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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2006

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-23565



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EASTERN VIRGINIA BANKSHARES,
INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|VIRGINIA                                                       |  | 54-1866052                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                          |  |           
|----------------------------------------- |  | ----------
|330 Hospital Road, Tappahannock, Virginia |  | 22560     
|(Address of principal executive offices)  |  | (Zip Code)

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



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Securities registered pursuant
to Section 12(b) of the Act:



|                           |  |                                          
|-------------------------- |  | -----------------------------------------
|Title of each class        |  | Name of each exchange on which registered
|Common Stock, $2 Par Value |  | The Nasdaq Stock Market, LLC             

Securities registered pursuant to Section 12(g) of the Act:  None



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Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ̈No  x

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ̈No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large
accelerated filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ̈No  x

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2006 was approximately $108.6 million.

The number of shares of the registrants Common Stock outstanding as of March 1, 2007 was 6,087,794.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2006 Annual Report to Shareholders are incorporated by
reference into Part I and Part II, and portions of the 2007 definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held April 19, 2007 are incorporated by reference into Part III.



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EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-K

For the Year Ended December 31, 2006

INDEX



|           |  |                                                                                                              |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|Part I     |  |                                                                                                              |  |   
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  | 3 
|           |  |                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                 |  | 15
|           |  |                                                                                                             
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 20
|           |  |                                                                                                             
|Item 2.    |  | Properties                                                                                                   |  | 20
|           |  |                                                                                                             
|Item 3.    |  | Legal Proceedings                                                                                            |  | 21
|           |  |                                                                                                             
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 21
|           |  |                                                                                                             
|Part II    |  |                                                                                                              |  |   
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 21
|           |  |                                                                                                             
|Item 6.    |  | Selected Financial Data                                                                                      |  | 22
|           |  |                                                                                                             
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operation                         |  | 22
|           |  |                                                                                                             
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 40
|           |  |                                                                                                             
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 42
|           |  |                                                                                                             
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                        |  | 42
|           |  |                                                                                                             
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 42
|           |  |                                                                                                             
|Item 9B.   |  | Other Information                                                                                            |  | 43
|           |  |                                                                                                             
|Part III   |  |                                                                                                              |  |   
|           |  |                                                                                                             
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 43
|           |  |                                                                                                             
|Item 11.   |  | Executive Compensation                                                                                       |  | 44
|           |  |                                                                                                             
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 44
|           |  |                                                                                                             
|Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 44
|           |  |                                                                                                             
|Item 14.   |  | Principal Accounting Fees and Services                                                                       |  | 44
|           |  |                                                                                                             
|Part IV    |  |                                                                                                              |  |   
|           |  |                                                                                                             
|Item 15.   |  | Exhibits, Financial Statement Schedules                                                                      |  | 45
|           |  |                                                                                                             
|Signatures |  |                                                                                                              |  | 46



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PART I



|Item 1. | Business
|------- | --------

General

Eastern Virginia Bankshares, Inc. (the Company, our Company, we, our or us) is a bank holding company headquartered
in Tappahannock, Virginia (45 miles northeast of Richmond, Virginia). Through our wholly-owned bank subsidiary, EVB, we operate 22 full service branches in eastern Virginia. EVB is a community bank targeting small to medium-sized businesses and
consumers in our traditional coastal plain markets and the emerging suburbs outside of the Richmond and Greater Tidewater areas.

We provide a broad range
of personal and commercial banking services including commercial, consumer and real estate loans. We complement our lending operations with an array of retail and commercial deposit products and fee-based services. Our services are delivered locally
by well-trained and experienced bankers, whom we empower to make decisions at the local level so that they can provide timely lending decisions and respond promptly to customer inquiries. We believe that, by offering our customers personalized
service and a breadth of products, we can compete effectively as we expand within our existing markets and into new markets.

Until April 2006, we operated
as an affiliation of three separate community banks. Two of the banks, Bank of Northumberland, Inc. and Southside Bank, were established in 1910. Seeking to accelerate our growth in a higher growth adjacent market, we started a de novo bank, Hanover
Bank, in 2000. At the beginning of 2003, we launched our Standards of Excellence Engagement. The first phase created a risk management department, consolidated human resources and standardized operations to identify best practices and implement
uniformity throughout our company. The second phase, completed in 2005, centralized asset/liability management,

accounting, and loan and deposit
operations. In April 2006, we completed the final phase of the Standards of Excellence Engagement when our three subsidiary banks merged and the surviving bank was rebranded as EVB. In addition to $500,000 of anticipated annual cost savings, we
expect to realize other significant benefits from the Standards of Excellence Engagement, including increased customer convenience, more efficient marketing campaigns, fewer regulatory exams and a larger legal lending limit.

While much of our attention has been focused on the Standards of Excellence Engagement over the past three years, we have been able to significantly improve our
operations and grow concurrently. Specifically, from December 31, 2001 to December 31, 2006, we have:



| |  |  | increased our total assets from $467.3 million to $851.4 million;
| | - |  | -----------------------------------------------------------------



| |  |  | increased our total loans from $348.0 million to $650.5 million;
| | - |  | ----------------------------------------------------------------



| |  |  | increased our total deposits from $408.2 million to $654.0 million; and
| | - |  | -----------------------------------------------------------------------



| |  |  | expanded our branch network from 16 to 22 locations.
| | - |  | ----------------------------------------------------

EVB Financial Services, Inc., a wholly owned subsidiary of EVB, has a 100% ownership of EVB Investments, Inc. and a 50% ownership interest in EVB Mortgage, LLC. The mortgage company operates with a partner in generating various real estate
loans for sale in the mortgage loan markets, earning interest and fees from these loans prior to sale while retaining no servicing rights after the sale. For a fee, EVB Investments Inc. provides securities, brokerage and investment advisory services
through its sales force and its 5.15% ownership in Bankers Investment Group, LLC, which it uses as a brokerage firm for the investment services it provides. The bank also has a 75% ownership interest in EVB Title, LLC, an 8% ownership interest in
Bankers Title of Fredericksburg, LLC and a 2.33% interest in Virginia Bankers Insurance Center, LLC. EVB Title, LLC and Bankers Title, LLC sell title insurance, while Virginia Bankers Insurance Center, LLC acts as a broker for insurance sales for
its member banks. Through these investments, we are able to augment our fee income by providing financial products and services that are complementary to traditional banking products. These investments give us and our customers access to experienced
professionals while we avoid making large investments to develop these capabilities internally.



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Recent Developments

In November 2005, we announced plans to consolidate the three existing banks into a one-bank holding company. In April 2006, we completed the one bank organization and are pleased with the results as seen by our performance over the second
half of 2006.

In December 2006, we relocated our leased Airpark branch in Hanover County to a new company owned location about a quarter mile away. This
new location provides better facilities to service the customer, better accessibility and room for commercial officers to enhance our loan growth in the county.

In December 2006, we also completed a stock offering to raise capital. This raised over $23.5 million in net new capital that the Company plans to use for growth.

Available Information

We maintain an Internet website at www.bankevb.com which contains information relating to us
and our business. We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these documents as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission. Copies of our Audit Committee Charter, Nominating Committee Charter and Code of Conduct are available upon written request to our Corporate Secretary.

Employees

As of December 31, 2006, we employed
296 full-time equivalent employees. Our success is highly dependent on our ability to attract and retain qualified employees.Competition for employees is intense in the financial services

industry. We believe we have been successful in our efforts to recruit qualified employees, but there is no assurance that we will continue to be successful in the
future. None of our employees are subject to collective bargaining agreements. We believe relations with our employees are excellent.

Market Areas and
Growth Strategy

We currently conduct business through 22 branches. Our markets are located east of Interstate 95 and extend from northeast of Richmond
to the Chesapeake Bay in central and southeastern Virginia. We divide our market area into four regions: Northern Neck, Middle Peninsula, Central (suburbs of Richmond) and Southern.

Our Northern Neck and Middle Peninsula regions are in the eastern coastal plain of Virginia, often referred to as River Country. According to the Virginia Economic Development Partnership, the regions industries
have traditionally been associated with abundant natural resources that include five rivers and the Chesapeake Bay. The diversified economy includes seafood harvesting, light manufacturing, agriculture, leisure marine services and service sectors
dedicated to many upscale retirement communities.

Our Central region is currently comprised of Hanover, King William and Caroline counties, which are
emerging suburbs of Richmond. Hanover County is approximately 10 miles from downtown Richmond and 86 miles south of Washington, DC. Hanover County is the largest county by area in the Richmond metropolitan area. The county provides residents and
businesses the geographic advantages of a growing metropolitan area coupled with substantial acreage for expansion in a suburban setting.

Our Southern
region is comprised of Surry, Sussex, and Southampton counties. The region lies approximately 50 miles southeast of Richmond and is adjacent to the Greater Tidewater area. The port of Hampton Roads is approximately 50 miles to the east of our
Southern region. The regions close proximity to major military, naval and research centers and transportation infrastructure make this an attractive location for contractors, service and manufacturing companies.

According to Environmental Systems Research, Inc., the projected population growth from 2006 to 2011 in our banking markets



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(deposit-weighted by county) is 7.3%, compared to 6.7% for the entire United States. According to Federal Deposit Insurance Corporation data as of
June 30, 2006, we ranked second among financial institutions with approximately 17.4% of the total deposits in our counties of operation. According to this data, our deposit market share by county was:



|                               |  |       |  |  |  |  |  | 
|------------------------------ |  | ----- |  |  |  |  |  | 
|        Northumberland County |  | 68.6% |  |  |  |  |  | 
|        Surry County          |  | 68.7% |  |  |  |  |  | 
|        Middlesex County      |  | 43.8% |  |  |  |  |  | 
|        Essex County          |  | 38.4% |  |  |  |  |  | 
|        Sussex County         |  | 27.6% |  |  |  |  |  | 
|        Southampton County    |  | 22.1% |  |  |  |  |  | 
|        King William County   |  | 24.1% |  |  |  |  |  | 
|        Gloucester County     |  | 6.8%  |  |  |  |  |  | 
|        Caroline County       |  | 7.9%  |  |  |  |  |  | 
|        Hanover County        |  | 6.7%  |  |  |  |  |  | 
|        Lancaster County      |  | 3.6%  |  |  |  |  |  | 

Business Strategy

Owing to our nearly 100 years of experience serving the Northern Neck and Middle Peninsula regions, we have a stable, loyal customer base and a high deposit market share in these regions. Due to the projected population growth of these
markets, we expanded in Hanover, Gloucester, and King William Counties to target the even higher growth emerging suburban markets. The deposit market share we have accumulated in our Northern Neck, Middle Peninsula and Southern regions has helped
fund our loan growth in the emerging suburban areas in the Central region. We anticipate that we will gain market share in each of our regions, as our branches mature and we take advantage of opportunities for branch acquisitions and de novo growth.

We believe that economic growth and bank consolidation have created a growing number of businesses and consumers in need of the broad range of products
and services and high level of service that we provide. Our business plan is to capitalize on this opportunity by further developing our branch network in our existing markets and augmenting our market area by expanding to the counties near the
urban markets of Richmond and Greater Tidewater. We intend not only to build upon existing relationships, but also to create new relationships and expand into new markets by opening loan production offices, de novo branch expansion, branch
acquisitions or potential whole bank acquisitions that meet our strategic and financial criteria.

Competition

We face significant competition for loans and deposits based on the particular markets of operation, which can range from a small rural town to part of an urban market.
Competition for loans, our primary source of income, comes primarily from commercial banks and mortgage banking subsidiaries of both regional and community banks. Based on June 30, 2006 data published by the Federal Deposit Insurance
Corporation, the most recent date for which such data is available, EVB held the largest deposit share among its competitors in Middlesex, Northumberland and Surry Counties. EVB also had a strong deposit share in Essex, King William, Southampton and
Sussex Counties, and a rapidly growing deposit base in Gloucester and Hanover Counties. Our primary competition is other community banks in Essex, King William, Lancaster and Northampton Counties, while we compete with both community banks and large
regional banks in Caroline, Gloucester, Hanover, Middlesex, Southampton, Surry and Sussex Counties.

Additional information with respect to our deposit
market share by county is included in Market Areas and Growth Strategy above.



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Credit Policies

The
principal risk associated with each of the categories of loans in our portfolio is the creditworthiness of our borrowers. Within each category, such risk is increased or decreased, depending on various factors. The risks associated with real estate
mortgage loans, commercial loans and consumer loans vary based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay indebtedness. The risk associated
with real estate construction loans varies based on the supply and demand for the type of real estate under construction. In an effort to manage these risks, we have loan amount approval limits for individual loan officers based on their position
and level of experience.

We have written policies and procedures to help manage credit risk. We use a loan review process that includes a portfolio
management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular independent third party portfolio reviews to establish loss exposure and to
monitor compliance with policies.

Our loan approval process includes our management loan committee, directors loan committee and, for larger loans, the
board of directors. Our Chief Credit Officer is responsible for reporting to the Directors Loan Committee monthly on the activities of the Management Loan Committee and on the status of various delinquent and non-performing loans. The Directors Loan
Committee also reviews lending policies proposed by management. Our board of directors establishes our total lending limit.

Loan Originations

Residential real estate loan originations come primarily from walk-in customers, real estate brokers and builders, and through referrals from EVB
Mortgage, LLC. Adjustable rate loans and other loans that cannot be sold in the

secondary mortgage market, but that meet our underwriting guidelines, are
referred to us by EVB Mortgage, LLC. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from current customers. We may also purchase loan participations from other
community banks in Virginia.

Our loan officers, as part of the application process, review all loan applications. Information is obtained concerning the
income, financial condition, employment and credit history of the applicant. If commercial real estate is involved, information is also obtained concerning cash flow available for debt service. Loan quality is analyzed based on our experience and
credit underwriting guidelines as well as the guidelines used by an independent third party loan review firm based on the type of loan. Real estate collateral is appraised by independent appraisers who have been pre-approved by meeting the
requirement of providing a current and valid license certification and based on the lenders experience with these appraisers.

In the normal course
of business, we make various commitments and incur certain contingent liabilities that are disclosed but not reflected in our annual financial statements including commitments to extend credit. At December 31, 2006, commitments to extend credit
totaled $94.2 million.

Construction Lending

We
make local construction and land acquisition and development loans. Residential houses and commercial real estate under construction and the underlying land secure construction loans. At December 31, 2006, construction, land acquisition and
land development loans outstanding were $85.9 million, or 13.2% of total loans. These loans are concentrated in our local markets. The average life of a construction loan is less than one year. Because the interest rate charged on these loans
usually floats with the market, the rates charged assist us in managing our interest rate risk. Construction lending entails significant additional risks, compared to residential mortgage lending. Construction loans often involve larger loan
balances concentrated with single borrowers or groups of related borrowers. In addition, the value of the building under construction is only estimable when the loan funds are disbursed. Thus, it is more difficult to evaluate accurately the total
loan funds required to complete a project and related loan-to-value ratios. To mitigate the risks associated with construction lending, we generally limit loan amounts to 80% of appraised value in



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addition to analyzing the creditworthiness of its borrowers. We also obtain a first lien on the property as security for its construction loans and typically
require personal guarantees from the borrowers principal owners.

Commercial Business Loans

Commercial business loans generally have a higher degree of risk than loans secured by real property but have higher yields. To manage these risks, we generally obtain
appropriate collateral and personal guarantees from the borrowers principal owners and monitor the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrowers ability to make
repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrowers ability to make repayment from
cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially
dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate. We have a loan review and
monitoring process to regularly assess the repayment ability of commercial borrowers. At December 31, 2006, commercial loans totaled $59.9 million, or 9.2% of the total loan portfolio.

Commercial Real Estate Lending

Various types of commercial real
estate in our market area include commercial buildings and offices, recreational facilities, small shopping centers and churches, and other secured commercial real estate loans. At December 31, 2006, commercial real estate loans totaled $164.9
million, or 25.4% of our total loans. We may lend up to 80% of the secured propertys appraised value. Commercial real estate lending entails significant additional risk, compared with residential mortgage lending. Commercial real estate loans
typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the payment experience on loans secured by income producing properties is typically dependent on the successful operation of a
business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or in the economic environment. Our commercial real estate loan underwriting criteria requires an examination of debt
service coverage ratios, the borrowers creditworthiness and prior credit history and reputation, and we typically require personal guarantees or endorsements of the borrowers principal owners. In addition, we carefully evaluate the
location of the security property.

One-to-Four-Family Residential Real Estate Lending

Residential one-to-four family mortgage loans comprise our total largest loan category. At December 31, 2006, this category of mortgage loans accounted for $288.1 million, or 44.3% of our total loan portfolio.
Security for the majority of our residential lending is in the form of owner occupied one-to-four-family dwellings. Adjustable rate loans are $142.2 million of the residential real estate portfolio and are primarily 3-year adjustable rate mortgages.

All residential mortgage loans originated by us contain a due-on-sale clause providing that we may declare the unpaid principal balance due
and payable upon sale or transfer of the mortgaged premises. In connection with residential real estate loans, we require title insurance, hazard insurance and if required, flood insurance. We do not require escrows for real estate taxes and
insurance.

Consumer Lending

We offer various secured
and unsecured consumer loans, including unsecured personal loans and lines of credit, automobile loans, boat loans, deposit account loans, installment and demand loans, credit cards, and home equity lines of credit and loans. At December 31,
2006, we had consumer loans, net of unearned interest, of $51.4 million or 7.9% of total loans. Such loans are generally made to customers with whom we have a pre-existing relationship. We currently originate all of our consumer loans in our
geographic market area. Most of the consumer loans are made at fixed rates.



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Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans that
are unsecured, such as lines of credit, or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment as a result of the greater
likelihood of damage, loss or depreciation. Due to the relatively small amounts involved, the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are
dependent on the borrowers continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. Such loans may also give rise to claims and defenses by a consumer borrower against an assignee of collateral securing the loan such as us,
and a borrower may be able to assert against such assignee claims and defenses that it has against the seller of the underlying collateral. Consumer loan delinquencies often increase over time as the loans age.

The underwriting standards we employ to mitigate the risk for consumer loans include a determination of the applicants payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicants monthly income may be determined by verification of gross monthly income from primary employment and from any verifiable
secondary income. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.

