- --------------------------------------------------------------------------------
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 March 31, 2002
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) 443-8423
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 May 8,
2002 was 4,890,807.
- --------------------------------------------------------------------------------
1
EASTERN VIRGINIA BANKSHARES, INC.
FORM 10-Q
For the Quarter Ended March 31, 2002
Part I
- ------
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II
- -------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and use of proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
March 31 December 31
2002 2001
(unaudited) (audited)
-------------------------------
Assets:
Cash and due from banks $ 14,823 $ 16,107
Federal funds sold 9,144 4,766
Securities available for sale at fair value 86,940 91,880
Loans, net 361,287 342,763
Deferred income taxes 1,654 1,571
Bank premises and equipment 6,395 6,161
Accrued interest receivable 2,701 2,740
Other assets 945 1,275
-------- --------
Total assets $483,889 $467,263
==============================
Liabilities and Shareholders' Equity
Liabilities
Noninterest-bearing demand accounts $ 46,078 $ 45,160
Savings accounts and interest bearing deposits 183,360 171,319
Time deposits 191,150 191,762
-------- --------
Total deposits 420,588 408,241
Long-term debt 11,000 6,000
Accrued interest payable 931 1,063
Other liabilities 3,224 4,567
-------- --------
Total liabilities 435,743 419,871
Shareholders' Equity
Common stock of $2 par value per share, authorized
50,000,000 shares, issued and outstanding
4,892,521 and 4,901,095 respectively 9,785 9,802
Retained earnings 37,489 36,627
Accumulated other comprehensive income 872 963
-------- --------
Total shareholders' equity 48,146 47,392
Total liabilities and shareholders' equity $483,889 $467,263
==============================
See Notes to Consolidated Financial Statements
3
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 Months Ended
March 31
2002 2001
---- ----
Interest Income:
Loans $ 7,135 $ 6,794
Interest on investments
Taxable interest income 721 708
Tax exempt interest income 461 432
Dividends 30 46
Interest on federal funds sold 12 66
------- -------
Total interest and dividend income 8,359 8,046
Interest Expense
Deposits 3,010 3,821
Short-term borrowings 6 6
Long-term debt 90 104
------- -------
Total interest expense 3,106 3,931
------- -------
Net interest income 5,253 4,115
Provision for loan losses 425 264
------- -------
Net interest income after provision for loan losses 4,828 3,851
Other income
Service charges on deposit accounts 494 438
Gain on sale of available for sale securities 2 -
Other operating income 228 183
------- -------
724 621
------- -------
Other Expenses
Salaries and benefits 1,935 1,457
Net occupancy expense of premises 412 402
Printing and supplies 130 88
Other operating expenses 891 695
------- -------
3,368 2,642
------- -------
Income before income taxes 2,184 1,830
Income Tax Expense 572 483
------- -------
Net income $ 1,612 $ 1,347
===================
Earnings Per Share, basic and assuming dilution $ 0.33 $ 0.27
Dividends per share $ 0.13 $ 0.13
See Notes to Consolidated Financial Statements
4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended
---------------------
March 31 March 31
2002 2001
---- ----
Cash Flows from Operating Activities
Net income $ 1,612 $ 1,347
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization/accretion 236 237
Provision for loan losses 425 264
Gain realized on available for sale securities (2) -
Net gain on sale of OREO - (31)
Decrease in other assets 369 237
Decrease in other liabilities (1,512) (282)
-------- --------
Net cash provided by operating activities 1,128 1,772
Cash Flows from Investing Activities
Proceeds from maturities, calls, and paydowns of securities 5,970 4,977
Purchase of debt securities (1,015) (2,940)
Purchase of FHLB and Federal Reserve Bank stock (160) (33)
Net increase in loans (18,949) (6,654)
Purchases of bank premises and equipment (460) (519)
Proceeds from sale of OREO - 111
-------- --------
Net cash (used in) investing activities (14,614) (5,058)
Cash Flows from Financing Activities
Net increase in noninterest bearing and interest bearing
demand deposits and savings accounts 12,959 5,366
Net increase (decrease) in certificates of deposit (612) 8,489
Acquisition of common stock (209) (406)
Issuance of common stock under dividend reinvestment plan 78 -
Dividends declared (636) (643)
Increase (decrease) in borrowings 5,000 (1,048)
-------- --------
Net cash provided by financing activities 16,580 11,758
-------- --------
Increase in cash and cash equivalents 3,094 8,472
Cash and cash equivalents
Beginning of period 20,873 16,091
-------- --------
End of period $ 23,967 $ 24,563
=========================
