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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2004

OR

For the transition period from              to             

Commission File No. 000-23565

EASTERN VIRGINIA BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

330 Hospital Road, Tappahannock, Virginia 22560

(Address of principal executive offices)

Registrant’s telephone number, including area code (804) 443-8423

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The number of shares of the registrant’s Common Stock outstanding as of August 4, 2004 was 4,872,630.

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EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-Q

For the Quarter Ended June 30, 2004

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

        (Dollars in thousands)

See Notes to Consolidated Financial Statements

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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)

See Notes to Consolidated Financial Statements

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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)

See Notes to Consolidated Financial Statements

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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At June 30, 2004, investments in an unrealized loss position that are temporarily impaired are:

The unrealized loss positions at June 30, 2004 were directly related to interest rate movements as there is minimal credit risk exposure in these investments. All securities are investment grade or better. Bonds with unrealized loss positions at June 30, 2004 included 44 U. S. Treasury and federal agencies, 26 mortgage-backed securities, five federal agency preferred stocks, 15 corporate bonds and 44 municipal bonds. Two mortgage- backed securities and three municipal bonds have been in an unrealized loss position for 12 months or more.

6. EVB’s loan portfolio was composed of the following at the dates indicated:

EVB had $4.8 million in non-performing loans at June 30, 2004.

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As of June 30, 2004, options on 30,900 shares were not included in computing earnings per common share

assuming dilution, because their effects are anti-dilutive.

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Employer Contributions

The Company made its required 2004 fiscal year contribution to the pension plan in December 2003 in the amount of $623 thousand. The Company anticipates that it will likely make its 2005 contribution in December 2004. The pension plan has a fiscal year ending September 30 providing the Company flexibility as to the calendar year in which it makes pension plan contributions.

PART I - FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial information is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Eastern Virginia Bankshares, Inc. This discussion provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Company. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements presented elsewhere in this report. Operating results include Southside Bank, Bank of Northumberland, Inc., Hanover Bank and subsidiaries of the banks combined for all periods presented.

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. For example we use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ substantially from the historical factors that we use. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) Statement of Financial Accounting Standards (SFAS) Number 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable, and (ii) SFAS Number 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of the collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

Management determines the allowance for loan losses based on two basic components: the formula allowance and the specific allowance. Each of these components is determined based upon estimates that can and do change when the

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actual events occur. The formula allowance uses historical loss as an indicator of future losses and, as a result, could differ from the loss incurred in the future. However, since the history is updated with the most recent loss information, management believes that the errors that might otherwise occur are mitigated. The formula allowance is revised as deemed appropriate to capture losses that are attributable to economic events and industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in the specific allowance. The specific allowance uses various techniques to arrive at an estimate of loss. Historical loss information, current level of nonaccrual loans, current level of unsecured loans past due 60 to 89 days and the fair market value of collateral are used to estimate these losses. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates. In determining the adequacy of the allowance, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, and economic conditions.

OVERVIEW AND FINANCIAL CONDITION

Net income increased 4.6% to $1.8 million for the second quarter of 2004, compared to $1.7 million for the same period in 2003. Earnings per share increased 2.8% to $0.37 for the second quarter of 2004, compared to $0.36 for the second quarter of 2003. Year-to-date earnings per share of $0.77 represent an increase of 8.5%, compared to $0.71 for the first six months of 2003. Earnings for both periods in 2004 benefited from long-term strategic initiatives, including three new branch offices opened in 2001, a new branch office opened in the first quarter of 2003 and three new branch offices purchased from BB&T/First Virginia Bank-Hampton Roads in September 2003. Net interest income increased $887 thousand for the quarter ended June 30, 2004 and $2.1 million for the year-to-date period when compared to the same periods in 2003. Noninterest income was up $327 thousand, or 36.5%, for the quarter, and up $552 thousand, or 31.4%, for the six months ended June 30, 2004 when compared to the same periods in 2003. Income increases were partially offset by an increase in the loan loss provision of $67 thousand for the quarter and $110 thousand for the year-to-date period and noninterest expense increases of $1.1 million for the quarter and $2.3 million year-to-date.

Total assets on June 30, 2004 were $687.5 million, up $129.6 million, or 23.2%, from $558.0 million at June 30, 2003 and up $10.4 million, or 1.5%, from $677.2 million at December 31, 2003. For the quarter, total assets averaged $689.6 million, 24.3% above the second quarter 2003 average of $554.5 million. Total loans, net of unearned income, amounted to $499.5 million at June 30, 2004, an increase of $76.1 million, or 18.0%, from $423.4 million at June 30, 2003, and up $12.7 million, or 2.6%, from $486.8 million at December 31, 2003. Net loans as a percent of total assets were 71.7% at June 30, 2004, as compared to 74.8% at June 30, 2003. Net loan volume for the first six months of 2004 was $12.7 million, compared to $24.1 million for the first six months of 2003. Decreased loan growth in 2004 versus 2003 is related primarily to a slow economy that continues in our market place despite improvements in the national economy.

On June 30, 2004, the securities portfolio totaled $135.1 million, up $28.2 million, or 26.4%, compared to June 30, 2003 and down $6.3 million, or 4.5%, from $141.4 million at December 31, 2003. Most of the funds that are invested in the securities portfolio are part of the effort to balance the interest rate risk and to provide liquidity. Currently the Company has a greater portion of its assets in securities than its target, a result of the branch offices purchased in September 2003 bringing in $38 million more in deposits than they did loans. Federal funds purchased on June 30, 2004 were $623 thousand, compared to $209 thousand in federal funds sold one year ago and $23 thousand in federal funds sold at December 31, 2003.