Supervision and Regulation

We are subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, which include, but are not limited to, the filing of annual, quarterly and other reports with the Securities and Exchange Commission. As an Exchange Act reporting company, we are
directly affected by the Sarbanes-Oxley Act, which seeks to improve corporate governance and reporting procedures by requiring expanded disclosure of our corporate operations and internal controls. We are already complying with SEC and other rules
and regulations implemented pursuant to the Sarbanes-Oxley Act and intend to comply with any applicable rules and regulations implemented in the future. Although we have incurred, and expect to continue to incur, additional expense in complying with
the provisions of the Sarbanes-Oxley Act and the resulting regulations, our management does not expect such compliance to have a material impact on our financial condition or results of operations in the future.

We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, and are registered as such with, and subject to the supervision of, the Board
of Governors of the Federal Reserve System and the Federal Reserve Bank of Richmond. A bank holding company is prohibited from engaging in or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company
engaged in non-banking activities. Subject to notice to the Federal Reserve or the Federal Reserves prior approval, a bank holding company may, however, engage in or acquire an interest in a company that engages in activities that the Federal
Reserve has determined by regulation or order are so closely related to banking as to be a proper incident to banking. In making these determinations, the Federal Reserve considers whether the performance of such activities by a bank holding company
would offer advantages to the public that outweigh possible adverse effects. A bank holding company must seek the prior approval of the Federal Reserve before it acquires all or substantially all of the assets of any bank, and before it acquires
ownership or control of the voting shares of any bank if, after giving effect to the acquisition, the bank holding company would own or control more than 5% of the voting shares of such bank. Federal Reserve approval is also required for the merger
or consolidation of bank holding companies.

We file periodic reports with the Federal Reserve and must provide any additional information that the Federal
Reserve may require. The Federal Reserve also has the authority to examine us and our nonbanking affiliates, as well as any arrangements between us and EVB, with the cost of any such examinations to be borne by us.

Banking subsidiaries of bank holding companies are subject to certain restrictions imposed by federal law in dealings with their



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holding companies and other affiliates. Subject to certain restrictions set forth in the Federal Reserve Act and Federal Reserve regulations promulgated
thereunder, a bank can loan or extend credit to an affiliate, purchase or invest in the securities of an affiliate, purchase assets from an affiliate or issue a guarantee, acceptance or letter of credit on behalf of an affiliate, as long as the
aggregate amount of such transactions of the bank and its subsidiaries with its affiliates does not exceed 10% of the capital stock and surplus of the bank on a per affiliate basis or 20% of the capital stock and surplus of the bank on an aggregate
affiliate basis. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices. In particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset,
as defined in the Federal Reserve Act and Federal Reserve regulations promulgated thereunder. These restrictions also prevent the bank holding company and its other affiliates from borrowing from the bank unless the loans are secured by marketable
collateral of designated amounts. Additionally, the bank holding company and the bank are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services, other
than in connection with a traditional banking product such as a loan, discount, deposit or trust service.

As a Virginia-chartered, federally-insured bank,
EVB is subject to regulation, supervision and regular examination by the Bureau of Financial Institutions of the Virginia State Corporation Commission and the Federal Reserve as its appropriate federal bank regulator. Moreover, EVBs deposits
are insured by the Deposit Insurance Fund, as administered by the FDIC, to the maximum amount permitted by law, which is currently $100,000 for each non-retirement depositor and $250,000 for certain retirement-account depositors. EVB pays insurance
premiums on deposits in accordance with a deposit premium assessment system currently recently revised by the FDIC in accordance with the recently enacted Federal Deposit Insurance Reform Act of 2005 (FDIRA), which required that the FDIC
revise its current risk-based deposit premium system by November 2006. The revised rules impose

deposit insurance premium assessments based upon perceived
risks to the Deposit Insurance Fund, by evaluating an institutions CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) ratios and other financial ratios and then determining insurance premiums based upon
the likelihood an institution could be downgraded to a CAMELS 3 or worse in the succeeding year. As a result, institutions deemed to pose less risk would pay lower premiums than those institutions deemed to pose more risk, which would pay more. The
Company projects that the premium increase combined with an FDIC initial credit will have no net impact on 2007, but will likely increase FDIC expense by as much as $200 thousand per year pre-tax beginning in 2008.

The regulations of the Bureau of Financial Institutions, FDIC and Federal Reserve govern most aspects of our business, including deposit reserve requirements,
investments, loans, certain check clearing activities, issuance of securities, branching, payment of dividends and numerous other matters. As a consequence of the extensive regulation of commercial banking activities in the United States, our
business is particularly susceptible to changes in legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition. The likelihood and timing of any
legislation or regulatory modifications and the impact they might have on us or EVB cannot be determined at this time.

Change of Control.

Federal Reserve approval will be required prior to any acquisition of control of us. Control is conclusively presumed to exist if a person
or company acquires, directly or indirectly, more than 25% of any class of voting stock of a company, controls in any manner the election of a majority of directors or the power to exercise directly or indirectly a controlling influence over
management or policies of a company. Under Federal Reserve regulations, control is also presumed to exist, subject to rebuttal, if a person acquires more than 10% of any class of voting stock and no other person will own, control or hold the power
to vote a greater percentage of that class of voting shares immediately after the transaction. Under the Bank Holding Company Act, a corporate acquirer of control of a company must register with the Board of Governors of the Federal Reserve System
and be subject to the activities limitations of the Bank Holding Company Act. Non-controlling acquirers of more than 10% but less than 25% of a companys voting securities also may be required to enter into certain passivity commitments, to
ensure they lack an ability to control the company.



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Governmental Policies and Legislation

Banking is a business that depends primarily on interest rate differentials. In general, the difference between the interest rates paid by the bank on its deposits and its other borrowings and the interest rates
received by the bank on loans extended to its customers and securities held in its portfolio comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control. Accordingly, our growth and
earnings are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.

The commercial banking
business is affected not only by general economic conditions, but is also influenced by the monetary and fiscal policies of the federal government and the policies of its regulatory agencies, particularly the Federal Reserve. The Federal Reserve
implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in U.S. Government securities, by adjusting the required level of reserves for financial institutions subject to
its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits, and also affect interest
rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted.

From time to time,
legislation is enacted that has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of bank holding companies, banks and other financial institutions are frequently made in Congress and in the Virginia Legislature and are brought before various bank regulatory agencies. The
likelihood of any major changes and the impact such changes might have are impossible to predict.

Dividends

We are organized under the Virginia Stock Corporation Act, which prohibits the payment of a dividend if, after giving it effect, the corporation would not be able to pay
its debts as they become due in the usual course of business or if the corporations total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved, to satisfy the
preferential rights upon dissolution of any preferred shareholders.

We are a legal entity separate and distinct from our subsidiaries. Our ability to
distribute cash dividends will depend primarily on the ability of EVB to pay dividends to us, and EVB is subject to laws and regulations that limit the amount of dividends that it can pay. As a state member bank, EVB is subject to certain
restrictions imposed by the reserve and capital requirements of federal and Virginia banking statutes and regulations. Under Virginia law, a bank may not declare a dividend in excess of its undivided profits. Additionally, EVB may not declare a
dividend if the total amount of all dividends, including the proposed dividend, declared by it in any calendar year exceeds the total of its retained net income of that year to date, combined with its retained net income of the two preceding years,
unless the dividend is approved by the Federal Reserve.

The Federal Reserve and the state have the general authority to limit the dividends paid by
insured banks if the payment is deemed an unsafe and unsound practice. Both the state and the Federal Reserve have indicated that paying dividends that deplete a banks capital base to an inadequate level would be an unsound and unsafe banking
practice. Under the Federal Reserves regulations, EVB may not declare or pay any dividend in excess of its net income for the current year plus any retained net income from the prior two calendar years. EVB may also not declare or pay a
dividend without the approval of its board and two-thirds of its shareholders if the dividend would exceed its undivided profits, as reported to the Federal Reserve.

In addition, we are subject to certain regulatory requirements to maintain capital to satisfy certain required regulatory minimums. These regulatory requirements regarding capital affect our dividend policies. Banking
regulators have indicated that a bank holding



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company should generally pay dividends only if its net income available to common shareholders over the past year has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality and overall financial condition.

Capital Requirements

The Federal Reserve and the FDIC have adopted risk-based capital adequacy guidelines for bank
holding companies and banks. These capital adequacy regulations are based upon a risk-based capital determination, and a bank holding companys capital adequacy is determined in light of the risk, both on- and off-balance sheet, contained in
the companys assets. Different categories of assets are assigned risk weightings and are counted at a percentage of their book value.

The
regulations divide capital between Tier 1 capital (core capital) and Tier 2 capital. For a bank holding company, Tier 1 capital consists primarily of common stock, related surplus, non-cumulative perpetual preferred stock and
minority interests in consolidated subsidiaries. Restricted core capital elements, including qualifying trust preferred securities, qualifying cumulative perpetual preferred stock and certain minority interests, may be treated as Tier
1 capital in an amount up to 25% of total Tier 1 capital. The excess, if any, of such securities may be included in Tier 2 capital. Goodwill and certain other intangibles are excluded from Tier 1 capital. Tier 2 capital consists of an
amount equal to the allowance for loan and lease losses up to a maximum of 1.25% of risk weighted assets, limited other types of preferred stock not included in Tier 1 capital, hybrid capital instruments and term subordinated debt. Investments in
and loans to unconsolidated banking and finance subsidiaries that constitute capital of those subsidiaries are excluded from capital. The sum of Tier 1 and Tier 2 capital constitutes qualifying total capital. The guidelines generally require banks
to maintain a total qualifying capital to weighted risk assets level of 8% (the total capital ratio). Of the total 8%, at least 4% of the total qualifying capital to weighted risk assets (the Tier 1 capital ratio) must be
Tier 1 capital.

The Federal Reserve and the FDIC have adopted leverage requirements that apply in addition to the risk-based capital requirements. Banks
and bank holding companies are required to maintain a minimum leverage ratio of Tier 1 capital to average total consolidated assets (the leverage capital ratio) of at least 3.0% for the most highly-rated, financially sound banks and bank
holding companies and a minimum leverage capital ratio of at least 4.0% for all other banks. The FDIC and the Federal Reserve define Tier 1 capital for banks in the same manner for both the leverage capital ratio and the total capital ratio.
However, the Federal Reserve defines Tier 1 capital for bank holding companies in a slightly different manner. An institution may be required to maintain Tier 1 capital of at least 4% or 5%, or possibly higher, depending upon the activities, risks,
rate of growth, and other factors deemed material by regulatory authorities. As of December 31, 2006, we and our subsidiary bank EVB both met all applicable capital requirements imposed by regulation.

Federal Deposit Insurance Act and Prompt Corrective Action Requirements

As an insured depository institution, EVB is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the Federal Reserves prompt corrective action regulations thereunder, which set
forth five capital categories, each with specific regulatory consequences. Under these regulations, the categories are:



| |  |  | Well Capitalized  The institution exceeds the required minimum level for each relevant capital measure. A well capitalized institution is one (i) having
a total capital ratio of 10% or greater, (ii) having a Tier 1 capital ratio of 6% or greater, (iii) having a leverage capital ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and maintain a
specific capital level for any capital measure.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Adequately Capitalized  The institution meets the required minimum level for each relevant capital measure. No capital distribution may be made that would
result in the institution becoming undercapitalized. An adequately capitalized institution is one (i) having a total capital ratio of 8% or greater, (ii) having a Tier 1 capital ratio of 4% or greater and (iii) having a leverage
capital ratio of 4% or greater or a leverage capital ratio of 3% or greater if the institution is rated composite 1 under the CAMELS rating system.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Undercapitalized  The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution is one
(i) having a total capital ratio of less than 8% or (ii) having a Tier 1 capital ratio of less than 4% or (iii) having a leverage capital ratio of less than 4%, or if the institution is rated a composite 1 under the CAMEL rating
system, a leverage capital ratio of less than 3%.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Significantly Undercapitalized  The institution is significantly below the required minimum level for any relevant capital measure. A significantly
undercapitalized institution is one (i) having a total capital ratio of less than 6% or (ii) having a Tier 1 capital ratio of less than 3% or (iii) having a leverage capital ratio of less than 3%.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Critically Undercapitalized  The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically
undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the
appropriate federal banking regulator determines, after notice and an opportunity for hearing, that a bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than
critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If a bank is not well capitalized, it cannot
accept brokered deposits without prior FDIC approval and, if approval is granted, cannot offer an effective yield in excess of 75 basis points on interest paid on deposits of comparable size and maturity in such institutions normal market area
for deposits accepted from within its normal market area, or national rate paid on deposits of comparable size and maturity for deposits accepted outside the banks normal market area. Moreover, if a bank becomes less than adequately
capitalized, it must adopt a capital restoration plan acceptable to the appropriate federal regulator that is subject to a limited performance guarantee by the bank. A bank also would become subject to increased regulatory oversight and is
increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution also must provide a limited guarantee that the institution will comply with its capital restoration plan. Except
under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any
new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action.
The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to
implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the
institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the
owners of the institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the bank to become undercapitalized, it could not pay a management fee
or

dividend to us.



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As of December 31, 2006, both we and EVB were considered well capitalized.

Gramm-Leach-Bliley Act of 1999

The Gramm-Leach-Bliley Act of 1999
implemented major changes to the statutory framework for providing banking and other financial services in the United States. The Gramm-Leach-Bliley Act, among other things, eliminated many of the restrictions on affiliations among banks and
securities firms, insurance firms and other financial service providers. A bank holding company that qualifies as a financial holding company will be permitted to engage in activities that are financial in nature or incidental or complimentary to
financial activities. The activities that the Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance underwriting, sales and brokerage activities, providing financial and investment advisory services, underwriting services
and limited merchant banking activities.

To become eligible for these expanded activities, a bank holding company must qualify as a financial holding
company. To qualify as a financial holding company, each insured depository institution controlled by the bank holding company must be well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act
(discussed below). In addition, a bank holding company must file with the Federal Reserve a declaration of its intention to become a financial holding company. While we satisfy these requirements, we do not contemplate seeking to become a financial
holding company unless we identify significant specific benefits from doing so.

The Gramm-Leach-Bliley Act has not had a material adverse impact on our
operations. To the extent that it allows banks, securities firms and insurance firms to affiliate, the financial services industry may experience further consolidation.

Privacy and Fair Credit Reporting

Financial institutions, such as our subsidiary bank EVB, are required to disclose
their privacy policies to customers and consumers and require that such customers or consumers be given a choice (through an opt-out notice) to forbid the sharing of nonpublic personal information about them with nonaffiliated third persons. EVB has
a written privacy policy that is delivered to each of its customers when customer relationships begin and annually thereafter. In accordance with the privacy policy, EVB will protect the security of information about its customers, educate its
employees about the importance of protecting customer privacy, and allow its customers to remove their names from the solicitation lists they use and share with others. EVB requires business partners with whom it shares such information to have
adequate security safeguards and to abide by the re-disclosure and reuse provisions of applicable law. EVB has programs to fulfill the expressed requests of customers and consumers to opt out of information sharing subject to applicable law. In
addition to adopting federal requirements regarding privacy, individual states are authorized to enact more stringent laws relating to the use of customer information. To date, Virginia has not done so, but is authorized to consider proposals that
would impose additional requirements or restrictions on EVB. If the federal or state regulators establish further guidelines for addressing customer privacy issues, EVB may need to amend its privacy policies and adapt its internal procedures.

Community Reinvestment Act

EVB is subject to the
requirements of the CRA. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound
operation of those institutions. A financial institutions efforts in meeting community credit needs are currently evaluated as part of the examination process pursuant to three performance tests. These factors also are considered in evaluating
mergers, acquisitions and applications to open a branch or facility.



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USA PATRIOT Act

The
USA PATRIOT Act became effective on October 26, 2001 and provides, in part, for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by
enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government, including: (i) requiring standards for verifying customer identification at
account opening; (ii) rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (iii) reports by nonfinancial trades
and businesses filed with the Treasury Departments Financial Crimes Enforcement Network for currency transactions exceeding $10,000; (iv) filing suspicious activities reports if a bank believes a customer may be violating U.S. laws and
regulations; and (v) requiring enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

Under the USA PATRIOT Act, the Federal Bureau of Investigation (FBI) has sent, and will send, our banking regulatory agencies lists of the names of persons
suspected of involvement in terrorist activities. The bank has been requested, and will be requested, to search its records for any relationships or transactions with persons on those lists. If the bank finds any relationships or transactions, it
must file a suspicious activity report and contact the FBI.

The Office of Foreign Assets Control (OFAC), which is a division of the Department
of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with enemies of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send,
our banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If the bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze
the account and block any transactions from the account, file a suspicious activity report and notify the FBI. The bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications. The bank
actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. The bank performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of
Specially Designated Nationals and Blocked Persons.

The federal financial institution regulators also have promulgated rules and regulations implementing
the USA PATRIOT Act, which (i) prohibit U.S. correspondent accounts with foreign banks that have no physical presence in any jurisdiction, (ii) require financial institutions to maintain certain records for correspondent accounts of
foreign banks, (iii) require financial institutions to produce certain records relating to anti-money laundering compliance upon the request of the appropriate federal banking agency, (iv) require due diligence with respect to private
banking and correspondent banking accounts, (v) facilitate information sharing between government and financial institutions, (vi) require verification of customer identification, and (vii) require financial institutions to have in
place an anti-money laundering program.

Consumer Laws and Regulations

The bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Housing Act, the Home Mortgage Disclosure
Act, the Real Estate Settlement Procedures Act, the Service Members Civil Relief Act, and implementing regulations promulgated thereunder. These laws and regulations mandate certain disclosure requirements and regulate the manner in which
financial institutions transact business with customers. The bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.



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|Item 1A. | Risk Factors
|-------- | ------------

An
investment in our common stock involves risks. You should carefully consider the risks described below in conjunction with the other information in this Form 10-K, including our consolidated financial statements and related notes, before investing
in our common stock. If any of the following risks or other risks that have not been identified or that we may believe are immaterial or unlikely actually occur, our business, financial condition and results of operations could be harmed. This could
cause the price of our stock to decline, and you may lose part or all of your investment. This Form 10-K contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions
and expectations. Past results are not a reliable indicator of future results and historical trends should not be used to anticipate results or trends in future periods. Many factors, including those described below, could cause actual results to
differ materially from those discussed in forward-looking statements.

