EASTERN VIRGINIA BANKSHARES, INC. TAPPAHANNOCK, Va., Oct. 23, 2015 /PRNewswire/ -- Eastern Virginia Bankshares, Inc. (NASDAQ: EVBS) (the "Company"), the one bank holding company of EVB (the "Bank"), reported today its results of operations for the three and nine months ended September 30, 2015.
Performance Summary
Three Months Ended September 30,
(dollars in thousands, except per share data) 2015 2014
-------------------------------------------- ---- ----
Net income (1) $2,010 $1,282
Net income available to common shareholders (1) $2,010 $742
Basic and diluted net income per common share $0.11 $0.04
Return on average assets (annualized) 0.65% 0.28%
Return on average common shareholders' equity (annualized) 7.80% 3.12%
Net interest margin (tax equivalent basis) (2) 3.73% 3.70%
Nine Months Ended September 30,
(dollars in thousands, except per share data) 2015 2014
-------------------------------------------- ---- ----
Net income (1) $5,126 $4,933
Net income available to common shareholders (1) $4,740 $3,334
Basic and diluted net income per common share $0.26 $0.19
Return on average assets (annualized) 0.53% 0.42%
Return on average common shareholders' equity (annualized) 6.25% 4.80%
Net interest margin (tax equivalent basis) (2) 3.89% 3.82%
(1) The difference between net
income and net income available
to common shareholders is the
effective dividend to holders
of the Company's Series A
Preferred Stock.
(2) For more information on the
calculation of net interest
margin on a tax equivalent
basis, see the average balance
sheet and net interest margin
analysis for the three and nine
month periods ended September
30, 2015 and 2014 contained in
this release.
The Company's results for the three and nine months ended September 30, 2015 were directly impacted by the acquisition and integration of Virginia Company Bank ("VCB"), which was effective November 14, 2014, including additional legal fees and integration costs of $224 thousand, and increased average loan and deposit balances during the first nine months of 2015 as compared to the same period in 2014. Additionally, during the second quarter of 2015, the Company completed a private placement of $20.0 million in senior subordinated debt. A portion of these proceeds were used to redeem both its outstanding warrants with the U.S. Department of Treasury ("Treasury") and the remaining $9.0 million of its Series A Preferred Stock related to the Troubled Asset Relief Program ("TARP") that was originally issued during January 2009.
In announcing these results, Joe A. Shearin, President and Chief Executive Officer commented, "I am pleased with our Company's continued progress and results for the third quarter of 2015. In addition to our asset quality improvements, we have meaningfully increased net income available to common shareholders when compared to the same periods last year, as well as the second quarter of 2015. For the third quarter of 2015, we are reporting an increase in annualized return on average assets of 0.20% to 0.65% and an increase in annualized return on average common shareholders' equity of 2.51% to 7.80%, when compared to the second quarter of 2015. Much of our improvement continues to be driven through the successful execution of our previously disclosed strategic initiatives and our focused efforts on growth and profitability. I continue to be encouraged with the positive trends we saw during the third quarter related to loan growth, particularly in the Richmond and Tidewater markets. Despite improvements in our net interest margin for the three and nine months ended September 30, 2015 when compared to the same periods last year, our net interest margin declined during the third quarter of 2015 as compared to the second quarter of 2015. This decline was driven primarily by lower asset yields in the historically low rate environment which have been compounded by competitive pressures, lower accretion income on acquired VCB loans, and higher interest expense due to a full quarter impact related to the issuance of our senior subordinated debt in April 2015."
Shearin continued, "As a Company, we will continue to use our strategic and financial flexibility to focus our efforts on growth and profitability by driving operating efficiencies, containing noninterest expenses and identifying revenue enhancement opportunities. Throughout the fourth quarter of 2015 and forward, we plan to evaluate and implement strategies that we believe will improve our performance and profitability and will increase the value of our company. Given our healthy asset quality, strong balance sheet and improved financial performance, I am also pleased to announce that the Board of Directors declared another cash dividend of $0.02 per share of common stock and Series B Preferred Stock payable on November 20, 2015 to shareholders of record as of November 6, 2015."
