1. 2008 ANNUAL REPORT A Cohesive Vision. Solid Relationships.
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2. Welcome home.
Our mission is to exceed the expectations of every customer, every time!
Table of Contents
Selected Financial Data ....................................................................................................................1
Letter to Shareholders ......................................................................................................................2
Stockholder and Investor Information ...........................................................................................4
Management’s Report on Internal Control Over Financial Reporting .......................................5
Report of Independent Registered Public Accounting Firm .......................................................6
Balance Sheets...................................................................................................................................7
Statements of Operations ................................................................................................................8
Statements of Changes in Stockholders’ Equity..........................................................................9
Statements of Cash Flows............................................................................................................. 10
Notes to Financial Statements .....................................................................................................11
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3. SELECTED FINANCIAL DATA
At December 31, Total Deposits
($ amounts in millions)
(Amounts in thousands, except per share data) 2005 2006 2007 2008
200
Balance Sheet Summary (at end of period): 171
155
Loans, net of unearned income $ 53,543 $ 98,015 $ 132,082 $ 152,962 150
Allowance for loans losses 547 931 1,277 2,942 111
Securities 19,579 23,924 37,641 41,009 100
Total assets 85,698 134,295 184,009 203,711 66
50
Deposits 65,955 111,474 154,885 171,011
Other indebtedness 2,500 5,000 10,000 15,176 0
2005 20
2006 20 2008
006 2007 20
007 008
Total liabilities 68,799 117,233 166,004 187,396
Stockholders’ equity 16,899 17,062 18,004 16,316
Loans Outstanding
($ amounts in millions)
Summary of Earnings:
Total interest income $ 3,114 $ 7,462 $ 11,381 $ 12,427 200
Total interest expense 1,185 3,538 6,189 6,966 153
150 132
Provision for loan losses 464 384 346 1,764
Non-interest income (loss) (22) 157 220 533 100 98
Non-interest expense 3,277 3,598 4,559 5,545
53
Income (loss) before income taxes (1,834) 99 506 (1,315) 50
Income tax expense _ _ _ _
0
Net income (loss) (1,834) 99 506 (1,315) 2005 20
2006 2007 2008
006 2007 20
008
Per Share Data:
Basic earnings (loss) per share $ (1.07) $ 0.03 $ 0.17 $ (0.43) Total Assets
($ amounts in millions)
Diluted earning (loss) per common share (1.07) 0.03 0.17 (0.43) 204
200
Book value at year-end 5.57 5.63 5.94 5.38 184
150
134
Selected Ratio:
Return on average assets (3.34)% 0.09% 0.32% (0.66)% 100 86
Return on average equity (21.99)% 0.59% 2.92% (7.42)%
50
Average equity to average assets 15.20% 15.59% 10.80% 8.93%
Total risk based capital to risk adjusted assets 27.66% 14.96% 12.15% 10.62% 0 2005 2006 2007 2008
20
006 2007 20
008
Leverage ratio 22.66% 13.39% 9.74% 7.94%
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4. TO OUR SHAREHOLDERS
Dear Shareholders,
As always, let me begin by sincerely thanking you for your continued support of Bank of Virginia. Your
support, with the dedication and commitment of our employees, has been an integral part of the bank’s
growth and success. The economic landscape during 2008 was one of challenge and certainly created
issues that the banking community has not seen for many years. I believe that these are unique times and
uncharted waters.
The frenzy in the media has continued to fuel downward pressure on bank stocks. Unfortunately, the word
“bank” has become a broad brush term that covers everything from well run, solid community banks, to the
Wall Street giants that were at the root of many of the problems. Bank of Virginia epitomizes the traditional
community bank in its actions and culture. We are an organization that supports the communities we serve
nancially when appropriate but most importantly, by being active participants in the communities as
volunteers, leaders and neighbors.
During 2008, our bank continued to focus on the basics of community banking. We provided nancing for small business growth and
deposit solutions for individuals and businesses and did so with a level of service that is top tier. Additionally, in January of 2008 we
opened our fth branch location which took the Bank of Virginia into the near west end of Richmond. Bank of Virginia is a place where
people want to work, have the ability to make a difference, and know that their efforts are appreciated. When ofcers and staff believe
in what they do, the result will be quality customer service and an excellent banking experience. This is why I feel we have earned the
right to say, Welcome Home.
Looking specically at 2008, I am proud to tell you that total assets exceeded $200 million, reaching $204 million. Compared to
December 31, 2007 totals of $184 million, assets grew 10.7%. Loans, net of allowance for loan losses, grew from $130 million at year
end 2007 to $153 million as of year end 2008 representing a 17.6% increase. This growth was the main contributor to the aforementioned
asset growth.
In order to support our loan growth, we continued to place heavy emphasis on deposit acquistition since deposits serve as the source for
our loan portfolio. In 2008, banks focused heavily on liquidity creating a highly competitive landscape. Noninterest-bearing deposits
showed mild contraction of 4% while all interest bearing deposits grew over 11.7%. Midyear concerns over bank failures and FDIC
strength precipitated a reallocation of deposits throughout the banking system.
Total interest income, the bank’s primary source of revenue, grew from $11.3 million at December 31, 2007 to $12.1 million as of
December 31, 2008, a 6.7% increase. Management is pleased with this increase in light of the 400 basis point reduction in the prime
lending rate throughout the year. These decreases caused an immediate repricing of the variable rate loan portfolio and created downward
pressure on the overall net margin. The increase in total interest income was largely attributed to the increase in volume. Interest
expense increased 12.6% due to increased volume of interest bearing accounts.
In the fourth quarter of the year management elected to increase the allowance for loan loss signicantly due to the continued deterioration
of the economy. Although the bank did not participate in any of the subprime lending, the overall economic slowdown and negative
market movement is impacting the loan portfolio. The total 2008 provision for loan loss was $1.8 million compared to $346 thousand
in 2007. This provision increases total allowance to $2.9MM or 1.9% of net loans.
