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

November 09, 2009 | About:
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10qk

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Eastern Virginia Bankshares Inc. (EVBS) filed Quarterly Report for the period ended 2009-09-30.

EASTERN VA BKSH is a bank holding company. Through subsidiariesthey provide full banking servicesincluding commercial and consumer demand and time deposit accountscommercial and consumer loansVisa and Mastercard revolving credit accountsdrive-in banking services and automated teller machine transactions. The area served by them is primarily the counties of EssexNorthumberlandKing & QueenKing WilliamRichmondLancasterHanoverGloucesterMiddlesex and Caroline. Eastern Virginia Bankshares Inc. has a market cap of $44.07 million; its shares were traded at around $7.44 with a P/E ratio of 7.44 and P/S ratio of 0.71. The dividend yield of Eastern Virginia Bankshares Inc. stocks is 2.69%. Eastern Virginia Bankshares Inc. had an annual average earning growth of 7.1% over the past 5 years.

Highlight of Business Operations:

Third quarter 2009 earnings were negatively impacted by the securities impairment taken, resulting in a loss available to common shareholders of $8.9 million, compared to a loss of $3.1 million in the third quarter of 2008. In both periods, the loss was the result of securities impairments. In 2008, it was for the government service entity (“GSE”) investments which lost their value when the government seized the mortgage giants FNMA and FHLMC. In 2009, it was from the TRUPS discussed above. Net interest income was $8.1 million in the third quarter of 2009, compared to $8.4 million in the third quarter 2008, and down slightly from $8.2 million in the second quarter of 2009. Noninterest income/(loss), including the impairment charge, was ($13.2) million for the third quarter, a $10.2 million decline from ($3.0) million for the three months ended September 30, 2008. Noninterest expense increased $327 thousand from $7.0 million in the third quarter of 2008 to $7.3 million for the third quarter of 2009. This increase was primarily from a $183 thousand increase in FDIC expense and $218 thousand of merger-related expense. Net interest margin for the third quarter was 3.20% compared to 3.59% for the third quarter of 2008. Since March 2007, the net interest margin has followed a downward trend which we believe will be reversed beginning in the fourth quarter of 2009. Average earning assets for the third quarter of 2009 were $79.7 million above that of the third quarter of 2008. Average loans were $47.1 million above the average loans for the third quarter of 2008. Federal funds sold decreased to $5.5 million compared to $9.5 million in the same quarter of the prior year while the average yield decreased from 1.94% to 0.22%. Average interest-bearing deposit balances increased $84.8 million, or $37.7 million, more than loan growth in the third quarter of 2009.

Total deposits continue to grow. At September 30, 2009 deposits were $851.8 million, an increase of $73.7 million, or 9.5%, from $778.2 million at the same point in 2008 and up $38.3 million from the year-end 2008 balance of $813.5 million. Over 92 % of the increase was in core deposits - $48.8 million in NOW accounts and $23.8 million in MMDA. Certificates of deposit increased $3.4 million. Cost of deposits is down $855 thousand compared to the first nine months of 2008 with $674 thousand of that decrease occurring in the third quarter, and our cost of deposits is projected to continue to decrease as $110 million in certificates of deposit reprice over the next three months. Average interest-bearing deposits increased $111.6 million from $645.2 million in the third quarter of 2008 to $756.7 million for the same period in 2009. Average demand deposits declined $5.3 million to $92.2 million at September 30, 2009.

For the third quarter 2009, net income/(loss) available to common shareholders was a loss of $8.9 million compared to a loss of $3.0 million in the third quarter of 2008. Diluted and basic earnings per common share decreased $0.98 to a loss of $1.50, compared to a loss of $0.52 for the same quarter in 2008. Without the $10.6 million increase in securities impairment and the merger-related expense of $218 thousand, the Company would have had positive pretax income. Net interest income for the third quarter 2009 was $8.1 million compared to $8.4 million for the same quarter in 2008. The third quarter decrease of $304 thousand is less than the decline in the second quarter of 2009 of $594 thousand as the interest spread decreased. Interest and fees on loans were down $834 thousand, or 6.3 %, while deposit costs were down $674 thousand, or 12.9 % compared to third quarter 2008. An encouraging aspect of this decline is the third quarter deposit interest expense decrease which is approximately 79% of the total year over year change and indicates that the net interest margin should be adjusting upward.

Interest income on investments declined by $296 thousand compared to the third 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, the decline in trust preferred income and a decreased FHLB dividend. Federal funds sold, with an average balance of $5.5 million and a yield of only 0.22%, earned $3 thousand during the third quarter, a decline of $43 thousand compared to 2008. Our investment in deposits at other banks, with an average balance of $26.1 million, earned $44 thousand for the quarter which offset the fed funds decline. We have clearly benefited from shifting funds out of traditional fed funds category. We continue to explore other higher earning investment alternatives to improve earnings on our excess funds. Interest bearing liabilities expense decreased $826 thousand for the third quarter compared to the same period in 2008. With the decreasing deposit costs, we are anticipating more improvement in our net interest margin over the next twelve months due to continued deposit repricing. Loan loss provision for the third quarter 2009 was $850 thousand, a decline of $200 thousand from $1.1 million in the third quarter 2008. Over the last six quarters, we have set aside $6.1 million in provision and anticipate continuing this higher than usual provision for the near term.

Noninterest income for the third quarter 2009 was ($13.2) million, compared to ($3.0) million in 2008’s third quarter. Excluding the impact of the securities impairment for both periods, mentioned above, noninterest income would have increased $363 thousand to $1.8 million for the third quarter 2009 compared to $1.4 million for the same period in 2008. Deposit fees declined $45 thousand while other noninterest income increased $56 thousand primarily from insurance fees, and card fees increased $13 thousand. An OREO gain of $107 thousand compared to a loss in 2008 of $229 thousand was the largest increase in noninterest income before impairments. Without the OREO item, there was still a $24 thousand increase in noninterest income period-to-period.

For the nine months ended September 30, 2009, net income/(loss) available to common shareholders was ($10.7) million, a decrease of ($11.5) million compared to $857 thousand at the same date in 2008. Net interest income decreased $992 thousand, with a decrease of $2.3 million in interest income offset by a decrease in interest expense of $1.3 million. Loan loss provision expense was $2.5 million through September 30, 2009 down $300 thousand from $2.8 million in 2008. Noninterest income for the first nine months of 2009 was ($13.9) million, a decrease of $15.5 million compared to 2008’s $1.6 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 would have increased $27 thousand as a result of higher card fees. (See table below.) Noninterest expense increased $2.1 million from $20.6 million in 2008 to $22.7 million for the period ended September 30, 2009. Of that increase, $1.6 million is from a $1.1 million increase in FDIC expense and 526 thousand of merger-related expenses. The remainder of the increase is from $203 thousand in salaries and benefits as group insurance and pension costs rose and $364 thousand in occupancy and equipment as a result of our branch purchases in 2008 and annual increases in the third quarter.

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