due after one year through five years                 798,910           802,949
Due after five years through ten years              9,861,683         9,955,627
Due after ten years                                 7,251,127         7,259,295
Equities                                            3,983,230         4,072,239
Mortgage-backed securities                          6,726,685         6,798,240
                                               ---------------------------------
                                                 $ 28,621,635       $28,888,350
                                               ---------------------------------




                                      -14-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 3.  Securities (Continued)

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

                                                                            December 31, 1998
                                                 -------------------------------------------------------------------------
                                                                           Gross           Gross          Approximate
                                                      Amortized         Unrealized       Unrealized          Market
                                                         Cost              Gains           Losses            Value
                                                 -------------------------------------------------------------------------
<S>                                                <C>                <C>               <C>             <C>
U. S. government agencies
     and corporations                               $   998,026          $ 19,214        $      -        $ 1,017,240
U. S. Treasury securities                             1,025,373            21,187               -          1,046,560
Corporate debt                                          827,442                 -               -            827,442
States and political subdivisions                    24,794,221           924,260         112,130         25,606,351
                                                 -------------------------------------------------------------------------
                                                    $27,645,062          $964,661        $112,130        $28,497,593
                                                 -------------------------------------------------------------------------

                                                                            December 31, 1997
                                                 -------------------------------------------------------------------------
                                                                           Gross           Gross          Approximate
                                                      Amortized         Unrealized       Unrealized          Market
                                                         Cost              Gains           Losses            Value
                                                 -------------------------------------------------------------------------
U. S. government agencies
     and corporations                               $   997,666          $  1,224        $     -         $   998,890
U. S. Treasury securities                             1,042,663            10,467               -          1,053,130
States and political subdivisions                    15,817,071           305,404          28,104         16,094,371
                                                 -------------------------------------------------------------------------
                                                    $17,857,400          $317,095        $ 28,104        $18,146,391
                                                 -------------------------------------------------------------------------
</TABLE>

The amortized  cost and  approximate  market value of  securities  being held to
maturity at December 31, 1998, by contractual maturity, are shown below.

                                                                   Approximate
                                                Amortized             Market
                                                   Cost               Value
                                             -----------------------------------
Due in one year or less                          $ 1,988,267        $ 1,999,016
Due after one year through five years              3,986,451          4,132,269
Due after five years through ten years             7,805,551          8,121,946
Due after ten years                               13,864,793         14,244,362
                                             -----------------------------------
                                                $ 27,645,062       $ 28,497,593
                                             -----------------------------------

Securities  with an amortized  cost of $4,153,610  and  $3,838,931  and a market
value of $4,257,709 and $3,924,835 at December 31, 1998 and 1997,  respectively,
were pledged as collateral on public deposits and for other purposes as required
or permitted by law.




                                      -15-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 4.  Loans

Major classifications of loans are summarized as follows:

                                                December 31,
                                     ------------------------------------
                                           1998                 1997
                                     ------------------------------------
Commercial                               $ 17,674,195       $ 17,815,987
Real estate:
     Mortgage                              56,395,438         47,927,212
     Construction                          14,329,842          8,472,139
Installment                                22,733,430         16,134,096
                                     ------------------------------------
                                          111,132,905         90,349,434
Less unearned discount                       (299,602)          (341,364)
                                     ------------------------------------
                                          110,833,303         90,008,070
Allowance for loan losses                  (1,267,192)        (1,175,842)
                                     ------------------------------------
Loans, net                              $ 109,566,111       $ 88,832,228
                                     ------------------------------------


Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                ----------------------------------------------------
                                                        1998              1997              1996
                                                ----------------------------------------------------
<S>                                                 <C>               <C>               <C>        
Balance, beginning of year                          $ 1,175,842       $ 1,211,675       $ 1,126,872
     Provision charged to operations                    197,999           200,000           165,000
     Loans charged off                                 (155,563)         (267,145)         (101,558)
     Recoveries                                          48,914            31,312            21,361
                                                ----------------------------------------------------
Balance, end of year                                $ 1,267,192       $ 1,175,842       $ 1,211,675
                                                ----------------------------------------------------
</TABLE>