The decision to increase the reserve to this magnitude was not made lightly. Management has increased its monitoring of the credit
portfolio due to the economy. We feel comfortable that current reserve levels adequately cover potential losses and that the increased
allowance was a prudent action given the continued uncertainty in the market. As a result of the aforementioned, a net loss of $1.3
million is reported for 2008, compared to income of $506 thousand for the year end 2007.
Looking ahead to 2009, management feels that the economic horizon remains uncertain. We feel that Bank of Virginia is well positioned
to handle a continued recession, and is well poised for when the economy improves. We will continue to utilize the same sound
underwriting standards that have served us well to date. This action should provide for controlled growth with sound returns.
In closing, I want to thank our shareholders, as well as our ofcers and staff, for their continued support through 2008. There is a
difference between Wall Street and Main Street, a difference that has been claried in 2008. I rmly believe that community banks will
play an integral part in rebuilding our economy and Bank of Virginia will be a part of the process. Finally, if you know us only as a
shareholder, I personally invite you to come bank with us. I am comfortable in saying that you will quickly understand why we feel we
have earned the right to say “Welcome Home.”
Sincerely,
Frank Bell, III
President & CEO
2
5. OFFICERS, MANAGERS & BOARD OF DIRECTORS
Chairman and Chief Executive Officer (left to right)
Henry “Hank” E. Richeson
Chairman of the Board
Frank Bell, III
President and Chief Executive Officer
Senior Management Team (left to right)
Bruce T. Brockwell
Senior Vice President and Chief Credit Officer
Ann-Cabell Williams
Senior Vice President and Retail Executive
Kenneth P. Mulkey
Senior Vice President, Chief Financial Officer
and Chief Operating Officer
Frank Bell, III
President and Chief Executive Officer
Board of Directors (left to right)
Front Row
Frank Bell, III, Henry “Hank” E. Richeson
and Claiborne G. Thomasson
Middle Row
Vernon E. LaPrade, Jr.
and G. Waddy Garrett
Back Row
Thomas L. Gordon
and J. Michael Jarvis
3
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6. CORPORATE INFORMATION
CORPORATE OFFICE 10-K REPORT
Bank of Virginia A copy of Bank of Virginia’s latest annual report on Form 10-KSB will be
11730 Hull Street Road provided without charge upon written request to:
Midlothian, VA 23112
(804) 763-1333 Kenneth P. Mulkey
Senior Vice President, CFO and COO
AUDITORS Bank of Virginia
Yount, Hyde & Barbour, P.C. P.O. Box 5658
50 South Cameron Street Midlothian, VA 23112
Winchester, VA 22601
Access to all Bank of Virginia Securities and Exchange filings can be
COMMON STOCK TRANSFER AGENT AND REGISTRAR obtained through the Investor Relations link on our website at:
Computershare Investor Services, LLC www.bankofva.com.
730 Peachtree Street, Suite 840
Atlanta, GA 30308 SHAREHOLDER INQUIRIES
(312) 588-4993 Questions concerning shareholder accounts, stock transfer requirements,
consolidation of accounts, lost certificates and name or address changes
COMMON STOCK should be directed to the transfer agent. All other shareholder questions
Bank of Virginia common stock is listed on the should be directed to:
NASDAQ Stock Market under the symbol BOVA.
Kenneth P. Mulkey
BRANCH OFFICES Senior Vice President, CFO and COO
11730 Hull Street Road Bank of Virginia
Midlothian, VA 23112 P.O. Box 5658
(804) 744-7576 Midlothian, VA 23112
(804) 763-1333
6657 Lake Harbour Drive
Midlothian, VA 23112 FINANCIAL INQUIRIES
(804) 639-6800 All financial analysts and professional investment managers should
direct their questions and requests for financial information to:
906 Branchway Road
Richmond, VA 23236 Bank of Virginia
(804) 560-0660 Chief Financial Officer
P.O. Box 5658
4023 West Hundred Road
Midlothian, VA 23112
Chester, VA 23831
(804) 763-1333
(804) 414-0208
10501 Patterson Avenue
Richmond, VA 23238
(804) 525-2660
Access up-to-date information on Bank of Virginia’s website at:
www.bankofva.com
4
7. Management’s Report on Internal Control Over Financial Reporting
Management of the Bank is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America. Management regularly monitors
its internal control over financial reporting and takes appropriate action to correct any deficiencies that may
be identified.
Management assessed the Bank’s internal control over financial reporting as of December 31, 2008.
This assessment was based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management concluded that the Bank maintained effective internal control over financial reporting as of
December 31, 2008.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Further, because of changes in conditions, internal control effectiveness may vary over
time.
This annual report does not include an attestation report of the Bank’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by
the Bank’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Bank to provide only management’s report in this annual report.
Frank Bell, III Kenneth P. Mulkey
President & Chief Executive Officer Senior Vice President & Chief
Financial Officer
March 31, 2009
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8. BANK OF VIRGINIA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Certied Public Accountants
and Consultants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Bank of Virginia
Midlothian, Virginia
We have audited the accompanying balance sheets of Bank of Virginia as of December 31, 2008 and 2007,
and the related consolidated statements of operations, changes in stockholder’s equity, and cash flows for
the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the
Bank’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Bank of Virginia as of December 31, 2008 and 2007, and the results of its operations and its
cash flows for the years ended December 31, 2008 and 2007, in conformity with U.S. generally accepted
accounting principles.
We were not engaged to examine management’s assessment of the effectiveness of Bank of Virginia’s internal
control over financial reporting as of December 31, 2008, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting and, accordingly, we do not express an opinion
thereon.