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest on deposits and other borrowings $ 3,238 $ 3,888
Income taxes $ - $ 159
See Notes to Consolidated Financial Statements
5
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Three Months Ended March 31, 2002 and 2001
(Dollars in thousands)
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital
Total Income Earnings Income Stock Surplus
----- ------ -------- ------ ----- -------
Balances - January 1, 2001 $45,031 $ 34,338 $ 207 $ 9,897 $ 589
Comprehensive income:
Net income 1,347 1,347 1,347
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period 987 987 987
Less: reclassification adjustment - - -
------- ------ -----
Other comprehensive income, net of tax 987 987 987
------- ------ -----
Total comprehensive income $2,334
------
Repurchases and retirement of stock (406) (54) (352)
Dividends declared (643) (643) - - -
------- -------- ----- ------- ------
Balances-March 31, 2001 $46,316 $ 35,042 $1,194 $ 9,843 $ 237
------- -------- ------ ------- ------
Balances - January 1, 2002 $47,392 $ 36,627 $ 963 $ 9,802 $ -
Comprehensive income:
Net income 1,612 1,612 1,612
Other comprehensive income (loss), net of tax
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period (92) (92) (92)
Less: reclassification adjustment 1 1 1
------- ------ ------
Other comprehensive income (loss), net of tax (91) (91) (91)
------- ------ ------
Total comprehensive income $1,521
------
Repurchases and retirement of stock (209) (182) (27)
Issuance of stock under dividend reinvestment plan 78 68 10
Dividends declared (636) (636) - - -
------- -------- ------ ------- ------
Balances-March 31, 2002 $48,146 $ 37,489 $ 872 $ 9,785 $ -
======= =============================================
See Notes to Consolidated Financial Statements
6
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 March 31, 2002; the Consolidated
Statements of Income, the Consolidated Statement of Cash Flows, and the
Consolidated Statement of Changes in Shareholders' Equity for the three-
month periods ended March 31, 2002, and March 31, 2001, were prepared in
accordance with instructions for Form 10-Q, are unaudited and do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States of America 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 March 31, 2002. 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, 2001.
2. Eastern Virginia Bankshares (the "Company or EVB") was organized and
chartered under the laws of the Commonwealth of Virginia on September 5,
1997 and commenced operations effective December 29, 1997 when Southside
Bank (SSB) and Bank of Northumberland, Inc. (BNI) became wholly owned
subsidiaries of EVB. The transaction was accounted for using the
pooling-of-interest method of accounting. The Corporation opened its third
subsidiary in May, 2000 when Hanover Bank began operations in Hanover
County, VA.
3. During the three months ended March 31, 2002, the corporation repurchased
13,500 shares of its common stock at an average price of $15.47. The
repurchase and retirement of shares is part of the Board's authorization in
January, 2001, to repurchase up to 300,000 shares from the 4.9 million
shares outstanding, and including 50,274 shares repurchased in 2001, brings
the total shares purchased under this authorization to 63,774 shares.
4. The results of operations for the three-month periods ended March 31,
2002 and 2001, 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 4,897,944 and 4,931,548 for
the three months ended March 31, 2002 and 2001.
6. EVB's amortized cost and estimated fair values of securities at March 31,
2002 are as follows:
(in thousands)
March 31, 2002
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------
Available for Sale:
U.S. Government obligations $ 3,756 $ 58 $ - $ 3,814
Obligations of U.S. Government agencies 23,872 280 112 24,040
Obligations of state/political subdivisions-tax exempt 39,122 933 171 39,884
Obligations of state/political subdivisions-taxable 6,686 215 64 6,837
Corporate bonds 9,551 259 76 9,734
Equity securities 2,631 - - 2,631
-------- ------- ------ --------
Total $ 85,618 $ 1,745 $ 423 $ 86,940
=================================================
7
Note 7. EVB's loan portfolio is composed of the following:
(in thousands)
March 31 December 31
2002 2001
===========================
Commercial, industrial and agricultural loans $ 43,655 $ 43,809
Residential real estate mortgage 186,476 179,641
Real estate construction 13,198 10,708
Commercial real estate 58,749 49,239
Consumer loans 69,070 68,605
All other loans 263 652
--------- ---------
Total loans 371,411 352,654
Less unearned income (4,563) (4,657)
Less allowance for loan losses (5,561) (5,234)
--------- ---------
Total net loans $ 361,287 $ 342,763
===========================
EVB has $5.5 million in non-performing loans at March 31, 2002.
