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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 June 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 August
3, 2000 was 4,946,077.
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<PAGE>
EASTERN VIRGINIA BANKSHARES, INC.
FORM 10-Q
For the Quarter Ended June 30, 2000
<TABLE>
<CAPTION>
Part I
------
<S> <C> <C>
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 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
Assets:
Cash and due from banks $ 13,916 $ 10,258
Federal funds sold 3,499 -
Securities 78,970 88,076
Loans, net of unearned income 290,115 273,858
Allowance for loan losses (4,342) (4,154)
-------- -------
Net loans 285,773 269,704
Deferred income taxes 1,887 1,641
Bank premises and equipment 4,848 4,568
Accrued interest receivable 2,741 2,582
Other real estate 418 243
Other assets 732 767
-------- --------
Total assets $ 392,784 $ 377,839
-------- --------
Liabilities and Shareholders' Equity
Liabilities
Noninterest-bearing demand accounts $ 36,022 $ 32,815
Savings accounts and interest bearing deposits 133,252 139,248
Time deposits 169,207 150,584
-------- --------
Total deposits 338,481 322,647
Short-term borrowings 2,000 6,468
Long-term debt 7,000 3,000
Accrued interest payable 931 796
Other liabilities 2,129 2,133
-------- --------
Total liabilities 350,541 335,044
Shareholders' Equity
Common stock of $2 par value per share, authorized
50,000,000 shares, issued and outstanding
4,937,183 and 5,032,263 respectively 9,885 10,064
Surplus 504 2,014
Retained earnings 33,002 31,388
Accumulated other comprehensive income (1,148) (671)
-------- --------
Total shareholders' equity 42,243 42,795
Total liabilities and shareholders' equity $ 392,784 $ 377,839
-------- --------
See Notes to Consolidated Financial Statements
</TABLE>
2
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 6,353 $ 5,620 $12,427 $11,024
Income on securities - tax exempt bonds 495 482 1,038 963
Taxable bonds 681 607 1,370 1,245
Dividends 18 17 34 31
Interest on federal funds sold 63 61 96 165
------- ------- ------- -------
Total interest income 7,610 6,787 14,965 13,428
Interest Expense
Deposits 3,321 2,842 6,433 5,700
Short-term borrowings 86 221 -
Long-term debt 116 24 171 24
------- ------- ------- -------
Total interest expense 3,523 2,866 6,825 5,724
------- ------- ------- -------
Net interest income 4,087 3,921 8,140 7,704
Provision for loan losses 139 114 271 228
------- ------- ------- -------
Net interest income after provision for loan losses $ 3,948 $ 3,807 $ 7,869 $ 7,476
Other income
Service charges on deposit accounts 456 346 850 661
Gain (loss) on sale of available for sale securities (5) (44) (10) (44)
Other operating income 97 101 198 199
------- ------- ------- -------
548 403 1,038 816
------- ------- ------- -------
Other Expenses
Salaries and benefits 1,342 1,164 2,584 2,300
Net occupancy expense of premises 384 300 761 644
Other operating expenses 782 645 1,603 1,274
------- ------- ------- -------
2,508 2,109 4,948 4,218
------- ------- ------- -------
Income before income taxes 1,988 2,101 3,959 4,074
Income Tax Expense 576 563 1,060 1,057
------- ------- ------- -------
Net income $ 1,412 $ 1,538 $ 2,899 $ 3,017
------- ------- ------- -------
Earnings Per Share, basic and assuming dilution $ 0.29 $ 0.30 $ 0.59 $ 0.59
Dividends per share $ 0.13 $ 0.12 $ 0.26 $ 0.24
See Notes to Financial Statements
</TABLE>
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30 June 30
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,899 $ 3,017
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 499 407
Provision for loan losses 271 228
Losses (gains) realized on available for sale securities 10 44
(Increase) decrease in other assets (300) (107)
Increase (decrease) in other liabilities 133 1,562
-------- --------
Net cash provided by operating activities 3,512 5,151
Cash Flows from Investing Activities
Proceeds from maturities, calls, paydowns and sales
of securities 8,883 8,054
Purchase of debt securities (230) (4,542)
(Purchase) sale of FHLB and Federal Reserve Bank stock (294) (108)
Net (increase) decrease in loans (16,342) (19,671)
Purchases of bank premises and equipment (764) (273)
Proceeds from sale of OREO - -
-------- --------
Net cash (used in) investing activities (8,747) (16,540)
Cash Flows from Financing Activities
Net decrease in noninterest bearing and interest bearing
demand deposits and savings accounts (2,789) 959
Net increase in certificates of deposit 18,623 5,018
Proceeds from sale of common stock 197 -
Acquisition of common stock (1,886) (790)
Dividends declared (1,285) (1,230)