Winchester, Virginia
March 30, 2009
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9. BANK OF VIRGINIA | FINANCIALS
Balance Sheets
At December 31,
Assets 2008 2007
Cash and due from banks $ 2,608,500 $ 4,183,359
Federal funds sold and interest-bearing deposits with banks 42,194 4,771,376
Total cash and cash equivalents 2,650,694 8,954,735
Securities available for sale, at fair market value 39,474,175 36,442,472
Restricted securities 1,534,550 1,198,800
Loans, net of allowance for loan losses of $2,942,988 and
$1,276,726 in 2008 and 2007, respectively 152,962,046 130,805,447
Premises and equipment, net 5,688,585 5,532,009
Accrued interest receivable 864,630 857,853
Other real estate owned 308,019 -
Other assets 229,220 217,311
Total assets $203,711,919 $184,008,627
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing $ 12,483,762 $ 13,020,632
Savings and interest-bearing demand 18,770,259 17,122,793
Time, $100,000 and over 55,939,332 46,155,151
Other time 83,818,330 78,586,170
Total deposits 171,011,683 154,884,746
Accrued expenses and other liabilities 1,208,215 1,119,459
FHLB Borrowings 15,000,000 10,000,000
Federal funds purchased 176,000 -
Total liabilities 187,395,898 166,004,205
Stockholders’ Equity
Preferred stock, $5 par value, 5,000,000 shares authorized, none issued - -
Common stock, $2.50 par value, 40,000,000 shares authorized, 3,031,866
shares issued and outstanding in 2008 and 2007, respectively 7,579,665 7,579,665
Additional paid-in capital 14,705,508 14,693,218
Retained decit (5,913,941) (4,599,346)
Accumulated other comprehensive income (loss) (55,211) 330,885
Total stockholders’ equity 16,316,021 18,004,422
Total liabilities and stockholders’ equity $203,711,919 $184,008,627
See Notes to Financial Statements.
7
10. BANK OF VIRGINIA | FINANCIALS
Statements of Operations
Years ended December 31, 2008 and 2007
2008 2007
Interest income
Interest and fees on loans $10,220,810 $9,526,583
Investment securities 2,141,546 1,494,000
Federal funds sold and deposits with banks 65,115 359,886
Total interest income 12,147,471 11,380,469
Interest expense
Interest on deposits 6,432,811 5,868,301
Interest on federal funds purchased 22,435 5,052
Interest on FHLB borrowings 510,623 315,609
Total interest expense 6,965,869 6,188,962
Net interest income 5,461,602 5,191,507
Provision for loan losses 1,764,325 345,534
Net interest income after provision for loan losses 3,697,277 4,845,973
Noninterest income
Service charges on deposit accounts 206,456 121,619
Net gain on available for sale securities 186,697 11,776
Other fee income 140,318 86,057
Total noninterest income 533,471 219,452
Noninterest expense
Salaries and employee benets 3,110,236 2,709,305
Occupancy expense 410,422 319,740
Equipment expense 318,098 208,382
Data processing 457,809 351,517
Marketing expense 171,093 144,876
Legal and professional 239,444 146,791
Bank franchise tax 150,090 131,393
Other operating expenses 688,051 546,925
Total noninterest expense 5,545,243 4,558,929
Net income $(1,314,495) $ 506,496
Basic earnings per share $ (0.43) $ 0.17
Diluted earnings per share $ (0.43) $ 0.17
Weighted average shares outstanding, basic 3,031,866 3,031,866
Weighted average shares outstanding, diluted 3,031,866 3,032,355
See Notes to Financial Statements.
8
11. BANK OF VIRGINIA | FINANCIALS
Statements of Changes in Stockholders’ Equity
Years ended December 31, 2008 and 2007 Accumulated
Other
Additional Compre-
Common Paid-in Retained hensive
Stock Capital Decit Income (Loss) Total
Balance, December 31, 2006 $ 7,579,665 $ 14,630,698 $ (5,105,842) $ (42,402) $ 17,062,119
Stock-based compensation expense - 62,520 - - 62,520
Comprehensive Income:
Net income - - 506,496 - 506,496
Unrealized gain on securities
available for sale - - - 385,063 385,063
Reclassication adjustment - - - (11,776) (6,235)
(11,776)
Other comprehensive income - - - 373,287 373,287
Total comprehensive income - - - - 879,783
Balance, December 31, 2007 $ 7,579,665 $ 14,693,218 $ (4,599,346) $ (330,885) $ 18,004,422
Stock-based compensation expense - 12,290 - - 12,290
Comprehensive income:
Net income - - (1,314,595) - (1,314,595)
Unrealized gain on securities
available for sale - - - (199,399) (199,399)
-
Reclassication adjustment - - - (186,697) (186,697)
Other comprehensive income (386,096) (386,096)
373,287
Total comprehensive income - - - - 879,783
(1,700,691)
Balance, December 31, 2008 $ 7,579,665 $ 14,705,508 $ (5,913,941) $ (55,211) 16,316,021
$(16,316,021)
See Notes to Financial Statements.
9
12. BANK OF VIRGINIA | FINANCIALS
Statements of Cash Flows
Years ended December 31, 2008 and 2007
2008 2007
Cash Flows From Operating Activities:
Reconciliation of net income to net cash
provided by operating activities:
Net (loss) income $ (1,314,595) $ 506,496
Net amortization (accretion) of discount on investment securities 43,826 (97,248)
(116,582)
Depreciation and amortization 341,937 225,830
Provision for loan losses 1,764,325 345,534
Net gain on available for sale securities (186,697) (6,235)
(11,776)
Stock-based compensation expense 12,290 62,520
Increase in accrued interest receivable (6,777) (159,117)
(291,583)
Increase in other assets (319,928) (20,475)
(20,475)
Increase in accrued expense other liabilities 88,756 359,711
Net cash provided by operating activities 423,137 1,211,475
Cash Flows from Investing Activities:
Purchases of securities available for sale (43,080,078) (27,905,758)
Net change in restricted securities (335,750) (205,400)
(205,400)
Sales of available for sale securities 34,519,557 1,236,485
Maturities and calls of available for sales securities - 11,945,000
Payments on mortgage-backed securities 5,285,593 1,694,777
1,694,777
Net increase in loans (23,920,924) (34,067,667)
Purchases of premises and equipment (498,513) (1,906,630)
Net cash (used in) investing activities (28,030,115) (49,209,193)
Cash Flows from Financing Activities:
