UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 333-37225
EASTERN VIRGINIA BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1866052
(State of Incorporation) (I.R.S. Employer Identification No.)
307 Church Lane, Tappahannock, Virginia 22560
(Address of principal executive offices)
Registrant's telephone number (804) 443-4333
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
The number of shares of the registrant's Common Stock outstanding as of November
3, 2000 was 4,947,887.
EASTERN VIRGINIA BANKSHARES, INC.
FORM 10-Q
For the Quarter Ended September 30, 2000
Part I
- ------
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II
- -------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30 December 31
2000 1999
-------- --------
Assets:
Cash and due from banks $ 12,534 $ 10,258
Federal funds sold 10,512 -
Securities 78,615 88,076
Loans, net of unearned income 290,758 273,858
Allowance for loan losses (4,353) (4,154)
-------- --------
Net loans 286,405 269,704
Deferred income taxes 1,551 1,641
Bank premises and equipment 4,841 4,568
Accrued interest receivable 2,656 2,582
Other real estate 620 243
Other assets 978 767
-------- --------
Total assets $398,712 $377,839
-------- --------
Liabilities and Shareholders' Equity
Liabilities
Noninterest-bearing demand accounts $ 36,523 $ 32,815
Savings accounts and interest bearing deposits 130,740 139,248
Time deposits 177,298 150,584
-------- --------
Total deposits 344,561 322,647
Short-term borrowings - 6,468
Long-term debt 7,000 3,000
Accrued interest payable 1,096 796
Other liabilities 2,344 2,133
-------- --------
Total liabilities 355,001 335,044
Shareholders' Equity
Common stock of $2 par value per share, authorized
50,000,000 shares, issued and outstanding
4,947,140 and 5,032,263 respectively 9,894 10,064
Surplus 572 2,014
Retained earnings 33,740 31,388
Accumulated other comprehensive income (495) (671)
-------- --------
Total shareholders' equity 43,711 42,795
Total liabilities and shareholders' equity $398,712 $377,839
-------- --------
See Notes to Consolidated Financial Statements
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands except share amounts)
Three Nine Months
Months Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------- -------
Interest Income:
Loans $6,465 $5,726 $18,892 $16,750
Interest on securities:
Taxable bonds 669 603 2,039 1,848
Tax exempt bonds 440 472 1,478 1,435
Dividends 19 21 53 52
Interest on federal funds sold 173 182 269 347
------ ------ ------- -------
Total interest income 7,766 7,004 22,731 20,432
Interest Expense
Deposits 3,671 2,995 10,104 8,695
Borrowings 98 44 490 68
------ ------ ------- -------
Total interest expense 3,769 3,039 10,594 8,763
------ ------ ------- -------
Net interest income 3,997 3,965 12,137 11,669
Provision for loan losses 127 144 398 372
------ ------ ------- -------
Net interest income after provision for loan losses $3,870 $3,821 $11,739 $11,297
Other income
Service charges on deposit accounts 446 370 1,296 1,031
Gain (loss) on sale of available for sale securities - - (10) (44)
Other operating income 87 105 285 304
------ ------ ------- -------
533 475 1,571 1,291
------ ------ ------- -------
Other Expenses
Salaries and benefits 1,406 1,186 3,990 3,486
Net occupancy expense of premises 306 387 1,067 1,031
Printing and supplies 148 89 391 281
Other operating expenses 691 560 2,051 1,642
------ ------ ------- -------
2,551 2,222 7,499 6,440
------ ------ ------- -------
Income before income taxes 1,852 2,074 5,811 6,148
Income Tax Expense 471 606 1,531 1,663
------ ------ ------- -------
Net income $1,381 $1,468 $ 4,280 $ 4,485
------ ------ ------- -------
Earnings Per Share, basic and assuming dilution(1) $0.28 $0.29 $0.87 $0.88
Dividends per share(1) $0.13 $0.12 $0.39 $0.36
(1)See Notes to Financial Statements
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended
----------------
September 30 September 30
2000 1999
-------- --------
Cash Flows from Operating Activities
Net income $ 4,280 $ 4,485
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 688 693
Provision for loan losses 398 372
