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, 1998
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 October
26, 1998 was 5,174,832.
<PAGE>
EASTERN VIRGINIA BANKSHARES, INC.
FORM 10-Q
For the Quarter Ended September 30, 1998
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 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 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
September 30 December 31
1998 (1) 1997
-------- ----
Assets:
Cash and due from banks $ 9,610 $ 9,319
Interest-bearing deposits, in other banks 100 100
Federal funds sold 15,764 2,642
Securities available for sale at fair value 36,180 38,912
Securities held to maturity at amortized cost
fair value of $43,907 and $39,350 42,448 38,362
Loans, net 230,633 224,113
Deferred income taxes 1,093 1,243
Bank premises and equipment 4,829 4,200
Accrued interest receivable 2,553 2,479
Other real estate 68 86
Federal Home Loan Bank and Federal
Reserve stock, at cost 956 824
Other assets 1,058 1,150
------ -----
Total assets $ 345,292 $ 323,430
----------- ----------
Liabilities and Shareholders' Equity
Liabilities
Noninterest-bearing demand accounts $ 30,888 $ 29,095
Savings accounts and interest bearing deposits 129,225 118,111
Time deposits 140,086 133,676
-------- -------
Total deposits 300,199 280,882
Accrued interest payable 835 794
Other liabilities 2,204 2,489
------ -----
Total liabilities 303,238 284,165
Shareholders' Equity
Common stock of $2 par value per share, authorized
50,000,000 shares, issued and outstanding
5,174,832 and 5,188,576 respectively 10,350 10,377
Surplus 220 221
Retained earnings 31,063 28,535
Accumulated other comprehensive income 421 132
--------- --------
Total shareholders' equity 42,054 39,265
Total liabilities and shareholders' equity $ 345,292 $ 323,430
----------- ----------
(1) Unaudited
See Notes to Consolidated Financial Statements
<PAGE>
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C>
Interest Income:
Loans $ 5,350 $ 5,055 $ 15,977 $ 14,851
Interest on investment securities:
Taxable 15 35 157 105
Tax exempt 449 517 1,347 1,410
Interest on securities available for sale:
Taxable 652 581 1,747 1,948
Tax exempt 14 -- 14 --
Dividends 3 21 34 31
Interest on federal funds sold 237 117 577 287
Interest on deposits in other banks 1 -- 4 --
-------- -------- -------- --------
Total interest income 6,721 6,326 19,857 18,632
Interest Expense
Deposits 3,018 2,832 8,848 8,253
Short-term borrowings -- -- -- 6
-------- -------- -------- --------
Total interest expense 3,018 2,832 8,848 8,259
-------- -------- -------- --------
Net interest income 3,703 3,494 11,009 10,373
Provision for loan losses 116 90 354 262
-------- -------- -------- --------
Net interest income after provision for loan losses $ 3,587 $ 3,404 $ 10,655 $ 10,111
Other income --
Service charges on deposit accounts 347 290 1,017 847
Gain (loss) on sale of available for sale securities -- 8 8 (17)
Other operating income 77 70 291 210
-------- -------- -------- --------
424 368 1,316 1,040
-------- -------- -------- --------
Other Expenses
Salaries and benefits 1,049 844 3,067 2,457
Net occupancy expense of premises 376 296 991 857
Other operating expenses 684 584 2,121 1,796
-------- -------- -------- --------
2,109 1,724 6,179 5,110
-------- -------- -------- --------
Income before income taxes 1,902 2,048 5,792 6,041
Income Tax Expense 577 545 1,555 1,541
-------- -------- -------- --------
Net income $ 1,325 $ 1,503 $ 4,237 $ 4,500
-------- -------- -------- --------
Earnings Per Share, basic and assuming dilution(1) $ 0.26 $ 0.29 $ 0.82 $ 0.86
Dividends per share(1) $ 0.11 $ -- $ 0.33 $ 0.12
</TABLE>
(1) Share and per share amounts for 1997 have been restated to reflect the
December 29, 1997 reorganization whereby Southside Bank and Bank of
Northumberland, Inc. shareholders exchanged their stock in those companies for
stock of the Corporation.
