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

June 25, 2009 | About:

Eastern Virginia Bankshares Inc. (NASDAQ:EVBS) filed Amended Quarterly Report for the period ended 2009-03-31.

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 $50.3 million; its shares were traded at around $8.5 with a P/E ratio of 13 and P/S ratio of 0.8. The dividend yield of Eastern Virginia Bankshares Inc. stocks is 2.4%. Eastern Virginia Bankshares Inc. had an annual average earning growth of 7.1% over the past 5 years.

Highlight of Business Operations:

Net income available to common shareholders for the first quarter of 2009 was $381 thousand compared to $2.7 million in the first quarter of 2008. This decline was the result of a number of factors, some of which were planned for and others that resulted from the rapid descent of the financial markets in the second half of 2008. Interest income and expense decreased, resulting in a net interest income decline of $641 thousand. While average earning assets grew $128.3 million over their 2008 balances, $104.4 million of the growth was in loans that were priced lower than the previous portfolio rate and $35.7 million was in Federal funds sold which earned 0.24% compared to 2.76% at this time in 2008. Average interest bearing liabilities balances increased $138.2 million which was $9.9 million more than loan growth. The rate impact on these balances caused much of the earnings decline in the quarter. In addition loan income was hurt by an average of $15.6 million in nonaccrual loans that lowered our yield on the loan portfolio. Investment income declined partially from lower rates on new investments but more from the Treasury conservatorship of the FNMA and FHLMC which eliminated our agency preferred stock dividends and the cessation of dividends from the Atlanta FHLB. During the first quarter of 2009, management increased the loan loss provision 100% compared to the first quarter of 2008. Management considered this action prudent considering deterioration in asset quality. Noninterest income decreased $1.1 million primarily from a $1.0 million of nonrecurring net gains in the first quarter of 2008. Finally, our branch expansion and some infrastructure changes in 2008 resulted in an increased noninterest expense.

Total assets at March 31, 2009 were $1.10 billion, up $46.7 million, or 4.4%, from $1.05 billion at year-end 2008 and up $80.5 million, or 7.9% from March 31, 2008, when total assets were $1.02 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 for the first quarter of 2009 was $9.8 million, or 1.2% compared to the 2008 year-end balance. For the quarter, total average assets were $1.08 billion, an increase of 15.6% compared to $931.4 million in the first quarter of 2008. For the quarter ending March 31, 2009, average total loans, net of unearned income were $824.3 million, an increase of $104.4 million, or 14.5%, from $719.9 million in the same quarter of 2008. At March 31, 2009, net loans as a percent of total assets were 74.5%, 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.

As noted earlier, net income available to common shareholders was $381 thousand compared to $2.7 million in the first quarter of 2008. Diluted earnings per common share decreased 86.7% to $0.06, compared to $0.45 for the same quarter in 2008. Approximately $1.03 million (pretax), or $0.11 per share after tax, of the 2008 first quarter net income was the result of nonrecurring items. Net interest income decreased $641 thousand for the quarter ended March 31, 2009, when compared to the same period in 2008. The decrease in net interest income for the first quarter 2009 was the result of loan interest income declining $550 thousand, securities income down $185 thousand and dividend income decreasing $111 thousand. These declines were the result of loans repricing in a lower rate environment, the loss of FNMA and FHLMC securities income and the loss of the FHLB dividend. Interest on interest bearing liabilities declined $189 thousand to offset some of the interest income decline. The impact of the material decline in interest income with less decline in deposit expense compressed the loan deposit interest spread. The final major earning asset, Federal funds sold, had average balances of $36.6 million with a yield of only 0.24%, earned $22 thousand in the first quarter. As we invest this large pool of funds in higher earning assets and as deposit expense continues to fall with deposit funds repricing at lower rates, the squeeze on our margin in the first quarter should relax as we go through the remainder of the year. In addition to the margin contraction, management added $450 thousand more provision for loan loss expense to end the first quarter 2009 at $900 thousand compared to $450 thousand in 2008 first quarter.

Noninterest income for the first quarter 2009 was $1.6 million, compared to $2.7 million in 2008s first quarter, a decline of $1.1 million, or 41.4%. Excluding the impact of the 2008 nonrecurring gain mentioned above, noninterest income was down $72 thousand at $1.6 million for the first quarter 2009 compared to an adjusted $1.6 million for the same period in 2008. Deposit fees declined $31 thousand and investment fees were down $31 thousand. Securities impairment declined $284 thousand, as we had a $16 thousand impairment charge in the first quarter of 2009.

Noninterest expense rose $784 thousand, or 11.9%, to $7.4 million for the three months ended March 31, 2009, compared to $6.6 million in the comparable period of 2008, as all categories, except marketing and advertising, increased. Part of this increase is caused by the impact of a full quarter of operating expense from the Millennium branches purchased in the first quarter of 2008. Salary expenses increased $307 thousand to $4.0 million at March 31, 2009 compared to $3.7 million in 2008. FDIC expense increased $225 thousand, or 300%, compared to the same period in 2008.

Our primary source of income is net interest income which on a fully tax equivalent basis totaled $7.7 million for the first quarter of 2009, a $637 thousand decrease from $8.4 million in the first quarter of 2008. Average earning assets for the quarter ended March 31, 2009 were $1.0 billion an increase of $128.3 million compared to $877.7 million for the same period in 2008. Average loans increased $104.4 million, or 14.5%. Average securities decreased $11.8 million, or 7.5%. Average federal funds sold increased $35.7 million, or over 4,000%, for the first quarter of 2009, reflecting the increase in deposits, the slowing of loan growth and the influx of the TARP money. The fully tax equivalent net interest margin for the three-month period ended March 31, 2009 was 3.12% compared to 3.84% for the same quarter in 2008. For the quarter ended March 31 2009, the yield on earning assets declined 116 basis points to 5.69%, compared to 6.85% for the first quarter of 2008, and the cost of interest bearing liabilities was down 63 basis points to 2.95% from 3.58% in the same period in 2008. This 72 basis point decrease in earnings in our net interest margin equates to approximately $7.2 million on an annualized basis, or over $1.8 million in the first quarter. In addition, we had an increased balance in nonaccruing loans which further lowered interest income. Our decrease in funding costs is across the board with decreases in all interest bearing deposit categories. For the three months ended March 31, 2009, the average balances for all interest bearing liabilities, except savings and fed funds purchased, increased. The notes in the following schedule show the derivation of the tax equivalent amount which is added to GAAP net interest income.

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