Losses (gains) realized on available for sale securities 10 44
Net (gain) loss on sale of OREO (9) -
(Increase) decrease in other assets (568) 77
Increase (decrease) in other liabilities 512 1,810
-------- --------
Net cash provided by operating activities 5,311 7,481
Cash Flows from Investing Activities
Proceeds from maturities, calls, paydowns and sales
of securities 11,192 11,050
Purchase of debt securities (1,073) (10,086)
(Purchase) sale of FHLB and Federal Reserve Bank stock (487) (143)
Net (increase) decrease in loans (17,150) (27,203)
Purchases of bank premises and equipment (961) (442)
Proceeds from sale of OREO 50 -
-------- --------
Net cash (used in) investing activities (8,429) (26,824)
Cash Flows from Financing Activities
Net decrease in noninterest bearing and interest bearing
demand deposits and savings accounts (4,801) 2,133
Net increase in certificates of deposit 26,715 17,697
Proceeds from sale of common stock 274 -
Acquisition of common stock (1,886) (1,421)
Dividends declared (1,928) (1,842)
Increase (decrease) in borrowings (2,468) 3,000
-------- --------
Net cash provided by financing activities 15,906 19,567
-------- --------
Increase (decrease) in cash and cash equivalents 12,788 224
Cash and cash equivalents
Beginning of period 10,258 21,522
-------- --------
End of period $ 23,046 $ 21,746
-------- --------
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest on deposits and other borrowings $ 10,293 $ 8,655
Income taxes $ 2,187 $ 1,245
Transfer of loans to OREO $ 418 $ -
See Notes to Consolidated Financial Statements
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Nine Months Ended September 30, 2000 and 1999
(Dollars in thousands)
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital
Total Income Earnings Income Stock Surplus
------------- ------------- -------- ------------- -------- -------
Balances - January 1, 1999 $42,257 $27,877 $ 365 $10,286 $ 3,729
Comprehensive income:
Net income 4,485 $4,485 4,485
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities
available for sale:
Unrealized holding gain/(loss) arising
during the period (730) (730)
Add: reclassification adjustment, net of
tax of $ (15) 29 29
------- ------
Other comprehensive income, net of tax (701) (701) (701)
------- ------
Total comprehensive income $3,784
------
Shares purchased and retired (1,421) (166) (1,255)
Dividends declared (1,842) (1,842)
------- -------
Balances-September 30, 1999 $42,778 $30,520 $(336) $10,120 $ 2,474
------- ------- ------------- -------- -------
Balances - January 1, 2000 $42,795 $31,388 $(671) $10,065 $ 2,014
Comprehensive income:
Net income 4,280 $4,280 4,280
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities
available for sale:
Unrealized holding gain/(loss) arising
during the period 169 169
Add: reclassification adjustment,
net of tax of $(3) 7 7
------- ------
Other comprehensive income, net of tax 176 176 176
------- ------
Total comprehensive income $4,456
------
Shares issued 274 34 240
Shares purchased and retired (1,886) (205) (1,682)
Dividends declared (1,928) (1,928)
------- ------- -------------
Balances-September 30, 2000 $43,711 $33,740 $(495) $ 9,894 $ 572
------- ------- ------------- -------- -------
5
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The Consolidated Balance Sheet as of September 30, 2000, the Consolidated
Statements of Income for the three-month and nine month periods ended
September 30, 2000, and September 30, 1999, the Consolidated Statement of
Cash Flows for the nine-month periods ended September 30, 2000, and September
30, 1999, and the Consolidated Statement of Changes in Shareholders' Equity
for the nine-month periods ended September 30, 2000, and September 30, 1999,
prepared in accordance with instructions for Form 10-Q, are unaudited and
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
in the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
accruals) considered necessary to present fairly the financial position as
of September 30, 2000. The statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in Eastern Virginia
Bankshares' Annual Report on Form 10-K for the year ended December 31, 1999.
