Colonial Virginia Bank Announces Third Quarter 2012 Earnings

GLOUCESTER, Va., Oct. 31, 2012 /PRNewswire/ -- Colonial Virginia Bank (OTCBB: CNVB) ("the Bank"), today reported net income of $100,598, or $0.16 per share assuming dilution, for the quarter ended September 30, 2012, compared to net income of $79,443, or $0.13 per share assuming dilution, for the same period in 2011.  The increased earnings (26.6%) were encouraging, especially in the face of a continuing fragile economy.  Despite political commentary concerning the health of the economy, many of the Bank's customers continue to express concern over general economic health and expansion of their respective business operations.  Net interest income for the third quarter 2012 declined to $1,147,539 from $1,269,172 in the third quarter 2011 and $1,194,447 in the second quarter 2012.  The decline was due primarily to moderate shrinkage of the earning asset base, combined with declining rates in the bond market and an increase in non-accrual loans.  In addition, the net interest margin for the third quarter 2012 also declined from 4.51% and 4.34% as of September 30, 2011 and June 30, 2012, respectively, to 4.22% as of September 30, 2012.

The 2012 net income figure reflects a significant decrease ($288,300) in the provision for possible loan loss expense over the same period in 2011.  This decrease is the result of aggressive identification of potential problem assets in 2010, 2011 and the first quarter of 2012.  This aggressive and conservative approach has enabled the Bank to establish an appropriate reserve for future potential losses and stabilize the provision expense.  The total Allowance for Loan and Lease Losses ("ALLL") at September 30, 2012 represents 2.68% of outstanding loans, compared to 1.67% and 2.64% for the quarters ended September 30, 2011 and June 30, 2012, respectively.  As of September 30, 2012, the Bank had non-performing assets ("NPAs") representing 2.72% of total assets, compared to 1.79% at September 30, 2011 and 2.39% at June 30, 2012.  These gradual, but manageable increases are the primary impetus for the increase in the total ALLL reserve. 

Non-interest income during the third quarter of 2012 totaled $82,818 compared to $231,579 in the third quarter of 2011 and $84,664 in the second quarter of 2012.  Gains on securities (sold or called) were the major contributor to the third quarter 2011 level.  Non-interest expense totaled $1,020,009 for quarter-ended September 30, 2012, compared to $1,041,058 for the same quarter in 2011 and $978,707 for the quarter ended June 30, 2012. 

Total assets as of September 30, 2012 were $121.3 million, compared to $126.5 million at September 30, 2011 and $122.9 million at June 30, 2012.  Due to continued regulatory attention to general banking capital, particularly community banks, the Bank has purposefully managed the overall balance sheet (both size and composition) toward capital ratio management.  Therefore, asset growth, in and of itself, is not a current strategic direction being pursued by the Bank, but rather quality of assets and risk based nature of those assets.  Total loans, before reserves, shrunk to $80.1 million at September 30, 2012, down from $83.4 million for the same period in 2011 and up slightly from the $80.0 million at June 30, 2012.  Underwriting practices continue to be focused on overall quality, cash flow analysis and collateral to insure satisfactory repayment expectations. Securities totaled $17.2 million at the current quarter end, a decline of 18.9% and 11.8% for the quarters ended September 30, 2011 and June 30, 2012, respectively.  Total deposits decreased from $107.4 million and $108.1 million at September 30, 2011 and June 30, 2012, respectively, to $106.3 million at the September 30, 2012.  In May 2012, the Bank announced its intention to close its New Kent office.  The office was closed September 7, 2012.  At the time of the announcement, total deposits in the New Kent office were $4.6 million.  It was anticipated that the majority of these deposits might be withdrawn.  As of September 30, 2012, total deposits were $1.6 million, significantly contributing to the overall deposit decline.  Total advances from the Federal Home Loan Bank ("FHLB") were reduced from the $5.5 million level of September 30, 2011, to $1.5 million September 30, 2012 and June 30, 2012, respectively.  While the Bank continues to consider the FHLB a viable source of liquidity when needed, the ongoing management of balance sheet capital ratios has resulted in more selective utilization of these funds relative to asset funding needs.  Shareholders' equity of $11.8 million at September 30, 2012, reflected a 3.69% decline from September 30, 2011, due primarily to the substantial increase in provisions for loan losses in the fourth quarter of 2011 and first quarter of 2012.  However, the current level reflected a 1.22% increase from the most recent quarter ended June 30, 2012. 

Bob Bailey, President and CEO, stated, "We, unfortunately, continue to feel the impact from borrowers who can no longer pay their agreed upon loan payments.  This has led to restructuring in some cases and foreclosure or charge-offs in other cases.  At this time, we have two OREO ("Other Real Estate Owned") properties, one of which is under contract and scheduled to close by year-end.  However, we anticipate a few new additions in the coming weeks.  Our focus continues to be reducing non-accrual loan balances and improving the Bank's overall risk profile.  We are cautiously optimistic about the stability of our earnings going forward as we begin to see the financial benefit of the New Kent branch office closing, while continuing to live with the negative effects of problem loans."

He added, "It appears real estate values and the regional economy have stabilized but we are concerned about the damaging effects potential cuts in defense spending could have throughout the Hampton Roads area.  This uncertainty appears to be the biggest issue regarding the future success of our local economy.  We are not planning for a return to pre-2009 levels, but are hopeful there will be no steps backward from the current environment."

The Bank operates two full service retail bank offices, located in Gloucester County, and a Loan Production Office in York County, Virginia.  The Bank 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. 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