For the three months ended September 30, 2015, the following were significant factors in the Company's reported results:
-- Increase in net interest income of $1.5 million from the same period in
2014, principally due to a $1.8 million increase in interest and fees on
loans driven primarily by loans acquired through the acquisition of VCB,
partially offset by an increase in interest expense associated with the
issuance of $20.0 million in senior subordinated debt during the second
quarter of 2015;
-- Net interest margin (tax equivalent basis) increased 3 basis points to
3.73% during the third quarter of 2015 as compared to 3.70% for the same
period in 2014;
-- Increase in salaries and employee benefits of $742 thousand from the
same period in 2014, primarily due to increased staff levels and support
positions associated with the addition of three branches through the
acquisition of VCB;
-- No provision for loan losses was recorded during the third quarter of
2015 or 2014. Net charge-offs decreased to $349 thousand for the third
quarter of 2015 from $477 thousand in the same period of 2014;
-- Nonperforming assets decreased $1.7 million during the third quarter of
2015 as compared to the second quarter of 2015, primarily due to a $1.1
million decline in other real estate owned as a result of the
liquidation of two large commercial properties and partially offset by
an increase of $865 thousand in loans past due 90 days and accruing
interest;
-- Increase in collection, repossession and other real estate owned expense
of $160 thousand from the same period in 2014 due to increased average
carrying balances of and costs associated with other real estate owned
and classified assets;
-- Other operating expenses decreased $139 thousand during the third
quarter of 2015 as compared to the same period in 2014. This decline
was primarily due to expenses and consultant fees that were incurred
during the third quarter of 2014 in connection with the acquisition of
VCB, and similar expenses were not incurred during the third quarter of
2015. These decreased costs were partially offset by increased costs
associated with marketing and advertising initiatives and the
outsourcing of the Bank's core information technology processing as
compared to the same period in 2014; and
-- Decrease in the effective dividend on preferred stock of $540 thousand
from the same period in 2014. This was due to the redemption of the
Company's Series A Preferred Stock (10,000, 5,000 and 9,000 shares on
October 15, 2014, January 15, 2015 and June 15, 2015, respectively).
For the nine months ended September 30, 2015, the following were significant factors in the Company's reported results:
-- Increase in net interest income of $4.4 million from the same period in
2014, principally due to a $5.3 million increase in interest and fees on
loans driven primarily by loans acquired through the acquisition of VCB,
partially offset by a decrease in interest income on investment
securities and an increase in interest expense associated with the
issuance of $20.0 million in senior subordinated debt;
-- Increase in net interest margin (tax equivalent basis) of 7 basis points
to 3.89% for the nine months ended September 30, 2015 as compared to
3.82% for the nine months ended September 30, 2014;
-- Increase in salaries and employee benefits of $2.5 million from the same
period in 2014, primarily due to increased staff levels and support
positions associated with the addition of three branches through the
acquisition of VCB;
-- Operating results were impacted by accounting adjustments which were
recorded in relation to the VCB acquisition. As a result, yields on
acquired loans increased and were partially offset by amortization of
the core deposit intangible and the fair value adjustment for time
deposits. The net accretion attributable to accounting adjustments
related to the VCB acquisition was $423 thousand;
-- No provision for loan losses was recorded during the nine months ended
September 30, 2015 compared to $250 thousand for the same period in
2014. Net charge-offs increased to $1.1 million for the nine months
ended September 30, 2015 from $876 thousand in the same period of 2014;
-- Nonperforming assets at September 30, 2015 decreased $3.8 million from
September 30, 2014, primarily due to a $4.7 million decline in
nonaccrual loans and partially offset by an increase of $1.1 million in
loans past due 90 days and accruing interest;
-- Increase in collection, repossession and other real estate owned expense
of $219 thousand from the same period in 2014 due to increased average
carrying balances of and costs associated with other real estate owned
and classified assets;
-- Expenses related to FDIC insurance premiums declined to $622 thousand as
compared to $758 thousand for the same period in 2014. The Company
faced lower FDIC insurance assessment rates following termination of its
memorandum of understanding with its federal and state banking
regulators (the "MOU"), which was partially offset by higher average
asset balances due to the VCB acquisition;
-- Other operating expenses increased $1.4 million for the nine months
ended September 30, 2015 as compared to the same period in 2014 and were
primarily driven by increased costs associated with new marketing and
advertising initiatives, outsourcing of the Bank's core information
technology processing and consultant fees. Consultant fees increased
due to the Company's engagement of an independent consultant to conduct
a comprehensive assessment of its operations. The increase in these
other operating expenses was partially offset by lower expenses related
to the acquisition of VCB incurred during the first nine months of 2015
than were incurred during the first nine months of 2014; and
-- Decrease in the effective dividend on preferred stock of $1.2 million
from the same period in 2014. This was due to the redemption of the
Company's Series A Preferred Stock (10,000, 5,000 and 9,000 shares on
October 15, 2014, January 15, 2015 and June 15, 2015, respectively).
Operations Analysis
The following tables present average balances of assets and liabilities, the average yields earned on such assets (on a tax equivalent basis) and rates paid on such liabilities, and the net interest margin for the three and nine months ended September 30, 2015 and 2014.