See Notes to Financial Statements
<PAGE>
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months
Ended
September 30
1998 1997
---- ----
Cash Flows from Operating Activities
Net income $ 4,237 $ 4,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 541 455
Accretion of discounts and amortization of premiums, net (78) (12)
Provision for loan losses 354 262
Losses (gains) realized on available for sale securities (8) 17
(Increase) decrease in other assets (328) (351)
Increase (decrease) in other liabilities (244) (348)
----- -----
Net cash provided by operating activities 4,474 4,523
Cash Flows from Investing Activities
Proceeds from maturities, calls, paydowns and sales
of available for sale securities 25,418 12,246
Purchase of securities available for sale (22,153) (7,033)
Proceeds from calls and maturities of investment securities 3,884 2,943
Purchase of investment securities (7,986) (4,526)
(Purchase) sale of FHLB and Federal Reserve Bank stock (132) (55)
Net (increase) decrease in loans (6,520) (15,419)
Purchases of bank premises and equipment (1,170) (734)
Proceeds from sale of OREO 18 12
--- --
Net cash (used in) investing activities (8,641) (12,566)
Cash Flows from Financing Activities
Net increase in noninterest bearing and interest bearing
demand deposits and savings accounts 12,907 3,801
Net increase in certificates of deposit 6,410 3,329
Proceeds from sale of common stock - 74
Acquisition of common stock (28) (56)
Dividends declared (1,709) (620)
------- -----
Net cash provided by financing activities 17,580 6,528
------- -----
Increase (decrease) in cash and cash equivalents 13,413 (1,515)
Cash and cash equivalents
Beginning of period 12,061 14,616
------- ------
End of period $25,474 $13,101
------- -------
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest on deposits and other borrowings $8,848 $8,202
Income taxes $1,555 $1,691
See Notes to Consolidated Financial Statements
<PAGE>
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Nine Months Ended September 30, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital
Total Income Earnings Income Stock Surplus
----- ------ -------- ------ ------ -------
<S> <C>
Balances - January 1, 1997 $35,456 $ 24,977 $ (101) $10,374 $ 206
Comprehensive income:
Net income 4,500 4,500 4,500
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period 20 20 20
Less: reclassification adjustment (17) (17) (17)
----- ----- -----
Other comprehensive income, net of tax 3 3 3
----- ----- -----
Total comprehensive income 4,503 4,503
Shares sold under dividend reinvestment plan 74 12 62
Shares purchased and retired (56) (8) (48)
Dividends declared (620) (620) -
------- -------
Balances-September 30, 1997 $39,357 $28,857 $ (98) $10,378 $220
-------- ------- ------ ------- -----
Balances - January 1, 1998 $39,265 $28,535 $ 132 $10,378 $220
Comprehensive income:
Net income 4,237 4,237 4,237
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities available for sale
Unrealized holding gain/(loss) arising during the period 297 297 297
Less: reclassification adjustment 8 8 (8)
------- ------
Other comprehensive income, net of tax 289 289
------- ------
Total comprehensive income $4,526
------
Shares retired (28) (28)
Dividends declared (1,709) (1,709) - - -
------- ------ ----- ----- -----
Balances-September 30, 1998 $42,054 $31,063 $ 421 $10,350 $220
-------- ------- ----- ------- -----
</TABLE>
<PAGE>
EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The Consolidated Balance Sheet as of September 30, 1998, the Consolidated
Statements of Income for the three-month and nine month periods ended
September 30, 1998, and September 30, 1997, the Consolidated Statement of
Cash Flows for the nine-month periods ended September 30, 1998, and September
30, 1997, and the Consolidated Statement of Changes in Shareholders' Equity
for the nine-month periods ended September 30, 1998, and September 30, 1997,
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, 1998. 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, 1997.
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. Accordingly, the financial statements of EVB have been
restated for all periods presented to reflect the consolidation of SSB and
BNI into EVB.
3. The results of operations for the three-month and nine-month periods ended
September 30, 1998 and 1997, are not necessarily indicative of the results to
be expected for the full year.
4. 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 5,183,894 and 5,188,617 for the nine months
ended September 30, 1998 and 1997, and 5,174,832 and 5,190,704 for the three
months ended September 30, 1998 and 1997.