We may incur losses if we are unable to successfully manage interest rate risk.

Our profitability will depend in substantial part upon the spread between the interest rates earned on investments and loans and the interest rates
paid on deposits and other interest-bearing liabilities. These rates are normally in line with general market rates and rise and fall based on the asset liability committees view of our needs. However, we may pay above-market rates to attract
deposits as we have done in some of our marketing promotions in the past. Changes in interest rates will affect our operating performance and financial condition in diverse ways including the pricing of securities, loans and deposits, and the volume
of loan originations in our mortgage banking business. We attempt to minimize our exposure to interest rate risk, but we are unable to completely eliminate this risk. Our net interest spread will depend on many factors that are partly or entirely
outside our control, including competition, federal economic, monetary and fiscal policies, and economic conditions generally. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits
and borrowings increases faster than the interest we earn on loans and investments.

We are experiencing strong competition from other banks and financial
institutions for deposits. We may offer more competitive rates to our customers or find alternative funding sources to fund the growth in our loan portfolio. In 2006, deposit growth was not sufficient to fund our loan growth and we used Federal Home
Loan Bank advances and principal and interest payments on available-for-sale securities to make up the difference. However, our borrowing ability is limited and we may be put in the position of choosing between slowing the growth of our loan
portfolio or additional contraction in our net interest margin if we must pay higher rates for deposits.

We rely heavily on our management team and the
unexpected loss of any of those personnel could adversely affect our operations; we depend on our ability to attract and retain key personnel.

We are a
customer-focused and relationship-driven organization. We expect our future growth to be driven in a large part by the relationships maintained with our customers by our president and chief executive officer and other senior officers. We have
entered into employment agreements with five of our executive officers. The existence of such agreements, however, does not necessarily assure that we will be able to continue to retain their services. The unexpected loss of any of our key employees
could have an adverse effect on our business and possibly result in reduced revenues and earnings. We do maintain bank-owned life insurance on key officers that would help cover some of the economic impact of a loss caused by death. The
implementation of our business strategy will also require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services. Many experienced banking
professionals employed by our competitors are covered by agreements not to compete or solicit their existing customers if they were to leave their current employment. These agreements make the recruitment of these professionals more difficult. The
market for these people is competitive, and we cannot assure you that we will be successful in attracting, hiring, motivating or retaining them.



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Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our
financial results.

We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home
equity, consumer and other loans. Many of our loans are secured by real estate (both residential and commercial) in our market area. Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on
the earnings and capital of larger financial institutions whose real estate loan portfolios are geographically diverse.

In addition to the financial
strength and cash flow characteristics of the borrower in each case, we often secure loans with real estate collateral. At December 31, 2006, approximately 83.0% of our loans have real estate as a primary or secondary component of collateral.
The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a
loan to satisfy the debt during a period of reduced real estate values, our earnings and capital could be adversely affected.

Risk of loan defaults and
foreclosures are unavoidable in the banking industry, and we try to limit our exposure to this risk by monitoring our extensions of credit carefully. We cannot fully eliminate credit risk, and as a result credit losses may occur in the future.

We have a concentration of credit exposure in commercial real estate.

At December 31, 2006, we had approximately $164.9 million in loans to borrowers in the commercial real estate industry, representing approximately 25.4% of our total loans outstanding as of that date. The real
estate consists primarily of owner-operated properties, warehouses and other commercial properties. These types of loans are generally viewed as having more risk of default than residential real estate loans. They are also typically larger than
residential real estate loans and consumer loans and depend on cash flows from the owners business or the property to service the debt. Cash flows may be affected significantly by general economic conditions, and a downturn in the local
economy or in occupancy rates in the local economy where the property is located could increase the likelihood of default. Because our loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration
of one or a few of these loans could cause a significant increase in our percentage of non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an
increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.

Our commercial real
estate loans have grown 8.6% since December 31, 2005. The banking regulators are giving commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement improved
underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures.

We may be adversely affected by economic conditions in our market area.

We operate in a mixed market environment with influences from both rural and urban areas. Because our lending operation is concentrated in the Eastern, Richmond and Tidewater areas of Virginia, we will be affected by the general economic
conditions in these markets. Changes in the local economy may influence the growth rate of our loans and deposits, the quality of the loan portfolio, and loan and deposit pricing. A significant decline in general economic conditions caused by
inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and the demand for banking products and services generally, which could negatively affect our financial condition and performance.
Although we might not have significant credit exposure to all the businesses in our areas, the downturn in any of these businesses could have a negative impact on local economic conditions and real estate collateral values generally, which could
negatively affect our profitability.



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Our small- to medium-sized business target market may have fewer financial resources to weather a downturn in the
economy.

We target our commercial development and marketing strategy primarily to serve the banking and financial services needs of small- and
medium-sized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. If general economic conditions negatively impact this major economic sector in the markets in which we
operate, our results of operations and financial condition may be adversely affected.

Our future success is dependent on our ability to compete
effectively in the highly competitive banking industry.

We face vigorous competition from other banks and other financial institutions, including
savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. A number of these banks and other financial institutions are significantly larger than we are and
have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. To a limited extent, we also compete with other providers of financial services, such
as money market mutual funds, brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable financing than we can. Many of our non-bank competitors are not subject to the same
extensive regulations that govern us. As a result, these non-bank competitors have advantages over us in providing certain services. While we believe we compete effectively with these other financial institutions in our primary markets, we may face
a competitive disadvantage as a result of our smaller size, smaller asset base, lack of geographic diversification and inability to spread our marketing costs across a broader market. If we have to raise interest rates paid on deposits or lower
interest rates charged on loans to compete effectively, our net interest margin and income could be negatively affected. Failure to compete effectively to attract new, or to retain existing, clients may reduce or limit our margins and our market
share and may adversely affect our results of operations, financial condition and growth.

If our allowance for loan losses becomes inadequate, our
results of operations may be adversely affected.

We maintain an allowance for loan losses that we believe is a reasonable estimate of known and
inherent losses in our loan portfolio. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan
portfolio, the collateral supporting the loans and performance of our customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in
interest rates, which may be beyond our control, and these losses may exceed our current estimates. Rapidly growing loan portfolios are, by their nature, unseasoned. As a result, estimating loan loss allowances is more difficult, and may be more
susceptible to changes in estimates, and to losses exceeding estimates, than more seasoned portfolios.

Although we believe the allowance for loan losses
is a reasonable estimate of known and inherent losses in our loan portfolio, we cannot fully predict such losses or that our loan loss allowance will be adequate in the future. Excessive loan losses could have a material impact on our financial
performance. Consistent with our loan loss reserve methodology, we expect to make additions to our loan loss reserve levels as a result of our loan growth, which may affect our short-term earnings.

Federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan
charge-offs, based on judgments different than those of our management. Any increase in the amount of our provision or loans charged-off as required by these regulatory agencies could have a negative effect on our operating results.



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We may not be able to successfully manage our growth, which may adversely affect our results of operations and
financial condition.

During the last five years, we have experienced significant growth, and a key aspect of our business strategy is our continued
growth and expansion. Our ability to continue to grow depends, in part, upon our ability to:



| |  |  | open new branch offices or acquire existing branches or other financial institutions;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | attract deposits to those locations; and
| | - |  | ----------------------------------------



| |  |  | identify attractive loan and investment opportunities.
| | - |  | ------------------------------------------------------

We may not be able to successfully implement our growth strategy if we are unable to identify attractive markets, locations or opportunities to expand in the future. Our ability to manage our growth successfully also will depend on whether
we can maintain capital levels adequate to support our growth, maintain cost controls and asset quality and successfully integrate any businesses we acquire into our organization. As we continue to implement our growth strategy by opening new
branches or acquiring branches or other banks, we expect to incur increased personnel, occupancy and other operating expenses. In the case of new branches, we must absorb those higher expenses while we begin to generate new deposits, and there is a
further time lag involved in redeploying new deposits into attractively priced loans and other higher yielding earning assets. Thus, our plans for branch expansion could decrease our earnings in the short run, even if we efficiently execute our
branching strategy.

We could sustain losses if our asset quality declines.

Our earnings are significantly affected by our ability to properly originate, underwrite and service loans. We could sustain losses if we incorrectly assess the creditworthiness of our borrowers or fail to detect or
respond to deterioration in asset quality in a timely manner. Problems with asset quality could cause our interest income and net interest margin to decrease and our provisions for loan losses to increase, which could adversely affect our results of
operations and financial condition.

We may face risks with respect to de novo banking opportunities and future acquisitions.

As a strategy, we have sought to increase the size of our franchise by pursuing business development opportunities, and we have grown rapidly since we were formed. As
part of that strategy, we have grown primarily through opening new branches. We also acquired three branches in 2003, and we may acquire other branches or financial institutions in the future, if a desirable opportunity presents itself. Growth
through new branches or acquisitions involves a number of risks, including:



| |  |  | the time and costs associated with identifying and evaluating where we should open a new branch and who may be a favorable acquisition or merger partner;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the estimates and judgments used to evaluate credit, operations, management and market risks with respect to any growth opportunity may not be accurate;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the
generation of sufficient assets and deposits to support the costs of the expansion;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | entry into new markets where we lack experience;
| | - |  | ------------------------------------------------



| |  |  | our ability to finance an acquisition and possible ownership and economic dilution to our shareholders;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the diversion of our managements attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining
businesses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the introduction of new products and services into our business;
| | - |  | ----------------------------------------------------------------



| |  |  | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the loss of key employees and clients.
| | - |  | --------------------------------------

We may incur
substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek.



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There can be no assurance that integration efforts for any new branches or future mergers or acquisitions will be successful. Also, we may issue equity
securities, including common stock and securities convertible into shares of our common stock, in connection with future acquisitions, which could cause ownership and economic dilution to our shareholders. There is no assurance that, following any
future merger or acquisition, our integration efforts will be successful or we, after giving effect to the acquisition, will achieve profits comparable to or better than our historical experience.

Our profitability may suffer because of rapid and unpredictable changes in the highly regulated environment in which we operate.

The banking industry is subject to extensive regulation by state and federal banking authorities. Many of the banking regulations we are governed by are intended to
protect depositors, the public or the insurance fund maintained by the Federal Deposit Insurance Corporation rather than our shareholders. Banking regulations affect our lending practices, capital structure, investment practices, dividend policy and
many other aspects of our business. These requirements may constrain our rate of growth, and changes in regulations could adversely affect us. The burden imposed by these federal and state regulations may place banks in a competitive disadvantage
compared to less regulated competitors. In addition, the cost of compliance with regulatory requirements could adversely affect our ability to operate profitably. See Supervision and Regulation for more information about applicable
banking laws and regulations.

The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission
and NASDAQ that are applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices, including the cost of completing our audit and maintaining our internal controls. As a result, we may
experience greater compliance costs.

We may identify a material weakness or a significant deficiency in our internal control over financial reporting
that may adversely affect our ability to properly account for non-routine transactions.

As we have grown and expanded, we have acquired and added, and
expect to continue to acquire and add, businesses and other activities that complement our core retail and commercial banking functions. Such acquisitions or additions frequently involve complex operational and financial reporting issues that can
influence managements internal control system. While we make every effort to thoroughly understand any new activity or acquired entitys business processes, our planning for proper integration into our company can give no assurance that
we will not encounter operational and financial reporting difficulties impacting our internal control over financial reporting.

If we need additional
capital in the future to continue our growth, we may not be able to obtain it on terms that are favorable. This could negatively affect our performance and the value of our common stock.

Our business strategy calls for continued growth. We anticipate that we will be able to support this growth through the generation of additional deposits at new branch
locations, as well as investment opportunities. However, we may need to raise additional capital in the future to support our continued growth and to maintain our capital levels. Our ability to raise capital through the sale of additional securities
will depend primarily upon our financial condition and the condition of financial markets at that time. We may not be able to obtain additional capital in the amounts or on terms satisfactory to us. Our growth may be constrained if we are unable to
raise additional capital as needed.

Liquidity needs could adversely affect our results of operations and financial condition.

We rely on dividends from our bank as our primary source of funds. The primary sources of funds of our bank are client deposits and loan repayments. While scheduled loan
repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions,
adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected
by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available



19



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to clients on alternative investments and general economic conditions. Accordingly, we may be required from time to time to rely on secondary sources of
liquidity to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank advances, sales of securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time
deposits. While we believe that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands, particularly if we continue to grow and experience increasing loan demand. We may be required
to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should such sources not be adequate.

Our recent
results may not be indicative of our future results.

We may not be able to sustain our historical rate of growth or may not even be able to grow our
business at all. In addition, our recent and rapid growth may distort some of our historical financial ratios and statistics. In the future, we may not have the benefit of several recently favorable factors, such as a generally stable interest rate
environment, a strong real estate market, or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to
expand our market presence. If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of
clients and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial
statements, on reports of independent auditors. For example, in deciding whether to extend credit to clients, we may assume that a customers audited financial statements conform with GAAP and present fairly, in all material respects, the
financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially
misleading.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

Our principal executive offices
are located at 330 Hospital Road, Tappahannock, Virginia 22560 where a 15,632 square foot corporate headquarters and operations center was opened in July 2003. We merged our three subsidiary banks into one bank in April 2006. The new bank, EVB, owns
19 full service branch buildings including the land on which 18 of those buildings are located and two remote drive-in facilities. Three branch office buildings are leased at current market rates. Northumberland and Middlesex Counties each are the
home to three of the branches. Gloucester County and King William County are home to two branch offices as is Essex County which also houses the EVB loan administration center and the corporate/operations center. Hanover County houses four branch
offices (two of which are leased) while Caroline County, Lancaster County, Southampton County, Surry County and Sussex County each have one full service branch office. Southampton County and Sussex County also have stand-alone drive-in/automated
teller machine locations. All properties are in good condition. The land on which the Hartfield office is located is under long-term lease. In late 2006 we purchased the Windmill site in Hanover County and upon completion of renovations
will relocate to that facility from our current leased facility in Mechanicsville, Virginia.



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In Hanover County, land for a new branch location was purchased in mid 2004. In December 2006, the Company completed the
building for this branch and relocated the Airpark Branch to this new location, called Kings Charter with a grand opening on January 24, 2007. The Company continues to make lease payments on the former Airpark branch until the owner can lease
or we can sublease the location.

While the current locations are meeting our needs, and many may meet our needs into the future, we are a growing entity
and are frequently reevaluating our locations and space needs. Continued growth may require expansions or relocations in the future.



|Item 3. | Legal Proceedings
|------- | -----------------

We and our subsidiaries
are not aware of any material pending or threatened litigation, unasserted claims and/or assessments. The only litigation in which we and our subsidiaries are involved consists of collection suits involving delinquent loan accounts in the normal
course of business which management estimates will not have a material impact on our financial condition.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to a vote of security holders during the fourth quarter of 2006.

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

The information titled Common Stock Performance and Dividends set forth on the last page of the 2006 Annual Report to Shareholders is incorporated herein by
reference and is filed herewith as Exhibit 13.1.

Dividend Policy

We have historically paid cash dividends on a quarterly basis. However, we cannot assure you that we will continue to pay cash dividends on any particular schedule or that we will not reduce the amount of dividends we
pay in the future. Our future dividend policy is subject to the discretion of the board of directors and will depend upon a number of factors, including the future consolidated earnings, financial condition, liquidity and capital requirements for us
and EVB, applicable governmental regulations and policies and other factors deemed relevant by our board of directors.

We are organized under the Virginia
Stock Corporation Act, which prohibits the payment of a dividend if, after giving it effect, the corporation would not be able to pay its debts as they become due in the usual course of business or if the corporations total assets would be
less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved, to satisfy the preferential rights upon dissolution of any preferred shareholders.

We are a legal entity separate and distinct from our subsidiaries. Our ability to distribute cash dividends will depend primarily on the ability of EVB to pay dividends
to us, and EVB is subject to laws and regulations that limit the amount of dividends that it can pay. As a state member bank, EVB is subject to certain restrictions imposed by the reserve and capital requirements of federal and Virginia banking
statutes and regulations. The Federal Reserve and the state of Virginia have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. Both the state of Virginia and the Federal
Reserve have indicated that paying dividends that deplete a banks capital base to an inadequate level would be an unsound and unsafe banking practice. Under Virginia law, a bank may not declare a dividend in excess of its undivided profits.
Under the Federal Reserves regulations, EVB may not declare or pay any dividend if the total amount of all dividends, including the proposed dividend, is in excess of its net income for the current year plus any retained net income from the
prior two calendar years, unless the dividend is approved by the Federal Reserve. In addition, EVB may not declare or pay a dividend without the approval of its board and two-thirds of its shareholders if the dividend would exceed its undivided
profits, as reported to the Federal Reserve.



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##### Table of Contents

In addition, we are subject to certain regulatory requirements to maintain capital at or above regulatory minimums. These
regulatory requirements regarding capital affect our dividend policies. The Federal Reserve has indicated that a bank holding company should generally pay dividends only if its net income available to common shareholders over the past year has been
sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organizations capital needs, asset quality and overall financial condition.

For additional information on these limitations, see Supervision and Regulation  Governmental Policies and Legislation  Dividends on page 10
of this Form 10-K.

Purchases of Equity Securities

The
repurchase and retirement of shares is part of a Board of Directors authorization in January 2001, to repurchase up to 300,000 shares of the Companys common stock. That authorization was subsequently revised to a limit of not more than 60,000
shares per calendar quarter and again revised in November 2003 to a maximum of 5% of the outstanding shares per calendar year. A total of 133,383 shares have been repurchased under this Board authorized Plan that was publicly announced on
January 31, 2001. The maximum number of shares that were available for repurchase under this Plan in 2006 was 245,250. We did not repurchase any securities during 2005 or 2006.

