Colonial Virginia Bank Announces 2nd Quarter 2011 Earnings

GLOUCESTER, Va., July 28, 2011 /PRNewswire/ -- Colonial Virginia Bank (OTCBB: CNVB) ("the Bank"), today reported net income before taxes of $78,861 and $68,361 after taxes, or $0.11 per share assuming dilution, for the quarter ended June 30, 2011, compared with pre-tax net income of $162,674 and $111,974 after taxes, or $0.18 per share assuming dilution, for the same period in 2010.  Return on average assets was 0.24% for the current quarter compared to 0.37% for the quarter ended June 30, 2010, while return on average equity was 2.45% and 3.79%, respectively, for the same periods.

The decline in the current quarter was due primarily to an escalation in loan charge-offs during the current quarter ($203,337 in the current quarter compared to $6,072 for the same period in 2010), precipitating provisions for loan loss expense of $181,350 for the quarter ended June 30, 2011, compared to $73,050 for the quarter ended June 30, 2010.  Despite the increased charge-offs, the allowance for loan and lease losses ("ALLL") represents 1.54% of gross loans and is considered adequate for loss risk embedded in the portfolio.  The increased loan loss provision expense was offset partially by gains on sales and calls of securities, which totaled $63,393 in the most recent quarter, an increase of $26,998 from gains on sales and calls of securities of $36,395 for the three months ended June 30, 2010.  The Bank continues to rely substantially on net interest income (interest income on loans and investments minus interest expense on deposits and other borrowings) for operating profits.  The Bank has utilized disciplined pricing practices to reduce overall funding costs over the past year which resulted in net interest income increasing from $1,110,111 for the quarter ended June 30, 2010 to $1,194,170 for the same period in 2011.  The improvement in net interest income is also reflected in the net interest margin ("NIM") (interest income minus interest expense expressed as a percentage of average earning assets).  The NIM improved to 4.36% for the quarter ended June 30, 2011, up from 4.06% for the quarter ended June 30, 2010.

Non-interest income for the second quarter 2011 of $195,612 represented a 41.21% increase over the $138,528 level for the same period in 2010, bolstered by the increase in gains on securities of $26,998, discussed above.  The Bank continues its practice of not actively selling securities, but has taken advantage of certain circumstances within the market when gains were particularly advantageous and loan demand warranted additional liquidity.  Additional non-interest income was provided by an increase of $25,539 in earnings through increases on the cash value of Bank owned life insurance.  Non-interest expense reflected an increase of $116,656, or 11.52%.  This was due, primarily, to the employment on September 1, 2010 of the successor to the Bank's CEO, William Farinholt, who retired June 30, 2011.  

Total assets were $125.9 million as of June 30, 2011, which represents growth of 1.40% from June 30, 2010.  Management's focus over the past year continued to be on improving margins, managing credit quality, and exercising prudence in the nature and quantity of growth.  Total securities as of the most recent quarter-end declined 41.69% since June 30, 2010 to $20.0 million.  Net loans grew to $81.1 million as of June 30, 2011, an increase of 17.48% from the same period one year ago.  The Bank enjoyed moderate increases in loan demand over the past year and elected to provide primary funding from sales and routine cash flows from the securities portfolio.  This internally generated liquidity was preferred over raising additional high cost deposits and contributed to the improved NIM discussed above. Total deposits expanded 3.51% since June 2010 to $106.8 million.  The philosophy of controlled growth included reducing borrowings through the use of excess liquidity.  FHLB advances declined to $5.5 million at June 30, 2011 compared to $7.5 million as of June 30, 2010.  Total capital increased to $12,168,250 or 0.17%, from June 30, 2010.  However, as a percentage of total assets, total capital declined slightly due to asset growth and represented 9.67% of total assets at June 30, 2011, compared to 9.78% at June 30, 2010.

Non-performing assets ("NPAs"), as a percentage of total assets as of June 30, 2011, expanded to 1.99% compared to 0.31% at June 30, 2010.  While this amount is disappointing, at this time potential losses are considered manageable and adequately covered by the Bank's ALLL.  The Bank's current level of NPAs compares favorably to the banking industry which continues to operate in the midst of a lingering and fragile economy.  The number of individual NPAs is also small relative to the total number of loans outstanding.  One residential development loan accounts for 59% of the Bank's total NPAs.  Changes in regulatory reporting now require banks to report specific levels of Troubled Debt Restructurings ("TDRs").  The Bank reported TDRs totaling $2.2 million as of June 30, 2011, represented by four loans.  Generally a TDR is a loan in which the creditor, for economic or legal reasons related to a borrower's financial difficulties, grants a concession to the borrower that would not otherwise be considered.

President and CEO Bob Bailey commented, "Unfortunately, we are experiencing an increased number of borrowers defaulting on loans.  We are diligently working through these situations and doing what we can to realize as much as possible from the collateral in a very soft market.  Our peers are experiencing similar credit quality challenges and we are not immune to the negative effects of economic weakness.  Every possible step will be taken to reduce the effects of deteriorating quality in the loan portfolio.  Loan monitoring continues to be the Bank's highest priority, with greater stratification of portfolio analysis.  We will continue to build the loan loss reserve in anticipation of future loan losses."  Bailey further stated, "The negative impact on earnings from increased NPAs and charge-offs is disappointing, but in line with what banks have experienced throughout the country the last few years.  We will aggressively manage the risk identification process, loan by loan, and expect to emerge from this cycle stronger.  Our Bank continues to meet regulatory standards as 'well capitalized' and capital levels represent adequate safety against economic shocks and support for moderate balance sheet growth."  

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