Average Balance Sheet and Net Interest Margin Analysis
(dollars in thousands)
Three Months Ended September 30,
2015 2014
---- ----
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
------- ------- ------- ------- ------- -------
Assets:
Securities
Taxable $222,800 $1,173 2.09% $230,916 $1,185 2.04%
Restricted securities 8,535 114 5.30% 6,940 91 5.20%
Tax exempt (2) 35,907 360 3.98% 26,245 260 3.93%
------ --- ------ ---
Total securities 267,242 1,647 2.45% 264,101 1,536 2.31%
Interest bearing deposits in other banks 6,856 4 0.23% 7,997 5 0.25%
Federal funds sold 139 - 0.00% 139 - 0.00%
Loans, net of unearned income (3) 853,421 10,443 4.85% 696,130 8,623 4.91%
------- ------ ------- -----
Total earning assets 1,127,658 12,094 4.25% 968,367 10,164 4.16%
Less allowance for loan losses (12,113) (14,445)
Total non-earning assets 114,418 97,769
------- ------
Total assets $1,229,963 $1,051,691
========== ==========
Liabilities & Shareholders' Equity:
Interest-bearing deposits
Checking $295,441 $270 0.36% $260,055 $238 0.36%
Savings 94,248 34 0.14% 90,405 30 0.13%
Money market savings 157,323 176 0.44% 112,668 112 0.39%
Time deposits 229,400 508 0.88% 218,943 615 1.11%
------- --- ------- ---
Total interest-bearing deposits 776,412 988 0.50% 682,071 995 0.58%
Federal funds purchased and repurchase
agreements 7,204 9 0.50% 3,393 5 0.58%
Short-term borrowings 103,970 56 0.21% 72,254 39 0.21%
Junior subordinated debt 10,310 83 3.19% 10,310 82 3.16%
Senior subordinated debt 19,107 348 7.23% - - 0.00%
------ --- --- ---
Total interest-bearing liabilities 917,003 1,484 0.64% 768,028 1,121 0.58%
Noninterest-bearing liabilities
Demand deposits 181,303 140,088
Other liabilities 7,831 3,749
----- -----
Total liabilities 1,106,137 911,865
Shareholders' equity 123,826 139,826
------- -------
Total liabilities and shareholders' equity $1,229,963 $1,051,691
========== ==========
Net interest income (2) $10,610 $9,043
======= ======
Interest rate spread (2)(4) 3.61% 3.58%
Interest expense as a percent of
average earning assets 0.52% 0.46%
Net interest margin (2)(5) 3.73% 3.70%
Notes:
(1) Yields are annualized and based on average daily balances.
(2) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%, with a
$110 adjustment for 2015 and a $80 adjustment in 2014.
(3) Nonaccrual loans have been included in the computations of average loan balances.
(4) Interest rate spread is the average yield on earning assets, calculated on a fully taxable basis, less the average
rate incurred on interest-bearing liabilities.
(5) Net interest margin is the net interest income, calculated on a fully taxable basis, expressed as a percentage
of average earning assets.
(dollars in thousands)
Nine Months Ended September 30,
2015 2014
---- ----
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
------- ------- ------- ------- ------- -------
Assets:
Securities
Taxable $219,440 $3,560 2.17% $236,176 $4,030 2.28%
Restricted securities 7,843 318 5.42% 6,984 282 5.40%
Tax exempt (2) 37,629 1,120 3.98% 28,663 860 4.01%
------ ----- ------ ---
Total securities 264,912 4,998 2.52% 271,823 5,172 2.54%
Interest bearing deposits in other banks 6,902 12 0.23% 6,863 13 0.25%
Federal funds sold 201 - 0.00% 135 - 0.00%
Loans, net of unearned income (3) 829,976 31,016 5.00% 686,643 25,735 5.01%
------- ------ ------- ------
Total earning assets 1,101,991 36,026 4.37% 965,464 30,920 4.28%
Less allowance for loan losses (12,512) (14,708)
Total non-earning assets 113,830 98,549
------- ------
Total assets $1,203,309 $1,049,305
========== ==========
Liabilities & Shareholders' Equity:
Interest-bearing deposits
Checking $288,802 $792 0.37% $258,848 $699 0.36%
Savings 92,780 93 0.13% 89,976 90 0.13%
Money market savings 162,029 561 0.46% 115,205 353 0.41%
Time deposits 235,025 1,527 0.87% 222,782 1,818 1.09%
------- ----- ------- -----
Total interest-bearing deposits 778,636 2,973 0.51% 686,811 2,960 0.58%
Federal funds purchased and repurchase
agreements 9,112 40 0.59% 3,405 15 0.59%
Short-term borrowings 86,389 135 0.21% 71,259 110 0.21%
Junior subordinated debt 10,310 244 3.16% 10,310 258 3.35%
Senior subordinated debt 11,450 612 7.15% - - 0.00%
------ --- --- ---
Total interest-bearing liabilities 895,897 4,004 0.60% 771,785 3,343 0.58%
Noninterest-bearing liabilities
Demand deposits 171,703 134,774
Other liabilities 7,127 4,355
----- -----
Total liabilities 1,074,727 910,914
Shareholders' equity 128,582 138,391
------- -------
Total liabilities and shareholders' equity $1,203,309 $1,049,305
========== ==========
Net interest income (2) $32,022 $27,577
======= =======
Interest rate spread (2)(4) 3.77% 3.70%
Interest expense as a percent of
average earning assets 0.49% 0.46%
Net interest margin (2)(5) 3.89% 3.82%
Notes:
(1) Yields are annualized and based on average daily balances.