5. EVB's amortized cost and estimated fair values of securities at September 30,
1998 are as follows:
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998
--------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------- -------- -------- --------
<S> <C>
Available for Sale:
U.S. Government obligations $ 11,160 $ 242 $ -- $ 11,402
Obligations of U.S. Government agencies 22,464 358 27 22,795
Obligations of state/political subdivisions 1,655 65 -- 1,720
Other securities 263 -- -- 263
-------- -------- -------- --------
35,542 665 27 36,180
Held to Maturity:
Obligations of state/political subdivisions 40,416 1,441 (16) 41,841
Corporate bonds 2,032 34 -- 2,066
-------- -------- -------- --------
42,448 1,475 (16) 43,907
-------- -------- -------- --------
Total 77,990 $ 2,140 $ 11 80,087
-------- -------- -------- --------
</TABLE>
<PAGE>
Note 6. EVB's loan portfolio is composed of the following:
(in thousands)
September 30 December 31
1998 1997
------------ -----------
Real estate - construction $ 7,086 $ 6,430
Real estate - mortgage 127,297 118,639
Commercial real estate 22,367 27,324
Commercial, industrial and
agricultural loans 29,548 32,901
Installment loans to individuals 51,494 45,723
All other loans 603 294
------- -------
Total loans 238,395 231,311
Less unearned income (3,751) (3,330)
Less allowance for loan losses (4,011) (3,868)
------- -------
Total net loans $ 230,633 $ 224,113
----------- ----------
EVB has $2.16 million in non-performing loans at September 30, 1998.
Note 7. Allowance for Loan Losses
September 30 December 31
1998 1997
------------ ------------
Balance January 1 $ 3,868 $ 3,643
Provision charged against income 354 412
Recoveries of loans charged off 177 459
Loans charged off (388) (645)
----- -----
Balance at end of period $ 4,011 $ 3,869
--------- --------
Note 8. Accounting Rule Changes
In June, 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
effective for financial statements beginning after December 31, 1997. During the
first quarter of 1998, the Company adopted this rule change. Adoption of this
standard did not impact EVB's financial position, results of operations, or cash
flow. The consolidated Statement of Changes in Shareholders' Equity has been
revised to include columns for comprehensive income and accumulated other
comprehensive income. Comprehensive income for the company includes net income
plus the change in unrealized gain or loss on securities available for sale.
Accumulated other comprehensive income includes the cumulative changes in
unrealized gain or loss on securities available for sale.
During June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SAS No. 131 establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement, effective for periods beginning after December 31,
1997, also establishes standards for related disclosures about products and
services, geographic areas and major customers. Adoption of this standard has
not impacted the Company's consolidated financial position, results of
operations or cash flow.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Post-retirement Benefits." This pronouncement revises
employers' disclosures about pension and other post-retirement benefits, but
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. Adoption of this
standard has not impacted the Company's consolidated financial position, results
of operations or cash flow, and any effects are limited to the form and content
of its disclosures.
<PAGE>
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
Company"). 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 and
Bank of Northumberland, Inc. combined for all periods presented.
OVERVIEW AND FINANCIAL CONDITION
On December 29, 1997, EVB brought together into one holding company two
independent community banks, Southside Bank and Bank of Northumberland, Inc.
Total assets on September 30, 1998 were $345.3 million, up $ 21.9 million or
6.8% from $ 323.4 million at December 31, 1997. For the first nine months of
1998, total assets averaged $334.4 million, 6.5 % above the first nine months of
1997 average of $314.0 million.
Total loans, net of unearned income, amounted to $234.6 million at September 30,
1998, an increase of $ 6.6 million or 2.9 % from $ 228.0 million at December 31,
1997. At September 30, 1998 total loans net of unearned income and allowance for
loan losses were $230.6 million. Net loans as a percent of total assets were
66.8% at September 30, 1998, as compared to 69.3% at December 31, 1997. Net loan
volume for the first nine months of 1998 was $ 6.5 million as compared to $ 15.4
million for the first nine months of 1997. Slower loan growth in 1998 versus
1997 is related to a consumer trend toward secondary market, long-term,
fixed-rate mortgages and away from the Company's variable rate mortgages. In
response to this change in loan demand, the Company introduced a long-term,
fixed rate mortgage product in the third quarter of 1998.
