Colonial Virginia Bank Announces 2011 Earnings

GLOUCESTER, Va., Feb. 6, 2012 /PRNewswire/ -- Colonial Virginia Bank (OTCBB: CNVB) ("the Bank"), today reported results of operations for the fiscal year ended December 31, 2011, which reflected a net loss after taxes of ($151,613), compared to after tax net income of $427,871 in 2010.  Pre-tax levels were a net loss of ($248,598) for 2011, compared to net income of $584,730 in 2010.  As has been the trend in the banking industry over the past few years, the Bank experienced further decline in asset quality with increased problem loans.  On a per share basis, 2011 reflected a net loss on a fully diluted basis of ($0.25) per share, compared to net income of $0.70 per share in 2010.

The primary factor contributing to the net loss was the provision for loan loss expense of $1,639,700 in 2011, compared to $566,700 in 2010.  The substantial increase was necessitated by an increased level of projected impairment exposure in the loan portfolio as well as actual loan charge-offs.  An encouraging note was the expansion of the net interest margin (interest income minus interest expense divided by average earning assets) ("NIM"). The NIM improved from 4.18% at December 31, 2010 to 4.42% at December 31, 2011.  The average yield on earning assets declined slightly, 25 basis points year over year, while the overall funding cost was reduced by 55 basis points for the same period.  The Bank continued its disciplined deposit pricing practices, as many fixed rate CDs matured and were re-priced substantially lower at renewal or redeemed.  The loss attributable to the increased loan loss provisions was also buffered through the sales and calls of securities, which produced gains of $323,230.  The Bank has continued its practice of monitoring its holdings of bonds issued by Fannie Mae and Freddie Mac due to their possible ultimate collapse, if federal government support is withdrawn.

Total non-interest income for the current year was $845,584 compared to $711,326 in 2010.  Non-interest expenses in 2011 totaled $4.3 million, up from $4.1 million in 2010, primarily as the result of additional personnel cost.  These costs were associated with the transition phase of previous CEO Bill Farinholt's retirement on June 30, 2011 (planning for which began in the second half of 2010 and included temporary duplication of some payroll expenses).  Also, an additional loan officer was hired in April 2011, to facilitate expansion into the Peninsula market, including York County and the cities of Newport News and Williamsburg.  In addition to the loan loss provision expense discussed above, the Bank recorded approximately $100,000 in non-performing asset expenses in 2011 compared to approximately $2,500 in 2010.  Provisions for federal income taxes in 2011 reflected a tax credit of $96,985 compared to a tax expense of  $156,859 in 2010.

Total assets at December 31, 2011 were $130.5 million, an increase of 7.6% from the 2010 year end total of $121.3 million.  Although steady growth was enjoyed throughout the year, the year-end 2011 level is somewhat misleading, as a large deposit of approximately $3 million on December 30, 2011 was only temporary in nature.  Average total assets for 2011 were $124.7 million, compared to $120.9 million for 2010.  The loan loss reserve as a percentage of total loans as of December 31, 2011 was 2.23%, compared to 1.51% at the end of 2010.  Non-performing assets as a percentage of total assets were 1.73% at year end 2011, compared to 0.20% at the end of 2010.  The ratio of net charge-offs to average loans spiked from 0.56% in 2010 to 2.46% in the current year.  The Bank has intensified its aggressive posture toward charging off higher risk loans.  Total securities were $19.0 million at December 31, 2011 compared to $27.0 million a year ago.  Total deposits were $109.6 million at the end of 2011, compared to $100.3 at year-end 2010.  The increase is skewed, however, as discussed above.  FHLB advances totaled $7.5 million as of December 31, 2011 and 2010.  However, the 2011 level includes $2 million in a short-term advance taken in November 2011, maturing January 2012 as a part of the Bank's liquidity stress testing.  Since this extra liquidity was not actually needed, the advance was paid off in January 2012.  Total shareholder equity decreased to $11.8 million from $12.0 million as of the prior year end, reflective of the net loss discussed above.

Bob Bailey took over as President and CEO on July 1, 2011 after the Bill Farinholt's retirement on June 30, 2011.  Mr. Bailey stated, "Although we are disappointed with our loan losses and higher contributions to the loan loss reserve, there were many bright spots in 2011.  We saw solid growth in loans and deposits while expanding our net interest margin and holding the line on non-interest expense, where possible.  Like our peers throughout the region and the country, many of our borrowers have experienced difficulty repaying loans and when we have liquidated collateral, the amount realized from the sale has been lower than anticipated due to declining asset values.  We continue to restructure loans when it is appropriate and feel our increased loan loss reserve will position us to handle the continuing stress of a sluggish economy.  We remain focused on improving the performance of our loan portfolio but expect to be impacted by problem loans in 2012 as well."

The Bank operates three full service retail bank offices, two in Gloucester County, Virginia and one at New Kent County Courthouse, and offers full investment services through its investment division under the name of Colonial Virginia Investment Services.  The Bank also offers mortgage services through Colonial Virginia Mortgage, LLC ("the mortgage company"), a 50% owned subsidiary joint with Johnson Mortgage Company, LLC ("JMC").  The services are offered through the Bank's two banking offices.  JMC is headquartered in Newport News, Virginia.

The Bank's stock is listed for trading on the Over the Counter Bulletin Board (OTCBB) under the symbol CNVB.  Additional information regarding the bank's products and services, as well as access to its regulatory filings, are available on the bank's web site at http://www.colonialvabank.com.

Use of Certain Non-GAAP Financial Measures. In addition to results presented in accordance with United States generally accepted accounting principles (GAAP), this earnings release includes certain non-GAAP financial measures, which are reconciled to their equivalent GAAP financial measures below. Management believes these non-GAAP financial measures provide information useful to investors in understanding the corporation's performance trends and facilitate comparisons with its peers. Specifically, management believes the exclusion of a significant recovery of income recognized in a single accounting period permits a comparison of results for ongoing business operations, and it is on this basis that management internally assesses the corporation's performance and establishes goals for future periods.

Although the corporation's management believes the non-GAAP financial measures presented in this earnings release enhance investors' understandings of its performance, these non-GAAP financial measures should not be considered an alternative to GAAP-basis financial statements.

Forward-Looking Statements. The statements contained in this press release that are not historical facts may constitute "forward-looking statements" as defined by the federal securities laws. These statements may address issues that involve estimates and assumptions made by management; risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the corporation include, but are not limited to, changes in: (1) interest rates, (2) general economic conditions, (3) demand for loan products, (4) the legislative/regulatory climate, (5) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, (6) the quality or composition of the loan or investment portfolios, (7) deposit flows, (8) competition, (9) demand for financial services in the Bank's market area, (10) technology, (11) reliance on third parties for key services, and (12) accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements, which speak only as of their dates.

SOURCE Colonial Virginia Bank