Increase (decrease) in borrowings (468) 4,700
-------- --------
Net cash provided by financing activities 12,392 8,657
-------- --------
Increase (decrease) in cash and cash equivalents 7,157 (2,732)
Cash and cash equivalents
Beginning of period 10,258 21,522
-------- --------
End of period $ 17,415 $ 18,790
-------- --------
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest on deposits and other borrowings $ 6,688 $ 5,724
Income taxes $ 1,532 $ 759
See Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Eastern Virginia Bankshares, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
For the Six Months Ended June 30, 2000 and 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital
Total Income Earnings Income Stock Surplus
----- ------ -------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balances - January 1, 1999 $ 42,257 $ 27,877 $ 365 $ 10,286 $ 3,729
Comprehensive income:
Net income 3,017 $ 3,017 3,017
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period (519) (519)
Add: reclassification adjustment, net of tax of $(15) 29 29
--------- ---------
Other comprehensive income, net of tax (490) (490) (490)
--------- ---------
Total comprehensive income 2,527 $ 2,527
---------
Shares purchased and retired -790 -92 -698
Dividends declared (1,230) (1,230)
--------- --------
Balances-June 30, 1999 $ 42,764 $ 29,664 $ (125) $ 10,194 $ 3,031
--------- -------- ------- -------- -------
Balances - January 1, 2000 $ 42,795 $ 31,388 $ (671) $ 10,065 $ 2,014
Comprehensive income:
Net income 2,899 $ 2,899 2,899
Other comprehensive income, net of tax
Unrealized gain/(loss) on securities available for sale:
Unrealized holding gain/(loss) arising during the period (484) (484)
Add: reclassification adjustment, net of tax of $(3) 7 7
--------- ---------
Other comprehensive income, net of tax (477) (477) (477)
--------- ---------
Total comprehensive income 2,527 $ 2,422
---------
Shares sold 197 25 172
Shares purchased and retired (1,886) (205) (1,682)
Dividends declared (1,285) (1,285)
--------- --------
Balances-June 30, 2000 $ 42,243 $ 33,002 $(1,148) $ 9,885 $ 504
--------- -------- -------- -------- -------
</TABLE>
5
<PAGE>
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 June 30, 2000, the Consolidated
Statements of Income for the three-month and six month periods ended June
30, 2000, and June 30, 1999, the Consolidated Statement of Cash Flows for
the six-month periods ended June 30,2000, and June 30, 1999, and the
Consolidated Statement of Changes in Shareholders' Equity for the six-month
periods ended June 30, 2000, and June 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 June
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 June 30, 2000, the corporation issued 12,284
shares of its common stock at a price of $16.00 per share as a limited
offering related to the opening of its Hanover Bank subsidiary. Prior to
registration of the stock offering, the corporation repurchased 7,100
shares of its common stock at an average cost of $14.19 in market
transactions early in the quarter, bringing repurchases for the year to
102,148 shares at an average cost of $18.46 per share.
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 4,934,128 and 5,113,112 for
the three month periods ended June 30, 2000 and 1999, and were 4,951,682
and 5,125,968 for the six month periods ended June 30, 2000 and 1999.
6. EVB's amortized cost and estimated fair values of securities at June 30,
2000 are as follows:
(in thousands)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---- ----- -------- ------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Government obligations $ 7,701 $ - $ 83 $ 7,618
Obligations of U.S. Government agencies 22,494 14 790 21,718
Obligations of state/political subdivisions-tax exempt 37,707 103 693 37,117
Obligations of state/political subdivisions-taxable 7,033 1 177 6,857
Corporate bonds 4,278 - 114 4,164
Equity securities 1,496 - - 1,496
------- ---- ------ -------
Total $80,709 $118 $1,857 $78,970
------- ---- ------ -------
</TABLE>
6
<PAGE>
Note 7. EVB's loan portfolio is composed of the following:
(in thousands)
June 30 December 31
2000 1999
---- ----
Real estate - construction $ 8,908 $ 8,267
Real estate - mortgage 160,873 152,905
Commercial real estate 35,880 33,103
Commercial, industrial and
agricultural loans 32,185 31,003
Consumer loans 55,739 51,890
All other loans 456 460
-------- --------
Total loans 294,041 277,628
Less unearned income (3,926) (3,770)
Less allowance for loan losses (4,342) (4,154)
-------- --------
Total net loans $285,773 $269,704
-------- --------
EVB has $1.6 million in non-performing loans at June 30, 2000.
