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Colonial Virginia Bank Announces 2nd Quarter 2013 Earnings

GLOUCESTER, Va., July 31, 2013 (GLOBE NEWSWIRE) -- Colonial Virginia Bank (OTCBB:CNVB) ("the Bank"), today reported net income before taxes of $161,622 and $121,452 after taxes, or $0.20 per share assuming dilution, for the quarter ended June 30, 2013, compared to pre-tax net income of $254,954 and $183,734 after taxes, or $0.30 per share assuming dilution, for the same period in 2012. Return on average assets ("ROA") was 0.44% (annualized) for the current quarter compared to 0.61% for the quarter ended June 30, 2012, while return on average equity ("ROE") was 4.26% and 6.58%, respectively, for the same periods. Equally noteworthy to the year over year quarterly comparisons are those for the previous quarter ended March 31, 2013. The first quarter 2013 reflected net income before and after tax of $232,606 and $164,506, respectively. The March 31, 2013 per share earnings were $0.27 with corresponding ROA and ROE of 0.59% and 5.79%, respectively.

Current period earnings reflected a reduction in net interest income, attributable to both market and balance sheet trends negatively impacting interest income. Notably, there has been a continued decline in earning asset yields resulting from new loan originations and investments typically having lower yields due to the persistently low market rates. The average tax equivalent yield of the securities portfolio in the June 2013 quarter was 1.91% compared to 2.15% in the March 2013 quarter. Likewise, the average loan yield declined to 5.98% for the most recent quarter from 6.09% in the first quarter, though effective loan yields were also hampered by elevated levels of non-accruals. Also contributing to suppressed asset yields was the contraction in outstanding loan balances precipitated by lackluster demand for credit as well as repayments and charge-offs of existing loans. Average outstanding loans, net of deferred loan fees, in the second quarter totaled $75.3 million compared to $78.2 million in the previous quarter; this decrease was largely supplanted by additional securities purchases at significantly lower yields. The net effect of these trends was a decline in average earning asset yield to 4.77% from 4.93% in the first quarter 2013. Finally, the costs associated with troubled assets continued to hinder earnings. Total non-performing asset expenses in the current quarter were $98,857 compared to $51,294 for the second quarter 2012 and $58,277 in the first quarter 2013.

Non-interest income for the quarter ended June 30, 2013 totaled $126,398 which compares to $106,217 for the previous quarter and $84,664 for the second quarter 2012. Total non-interest expense for the second quarter 2013 was $993,235 which compares to $941,301 in the first quarter 2013 and $978,707 in the second quarter 2012. Loan loss provisions for the quarter were $35,000 which compares to $35,000 and $45,450 for the first quarter 2013 and the second quarter 2012, respectively. Due to substantial charge-offs in the June 2013 quarter, the reserve for loan loss as a percentage of gross loans fell to 2.18% from 2.59% in March 2013 and 2.64% in June 2012. The level of non-performing assets declined somewhat to 4.36% of total assets from 4.63% at March 31, 2013, but it is still significantly elevated from 2.39% a year ago. Provisions for federal income taxes for the quarter totaled $40,170 which compares to $68,100 in the first quarter 2013 and $71,220 for the second quarter 2012.

Total assets as of June 30, 2013 were $114.6 million which exhibits a decrease of 2.8% during the quarter and 6.7% since June 2012. Total securities increased 11.7% from March 2013, but declined 1.6% from June 2012 to $19.2 million. Gross loans of $74.7 million reflect reductions of 3.4% for the quarter and 6.8% from June 2012. Total deposits decreased 3.0% quarter over quarter and 7.9% year over year to $99.5 million. FHLB borrowings at quarter end were $1.5 million, unchanged from March 2013 and June 2012. Total capital at June 30, 2013 experienced an increase of 2.4% from June 2012 to $11.9 million and represented a slight decline of 0.7% from March 2013. The modest decline from March was associated primarily with a decline in unrealized gains in available for sale (AFS) securities, associated with rising yields which prompted lower prices in the bond market in general.

Non-performing assets ("NPAs") as a percentage of total assets, increased from 2.39% at June 30, 2012 to 4.36% at June 30, 2013. While this amount is disappointing, potential losses are considered manageable at this time and they are supported through adequate reserves in the Bank's allowance for loan losses ("ALLL"). The ALLL continues to represent more than 2% of gross loans (2.18% at June 30, 2013 compared to 2.64% at June 30, 2012). Net charge-offs increased to 2.20% of total loans, compared to 0.29% at June 30, 2012. Although the increase was material, reserves previously established adequately absorbed the net charge-offs. Thus, while loan workouts may continue to require management's attention in the near term, additional provisions for loss expense to support the ALLL are expected to be less than that of the previous twelve months.