(2) Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%, with a
$342 adjustment for 2015 and a $263 adjustment in 2014.
(3) Nonaccrual loans have been included in the computations of average loan balances.
(4) Interest rate spread is the average yield on earning assets, calculated on a fully taxable basis, less the average
rate incurred on interest-bearing liabilities.
(5) Net interest margin is the net interest income, calculated on a fully taxable basis, expressed as a percentage
of average earning assets.
Interest Income and Expense
Net interest income and net interest margin
Net interest income in the third quarter of 2015 increased $1.5 million, or 17.1%, when compared to the third quarter of 2014. Net interest income for the nine months ended September 30, 2015 increased $4.4 million, or 16.0%, as compared to the first nine months of 2014. The Company's net interest margin increased to 3.73% and 3.89% for the three and nine months ended September 30, 2015, representing 3 and 7 basis point increases, respectively, over the Company's net interest margins for the three and nine months ended September 30, 2014. The Company's net interest margin decreased 20 basis points during the three months ended September 30, 2015 as compared to the three months ended June 30, 2015. This quarter-over-quarter decline was primarily driven by lower loan yields as a result of competitive pressures in the historically low rate environment, lower accretion of fair value adjustments related to the VCB acquisition and increased interest expense as a result of the private placement of $20.0 million of senior subordinated debt in April 2015. The most significant factors impacting net interest income during the three and nine month periods ended September 30, 2015 were as follows:
Positive Impacts:
-- Average loan balances increased primarily due to the acquisition of VCB
and the purchase of $16.8 million in loans between June 2015 and
September 2015; and
-- Average rates paid on total interest-bearing deposits decreased for the
three and nine months ended September 30, 2015. However, the Company
experienced higher average interest-bearing deposit balances during the
first nine months of 2015 over the comparable 2014 period, due to
interest-bearing deposits added from the VCB acquisition. This drove a
slight increase in interest expense attributable to the Company's
deposit portfolio.
Negative Impacts:
-- Decreases in average balances of and average rates earned on total
investment securities for the nine months ended September 30, 2015.
However, for the three months ended September 30, 2015, average balances
of and average rates earned on total investment securities increased, as
compared to the same period in 2014; and
-- Private placement of $20.0 million of senior subordinated debt resulting
in increases to total average interest-bearing liabilities and related
interest expense.
Total interest and dividend income
Total interest and dividend income increased 18.8% and 16.4% for the three and nine months ended September 30, 2015, respectively, as compared to the same periods in 2014. The increase in total interest and dividend income during the three months ended September 30, 2015 was primarily driven by an increase in average loan and investment securities balances and an increase in average investment securities yields, partially offset by a decrease in average loan yields. The increase in total interest and dividend income during the nine months ended September 30, 2015 was primarily driven by an increase in average loan balances, but partially offset by a decrease in average investment securities balances and declines in average investment securities yields.
Loans
Average loan balances increased for the three and nine month periods ended September 30, 2015, as compared to the same periods in 2014, due primarily to the acquisition of VCB loans totaling $101.5 million as of November 14, 2014, net of fair value adjustments, the purchase of $16.8 million in performing one-to-four family residential mortgage loans, consumer loans and government guaranteed loans between June 2015 and September 2015, organic loan growth and the opening of a new loan production office in Chesterfield County, Virginia in the second quarter of 2014. Despite a 2.5% increase in loans during the third quarter of 2015, loan growth came in lower than our expectations. Loan growth in our rural markets, primarily on the consumer side, remains weak while competition for commercial loans, especially in the Richmond and Tidewater markets, has been and we expect will continue to be intense given the historically low rate environment. The Company's average loan balances increased $157.3 million for the three months ended September 30, 2015 and increased $143.3 million for the nine months ended September 30, 2015, as compared to average loan balances for the same periods in 2014. Total average loans were 75.7% of total average interest-earning assets for the three months ended September 30, 2015, compared to 71.9% for the three months ended September 30, 2014. Total average loans were 75.3% of total average interest-earning assets for the nine months ended September 30, 2015, compared to 71.1% for the nine months ended September 30, 2014.
Investment securities
Average investment securities balances increased 1.2% for the three month period ended September 30, 2015, but declined 2.5% for the nine month period ended September 30, 2015, as compared to the same periods in 2014. The overall decline during the first nine months of 2015 was the result of the Company moving towards its long term target of the investment securities portfolio comprising 20% of the Company's total assets, the lack of investment opportunities with acceptable risk-adjusted rates of return and liquidity needs to support our operations and strategic initiatives. The yields on average investment securities increased 14 basis points for the three months ended September 30, 2015, but declined 2 basis points for the nine months ended September 30, 2015, as compared to the same periods in 2014. The increase in yields on average investment securities during the three month period ended September 30, 2015, as compared to the same period in 2014, was driven by higher interest rates and a greater allocation of the investment securities portfolio to higher yielding tax exempt municipal securities.