2. The consolidated financial statements include the accounts of Eastern
Virginia Bankshares, Inc ("EVB" or "the corporation") and its subsidiaries
Southside Bank, Bank of Northumberland, Inc., and Hanover Bank with all
significant intercompany transactions and accounts being eliminated in
consolidation. Hanover Bank, a denovo subsidiary, was organized during the
first quarter of 2000 and opened in Mechanicsville, VA on May 22, 2000.
3. During the three months ended September 30, 2000, the corporation issued
4,847 shares of its common stock at a price of $16.00 per share, bringing
year-to-date shares issued to 17,131, as a limited offering related to the
opening of its Hanover Bank subsidiary. Prior to registration of the stock
offering, the corporation repurchased 102,148 shares at an average cost of
$18.46 per share during the first four months of the year.
4. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
5. Earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding for the period. Weighted
average shares used for the computation were 4,938,644 and 5,113,112 for the
three month periods ended September 30, 2000 and 1999, and were 4,947,335 and
5,073,144 for the nine month periods ended September 30, 2000 and 1999.
6. EVB's amortized cost and estimated fair values of securities at September 30,
2000 are as follows:
(in thousands)
September 30, 2000
------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------ ------------
Available for Sale:
U.S. Government obligations $ 7,698 $ 2 $ 34 $ 7,666
Obligations of U.S. Government agencies 22,396 20 453 21,963
Obligations of state/political subdivisions-tax exempt 36,324 263 415 36,172
Obligations of state/political subdivisions-taxable 7,033 21 93 6,961
Corporate bonds 4,226 - 61 4,165
Equity securities 1,688 - - 1,688
------- ---- ------ -------
Total $79,365 $306 $1,056 $78,615
------- ---- ------ -------
6
Note 7. EVB's loan portfolio is composed of the following:
(in thousands)
September 30 December 31
2000 1999
-------- --------
Real estate - construction $ 8,948 $ 8,267
Real estate - mortgage 159,929 152,905
Commercial real estate 36,427 33,103
Commercial, industrial and
agricultural loans 31,135 31,003
Consumer loans 57,939 51,890
All other loans 476 460
-------- --------
Total loans 294,854 277,628
Less unearned income (4,096) (3,770)
Less allowance for loan losses (4,353) (4,154)
-------- --------
Total net loans $286,405 $269,704
-------- --------
EVB has $2.4 million in non-performing loans at September 30, 2000.
Note 8. Allowance for Loan Losses
September 30 December 31 September 30
2000 1999 1999
------ ------ ------
Balance at beginning of year $4,154 $3,860 $3,860
Provision charged against income 398 510 372
Recoveries of loans charged off 245 250 194
Loans charged off (444) (466) (322)
------ ------ ------
Balance at end of period $4,353 $4,154 $4,104
------ ------ ------
Note 9. Accounting Rule Changes
There were no new Financial Accounting Standards Board promulgations in the
third quarter of 2000 that will impact Eastern Virginia Bankshares, Inc.
PART 1 - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial information is presented to
aid the reader in understanding and evaluating the financial condition and
results of operations of Eastern Virginia Bankshares, Inc. ("EVB" or "the
Corporation"). This discussion provides information about the major components
of the results of operations, financial condition, liquidity and capital
resources of the Company. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
presented elsewhere in this report.
OVERVIEW AND FINANCIAL CONDITION
Net income decreased 5.9% to $1,381,000 for the third quarter of 2000, compared
to $1,468,000 for the same period in 1999. Earnings per share decreased 3.4%
to $0.28 compared to $0.29 in the third quarter of 1999. Year-to-date earnings
per share of $0.87 are down $.01 compared to the first nine months of 1999.
Management projects earnings for the year 2000 to be slightly below the $1.17
earned in 1999; as the corporation absorbs approximately $600 thousand (pretax)
of expense related to investments in imaging technology and startup of Hanover
Bank.