Net increase (decrease) in demand, savings, interest-bearing
checking and money market deposits 1,110,596 5,416,534
Net increase in time deposits 15,016,341 37,994,730
Net proceeds from FHLB borrowings 5,176,000 5,000,000
Net cash provided by nancing activities 21,302,937 48,411,264
Net increase (decrease) in cash and cash equivalents (6,304,041) 413,546
Cash and cash equivalents at beginning of year 8,954,735 8,541,189
Cash and cash equivalents at end of year $ 2,650,694 $ 8,954,735
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 6,951,209 $ 5,991,716
Supplemental Disclosures of Noncash Investing Activities
Fair value adjustment for securities $ (386,096) $ 373,287
Other real estate owned transferred from loans $ 308,019 -
10 See Notes to Financial Statements.
13. BANK OF VIRGINIA | FINANCIALS
Notes to Financial Statements
Note 1. Organization and Summary of Signicant Accounting Policies
Organization
Bank of Virginia (the “Bank”) was organized under the laws of the Commonwealth of Virginia to engage in a
general banking business serving the communities in and around Chestereld County, Virginia. The Bank was in
organization during the period from November 1, 2002, through January 11, 2004.
The Bank commenced regular operations on January 12, 2004, and is a member of the Federal Reserve System,
Federal Deposit Insurance Corporation and the Federal Home Loan Bank of Atlanta. The Bank is subject to the
regulations of the Federal Reserve System and the State Corporation Commission of Virginia. Consequently, it
undergoes periodic examinations by these regulatory authorities.
Summary of Signicant Accounting Policies
The accounting and reporting policies of the Bank are in accordance with accounting principles generally
accepted in the United States of America and conform to general practices within the banking industry. The more
signicant of these policies are summarized below.
(a) Use of Estimates
In preparing nancial statements in conformity with accounting principles generally accepted in the United States
of America, management is required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to signicant change in the near term relate to the determination of the allowance for loan losses and
the valuation of deferred tax assets.
(b) Cash and Cash Equivalents
For purposes of the statement of cash ows, cash and cash equivalents include cash on hand, amounts due from
banks and federal funds sold. Generally, federal funds are purchased and sold for one day periods.
(c) Securities
Debt securities that management has the positive intent and ability to hold to maturity are classied as “held to
maturity” and recorded at amortized cost. Securities not classied as held to maturity, including equity securities
with readily determinable fair values, are classied as “available for sale” and recorded at estimated fair value.
The Bank classies all securities as available for sale. Other restricted securities, such as Federal Reserve Bank
stock, are carried at cost.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms
of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost
that are deemed to be other than temporary are reected in earnings as realized losses. In estimating other than
temporary impairment losses, management considers (1) the length of time and the extent to which the fair value
has been less than cost, (2) the nancial condition and near-term prospects of the issuer, and (3) the intent and
ability of the Bank to retain its investment in the issuer for a period of time sufcient to allow for any anticipated
recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined
using the specic identication method.
(d) Loans
The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan
portfolio is represented by commercial loans throughout the greater Richmond, Virginia metropolitan area. The
ability of the Bank’s debtors to honor their contracts is dependent upon numerous factors including the collateral
performance, general economic conditions, as well as the underlying strength of borrowers and guarantors.
11
14. BANK OF VIRGINIA | FINANCIALS
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off
are generally reported at their outstanding unpaid principal balances adjusted for the allowance for loan losses.
Interest income is accrued on the unpaid principal balance. Loan origination and commitment fees and certain
direct costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield. The Bank
is amortizing these amounts over the loan’s contractual life or to the pay-off date if the balance is repaid prior to
maturity.
The accrual of interest on loans is discontinued at the time the loan becomes 90 days delinquent unless the credit
is well-secured and in process of collection. Non-performing loans are placed either in nonaccrual status pending
further collection efforts or charged off if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against
interest income. The interest on loans in nonaccrual status is accounted for on the cash basis or cost recovery
method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are reasonably assured.
(e) Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan is conrmed. Subsequent recoveries, if any, are credited back to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to signicant revision as more information becomes available.
The allowance consists of specic, general and unallocated components. The specic component relates to loans
that are classied as either doubtful, substandard or special mention. For such loans that are also classied as
impaired, an allowance is established when the discounted cash ows (or collateral value or observed market price)
of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassied
loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated
component of the allowance reects the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating the specic and general losses in the portfolio.
The above referenced review may indicate that a loan is impaired. The impairment of a loan occurs when it
is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the
loan agreement. Impairment is measured as the difference between the recorded investment in the loan and the
evaluation of the present value of expected future cash ows or the observable market price of the loan. Loans
that are collateral dependent, that is, loans where repayment is expected to be provided solely by the underlying
collateral, and for which management has determined foreclosure is probable, are measured for impairment based
on the fair value of the collateral.
(f) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the assets’ estimated useful lives. Estimated useful lives range from 10 to 39 years for
buildings and 3 to 7 years for autos, furniture, xtures and equipment. The value of land is carried at cost.
(g) Foreclosed Properties
Assets acquired through, or in lieu of, loan foreclosure are held for sale. They are initially recorded at the lower
of the Bank’s cost or the assets’ fair market value at the date of foreclosure, less estimated selling costs thus
establishing a new cost basis. Subsequent to foreclosure, valuations of the assets are periodically performed
by management. Adjustments are made to the lower of the carrying amount or fair market value of the assets
less selling costs. Revenue and expenses from operations and valuation changes are included in net expenses
from foreclosed assets. The Bank had one foreclosed asset at December 31, 2008 totaling $308,000 and none at
December 31, 2007.
12
15. BANK OF VIRGINIA | FINANCIALS
(h) Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible
temporary differences, operating loss carryforwards, and tax credit carryforwards. Deferred tax liabilities are
recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the recognition
of the asset is less than probable. Deferred tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
When tax returns are led, it is highly certain that some positions taken would be sustained upon examination by
the taxing authorities, while others are subject to uncertainty about the merits of the positions taken or the amount
of the position that would be ultimately sustained. The benet of a tax position is recognized in the nancial
statements in the period during which, based on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest amount of tax benet that is more
than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the
benets associated with tax positions taken that exceeds the amount measured as described above is recognized
as a liability for unrecognized tax benets in the accompanying balance sheet along with any associated interest
and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with the unrecognized tax benets are classied as additional income taxes in
the statement of income.