Interest-bearing deposits
Average total interest-bearing deposit balances increased for the three and nine month periods ended September 30, 2015, as compared to the same periods in 2014, primarily due to the assumption of VCB's interest-bearing deposit liabilities, which totaled $85.6 million as of November 14, 2014, and organic deposit growth that was in part driven by the Company's marketing and advertising initiatives.
Borrowings
Average total borrowings increased for the three and nine month periods ended September 30, 2015, as compared to the same periods in 2014, primarily due to the issuance of $20.0 million in senior subordinated debt in April 2015, the assumption of $8.7 million in short-term FHLB advances as a result of the VCB acquisition and increased repurchase agreement balances related to a significant customer deposit relationship. Additionally, average short-term borrowings increased for the three and nine month periods ended September 30, 2015, as compared to the same periods in 2014, to fund loan growth and other strategic initiatives.
Noninterest Income
The following tables depict the components of noninterest income for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Service charges and fees on deposit accounts $745 $825 $(80) -9.7%
Debit/credit card fees 468 383 85 22.2%
Gain on sale of available for sale securities, net 81 7 74 1057.1%
(Loss) on sale of bank premises and equipment (11) - (11) -100.0%
Other operating income 441 390 51 13.1%
---------------------- --- --- --- ----
Total noninterest income $1,724 $1,605 $119 7.4%
====== ====== ==== ===
Nine Months Ended September 30,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Service charges and fees on deposit accounts $2,081 $2,484 $(403) -16.2%
Debit/credit card fees 1,273 1,070 203 19.0%
Gain on sale of available for sale securities, net 132 496 (364) -73.4%
(Loss) gain on sale of bank premises and equipment (38) 5 (43) -860.0%
Other operating income 1,327 1,081 246 22.8%
---------------------- ----- ----- --- ----
Total noninterest income $4,775 $5,136 $(361) -7.0%
====== ====== ===== ====
Key changes in the components of noninterest income for both the three and nine months ended September 30, 2015, as compared to the same periods in 2014, are discussed below:
-- Service charges and fees on deposit accounts declined due to decreases
in service charge and overdraft fees on checking accounts;
-- Debit/credit card fees increased primarily due to an increase in debit
card fees driven by the acquisition of VCB and a higher utilization rate
of debit cards by our customer base;
-- Gain on sale of available for sale securities, net increased for the
third quarter of 2015 compared to the same period of 2014 primarily as a
result of the Company adjusting the composition of the investment
securities portfolio as part of the Company's overall asset/liability
management strategy. However, gains decreased during the first nine
months of 2015 primarily due to the sale of a portion of its previously
impaired agency preferred securities (FNMA & FHLMC) during the first
quarter of 2014, and because the Company did not generate comparable
gains during 2015;
-- (Loss) gain on sale of bank premises and equipment was primarily due to
the sale of our former Heathsville branch building as operations were
relocated to a new facility, with no similar losses occurring during
2014; and
-- Other operating income increased primarily due to higher earnings from
the Bank's subsidiaries, its investment in Bankers Insurance, LLC and
bank owned life insurance policies, partially offset by higher losses
from the Bank's investments in Housing Equity Funds. Additionally,
other operating income includes earnings from the Bank's investments in
Southern Trust Mortgage, LLC and Bankers Title, LLC.