See the performance graph at the next to last page of the Companys 2006 Annual Report to Shareholders.



|Item 6. | Selected Financial Data
|------- | -----------------------

The information set
forth on the page following the To Our Shareholders letter in the 2006 Annual Report to Shareholders is incorporated herein by reference and is filed herewith as Exhibit 13.2.



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operation
|------- | ------------------------------------------------------------------------------------

Managements discussion and analysis is intended to assist the reader in evaluating and understanding the consolidated results of operations and our financial
condition. The following analysis provides information about the major components of the results of operations, financial condition, liquidity and capital resources of Eastern Virginia Bankshares and attempts to identify trends and material changes
that occurred during the reporting periods. The discussion should be read in conjunction with Selected Financial Data (Item 6 above) and the Consolidated Financial Statements and Notes to Consolidated Financial Statements (Item 8 below).

Forward Looking Statements

Certain information contained in this
discussion may include 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, as amended. We caution you to be aware of
the speculative nature of forward-looking statements. These statements are not guarantees of performance or results. Statements that are not historical in nature, including statements that include the words may,
anticipate, estimate, could, should, would, will, plan, predict, project, potential, expect, believe,
intend, continue, assume and similar expressions, are intended to identify forward-looking statements. Although these statements reflect our good faith belief based on current expectations, estimates and
projections about (among other things) the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to a number of known and
unknown risks and uncertainties, including the risks and uncertainties discussed in this form 10-K prospectus, including the following:



| | q | changes in the interest rates affecting our deposits and our loans;
| | - | -------------------------------------------------------------------



| | q | the loss of any of our key employees;
| | - | -------------------------------------



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| | q | changes in the quality or composition of our loan or investment portfolios, including adverse developments in borrower industries, decline in real estate values in our markets, or
in the repayment ability of individual borrowers or issuers;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | q | the strength of the economy in our target market area, as well as general economic, market, or business conditions;
| | - | -------------------------------------------------------------------------------------------------------------------



| | q | changes in our competitive position, competitive actions by other financial institutions and the competitive nature of the financial services industry and our ability to compete
effectively against other financial institutions in our banking markets;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | q | an insufficient allowance for loan losses as a result of inaccurate assumptions;
| | - | --------------------------------------------------------------------------------



| | q | our ability to manage growth;
| | - | -----------------------------



| | q | our potential growth, including our entrance or expansion into new markets, the opportunities that may be presented to and pursued by us and the need for sufficient capital to
support that growth;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | q | our ability to assess and manage our asset quality;
| | - | ---------------------------------------------------



| | q | changes in government monetary policy, interest rates, deposit flow, the cost of funds, and demand for loan products and financial services;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | q | our ability to maintain internal control over financial reporting;
| | - | ------------------------------------------------------------------



| | q | our ability to raise capital as needed by our business;
| | - | -------------------------------------------------------



| | q | our reliance on secondary sources, such as Federal Home Loan Bank advances, sales of securities and loans, federal funds lines of credit from correspondent banks and out-of-market
time deposits, to meet our liquidity needs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | q | changes in laws, regulations and the policies of federal or state regulators and agencies; and
| | - | ----------------------------------------------------------------------------------------------



| | q | other circumstances, many of which are beyond our control.
| | - | ----------------------------------------------------------

Consequently,
all of the forward-looking statements made in this filing are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have
the expected consequences to, or effects on, us or our business or operations. You should refer to risks detailed under the Risk Factors section included in this Form 10-K and in our periodic and current reports filed with the Securities
and Exchange Commission for specific factors that could cause our actual results to be significantly different from those expressed or implied by our forward-looking statements.

CRITICAL ACCOUNTING POLICIES

General

Our 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) SFAS No.5, Accounting for Contingencies, which requires that losses be accrued when
their occurrence is probable and estimable and (ii) SFAS No.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.



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We evaluate non-performing loans individually for impairment, such as nonaccrual loans, loans past due 90 days or more,
restructured loans and other loans selected by management as required by SFAS No. 114. The evaluations are based upon discounted expected cash flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a
specific reserve is established for the amount of the impairment. If a loan evaluated individually is not impaired, then the loan is assessed for impairment under SFAS No. 5.

For loans without individual measures of impairment, we make estimates of losses for groups of loans as required by SFAS No. 5. Loans are grouped by similar characteristics, including the type of loan, the
assigned loan grade and general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is derived based upon historical loss rates for each loan type, the predominant collateral type for the group and the terms of the
loan. The resulting estimates of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans including: borrower or industry concentrations; levels and trends in delinquencies,
charge-offs and recoveries; changes in risk selection; level of experience, ability and depth of lending staff; and national and economic conditions.

The
amounts of estimated losses for loans individually evaluated for impairment and groups of loans are added together for a total estimate of loan losses. The estimate of losses is compared to our allowance for loan losses as of the evaluation date
and, if the estimate of losses is greater that the allowance, an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to
determine whether a reduction to the allowance would be necessary. While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the valuations. Such adjustments would be made in the relevant period and may be material to the Consolidated Financial Statements.

Executive Overview

Growth in the loan portfolio of 13.3% increased net interest income by 5.1% for the year ended
December 31, 2006. Increased noninterest income of 9.3% and controlled noninterest expense growth of 3.7% contributed to an increase of 7.6% in the net income. While we were growing, we also worked through combining three banks into one bank in
the first quarter and part of the second quarter. This completed the streamlining of back-office functions and allowed us to focus on a unified product offering throughout our market area. In the third quarter of 2006, we implemented a unique (in
Virginia) interest-checking product, Reward Checking, to increase deposit growth and retain customers. In December, we completed a stock issuance of 1.15 million shares, or over $23.5 million, net. This increased capital positions us for future
growth and acquisitions.

For the year ended December 31, 2006, we had net income of $7.24 million, or $1.45 per share on a basic and a diluted basis,
an increase of 7.6% from $6.73 million and a per share increase of 5.8% from $1.37 per share on a basic and diluted basis for 2005. Return on average assets (ROA) for 2006 was 0.91% compared to 0.93% in the prior year, and the return on average
equity (ROE) was 11.10% for 2006 compared to 11.05% in 2005. Core earnings during the period from 2005 to 2006 continued to improve as net interest income increased 5.1% and noninterest income excluding realized gains on securities increased 14.5%
from the prior year.

The impact of the new one bank organization and the centralized backroom processing was lower noninterest expense in some categories
in 2006 compared to 2005. Printing and supplies expense was up 0.5%, or $2 thousand, and telephone increased 4.4%, or $24 thousand. Data processing expense decreased 41.5%, or $313 thousand, while consulting expense decreased 34.1%, or $397
thousand. On the other hand, making the communities aware of our new name and rolling out a new product caused marketing expenses to increase by $517 thousand, or 112.4%. While the year-to-year change in noninterest expense as a percent has been
declining since 2003, the 3.7% increase in 2006 is well below the increases of 11.4% in 2005 and 21.1% in 2004. This reflects the effort we have made to build an efficient infrastructure and control expenses.



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Growth and positioning the Company to grow are among the primary objectives of management. In late 2004, we opened a
branch at Central Garage along the Route 360 corridor from Richmond to Tappahannock. In 2006, the branch produced a profit and contributed to the earnings of the Company. In December 2006, our smallest branch  Airparkin Hanover County
was relocated to a larger office on a more accessible route in one of the fastest growing markets in Hanover County. This new Kings Charter office has two commercial loan officers and a large lobby, as well as accessible drive up windows which
allows us to service our deposit customers while having better access to the business customers in the large business area in the vicinity. With the economic growth up and down the Interstate 95 corridor from Northern Virginia to Emporia and the
growth in the Hampton Roads area up the Interstate 64 corridor, we see many opportunities to expand our footprint.

Increased loan volume in 2006 and the
associated increased net interest income reflect our recognition that growth will fuel future earnings. In addition, the overall asset quality of the loan portfolio is near its highest level in our history. Throughout 2006 net interest margin
decreased as interest income from loan growth was offset by higher cost deposits. This will likely continue to influence earnings in early 2007, if the Federal Reserve continues to leave interest rates at the level where they have been since mid
2006. This economic environment has slowed deposit growth and forced us, like many other banks, to look at more expensive funding sources to fund loan demand. When the Federal Reserve starts to lower rates, probably in the second half of 2007, this
funding pressure may ease allowing us to re-price deposits at lower rates and allow the net interest margin to expand.

Results of Operations

The table below lists our quarterly performance for the years ended December 31, 2006 and 2005.



|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|--------------------------------------------------- |  | ------------------ | ------ | ------- | - | ------- |  | ------- | ------ | ------- | - | ------- |  | ------- | ------ | ------- | - | ------ |  | - | ------ |  | - | ------
|SUMMARY OF FINANCIAL RESULTS BY QUARTER            
|(dollars in thousands)                              |  |                    |       
|                                                    | 
|                                                    |  | Three Months Ended
|                                                    |  | 2006               |        | 2005   
|                                                    |  | Dec. 31            |        | Sep. 30 |   | June 30 |  | Mar. 31 |        | Dec. 31 |   | Sep. 30 |  | June 30 |        | Mar. 31
|Interest income                                     |  | $                  | 13,730 |         | $ | 13,137  |  | $       | 12,469 |         | $ | 11,681  |  | $       | 11,660 |         | $ | 10,979 |  | $ | 10,511 |  | $ | 10,079
|Interest expense                                    |  |                    | 5,586  |         |   | 5,163   |  |         | 4,506  |         |   | 4,190   |  |         | 3,836  |         |   | 3,523  |  |   | 3,030  |  |   | 2,809 
|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net interest income                                 |  |                    | 8,144  |         |   | 7,974   |  |         | 7,963  |         |   | 7,491   |  |         | 7,824  |         |   | 7,456  |  |   | 7,481  |  |   | 7,270 
|Provision for loan losses                           |  |                    | 204    |         |   | 204     |  |         | 204    |         |   | 113     |  |         | 64     |         |   | 282    |  |   | 198    |  |   | 8     
|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net interest income after provision for loan losses |  |                    | 7,940  |         |   | 7,770   |  |         | 7,759  |         |   | 7,378   |  |         | 7,760  |         |   | 7,174  |  |   | 7,283  |  |   | 7,262 
|Noninterest income                                  |  |                    | 1,352  |         |   | 1,359   |  |         | 1,305  |         |   | 1,149   |  |         | 1,139  |         |   | 1,313  |  |   | 1,132  |  |   | 1,143 
|Noninterest expense                                 |  |                    | 6,490  |         |   | 6,393   |  |         | 6,563  |         |   | 6,373   |  |         | 6,346  |         |   | 6,144  |  |   | 6,276  |  |   | 6,127 
|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Income before applicable income taxes               |  |                    | 2,802  |         |   | 2,736   |  |         | 2,501  |         |   | 2,154   |  |         | 2,553  |         |   | 2,343  |  |   | 2,139  |  |   | 2,278 
|Applicable income taxes                             |  |                    | 886    |         |   | 767     |  |         | 700    |         |   | 603     |  |         | 734    |         |   | 656    |  |   | 590    |  |   | 607   
|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net Income                                          |  | $                  | 1,916  |         | $ | 1,969   |  | $       | 1,801  |         | $ | 1,551   |  | $       | 1,819  |         | $ | 1,687  |  | $ | 1,549  |  | $ | 1,671 
|                                                    |  |                    |        |         |   |         |  |         |        |         |   |         |  |         |        |         |   |        |  |   |        |  |   |       
|Net income per share, basic and diluted             |  | $                  | 0.37   |         | $ | 0.40    |  | $       | 0.37   |         | $ | 0.32    |  | $       | 0.37   |         | $ | 0.34   |  | $ | 0.32   |  | $ | 0.34  

Net Interest Income

Net interest income represents our gross profit margin and is defined as the difference between interest income and interest expense. For comparative purposes, income from tax-exempt securities is adjusted to a tax-equivalent basis using
the federal statutory tax rate of 35%. Tax-exempt securities income is further adjusted by the Tax Equity and Fiscal Responsibility Act (TEFRA) adjustment for the disallowance as a deduction of a portion of total interest expense related
to the ratio of average tax-exempt securities to average total assets. This adjustment results in tax-exempt income and yields being presented on a basis comparable with income and yields from fully taxable earning assets. Net interest margin
represents our net interest income divided by average earning assets. Changes in the volume and mix of earning assets and interest bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net
interest income. Below, the Average Balances, Income and Expense, Yields and Rates table presents average balances, interest income on earning assets and related average yields, as well as interest expense on interest-bearing liabilities
and related average rates paid, for each of the past three years.



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



|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|---------------------------------------- |  | ----------------------- | ------- | - | --------------- | - | ----------- | ---- | ---- | --------------- |  | - | --------------- | - | ----------- | - | ------ | --------------- | ---- | - | --------------- | - | ----------- | - |  | - | ------ |  | ---- | -
|                                         |  | Years Ended December 31 |        
|                                         |  | 2006                    |         |   | 2005            |   |             | 2004 |     
|(dollars in thousands)                   |  | Average Balance         |         |   | Income/ Expense |   | Yield/ Rate |      |      | Average Balance |  |   | Income/ Expense |   | Yield/ Rate |   |        | Average Balance |      |   | Income/ Expense |   | Yield/ Rate |  
|                                         |  |                         |         |   |                 |   |             |     
|Assets:                                  |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Securities                               |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Taxable                                  |  | $                       | 95,315  |   |                 | $ | 4,809       |      | 5.05 | %               |  | $ | 95,688          |   |             | $ | 4,477  |                 | 4.68 | % |                 | $ | 89,686      |   |  | $ | 4,460  |  | 4.97 | %
|Tax exempt (1)                           |  |                         | 34,120  |   |                 |   | 2,023       |      | 5.93 | %               |  |   | 37,456          |   |             |   | 2,216  |                 | 5.92 | % |                 |   | 46,596      |   |  |   | 2,784  |  | 5.97 | %
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Total securities                         |  |                         | 129,435 |   |                 |   | 6,832       |      | 5.28 | %               |  |   | 133,144         |   |             |   | 6,693  |                 | 5.03 | % |                 |   | 136,282     |   |  |   | 7,244  |  | 5.32 | %
|Federal funds sold                       |  |                         | 5,994   |   |                 |   | 299         |      | 4.99 | %               |  |   | 2,477           |   |             |   | 76     |                 | 3.07 | % |                 |   | 4,230       |   |  |   | 53     |  | 1.25 | %
|Loans (net of unearned income) (2)       |  |                         | 614,330 |   |                 |   | 44,503      |      | 7.24 | %               |  |   | 537,736         |   |             |   | 37,137 |                 | 6.91 | % |                 |   | 498,568     |   |  |   | 33,298 |  | 6.68 | %
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Total earning assets                     |  |                         | 749,759 |   |                 |   | 51,634      |      | 6.89 | %               |  |   | 673,357         |   |             |   | 43,906 |                 | 6.52 | % |                 |   | 639,080     |   |  |   | 40,595 |  | 6.35 | %
|Less allowance for loan losses           |  |                         | (5,815  | ) |                 |   |             |      |      |                 |  |   | (6,632          | ) |             |   |        |                 |      |   |                 |   | (6,788      | ) |  |   |        |  |      |  
|Total non-earning assets                 |  |                         | 55,165  |   |                 |   |             |      |      |                 |  |   | 59,427          |   |             |   |        |                 |      |   |                 |   | 59,112      |   |  |   |        |  |      |  
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Total assets                             |  | $                       | 799,109 |   |                 |   |             |      |      |                 |  | $ | 726,152         |   |             |   |        |                 |      |   |                 | $ | 691,404     |   |  |   |        |  |      |  
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Liabilities & Shareholders Equity:      |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Interest bearing deposits                |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Checking                                 |  | $                       | 80,962  |   |                 | $ | 432         |      | 0.53 | %               |  | $ | 78,953          |   |             | $ | 398    |                 | 0.50 | % |                 | $ | 79,094      |   |  | $ | 428    |  | 0.54 | %
|Savings                                  |  |                         | 99,509  |   |                 |   | 1,239       |      | 1.25 | %               |  |   | 122,373         |   |             |   | 1,312  |                 | 1.07 | % |                 |   | 128,041     |   |  |   | 1,296  |  | 1.01 | %
|Money market savings                     |  |                         | 45,006  |   |                 |   | 936         |      | 2.08 | %               |  |   | 51,451          |   |             |   | 595    |                 | 1.16 | % |                 |   | 57,103      |   |  |   | 520    |  | 0.91 | %
|Large dollar certificates of deposit (5) |  |                         | 103,789 |   |                 |   | 4,505       |      | 4.34 | %               |  |   | 79,782          |   |             |   | 2,813  |                 | 3.53 | % |                 |   | 64,611      |   |  |   | 2,123  |  | 3.29 | %
|Other certificates of deposit            |  |                         | 204,440 |   |                 |   | 8,018       |      | 3.92 | %               |  |   | 179,198         |   |             |   | 5,653  |                 | 3.15 | % |                 |   | 179,748     |   |  |   | 4,925  |  | 2.74 | %
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Total interest-bearing deposits          |  |                         | 533,706 |   |                 |   | 15,130      |      | 2.83 | %               |  |   | 511,757         |   |             |   | 10,771 |                 | 2.10 | % |                 |   | 508,597     |   |  |   | 9,292  |  | 1.83 | %
|Other borrowings                         |  |                         | 94,455  |   |                 |   | 4,314       |      | 4.57 | %               |  |   | 54,543          |   |             |   | 2,427  |                 | 4.45 | % |                 |   | 34,679      |   |  |   | 1,478  |  | 4.26 | %
|                                         |  |                         |         |   |                 |   |             |      |      |                 |  |   |                 |   |             |   |        |                 |      |   |                 |   |             |   |  |   |        |  |      |  
|Total interest-bearing liabilities       |  |                         | 628,161 |   |                 |   | 19,444      |      | 3.10 | %               |  |   | 566,300         |   |             |   | 13,198 |                 | 2.33 | % |                 |   | 543,276     |   |  |   | 10,770 |  | 1.98 | %



|                                                        |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|------------------------------------------------------- |  | - | ------- |  | - | ------ |  | ---- | - |  | - | ------- |  | - | ------ |  | ---- | - |  | - | ------- |  | - | ------ |  | ---- | -
|Noninterest-bearing liabilities                         |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|Demand deposits                                         |  |   | 99,213  |  |   |        |  |      |   |  |   | 93,376  |  |   |        |  |      |   |  |   | 83,841  |  |   |        |  |      |  
|Other liabilities                                       |  |   | 6,564   |  |   |        |  |      |   |  |   | 5,603   |  |   |        |  |      |   |  |   | 6,005   |  |   |        |  |      |  
|                                                        |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|Total liabilities                                       |  |   | 733,938 |  |   |        |  |      |   |  |   | 665,279 |  |   |        |  |      |   |  |   | 633,122 |  |   |        |  |      |  
|Shareholders equity                                    |  |   | 65,171  |  |   |        |  |      |   |  |   | 60,873  |  |   |        |  |      |   |  |   | 58,282  |  |   |        |  |      |  
|                                                        |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|Total liabilities and shareholders equity              |  | $ | 799,109 |  |   |        |  |      |   |  | $ | 726,152 |  |   |        |  |      |   |  | $ | 691,404 |  |   |        |  |      |  
|                                                        |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|Net interest income                                     |  |   |         |  | $ | 32,190 |  |      |   |  |   |         |  | $ | 30,708 |  |      |   |  |   |         |  | $ | 29,825 |  |      |  
|                                                        |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |   |  |   |         |  |   |        |  |      |  
|Interest rate spread (3)                                |  |   |         |  |   |        |  | 3.79 | % |  |   |         |  |   |        |  | 4.19 | % |  |   |         |  |   |        |  | 4.37 | %
|Interest expense as a percent of average earning assets |  |   |         |  |   |        |  | 2.59 | % |  |   |         |  |   |        |  | 1.96 | % |  |   |         |  |   |        |  | 1.69 | %
|Net interest margin (4)                                 |  |   |         |  |   |        |  | 4.29 | % |  |   |         |  |   |        |  | 4.56 | % |  |   |         |  |   |        |  | 4.67 | %