CEO Bob Bailey commented, "Despite a declining net interest margin and continuing expenses related to problem loans, we were able to post another solid quarterly profit. Our net interest margin remains under pressure as mature, higher rate loans are repaid or refinanced and replaced with loans made in today's lower rate environment. This quarter, we experienced significant legal expenses and asset write-downs related to our non-performing assets but we are optimistic these strategies position us for better performance in the future. While the information above indicates that earnings for the first two quarters of 2013 were each down from the second quarter of 2012, it is important to note that year-to-date earnings for 2013 totaled $285,958, an increase of 800% over year-to-date earnings for the first six months of 2012 of $31,757. This is encouraging and reflective of continued recovery of general economic stresses within problem asset management. The competitive, regulatory, and economic environments still present stiff challenges, but we are adding new customers every week and have been working diligently to improve overall credit quality. We are excited about celebrating our 10 year anniversary in November."

The Bank operates two full service retail bank offices located in Gloucester County, Virginia. As previously disclosed, an office in New Kent County was closed September 7, 2012. This closure has affected financial results considered in this release, including deposit reduction and income / expense fluctuations. The Bank also operates a Loan Production Office (LPO) in York County, where property has been purchased for a future full service branch. The Bank offers investment services through a non-ownership arrangement with Lions Bridge Financial, offering a full array of investment services and financial planning.

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.

Balance Sheet ($) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (%) 2013 Q1 Ch (%)
Loans Held for Investment, before Reserves 74,504,898 79,974,142 (6.84) 77,105,184 (3.37)
Loan Loss Reserve 1,625,596 2,112,408 (23.05) 2,002,226 (18.81)
Net Loans Receivable 72,879,302 77,861,734 (6.40) 75,102,959 (2.96)
Total Assets 114,614,980 122,855,970 (6.71) 117,857,701 (2.75)
Deposits 99,546,977 108,075,571 (7.89) 102,586,670 (2.96)
Common Equity 11,893,904 11,620,160 2.36 11,975,031 (0.68)
Total Shareholders' Equity 11,893,904 11,620,160 2.36 11,975,031 (0.68)
Shares Outstanding (actual) 610,175 610,175 0.00 610,175 0.00
Income Statement ($) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (%) 2013 Q1 Ch (%)
Net Interest Income 1,063,459 1,194,447 (10.97) 1,102,690 (3.56)
Provision for Loan Losses 35,000 45,450 (22.99) 35,000 --
Noninterest Income 126,398 84,664 49.29 106,217 19.00
Noninterest Expense 993,235 978,707 1.48 941,301 5.52
Net Income Before Taxes 161,622 254,954 (36.61) 232,606 (30.52)
Income Tax Provision 40,170 71,220 (43.60) 68,100 (41.01)
Net Income 121,452 183,734 (33.90) 164,506 (26.17)
Per Share Items ($) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (%) 2013 Q1 Ch (%)
Book Value Per Share 19.49 19.04 2.36 19.63 (0.68)
Diluted Earnings Per Share 0.20 0.30 (33.33) 0.27 (25.93)
Dividends Declared 0.00 0.00 -- 0.00 --
Performance Ratios (%)* Y-Y Q-Q
2013 Q2 2012 Q2 Ch (bp) 2013 Q1 Ch (bp)
ROAA 0.44 0.61 (17) 0.59 (15)
ROAE 4.26 6.58 (232) 5.79 (153)
Net Interest Margin 4.20 4.34 (14) 4.33 (13)
Loans / Deposits 74.84 74.00 84 75.16 (32)
Efficiency Ratio 74.73 75.21 (48) 72.66 207
Balance Sheet Ratios (%) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (bp) 2013 Q1 Ch (bp)
Tangible Equity / Tangible Assets 10.38 9.46 92 10.16 22
Equity / Assets 10.38 9.46 92 10.16 22
Asset Quality Ratios (%) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (bp) 2013 Q1 Ch (bp)
Nonperforming Assets / Assets 4.36 2.39 197 4.63 (27)
Loan Loss Reserves / Gross Loans 2.18 2.64 (46) 2.59 (41)
Loan Loss Reserves / Nonperforming Loans 47.50 98.34 (5,084) 60.60 (1,310)
Net Charge-offs / Avg Loans 2.20 0.29 191 0.58 162
Regulatory Capital Ratios (%) Y-Y Q-Q
2013 Q2 2012 Q2 Ch (bp) 2013 Q1 Ch (bp)
Tier 1 Capital Ratio 14.80 13.25 155 14.22 58
*Performance Ratios are calculated on a fully taxable equivalent basis assuming a federal tax rate of 34%.

CONTACT: Kenneth E. Smith Executive Vice President & CFO of Colonial Virginia Bank 1-804-695-9300Source:Colonial Virginia Bank