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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 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)

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 1 (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 November 1, 2004 was 4,876,935.

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EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-Q

For the Quarter Ended September 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)

(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 September 30, 2004, investments in an unrealized loss position that are temporarily impaired are:

The unrealized loss positions at September 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 September 30, 2004 included nine U. S. Treasury and federal agencies, 12 mortgage- backed securities, three federal agency preferred stocks, five corporate bonds and 13 municipal bonds. Two federal agencies, three mortgage-backed securities and five municipal bonds have been in an unrealized loss position for 12 months or more.

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

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As of September 30, 2004, options to acquire 30,050 shares of common stock were not included in computing earnings per common share assuming dilution, because their effects are anti-dilutive.

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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.

Effective March 31, 2004, Emerging Issues Task Force Issue No. 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”) was issued. EITF 03-1 provides guidance for determining the meaning of “other –than-temporarily impaired” and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”) and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. Management does not anticipate that this guidance will have a material adverse effect on either the Company’s consolidated financial position or consolidated results of operations.

On September 30, 2004, the Financial Accounting Standards Board decided to delay the effective date for the measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The disclosure guidance in Issue 03-1 was not delayed.

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

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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 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 3.9% to $1.9 million for the third quarter of 2004, compared to $1.8 million for the same period in 2003. Diluted earnings per share increased 2.7% to $0.38 for the third quarter of 2004, compared to $0.37 for the third quarter of 2003. Year-to-date diluted earnings per share of $1.14 represent an increase of 5.6%, compared to $1.08 for the first nine months of 2003. Net interest income increased $782 thousand for the quarter ended September 30, 2004 and $2.9 million for the year-to-date period when compared to the same periods in 2003. Noninterest income was up $228 thousand, or 25.6%, for the quarter, and up $780 thousand, or 29.5%, for the nine months ended September 30, 2004 when compared to the same periods in 2003. Income increases were partially offset by noninterest expense increases of $1.1 million for the quarter and $3.4 million year-to-date.

Total assets on September 30, 2004 were $705.1 million, up $54.5 million, or 8.4%, from $650.6 million at September 30, 2003 and up $28.0 million, or 4.1%, from $677.2 million at December 31, 2003. For the quarter, total assets averaged $697.6 million, 20.1% above the third quarter 2003 average of $580.8 million. Total loans, net of unearned income, amounted to $509.6 million at September 30, 2004, an increase of $45.2 million, or 9.7%, from $464.5 million at September 30, 2003, and up $22.9 million, or 4.7%, from $486.8 million at December 31, 2003. Net loans as a percent of total assets were 71.3% at September 30, 2004, as compared to 70.4% at September 30, 2003. Net loan

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volume for the first nine months of 2004 was $22.9 million, compared to $65.4 million for the first nine months of 2003. Decreased loan growth in 2004 versus 2003 is related primarily to $28.3 million of loans acquired from branch acquisitions in the 2003 reporting period and to decreased loan demand in the first half of this year. Approximately 45% of 2004 loan growth has occurred in the third quarter.

At September 30, 2004, the securities portfolio totaled $138.9 million, down $2.8 million, or 2.0%, from $141.6 million at September 30, 2003 and down $2.6 million, or 1.8%, 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 interest rate risk and to provide liquidity. Federal funds purchased at September 30, 2004 were $5.4 million, compared to $3.9 million in federal funds sold at September 30, 2003 and $23 thousand in federal funds sold at December 31, 2003.

Total deposits of $600.1 million at September 30, 2004 represented an increase of $43.9 million, or 7.9%, from $556.2 million one year ago and up $19.0 million, or 3.3%, 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 12 months with noninterest-bearing demand deposits up 17.2% and interest-bearing deposits up 6.5%. Both the third quarter and the first nine months of 2004 reflected an increase in both interest-bearing and noninterest-bearing deposit accounts. Of the $19.0 million year-to-date deposit growth, $8.8 million occurred in the third quarter.

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, net” in the Shareholders’ Equity section of the Consolidated Balance Sheet and was $1.3 million at September 30, 2004, a decrease of $768 thousand from September 30, 2003 and $885 thousand from December 31, 2003. This decrease in the equity effect of the change in the value of securities results primarily from declining market values caused by increases in market interest rates compared to one year ago.