7
Total assets on September 30, 2000 were $398.7 million, up $20.9 million or 5.5%
from $377.8 million at December 31, 1999. For the quarter, total assets
averaged $395.5 million or 7.0% above the third quarter 1999 average of $369.8
million. Total loans, net of unearned income, were $290.8 million at September
30, 2000, an increase of $ 16.9 million or 6.2 % from $ 273.9 million at
December 31, 1999. Total loans net of the allowance for loan losses as a
percent of total assets were 71.8% at September 30, 2000, as compared to 71.4%
at December 31, 1999. Net loan volume for the first nine months of 2000 was $
16.9 million as compared to $ 27.4 million for the first nine months of 1999.
Decreased loan growth in 2000 versus 1999, although still strong, is related
primarily to the higher interest rate environment.
On September 30, 2000, the securities portfolio totaled $ 78.6 million, which
was $9.5 million or 10.7 % less than at December 31, 1999. Funds that are
invested in the securities portfolio are part of the effort to balance the
interest rate risk. Federal funds sold were $10.5 million on September 30,
2000, compared to a net Federal funds purchased position of $1.5 million at
December 31, 1999, a net increase of $12.0 million. This increase in Federal
Funds Sold is primarily the result of management's decision to increase
liquidity by moving part of the securities portfolio to a daily funds available
position. During the third quarter of 2000, the corporation also reduced it's
borrowing with the Federal Home Loan Bank of Atlanta, from $9 million at June
30, to $7 million at September 30, or $1 million below the $8 million
outstanding at 1999 year end.
Financial Accounting Standards Board Pronouncement # 115 requires the Company to
show the effect of market changes in the value of securities available for sale
(AFS). Effective with the beginning of the second quarter of 2000, the Boards
of the subsidiary banks approved the transfer of all securities to the Available
for Sale category, eliminating the former Held to Maturity classification. The
market value of securities at September 30, 2000, was $ 78.6 million as compared
to $43.3 million Available for Sale and $44.5 million Held to Maturity at year
end 1999. The effect of the change in market value of AFS securities, net of
income taxes, is reflected in a line titled Accumulated other comprehensive
income in Stockholders' Equity, which was a negative $ 495 thousand at
September 30, 2000, compared to a negative $ 671 thousand at 1999 year end.
This $176 thousand decrease in the unrealized loss on securities is also
reflected under the "Other Comprehensive Income" category on the Consolidated
Statement of Changes in Shareholders' Equity Statement. This decrease in the
unrealized loss on securities is the result of increased market values caused by
market reaction to the recent perceived stabilization of interest rates.
Total deposits of $344.6 million at quarter end represented an increase of $
21.9 million or 6.8 % from $322.6 million at December 31, 1999. EVB offers
attractive, yet competitive rates, to maintain a strong, stable deposit base.
The third quarter reflected an increase in time deposits resulting primarily
from the May opening of Hanover Bank.
RESULTS OF OPERATIONS
Eastern Virginia Bankshares reported decreased earnings for the third quarter of
2000. Net income for the quarter was $1.4 million , a decrease of $87 thousand
from third quarter 1999 earnings of $1.5 million. Net income for the nine
months ended September 30, 2000 decreased 4.6% to $4.3 million compared to $4.5
million for the same period in 1999. Net income for the quarter was impacted by
decreasing net interest margin, and an increase in non interest expense of $329
thousand or 14.8%. Increased non interest expense was primarily the result of
previously announced initiatives that saw the opening of a new subsidiary,
Hanover Bank, in Mechanicsville in May, and the implementation of imaging
technology in January, 2000. Earnings per share for the third quarter decreased
a penny to $0.28 from $0.29 in the third quarter of 1999. Earnings per share
were $0.87 for the nine months ended September 30, 2000, down one penny from the
first nine months of 1999. Profitability as measured by the corporation's
annualized return on average assets (ROA) was 1.40% for the quarter ended
September 30. 2000, down from 1.59% for the same period of 1999. Annualized ROA
for the first nine months of 2000 was 1.46% as compared to 1.67% for the first
nine months of 1999 and 1.64% for the year ended December 31, 1999. A second
key indicator of performance, the annualized return on average equity (ROE) for
the three months ended September 30, 2000 was 12.96%, also down from 13.76% for
the third quarter of 1999. ROE for the nine month period ended September 30,
2000, was 13.51%, compared to 14.01% for the first nine months of 1999, and
13.95% for the full year 1999.