---

Notes:

|(1) | Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.
|--- | --------------------------------------------------------------------------------------------

|(2) | Nonaccrual loans have been included in the computations of average loan balances.
|--- | ---------------------------------------------------------------------------------

|(3) | 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.

|(4) | Net interest margin is the net interest income, calculated on a fully taxable basis assuming a federal income tax rate
|--- | ----------------------------------------------------------------------------------------------------------------------

of 34%, expressed as a percentage of average earning assets.

|(5) | Large dollar certificates of deposit are certificates issued in amounts of $100,000 or greater.
|--- | -----------------------------------------------------------------------------------------------



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##### Table of Contents

Tax-equivalent net interest income increased 4.8% to $32.2 million in 2006 from $30.7 million in 2005. Average earning
asset growth of 11.3% produced $7.7 million of increased interest income, while interest-bearing liabilities grew 10.9% producing a $6.2 million increase in interest expense. The increase in net interest income resulted primarily from higher loan
volume since rates were influenced by a tight and competitive market. Total average earning assets increased by $76.4 million, all of which was accounted for by the growth in loans. Total average liabilities grew $68.7 million, or 10.3%, while the
interest-bearing liabilities component increased $61.9 million. Average interest-bearing deposits for 2006 were up only 4.3% with consumers transferring money out of savings and money market accounts into higher yielding instruments. Regular
certificates of deposit were up $25.2 million and large dollar certificates were up $24.0 million. The growth in both of these deposit categories accounted for all the deposit increase and offset the decreases in other deposit categories. Part of
the growth in large dollar certificates of deposit was the acquisition of $10.4 million in brokered deposits which represent funding from outside the Companys primary market area. In addition, we used a new service, Certificate of Deposit
Account Registry Service known as CDARS, which allows us to exchange certificate funds that would not be FDIC insured with other banks through a central exchange vendor. To offset the slow deposit growth and fund the loan growth, we used Federal
Home Loan Bank borrowings at rates lower than certificates of deposit rates. This resulted in an increase in average borrowings of $39.9 million, or 73.2% during 2006. In addition to borrowings, we utilized cash flow from securities to help fund the
loan growth.

The increased cost of deposits and borrowings seen in the yield/rate column in the table above, more than offset the increase from rates in
the earning assets. While the yield on earning assets increased 37 basis points to 6.89%, the cost of interest bearing liabilities increased 77 basis points to 3.10%. We had a net interest margin of 4.29% in 2006, a 27 basis point decrease from
4.56% for 2005. Helping to offset the higher cost of funding was a 6.3% increase in demand deposits.

The year 2007 will likely be a challenging year in
margin management. While the Federal Reserve debates raising or lowering interest rates, banks are dealing with an inverted yield curve with deposits repricing at higher rates while loans re-price at rates lower than the bank would like due to the
competition for new loans. Until the inverted yield curve reverses, banks earnings at the margin are likely to be lower than desired. The timing of a change in rates in conjunction with the repricing of deposits could have a damaging impact on
earnings. However should the inverted yield curve reverse or rates decrease and lower the cost of deposits, we could benefit from the large amount of certificates of deposit maturing in the second half of 2007.

In 2005, average earning asset growth of 5.4% resulted from an increase in average loans outstanding of 7.9%, a decrease in federal funds sold of 41.4% and a slight
decrease in average securities. Growth in average earning assets of $34.3 million was primarily funded by average deposit growth of $12.7 million and an increase in average borrowings of $19.9 million. In 2005, net interest income on a tax
equivalent basis increased 3.0% to $30.7 million from $29.8 million in 2004. Average earning asset growth of 5.4% was the primary factor in the increase in net interest income and in producing a net interest margin of 4.56%, an 11 basis point
decrease from 4.67% in 2004.

The Volume and Rate Analysis table that follows reflects changes in interest income and interest expense
resulting from changes in average volume and average rates.



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Volume and Rate Analysis (1)



|                                    |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|----------------------------------- |  | ---------------------------------------------------- | ----- | - | ---------------------------------------------------- | - | ------ | ----- |  | - | ------ | - |  | ---- | ----- | - | ----- | - | ----- | - |  | - | ----- | -
|                                    |  | 2006 vs. 2005 Increase (Decrease) Due to Changes
in: |       |   | 2005 vs. 2004 Increase (Decrease) Due to Changes
in: |  
|(dollars in thousands)              |  | Volume                                               |       |   | Rate                                                 |   |        | Total |  |   | Volume |   |  | Rate |       |   | Total |  
|Earning Assets:                     |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Taxable securities                  |  | $                                                    | (21   | ) |                                                      | $ | 353    |       |  | $ | 332    |   |  | $    | 285   |   |       | $ | (268  | ) |  | $ | 17    |  
|Tax exempt securities (2)           |  |                                                      | (197  | ) |                                                      |   | 4      |       |  |   | (193   | ) |  |      | (545  | ) |       |   | (23   | ) |  |   | (568  | )
|Loans (net of unearned income)      |  |                                                      | 5,528 |   |                                                      |   | 1,838  |       |  |   | 7,366  |   |  |      | 2,665 |   |       |   | 1,174 |   |  |   | 3,839 |  
|Federal funds sold                  |  |                                                      | 155   |   |                                                      |   | 68     |       |  |   | 223    |   |  |      | (29   | ) |       |   | 52    |   |  |   | 23    |  
|                                    |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Total earning assets                |  |                                                      | 5,465 |   |                                                      |   | 2,263  |       |  |   | 7,728  |   |  |      | 2,376 |   |       |   | 935   |   |  |   | 3,311 |  
|                                    |  |                                                      |       |   |                                                      |  
|Interest-Bearing Liabilities:       |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Interest checking                   |  |                                                      | 10    |   |                                                      |   | 24     |       |  |   | 34     |   |  |      | 2     |   |       |   | (32   | ) |  |   | (30   | )
|Savings deposits                    |  |                                                      | (274  | ) |                                                      |   | 201    |       |  |   | (73    | ) |  |      | (59   | ) |       |   | 75    |   |  |   | 16    |  
|Money market accounts               |  |                                                      | (81   | ) |                                                      |   | 422    |       |  |   | 341    |   |  |      | (57   | ) |       |   | 132   |   |  |   | 75    |  
|Large denomination certificates (3) |  |                                                      | 2,029 |   |                                                      |   | 336    |       |  |   | 2,365  |   |  |      | 526   |   |       |   | 164   |   |  |   | 690   |  
|Consumer certificates of deposit    |  |                                                      | (659  | ) |                                                      |   | 2,351  |       |  |   | 1,692  |   |  |      | (7    | ) |       |   | 736   |   |  |   | 729   |  
|Long-term borrowings                |  |                                                      | 1,626 |   |                                                      |   | 261    |       |  |   | 1,887  |   |  |      | 880   |   |       |   | 68    |   |  |   | 948   |  
|                                    |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Total interest-bearing liabilities  |  |                                                      | 2,651 |   |                                                      |   | 3,595  |       |  |   | 6,246  |   |  |      | 1,285 |   |       |   | 1,143 |   |  |   | 2,428 |  
|                                    |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  
|Change in net interest income       |  | $                                                    | 2,814 |   |                                                      | $ | (1,332 | )     |  | $ | 1,482  |   |  | $    | 1,091 |   |       | $ | (208  | ) |  | $ | 883   |  
|                                    |  |                                                      |       |   |                                                      |   |        |       |  |   |        |   |  |      |       |   |       |   |       |   |  |   |       |  

---

Notes:

|(1) | Changes caused by the combination of rate and volume are allocated based on the percentage caused by each.
|--- | ----------------------------------------------------------------------------------------------------------

|(2) | Income and yields are reported on a tax-equivalent basis, assuming a federal tax rate of 34%.
|--- | ---------------------------------------------------------------------------------------------

|(3) | Large denomination certificates are those issued in amounts of $100 thousand or greater.
|--- | ----------------------------------------------------------------------------------------

Interest Sensitivity

Our primary goals in interest rate risk management are to minimize negative fluctuations in net
interest margin as a percentage of earning assets and to increase the dollar amount of net interest income at a growth rate consistent with the growth rate of total assets. These goals are accomplished by managing the interest sensitivity gap, which
is the difference between interest sensitive assets and interest sensitive liabilities in a specific time interval. Interest sensitivity gap is managed by balancing the volume of floating rate liabilities with a similar volume of floating rate
assets, by keeping the average maturity of fixed rate asset and liability contracts reasonably consistent and short, and by routinely adjusting pricing to market conditions on a regular basis.

We generally strive to maintain a position flexible enough to move to equality between rate-sensitive assets and rate-sensitive liabilities, which may be desirable when
there are wide and frequent fluctuations in interest rates. Matching the amount of assets and liabilities maturing in the same time interval helps to hedge interest rate risk and to minimize the impact on net interest income in periods of rising or
falling interest rates. Interest rate gaps are managed through investments, loan pricing and deposit pricing. When an unacceptable positive gap within a one-year time frame occurs maturities can be extended by selling shorter-term investments and
purchasing longer maturities. When an unacceptable negative gap occurs, variable rate loans can be increased and more investment in shorter-term investments can be made. The banking industry traditionally faces funding challenges in an environment
such as that currently in place when the yield curve is flat or inverted.

Managing the interest rate gap has become much more challenging in the rising
rate environment where many depositors have chosen to move funds out of savings and money market accounts and into higher rate, longer maturity certificates of deposit or the securities market. While this customer change in deposit preference
unfavorably impacts the current interest margin, it creates an asset sensitive



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balance sheet in the short-term, as more assets are subject to short-term interest rate increases than the amount of liabilities subject to the same
short-term increases. In a 90 day horizon the Company is asset sensitive, but we are slightly liability sensitive in a one year time frame.

Noninterest
Income

Noninterest income increased by $438 thousand or 9.3% to $5.2 million in 2006 compared to $4.7 million in 2005. Service charges on deposit
accounts, the largest source of noninterest income, increased by $248 thousand or 8.3% from $3.0 million in 2005 to $3.2 million in 2006. Other operating income increased $400 thousand or 26.8% from $1.5 million in 2005 to $1.9 million in 2006.
Service charges benefited from increased fees based on both rate and volume increases. Other operating income included increases of $182 thousand in debit and credit card activity fees, $104 thousand in investment services income, $53 thousand in
EVB Mortgage, Inc. income, $27 thousand in bank owned life insurance income, $23 thousand in title company income and $20 thousand in wire transfer fees. Realized gain on sale of securities decreased $188 thousand to $36 thousand from $224 thousand
in the prior year. We had no gains or losses from other real estate, reflecting good asset quality.

Noninterest income increased $203 thousand or 4.5%
from 2004 to 2005, attributable to a $33 thousand increase in service charges on deposits, a $227 thousand increase in other operating income, a $22 thousand increase in gain on sale of other real estate and a $79 thousand decrease in realized gain
on sale of securities.

The following table shows the components of noninterest income for the periods indicated.



|                                      |  |                         |       |      |   |       |  |   |      
|------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|Noninterest Income:                   |  |                         |      
|                                      | 
|                                      |  | Years Ended December 31
|(dollars in thousands)                |  | 2006                    |       | 2005 |   | 2004 
|Service charges on deposit accounts   |  | $                       | 3,234 |      | $ | 2,986 |  | $ | 2,953
|Gain on available for sale securities |  |                         | 36    |      |   | 224   |  |   | 303  
|Gain on sale of other real estate     |  |                         |      |      |   | 22    |  |   |     
|Other operating income                |  |                         | 1,895 |      |   | 1,495 |  |   | 1,268
|                                      |  |                         |       |      |   |       |  |   |      
|                                      |  | $                       | 5,165 |      | $ | 4,727 |  | $ | 4,524
|                                      |  |                         |       |      |   |       |  |   |      

Noninterest Expense

Total noninterest expense increased $926 thousand or 3.7% during 2006 compared to an increase of $2.5 million or 11.4% during 2005. In total dollars, noninterest expense was $25.8 million in 2006 compared to $24.9 million in 2005. Salaries
and benefits accounted for $567 thousand, or 61.2%, of the total noninterest expense increase. This reflects a fulltime equivalent staff count that did not change during the year. On a year-to-year basis, the 4.0% increase in salaries and benefits,
to $14.7 million in 2006 compared to $14.1 million in 2005, compares to a 10.7% increase in the prior year.

Net occupancy and equipment expense increased
$189 thousand or 5.1% to $3.9 million for 2006, from $3.7 million in 2005. With no major initiatives for most of the year, increases in IT service contracts, IT repairs, software maintenance and rent expense were mostly offset by decreases in
depreciation and equipment service contracts. In early December, we relocated the Airpark branch that was in a strip mall shopping center to a stand- alone office owned by the bank. Depreciation and other higher expenses for this new office will
increase expenses in 2007, but should be offset by increased earnings from an already profitable office.

Other operating expenses increased $170 thousand
or 2.4% to $7.2 million in 2006 from $7.1 million in 2005. This increase was influenced by decreases in consulting fees of $397 thousand and data processing of $313 thousand; offset by increases in marketing and advertising expense of $517 thousand
and other operating expense of $337 thousand. The consulting expense decline was the result of completing the one bank reorganization project in April 2006 and moving into a normal business mode from the Standards of



29



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##### Table of Contents

Excellence project mode of the prior three years. The data processing change was the result of better segmenting expenses in our chart of accounts. Where
many expenses had been paid from the data processing account in the past, new accounts were set up in 2006 to isolate some equipment and software maintenance expenses. These expenses were placed in the occupancy and equipment category and the net
impact between the two categories was an increase of $66 thousand. Marketing and advertising expense was up due to expenses on major awareness efforts in the various communities that we serve that we were merging our predecessor banks and
re-branding as EVB. In addition, the introduction of a new product, Reward Checking, required a heavy advertising campaign. Other expenses increased as a result of higher security expenses from upgrading the security system throughout our Company;
ATM charge-offs as a result of compromised card numbers obtained from merchant data files; miscellaneous lending expenses as a result of loan volume, HELOC costs and increased collection expense and higher internet banking expenses. We expect
increases in these expenses in the future to mirror our growth efforts.

In 2005, total noninterest expense increased $2.5 million or 11.4% compared to an
increase of $3.9 million or 21.1% during 2004. In total dollars, noninterest expense was $24.9 million in 2005 compared to $22.3 million in 2004. Salaries and benefits accounted for $1.4 million, or 53.6%, of the increase. On a year-to-year basis,
salaries and benefits increased 10.7% to $14.1 million in 2005 compared to $12.7 million in 2004. The increase in salaries and benefits was the result of additions to staff related to the opening of the new Central Garage office in late fourth
quarter 2004 and the opening of the Glenns office in June 2005. These two locations added $229 thousand to personnel expense. Other personnel expenses included a $369 thousand or 39.2% increase in pension expense resulting from actuarial estimates
related to market performance, the discount rate used and the prior year staff increases (pension expense growth slowed in 2006 and is expected to remain flat in 2007), a $126 thousand or 7.5% increase in payroll taxes and employee health insurance,
and normal increases in salaries and other benefits. The total number of full time equivalent officers and staff increased by 13 or 4.6% to 296 at year end 2005, compared to 283 at year end 2004. The increase was the result of staff for the new
branch opened in June and minimal increases in customer contact areas.

Net occupancy and equipment expense increased $445 thousand or 13.6% to $3.7
million for 2005, from $3.3 million in 2004. The Central Garage office and the Glenns office contributed $255 thousand to this increase in net occupancy and equipment expense. Other building and equipment expenses have increased as a result of
branch expansion over the last two years and the increases brought on by rising energy prices. The following expenses increased: utilities by $34 thousand; building repairs and maintenance by $37 thousand; rent by $48 thousand; and equipment service
contracts by $33 thousand.

Other operating expenses in 2005 increased $737 thousand or 11.7% to $7.1 million from $6.3 million in 2004. Primary
contributors to this expense growth were increases in: data processing of $107 thousand; consultant fees of $393 thousand; director fees of $99 thousand; and audit and accounting fees of $29 thousand. Data processing fees increased due to expansion
of capacity and other upgrades. Consulting expense grew due to our incurring the last of the Standards of Excellence, Phase II program expense in the first half of the year and incurring some of the one bank consolidation expense in the last quarter
of the year.

The following table shows the components of noninterest expense for the periods indicated.