Total deposits of $591.3 million at June 30, 2004 represented an increase of $118.0 million, or 24.9%, from $473.3 million one year ago and up $10.2 million, or 1.8%, from $581.1 million at December 31, 2003. EVB offers attractive, yet competitive, rates to maintain a strong stable deposit base. All categories of deposits experienced growth during the past year with noninterest-bearing demand deposits up 48.2% and interest-bearing deposits up 21.8%. Both the second quarter and the first six months of 2004 reflected an increase in both interest-bearing and noninterest-bearing deposit accounts. $9.3 million of the year-to-date deposit growth occurred in the second quarter. $28 million of the loan growth and $66 million of the deposit increase during the past year were a direct result of the three branches purchased from BB&T/First Virginia Bank-Hampton Roads in September 2003.

Financial Accounting Standards Board Pronouncement Number 115 requires the Company to show the effect of market changes in the value of securities available for sale. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled “Accumulated other comprehensive income/(loss), net” in the Shareholders’ Equity

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section of the Balance Sheet and was ($673) thousand at June 30, 2004, a decrease of $4.2 million from June 30, 2003 and $2.8 million from December 31, 2003. This decrease in the equity effect of the change in the value of securities results primarily from depreciation caused by increases in market interest rates compared to one year ago.

RESULTS OF OPERATIONS

Eastern Virginia Bankshares, Inc. reported record earnings for the six months ended June 30, 2004 and an increase in quarterly earnings compared to the second quarter of 2003. Net income for the quarter was $1.8 million, an increase of $80 thousand from second quarter 2003 earnings of $1.7 million. Net income for the six months ended June 30, 2004 increased 8.2% to $3.7 million compared to $3.4 million for the first half of 2003.

Net interest income increased $887 thousand for the quarter ended June 30, 2004 and $2.1 million for the year-to-date period. Noninterest income, net of gains of securities sales, was up $177 thousand, or 20.1%, for the quarter and up $396 thousand, or 23.7%, for the six months ended June 30, 2004. Gain on sale of securities was up $150 thousand for the quarter and $156 thousand year-to-date. Loan loss provision increased $67 thousand for the quarter and $110 thousand year-to-date. Noninterest expense increased $1.1 million for the quarter and $2.3 million year-to-date compared to the comparable periods in 2003, including $578 thousand for the quarter and $1.2 million year-to-date related to new branches opened or acquired in 2003.

Yield on earning assets was 6.37% for the quarter and 6.47% year-to-date, as compared to 6.89% and 6.99%, respectively, for the same periods in 2003. The cost of interest bearing liabilities was 1.98% for both the quarter and the year ended June 30, 2004, as compared to 2.31% and 2.42%, respectively, for the comparable periods in 2003.

Return on average assets was 1.06% for the quarter and 1.10% year-to-date, compared to 1.26% and 1.27%, respectively, for the same periods in 2003. EVB’s return on average equity was 12.39% for the quarter and 12.90% year-to-date, compared to 12.95% and 13.08%, respectively, for the same periods in the prior year.

Net Interest Income

Net interest income totaled $7.2 million for the quarter, an $887 thousand increase over the Company’s performance for the second quarter of 2003. The increase in net interest income resulted from an increase in average earning assets partially offset by a lower yield based on the asset mix being more heavily weighted toward securities. Average earning assets increased 20.6% to $637.7 million from $528.9 million for the second quarter of 2003. Compared to the same period in 2003, average loans increased 18.9%, average securities increased 36.5% and average federal funds sold decreased 64.8%. The net interest margin for the three-month period ended June 30, 2004 was 4.69%, compared to 4.96% for the comparable period in the prior year. The decrease in net interest margin resulted from a 52 basis point decrease in the yield on average earning assets that exceeded the 33 basis point decrease in the cost of interest-bearing funds. The net interest margin decreased 27 basis points as average earning assets as a percentage of average total assets decreased from 95.4% in the second quarter of 2003 to 92.5% in the quarter that ended June 30, 2004. The $26.9 million increase in average non-earning assets from $31.7 million in the second quarter of 2003 to $58.6 million in the second quarter of 2004 consisted primarily of an $8.2 million increase in bank owned life insurance (which produces noninterest income), a $7.6 million increase in goodwill and intangible assets related to the branch acquisition in September 2003, a $4.9 million increase in property and fixed assets related to the branches acquired and the construction of the new Corporate/Operations Center which opened in July 2003, and a $4.8 million increase in average cash and due from banks’ balances.

Net interest income for the six months ended June 30, 2004 was $14.5 million, an increase of $2.1 million, or 17.2%, from $12.4 million for the same period in 2003. For the six months ended June 30, 2004, average loans net of unearned interest, increased $81.1 million to $489.8 million compared to $408.7 million for the same period in 2003. Year-to-date yield on earning assets decreased to 6.47% from 6.99% for the same period in 2003 while cost of average interest bearing funds decreased to 1.98% from 2.42% for the same period in 2003. Net interest margin for the year-to-date period decreased 18 basis points from 4.96% in 2003 to 4.78% in 2004. The net interest margin decrease is primarily the result of the increase in non-earning assets discussed in the paragraph immediately above. For both the quarter and the six months ended June 30, 2004, $28 million of the average loan growth and $66 million of the average deposit growth were directly related to the three branches acquired from BB&T/First Virginia Bank-Hampton Roads in September 2003.

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Average Balances, Income and Expense, Yields and Rates (1)