Net Interest Income
Net interest income totaled $4.0 million for the quarter, a $32 thousand or 1.0%
increase over the Company's performance for the third quarter of 1999. The
increase in net interest income is a result of an increase in the average
balance of interest earning assets partially offset by a decreased net interest
margin. For the quarter ended September 30, 2000, the average balance of
interest earning assets increased to $378.1 million from $354.5 million for the
same quarter in 1999. The increase in average earning assets is a result of an
increase of $27.7 million or 10.5% in the average balance of loans held in the
corporation's loan portfolio, combined with a 1.0% increase in average
securities and a 30% decrease in average federal funds sold. The increase in
average loans is the result of strong loan demand and management's effort to
8
redirect a portion of its excess cash reserves (fed funds sold) into higher
yielding assets.
The net interest margin for the three month period ended September 30, 2000 was
4.43%, compared to 4.71% for the comparable period in the prior year. The
decrease in net interest margin results from a 61 basis point increase in the
cost of interest bearing funds from 4.20% in 1999 to 4.81% for the third quarter
of 2000, while the yield on interest bearing assets on a taxable equivalent
basis was up by only 28 basis points, from 8.14% to 8.42% for the same periods.
The decrease in net interest margin was in line with industry results in an
environment of increased interest rates and also was impacted by borrowing with
the Federal Home Loan Bank of Atlanta.
Net interest income for the nine months ended September 30, 200 was $12.1
million, an increase of $ 468 thousand, or 4.0% from $11.7 million for the same
period in 1999. For the nine months ended September 30, 2000, average loans
increased $31.4 million to $285.2 million compared to $253.8 million for the
same period in 1999. The increase in average loans is the result of continuing
strong loan demand and management's effort to redirect a portion of its excess
cash reserves (Fed Funds Sold) into higher yielding assets. The 25 basis point
decrease in net interest margin results from a 37 basis point increase in the
cost of interest bearing funds from 4.19% in 1999 to 4.56% for the first nine
months of 2000, while the yield on interest bearing assets on a taxable
equivalent basis increased by only 13 basis points from 8.19% to 8.32% for the
same periods.
Noninterest Income
Total noninterest income, excluding securities transactions, was $533 thousand
for the quarter, a 12.2% increase from third quarter 1999 noninterest income of
$475 thousand. There were no realized gains or losses on securities during the
quarter of either year. Service charges on deposit accounts increased 20.5%
compared to third quarter 1999 as the corporation returned to more normal growth
after a service charge decrease in 1999 related to implementation of an
overdraft protection product feature. Noninterest income, excluding securities
transactions, for the nine months ended September 30, 2000 increased $246
thousand from $1.3 million in 1999 to $1.6 million in 2000, again the result of
increased service charges.
Noninterest Expense
Total noninterest expense increased $ 329 thousand or 14.8 % from $2.22 million
for the third quarter of 1999 to $2.55 million in 2000. Salary and benefits
expense increased $220 thousand or 18.5% for the quarter vs. 1999, as the result
of staffing of Hanover Bank and normal increases in salaries and benefits. Net
occupancy expense showed a decrease of $81 thousand or 21% for the quarter vs.
1999 to $306 thousand compared to $387 thousand in the same period in the prior
year, as assets reaching a fully depreciated level temporarily exceeded new
fixed assets acquired All other noninterest expenses increased $190 thousand
or 29.3% to $ 839 thousand for the third quarter of 2000 from $649 thousand for
the same period in 1999, resulting primarily from the addition of Hanover Bank
start up which accounted for a $180 thousand increase in the all other operating
expense category.