(i) Advertising Costs
The Bank follows the policy of charging the production costs of advertising to expense as incurred unless the
advertising campaign extends for a signicant time period, in which case, such costs will be amortized to expense
over the duration of the advertising campaign.
(j) Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for
sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive income.
(k) Earnings (Loss) Per Share
Basic earnings per share represent income available to common shareholders divided by the weighted-average number
of common shares outstanding during the period. Diluted earnings per share reect additional common shares that
would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. At December 31, 2008, there were 179,500 option shares
outstanding. Of the option shares outstanding none were dilutive and, as a result, had no impact on the calculation
of computing diluted earnings per common share for the year ended December 31, 2008.
(l) Stock Option Plan
Effective January 1, 2006, the Bank adopted SFAS No. 123R (Revised 2004), Share-Based Payment (“SFAS
No. 123R”), which replaces SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB Opinion No. 25”). SFAS 123R
requires the costs resulting from all share-based payments to employees be recognized in the nancial statements.
Stock-based compensation is estimated at the date of grant, using the Black-Scholes option valuation model for
determining fair value.
Under APB Opinion No. 25, compensation expense was generally not recognized if the exercise price of the
option equaled or exceeded the market price of the stock on the date of grant. For the year ended December 31,
2008 and 2007, the Bank recognized stock-based compensation expense of $12,000 and $63,000, respectively or
less than $.01 per share in 2008 and approximately $.02 per share in 2007.
13
16. BANK OF VIRGINIA | FINANCIALS
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) reached a consensus on Emerging Issues Task
Force (“EITF”) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benet Aspects of Endorsement
Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-4”). In March 2007, the FASB reached a consensus on
EITF Issue 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements,” (“EITF Issue
06-10”). Both of these standards require a company to recognize an obligation over an employee’s service period based
upon the substantive agreement with the employee such as the promise to maintain a life insurance policy or provide
a death benet postretirement. The Bank adopted the provisions of these standards effective January 1, 2008. The
adoption of these standards was not material to the Bank’s nancial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(SFAS 157). SFAS 157 denes fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new
fair value measurements but rather provides enhanced guidance to other pronouncements that require or permit assets
or liabilities to be measured at fair value. This Statement is effective for nancial statements issued for scal years
beginning after November 15, 2007 and interim periods within those years. The FASB has approved a one-year
deferral for the implementation of the Statement for nonnancial assets and nonnancial liabilities that are recognized
or disclosed at fair value in the nancial statements on a nonrecurring basis. The Bank adopted SFAS 157 effective
January 1, 2008. The adoption of SFAS 157 was not material to the Bank’s nancial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS 159). This Statement permits entities to choose to measure many
nancial instruments and certain other items at fair value. The objective of this Statement is to improve nancial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value
option established by this Statement permits all entities to choose to measure eligible items at fair value at specied
election dates. A business entity shall report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by
instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s rst scal year that begins after
November 15, 2007, with early adoption available in certain circumstances. The Bank adopted SFAS 159 effective
January 1, 2008. The Bank decided not to report any existing nancial assets or liabilities at fair value that are not
already reported, thus the adoption of this statement did not have a material impact on the Bank’s nancial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations”
(SFAS 141(R)). The Standard will signicantly change the nancial accounting and reporting of business combination
transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identiable assets
acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to
enable users of the nancial statements to evaluate the nature and nancial effects of the business combination. SFAS
141(R) is effective for acquisition dates on or after the beginning of an entity’s rst year that begins after December
15, 2008. The Bank does not expect the implementation of SFAS 141(R) to have a material impact on it nancial
statements, at this time.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests
in Consolidated Financial Statements an Amendment of ARB No. 51” (SFAS 160). The Standard will signicantly
change the nancial accounting and reporting of noncontrolling (or minority) interests in consolidated nancial
statements. SFAS 160 is effective as of the beginning of an entity’s rst scal year that begins after December 15,
2008, with early adoption prohibited. The Bank does not expect the implementation of SFAS 160 to have a material
impact on its nancial statements, at this time.
In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109, “Written
Loan Commitments Recorded at Fair Value Through Earnings” (SAB 109). SAB 109 expresses the current view of
the staff that the expected net future cash ows related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value through earnings. SEC registrants are
expected to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued
or modied in scal quarters beginning after December 15, 2007. Implementation of SAB 109 did not have a material
impact on the Bank’s nancial statements.
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17. BANK OF VIRGINIA | FINANCIALS
In December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Use of a Simplied Method in Developing
Expected Term of Share Options” (SAB 110). SAB 110 expresses the current view of the staff that it will accept a
company’s election to use the simplied method discussed in SAB 107 for estimating the expected term of “plain
vanilla” share options regardless of whether the company has sufcient information to make more rened estimates.
The staff noted that it understands that detailed information about employee exercise patterns may not have been widely
available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of
the simplied method beyond December 31, 2007. Implementation of SAB 110 did not have a material impact on the
Bank’s nancial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an
amendment of SFAS No. 133,” (“SFAS No. 161”). SFAS No. 161 requires that an entity provide enhanced disclosures
related to derivative and hedging activities. SFAS No. 161 is effective for the Bank on January 1, 2009.
In April 2008, the FASB issued FASB Staff Position (FSP) No. 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP No. 142-3”). FSP No. 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under FASB SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No. 142”). The intent of FSP No. 142-3 is to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash ows used
to measure the fair value of the assets under SFAS No. 141(R). FSP No. 142-3 is effective for the Company on January
1, 2009, and applies prospectively to intangible assets that are acquired individually or with a group of other assets in
business combinations and asset acquisitions. The adoption of FSP No. 142-3 is not expected to have a material impact
on the Bank’s nancial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” (“SFAS
No. 162”). SFAS No. 162 identies the sources of accounting principles and the framework for selecting the principles
to be used in the preparation of nancial statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.” Management does not expect the adoption of the provision of SFAS
No. 162 to have any impact on the Bank’s nancial statements.
