Colonial Virginia Bank Announces 2nd Quarter 2010 Earnings

GLOUCESTER, Va., July 27 /PRNewswire-FirstCall/ -- Colonial Virginia Bank (OTC Bulletin Board: CNVB) ("the Bank"), today reported net income before taxes of $162,674 and $111,974 after taxes, or $0.18 per share assuming dilution, for the quarter ended June 30, 2010, compared with a net loss before taxes of ($297,248) and ($185,348) after taxes, or ($0.30) per share assuming dilution, for the same period in 2009.  Return on average assets was 0.37% for the current quarter compared to (0.64%) for the quarter ended June 30, 2009, while return on average equity was 3.79% and (6.12%) for the same periods.

Significant factors in the improvement year over year are (1) an improving net interest margin ("NIM") (interest income less interest expense expressed as a percentage of average earning assets) and (2) reduced provision for potential loan loss expense.  The Bank relies primarily on net interest income (interest income on loans and investment minus interest expense on deposits) for its overall net income.  Net interest income for the quarter-ended June 30, 2010 was $1,110,111 compared to $851,809 for the same period in 2009, a 30.32% increase.  The NIM increased from 3.30% June 30, 2009 to 4.06% June 30, 2010.  In the current level rate environment that has existed for more than twelve months, the Bank has been able to steadily reduce its cost of funds through disciplined re-pricing practices of maturing certificates of deposit ("CDs") which originated during higher interest rate periods.  Secondly, the Bank expensed $73,050 for provision for possible loan losses during the current quarter compared to $272,050 for the second quarter 2009.  The 2009 figure represented Management's actions in an abundance of caution at the height of the American economic meltdown.  The Bank built its reserves to a more comfortable level in 2009, based on deteriorating economic factors.  The Bank actually reflected a decrease in net charge-offs as a percentage of average total loans, 0.01% June 30, 2010 compared to 0.11% June 30 2009.  Thus, the provision expense over the past twelve months bolstered the Allowance for Loan and Lease Losses ("ALLL") to 1.64% of gross loans June 30, 2010, compared to 1.27% for the same period in 2009.

Non-interest income for the second quarter 2010 of $138,528 represented a 40.11% increase over the $98,873 level for the same period in 2009, bolstered by net gains on securities of $36,395 in the current quarter compared to $0 for the second quarter of 2009.  These gains were recognized through sales and calls, prior to maturity, of securities originally purchased at a discount.  The Bank does not actively practice selling securities, but has taken advantage of certain circumstances within the market when gains were particularly advantageous.  Non-interest expense reflected a modest 3.80% increase for the second quarter 2010 compared to the same period in 2009, increasing from $975,880 in 2009 to $1,012,915 for the current quarter, as Management intensified its cost control practices.  

The Bank's balance sheet reflected modest shrinkage as Management focused more on margins and efficiency characteristics rather than growth.  Higher priced CDs and other expensive funding instruments were allowed to mature without being renewed as part of the disciplined pricing strategies discussed above.  Total assets were $124.2 million at June 30, 2010, compared to $125.3 million at December 31, 2009.   Net loans of $69.0 million compared favorably to $65.1 million December 31, 2009.  With more restrictive underwriting standards associated with the weaker economy and current regulatory environment, the increase in loans was considered favorable.  Total deposits for the current quarter-end totaled $103.2 million compared to $105.9 million at December 31, 2009.  Although the decline in total deposits was minimal, the mix reflected more significant changes. Non-interest bearing deposits increased from $9.7 million December 31, 2009 to $12.2 million for the current quarter-end, while CDs decreased from $61.5 million at year-end 2009 to $57.9 million June 30, 2010.

Non-performing assets ("NPAs") as a percentage of total assets as of June 30, 2010, were 0.31% compared to 0.38% at June 30, 2009, an encouraging trend even while the economy continues to be sluggish.  The Bank's current level of NPAs is considered manageable and well within the levels of the banking industry.  The strong, current ALLL position of the Bank, discussed above, has the Bank well positioned for any potential need of additional "shock absorbency" from continued declines in the economy.  

Bill Farinholt, President and CEO, stated, "Our Bank has weathered the worst of the economic storm, even while many banks continue to struggle with disturbing negative trends.  Much uncertainty lingers for the financial sector, especially in the regulatory realm.  There continues to be inconsistent messages coming from Congress versus bank regulatory authorities.  This adds considerable complexity to any bank's strategic planning when coupled with the volatile economy.  However, we believe that our Bank is well positioned to be responsive to either extended economic weaknesses or a possible upturn in the near future."  Mr. Farinholt further stated that, "with the current level of our ALLL, in light of the level of NPAs, future stress on earnings should be minimal.  We are monitoring all of our existing borrowers carefully to determine their respective exposures to the economic downturn.  Where problem borrowers may exist, definitive action plans have been formulated for effective exit strategies.  Our Bank continues to be well capitalized with sound asset quality and strong liquidity."  

The Bank operates three full service retail bank offices, two located in Gloucester County, Virginia and one in New Kent County, Virginia and offers full investment services through its investment division, 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 Bank's stock is listed for trading on the Over the Counter Bulletin Board (OTCBB) under the symbol CNVB. The bank's primary market maker is Davenport & Company LLC, Richmond, VA.

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 Bank'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 Bank's performance and establishes goals for future periods.

Although the Bank'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 Bank 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