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Eastern Virginia Bankshares Inc. Reports Operating Results (10-Q)

August 07, 2009 | About:
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Eastern Virginia Bankshares Inc. (EVBS) filed Quarterly Report for the period ended 2009-06-30.

EASTERN VA BKSH is a bank holding company. Through subsidiaries they provide full banking services including commercial and consumer demand and time deposit accounts commercial and consumer loans Visa and Mastercard revolving credit accounts drive-in banking services and automated teller machine transactions. The area served by them is primarily the counties of Essex Northumberland King & Queen King William Richmond Lancaster Hanover Gloucester Middlesex and Caroline. Eastern Virginia Bankshares Inc. has a market cap of $52.6 million; its shares were traded at around $8.87 with a P/E ratio of 11.1 and P/S ratio of 0.8. The dividend yield of Eastern Virginia Bankshares Inc. stocks is 2.2%. Eastern Virginia Bankshares Inc. had an annual average earning growth of 7.1% over the past 5 years.

Highlight of Business Operations:

A $3.9 million securities impairment charge, a $507 thousand FDIC special assessment and $308 thousand of merger related expenses resulted in a net income (loss) available to common shareholders of $2.1 million for the second quarter of 2009, compared to $1.3 million net income in the second quarter of 2008. Net interest income was $8.2 million in the second quarter of both 2009 and 2008, a meaningful improvement compared to the $641 thousand decrease from the first quarter of 2009 compared to the first quarter 2008. Noninterest income, including the impairment charge, was ($2.3) million for the second quarter, a $4.2 million decline from $1.9 million for the three months ended June 30, 2008. Noninterest expense increased $977 thousand from $7.1 million in the second quarter of 2008 to $8.0 million for the second quarter of 2009. This increase was primarily from a $699 thousand increase in FDIC expense and $308 thousand in merger expense. The emerging trend of smaller decreases in loan interest income and larger decreases in deposit costs resulted in an improved net interest margin for the second quarter at 3.27% compared to 3.12% in the first quarter of 2009. While the second quarter 2009 net interest margin is below the 3.59% for the second quarter of 2008, it appears to have reversed the quarter to quarter downward trend. Average earning assets growth for the second quarter of 2009 increased $88.2 million compared to the second quarter of 2008. Average loans were $57.3 million above the average loans for the second quarter of 2008. Federal funds sold increased to $38.6 million compared to $5.7 million in the same quarter of the prior year while the average yield decreased from 2.11% to 0.19%. Average interest-bearing deposit balances increased $104.0 million, or $46.7 million more than loan growth in the second quarter of 2009.

Total assets at June 30, 2009 were $1.10 billion, up $46.7 million, or 4.4%, from $1.05 billion at year-end 2008 and up $70.5 million, or 6.9% from June 30, 2008, when total assets were $1.03 billion. This increase is the result of strong deposit growth, particularly in the first quarter of 2009 and the addition of $24 million from the issuance of preferred stock. Loan growth through June 30, 2009 was $13.5 million, or 1.6% compared to the 2008 year-end balance. Actual loan growth in the second quarter compared to first quarter 2009 was $3.7 million or less than 1%. For the quarter, total average assets were $1.1 billion, an increase of 9.48% compared to $1.01 billion in the second quarter of 2008. For the quarter ended June 30, 2009, average total loans, net of unearned income were $830.9 million, an increase of $57.3 million, or 7.4%, from $773.6 million for the same period in 2008. For the six months ended June 30, 2009, total average assets were $1.1 billion, an increase of $120.5 million compared to $969.7 million for the same period in 2008. At June 30, 2009, net loans as a percent of total assets were 75.8%, as compared to 76.9% at December 31, 2008. While this portfolio should be able to generate a strong earnings stream, the current economic uncertainty overshadows our near term earnings.

Total deposits continued to grow. At June 30, 2009 deposits were $848.3 million an increase of $78.7 million, or 10.2%, from $769.6 million at the same point in 2008 and up $34.7 million from the year-end 2008 balance of $813.5 million. Deposits decreased $4.4 million compared to the first quarter balance of $852.6 million. This is primarily the result of the maturity of $27 million of brokered deposits during the first six months of 2009. The cost of deposits is projected to continue to decrease as large blocks of certificates of deposit reprice over the next six months. On an average basis, deposits increased $97.4 million from $760.3 million in the second quarter of 2008 to $857.7 million for the same period in 2009. All of the increase was in interest-bearing deposits, primarily in core money market and NOW accounts. Deposit prices are evaluated frequently by our asset liability committee and adjusted as needed to reflect the competitive rate environment.