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarication of the
Effective Date of FASB Statement No. 161,” (“FSP 133-1 and FIN 45-4”). FSP 133-1 and FIN 45-4 require a seller
of credit derivatives to disclose information about its credit derivatives and hybrid instruments that have embedded
credit derivatives to enable users of nancial statements to assess their potential effect on its nancial position, nancial
performance and cash ows. The disclosures required by FSP 133-1 and FIN 45-4 will be effective for the Bank on
December 31, 2008 and is not expected to have a material impact on the nancial statements.
In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market
for That Asset Is Not Active,” (“FSP 157-3”). FSP 157-3 claries the application of SFAS No. 157 in determining the
fair value of a nancial asset during periods of inactive markets. FSP 157-3 was effective as of September 30, 2008 and
did not have material impact on the Bank’s nancial statements.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises)
about Transfers of Financial Assets and Interests in Variable Interest Entities.” FSP No. FAS 140-4 and FIN 46(R)-8
requires enhanced disclosures about transfers of nancial assets and interests in variable interest entities. The FSP
is effective for interim and annual periods ending after December 15, 2008. Since the FSP requires only additional
disclosures concerning transfers of nancial assets and interest in variable interest entities, adoption of the FSP will not
affect the Bank’s nancial condition, results of operations or cash ows.
In January 2009, the FASB reached a consensus on EITF Issue 99-20-1. This FSP amends the impairment guidance
in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Benecial Interests and
Benecial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more
consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and
emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements
in FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other related
guidance. The FSP is effective for interim and annual reporting periods ending after December 15, 2008 and shall be
applied prospectively. The FSP was effective as of December 31, 2008 and did not have a material impact on the Bank’s
nancial statements.
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18. BANK OF VIRGINIA | FINANCIALS
Note 2. Securities
Amortized cost and fair values of securities available for sale are as follows:
December 31, 2008
Amortized Gross Unrealized Fair
Cost Gain (Losses) Value
Mortgage-backed securities $ 37,047,497 $ 333,866 $ (313,179) $ 37,068,184
Securities of U.S. government
agencies 1,500,818 8,450 - 1,509,268
Corporate bonds 981,071 - (84,348) 896,723
Total $ 39,529,386 $ 342,316 $ (397,527) $ 39,474,175
December 31, 2007
Amortized Gross Unrealized Fair
Cost Gain (Losses) Value
Mortgage-backed securities $ 27,876,268 $ 257,311 $ (11,245) $ 28,122,334
Securities of U.S. government
agencies 7,257,960 88,152 - 7,346,112
Corporate bonds 977,359 7,416 (10,749) 974,026
Total $ 36,111,587 $ 352,879 $ (21,994) $ 36,442,472
The amortized cost and fair value of securities available for sale as of December 31, 2008, by contractual
maturity are shown below. Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations without penalties.
Amortized Fair
Cost Value
1 year or less $ 1,500,818 $ 1,509,268
Over 1 year through 5 years 495,285 441,804
Over 5 years through 10 years 485,786 454,919
Mortgage-backed securities 37,047,497 37,068,184
Total $39,529,386 $39,474,175
As of December 31, 2008, the portfolio continues to be largely concentrated in average maturities of ve years
or less. The portfolio is available to support liquidity needs of the Bank, but lines with correspondents and the
FHLB have been opened as an alternate source of funds in addition to the deposit base. There were $35.7
million ($34.5 million of available for sale and $1.2 million in restricted securities) in securities sales during
2008 and $1.2 million in proceeds from sales of securities available for sale during 2007. Gross realized gains
were approximately $268,000 in 2008 with $81,000 in corresponding losses recorded in 2008. This compares to
$12,000 in gross gains realized in 2007 along with no losses realized for the comparable period.
At December 31, 2008, the combined depreciation in value of the individual securities in an unrealized loss
position for less than 12 months was less than 1% of the combined reported value of the aggregate securities
portfolio. Management does not believe any individual unrealized loss as of December 31, 2008 represents an
other-than-temporary impairment. The Bank has the intent and ability to hold these securities until such time as
the value recovers or the securities mature. Furthermore, the change in value is entirely attributable to changes in
market interest rates and not the credit quality of the issuer.
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19. BANK OF VIRGINIA | FINANCIALS
The following tables reects those investments in a continuous unrealized loss position for less than 12 months
and for 12 months or longer.
December 31, 2008
Less than 12 Months 12 Months or longer Total
Description of Securities Fair Value Unrealized Fair Value Unrealized Fair Value Unrealized
Losses Losses Losses
Mortgage-backed securities 14,323,112 (313,179) - - 14,323,112 (313,179)
Corporate bonds 896,733 (84,348) - - 896,733 (84,348)
Total $15,219,845 $(397,527) $ - $ - $15,219,845 $(397,527)
December 31, 2007
Less than 12 Months 12 Months or longer Total
Fair Value Unrealized Fair Value Unrealized Fair Value Unrealized
Description of Securities
Losses Losses Losses
Mortgage-backed securities 1,650,663 (11,245) - - 1,650,663 (11,245)
Corporate bonds 473,676 (10,749) - - 473,676 (10,749)
Total $ 2,124,339 $ (21,994) $ - $ - $ 2,124,339 (21,994)
There were no held to maturity securities at December 31, 2008 or 2007.
At December 31, 2008, U.S. Government agency obligations with a combined carrying value of $3.4 million were
pledged to secure public funds with the State of Virginia.
Note 3. Loans
A summary of the balances of loans outstanding as of December 31 was as follows:
2008 2007
Real Estate:
Construction $33,134,434 $ 31,146,841
Commercial 55,224,028 50,877,451
Residential 10,345,371 8,458,330
Home Equity 14,532,842 11,130,446
Commercial 39,090,641 27,331,431
Consumer 3,577,736 3,137,674
$155,905,034 $132,082,173
Less:
Allowance for loan losses 2,942,988 1,276,726
Loans, net $152,962,046 $130,805,447
Overdrafts totaling $4,000 and $5,000 were reclassied from deposits to loans at December 31, 2008 and 2007,
respectively.