On September 30, 1998, the securities portfolio totaled $ 78.6 million, which
was $ 1.35 million or 1.8 % higher than at December 31, 1997. Funds that are
invested in the securities portfolio are part of the effort to balance the
interest rate risk. Federal funds sold were $15.8 million on September 30, 1998,
$ 13.1 million or 496.7 % higher than the $2.6 million outstanding at December
31, 1997. This significant increase in Federal Funds Sold is primarily the
result of management's intent to increase liquidity above December 31, 1997
levels and, to a lesser degree, a result of soft loan demand. In the first nine
months of 1998, as funds became available they were utilized for lending
activities and to the extent that deposit growth outpaced loan demand, funds
were invested as short-term Federal Funds Sold which currently provides a
significantly greater yield than investments in U.S Treasury securities.
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). The market value of securities available for sale at September 30, 1998,
was $36.2 million as compared to $38.9 million at year end 1997. 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 $ 421 thousand at September 30, 1998, an increase of $ 289 thousand
from 1997 year end. Stable to decreasing interest rates during the first nine
months of 1998 have resulted in increased securities values as compared to 1997
year end. This $289 thousand increase in the unrealized gain on AFS securities
is also reflected under the Other Comprehensive Income category on the
Consolidated Statement of Changes in Shareholders' Equity Statement.
Total deposits reached $300 million for the first time in the company's history
as they increased $ 19.3 million or 6.9 % to $300.2 million at September 30,
1998, compared to $ 280.9 million at December 31, 1997. EVB offers attractive,
yet competitive rates, that continue to contribute to increased deposits.
<PAGE>
RESULTS OF OPERATIONS
Eastern Virginia Bankshares, Inc. reported lower earnings for the third quarter
of 1998. Net income for the quarter was $ 1.3 million, a decrease of $ 178
thousand from the third quarter 1997 earnings of $1.5 million. Net income for
the first nine months of 1998 amounted to $ 4.2 million, decreasing $ 263
thousand or 5.8 % from $ 4.5 million for the first nine months of 1997. Net
income for the first nine months was negatively impacted by merger expenses of
$93 thousand and differences in the timing of expense recognition compared to
1997 by $171 thousand. The yield on earning assets was 8.54% and 8.40% for the
quarter and the first nine months of 1998 respectively, as compared to 8.64% and
8.44 % for the same periods in 1997. The cost of interest bearing liabilities
for the three month and nine month periods ended September 30, 1998 was 4.52% as
compared to 4.33% and 4.48% for the comparable periods in 1997. Return on
average assets was 1.52% for the quarter and 1.68% for the first nine months of
1998, compared with 1.90% and 1.93% for the same periods in 1997, and 1.68% for
the year 1997. EVB's return on average equity was 12.72% and 13.68% for the
quarter and the first nine months of 1998, compared to 15.57% and 16.03% for the
same periods in 1997, and 13.97% for the year 1997.
Net Interest Income
Net interest income totaled $ 3.6 million for the quarter and $10.7 million for
the first nine months of 1998, a $ 183 thousand increase over the Company's
performance for the third quarter of 1997 and a $ 544 thousand increase over the
first nine months of 1997. The net interest margin for the three month and nine
month periods ended September 30, 1998 was 4.89% and 4.73% compared to 4.93% and
4.77% for the comparable periods in the prior year.. The deterioration in net
interest margin results from a combination of small decreases in loan and
securities yields combined with a small increase in the cost of interest bearing
funds. Loan yield was negatively impacted by soft loan demand while interest
cost increased because of the success of a newly introduced Super Saver product.
Noninterest Income
Total noninterest income was $424 thousand for the quarter and $1.3 million for
the first nine months, a 15.2% increase from the second quarter of 1997, and a
26.5% increase over the first nine months of 1997. There were no gains or losses
on securities sales during the quarter compared to an $ 8 thousand gain in 1997.
For the nine months ended September 30, 1998, securities gains totaled $8
thousand compared to a $17 thousand loss for the same period in 1997. Service
charges on deposit accounts and other income increased $64 thousand for the
quarter and $ 251 thousand for the first nine months, compared to 1997.