For the nine months ended September 30, 2000, total noninterest expense
increased $1.06 million (16.4%) to $ 7.50 million from $ 6.44 million for the
comparable period of 1999. The largest contributors to this increase are (1)
salaries and benefits which increased $504 thousand to $4.0 million from $3.5
million for the first nine months of 1999, with $234 thousand of this increase
attributed to the addition of Hanover Bank; occupancy and equipment expense
which increased $36 thousand or 3.5% to $1.07 million, compared to $1.03 million
for the same period of 1999, with depreciation expenses related to
implementation of imaging technology making up this entire increase; and other
noninterest expenses increasing $519 thousand or 27% to $2.44 million from $1.92
million at September 30, 1999. The primary other noninterest expense increases
included: consultant fees up $110 thousand or 184% to $170 thousand; printing
and supplies up $109 thousand or 39% to $391 thousand; directors' fees up $46
thousand or 40% to $160 thousand; state exam fee up $45 thousand or 125% to $81
thousand, partially because of payment timing differences; data processing up
$44 thousand or 28% to $197 thousand; legal fees up $41 thousand or 68% to $101
thousand; telephone up $34 thousand or 28%, and advertising/marketing up $30
thousand or 17% to $207 thousand. Hanover Bank was responsible for $293
thousand or 49% of the increase in other noninterest expenses.
9
Income Taxes
Income tax expense for the second quarter of 2000 was $471 thousand, compared to
$606 thousand for the same period in 1999. Income taxes reflect an effective
tax rate of 26.3% for the first nine months of 2000 as compared to 27.0% for
the first nine months of 1999.
Impact of the Year 2000 Issue
As reported in EVB's annual report to shareholders, the Company encountered no
problems related to the Year 2000 date change. Prior years' expenses related to
hardware and software upgrades and training proved to be effective investments
in ensuring quality customer service without interruption.
ASSET QUALITY
Asset quality continues to be good based on management review. Loan quality is
the result of management employing conservative loan underwriting standards
while meeting the needs of customers. Total nonperforming assets, which consist
of nonaccrual loans and foreclosed properties were $2.4 million at September
30, 2000, compared to $2.1 million at year end 1999, reflecting a year-to-date
increase in nonperforming assets of 14.6%. Nonperforming assets are composed
largely of real estate mortgage loans secured by residential real estate in the
Corporation's market area. Based on estimated fair values of the related real
estate, management considers these amounts recoverable, with any individual
deficiency well covered by the allowance for loan losses.
Total loan charge-offs, less recoveries, amounted to $ 116 thousand for the
quarter and $199 thousand for the first nine months of 2000, representing an
annualized ratio of net charge-offs to total average loans, net of unearned
income, of 0.16 % and 0.09% for the three and nine month periods ended
September 30, 2000. This compares to 1999 full year charge-offs of $216
thousand or 0.08% of average loans.
The allowance for loan losses increased to $4.35 million at September 30, 2000,
as compared to $4.15 million at December 31, 1999. The allowance increased $
199 thousand in the first nine months of 2000 compared to $244 thousand for the
first nine months of 1999. The increase in the allowance for loan losses during
both periods was the result of increased lending activity in the loan portfolio.
The ratio of allowance for loan losses to total loans was 1.50 % at September
30, 2000, and 1.52% at year end 1999.
10
Nonperforming loans at September 30, 2000 were $ 1.7 million, or 0.60 % of total
loans, compared to $1.8 million or 0.67% at 1999 year end. Also included in
nonperforming loans are loans considered impaired on which management is
concerned about the ability of the customer to repay the loan and related
interest at the original contractual terms. At September 30, 2000, the
corporation had no loans classified as impaired. Interest income recognized on
impaired loans as of September 30, 2000, was less than $ 1 thousand. Loans
past due 90 days or more and still accruing interest because they were well
secured and in the process of collection were $818 thousand at September 30,
2000, compared to $1.35 million at December 31, 1999.