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20. BANK OF VIRGINIA | FINANCIALS
An analysis of the allowance for loan losses follows:
December 31,
2008 2007
Beginning Balance $1,276,726 $931,192
Provision for loan losses 1,764,325 345,534
Loans charged off (98,063) -
Recoveries on loans
previously charged off - -
Balance, December 31, $2,942,988 $1,276,726
There were two loans evaluated for impairment at December 31, 2008. One of the loans, as discussed below, was
not deemed impaired due to the sufciency of cash ows from the collateral while a specic provision for loan
loss of $1 million has been recorded for the other deemed impairment. In addition, there were two loans 90 days
past due totaling $940,000 at December 31, 2008. One of these loans is still accruing interest at December 31,
2008 and the collateral position is sufcient to allow for collection of all interest due on the note. At December
31, 2007, there were no loans 90 days past due.
The following information is a summary pertaining to impaired and nonaccrual loans:
Update for interest earned December 31,
2008 2007
(in thousands)
Impaired loans without a valuation allowance 940 -
Impaired loans with a valuation allowance 2,500 -
Total impaired loans 3,440
Valuation allowance related to impaired loans 1,000 -
Total nonaccrual loans 244 -
Total past-due 90 days or more and still accruing 696 -
Average investment in impaired loans 3,018 -
Interest income recognized on impaired loans 55 -
Note 4. Premises and Equipment
A summary of the cost and accumulated depreciation of premises and equipment follows:
2008 2007
Fixed assets in process and construction $ 59,260 $2,933,193
Buildings and improvements 3,253,979 1,679,708
Land 2,006,083 754,542
Furniture, xtures and equipment 1,060,057 665,581
Leasehold improvements 491,520 366,902
Automobiles 86,684 77,535
$6,957,583 $6,477,461
Less accumulated depreciation 1,268,998 945,452
$5,668,585 $5,532,009
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21. BANK OF VIRGINIA | FINANCIALS
The balance in xed assets in process and construction in the table above in 2007 relates to the Bank’s 5th branch
located on Patterson Avenue in Richmond, VA, and subsequently opened in early January 2008. The branch-in-
process total for 2007 enumerated above includes $83,000 in capitalized interest on the branch project. Fixed
assets in process in 2008 relate to assets acquired that will be deployed in 2009.
As of December 31, 2008, the Bank has lease agreements for three branch banking facilities. All such leases
qualify as operating leases. One of the leases expired in August 2008 and was renewed for one year to allow time
for a replacement branch to be built.
Following is a schedule by years of future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2008:
Year ended December 31:
2009 $ 116,233
2010 121,260
2011 124,467
2012 127,761
2013 131,144
Later Years 626,066
Total minimum payments required: $1,246,931
For the years ended December 31, 2008 and 2007, respectively, depreciation expense was $342,000 and $226,000,
respectively.
Total rent expense for the years ended December 31, 2008 and 2007 amounted to $125,000 and $122,000,
respectively.
Note 5. Borrowings
The Bank has unsecured lines of credit with correspondent banks totaling approximately $12 million available
for overnight borrowing. These lines are subject to annual renewal and $176,000 was being utilized at December
31, 2008.
In addition, the Bank is a member of the FHLB which provides for additional lines of credit and other products
offered by the FHLB. These borrowings are largely secured by the Bank’s loan portfolio and pledged securities.
The FHLB maintains a blanket security agreement on qualifying collateral while pledged securities are held by the
FHLB. As of December 31, 2008, the Bank is entitled to borrow up to 30% of total assets or approximately $61
million at December 31, 2008. At December 31, 2008, the Bank had two structured borrowings of $5.0 million
each maturing in October 2011 and August 2012, respectively from the FHLB which are xed for a period of time
and then callable at various increments over the life of the borrowing. The rst borrowing of $5.0 million bears
an interest rate of 4.375% while the second bears a rate of 4.40%. Should either of the borrowings be repaid prior
to maturity, the Bank may have to pay a termination fee to unwind the obligation. These structured borrowings
from the FHLB are subject to conversion by the FHLB to a oating rate advances based upon the contract terms.
If converted, the advance may be repaid and the transaction terminated. In addition, at December 31, 2008, the
Bank was borrowing overnight funds of $5 million. Overnight funds are priced daily and at December 31, 2008,
they were priced at .46%.
The average rate paid for borrowings (including the above referenced FHLB borrowings) in 2008 was 3.70%.
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22. BANK OF VIRGINIA | FINANCIALS
Note 6. Related Party Transactions
Executive ofcers, directors and their afliates had borrowings of $7.8 million and $3.6 million and unfunded
commitments of $2.5 million and $2.8 million with the Bank at December 31, 2008 and 2007, respectively.
During the year ended December 31, 2008, total principal additions were $9.4 million and total principal payments
were $5.2 million.
In addition, executive ofcers, directors and their afliates maintained deposits of $1.4 million at December 31,
2008 and $3.7 million at December 31, 2007.
These transactions occurred in the ordinary course of business on substantially the same terms as those prevailing
at the time for comparable transactions with unrelated persons.
Note 7. Time Deposits
Remaining maturities on time deposits are as follows:
2009 $ 94,199,428
2010 19,642,276
2011 8,619,746
2012 12,154,322
Later Years 5,141,890
$139,757,662
The maturities of time deposits $100,000 and over and other time deposits at December 31, 2008 and 2007 are
as follows:
2008
Time deposits Other time
$100,000 and over deposits
Three months or less $12,857,400 $16,890,804
Over 3 through 6 months 7,413,315 16,532,338
Over 6 through 12 months 16,228,396 24,227,175
Over 12 months 19,440,221 26,118,013
$55,939,332 $83,818,330
2007
Time deposits Other time
$100,000 and over deposits
Three months or less $ 9,266,938 $17,240,573
Over 3 through 6 months 10,169,028 17,097,002
Over 6 through 12 months 12,637,699 20,183,935
Over 12 months 14,081,486 24,064,660
$46,155,151 $78,586,170
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23. BANK OF VIRGINIA | FINANCIALS
Note 8. Income Taxes
The Bank les income tax returns in the U.S. federal jurisdiction. With few exceptions, the Bank is no longer
subject to U.S. federal and state income tax examinations by tax authorities for years prior to 2004.