Noninterest Expense
The following tables depict the components of noninterest expense for the three and nine months ended September 30, 2015 and 2014:
Three Months Ended September 30,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Salaries and employee benefits $5,394 $4,652 $742 16.0%
Occupancy and equipment expenses 1,396 1,286 110 8.6%
FDIC expense 196 121 75 62.0%
Collection, repossession and other real estate owned 209 49 160 326.5%
(Gain) loss on sale of other real estate owned (8) 51 (59) -115.7%
Other operating expenses 2,330 2,469 (139) -5.6%
------------------------ ----- ----- ---- ----
Total noninterest expenses $9,517 $8,628 $889 10.3%
====== ====== ==== ====
Nine Months Ended September 30,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Salaries and employee benefits $16,507 $13,986 $2,521 18.0%
Occupancy and equipment expenses 4,309 3,872 437 11.3%
FDIC expense 622 758 (136) -17.9%
Collection, repossession and other real estate owned 424 205 219 106.8%
Loss on sale of other real estate owned 18 66 (48) -72.7%
Impairment losses on other real estate owned 5 11 (6) -54.5%
Other operating expenses 7,798 6,427 1,371 21.3%
------------------------ ----- ----- ----- ----
Total noninterest expenses $29,683 $25,325 $4,358 17.2%
======= ======= ====== ====
Key changes in the components of noninterest expense for both the three and nine months ended September 30, 2015, as compared to the same periods in 2014, are discussed below:
-- Salaries and employee benefits increased primarily due to the increased
staff levels and support positions associated with the addition of three
branches through the acquisition of VCB. Additionally, salaries and
employee benefits were higher in 2015 due to annual merit salary
increases, increased restricted stock compensation expense, increased
bonuses, commissions and other incentive compensation and valuation
adjustments related to pension plan liabilities, partially offset by an
increase in deferred compensation on loan originations;
-- Occupancy and equipment expenses increased primarily due to depreciation
expense associated with certain acquired VCB assets and increased rent,
building repairs and maintenance and real estate tax expenses related to
the acquired VCB branch locations;
-- FDIC expense decreased for the nine month period but increased for the
three month period ended September 30, 2015. For the nine month period,
FDIC expense decreased due to lower base insurance assessment rates
resulting from the improvement in the Bank's overall composite rating in
connection with the termination of the MOU in March 2014. FDIC expense
was higher during the third quarter of 2015, as compared to the same
period in 2014, because the Bank did not pay FDIC assessments on assets
acquired from VCB until the first quarter of 2015 and due to the
corresponding timing of lower base insurance assessment rates that
favorably affected FDIC expense in the third quarter of 2014;
-- Collection, repossession and other real estate owned expenses increased
due to increases in average carrying balances of and costs associated
with other real estate owned and classified assets; and
-- Other operating expenses increased for the nine month period but
decreased for the three month period ended September 30, 2015.
Significant increases in the nine month period ending September 30, 2015
included elevated costs associated with outsourcing of the Bank's core
information technology processing, franchise taxes, education and
training, core deposit intangible amortization expense and marketing and
advertising expenses. Marketing and advertising expenses were higher
due to the timing of campaigns and costs associated with the acquisition
of VCB and other marketing and advertising initiatives. Similar
increases also occurred in the three month period, but were offset by a
substantial reduction in legal and consultant fees, as approximately
$550 thousand in costs related to the VCB acquisition were incurred in
the third quarter of 2014 that were not repeated in 2015. Additionally,
consultant fees increased for the nine month period ending September 30,
2015 due to the Company's engagement of an independent consultant to
conduct a comprehensive assessment of its operations.
Balance Sheet and Asset Quality
Balance Sheet
Key balance sheet components as of September 30, 2015 and December 31, 2014 are as follows:
September 30, December 31,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Total assets $1,242,387 $1,181,972 $60,415 5.1%
Securities available for sale, at fair value 229,608 214,011 15,597 7.3%
Securities held to maturity, at carrying value 29,964 32,163 (2,199) -6.8%
Total loans 861,393 820,569 40,824 5.0%
Total deposits 974,801 939,254 35,547 3.8%
Total borrowings 135,225 102,013 33,212 32.6%
Total shareholders' equity 124,943 134,274 (9,331) -6.9%
Key balance sheet components as of September 30, 2015 and 2014 are as follows:
September 30, September 30,
(dollars in thousands) 2015 2014 Change $ Change %
--------------------- ---- ---- -------- -------
Total assets $1,242,387 $1,052,756 $189,631 18.0%
Securities available for sale, at fair value 229,608 218,637 10,971 5.0%
Securities held to maturity, at carrying value 29,964 33,333 (3,369) -10.1%
Total loans 861,393 706,390 155,003 21.9%
Total deposits 974,801 821,472 153,329 18.7%
Total borrowings 135,225 90,385 44,840 49.6%
Total shareholders' equity 124,943 137,787 (12,844) -9.3%
Asset Quality
The asset quality measures depicted below continue to reflect the Company's efforts to prudently charge-off loans as losses are identified and maintain an appropriate allowance for potential future loan losses.
The following table depicts the net charge-off activity for the three and nine months ended September 30, 2015 and 2014.
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
(dollars in thousands) 2015 2014 2015 2014
--------------------- ---- ---- ---- ----
Net charge-offs $349 $477 $1,083 $876
Net charge-offs to average loans 0.16% 0.27% 0.17% 0.17%
The following table depicts the level of the allowance for loan losses as of the dates presented.
September 30, December 31, September 30,
(dollars in thousands) 2015 2014 2014
--------------------- ---- ---- ----
Allowance for loan losses $11,938 $13,021 $14,141
Allowance for loan losses to period end loans 1.39% 1.59% 2.00%
Allowance for loan losses to nonaccrual loans 203.85% 196.63% 134.23%
Allowance for loan losses to nonperforming loans 171.48% 195.07% 134.23%
The following table depicts the level of nonperforming assets as of the dates presented.