Note 8. Allowance for Loan Losses
March 31 December 31 March 31
2002 2001 2001
-------------------------------------------
Balance January 1 $ 5,234 $ 4,408 $ 4,408
Provision charged against income 425 2,183 264
Recoveries of loans charged off 54 298 68
Loans charged off (152) (1,655) (257)
--------- -------- --------
Balance at end of period $ 5,561 $ 5,234 $ 4,483
===========================================
Note 9. Accounting Rule Changes
There were no new Financial Accounting Standards Board promulgations in the
first quarter of 2002 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. 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. Operating results include Southside Bank, Bank of Northumberland,
Inc., Hanover Bank and subsidiaries of the banks combined for all periods
presented.
Forward-Looking Statements
Certain statements in this report may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
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.
8
Critical Accounting Policies
General
The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States (GAPP). The financial
information contained within our statements is, to a significant extent,
financial information that is based on measures of the financial effects of
transactions and events that have already occurred. A variety of factors could
affect the ultimate value that is obtained either when earning income,
recognizing an expense, recovering an asset or relieving a liability. We use
historical loss factors as one factor in determining the inherent loss that may
be present in our loan portfolio. Actual losses could differ substantially from
the historical factors that we use. In addition, GAPP itself may change from one
previously acceptable method to another method. Although the economics of our
transactions would be the same, the timing of events that would impact our
transactions could change.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained
in our loan portfolio. The allowance is based on two basic principles of
accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses
be accrued when they are probable of occurring and estimable and (ii) SFAS 114,
Accounting by Creditors for Impairment of a Loan, which requires that losses be
accrued based on the differences between the value of the collateral, present
value of future cash flows or values that are observable in the secondary market
and the loan balance.
Our allowance for loan losses has two basic components: the formula allowance
and the specific allowance. Each of these components is determined based upon
estimates that can and do change when the actual events occur. The formula
allowance uses a historical loss view as an indicator of future losses and, as a
result, could differ from the loss incurred in the future. However, since the
history is updated with the most recent loss information, the errors that might
otherwise occur are mitigated. The formula allowance is revised as deemed
appropriate to capture losses that are attributable to economic events and
industry or geographic sectors whose impact on the portfolio have occurred but
have yet to be recognized in the specific allowance. The specific allowance uses
various techniques to arrive at an estimate of loss. Historical loss
information, current level of nonaccrual loans, current level of unsecured loans
past due 30 to 89 days and the fair market value of collateral are used to
estimate these losses. The use of these values is inherently subjective and our
actual losses could be greater or less than the estimates.
OVERVIEW AND FINANCIAL CONDITION
Net income increased 19.7% to $1,612,000 for the first quarter of 2002, compared
to $1,347,000 for the same period in 2001. Earnings per share increased 22.2% to
$0.33, compared to $0.27 in the first quarter of 2001. The earnings increase was
fueled by a 27.7% increase in net interest income, primarily the result of a 47
basis point increase in net interest margin and a 16.9% increase in average
loans outstanding, compared to the first quarter of the prior year.
On a sequential quarter over quarter basis, net income improved $508 thousand
while the net interest margin increased from 4.44% to 4.93%. The provision for
loan losses was up $161 thousand over the first quarter of 2001, but down $639
thousand from the immediate prior quarter. The increase in the provision
compared to the first quarter of the prior year results from a combination of
substantial loan growth and an increase in nonperforming loans. The decrease
compared to the fourth quarter of 2001 is primarily because of an increased
provision in that quarter for a single commercial loan relationship.
Total assets on March 31, 2002 were $483.9 million, up $16.6 million or 3.6%
from $467.3 million at December 31, 2001. For the first three months of 2002,
total assets averaged $468.6 million, 14.6 % above the first three months of
2001 average of $408.9 million. Total loans, net of unearned income, amounted to
$366.8 million at March 31, 2002, an increase of $18.8 million or 5.4% from
$348.0 million at December 31, 2001. At March 31, 2002, total loans, net of
unearned income and allowance for loan losses, were $361.3 million. Net loans as
a percent of total assets were 74.7% at March 31, 2002, as compared to 73.4% at
December 31, 2001. Net loan volume for the first three months of 2002 was $18.5
million as compared to $6.4 million for the first three months of 2001.
Increased loan growth in 2002 versus 2001 is related primarily to three new
branch offices opened in 2001.
9
On March 31, 2002, the securities portfolio totaled $ 86.9 million, which was
$4.9 million or 5.4 % less than at December 31, 2001. Funds that are invested in
the securities portfolio are part of the effort to balance the interest rate
risk. Federal funds sold were $9.1 million on March 31, 2002, compared to an
$4.8 million at year end 2001. This increase in Federal Funds Sold is primarily
the result of a shift of a part of the securities portfolio into immediately
available funds in response to record loan demand.