RESULTS OF OPERATIONS

The Company reported record earnings for the nine months ended September 30, 2004 and an increase in quarterly earnings compared to the same periods in 2003. Net income for the quarter was $1.9 million, an increase of $70 thousand from third quarter 2003 earnings of $1.8 million. Net income for the nine months ended September 30, 2004 increased 6.7% to $5.6 million compared to $5.2 million for the first nine months of 2003.

Net interest income increased $782 thousand for the quarter ended September 30, 2004 and $2.9 million for the first nine months of 2004, compared to the same periods in 2003. Noninterest income excluding gains on securities sales was up $204 thousand, or 22.9%, for the quarter and up $600 thousand, or 23.4%, for the nine months ended September 30, 2004. Gain on sale or call of securities was up $24 thousand for the quarter and $180 thousand year-to-date. Loan loss provision decreased $125 thousand for the quarter and $15 thousand year-to-date. Noninterest expense increased $1.1 million for the quarter and $3.4 million year-to-date compared to the comparable periods in 2003, including $435 thousand for the quarter and $1.4 million year-to-date related to new branches opened or acquired in 2003.

Yield on earning assets was 6.33% for the quarter and 6.42% nine months year-to-date, as compared to 6.64% and 6.87%, respectively, for the same periods in 2003. The cost of interest bearing liabilities was 1.97% for both the quarter and the nine months ended September 30, 2004, as compared to 2.13% and 2.32%, respectively, for the comparable periods in 2003. Return on average assets was 1.06% for the quarter and 1.08% year-to-date, compared to 1.22% and 1.25%, respectively, for the same periods in 2003. EVB’s return on average equity was 12.96% for the quarter and 12.92% year-to-date, compared to 12.58% and 12.90%, respectively, for the same periods in the prior year. Part of the decline in Return on Average Assets is related to the acquisition of three branches in September 2003 with that same transaction having a positive impact on Return on Equity.

Net Interest Income

Net interest income totaled $7.3 million for the quarter, a $782 thousand increase over the Company’s performance for the third quarter of 2003. The increase in net interest income resulted from an increase in average earning assets partially offset by a lower yield. Average earning assets increased 16.5% to $644.1 million for the quarter from $552.8 million for the third quarter of 2003. Compared to the same period in 2003, average loans increased 17.0%, average securities increased 13.0% and average federal funds sold increased 70.1%. The fully tax equivalent net interest margin

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for the three-month period ended September 30, 2004 was 4.65%, compared to 4.87% for the comparable period in the prior year. The decrease in net interest margin resulted from a 31 basis point decrease in the yield on average earning assets that exceeded the 16 basis point decrease in the cost of interest-bearing funds. The net interest margin decreased 22 basis points as average earning assets as a percentage of average total assets decreased from 95.2% in the third quarter of 2003 to 92.3% in the quarter ended September 30, 2004. The $26.3 million increase in average non-earning assets from $34.0 million in the third quarter of 2003 to $60.3 million in the third quarter of 2004 consisted primarily of a $7.4 million average increase in bank owned life insurance (which produces noninterest income), a $7.2 million average increase in goodwill and intangible assets related to the branch acquisition in September 2003, a $4.8 million average 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 $3.3 million average increase in average cash and due from banks’ balances.

Net interest income for the nine months ended September 30, 2004 was $21.9 million, an increase of $2.9 million, or 15.4%, from $19.0 million for the same period in 2003. For the nine months ended September 30, 2004, average loans net of unearned interest, increased $78.4 million to $494.4 million compared to $415.9 million for the same period in 2003. Year-to-date yield on earning assets decreased to 6.42% from 6.87% for the same period in 2003 while cost of average interest bearing funds decreased to 1.97% from 2.32% for the same period in 2003. Fully tax equivalent net interest margin for the year-to-date period decreased 19 basis points from 4.93% in 2003 to 4.74% 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 the quarter ended September 30, 2004, $27.3 million of the average loan growth and $62.4 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. Those acquisitions increased the year-to-date average loans by $28 million and average deposits by $66 million.

Tables that disclose the fully tax equivalent net interest income calculations for the quarter and nine months ended September 30, 2004 and 2003 appear on the following two pages.

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