Colonial Virginia Bank Announces Third Quarter 2011 Earnings

GLOUCESTER, Va., Oct. 31, 2011 /PRNewswire/ -- Colonial Virginia Bank (OTCBB: CNVB) ("the Bank"), today reported net income of $79,443, or $0.13 per share assuming dilution, for the quarter ended September 30, 2011, compared to net income of $103,343, or $0.17 per share assuming dilution, for the same period in 2010.  Although the decreased earnings were disappointing, certain components of operating earnings showed impressive improvement.   Net interest income for the third quarter 2011 increased to $1,269,172 from $1,150,873 in the third quarter 2010 and $1,194,170 in the second quarter 2011.  The net interest margin for the third quarter 2011 improved to 4.51%, up from 4.15% for the quarter ended September 30, 2010 and 4.36% in the second quarter 2011.

The 2011 net income figure also reflects a significant increase of $247,300 in the provision for possible loan loss expense over the same period in 2010 amount ($363,550 compared to $116,250).  This increase was prompted by growth in the level of potential loss in the Bank's analysis of impaired loans (defined as loans on which repayment has not been or is not expected to continue according to the original terms).  The Bank has experienced an increase in problem credits, including actual loan charge offs.  As of September 30, 2011, the Bank had non-performing assets ("NPAs") representing 1.79% of total assets, compared to 0.09% at September 30, 2010 and 1.99% at June 30, 2011.  The total Allowance for Loan and Lease Losses ("ALLL") at September 30, 2010 represents 1.67% of outstanding loans compared to 1.54% for the quarters ended September 30, 2010 and June 30, 2011, respectively.  The current ALLL is currently 560.22 times non-performing loans (defined as non-accrual loans), compared to 1049.03 times at September 30, 2010.

Non-interest income during the third quarter 2011 totaled $231,579 compared to $200,342 in the third quarter 2010 and $195,612 in the second quarter of 2011.  Gains on securities continue to be a major contributor to non-interest income, totaling $98,610 for the current quarter, compared to $105,223 for the third quarter 2010 and $63,393 for the second quarter 2011.  Non-interest expense totaled $1,041,058 for quarter-ended September 30, 2011, compared to $1,077,422 for the same quarter 2010 and $1,129,571 for the quarter ended June 30, 2011.  In anticipation of the June 30, 2011 retirement of the Bank's previous CEO, Bill Farinholt, the Bank hired his replacement (Bob Bailey) on September 1, 2010.  Thus, salary and benefit expenses associated with this transition (including quarters of duplication between September 1, 2010 and June 30, 2011, and the reduction in the most recent quarter) are reflected in the fluctuations in total non-interest expense.

Total assets as of September 30, 2011 were $126.5 million, an impressive expansion from the $118.8 million at September 30, 2010 and a modest increase from $125.9 million at June 30, 2011.  Net loans grew to $82.0 million at September 30, 2011, up from $72.9 million for the same period in 2010 and up slightly from the $81.1 million at June 30, 2011.  Securities totaled $21.2 million at the current quarter end, compared to $20.0 million at June 30, 2011 and $30.2 million at September 30, 2010.  The securities portfolio has experienced calls and maturities of several bonds, as well as significant principal paydowns in its mortgage backed sector.  Management has selectively sold bonds over the past two years to both capture temporary gains and generate internal liquidity to offset the payout of expensive, undesirable maturing deposits and to fund desirable loans.  Total deposits increased from $97.8 million at September 30, 2010 to $107.4 million at the September 30, 2011.  The current level represents a modest increase from the previous quarter total of $106.8 million.  At September 30, 2011, Federal Home Loan Bank advances remained level from the June 30, 2011 total of $5.5 million, down from $7.5 million at September 30, 2010.  Shareholders' equity of $12.2 at September 30, 2011, reflected a 0.21% decline from September 30, 2010, due to a decrease in other comprehensive income of approximately $0.4 million, associated with reduced unrealized gains on securities available for sale.  This reduction was the combined result of changing conditions in market yields and the selling or maturing of bonds previously reflecting unrealized gains.  

Bob Bailey, President and CEO, stated, "we, unfortunately, are feeling the impact from an increasing number of borrowers who can no longer pay their agreed upon loan payments as scheduled.  This has led to restructuring in some cases and/or foreclosure in other cases.  In some instances, loans are being restructured to match the borrower's anticipated cash flow and often involve additional collateral.  During the third quarter 2011, the Bank foreclosed on real estate in New Kent County securing one of our largest loans and we are in the process of obtaining a new appraisal and developing a plan to market the property.  On a positive note, one of the Bank's "other real estate owned" properties ("OREO") is under contract and is scheduled to close in the coming weeks.  

Whenever possible, one of our strategies is to work with our borrowers who are experiencing difficult financial circumstances to modify their loan during this challenging economic environment.  It is difficult to forecast the exact outcome of each loan, but we plan to continue to build the loan loss reserve in anticipation of little or no improvement in the economy.

The Bank's loan, deposit and net interest margin increases over the last year are very encouraging, but we remain cautious about improved earnings because of the need to use operating earnings to fund additions to the loan loss reserve.  There was a time when it appeared our Bank might avoid some of the higher than usual credit losses experienced by our banking peers in Hampton Roads and elsewhere throughout Virginia; however, this is no longer the case."

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