Note 8. Allowance for Loan Losses
June 30 December 31 June 30
2000 1999 1999
---- ---- ----
Balance January 1 $4,154 $3,860 $3,860
Provision charged against income 271 510 228
Recoveries of loans charged off 171 250 155
Loans charged off (254) (466) (215)
------ ------ ------
Balance at end of period $4,342 $4,154 $4,028
------ ------ ------
Note 9. Accounting Rule Changes
There were no new Financial Accounting Standards Board promulgations in the
second quarter of 2000 that will impact Eastern Virginia Bankshares, Inc.
7
<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
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 8.2% to $1,412,000 for the second quarter of 2000, compared
to $1,538,000 for the same period in 1999. Earnings per share decreased 3.3% to
$0.29 compared to $0.30 in the second quarter of 1999. Year-to-date earnings per
share of $0.59 are identical to that of the first six months of 1999. Management
projects earnings for the year 2000 to be at or above the $1.17 earned in 1999;
this in a year in which the corporation is absorbing approximately $600 thousand
(pretax) of expense related to investments in imaging technology and startup of
Hanover Bank.
Total assets on June 30, 2000 were $392.8 million, up $15 million or 4.0% from
$377.8 million at December 31, 1999. For the quarter, total assets averaged
$391.3 million or 10.4% above the second quarter 1999 average of $354.4 million.
Total loans, net of unearned income, were $290.1 million at June 30, 2000, an
increase of $ 16.3 million or 5.9% from $273.9 million at December 31, 1999.
Total loans net of the allowance for loan losses as a percent of total assets
were 72.8% at June 30, 2000, as compared to 71.4% at December 31, 1999. Net loan
volume for the first six months of 2000 was $16.3 million as compared to $19.5
million for the first six months of 1999. Decreased loan growth in 2000 versus
1999 is related primarily to the higher interest rate environment.
On June 30, 2000, the securities portfolio totaled $79.0 million, which was
$9.1 million or 10.3% 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 $3.5 million on June 30, 2000, compared to a net
Federal funds purchased position of $1.5 million at December 31, 1999, a net
increase of $5 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 second
quarter of 2000, the corporation also reduced it's borrowing with the Federal
Home Loan Bank of Atlanta, from $13 million at March 31, to $9 million at June
30, or $1 million above 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 June 30, 2000, was $79.0 million as compared to
$43.3 million Available for Sale and $44.8 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 $1.1 million at June 30, 2000,
compared to a negative $671 thousand at 1999 year end. This $477 thousand
increase 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 increase in the unrealized loss on
securities is a combination of $390 thousand from the reclassification of Held
to Maturity securities and $87 thousand from decreased market values caused by
increasing interest rates.
Total deposits of $338.5 million at quarter end represented an increase of
$15.8 million or 4.9% from $322.6 million at December 31, 1999. EVB offers
attractive, yet competitive rates, to maintain a strong stable deposit base. The
second quarter reflected an increase in time deposits resulting from a time
deposit promotion initiated in the first quarter and a continued increase in
noninterest bearing demand deposits.
RESULTS OF OPERATIONS
Eastern Virginia Bankshares reported decreased earnings for the second quarter
of 2000. Net income for the quarter was $1.4 million , a decrease of $126
thousand from second quarter 1999 earnings of $1.5 million. Net income for the
six
8
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months ended June 30, 2000 decreased 3.9% to $2.9 million compared to $3.0
million for the first half of 1999. Net income for the quarter was impacted by
decreasing net interest margin, and an increase in non interest expense of $399
thousand or 18.9%. 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 second quarter decreased
a penny to $0.29 from $0.30 in the second quarter of 1999. Earnings per share
were $.59 for the six months ended June 30, 2000, flat with the first six months
of 1999. Profitability as measured by the corporation's annualized return on
average assets (ROA) was 1.44% for the quarter ended June 30. 2000, down from
1.74% for the same period of 1999. Annualized ROA for the first six months of
2000 was 1.50% as compared to 1.72% for the first six 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 June 30,
2000 was 13.46%, also down from 14.36% for the second quarter of 1999. ROE for
the six month period ended June 30, 2000, was 13.82%, compared to 14.14% for the
first half of 1999, and 13.95% for the full year 1999.