At  December  31,  1998,  the Bank had loans  amounting  to  $236,962  that were
specifically  classified  as  impaired.  The average  balance of impaired  loans
amounted to  approximately  $197,102 for the year ended  December 31, 1998.  The
allowance  for loan  losses  related to  impaired  loans  amounted to $32,000 at
December 31, 1998.  The  following is a summary of cash  receipts on these loans
and how they were applied in 1998:


Cash receipts applied to reduce       
     principal balance                       $ 25,862
Cash receipts recognized as
     interest income                              892
                                        --------------
Total cash receipts                          $ 26,754
                                        --------------

Nonaccruing loans (principally  commercial and mortgage loans) totaled $241,962,
$37,989, and $708,476 at December 31, 1998, 1997, and 1996, respectively,  which
had the effect of reducing net income  $18,887 ($.01 per common  share),  $4,403
($.002 per common share), and $55,518 ($.03 per common share) for the years then
ended, respectively.


                                      -16-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------


Note 5.  Bank Premises and Equipment

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

                                                    December 31,
                                        ---------------------------------
                                              1998              1997
                                        ---------------------------------
Land                                      $   544,802       $   543,802
Buildings and improvements                  3,103,115         2,611,016
Furniture and equipment                     3,805,020         3,115,693
                                        ---------------------------------
                                            7,452,937         6,270,511
Less accumulated depreciation               3,171,250         2,730,206
                                        ---------------------------------
                                          $ 4,281,687       $ 3,540,305
                                        ---------------------------------

Note 6.  Maturities of Certificates of Deposits

The scheduled  maturities of  certificates of deposits at December 31, 1998, are
as follows:

Year Ending                      
December 31
-----------------------------------------------
1999                              $ 50,938,361
2000                                15,487,058
2001                                 5,151,614
2002                                 5,790,719
2003 and later                       4,717,393
                                 --------------
                                  $ 82,085,145
                                 --------------

Note 7.  FHLB Advance

The advance of $5,000,000  from the Federal Home Loan Bank of Atlanta,  Georgia,
is secured by the mortgage loan portfolio of Central Virginia Bank.  Interest is
payable  quarterly at a fixed rate of 5.85% per annum. The principal  balance is
due and payable on July 8, 2002.

Note 8.  Note Payable

The Corporation's subsidiary, Central Virginia Bank, has a note payable which is
secured by a first deed of trust on the bank  building in Powhatan and is due in
annual  principal  installments  of $9,000  plus  interest at the rate of 8% per
annum through the year 2002.  At December 31, 1998 and 1997,  the balance of the
note was $36,000 and $45,000, respectively.





                                      -17-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 9.  Income Tax Matters

The Corporation  and Subsidiary  file a consolidated  federal income tax return.
The  consolidated  provision  for income taxes for the years ended  December 31,
1998, 1997, and 1996, are as follows:

                              1998            1997            1996
                           -------------------------------------------
Currently payable           $ 653,966       $ 608,743       $ 713,540
Deferred                      (10,611)         50,496         (28,623)
                           -------------------------------------------
                            $ 643,355       $ 659,239       $ 684,917
                           -------------------------------------------

A  reconciliation  of the  expected  income tax  expense  computed at 34% to the
income tax  expense  included  in the  consolidated  statements  of income is as
follows:
<TABLE>
<CAPTION>
                                                                       Years Ended December 31,
                                                           ------------------------------------------------
                                                                1998            1997            1996
                                                           ------------------------------------------------
<S>                                                           <C>             <C>             <C>      
Computed "expected" tax expense                               $ 877,105       $ 847,732       $ 814,543
Tax-exempt interest                                            (206,624)       (177,519)       (148,044)
Tax-exempt loan interest                                        (22,844)         (5,717)              -
Disallowance of interest expense
     deduction for the portion attributable
     to carrying tax-exempt obligations                          25,575          23,132          20,001
Other                                                           (29,857)        (28,389)         (1,583)
                                                           ------------------------------------------------
                                                              $ 643,355       $ 659,239       $ 684,917
                                                           ------------------------------------------------
</TABLE>