Financial Accounting Standards Board Pronouncement # 115 requires the Company to
show the effect of market changes in the value of securities available for sale.
The effect of the change in market value of securities, net of income taxes, is
reflected in a line titled Accumulated other comprehensive income in
Stockholders' Equity, which was $872 thousand at March 31, 2002, a decrease of
$91 thousand from 2001 year end. This decrease in the unrealized gain on
securities is also reflected under the "Accumulated Other Comprehensive Income"
category on the Consolidated Statement of Changes in Shareholders' Equity
Statement.
Total deposits of $420.6 million at quarter end represented an increase of $12.3
million or 3.0 % from $408.2 million at December 31, 2001. EVB offers
attractive, yet competitive rates, to maintain a strong stable deposit base. The
quarter reflected an increase in demand, savings and money market deposits,
offset by a slight decrease in certificates of deposit as depositors reacted to
lowered interest rates by seeking shorter maturities.
RESULTS OF OPERATIONS
Eastern Virginia Bankshares, Inc. reported significantly increased earnings for
the first quarter of 2002. Net income for the quarter was $1.6 million, an
increase of $265 thousand from first quarter 2001 earnings of $1.35 million. Net
income for the first quarter was impacted by an increased net interest margin
compared to first quarter 2001. Noninterest expense increased $726 thousand
compared to the first quarter of 2001 which did not yet have the expenses of two
new Hanover Bank branches or of Hanover Bank's investment subsidiary EVB
Investments, Inc, all of which opened in the second half of 2001. Yield on
earning assets was 7.73% for the quarter, as compared to 8.53% for the same
period in 2001. The cost of interest bearing liabilities for the three month
period ended March 31, 2002 was 3.37% as compared to 4.93% for the comparable
period in 2001. Return on average assets was 1.39% for the quarter, compared
with 1.34% for the same period in 2001. EVB's return on average equity was
13.70% for the quarter, compared to 12.23% for the same period in the prior
year.
Net Interest Income
Net interest income totaled $5.3 million for the quarter, a $1.14 million
increase over the Company's performance for the first quarter of 2001. The
increase in net interest income results almost evenly from an increase in
average earning assets and an increase in net interest margin on a taxable
equivalent basis. Average earning assets increased 14.7% to $449.2 million from
$391.7 million for the first three months of 2001. Compared to the same period
in 2001, average loans increased 16.9% and average securities 9.2%, while
average federal funds sold decreased 34.3%. The net interest margin for the
three month period ended March 31, 2002 was 4.93%, compared to 4.46% for the
comparable period in the prior year. The increase in net interest margin results
from an 80 basis point decrease in yield on average earning assets which was
more than offset by a 156 basis point decrease in the cost of interest bearing
funds. With an asset/liability mix that was positioned at year end for stable
interest rates, the net interest margin has expanded each month of the first
quarter as certificates of deposit issued in the higher interest rate
environment of year 2000 are maturing and being renewed at much lower market
rates.
Noninterest Income
Noninterest income was $724 thousand for the quarter, a 16.6% increase from the
first quarter 2001 noninterest income of $621 thousand. Realized gains and
losses on securities include a $2 thousand gain on a bond call in the first
quarter of 2002, compared to no gain or loss transactions in the first quarter
of 2001. Service charges on deposit accounts of $494 thousand reflected a 12.8%
increase from $438 thousand in the quarter ended March 31, 2001, primarily the
result of an increased volume of deposit accounts. Other operating income was up
24.6% to $228 thousand, compared to $183 thousand in the three months ended
March 31, 2001, with all of the increase being attributed to non deposit
investment service fees produced by EVB Investments, Inc.
10
Noninterest Expense
Total noninterest expense increased $726 thousand or 27.5% from $2.64 million
for the first quarter of 2001 to $3.37 million in 2002. The increase in
noninterest expense is the result of overall growth of the Company including
expenses of EVB Investments, Inc and two new Hanover Bank offices, all of which
opened in the second half of 2001. These three initiatives account for $250
thousand or 34% of the increase. Salary and benefits expense increased $478
thousand or 32.8% for the quarter vs. 2001. Net occupancy and equipment expense
increased $ 10 thousand or 2.5 % compared to the same quarter of 2001 to $412
thousand. All other noninterest expense increased $238 thousand or 30.4% to
$1.02 million for the first quarter of 2002 from $783 thousand for the same
period in 2001. The largest contributors to the other noninterest expense
increase were telephone - up $62 thousand or 88% the result of a combination of
new branch offices, increased telecommunications services in 2002, and a $25
thousand refund of prior year overcharges received by Southside Bank in
February, 2001; legal and collection up $44 thousand or 132% primarily related
to recovery efforts on one loan charged off in 2001 and for which additional
legal expenses are likely; printing and supplies up $42 thousand or 48%; data
processing up $24 thousand or 39% and education/training up $19 thousand or 152%
primarily related to training for the projected mid year roll out of EVB's
internet banking product.