Net Interest Income
Net interest income totaled $4.1 million for the quarter, a $166 thousand or
4.2% increase over the Company's performance for the second 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 June 30, 2000, the average balance of interest
earning assets increased to $375.8 million from $340.1 million for the same
quarter in 1999. The increase in average earning assets is a result of an
increase of $32.8 million or 12.8% in the average balance of loans held in the
corporation's loan portfolio, combined with a 4.5% increase in average
securities and a 15% decrease in average fed funds sold. The increase in average
loans is the result of strong loan demand and management's effort to redirect a
portion of its excess cash reserves (fed funds sold) into higher yielding loans.
The net interest margin for the three month period ended June 30, 2000 was
4.58%, compared to 4.86% for the comparable period in the prior year. The
decrease in net interest margin results from a 36 basis point increase in the
cost of interest bearing funds from 4.17% in 1999 to 4.53% for the second
quarter of 2000, while the yield on interest bearing assets on a taxable
equivalent basis was up by only 10 basis points, from 8.23% to 8.33% for the
same periods. The decrease in net interest margin was in line with industry
results in an environment of increasing interest rates and also was impacted by
borrowing with the Federal Home Loan Bank of Atlanta.
Net interest income for the six months ended June 30, 200 was $8.1 million, an
increase of $436 thousand, or 5.6% from $7.7 million for the same period in
1999. For the six months ended June 30, 2000, average loans increased $33.2
million to $282.8 million compared to $249.5 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 loans. The 20 basis point decrease in net
interest margin results from a 25 basis point increase in the cost of interest
bearing funds from 4.19% in 1999 to 4.44% for the first six months of 2000,
while the yield on interest bearing assets on a taxable equivalent basis
increased by only eight basis points from 8.22% to 8.30% for the same periods.
Noninterest Income
Total noninterest income, excluding securities transactions, was $553 thousand
for the quarter, a 23.7% increase from second quarter 1999 noninterest income of
$447 thousand. Realized losses on securities sales during the quarter were $5
thousand compared to $44 thousand in the second quarter of 1999. Service charges
on deposit accounts increased 31.8% compared to second 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 six months ended
June 30, 2000 increased $188 thousand from $860 thousand in 1999 to $1.05
million in 2000, again the result of increased service charges.
Noninterest Expense
Total noninterest expense increased $399 thousand or 18.9% from $2.11 million
for the second quarter of 1999 to $2.51 million in 2000. Salary and benefits
expense increased $178 thousand or 15.3% for the quarter vs. 1999, as the result
of staffing of Hanover Bank and normal increases in salaries and benefits. Net
occupancy expense increased $84 thousand or 28% for the quarter vs. 1999 to $384
thousand compared to $300 thousand in the same period in the prior year, again
primarily the result of the start up of Hanover Bank and implementation of
imaging technology with its $20 thousand per month depreciation cost. All other
noninterest expenses increased $137 thousand or 21.2% to $782
9
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thousand for the second quarter of 2000 from $645 thousand for the same period
in 1999, resulting from $93 thousand of Hanover Bank start up expenses, a $36
thousand increase in printing and supplies, and a $30 thousand increase in
consulting fees.
For the six months ended June 30, 2000, total noninterest expense increased $730
thousand (17.3%) to $4.9 million from $4.2 million for the comparable period
of 1999. The largest contributors to this increase are (1) salaries and benefits
which increased $284 thousand to $2.6 million from $2.3 million for the first
six months of 1999, with $127 thousand of this increase attributed to the
addition of Hanover Bank; occupancy and equipment expense which increased $117
thousand or 18.2% to $761 thousand, compared to $644 thousand for the same
period of 1999, with depreciation expenses related to implementation of imaging
technology making up almost this entire increase; and other noninterest expenses
increasing $329 thousand to $1.6 million from $1.3 million at June 30, 1999. The
primary other noninterest expense increases were: consultant fees up $55
thousand or 121.% to $123 thousand; advertising/marketing up $54 thousand or 57%
to $149 thousand; printing and supplies up $50 thousand or 26% to $243 thousand;
and directors' fees up $35 thousand or 45% to $111 thousand. The Hanover Bank
startup was responsible for $162 thousand or 49% of the increase in other
noninterest expenses.
