Colonial Virginia Bank Announces Third Quarter 2010 Earnings

GLOUCESTER, Va., Oct. 25 /PRNewswire-FirstCall/ -- Colonial Virginia Bank (OTC Bulletin Board: CNVB) ("the Bank"), today reported net income of $103,343 or $0.17 per share assuming dilution, for the quarter ended September 30, 2010, compared to a net loss of ($41,923) or ($0.07) per share assuming dilution, for the same period in 2009.  The 2010 figure reflects a modest increase of $10,200 in the provision for possible loan loss expense over the 2009 amount.  This increase was prompted by continued caution toward overall economic conditions, even though certain economic indicators for the Bank's primary trade area show slight improvement.  The Bank has experienced moderate increases in problem credits, including actual loan charge offs; however, the charge-offs have been taken in an abundance of caution, with future recovery anticipated ultimately. The Bank continues to consider it prudent to recognize these expenses in the loan loss provision now for the possible need for increased reserves and subsequent charge-offs in the future.  As of September 30, 2010, the Bank had non-performing assets (NPAs) representing 0.09% of total assets, compared to 0.32% at September 30, 2009 and 0.31% June 30, 2010.  The decline in the 2010 figures from 2009 is an indicator that, while the economy continues to be sluggish, the Bank's overall asset quality reflects very manageable problem credits and improving trends may be seen in the near future.  The total Allowance for Loan and Lease Losses (ALLL) at September 30, 2010 represents 1.54% of outstanding loans compared to 1.34% for the same period in 2009.  The current ALLL also represents a comfortable 1049.3 times NPAs compared to 238.2 times September 30, 2009.    

Net interest income for the quarter increased to $1,150,873 from $1,110,111 in the second quarter 2010 and $932,766 in the third quarter of 2009.  The net interest margin for the third quarter 2010 improved to 4.15%; the net interest margin was 4.06% in the quarter ended June 30, 2010 and 3.49% in the third quarter of last year.

The third quarter financial results are the product of several contributing factors.  First, the average yield on earning assets contracted from 5.59% in the second quarter 2010 to 5.55% in the third quarter 2010; similarly, the average rate on interest bearing liabilities declined to 1.59% from 1.66% in the previous quarter.  However, the net interest margin expanded as the composition of the balance sheet evolved such that average earning assets grew to $111.0 million from $109.5 million in the second quarter 2010, while average interest bearing liabilities decreased to $97.3 million from $100.7 million in the previous quarter.  Counteracting the increase in net interest income was a $43,200 increase in the loan loss provision, compared to the second quarter 2010, necessitated by both growth in the loan portfolio and net charge offs.  This combination produced the modest quarter over quarter reduction in overall net income.  

Non-interest income during the third quarter was $200,342 compared to $138,528 in the second quarter 2010 and $98,189 in the third quarter of 2009.  Gains on securities were the primary contributors to the increases, $105,223 for the current quarter compared to $36,395 for the second quarter 2010 and $7,264 for the third quarter 2009.  Total non-interest expenses were $1,077,422 compared to $1,012,915 and $1,003,228 in the second quarter 2010 and third quarter of last year, respectively.  Loan loss provision expenses for the current three month period totaled $116,250 compared to $73,050 in the second quarter 2010 and $106,050 in the third quarter of 2009.  

Total assets as of September 30, 2010 were $118.8 million, a contraction of 4.3% since June 30, 2010 but an increase of 0.3% from September 30, 2009.  Net loans grew 5.7% quarter over quarter and 11.0% year over year to $72.9 million.  Securities totaled $29.2 million at current quarter-end which represents a decrease of 12.3% from June 30, 2010 and a 19.8% decrease from September 30, 2009.  The securities portfolio has experienced calls of several bonds, as well as significant principal paydowns in its mortgage backed sector.  Management elected not to replace these securities in the interest of utilizing this internal liquidity to offset the payout of expensive, undesirable maturing deposits. Total deposits were down 5.2% from the previous quarter but up 1.0% from a year ago to $97.8 million.  The decrease in the current quarter was the result of management's continued effort to reduce interest cost by disciplined pricing and unwillingness to pay rates for deposits which cannot be supported by employment of potential earning assets.  Federal Home Loan Bank advances totaled $7.5 million at both September 30, 2010 and June 30, 2010 compared to $8.5 million at September 30, 2009.  Shareholder equity increased 0.8% from the second quarter 2010 and 2.5% from a year ago to $12.2 million.  

Bill Farinholt, President and CEO, stated, "The current economic environment continues to pose many challenges for community bankers.  Although we have experienced moderate increases in loan charge-offs, we continue to reflect satisfactory asset quality.  Our pricing discipline for funding sources (deposits and borrowings) continues to have a direct positive effect on the net interest margin.  Additionally, restricting balance sheet growth during a period of soft loan demand has allowed us to maintain both satisfactory asset quality and capital ratios.  As loan demand improves, assuming quality applicants, the Bank has the luxury of a liquid bond portfolio to fund loans without excessive leveraging of current capital levels.  A capital raise may, however, be necessary in the future to maintain capital within regulatory requirements."  

The Bank operates three full service retail bank offices, two located in Gloucester County, and one in New Kent County, Virginia 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 three 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. 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 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 regarding risks and uncertainties.  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