The Bank adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes”, on January 1, 2007
with no impact on the nancial statements.
The tax effects of temporary differences that give rise to signicant portions of the deferred tax assets and de-
ferred tax liabilities at December 31, 2008 and 2007, respectively, are presented below:
December 31,
2008 2007
Deferred Tax Assets:
Allowance for loan losses $ 954,100 $382,708
Organizational and start-up expenses - 53,663
Bank premises and equipment 86,544 71,323
Unrealized loss on securities available for sale 18,772 -
Unrealized asset losses 9,056 11,707
Accrued vacation 34,119 27,993
Deferred compensation 71,978 53,308
Other, net 1,161 -
$1,175,730 $600,702
Unrealized gain on securities available for sale - (112,501)
Deferred Tax Liabilities - (112,501)
$1,175,730 $488,201
Less: Valuation Allowance (1,175,730) (488,201)
Net Deferred Tax Assets $ - $ -
The provision for income taxes charged to operations as of December 31, 2008 and 2007 consists of the
following:
2008 2007
Current tax expense - -
Deferred tax (benet) (556,256) (89,730)
Change in valuation allowance 556,256 89,730
- -
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income
tax rate to pretax income for the periods due to the following as of December 31, 2008 and 2007:
2008 2007
Computed “expected” tax expense (benet) (446,962) 172,209
Increase (decrease) in income taxes resulting from:
Nondeductible expenses 9,455 22,643
Net operating loss carryforward (utilized) 437,507 (194, 852)
- -
Under the provisions of the Internal Revenue Code, the Bank has approximately $2.3 million of taxable net
operating loss carryforwards which can be offset against future taxable income. The carryforwards expire in
varying amounts between December 31, 2024 and December 31, 2025. The full realization of the tax benets
associated with the carryforwards depends predominately upon the recognition of ordinary income during the
carryforward period.
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24. BANK OF VIRGINIA | FINANCIALS
Note 9. Financial Instruments With Off-Balance Sheet Risk
The Bank is party to credit-related nancial instruments with off-balance sheet risk in the normal course of business
to meet the nancing needs of its customers. These nancial instruments include commitments to extend credit and
standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheet.
The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. The Bank
follows the same credit policies in making commitments as it does for on-balance sheet instruments.
At December 31, 2008 and 2007 the following nancial instruments were outstanding whose contract amounts
represent credit risk:
December 31,
2008 2007
Unfunded commitments under lines of credit $27,127,481 $30,141,605
Commercial and standby letters of credit 2,422,508 4,033,933
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have xed expiration dates or other termination clauses and
may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon.
Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount
of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the
customer.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements
are commitments for possible future extensions of credit to existing customers. These lines of credit usually contain
a specied maturity date and may not be drawn upon to the total extent to which the Bank is committed. The amount
of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the
customer.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private
borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
The Bank generally holds collateral supporting those commitments, if deemed necessary.
The Bank maintains its cash accounts in several correspondent banks. Capital ratios of correspondents are reviewed
periodically to ensure that their capital ratios are maintained at acceptable levels. The uninsured portion of deposits
held with these institutions was $42,000 at December 31, 2008.
Note 10. Minimum Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory, possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Bank’s nancial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, nancial institutions must meet
specic capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. A nancial institution’s capital amounts and classication are
also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require nancial institutions to maintain
minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as dened in the regulations)
to risk-weighted assets (as dened), and of Tier 1 capital (as dened) to average assets (as dened). Management
believes, as of December 31, 2008, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2008, the most recent notication from the Federal Reserve Bank categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table on
the following page. There are no conditions or events since that notication that management believes have changed
the institution’s category.
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25. BANK OF VIRGINIA | FINANCIALS
The Bank’s actual capital amounts and ratios as of December 31, 2008 and 2007, respectively, are presented in the
following table (dollars in thousands).
December 31, 2008
Minimum
To Be Well
Capitalized Under
Minimum Prompt Corrective
Actual Capital Requirement Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Amounts in Thousands)
Total Capital (to Risk
Weighted Assets) $18,567 10.62% $13,992 8.00% $17,489 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $16,371 9.36% $ 6,996 4.00% $ 10,494 6.00%
Tier 1 Capital (to
Average Assets) $16,371 7.94% $ 8,251 4.00% $10,314 5.00%
December 31, 2007
Minimum
To Be Well
Capitalized Under
Minimum Prompt Corrective
Actual Capital Requirement Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Amounts in Thousands)
Total Capital (to Risk
Weighted Assets) $18,950 12.15% $12,480 8.00% $15,601 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $17,673 11.33% $ 6,240 4.00% $ 9,360 6.00%
Tier 1 Capital (to
Average Assets) $17,673 9.74% $14,518 8.00% $14,518 8.00%
Note 11. Employee Benet Plans
Employee 401(k) Savings Plan
The Bank provides a 401(k) Plan that is available to employees meeting minimum eligibility requirements. The
cost of Bank contributions under the 401(k) Plan was $65,000 and $48,000 for the years ended December 31,
2008 and 2007, respectively. The Board has authorized a match of employee elective deferrals up to 50% of
participant contributions on the rst six percent of eligible deferrals. The employee participants have various
investment alternatives available in the 401(k) Plan; however, Bank stock is currently not permitted as an
investment alternative.
Employee Welfare Plan
The Bank provides benet programs to eligible full-time and part-time employees who elect coverage under the
plan. Each plan has its own eligibility requirement. During an annual enrollment period each year, employees
have the opportunity to change their coverage or, in certain circumstances, more frequently due to certain life-
changing events. Generally, amounts paid by employees for benet coverage is deducted from their pay on a
before-tax basis. Certain benets are deducted on an after-tax basis.
Various insurance benets offered to employees consist of medical, dental, vision, life, accidental death and
dismemberment, long term disability, short term disability, medical spending account, dependent care spending
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