The deferred income tax provision consists of the following items:
<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                                       --------------------------------------------
                                                                            1998          1997           1996
                                                                       --------------------------------------------
<S>                                                                      <C>            <C>           <C>
Difference between loan loss provision charged                                                   
     to operating expense and the bad debt
     deduction taken for income tax purposes                              $(20,707)      $ 8,123       $(19,223)
Interest income on nonaccrual loans
     recognized for federal income tax pur-
     poses, but not recognized for financial
     statements until received                                              (6,522)       25,635        (10,458)
Accretion of discount recognized for
     financial statements, but not recognized
     for income tax purposes until realized                                  5,845         6,717           (689)
Difference between the depreciation methods
     used for financial statements and for income
     tax purposes                                                           10,773        10,021          1,747
                                                                       --------------------------------------------
                                                                          $(10,611)     $ 50,496       $(28,623)
                                                                       --------------------------------------------
</TABLE>


                                      -18-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 9.  Income Tax Matters (Continued)

The  component  of the net  deferred  tax asset  included in other  assets is as
follows at December 31:

                                                      1998             1997     
                                                 -------------------------------
Deferred tax assets:
     Allowance for loan losses                     $ 373,607        $ 342,548   
     Less valuation allowance                       (124,523)        (114,171)  
                                                 -------------------------------
                                                     249,084          228,377   
     Interest income on nonaccrual loans               9,831            3,309   
                                                 -------------------------------
                                                     258,915          231,686   
                                                 -------------------------------
                                                                                
Deferred tax liabilities:                                                       
     Property and equipment                           93,776           83,003   
     Securities                                       20,062           14,217   
     Unrealized gain on securities                                              
         available for sale                           91,788          111,968   
                                                 -------------------------------
                                                     205,626          209,188   
                                                 -------------------------------
                                                                                
Net deferred tax asset                              $ 53,289         $ 22,498   
                                                 -------------------------------
                                                                                

Note 10.  Profit-Sharing Plan

The Bank has a profit-sharing  plan for those employees who meet the eligibility
requirements set forth in the Plan.  Substantially  all the full-time  employees
are covered.  Contributions  to the Trust fund are  determined  each year by the
Board of  Directors.  The plan may be  amended  or  terminated  by the  Board of
Directors at any time. The  contributions for the years ended December 31, 1998,
1997, and 1996, were $142,526, $133,341, and $118,824, respectively.

Note 11.  Commitments and Contingencies

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



                                      -19-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 11.  Commitments and Contingencies (Continued)

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit  policies in making  commitments  and  conditional
obligations as they do for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31, 1998 and 1997, is as follows:

                                                    1998              1997
                                              ---------------------------------
Commitments to extend credit                     $ 32,132,566     $ 25,720,298
Standby letters of credit                           1,901,084        2,725,439
                                              ---------------------------------
                                                 $ 34,033,650     $ 28,445,737
                                              ---------------------------------

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since many
of the  commitments  are expected to expire  without being drawn upon, the total
commitment amounts do not necessarily  represent future cash  requirements.  The
Bank evaluates each customer's  credit-worthiness  on a case-by-case  basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party. Collateral held
varies,  but may  include  accounts  receivable,  crops,  livestock,  inventory,
property and equipment,  residential real estate and income-producing commercial
properties.

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

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



                                      -20-


<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

Note 12. Related Party Transactions

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

Aggregate loan transactions with related parties were as follows:

                                       Years Ended December 31,
                                 --------------------------------
                                       1998             1997
                                 --------------------------------
Balance, beginning                  $ 1,797,346      $ 1,485,811
     New loans                        2,067,488        1,844,749
     Repayments                      (1,604,543)      (1,533,214)
                                 --------------------------------
Balance, ending                     $ 2,260,291      $ 1,797,346
                                 --------------------------------


Note 13. Stock Option Plan

During the year ended  December 31, 1998,  the  Corporation  established a stock
option plan which  authorizes the granting of stock options to key employees and
directors  up to a maximum of 190,000  shares of common  stock.  The options are
exercisable at the date of grant and expire ten years thereafter. As of December
31, 1998, no options were granted under this plan.

