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

May 13, 2010 | About:

Eastern Virginia Bankshares Inc. (NASDAQ:EVBS) filed Quarterly Report for the period ended 2010-03-31.

Eastern Virginia Bankshares Inc. has a market cap of $45.5 million; its shares were traded at around $7.65 with a P/E ratio of 10.2 and P/S ratio of 1. The dividend yield of Eastern Virginia Bankshares Inc. stocks is 2.6%.

Highlight of Business Operations:

Total assets have declined slightly from 2009 year-end balance as we reduced the risk of our investment portfolio, and loan demand continued to be tepid. More specifically, securities available for sale decreased $31.1 million compared to December 31, 2009, while loans grew $6.0 million or less than 1%. We also used the opportunity to allow higher cost funding sources (an FHLB advance) to mature and have elected not to replace it at this time. The decrease in the investment portfolio also allowed us to reduce the amount of fed funds purchases and repurchase agreements by $21.9 million in the first quarter of 2010. Also of note, deposits grew $2.3 million during the first quarter of 2010 with interest- bearing deposits declining $5.4 million while noninterest- bearing deposits increased $7.7 million. Equity increased $1.5 million during the first three months of 2010. The net result of these changes is a more liquid balance sheet with reduced risk in our investments portfolio and a lower cost of our funding liabilities. We have excess cash and expect to grow deposits in 2010, which will fund the anticipated growth in our loan and investment portfolios.

Total assets at March 31, 2010 were $1.102 billion, a decline of $24.6 million, or 2.2%, from $1.126 billion at year-end 2009 and up $3.6 million, less than 1% from March 31, 2009, when total assets were $1.098 billion. This decrease is the result of restructuring the securities portfolio which declined $31.2 million from $169.4 million at year end 2009 to $138.3 million at March 31, 2010 and the maturity of a higher cost FHLB advance which was not replaced. Yield on the investment portfolio during the first quarter of 2010 was 4.34% compared to 5.25% for the same quarter in the prior year. This was the result of elimination of trust preferred income and a movement to slightly lower yielding tax exempt municipal investments. There were no securities impairments in the first quarter 2009 or 2010. By taking impairments later in 2009, we decreased our income flow short term while substantially lowering the risk profile of our balance sheet. For more detail, see securities Note 2 to the consolidated financial statements earlier in the document. The investment portfolio is designed to balance interest rate risk and provide liquidity and is an active tool in our balance sheet management.

Deposits continue to grow, with a balance of $855.2 million at March 31, 2010 compared to $852.9 million at year end 2009, an increase of $2.3 million, or less than 1% and up $2.5 million from the first quarter 2009 balance of $852.6 million. Noninterest bearing demand deposits increased $7.7 million from $89.5 million at year end 2009 to $97.2 million at March 31, 2010 and $7.3 million from $89.9 million at March 31, 2009. Interest bearing deposits decreased $5.4 million from $763.3 million at year end 2009 to $757.9 million at March 31, 2010. The decrease in this category is driven by the managed run off of brokered deposits. Year over year, certificate balances decreased $72.4 million, or 16.6%. This decrease was mostly offset by increases of $56.2 million in NOW accounts, $8.2 million in MMD accounts and $3.2 million in savings accounts. Within the certificate category, we did have an increase of $1.7 million in our IRA certificates due to a marketing promotion run during the first quarter 2010. Average interest-bearing deposits increased $19.3 million from $737.7 million in the first quarter 2009 to $756.9 million during first quarter 2010. Average demand deposits increased slightly by $1.0 million to $91.9 million at March 31, 2010.

For the first quarter 2010, net income available to common shareholders increased $581 thousand, or 152.5% to $962 thousand compared to $381 thousand in the first quarter of 2009. Diluted and basic earnings per common share increased $0.10 to $0.16, compared to $0.06 for the same quarter in 2009. A primary cause of this improvement was a $1.7 million

decrease in liability funding costs which resulted in net interest income of $1.4 million. Net interest income for the first quarter of 2010 was $9.0 million compared to $7.6 million in 2009. Total interest income decreased $273 thousand, and primarily resulted from a $305 thousand decline in taxable interest income related to the 2009 impairments on trust preferred securities. Interest income was also negatively impacted by targeted investment portfolio sales designed to reduce overall risk in the investment portfolio. Interest on loans was $12.2 million in the first quarter 2010 down $16 thousand from $12.2 million in 2009. We currently hold a large liquid cash position in deposits with other banks which earned $39 thousand in the first quarter compared to a $22 thousand expense from short term cash borrowings during the first quarter of 2009. We have benefited from shifting funds out of the traditional fed funds category and will continue to explore other higher earning investment alternatives to improve earnings on our cash position. The total of other interest bearing liabilities expense for the first quarter 2010 decreased a net $69 thousand compared to the same quarter in 2009. Loan loss provision for the first quarter 2010 was $1.9 million compared to $900 thousand for the first quarter 2009. This continues a trend where over the last seven quarters, we have set aside $9.5 million in provision to prepare for potential credit losses and anticipate continuing this higher than usual provision for the near term.

Net interest income is our primary source of income and for the first quarter of 2010, net interest income on a fully tax equivalent basis increased $1.5 million to $9.2 million, compared to $7.7 million in the first quarter of 2009. Average earning assets for the quarter ended March 31, 2010 were $1.01 billion, an increase of $15.6 million compared to $990 million for the same period in 2009. Average loans accruing interest increased $26.1 million, or 3.2%. Average securities increased $6.2 million, or 4.3%. Average federal funds sold decreased $35.8 million, or 97.9%, for the first quarter of 2010, reflecting a decrease in balances and a redistribution of our excess funds to other earning assets. Fully tax equivalent net interest margin for the three-month period ended March 31, 2010 was 3.71% compared to 3.17% for the same quarter in 2009 and exemplifies the benefit of the lower cost of funds, especially deposits. At March 31, 2010, the yield on earning assets was 5.59% a decline of 19 basis points compared to 5.78% in the first quarter 2009. By comparison, the cost of interest bearing liabilities was down 85 basis points to 2.10% from 2.95% in the same period in 2009. Deposit interest expense is the primary factor in this cost of funds decrease as it declined 95 basis points from 2.69% in the first quarter 2009 to 1.74% in the first quarter 2010. This expense change also reflects the change in the deposit mix as average certificate balances decreased $71.6 million while the other deposit categories rose a combined $90.9 million for a net increase in average deposits of $19.3 million. For the three months ended March 31, 2010 the average balances for interest checking and money market savings increased $58.5 million and $27.4 million respectively compared to March 31, 2009 balances. During the same time period, the rates on these deposits have been reduced by 52 and 104 basis points for interest checking and money market savings, respectively. In addition, jumbo certificates rates dropped 139 basis points and other certificates dropped 74 basis points. The declining cost of funding trend that has been enjoyed over the past year is coming to a close and will likely become more stable over the remaining year which will tend to hold margins steady as we move forward but could allow an expansion in net interest income under a rising rate scenario over the intermediate term.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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