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|                               |  |                         |        |      |   |        |  |   |       
|------------------------------ |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|Noninterest Expense:           |  |                         |       
|                               | 
|                               |  | Years Ended December 31
|(dollars in thousands)         |  | 2006                    |        | 2005 |   | 2004  
|Salaries and employee benefits |  | $                       | 14,667 |      | $ | 14,100 |  | $ | 12,737
|Occupancy and equipment        |  |                         | 3,906  |      |   | 3,717  |  |   | 3,272 
|Consultant fees                |  |                         | 768    |      |   | 1,165  |  |   | 772   
|Data processing                |  |                         | 441    |      |   | 754    |  |   | 647   
|Printing and supplies          |  |                         | 393    |      |   | 391    |  |   | 629   
|Telephone                      |  |                         | 571    |      |   | 547    |  |   | 479   
|Marketing and advertising      |  |                         | 977    |      |   | 460    |  |   | 454   
|Other operating expenses       |  |                         | 4,096  |      |   | 3,759  |  |   | 3,358 
|                               |  |                         |        |      |   |        |  |   |       
|Total noninterest expense      |  | $                       | 25,819 |      | $ | 24,893 |  | $ | 22,348
|                               |  |                         |        |      |   |        |  |   |       

Income Taxes

Income tax expense in 2006 increased $369 thousand to $2.96 million, compared to $2.59 million in 2005 and $2.63 million in 2004. Income tax expense corresponds to an effective rate of 29.0%, 27.8% and 26.7% for the three years ended
December 31, 2006, 2005, and 2004, respectively. The 120 basis point increase in effective tax rate was primarily due to higher taxable income as our statutory marginal tax rate increased from 34% to 35% and a continued decrease in tax-exempt
income.

Note 9 in the Consolidated Financial Statements provides a reconciliation between the amount of income tax expense computed using the federal
statutory income tax rate and our actual income tax expense. Also included in Note 9 to the Consolidated Financial Statements is information regarding deferred taxes for 2006 and 2005. That Note (which is in Item 8 below) is incorporated by
reference into this section of Managements Discussion and Analysis.

Loan Portfolio

Loans, net of unearned income, increased to $650.5 million at December 31, 2006, an increase of $76.4 million or 13.3% from $574.1 million at year-end 2005. The real
estate loan portfolio increased by $76.3 million, or 16.5%, and the commercial, industrial and agricultural loan portfolio increased by $4.1 million, or 7.4%, while all other loans, primarily consumer loans, continued their downward trend with a
decrease of $4.2 million. Real estate construction loans grew $38.3 million, or 80.4% while commercial real estate loans grew $13.1 million, or 8.6%. The loan growth was driven by the continued economic expansion in the business markets that we
serve. At year-end 2005, loans, net of unearned income, were $574.1 million, up $61.5 million or 12.0% from $512.6 million at year-end 2004. Loan growth in 2005 was primarily in the real estate portfolio which provided an increase of $54.6 million;
commercial, industrial and agricultural loans which increased $9.1 million, while consumer loans decreased $2.9 million.



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The following table shows the composition of the loan portfolio at the dates indicated.



|                                              |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                              |  | At December 31 |        
|(dollars in thousands)                        |  | 2006           |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Commercial, industrial and agricultural loans |  | $              | 59,859  |   |      | $ | 55,732  |      |  | $ | 46,629  |   |  | $    | 55,547  |   |  | $ | 46,926  |  
|Residential real estate mortgage              |  |                | 288,114 |   |      |   | 263,191 |      |  |   | 252,895 |   |  |      | 236,199 |   |  |   | 198,303 |  
|Real estate construction                      |  |                | 85,910  |   |      |   | 47,620  |      |  |   | 23,675  |   |  |      | 20,199  |   |  |   | 15,684  |  
|Commercial real estate                        |  |                | 164,948 |   |      |   | 151,897 |      |  |   | 131,580 |   |  |      | 114,426 |   |  |   | 74,806  |  
|Consumer loans                                |  |                | 51,446  |   |      |   | 55,680  |      |  |   | 58,800  |   |  |      | 62,166  |   |  |   | 66,787  |  
|All other loans                               |  |                | 305     |   |      |   | 321     |      |  |   | 96      |   |  |      | 86      |   |  |   | 191     |  
|                                              |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans                                   |  |                | 650,582 |   |      |   | 574,441 |      |  |   | 513,675 |   |  |      | 488,623 |   |  |   | 402,697 |  
|Less unearned income                          |  |                | (90     | ) |      |   | (356    | )    |  |   | (1,126  | ) |  |      | (1,873  | ) |  |   | (3,563  | )
|                                              |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans net of unearned discount          |  |                | 650,492 |   |      |   | 574,085 |      |  |   | 512,549 |   |  |      | 486,750 |   |  |   | 399,134 |  
|Less allowance for loan losses                |  |                | (7,051  | ) |      |   | (6,601  | )    |  |   | (6,675  | ) |  |      | (6,495  | ) |  |   | (5,748  | )
|                                              |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loans                                     |  | $              | 643,441 |   |      | $ | 567,484 |      |  | $ | 505,874 |   |  | $    | 480,255 |   |  | $ | 393,386 |  
|                                              |  |                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  

Remaining Maturities of Selected Loans

The following table presents loan categories that are particularly sensitive to rate changes:



|                                       |  |               |        |              |       |               |   |       |   |              |  |               |  |       |  |                  |        |  |   |       
|-------------------------------------- |  | ------------- | ------ | ------------ | ----- | ------------- | - | ----- | - | ------------ |  | ------------- |  | ----- |  | ---------------- | ------ |  | - | ------
|Remaining Maturities of Selected Loans
|                                       | 
|Year Ended December 31, 2006           |  |               |       
|(in thousands)                         |  |               |       
|                                       |  | Variable Rate |        | Fixed Rate  
|                                       |  | Within 1 year |        | 1 to 5 years |       | After 5 years |   | Total |   | 1 to 5 years |  | After 5 years |  | Total |  | Total Maturities
|Commercial & Agricultural              |  | $             | 30,722 |              | 3,085 |               |  |       | $ | 3,085        |  | 24,156        |  | 1,896 |  | $                | 26,052 |  | $ | 59,859
|Real Estate Construction               |  | $             | 79,914 |              | 4,938 |               |  |       | $ | 4,938        |  | 353           |  | 705   |  | $                | 1,058  |  | $ | 85,910

Loans secured by real estate comprised approximately 82.9% of our loan portfolio at December 31, 2006. Within
this category, residential real estate mortgages made up 44.3% of the loan portfolio at that date as compared to 45.8% at year-end 2005 and 49.3% at year-end 2004. Commercial real estate loans declined from 26.5% of the total loan portfolio at
year-end 2005 to 25.4% at year-end 2006. Growth in the real estate secured portfolio was in real estate construction loans which grew 80.4% over 2005 balances and accounted for 13.2% of total loans outstanding at year-end 2006 compared to 8.3% at
year-end 2005 and 4.6% at year-end 2004.Our losses on loans secured by real estate have historically been low, averaging $26 thousand in net charge offs per year over the last five years.

Consumer loans are the fifth largest component of our loan portfolio in 2006 comprising 7.9% of the portfolio at year-end 2006 compared to 9.6% at year-end 2005 and
11.4% and 12.7% at year-end 2005 and 2004, respectively. This portfolio component consists primarily of installment loans. Net consumer loans for household, family and other personal expenditures totaled $51.4 million at 2006 year-end, down $4.0
million from $55.7 million at 2005 year-end. Lifestyle changes with emphasis on fast and easy one-step loans have created intense competition for consumer borrowing dollars. This change combined with the automotive industrys various rebate
programs with low rates at the dealer location continue a trend that started in 2002 of decreasing consumer loans both in absolute amount and percentage of the total loan portfolio. Commercial and agricultural loans are designed specifically to meet
the needs of small and medium size business customers. This category of loans increased in total dollars outstanding to $59.9 million at



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December 31, 2006 compared to $55.7 at December 31, 2005. However, due to the growth of real estate construction loans, it comprised only 9.2% of
the total portfolio at year-end 2006 compared to 9.7% at year-end 2005 and 9.1% at year-end 2004. We have made a clear commitment to support small to medium sized business growth as can be seen by the growth in real estate construction and
commercial, industrial and agricultural loans.

Consistent with our focus on providing community-based financial services, we generally do not make loans
outside of our principal market region. We do not engage in foreign lending activities; consequently the loan portfolio is not exposed to the sometimes volatile risk from foreign credits. We further maintain a policy not to originate or purchase
loans classified by regulators as highly leveraged transactions or loans to foreign entities or individuals. Our unfunded loan commitments, excluding credit card lines and letters of credit, at 2006 year-end totaled $82.3 million, the same as
year-end 2005. Unfunded loan commitments (excluding $21.4 million in home equity lines) are used in large part to meet seasonal funding needs which are generally higher from spring through fall than at year-end. Historically, our loan collateral has
been primarily real estate because of the nature of our market region.

Asset Quality

Our allowance for loan losses is an estimate of the amount needed to provide for inherent losses in the loan portfolio. In determining adequacy of the allowance, we consider our historical loss experience, the size
and composition of the loan portfolio, specific impaired loans, the overall level of nonaccrual loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, effects of credit concentrations and economic
conditions. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge offs, net of recoveries. Because the risk of loan loss includes general economic trends as well as conditions affecting
individual borrowers, the allowance for loan losses can only be an estimate. Our ratio of nonperforming assets at year-end 2006 was almost flat at 0.45% compared to 0.44% at December 31, 2005 and down from 0.94% at December 31, 2004. This
measure emphasizes our continued vigilance of our loan portfolio. Actual nonperforming assets increased to $2.9 million at year-end 2006, compared to $2.5 million at year-end 2005. Net charge offs for 2006 decreased $352 thousand or 56.1% to $275
thousand, compared to $627 thousand for the 2005 year.

We have a loan review function consisting of bank officers and board members. Additionally an
independent credit review firm performs a review of loans, including a SFAS No.114 review for determining specific reserves. We utilize a risk-based evaluation system based on loan type, collateral and payment history to determine the amount of the
allowance for loan losses. Management believes the allowance for loan losses to be adequate based on this loan review process and analysis.

Improved asset
quality in 2006 allowed us to lower our loan loss allowance ratio to 1.08% at year-end, compared to 1.15% at December 31, 2005 and 1.30% at year-end 2004, respectively. For the same dates, the loan loss allowance to nonaccrual loans ratio was
504%, 747% and 208%, indicating that the allowance was adequate with respect to nonaccrual loans. The adequacy of the allowance for loan losses is subject to regulatory examinations which may review such factors as the method used to calculate the
allowance and the size of the allowance in comparison to peer companies identified by regulatory agencies.

The following table shows loan charge-offs,
loan recoveries, and loan loss provision for the periods indicated.



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|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|Allowance for Loan Losses                                                  |  |                         |         |  
|                                                                           | 
|                                                                           |  | Years Ended December 31 |        
|(Dollars in thousands)                                                     |  | 2006                    |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|Average loans outstanding, net of unearned income                          |  | $                       | 614,330 |   |      | $ | 537,736 |      |  | $ | 498,568 |   |  | $    | 431,051 |   |  | $ | 379,527 |  
|Allowance for loan losses, January 1                                       |  |                         | 6,601   |   |      |   | 6,676   |      |  |   | 6,495   |   |  |      | 5,748   |   |  |   | 5,234   |  
|Loans charged off:                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and agricultural                                                |  |                         | 37      |   |      |   | 156     |      |  |   | 135     |   |  |      | 130     |   |  |   | 97      |  
|Real estate                                                                |  |                         | 42      |   |      |   | 67      |      |  |   | 56      |   |  |      | 46      |   |  |   | 43      |  
|Consumer                                                                   |  |                         | 691     |   |      |   | 895     |      |  |   | 1,318   |   |  |      | 1,154   |   |  |   | 1,154   |  
|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total loans charged off                                                    |  |                         | 770     |   |      |   | 1,118   |      |  |   | 1,509   |   |  |      | 1,330   |   |  |   | 1,294   |  
|Recoveries:                                                                |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Commercial and agricultural                                                |  |                         | 23      |   |      |   | 66      |      |  |   | 48      |   |  |      | 56      |   |  |   | 10      |  
|Real estate                                                                |  |                         | 23      |   |      |   | 36      |      |  |   | 9       |   |  |      | 4       |   |  |   | 1       |  
|Consumer                                                                   |  |                         | 449     |   |      |   | 389     |      |  |   | 354     |   |  |      | 380     |   |  |   | 282     |  
|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total recoveries                                                           |  |                         | 495     |   |      |   | 491     |      |  |   | 411     |   |  |      | 440     |   |  |   | 293     |  
|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loans charged off                                                      |  |                         | 275     |   |      |   | 627     |      |  |   | 1,098   |   |  |      | 890     |   |  |   | 1,001   |  
|Provision for loan losses                                                  |  |                         | 725     |   |      |   | 552     |      |  |   | 1,279   |   |  |      | 1,637   |   |  |   | 1,515   |  
|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Allowance for loan losses, December 31                                     |  | $                       | 7,051   |   |      | $ | 6,601   |      |  | $ | 6,676   |   |  | $    | 6,495   |   |  | $ | 5,748   |  
|                                                                           |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratios:                                                                    |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratio of allowance for loan losses to total loans outstanding, end of year |  |                         | 1.08    | % |      |   | 1.15    | %    |  |   | 1.30    | % |  |      | 1.33    | % |  |   | 1.44    | %
|Ratio of net charge-offs to average loans outstanding during the year      |  |                         | 0.04    | % |      |   | 0.12    | %    |  |   | 0.22    | % |  |      | 0.21    | % |  |   | 0.26    | %

The following table shows the allocation of allowance for loan losses at the dates indicated.



|                                        |  |                |       |         |        |   |           |      |         |  |        |           |  |         |       |  |           |   |         |   |       |           |        |         |  |   |       |  |        |  
|--------------------------------------- |  | -------------- | ----- | ------- | ------ | - | --------- | ---- | ------- |  | ------ | --------- |  | ------- | ----- |  | --------- | - | ------- | - | ----- | --------- | ------ | ------- |  | - | ----- |  | ------ | -
|Allocation of Allowance for Loan Losses | 
|                                        | 
|                                        |  | At December 31 |      
|                                        |  | 2006           |       |         | 2005   |   |           | 2004 |         |  | 2003   |           |  | 2002    |      
|                                        |  | Allowance      |       | Percent |        |   | Allowance |      | Percent |  |        | Allowance |  | Percent |       |  | Allowance |   | Percent |   |       | Allowance |        | Percent | 
|Commercial and agricultural             |  | $              | 1,061 |         | 9.20   | % |           | $    | 1,893   |  | 9.08   | %         |  | $       | 1,299 |  | 9.08      | % |         | $ | 1,365 |           | 11.41  | %       |  | $ | 1,270 |  | 11.76  | %
|Real estate mortgage                    |  |                | 1,144 |         | 44.29  | % |           |      | 763     |  | 49.22  | %         |  |         | 1,002 |  | 49.22     | % |         |   | 1,375 |           | 48.53  | %       |  |   | 1,206 |  | 49.68  | %
|Real estate construction                |  |                | 1,066 |         | 13.21  | % |           |      | 492     |  | 4.61   | %         |  |         | 206   |  | 4.61      | % |         |   | 246   |           | 4.15   | %       |  |   | 157   |  | 3.93   | %
|Commercial real estate                  |  |                | 2,630 |         | 25.35  | % |           |      | 2,037   |  | 25.62  | %         |  |         | 2,664 |  | 25.62     | % |         |   | 1,455 |           | 23.51  | %       |  |   | 873   |  | 18.74  | %
|Consumer                                |  |                | 949   |         | 7.91   | % |           |      | 1,258   |  | 11.45  | %         |  |         | 1,349 |  | 11.45     | % |         |   | 1,808 |           | 12.39  | %       |  |   | 1,982 |  | 15.84  | %
|Other loans and overdrafts              |  |                | 54    |         | 0.04   | % |           |      |        |  | 0.02   | %         |  |         |      |  | 0.02      | % |         |   |      |           | 0.01   | %       |  |   | 1     |  | 0.05   | %
|                                        |  |                |       |         |        |   |           |      |         |  |        |           |  |         |       |  |           |   |         |   |       |           |        |         |  |   |       |  |        |  
|Total allowance for balance sheet loans |  |                | 6,904 |         | 100.00 | % |           |      | 6,443   |  | 100.00 | %         |  |         | 6,520 |  | 100.00    | % |         |   | 6,249 |           | 100.00 | %       |  |   | 5,489 |  | 100.00 | %
|Unallocated                             |  |                | 147   |         |        |   |           |      | 158     |  |        |           |  |         | 156   |  |           |   |         |   | 246   |           |        |         |  |   | 259   |  |        |  
|                                        |  |                |       |         |        |   |           |      |         |  |        |           |  |         |       |  |           |   |         |   |       |           |        |         |  |   |       |  |        |  
|Total allowance for loan losses         |  | $              | 7,051 |         |        |   |           | $    | 6,601   |  |        |           |  | $       | 6,676 |  |           |   |         | $ | 6,495 |           |        |         |  | $ | 5,748 |  |        |  
|                                        |  |                |       |         |        |   |           |      |         |  |        |           |  |         |       |  |           |   |         |   |       |           |        |         |  |   |       |  |        |  

(Percent is loans in category divided by total loans)

Nonperforming Assets

Total nonperforming assets, consisting of
nonaccrual loans, loans past due 90 days or more, and other real estate owned, increased $365 thousand or 14.4% to $2.9 million at year-end 2006, while total loans outstanding, net of unearned discount, increased $76.4 million or 13.3% to $650.5
million for the same period. This increase only raised the ratio of nonperforming assets to total loans and other real estate at year-end 2006 to 0.45% compared to 0.44% at year-end 2005.



