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Colonial Virginia Bank Announces 1st Quarter 2012 Operating Results

25th April, 2012

GLOUCESTER, Va., April 25, 2012 -- Colonial Virginia Bank (OTCBB: CNVB) ("the Bank"), today reported a net operating loss of ($151,977), or ($0.25) per share assuming dilution, for the quarter ended March 31, 2012, compared to net income of $127,891, or $0.21 per share assuming dilution, for the same period in 2011. Return on average assets was (0.46%) for the current quarter compared to 0.44% for March 31, 2011. The decline was predominantly due to the continued recognition of write-downs in problem asset values, foreclosed properties and impaired loans, discussed further below.

The Bank relies primarily on net interest income (interest income on loans and investment minus interest expense on deposits) for its overall net income. Net interest income for the quarter-ended March 31, 2012 was $1,202,696, compared to $1,206,368 for the same period in 2011. The Bank has systematically sold securities over the past several quarters in an effort to capitalize on gains in its portfolio and to reduce its exposure to holdings of certain sectors of the bond market. Specifically, the Bank reduced its holdings of the Government Sponsored Enterprises ("GSEs") Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac"). While these sales reduced potential credit risk, the yield on re-invested funds was reduced, resulting in the reduced net interest income. However, the Bank continues its aggressive posture of reducing its cost of funds, specifically interest bearing deposits. The average rate on interest-bearing liabilities during the first quarter of this year was 0.89%, reflecting continued reduction from an average rate of 1.26% for the same period last year. Average yield on earning assets reflected a decrease from 5.55% at March 31, 2011 to 5.06% at March 31, 2012, due primarily to the decreased yield in the bond portfolio.

Non-interest income (loss) for the quarter ended March 31, 2012 was ($243,199), compared to $221,747 in the same period in 2011. The current quarter reflected gains on the sale of securities of $980 compared to $121,100 for the same period in 2011. Non-interest expenses decreased to $1,045,849 this quarter from $1,100,374 in the first quarter of 2011. Reduced personnel expense accounted for the majority of this decrease ($85,944), reflecting a drop in the number of full-time equivalent employees ("FTEs") when compared to the first quarter of 2011. The savings was partially offset by non-performing asset expenses totaling approximately $51,000. Expense provisions for potential loan losses for the current quarter were $162,625 compared to $151,350 for the same period last year. Although the loan loss provision expense increase was modest, expense for write-downs associated with foreclosed properties of $352,032 represented the primary drain on non-interest income and total net earnings for the current quarter. The Bank recorded no such write-downs in the first quarter of 2011. The allowance for loan and lease losses ("ALLL") was $2,125,706 (2.57% of total loans) as of March 31, 2012, compared to $2,172,370 (2.65% of total loans) at December 31, 2011 and $1,288,336 (1.61% of total loans) at March 31, 2011. Non-performing assets continue to occupy much of management's attention, representing 2.25% of total assets March 31, 2012, compared to 1.74% December 31, 2011 and 0.45% March 31, 2011. The provision for income taxes totaled ($97,000) in the first quarter of this year and $48,500 in the first quarter of 2011.

Asset growth remained relatively flat as reflected by the total of $125.6 million as of March 31, 2012, compared $123.0 million at March 31, 2011. Assets had spiked to $130.3 million at December 31, 2011, due to a large deposit the last week of the year, which was withdrawn early in January as originally indicated by the customer. Additionally, the Bank had placed short-term borrowings on its books in the fourth quarter of 2011 as part of its liquidity planning and stress testing. These funds were repaid in the first quarter 2012, reducing the size of the balance sheet. Total loans, before ALLL reserves, at current quarter-end were $82.6 million, representing increases of 0.62% and 3.66% over $82.1 million and $79.7 million reported December 31, 2011 and March 31, 2011, respectively. Current quarter-end securities totaled $19.4 million compared to $19.0 million at year-end 2011 and $22.8 million at March 31, 2011. Total deposits were $108.6 million at March 31, 2012 compared to $109.6 million and $103.9 million at December 31, 2011 and March 31, 2011, respectively. Total shareholder equity was $11.4 million at current quarter-end; this compares to $11.5 million at year-end 2011 and $12.0 million at March 31, 2011, still a comfortable level to support current operations.

Bob Bailey, President and CEO, stated, "our Bank continues to identify, prudently manage, and reserve for or write-down, as necessary, problem assets as they arise. We have experienced deteriorating credit quality among individual borrowers, all of which live and work in the communities we serve. As a result, the current quarter reflected net loan charge-offs of approximately $210,000 and an asset write-down of $200,000 on one other real estate owned ("OREO") property in New Kent County. The charge-off figure compares favorably to fourth quarter 2011 net charge-offs of approximately $510,000 as the Bank aggressively recognized losses prior to year-end. We are confident that our approach to credit risk management is appropriate given our circumstances and that it will reflect long-term benefits. While it is true that credit underwriting standards have justifiably stiffened due to economic stress, our Bank is committed to both sound lending and responsive community partnership. Some media coverage continues to state that banks are not lending like they used to, but our volume of loans outstanding has increased over the last year. We believe we can balance the two priorities and return value to our shareholders over the long run."

The Bank operates three full service retail bank offices, two in Gloucester County, Virginia, and a third at New Kent courthouse. The Bank offers full investment services through its investment division under the name of Colonial Virginia Investment Services and 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.

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; 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 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.

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Related:  Community Banking - Virginia Bank

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