Noninterest Expense
Total noninterest expense increased $385 thousand or 22.3 % from $1.72 million
for the third quarter of 1997 to $2.11 million for the same quarter in 1998, and
$ 1.1 million or 20.9 % for the nine months ended September 30, 1998. Salary
expense increased $205 thousand or 24.3% for the quarter vs. 1997, and $610
thousand or 24.8% compared to the first nine months of 1997, as the result of
increases in salaries and benefits and increased staffing for new branches
opened in Deltaville and Gloucester by Southside Bank in the fourth quarter of
1997 and second quarter of 1998. Merger expenses of $93 thousand were incurred
in the first nine months of 1998 compared to no comparable expense in the first
nine months of 1997. Advertising/ Marketing / Donations /Public Relations
expense decreased $12 thousand for the quarter vs. same quarter of 1997, and
increased $ 59 thousand or 38% for the first nine months of 1998 as compared to
the same period in 1997. The year-to-date increase over 1997 was related to
additional expenses associated with the opening of a new branch in Gloucester
County, together with the early funding of budgeted expenses. Net occupancy
expense increased $ 80 thousand or 27 % compared to the same quarter of 1997 and
increased $134 thousand or 15.6 % from $857 thousand in the first nine months of
1997 to $991 thousand for the first nine months of 1998, again primarily
impacted by the opening of the new Deltaville and Gloucester offices, and by
depreciation expense related to investments in technology. All other noninterest
expenses increased $112 thousand or 22 % to $ 621 thousand for the third quarter
of 1998 from $509 thousand for the same period in 1997, primarily related to
increased data processing expense to achieve future savings. For the nine month
period ended September 30, 1998, all other expenses increased $173 thousand or
10.6% to $ 1.81 million from $ 1.64 million in 1997, again primarily related to
data processing expenses incurred to achieve future savings.
Impact of the Year 2000 Issue
EVB and its subsidiary banks are dependent upon various hardware and software
systems which may be impacted by the century date change. Each bank has
completed an assessment of all possible systems which may be affected, including
hardware, software, telecommunications, environmental systems and security
systems. Based on the areas identified, the banks have prioritized the systems
into three categories: mission critical, medium risk and low risk.
<PAGE>
Mission critical applications have been certified as compliant by the specific
vendors. The banks are currently testing these systems and project that the
majority of testing will be completed by December 31, 1998. The banks have also
received verification of compliance from vendors in the medium risk and low risk
categories. All vendors are either compliant or have documented projects with
completion dates prior to June 30, 1999.
As of September 30, 1998, EVB and its subsidiary banks have spent approximately
$100,000 associated with Year 2000 compliance. These costs include testing,
training, hardware and software replacement and upgrades. It is anticipated that
another $75,000 will be expended to complete the Year 2000 changes and testing.
Management believes it has taken all reasonable steps to minimize the
operational, regulatory and legal risks associated with the century date change.
Large borrowers have been interviewed to determine applicable risks, and loan
documentation has been amended to address Year 2000 issues. The Company has
followed a recommended regulatory outline for this project, and is maintaining
documentation to address any legal issues.
Each of the subsidiary banks has implemented a written contingency plan which
addresses actions to be taken in the event of problems related to the Year 2000
date change issue. Management believes that the current staffing levels are
sufficient to complete the project and to administer contingency plans if
necessary.
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 $2.2 million at September 30,
1998, and $ 3.1 million at year end 1997, reflecting a 28.5 % decrease from 1997
year end. Nonperforming assets are composed largely of commercial real estate
mortgage 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.
Nonperforming Assets
September 30 December 31
1998 1997
------------ -----------
Nonaccrual loans $ 2,155 $ 3,022
Restructured loans - -
Other real estate owned 68 86
------- -------
Total nonperforming assets $ 2,223 $ 3,108
----------- ----------
Loans past due 90 days and
accruing interest $ 1,312 $ 927
Nonperforming assets to total
loans and other real estate 0.94% 1.36%
Allowance for loan losses to
nonaccrual loans 186.13% 127.99%
Allowance for loan losses to
period end loans 1.71% 1.70%
Total loan charge-offs, less recoveries, amounted to $ 93 thousand for the
quarter and $211 thousand for the first nine months of 1998, representing an
annualized ratio of net charge-offs to total average loans, net of unearned
income, of 0.16 % and 0.12 % for the three month and nine month periods ended
September 30, 1998. This compares to 1997 full year charge-offs of $187 thousand
or 0.09% of average loans.