September 30, December 31, September 30,
(dollars in thousands) 2015 2014 2014
--------------------- ---- ---- ----
Nonaccrual loans $5,856 $6,622 $10,535
Loans past due 90 days and accruing interest 1,105 53 -
----- --- ---
Total nonperforming loans $6,961 $6,675 $10,535
Other real estate owned ("OREO") 233 1,838 485
--- ----- ---
Total nonperforming assets $7,194 $8,513 $11,020
====== ====== =======
Nonperforming assets to total loans and OREO 0.83% 1.04% 1.56%
The following tables present the change in the balances of OREO and nonaccrual loans for the nine months ended September 30, 2015.
OREO: Nonaccrual Loans:
----- -----------------
(dollars in thousands) (dollars in thousands)
Balance at December 31, 2014 $1,838 Balance at December 31, 2014 $6,622
Transfers from loans 1,249 Loans returned to accrual status (4,360)
Capitalized costs 1 Net principal curtailments (1,866)
Sales proceeds (2,832) Charge-offs (1,090)
Impairment losses on valuation adjustments (5) Loan collateral moved to OREO (1,249)
Loss on disposition (18) Loans placed on nonaccrual during
period 7,799
--- -----
Balance at September 30, 2015 $233 Balance at September 30, 2015 $5,856
==== ======
In general, the modification or restructuring of a loan constitutes a troubled debt restructuring ("TDR") when we grant a concession to a borrower experiencing financial difficulty. The following table depicts the balances of TDRs as of the dates presented.
September 30, December 31, September 30,
(dollars in thousands) 2015 2014 2014
--------------------- ---- ---- ----
Performing TDRs $15,426 $15,223 $16,004
Nonperforming TDRs* 1,186 3,438 3,965
----- ----- -----
Total TDRs $16,612 $18,661 $19,969
======= ======= =======
* Included in nonaccrual loans.
Forward Looking Statements
Certain statements contained in this release that are not historical facts may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended. In addition, certain statements may be contained in the Company's future filings with the Securities and Exchange Commission (the "SEC"), in press releases, and in oral and written statements made by or with the approval of the Company that are not statements of historical fact and constitute forward-looking statements within the meaning of the Exchange Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, income or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of the Company or its management or Board of Directors, including those relating to products or services, the performance or disposition of portions of the Company's asset portfolio, future changes to the Bank's branch network and the payment of dividends; (iii) statements of future financial performance and economic conditions; (iv) statements regarding the adequacy of the allowance for loan losses; (v) statements regarding the effect of future sales of investment securities or foreclosed properties; (vi) statements regarding the Company's liquidity; (vii) statements of management's expectations regarding future trends in interest rates, real estate values, and economic conditions generally and in the Company's markets; (viii) statements regarding future asset quality, including expected levels of charge-offs; (ix) statements regarding potential changes to laws, regulations or administrative guidance; (x) statements regarding strategic initiatives of the Company or the Bank and the results of these initiatives; and (xi) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:
-- factors that adversely affect the Company's and the Bank's strategic and
business initiatives, including, without limitation, changes in the
economic or business conditions in the Company's markets;
-- the Company's ability and efforts to assess, manage and improve its
asset quality;
-- the strength of the economy in the Company's target market area, as well
as general economic, market, political, or business factors;
-- changes in the quality or composition of the Company's loan or
investment portfolios, including adverse developments in borrower
industries or in the repayment ability of individual borrowers or
issuers;
-- concentrations in segments of the loan portfolio or declines in real
estate values in the Company's markets;
-- the effects of the Company's adjustments to the composition of its
investment portfolio;
-- the strength of the Company's counterparties;
-- an insufficient allowance for loan losses;
-- the Company's ability to meet the capital requirements of its regulatory
agencies;
-- changes in laws, regulations and the policies of federal or state
regulators and agencies, the implementation of the Basel III capital
framework and for calculating risk-weighted assets;
-- changes in the interest rates affecting the Company's deposits and
loans;
-- the loss of any of the Company's key employees;
-- failure, interruption or breach of any of the Company's communication or
information systems, including those provided by external vendors;
-- the Company's potential growth, including its entrance or expansion into
new markets, the opportunities that may be presented to and pursued by
it and the need for sufficient capital to support that growth;
-- future mergers or acquisitions, if any;
-- changes in government monetary policy, interest rates, deposit flow, the
cost of funds, and demand for loan products and financial services;
-- the Company's ability to maintain internal control over financial
reporting;
-- the Company's ability to realize its deferred tax assets, including in
the event the Company experiences an ownership change as defined by
section 382 of the code;
-- the Company's ability to raise capital as needed by its business;
-- the Company's reliance on secondary sources, such as Federal Home Loan
Bank advances, sales of securities and loans, and federal funds lines of
credit from correspondent banks to meet its liquidity needs; and
-- other circumstances, many of which are beyond the Company's control.
Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions and projections within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance, actions or achievements of the Company will not differ materially from any future results, performance, actions or achievements expressed or implied by such forward-looking statements. Readers should not place undue reliance on such statements, which speak only as of the date of this report. The Company does not undertake any steps to update any forward-looking statement that may be made from time to time by it or on its behalf. For additional information on risk factors that could affect the Company's forward-looking statements, see the Company's Annual Report on Form 10-K for the year ended December 31, 2014 and other reports filed with the SEC.
Selected Financial Information
(dollars in thousands, except per share data) Three months ended September 30, Nine months ended September 30,
Statements of Income 2015 2014 2015 2014
-------------------- ---- ---- ---- ----
Interest and dividend income $11,984 $10,084 $35,684 $30,657
Interest expense 1,484 1,121 4,004 3,343
----- ----- ----- -----
Net interest income 10,500 8,963 31,680 27,314
Provision for loan losses - - - 250
--- --- --- ---
Net interest income after provision for loan losses 10,500 8,963 31,680 27,064
Service charges and fees on deposit accounts 745 825 2,081 2,484
Other operating income 441 390 1,327 1,081
Debit/credit card fees 468 383 1,273 1,070
Gain on sale of available for sale securities, net 81 7 132 496
(Loss) gain on sale of bank premises and equipment (11) - (38) 5
Noninterest income 1,724 1,605 4,775 5,136
----- ----- ----- -----
Salaries and employee benefits 5,394 4,652 16,507 13,986
Occupancy and equipment expenses 1,396 1,286 4,309 3,872
FDIC expense 196 121 622 758
Collection, repossession and other real estate owned 209 49 424 205
(Gain) loss on sale of other real estate owned (8) 51 18 66
Impairment losses on other real estate owned - - 5 11
Other operating expenses 2,330 2,469 7,798 6,427
----- ----- ----- -----
Noninterest expenses 9,517 8,628 29,683 25,325
----- ----- ------ ------
Income before income taxes 2,707 1,940 6,772 6,875
Income tax expense 697 658 1,646 1,942
--- --- ----- -----
Net income $2,010 $1,282 $5,126 $4,933
Less: Effective dividend on preferred stock - 540 386 1,599
--- --- --- -----
Net income available to common shareholders $2,010 $742 $4,740 $3,334
====== ==== ====== ======
Net income per common share: basic and diluted $0.11 $0.04 $0.26 $0.19
Selected Ratios
---------------
Return on average assets (annualized) 0.65% 0.28% 0.53% 0.42%
Return on average common shareholders' equity (annualized) 7.80% 3.12% 6.25% 4.80%
Net interest margin (tax equivalent basis) 3.73% 3.70% 3.89% 3.82%
Period End Balances
-------------------
Investment securities $267,833 $259,096 $267,833 $259,096
Loans, net of unearned income 861,393 706,390 861,393 706,390
Total assets 1,242,387 1,052,756 1,242,387 1,052,756
Total deposits 974,801 821,472 974,801 821,472
Total borrowings 135,225 90,385 135,225 90,385
Total shareholders' equity 124,943 137,787 124,943 137,787
Book value per common share 8.02 7.81 8.02 7.81
Average Balances
----------------
Investment securities $267,242 $264,101 $264,912 $271,823
Loans, net of unearned income 853,421 696,130 829,976 686,643
Total earning assets 1,127,658 968,367 1,101,991 965,464
Total assets 1,229,963 1,051,691 1,203,309 1,049,305
Total deposits 957,715 822,159 950,339 821,585
Total borrowings 140,591 85,957 117,261 84,974
Total shareholders' equity 123,826 139,826 128,582 138,391
Asset Quality at Period End
---------------------------
Allowance for loan losses $11,938 $14,141 $11,938 $14,141
Nonperforming assets 7,194 11,020 7,194 11,020
Net charge-offs 349 477 1,083 876
Net charge-offs to average loans 0.16% 0.27% 0.17% 0.17%
Allowance for loan losses to period end loans 1.39% 2.00% 1.39% 2.00%
Allowance for loan losses to nonaccrual loans 203.85% 134.23% 203.85% 134.23%
Allowance for loan losses to nonperforming loans 171.48% 134.23% 171.48% 134.23%
Nonperforming assets to total assets 0.58% 1.05% 0.58% 1.05%
Nonperforming assets to total loans and other real estate owned 0.83% 1.56% 0.83% 1.56%
Other Information
-----------------
Number of shares outstanding - period end 13,029,550 11,868,367 13,029,550 11,868,367
Average shares outstanding - basic 13,029,550 11,868,301 13,013,005 11,864,366
Average shares outstanding - diluted 18,269,742 17,108,493 18,253,197 17,104,558
Contact: Adam Sothen
Chief Financial Officer
Voice: (804) 443-8404
Fax: (804) 445-1047
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/eastern-virginia-bankshares-inc-releases-third-quarter-2015-results-300164983.html
SOURCE Eastern Virginia Bankshares, Inc.