Income Taxes
Income tax expense for the second quarter of 2000 was $576 thousand, compared to
$563 thousand for the same period in 1999. Income taxes reflect an effective tax
rate of 26.8% for the first six months of 2000 as compared to 25.9% for the
first six 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 $2.0 million at June 30,
2000, compared to $2.1 million at year end 1999, reflecting a year-to-date
decrease in nonperforming assets of 2.5%. Nonperforming assets, which continue
to be at or near a seven year historical low as a percentage of total loans, are
composed largely of real estate mortgage loans secured by 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 $62 thousand for the
quarter and $83 thousand for the first six months of 2000, representing an
annualized ratio of net charge-offs to total average loans, net of unearned
income, of 0.09% and 0.06% for the three and six month periods ended June 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 $4.34 million at June 30, 2000, as
compared to $4.15 million at December 31, 1999. The allowance increased $188
thousand in the first six months of 2000 compared to $168 thousand for the first
six 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 June 30, 2000,
and 1.52% at year end 1999.
Nonperforming loans at June 30, 2000 were $ 1.6 million, or 0.55% of total
loans, compared to $1.8 million or 0.66% 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 June 30, 2000, the corporation
had no loans classified as impaired. Interest income recognized on impaired
loans as of June 30, 2000, was less than $1 thousand. Loans past due 90 days or
more and still accruing interest because they were
10
<PAGE>
well secured and in the process of collection were $793 thousand at June 30,
2000, compared to $1.35 million at December 31, 1999.
Nonperforming Assets
<TABLE>
<CAPTION>
June 30 December 31
------- -----------
2000 1999
------- -------
<S> <C> <C>
Nonaccrual loans $ 1,596 $ 1,822
Restructured loans - -
Other real estate owned 418 243
------- -------
Total nonperforming assets $ 2,014 $ 2,065
------- -------
Loans past due 90 days and accruing interest $ 793 $ 1,345
Nonperforming assets to total loans and other real estate 0.69% 0.75%
Allowance for loan losses to nonaccrual loans 272.06% 227.99%
Allowance for loan losses to period end loans 1.50% 1.52%
</TABLE>
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 June 30, 2000 are generally secured by
residential and commercial real estate with appraised values that exceed the
principal balance. At June 30, 2000, potential problem loans were
approximately $1.31 million including 6 lending relationships with principal
balances in excess of $100,000 which had an aggregate principal balance
outstanding of $642 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 June 30, 2000 was
$43.39 million, or 16.92% of risk-weighted assets, for Tier 1 capital and $46.60
million, or 18.25% 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.
11
<PAGE>
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
At the annual meeting of shareholders held on April 20, 2000, the following
proposals were adopted by the margins indicated.
1. To elect a Board of Directors to hold office until the next annual meeting of
shareholders and until their successors are elected and qualified.
Number of Shares
For Against Abstain
--- ------- -------
Thomas M. Boyd, Jr. 3,756,643 14,302 17,545
W. Rand Cook 3,756,643 14,302 17,545
Robert L. Covington 3,756,643 14,302 17,545
L. Edelyn Dawson,Jr. 3,756,643 14,302 17,545
Lewis R. Reynolds 3,756,643 14,302 17,545
F. L. Garrett, III 3,756,643 14,302 17,545
G. Warren Haynie, Jr. 3,756,643 14,302 17,545
Eric A. Johnson 3,756,643 14,302 17,545
William L. Lewis 3,756,643 14,302 17,545
Leslie E. Taylor 3,756,643 14,302 17,545
J. T. Thompson, III 3,756,643 14,302 17,545
2. To ratify the appointment by the Board of Directors of Yount, Hyde &
Barbour, P.C. as the Corporation's independent auditors for the ensuing
year.
For 3,778,218
Against 6,554
Abstain 13,718
Item 5. Other Information (not applicable)
12
<PAGE>
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 5of this Form 10-Q.
27 Financial Data Schedule - Included herein as Exhibit 27 on
page 14
b) No reports on Form 8-K were filed during the second 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 Vice President, Chief Financial Officer
Date: August 4, 2000
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