With the inclusion of the unusual items mentioned earlier, net income available to common shareholders was ($2.1) million compared to $1.3 million in the second quarter of 2008. Diluted and basic earnings per common share decreased $0.57 to a loss of $0.36, compared to $0.21 income for the same quarter in 2008. Without the $3.9 million securities impairment, the $507 thousand FDIC special assessment and the merger expense of $308 thousand, the Company would have had positive pretax income. Net interest income for the quarter was $8.2 million for both 2009 and 2008. There was an actual decrease of $47 thousand for the quarter ended June 30, 2009, when compared to the same period in 2008. The second quarter decrease is $594 thousand less than the decline in the first quarter of 2009. Interest and fees on loans were down $119 thousand, or 0.9 %, while deposit costs were down $179 thousand, or 3.4 % compared to second quarter 2008. Interest income on investments declined by $259 thousand compared to the second quarter in 2008. While we have made some adjustments in our portfolio that has resulted in increased income from tax exempt securities, these increases could not overcome the loss of FNMA and FHLMC securities income and the loss of the FHLB dividend. Federal funds sold with an average balance of $38.6 million and a yield of only 0.19% earned $18 thousand during the second quarter. During the quarter, we moved $14 million from Fed funds to a category called interest-bearing deposits in other banks. These funds, which had an average balance in the second quarter of $5.6 million, earned $15 thousand with a yield of 1.08%. This earnings stream should improve in the third quarter of 2009. We continue to explore other higher earning investment alternatives to improve earnings on this large pool of funds. Interest bearing liabilities expense decreased $328 thousand for the second quarter compared to the same period in 2008 and had decreases in all categories. With the falling deposit costs, we are anticipating an improvement of the squeeze on our net interest margin in the second half of the year. Loan loss provision for the second quarter 2009 was $750 thousand, a decline of $550 thousand from $1.3 million in the second quarter 2008, when the company started making major increases to our reserve for loan losses.

For the six months ended June 30, 2009, net income before the preferred dividend was ($1.05) million, a decrease of ($5.0) million compared to $3.9 million at the same date in 2008. Net interest income decreased $688 thousand with a decrease of $1.2 million in interest income offset by a decrease in interest expense of $517 thousand. Loan loss provision expense was $1.7million through June 30, 2009 down $100 thousand from $1.8 million in 2008. Management is confident that the repricing strategies put in place to counter the mismatch of interest income and expense is working. Noninterest income for the first six months of 2009 was ($712) thousand, a decrease of $5.3 million compared to 2008’s $4.6 million. In addition to the items mentioned in the second quarter review above, we had a $1.3 million actuarial gain on pension curtailment in 2008. Without the unusual items in both years, noninterest income decreased $354 thousand as a result of a 5% decrease in deposit fees and a 19% decline in other operating income. (See table below.) Noninterest expense increased $1.8 million from $13.7 million in 2008 to $15.4 million for the period ended June 30, 2009. Of that increase, $1.2 million is from a $924 thousand increase in FDIC expense and the $308 thousand merger expenses taken

For the second quarter of 2009, net interest income on a fully tax equivalent basis totaled $8.4 million, compared to $8.4 million in the second quarter of 2008. Net interest income is our primary source of income. Average earning assets for the quarter ended June 30, 2009 were $1.03 billion, an increase of $88.2 million compared to $943.0 million for the same period in 2008. Average loans increased $57.3 million, or 7.4%. Average securities decreased $7.6 million, or 4.6%. Average federal funds sold increased $32.9 million, or over 575%, for the second quarter of 2009, reflecting the continued influence of increases in deposits, the slowing of loan growth and the influx of the Treasury CPP investment. The fully tax equivalent net interest margin for the three-month period ended June 30, 2009 was 3.27% compared to 3.59% for the same quarter in 2008 and is up from 3.12% in the first quarter of 2009. For the second quarter of 2009, the yield on earning assets declined 71 basis points to 5.78%, compared to 6.49% for the second quarter of 2008, and the cost of interest bearing liabilities was down 49 basis points to 2.88% from 3.37% in the same period in 2008. This 22 basis point decrease in earnings in our net interest margin compared to a 71 basis point spread in the first quarter of 2009 indicates some easing of the margin squeeze. Part of this is from reducing our nonaccrual loan balances from $17.2 million at the end of the first quarter of 2009 to $8.5 million at the end of the second quarter, but interest expense is a major contributor. Our funding costs continued to decrease with certificates of deposit and savings cost all down, while our money market and interest checking products, our major growth categories in the quarter, had increases. For the three months ended June 30, 2009, the average balances for money market savings and interest checking increased $39.9 and $32.4 million respectively, while certificates grew $33.4 million, all compared to the average balances for the second quarter of 2008.

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