Income Taxes
Income tax expense for the first quarter of 2002 was $572 thousand, compared to
$483 thousand for the same period in 2001. Income taxes reflect an effective tax
rate of 26.2% in the first quarter of 2002 as compared to 26.4% for the first
three months of 2001 and 25.3% for the full year 2001.
ASSET QUALITY
The Corporation's allowance for loan losses is an estimate of the amount needed
to provide for potential losses in the loan portfolio. In determining the
adequacy of the allowance, management considers the Corporation's historical
loss experience, the size and composition of the loan portfolio, specific
impaired loans, the overall level of nonperforming loans, the value and adequacy
of collateral and guarantors, and economic conditions. EVB was not immune to the
declining economic environment experienced beginning in 2001, with a resultant
increase in nonperforming loans. Total nonperforming assets, which consist of
nonaccrual loans and foreclosed properties were $5.5 million at March 31, 2002,
compared to $4.7 million at December 31, 2001, reflecting a 19.1% increase
compared to 2001 year end. Nonperforming loans have fluctuated from a level of
$4.7 million to $6.1 million for the past seven months. Although the March 31,
2002 amount exceeds that at year end, it is down $500 thousand from February
month end and below the nonperforming level at October and November month ends.
EVB's reporting of nonperforming loans is somewhat more conservative than its
peers as it reports all loans that have been over 90 days delinquent and have
not been brought completely current as nonperforming, without regard to how well
secured the loan may be or how remote the risk of loss. During the quarter,
nonperforming loans secured by real estate increased $710 thousand and
nonperforming consumer loans increased by $263 thousand while nonperforming
commercial loans decreased by $98 thousand. Nonperforming assets are composed
largely (70.7%) of loans secured by real estate in the Company'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 $98 thousand for the
quarter, representing an annualized ratio of net charge-offs to total average
loans, net of unearned income, of 0.11 %. This compares to 2001 full year
charge-offs of $1.36 million or 0.43% of average loans and first quarter 2001
net charge-offs of $189 thousand or an annualized ratio of net charge-offs of
0.25%.
The allowance for loan losses increased to $5.56 million at March 31, 2002, as
compared to $5.23 million at December 31, 2001. The allowance increased $327
thousand in the first three months of 2002 as compared to $75 thousand for the
first three months of 2001. The increase in the allowance for loan losses during
both periods was the result of increased lending activity in the loan portfolio
and management's review of the level of nonperforming loans. The ratio of
allowance for loan losses to total loans was 1.51 % at March 31, 2002, compared
to 1.50% at year end and 1.46% at March 31, 2001.
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 March 31, 2002, the
Corporation reported $40 thousand of impaired loans. The average balance of
impaired loans for the first three months of 2002 was $5 thousand.
11
Nonperforming Assets March 31 December 31
-------- -----------
(Dollars in thousands) 2002 2001
---- ----
Nonaccrual loans $ 5,518 $ 4,651
Restructured loans - -
Loans past due 90 days and accruing interest 33 9
------- -------
Total nonperforming loans $ 5,551 $ 4,660
Other real estate owned - -
------- -------
Total nonperforming assets $ 5,551 $ 4,660
Nonperforming assets to total loans and
other real estate 1.50% 1.34%
Allowance for loan losses to nonaccrual loans 100.78% 112.52%
Net charge-offs to average loans for the year 0.11% 0.43%
Allowance for loan losses to period end loans 1.51% 1.50%
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 March 31, 2002 are generally secured
by residential and commercial real estate with appraised values that exceed the
principal balance. At March 31, 2002, potential problem loans, most of which are
included in the nonperforming asset figures above, were approximately $1.169
million including three lending relationships with principal balances in excess
of $100,000 which had an aggregate principal balance outstanding of $308
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, the Federal
Reserve Bank and with the Federal Home Loan Bank. 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 March 31, 2002 was
$47.27 million, or 14.36% of risk-weighted assets, for Tier 1 capital and $51.41
million, or 15.62% 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
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.
12
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk since 2001 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.
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/ Ned Stephenson President and Chief Executive Officer
- -----------------------------------
/s/ Ronald L. Blevins Vice President and Chief Financial Officer
Date: May 9, 2002
13