Nonperforming Assets
September 30 December 31
------------------- -----------------
2000 1999
------- -------
Nonaccrual loans $ 1,746 $ 1,822
Restructured loans - -
Other real estate owned 620 243
------- -------
Total nonperforming assets $ 2,366 $ 2,065
------- -------
Loans past due 90 days and
accruing interest $ 818 $ 1,345
Nonperforming assets to total loans
and other real estate 0.81% 0.75%
Allowance for loan losses to
nonaccrual loans 249.31% 227.99%
Allowance for loan losses to
period end loans 1.50% 1.52%
EVB closely monitors those loans that are deemed to be potential problem loans.
Loans are viewed as potential problem loans according to the ability of such
borrowers to comply with current repayment terms. These loans are subject to
constant management attention, and their status is reviewed on a regular basis.
The potential problem loans identified at September 30, 2000 are generally
secured by residential and commercial real estate with appraised values that
exceed the principal balance. At September 30, 2000, potential problem loans
were approximately $ 915 thousand including 4 lending relationships with
principal balances in excess of $100,000 which had an aggregate principal
balance outstanding of $435 thousand.
LIQUIDITY
Liquidity represents the Company's ability to meet present and future deposit
withdrawals, to fund loans, to maintain reserve requirements and to operate the
organization. To meet its liquidity needs, EVB maintains cash reserves,
primarily as federal funds sold and has an adequate flow of funds from maturing
loans, securities and short-term investments. In addition, EVB's subsidiary
banks maintain borrowing arrangements with major regional banks, and the Federal
Home Loan Bank. As a measure to further enhance liquidity, the Corporation
reclassified all held-to-maturity securities to the available-for-sale category
effective with the beginning of the second quarter. Management considers its
sources of liquidity to be ample to meet its estimated liquidity needs.
CAPITAL RESOURCES
EVB's strong capital position provides the resources and flexibility to support
asset growth, absorb potential losses and to expand the Company's franchise when
appropriate. The Company's risk-based capital position at September 30, 2000
was $44.21 million, or 17.08% of risk-weighted assets, for Tier 1 capital and
$47.44 million, or 18.41% for total risk based capital. Tier 1 capital consists
primarily of common shareholders' equity, while total risk based capital adds a
portion of the allowance for loan losses to Tier 1. Risk weighted assets are
determined by assigning various levels of risk to different categories of assets
and off-balance sheet activities. Under current risk based capital standards,
all banks are required to have Tier 1 Capital of at least 4% and total capital
of 8%.
Inflation
In financial institutions, unlike most other industries, virtually all of the
assets and liabilities are monetary in nature. As a result, interest rates have
a more significant impact on a bank's performance than the effects of general
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levels of inflation. While interest rates are significantly impacted by
inflation, neither the timing nor the magnitude of the changes are directly
related to price level movements. The impact of inflation on interest rates,
loan demand, and deposits are reflected in the consolidated financial
statements.
Forward-Looking Statements
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The information set forth above includes "forward-looking" statements.
Although EVB believes that its expectations concerning certain statements that
are not historical facts are based upon reasonable assumptions within the bounds
of its knowledge of its business and operations, these forward-looking
statements are subject to uncertainties which could cause actual results to
differ materially from historical results or those anticipated. Therefore
readers are cautioned not to place undue reliance on forward-looking statements.
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk since 1999 year end.
FORM 10-Q PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the registrant or any of its
subsidiaries, directors or officers is a party or by which they, or any of them,
are threatened. The only litigation in which EVB and its subsidiaries are
involved are collection suits involving delinquent loan accounts in the normal
course of business.
Item 2. Changes in Securities (not applicable)
Item 3. Defaults Upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Exhibit Name
- ----------- ------------------------------------------------------------------
11 Statement re: Computation of Per Share Earnings - Included under
Part I, Item I, Note 5 of this Form 10-Q.
27 Financial Data Schedule - Included herein as Exhibit 27 on page 13
b) No reports on Form 8-K were filed during the third quarter of 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastern Virginia Bankshares, Inc.
___________________________________
/s/ Thomas M. Boyd, Jr. President and Chief Executive Officer
___________________________________
/s/ Thomas E. Stephenson Executive Vice President,
Chief Financial Officer
Date: October 26, 2000
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