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Nonperforming loans at year-end 2006 consisted of $2.6 million of loans secured by real estate in our market area, $223
thousand of commercial and agricultural loans and $129 thousand of consumer loans. Based on estimated fair values of the related collateral, we consider the nonperforming real estate loans recoverable, with any individual deficiency well covered by
the allowance for loan losses. The total amount of unsecured nonaccrual loans was $172 thousand. Loans are placed on nonaccrual status at the time when the collection of principal and interest are considered to be doubtful. No interest is accrued on
loans placed in a nonaccrual status, and any unpaid interest previously accrued on such loans is reversed when a loan is placed in nonaccrual status. If interest on nonaccrual loans had been accrued, such income would have approximated $45 thousand
and $37 thousand for the years 2006 and 2005, respectively.

The following table shows nonperforming assets at the dates indicated.



|                                                                |  |                 |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|--------------------------------------------------------------- |  | --------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|Nonperforming Assets                                            |  |                 |        |  
|                                                                | 
|                                                                |  | At December 31, |       
|(dollars in thousands)                                          |  | 2006            |        |   | 2005 |   |        | 2004 |  |   | 2003   |   |  | 2002 |       
|Nonaccrual loans                                                |  | $               | 1,400  |   |      | $ | 884    |      |  | $ | 3,217  |   |  | $    | 4,093  |   |  | $ | 3,240  |  
|Restructured loans                                              |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Loans past due 90 days and accruing interest                    |  |                 | 1,504  |   |      |   | 1,655  |      |  |   | 1,614  |   |  |      | 19     |   |  |   | 28     |  
|                                                                |  |                 |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming loans                                       |  |                 | 2,904  |   |      |   | 2,539  |      |  |   | 4,831  |   |  |      | 4,112  |   |  |   | 3,268  |  
|Other real estate owned                                         |  |                 |       |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   | 155    |  
|                                                                |  |                 |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming assets                                      |  | $               | 2,904  |   |      | $ | 2,539  |      |  | $ | 4,831  |   |  | $    | 4,112  |   |  | $ | 3,423  |  
|                                                                |  |                 |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonperforming assets to total loans and other real estate owned |  |                 | 0.45   | % |      |   | 0.44   | %    |  |   | 0.94   | % |  |      | 0.84   | % |  |   | 0.86   | %
|Allowance for loan losses to nonaccrual loans                   |  |                 | 503.52 | % |      |   | 746.72 | %    |  |   | 207.52 | % |  |      | 158.69 | % |  |   | 177.41 | %
|Net charge-offs to average loans for the year                   |  |                 | 0.04   | % |      |   | 0.12   | %    |  |   | 0.22   | % |  |      | 0.21   | % |  |   | 0.26   | %
|Allowance for loan losses to year end loans                     |  |                 | 1.08   | % |      |   | 1.15   | %    |  |   | 1.30   | % |  |      | 1.33   | % |  |   | 1.44   | %
|Foregone interest income on nonaccrual loans                    |  | $               | 45     |   |      | $ | 37     |      |  | $ | 121    |   |  | $    | 131    |   |  | $ | 114    |  

Net charge offs in 2006 decreased to $275 thousand from $627 thousand in 2005. The year 2006 net charge offs
included $242 thousand of consumer loans, $14 thousand of commercial loans and $19 thousand of real estate loans. Although trends for credit quality factors continue to be stable, it is likely that EVB will continue provisions for loan losses in
2007 at a slightly higher level. The primary factors for additional provision are growth in the loan portfolio and the possibility of an economic downturn later in 2007 as noted in many economic forecasts.

At December 31, 2006, we reported $3.7 million in impaired loans of which $1.03 million were included in nonperforming loans. Loans are viewed as impaired based
upon individual evaluations of discounted expected cash flows or collateral valuations. These loans are subject to constant management attention, and their status is reviewed on a regular basis.

Securities

Securities available for sale include those securities
that may be sold in response to changes in market interest rates, changes in the securitys prepayment risk, increases in loan demand, general liquidity needs, and other similar factors, and are carried at estimated fair market value.



35



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At December 31, 2006, the securities portfolio, at fair market value, was $127.2 million, a 6.1% decrease from
$135.4 million at 2005 year-end which was a 1.3% increase from $133.7 million at 2004 year-end. The effect of valuing the available for sale portfolio at market, net of income taxes, is reflected as a line in the Shareholders Equity section of
the Balance Sheet as accumulated other comprehensive income of negative $2.5 million at December 31, 2006 and a negative $1.8 million at 2005 year-end.

We follow a policy of not engaging in activities considered to be derivative in nature such as options, futures, swaps or forward commitments. We consider derivatives to be speculative in nature and contrary to our historical philosophy. We
do not hold or issue financial instruments for trading purposes.

The following table presents the book value and fair value of securities at the dates
indicated.



|                                                        |  |                   |         |                   |   |                   |  |            |         |                |   |            |  |   |         |  |   |        
|------------------------------------------------------- |  | ----------------- | ------- | ----------------- | - | ----------------- |  | ---------- | ------- | -------------- | - | ---------- |  | - | ------- |  | - | -------
|Investment Securities and Securities Available for Sale
|                                                        |  |                   |        
|                                                        |  | December 31, 2006 |         | December 31, 2005 |   | December 31, 2004
|(dollars in thousands)                                  |  | Amortized Cost    |         | Fair Value        |   | Amortized Cost    |  | Fair Value |         | Amortized Cost |   | Fair Value
|Available for sale:                                     |  |                   |         |                   |   |                   |  |            |         |                |   |            |  |   |         |  |   |        
|U. S. Treasury and Agencies                             |  | $                 | 31,596  |                   | $ | 31,132            |  | $          | 29,849  |                | $ | 29,301     |  | $ | 33,434  |  | $ | 33,316 
|Mortgage-backed securities                              |  |                   | 29,253  |                   |   | 28,557            |  |            | 36,010  |                |   | 35,222     |  |   | 28,017  |  |   | 27,988 
|States and political subdivisions                       |  |                   | 32,429  |                   |   | 30,937            |  |            | 35,373  |                |   | 35,795     |  |   | 42,345  |  |   | 43,858 
|Corporate, CMO and other securities                     |  |                   | 30,836  |                   |   | 29,754            |  |            | 31,959  |                |   | 30,183     |  |   | 25,620  |  |   | 25,159 
|Restricted securities                                   |  |                   | 6,787   |                   |   | 6,787             |  |            | 4,919   |                |   | 4,919      |  |   | 3,372   |  |   | 3,372  
|                                                        |  |                   |         |                   |   |                   |  |            |         |                |   |            |  |   |         |  |   |        
|Total securities                                        |  | $                 | 130,901 |                   | $ | 127,167           |  | $          | 138,110 |                | $ | 135,420    |  | $ | 132,788 |  | $ | 133,693
|                                                        |  |                   |         |                   |   |                   |  |            |         |                |   |            |  |   |         |  |   |        

The following table presents the maturity and yields of securities at their amortized cost at the date indicated.



|                                               |  |                       |       |       |                             |   |        |                              |        |  |                                          |        |  |       |        |  |        |   |       |   |        |        |      |       |  |   |         |  |      |  
|---------------------------------------------- |  | --------------------- | ----- | ----- | --------------------------- | - | ------ | ---------------------------- | ------ |  | ---------------------------------------- | ------ |  | ----- | ------ |  | ------ | - | ----- | - | ------ | ------ | ---- | ----- |  | - | ------- |  | ---- | -
|Maturity Distribution and Yields of Securities | 
|                                               | 
|                                               |  | December 31, 2005     |      
|                                               |  | Due in 1 year or less |       |       | Due after 1 through 5 years |   |        | Due after 5 through 10 years |        |  | Due after 10 years and equity securities |        |  | Total |       
|(Dollars in thousands)                         |  | Amount                |       | Yield |                             |   | Amount |                              | Yield  |  |                                          | Amount |  | Yield |        |  | Amount |   | Yield |   |        | Amount |      | Yield | 
|U.S. Treasury and agencies                     |  | $                     | 5,075 |       | 4.19                        | % |        | $                            | 24,836 |  | 4.77                                     | %      |  | $     | 685    |  | 5.00   | % |       | $ | 1,000  |        | 6.25 | %     |  | $ | 31,596  |  | 4.72 | %
|Mortgage-backed securities                     |  |                       | 7     |       | 8.56                        | % |        |                              | 27,491 |  | 4.52                                     | %      |  |       | 1,490  |  | 5.13   | % |       |   | 265    |        | 5.50 | %     |  |   | 29,253  |  | 4.56 | %
|States and political subdivisions (1)          |  |                       | 2,046 |       | 7.09                        | % |        |                              | 15,872 |  | 6.24                                     | %      |  |       | 10,938 |  | 5.98   | % |       |   | 3,573  |        | 6.14 | %     |  |   | 32,429  |  | 6.19 | %
|Corporate, CMO and other securities            |  |                       |      |       | 0.00                        | % |        |                              | 9,653  |  | 5.54                                     | %      |  |       | 15,711 |  | 4.75   | % |       |   | 12,259 |        | 6.54 | %     |  |   | 37,623  |  | 5.57 | %
|                                               |  |                       |       |       |                             |   |        |                              |        |  |                                          |        |  |       |        |  |        |   |       |   |        |        |      |       |  |   |         |  |      |  
|Total securities                               |  | $                     | 7,128 |       | 5.03                        | % |        | $                            | 77,852 |  | 5.08                                     | %      |  | $     | 28,824 |  | 5.24   | % |       | $ | 17,097 |        | 6.42 | %     |  | $ | 130,901 |  | 5.29 | %
|                                               |  |                       |       |       |                             |   |        |                              |        |  |                                          |        |  |       |        |  |        |   |       |   |        |        |      |       |  |   |         |  |      |  

---

|(1) | Yields on tax- exempt securities have been calculated on a tax equivalent basis.
|--- | --------------------------------------------------------------------------------

See Note 3 to the Consolidated Financial Statements.

Deposits

We have historically focused on increasing core deposits to reduce the need for other borrowings to fund growth in earning assets. Core deposits provide a low cost and
stable source of funding for our asset growth. Interest rates paid on deposits are carefully managed to provide an attractive market rate while at the same time not adversely affecting the net interest margin. Borrowing through the Federal Home Loan
Bank of Atlanta is utilized for funding when the cost of borrowed funds falls below the cost of new interest-bearing deposits. Our $25.6 million, or 4.1%, deposit growth in 2006 was less than our loan growth and required us to spend more for
deposits and to borrow from the FHLB to fund loan growth. This continues a trend noted in 2005 and 2004 and is related to the inverted yield curve that has existed over the same time period. Total deposits at December 31, 2006 of $654.0 million
were an increase from $628.3 million at 2005 year-end. Noninterest-bearing deposits decreased slightly by $465 thousand or 0.5% to $99.3 million at 2006 year-end compared to $99.7 million at December 31, 2005. During the same period,
interest-bearing deposits increased 4.9% to $554.7 million at 2006 year-end, compared to $528.6 million at December 31, 2005.



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##### Table of Contents

While these figures represent the balances at December 31, 2006 or 2005, it is more meaningful to review average
deposits for the year, which reflect how much we are really funding over the year. For 2006, average total deposits of $632.9 million reflected a 4.6% increase over the 2005 average of $605.1 million. Average deposits for 2006, while up overall,
showed a definite movement out of lower priced deposits into higher paying funds. Savings and money market savings accounts decreased $22.9 million, or 18.7%, and $6.4 million, or 12.5%, respectively. Large dollar and regular certificates of deposit
increased $24.0 million, or 30.1%, and $25.2 million, or 14.1%, respectively. Interest bearing checking (NOW) accounts increased $2.0 million, or 2.5%, in 2006 compared to a decline in 2005 from 2004. This increase can be attributed to a new product
introduced late in the third quarter that pays a higher interest rate. Demand deposit average balances increased $5.8 million, or 6.3%, in 2006. This follows a pattern that we expected to see in 2006 given the high rate environment imposed by the
Federal Reserve over the last couple of years. We anticipate this tight margin situation to remain until the Federal Reserve begins lowering interests rate possibly in the second half of 2007.

Total deposits at 2005 year-end of $628.3 million reflected an increase of $38.5 million or 6.5% compared to $589.9 million at 2004 year-end. The deposit growth in 2005
was the result of increases in large certificates of deposit and demand deposits. All other deposit categories declined in 2005. Average deposits for 2005 were $605.1 million, an increase of 2.1%, or $12.7 million, compared to 2004 average deposits
of $592.4 million.

The following table presents average deposits balances and rates for the periods indicated:



|                                        |  |                         |         |      |      |   |        |      |         |  |      |        |  |      |         |  |      |  
|--------------------------------------- |  | ----------------------- | ------- | ---- | ---- | - | ------ | ---- | ------- |  | ---- | ------ |  | ---- | ------- |  | ---- | -
|Average Deposits and Rates Paid         |  |                         |         |     
|                                        | 
|                                        |  | Years Ended December 31 |        
|                                        |  | 2006                    |         |      | 2005 |   |        | 2004 |        
|(dollars in thousands)                  |  | Amount                  |         | Rate |      |   | Amount |      | Rate    |  |      | Amount |  | Rate |        
|Noninterest bearing demand deposits     |  | $                       | 99,213  |      |      |   |        | $    | 93,376  |  |      |        |  | $    | 83,841  |  |      |  
|Interest-bearing deposits:              |  |                         |         |      |      |   |        |      |         |  |      |        |  |      |         |  |      |  
|Checking (NOW accounts)                 |  |                         | 80,962  |      | 0.53 | % |        |      | 78,953  |  | 0.50 | %      |  |      | 79,094  |  | 0.54 | %
|Money market accounts                   |  |                         | 45,006  |      | 2.08 | % |        |      | 51,451  |  | 1.16 | %      |  |      | 57,103  |  | 0.91 | %
|Regular savings accounts                |  |                         | 99,509  |      | 1.25 | % |        |      | 122,373 |  | 1.07 | %      |  |      | 128,041 |  | 1.01 | %
|Large denomination certificates (1) (2) |  |                         | 103,789 |      | 4.34 | % |        |      | 79,782  |  | 3.53 | %      |  |      | 64,611  |  | 3.29 | %
|Other certificates of deposit (2)       |  |                         | 204,440 |      | 3.92 | % |        |      | 179,198 |  | 3.15 | %      |  |      | 179,748 |  | 2.88 | %
|                                        |  |                         |         |      |      |   |        |      |         |  |      |        |  |      |         |  |      |  
|Total interest-bearing                  |  |                         | 533,706 |      | 2.83 | % |        |      | 511,757 |  | 2.10 | %      |  |      | 508,597 |  | 1.83 | %
|                                        |  |                         |         |      |      |   |        |      |         |  |      |        |  |      |         |  |      |  
|Total average deposits                  |  | $                       | 632,919 |      |      |   |        | $    | 605,133 |  |      |        |  | $    | 592,438 |  |      |  
|                                        |  |                         |         |      |      |   |        |      |         |  |      |        |  |      |         |  |      |  

---

|(1) | Certificates issued in amounts of $100,000 or greater
|--- | -----------------------------------------------------

|(2) | Includes some brokered deposits
|--- | -------------------------------

The following table presents the
maturity schedule of large denomination certificates at the dates indicated:



|                                                                 |  |                 |        |             |   |           |  |              |        |       |   |        |  |   |        
|---------------------------------------------------------------- |  | --------------- | ------ | ----------- | - | --------- |  | ------------ | ------ | ----- | - | ------ |  | - | -------
|Maturities of Large Denomination Certificates of Deposit (1) (2)
|                                                                 |  |                 |        |             |  
|(dollars in thousands)                                           |  | Within 3 Months |        | 3-12 Months |   | 1-3 Years |  | Over 3 Years |        | Total
|                                                                 |  |                 |        |            
|At December 31, 2006                                             |  | $               | 17,534 |             | $ | 80,486    |  | $            | 12,222 |       | $ | 6,880  |  | $ | 117,122
|At December 31, 2005                                             |  | $               | 5,519  |             | $ | 35,800    |  | $            | 30,325 |       | $ | 19,356 |  | $ | 91,000 
|At December 31, 2004                                             |  | $               | 9,997  |             | $ | 19,153    |  | $            | 22,745 |       | $ | 12,623 |  | $ | 64,518 

---

|(1) | Certificates issued in amounts of $100,000 or greater
|--- | -----------------------------------------------------

|(2) | Includes some brokered deposits
|--- | -------------------------------



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##### Table of Contents

Capital Resources

Capital resources are managed to maintain a capital structure that provides us the ability to support asset growth, absorb potential losses and expand our franchise when appropriate. Capital represents original investment by shareholders
plus retained earnings and provides financial resources over which we can exercise greater control as compared to deposits and borrowed funds.

Regulatory
authorities have adopted guidelines to establish minimum capital standards. Specifically, the guidelines classify assets and balance sheet items into four risk-weighted categories. The minimum regulatory total capital to risk-weighted assets is
8.0%, of which at least 4.0% must be Tier 1 capital, defined as common equity and retained earnings, plus trust preferred debt up to 25% of Tier 1 capital, less goodwill and intangibles. At December 31, 2006, we had a total capital ratio of
16.15% and a Tier 1 ratio of 11.57%, both far in excess of regulatory guidelines and the amount needed to support our banking business.

Capital is
carefully managed as the financial opportunities of a high capital base are weighed against the impact of the return on equity ratio. In January 2001, we announced a stock repurchase program intended to reduce high capital levels and to increase
return on equity to shareholders. We repurchased no shares in 2006 or 2005 and 9,345 shares in 2004.

In December 2006, we completed an offering of our
common stock. We sold 1.15 million shares and received over $23.5 million (net proceeds) in new capital. The purpose of the offering was to bolster our capital position and position us for continued growth.