Prior to 1998,  the  Corporation  had a stock option plan which  authorized  the
grant of 15,000  shares of common stock on July 14, 1987.  During the year ended
December 31, 1997,  options were  exercised  for the purchase of 6,222 shares of
common stock at $4.50 per share.  No options were  exercised for the purchase of
common  stock during the year ended  December  31,  1996.  At December 31, 1997,
there were no remaining unexercised options.

The  Corporation  did not grant any options  during the years ended December 31,
1998 and 1997. Therefore,  the transition provisions of FASB Statement 123 would
not be applicable.



                                      -21-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
--------------------------------------------------------------------------------

Note 14.  Regulatory Matters

The Bank is subject to various regulatory capital  requirements  administered by
its primary federal regulator, the Federal Reserve Bank. Failure to meet minimum
capital  requirements can initiate certain mandatory,  and possibly,  additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect on the Bank's  financial  statements.  Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities,  and certain  off-balance sheet items as calculated
under  regulatory   accounting   practices.   The  Bank's  capital  amounts  and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and ratios as set forth in the
table  below of total  and Tier I  capital  as  defined  in the  regulations  to
risk-weighted  assets as  defined,  and of Tier I capital  as defined to average
assets as defined.  Management believes,  as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.

As of December 31, 1998, the most recent  notification  from the Federal Reserve
Bank categorized the Bank as well capitalized under the regulatory framework for
prompt corrective  action. To be categorized as well capitalized,  the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set  forth in the  table.  There  are no  conditions  or  events  since  that
notification that management believes have changed the institution's category.

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>

                                                                                           To Be Well Capitalized
                                                                       For Capital        Under Prompt Corrective
                                                Actual              Adequacy Purposes        Action Provisions
                                       ----------------------------------------------------------------------------
                                          Amount      Ratio       Amount       Ratio       Amount       Ratio
                                       ----------------------------------------------------------------------------
                                                                 (Dollars in Thousands)
<S>                                     <C>           <C>          <C>         <C>         <C>         <C>
As of December 31, 1998:
     Total Capital
         (to Risk Weighted Assets)        $ 17,390    14.35%       $ 9,695     8.00%       $ 12,118     10.00%
     Tier I Capital
         (to Risk Weighted Assets)          16,123    13.30%         4,847     4.00%          7,271     6.00%
     Tier I Capital
         (to Average Assets)                16,123    10.07%         6,405     4.00%          8,006     5.00%

As of December 31, 1997:
     Total Capital
         (to Risk Weighted Assets)        $ 16,172    17.45%       $ 7,413     8.00%        $ 9,266     10.00%
     Tier I Capital
         (to Risk Weighted Assets)          15,013    16.20%         3,706     4.00%          5,560     6.00%
     Tier I Capital
         (to Average Assets)                15,013    11.29%         5,320     4.00%          6,650     5.00%
</TABLE>

Banking  laws and  regulations  limit the amount of  dividends  that may be paid
without prior approval of the Bank's regulatory  agency.  Under that limitation,
the Bank could have declared additional dividends of approximately $2,844,383 in
1998 without regulatory approval.

                                      -22-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15.  Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

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



                                      -23-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15.  Fair Value of Financial Instruments (Continued)

FHLB  advance:  The carrying  amount of the FHLB advance  approximates  its fair
value.

Note payable: The carrying amount of note payable approximates its fair value.