Nonperforming loans at September 30, 1998 were $ 2.16 million, or 0.92 % of
total loans, compared to $3.02 million or 1.31% at 1997 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, 1998, impaired
loans totaled $ 284 thousand upon which an allowance is included in the total
loan portfolio allowance for loan losses. Interest income recognized on impaired
loans as of September 30, 1998, was $ 7 thousand. The average balance of
impaired loans for the first nine months of 1998 was $ 651 thousand. Loans past
due 90 days or more and still accruing interest because they were well secured
and in the process of collection were $ 1.31 million at September 30, 1998, and
$927 thousand at December 31, 1997.
<PAGE>
The allowance for loan losses has increased to $ 4.01 million at September 30,
1998, as compared to $3.87 million at December 31, 1997. The allowance increased
$ 143 thousand in the first nine months of 1998 as compared to $248 thousand for
the first nine months of 1997. 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 1.71 % at
September 30, 1998, and 1.70% at year end 1997.
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, 1998 are generally
secured by residential and commercial real estate with appraised values that
exceed the principal balance. At September 30, 1998, potential problem loans
were approximately $ 1.45 million including 7 lending relationships with
principal balances in excess of $100,000 which had an aggregate principal
balance outstanding of $930 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 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 September 30, 1998 was
$41.663 million, or 19.51% of risk-weighted assets, for Tier 1 capital and
$44.30 million, or 20.90% 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%.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This pronouncement, effective for all
fiscal quarters beginning after June 15, 1999, establishes accounting and
reporting standards for derivative financial instruments and other similar
financial instruments and for hedging activities. The standard also allows
securities classified as Held-to-Maturity to be transferred to the
Available-for-Sale category at the date of initial application of this standard.
Management is currently reviewing this statement to determine the impact that it
will have on the Company and whether early implementation in the fourth quarter
of 1998 would be beneficial.
<PAGE>
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.
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.
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk since 1997 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 4 of this Form 10-Q.
27 Financial Data Schedule - Included herein as Exhibit 27 on page XX
(b) No reports on Form 8-K were filed during the third quarter of 1998.
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 Vice President, Chief Financial Officer
Date: October 26, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 9,610 9,610
<INT-BEARING-DEPOSITS> 100 100
<FED-FUNDS-SOLD> 15,764 15,764
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 36,180 36,180
<INVESTMENTS-CARRYING> 42,448 42,448
<INVESTMENTS-MARKET> 43,907 43,907
<LOANS> 230,633 230,633
<ALLOWANCE> 4,011 4,011
<TOTAL-ASSETS> 345,292 345,292
<DEPOSITS> 300,199 300,199
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 3,039 3,039
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 10,350 10,350
<OTHER-SE> 31,704 31,704
<TOTAL-LIABILITIES-AND-EQUITY> 345,292 345,292
<INTEREST-LOAN> 16,977 5,350
<INTEREST-INVEST> 3,299 1,133
<INTEREST-OTHER> 581 238
<INTEREST-TOTAL> 19,857 6,721
<INTEREST-DEPOSIT> 8,848 3,018
<INTEREST-EXPENSE> 8,848 3,018
<INTEREST-INCOME-NET> 11,009 3,703
<LOAN-LOSSES> 354 116
<SECURITIES-GAINS> 8 0
<EXPENSE-OTHER> 6,179 2,109
<INCOME-PRETAX> 5,792 1,902
<INCOME-PRE-EXTRAORDINARY> 4,237 1,325
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,237 1,325
<EPS-PRIMARY> 0.82 0.26
<EPS-DILUTED> 0.82 0.26
<YIELD-ACTUAL> 4.58 4.51
<LOANS-NON> 2,155 2,155
<LOANS-PAST> 1,312 1,312
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 1,445 1,445
<ALLOWANCE-OPEN> 3,868 3,988
<CHARGE-OFFS> 388 146
<RECOVERIES> 177 53
<ALLOWANCE-CLOSE> 4,011 4,011
<ALLOWANCE-DOMESTIC> 4,011 4,011
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