The following is a summary of the carrying  amounts and estimated fair values of
the Corporation and  subsidiary's  financial  assets and liabilities at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
                                                                 December 31,                         December 31,
                                                    --------------------------------------------------------------------------
                                                                    1998                                 1997
                                                    --------------------------------------------------------------------------
                                                         Carrying          Estimated          Carrying          Estimated
                                                          Amount          Fair Value           Amount          Fair Value
                                                    --------------------------------------------------------------------------
<S>                                                  <C>               <C>                <C>               <C>         
Financial assets:
     Cash and cash equivalents                         $ 7,812,804       $ 7,812,804        $ 9,024,415       $ 9,024,415
     Securities available for sale                      28,888,350        28,888,350         22,713,173        22,713,173
     Securities held to maturity                        27,645,062        28,497,593         17,857,400        18,146,391
     Mortgage loans held for sale                          759,466           759,466            331,350           331,350
     Loans, net                                        109,566,111       113,699,000         88,832,228        91,350,000
     Accrued interest receivable                         1,467,595         1,467,595          1,318,880         1,318,880

Financial liabilities:
     Demand and variable rate deposits                  72,641,656        72,641,656         54,580,028        54,580,028
     Fixed-rate certificates of deposits                82,085,145        83,893,000         68,093,513        68,636,000
     Federal funds purchased and securities
       sold under repurchase agreements                  5,080,192         5,080,192          1,193,887         1,193,887
     FHLB advance                                        5,000,000         5,000,000          5,000,000         5,000,000
     Note payable                                           36,000            36,000             45,000            45,000
     Accrued interest payable                              375,777           375,777            327,763           327,763
</TABLE>


At December 31, 1998 and 1997, the Corporation  had outstanding  standby letters
of credit and commitments to extend credit.  These  off-balance  sheet financial
instruments are generally  exercisable at the market rate prevailing at the date
the underlying transaction will be completed,  and, therefore,  they were deemed
to have no current fair market value.



                                      -24-

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16.  Condensed Parent-Only Financial Statements

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

                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                           December 31
                                                  -----------------------------------
Assets                                                  1998                1997
                                                  -----------------------------------
<S>                                                <C>                 <C>     
     Cash                                               $ 55,481            $ 95,325
     Investment in subsidiary                         16,122,640          15,178,495
     Securities available for sale                       903,614             532,875
     Other assets                                         49,458              33,098
                                                  -----------------------------------
                                                    $ 17,131,193        $ 15,839,793
                                                  -----------------------------------

Liabilities
     Other liabilities                                  $ 14,062                 $ -
                                                  -----------------------------------

Stockholders' Equity
     Common stock, $1.25 par value;
         6,000,000 shares authorized;
         1,914,147 and 1,907,276 shares
         issued and outstanding in 1998
         and 1997, respectively                        2,392,684           2,384,095
     Surplus                                           4,238,689           4,136,728
     Retained earnings                                10,310,831           9,109,861
     Accumulated other comprehensive income              174,927             209,109
                                                  -----------------------------------
                                                       17,117,131          15,839,793
                                                  -----------------------------------
                                                     $ 17,131,193        $ 15,839,793
                                                  -----------------------------------
</TABLE>



                                      -25-
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16.  Condensed Parent-Only Financial Statements (Continued)

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                   Years Ended December 31,
                                                                        ---------------------------------------------------
                                                                              1998              1997               1996
                                                                        ---------------------------------------------------
<S>                                                                        <C>              <C>                <C>        
Income:
     Management fees                                                       $   36,000       $    38,368        $    46,456
     Dividends received from subsidiary                                       935,397           999,611            652,627
     Equity in undistributed earnings of subsidiary                           951,733           834,475          1,058,170
     Dividend income                                                           38,428            19,520                  -
     Gain on sale of securities available for sale                             64,114                 -                  -
                                                                        ---------------------------------------------------
                                                                            2,025,672         1,891,974          1,757,253
Expenses:
     Operating expenses                                                        75,243            57,884             46,456
                                                                        ---------------------------------------------------
             Income before income taxes                                     1,950,429         1,834,090          1,710,797

Income taxes                                                                   14,062                 -                  -
                                                                        ---------------------------------------------------
             Net income                                                   $ 1,936,367       $ 1,834,090        $ 1,710,797
                                                                        ---------------------------------------------------
</TABLE>




                                      -26-

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16.  Condensed Parent-Only Financial Statements (Continued)

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                         ---------------------------------------------------
                                                                                1998              1997              1996
                                                                         ---------------------------------------------------
<S>                                                                        <C>               <C>              <C>
Cash Flows From Operating Activities
     Net income                                                             $ 1,936,367       $ 1,834,090       $ 1,710,797
     Adjustments to reconcile net income to net
         cash provided by operating activities:
         Undistributed earnings of subsidiary                                  (951,733)         (834,475)       (1,058,170)
         Realized gain on sales of securities available
             for sale                                                           (64,114)                -                 -
         Change in operating assets and liabilities:
             (Increase) decrease in other assets                                    (88)           27,486           (36,420)
             Increase in other liabilities                                       14,062                 -                 -
                                                                         ---------------------------------------------------
Net cash provided by operating activities                                       934,494         1,027,101           616,207
                                                                         ---------------------------------------------------

Cash Flows From Investing Activities
     Proceeds from sales of securities available
         for sale                                                               319,489                 -                 -
     Purchase of securities available for sale                                 (668,980)         (462,125)                -
                                                                         ---------------------------------------------------
Net cash (used in) investing activities                                        (349,491)         (462,125)                -
                                                                         ---------------------------------------------------

Cash Flows From Financing Activities
     Net proceeds from issuance of common stock                                 110,550            56,954           107,733
     Dividends paid                                                            (735,397)         (699,610)         (652,627)
                                                                         ---------------------------------------------------
Net cash (used in) financing activities                                        (624,847)         (642,656)         (544,894)
                                                                         ---------------------------------------------------

Increase (decrease) in cash                                                     (39,844)          (77,680)           71,313
Cash, beginning                                                                  95,325           173,005           101,692
                                                                         ---------------------------------------------------

Cash, ending                                                                   $ 55,481          $ 95,325         $ 173,005
                                                                         ---------------------------------------------------
</TABLE>



                                      -27-

<PAGE>

                                   SIGNATURES

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

                                     CENTRAL VIRGINIA BANKSHARES, INC.


Date:  March 31, 1999                By: /s/ Ralph Larry Lyons
                                         ---------------------------------------
                                         Ralph Larry Lyons
                                         President and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

March 31, 1999                   /s/ Ralph Larry Lyons
                                 -----------------------------------------------
                                 Ralph Larry Lyons
                                 President and Chief Executive Officer; Director
                                 (Chief Financial Officer)


March 31, 1999                   /s/ Thomas R. Thornton, Jr.
                                 -----------------------------------------------
                                 Thomas R. Thornton, Jr.
                                 Assistant Vice President
                                 (Chief Accounting Officer)


March 31, 1999                   /s/ John B. Larus    
                                 -----------------------------------------------
                                 John B. Larus
                                 Chairman of the Board of Directors


March __, 1999                   
                                 -----------------------------------------------
                                 Fleming V. Austin
                                 Director


March __, 1999                 
                                 -----------------------------------------------
                                 Charles W. Binford
                                 Director


March __, 1999                   
                                 -----------------------------------------------
                                 Garland L. Blanton, Jr.
                                 Director


March 31, 1999                   /s/ Charles B. Goodman
                                 -----------------------------------------------
                                 Charles B. Goodman
                                 Director


March 31, 1999                   /s/ Elwood C. May
                                 -----------------------------------------------
                                 Elwood C. May
                                 Director


March 31, 1999                   /s/ James T. Napier
                                 -----------------------------------------------
                                 James T. Napier
                                 Director


<PAGE>

                                 EXHIBITS INDEX


Item No.      Description
--------      -----------

3.1           Articles   of   Incorporation,    including   amendments   thereto
              (incorporated herein by reference to Exhibit 2 to the Registrant's
              Form 8-A filed with the SEC on May 2, 1994)
3.2           Bylaws  (incorporated  herein  by  reference  to  Exhibit 3 to the
              Registrant's Form 8-A filed with the SEC on May 2, 1994)
4.1           Specimen of Registrant's  Common Stock  Certificate  (incorporated
              herein by  reference  to  Exhibit 1 to the  Registrant's  Form 8-A
              filed with the SEC on May 2, 1994)
21.1          Subsidiaries of the Registrant (filed herewith)
23.1          Consent of Mitchell, Wiggins & Company, LLP (filed herewith)
27            Financial Data Schedule (filed electronically only)