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##### Table of Contents

The following table provides an analysis of our capital as of December 31, 2006, 2005, and 2004. Note 19 in the
Consolidated Financial Statements presents an analysis of the capital position of both our Company and EVB as of year-end 2006, 2005 and 2004:



|                                       |  |                 |         |   |      |   |         |      |  |   |         |  
|-------------------------------------- |  | --------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Analysis of Capital                    | 
|                                       | 
|                                       |  | At December 31, |        
|(dollars in thousands)                 |  | 2006            |         |   | 2005 |   |         | 2004 | 
|Tier 1 capital:                        |  |                 |         |   |      |   |         |      |  |   |         |  
|Common stock                           |  | $               | 12,166  |   |      | $ | 9,812   |      |  | $ | 9,763   |  
|Surplus                                |  |                 | 21,276  |   |      |   |        |      |  |   |        |  
|Retained earnings                      |  |                 | 58,731  |   |      |   | 53,838  |      |  |   | 49,403  |  
|                                       |  |                 |         |   |      |   |         |      |  |   |         |  
|Total equity                           |  |                 | 92,173  |   |      |   | 63,650  |      |  |   | 59,166  |  
|Trust preferred debt                   |  |                 | 10,000  |   |      |   | 10,000  |      |  |   | 10,000  |  
|Less goodwill and intangibles          |  |                 | (6,776  | ) |      |   | (7,056  | )    |  |   | (7,335  | )
|                                       |  |                 |         |   |      |   |         |      |  |   |         |  
|Total Tier 1 capital                   |  |                 | 95,397  |   |      |   | 66,594  |      |  |   | 61,831  |  
|                                       |  |                 |        
|Tier 2 capital:                        |  |                 |         |   |      |   |         |      |  |   |         |  
|Allowance for loan losses              |  |                 | 7,051   |   |      |   | 6,601   |      |  |   | 6,134   |  
|                                       |  |                 |         |   |      |   |         |      |  |   |         |  
|Total risk-based capital               |  |                 | 102,448 |   |      |   | 73,195  |      |  |   | 67,965  |  
|                                       |  |                 |        
|Risk-weighted assets                   |  |                 | 634,287 |   |      |   | 553,167 |      |  |   | 490,196 |  
|                                       |  |                 |        
|Capital ratios:                        |  |                 |         |   |      |   |         |      |  |   |         |  
|Tier 1 risk based capital              |  |                 | 15.04   | % |      |   | 12.04   | %    |  |   | 12.61   | %
|Total risk based capital               |  |                 | 16.15   | % |      |   | 13.23   | %    |  |   | 13.86   | %
|Tier 1 capital to average total assets |  |                 | 11.57   | % |      |   | 8.87    | %    |  |   | 8.90    | %

Off -Balance Sheet Arrangements

At December 31, 2006, we had $94.2 million of off-balance sheet credit exposure in the form of $89.1 million of commitments to grant loans and unfunded commitments under lines of credit and $5.1 million of
standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by us, is based on our credit evaluation of the customer.

Unfunded commitments under commercial lines of credit,
revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit are usually uncollateralized and do not always contain a specified maturity date and may
not be drawn upon to the total extent to which we are committed.

Standby letters of credit are conditional commitments issued by us to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We generally hold collateral supporting those commitments if deemed
necessary.

Liquidity

Liquidity represents an
institutions ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, deposits with other
banks, federal funds sold, investments and loans maturing or repricing within one year. Our management of liquid assets provides a liquidity level that we believe is sufficient to satisfy our depositors requirements and to meet our
customers credit needs. At December 31, 2006, $209.4 million or 31.1% of total earning assets were due to mature or reprice within the next year.



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We also maintain additional sources of liquidity through a variety of borrowing arrangements. Federal funds borrowing
arrangements with major regional banks combined with immediately available lines of credit with the Federal Home Loan Bank totaled $99.0 million at December 31, 2006. At year-end 2006, we had $90.5 million of FHLB borrowings outstanding. During
2006, we executed a net of $40.0 million in new FHLB borrowings and paid down principal of $1.4 on preexisting FHLB borrowings.

The following table
presents our contractual obligations and scheduled payment amounts due at various intervals over the next five years and beyond.



|                            |  |                        |         |                  |   |           |  |           |       |              |   |        |  |   |       
|--------------------------- |  | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ----- | ------------ | - | ------ |  | - | ------
|As of 12/31/2006            |  | Payments Due by Period
|                            |  | Total                  |         | Less than 1 year |   | 1-3 years |  | 3-5 years |       | Over 5 years
|Long-term debt (1)          |  |                        | 100,810 |                  | $ | 1,429     |  | $         | 2,858 |              | $ | 25,713 |  | $ | 70,810
|Capital lease obligations   |  |                        |        |                  |   |          |  |           |      |              |   |       |  |   |      
|Operating leases            |  |                        | 1,477   |                  |   | 267       |  |           | 517   |              |   | 448    |  |   | 245   
|Purchase obligations        |  |                        |        |                  |   |          |  |           |      |              |   |       |  |   |      
|Other long-term liabilities |  |                        |        |                  |   |          |  |           |      |              |   |       |  |   |      
|                            |  |                        |         |                  |   |           |  |           |       |              |   |        |  |   |       
|Total                       |  | $                      | 102,287 |                  | $ | 1,696     |  | $         | 3,375 |              | $ | 26,161 |  | $ | 71,055
|                            |  |                        |         |                  |   |           |  |           |       |              |   |        |  |   |       

---

|(1) | Composed of FHLB advances and Trust Prefered debt
|--- | -------------------------------------------------

Inflation

In financial institutions, unlike most manufacturing companies, virtually all of the assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on a banks performance than the effects of general levels of inflation. Interest rate movement is not necessarily tied to movements in the same direction or with the same magnitude as the prices of
goods and services, since such prices are affected by inflation to a larger extent than interest rates.

Accounting Rule Changes

Refer to Note 1 of the audited financial statements for Recent Accounting Pronouncements.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Our market risk is composed primarily of
interest rate risk. We are responsible for reviewing the interest rate sensitivity position of EVB and establishing policies to monitor and limit exposure to interest rate risk. The Board of Directors reviews guidelines established by Management. It
is our policy not to engage in activities considered to be derivative in nature such as futures, option contracts, swaps, caps, floors, collars or forward commitments. We consider derivatives as speculative which is contrary to our historical or
prospective philosophy. We do not hold or issue financial instruments for trading purposes. We do hold in our loan and securities portfolios investments that adjust or float according to changes in index rates which is not considered speculative,
but necessary for good asset/liability management.

Asset/Liability Risk Management: The primary goals of asset/liability risk management are to
maximize net interest income and the net value of our future cash flows within the interest rate limits set by our Asset/Liability Committee (ALCO).

Interest Rate Risk Measurement:Interest rate risk is monitored through the use of three complementary measures: static gap analysis, earnings simulation modeling and net present value estimation. While each of the interest rate risk
measurements has limitations, taken together they represent a reasonably comprehensive view of the magnitude of our interest rate risk, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to
changes in certain interest rate relationships.



40



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##### Table of Contents

Static Gap:Gap analysis measures the amount of repricing risk embedded in the balance sheet at a point in time.
It does so by comparing the differences in the repricing characteristics of assets and liabilities. A gap is defined as the difference between the principal amount of assets and liabilities, adjusted for off-balance sheet instruments, which reprice
within a specific time period. The cumulative one-year gap at year-end was a negative 8.65% which is within the policy limit for the one-year gap of plus 15% to minus 15% of total earning assets at a combined Company level.

Core deposits and loans with noncontractual maturities are included in the gap repricing distributions based upon historical patterns determined by statistical analysis,
based upon industry accepted assumptions including the most recent core deposit defaults set forth by the FFIEC (Federal Financial Institutions Examination Council). The gap repricing distributions include principal cash flows from residential
mortgage loans and mortgage-backed securities in the time frames in which they are expected to be received. Mortgage prepayments are estimated by applying industry median projections of prepayment speeds to portfolio segments based on coupon range
and loan age.

Earnings Simulation:The earnings simulation model forecasts one-year net income under a variety of scenarios that incorporate
changes in the absolute level of interest rates, changes in the shape of the yield curve and changes in interest rate relationships. Management evaluates the effects on income of alternative interest rate scenarios against earnings in a stable
interest rate environment. This type of analysis is also most useful in determining the short-run earnings exposures to changes in customer behavior involving loan payments and deposit additions and withdrawals.

The most recent earnings simulation model projects net income would decrease approximately 9.98% of stable rate or base net income if rates were to fall immediately by
200 basis points. It projects a decrease of approximately 1.08% if rates rise by 200 basis points. Management believes this reflects an asset sensitive interest risk for the one-year horizon although an alternative calculation indicates an asset
sensitive position in a 90 day horizon and a slightly liability sensitive position in a one year horizon.

This dynamic simulation model includes
assumptions about how the balance sheet is likely to evolve through time, in different interest rate environments. Loan and deposit growth rate assumptions are derived from historical analysis and managements outlook, as are the assumptions
used to project yields and rates for new loans and deposits. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loan prepayment assumptions are developed from industry median
estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Noncontractual deposit growth rates and pricing are assumed to follow historical patterns. The sensitivities of key assumptions are analyzed at least annually
and reviewed by management.

Net Present Value:The Net Present Value (NPV) of the balance sheet, at a point in time, is defined
as the discounted present value of asset cash flows minus the discounted value of liability cash flows. Interest rate risk analysis using NPV involves changing the interest rates used in determining the cash flows and in discounting the cash flows.
The resulting percentage change in NPV is an indication of the longer term repricing risk and options embedded in the balance sheet.

At year-end, a 200
basis point immediate increase in rates is estimated to decrease NPV by 5.04%. Additionally, NPV is estimated to decrease by 6.40% if rates fall immediately by 200 basis points. Analysis of the average quarterly change in the Treasury yield curve
over the past ten years indicates that a parallel curve shift of 200 basis points or more is an event that has less than a 0.1% chance of occurrence.

As
with gap analysis and earnings simulation modeling, assumptions about the timing and variability of balance sheet cash flows are



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##### Table of Contents

critical in NPV analysis. Particularly important are the assumptions driving mortgage prepayments and the assumptions about expected attrition of the core
deposit portfolios. These assumptions are applied consistently across the different rate risk measures.

Summary information about interest
rate risk measures is presented below:



|                                         |  |       |   |  |        |  
|---------------------------------------- |  | ----- | - |  | ------ | -
|                                         |  | 2006  |   |  | 2005   |  
|Static 1Year Cumulative Gap             |  | -8.65 | % |  | 1.35   | %
|1Year net income simulation projection: |  |       |   |  |        |  
|-200 basis point shock vs. stable rate   |  | -9.98 | % |  | -8.55  | %
|+ 200 basis point shock vs. stable rate  |  | -1.08 | % |  | 0.96   | %
|Static net present value change:         |  |       |   |  |        |  
|-200 basis point shock vs. stable rate   |  | -6.40 | % |  | 9.51   | %
|+ 200 basis point shock vs. stable rate  |  | -5.04 | % |  | -23.61 | %



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

The following financial statements are filed as a part of this report following item 15:



| |  | Report of Independent Registered Public Accounting Firm
|- |  | -------------------------------------------------------



| |  | Consolidated Balance Sheets as of December 31, 2006 and 2005
|- |  | ------------------------------------------------------------



| |  | Consolidated Statements of Income for the three years ended December 31, 2006
|- |  | -----------------------------------------------------------------------------



| |  | Consolidated Statements of Changes in Shareholders Equity for the three years ended December 31, 2006
|- |  | ------------------------------------------------------------------------------------------------------



| |  | Consolidated Statements of Cash Flows for the three years ended December 31, 2006
|- |  | ---------------------------------------------------------------------------------



| |  | Notes to Consolidated Financial Statements
|- |  | ------------------------------------------



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
|------- | -------------------------------------------------------------------------------------

None.



|Item 9A. | Controls and Procedures
|-------- | -----------------------

Disclosure
Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide assurance that the information required to be
disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission. An evaluation of the effectiveness
of the design and operations of our disclosure controls and procedures at the end of the period covered by this report was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer. Based on such evaluation, such officers concluded that the Companys disclosure controls and procedures were effective as of the end of such period.

Managements Report on Internal Control Over Financial Reporting

The management of Eastern Virginia
Bankshares, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934). Our internal control



42



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over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our Companys financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2006, management has assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on the assessment, management determined that the
we maintained effective internal control over financial reporting as of December 31, 2006, based on those criteria.

Yount, Hyde and Barbour, P.C.,
the independent registered public accounting firm that audited our consolidated financial statements, included in this Annual Report on Form 10-K, has issued an attestation report on managements assessment of the effectiveness of the our
internal control over financial reporting as of December 31, 2006. The report, which states an unqualified opinion on managements assessment and on the effectiveness of our internal control over financial reporting as of December 31,
2006, is incorporated by reference in Item 8 above, under the heading Report of Independent Registered Public Accounting Firm.

No changes
were made in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

None.

PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The response to this Item is incorporated by reference to the information under the caption Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in EVBs Proxy
Statement for the 2007 annual meeting of shareholders, and for executive officers is listed below:

Executive Officers of the Registrant

Following are the persons who are currently executive officers of EVB, their ages as of December 31, 2006, their current titles and positions
held during the last five years:

Joe A. Shearin, 50, joined our Company in 2001 as the president and chief executive officer of Southside Bank until 2006
when he became president and chief executive officer of EVB. Mr. Shearin became the president and chief executive officer of our Company in 2002.

William E. Martin, Jr., 57, has served as executive vice president  commercial banking of EVB since September, 2006. From April 2006 to September 2006, Mr. Martin was regional president of EVB. Mr. Martin served as the
president and chief executive officer of Hanover Bank from 2000 when it began operations until it merged into EVB in 2006. Mr. Martin also serves as chairman of EVB Investments, Inc.

Joseph H. James, 51, has been executive vice president of EVB and chief operations officer of our Company since April 2006. Mr. James joined us in 2000 as vice
president and operations manager. From April 2002 until November 2002, Mr. James was our vice president and chief operations officer. From November 2002 through April 2006, Mr. James was our senior vice president and chief operations
officer.



43



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Ronald L. Blevins, 62, has been our chief financial officer since 2000. He served as our senior vice president from
December 2000 until April 2006. In April 2006, he was named an executive vice president of EVB.

J. Lloyd Railey, 56, joined Southside Bank in 2001 as its
chief financial officer. He was our senior vice president and risk management officer from 2002 until April 2006 when he was named our chief risk officer and executive vice president of EVB.

James S. Thomas, 52, joined Southside Bank in 2003 as senior vice president and retail banking manager. In 2005, he became executive vice president and chief operating
officer of Southside Bank and served in that position through April 2006. In April 2006, Mr. Thomas became executive vice president  retail banking of EVB. Prior to joining Southside Bank, Mr. Thomas was vice president of South Trust
from 2002 to 2003. Mr. Thomas was also senior vice president and senior credit officer of Bank of Richmond from 2001 to 2002.

The Audit Committee is
composed of five independent directors with Chairman Leslie E. Taylor, CPA fulfilling the applicable standard as an independent audit committee financial expert.

The Board of Directors has approved a Code of Ethics for all directors, officers and staff of our Company and its subsidiaries. The Code of Ethics is designed to promote honest and ethical conduct, proper disclosure of financial information
in our periodic reports, and compliance with applicable laws, rules, and regulations by our senior officers who have financial responsibilities. The Code of Ethics is available on our web page at www.bankevb.com.



|Item 11. | Executive Compensation
|-------- | ----------------------

The response to this
Item is incorporated by reference to the information under the captions Executive Compensation and Director Compensation in EVBs Proxy Statement for the 2007 annual meeting of shareholders.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The response to this Item is incorporated by reference to the information under the captions Ownership of Stock and Executive Compensation in our
Proxy Statement for the 2007 annual meeting of shareholders.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

The response to this Item is incorporated by reference to the information under the captions Corporate Governance and the Board of Directors, including the statement on independence of directors and
Transactions with Management in our Proxy Statement for the 2007 annual meeting of shareholders.



|Item 14. | Principal Accounting Fees and Services
|-------- | --------------------------------------

The
response to this Item is incorporated by reference to the information under the caption Fees of Independent Registered Public Accounting Firm and Pre-Approved Services in EVBs Proxy Statement for the 2007 annual meeting
of shareholders.



44



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##### Table of Contents

PART IV



|Item 15. | Exhibits, Financial Statement Schedules
|-------- | ---------------------------------------

(a)(1) The
response to this portion of Item 15 is included in Item 8 above.

(a)(2) The response to this portion of Item 15 is included in Item 8
above.

(a)(3) Exhibits

The following exhibits are filed as
part of this Form 10-K and this list includes the Exhibit Index.



|              |  |                                                                                                                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                  
|3.1           |  | Articles of Incorporation of Eastern Virginia Bankshares, Inc., attached as Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 1997, incorporated
herein by reference.                                                      
|              | 
|3.2           |  | Bylaws of Eastern Virginia Bankshares, Inc., as amended June 17, 2004, attached as Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2004
incorporated herein by reference.                                               
|              | 
|10.1          |  | Eastern Virginia Bankshares, Inc. 2003 Stock Incentive Plan, included in the Companys 2003 Proxy Statement, as filed with the Commission on March 24, 2003, incorporated herein by
reference. *                                                                 
|              | 
|10.2          |  | Employment Agreement dated as of January 6, 2003, between Eastern Virginia Bankshares, Inc. and Joe A. Shearin, attached as Exhibit 10.2 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2002, incorporated herein by reference. *   
|              | 
|10.3          |  | Employment Agreement dated as of January 6, 2003, between Eastern Virginia Bankshares, Inc. and Ronald L. Blevins, attached as Exhibit 10.3 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2002, incorporated herein by reference. *
|              | 
|10.4          |  | Employment Agreement dated as of January 6, 2003, between Eastern Virginia Bankshares, Inc. and Joseph H. James, attached as Exhibit 10.4 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2002, incorporated herein by reference. *  
|              | 
|10.5          |  | Employment Agreement dated as of March 25, 2004, between Hanover Bank and William E. Martin Jr, attached as Exhibit 10.5 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2004, incorporated herein by reference. *                   
|              | 
|10.7          |  | Employment Agreement dated as of June 6, 2005, between Eastern Virginia Bankshares, Inc. and J. Lloyd Railey. *                                                                                                                                                  
|              | 
|13.1          |  | Excerpt from the 2006 Annual Report to Shareholders with respect to Market for the Companys Common Stock.                                                                                                                                                       
|              | 
|13.2          |  | Excerpt from the 2006 Annual Report to Shareholders with respect to Selected Financial Data.                                                                                                                                                                     
|              | 
|14.1          |  | Code of Conduct and Business Ethics, attached as Exhibit 14 to the Companys Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by
reference.                                                                                  
|              | 
|21.1          |  | Subsidiaries of Eastern Virginia Bankshares, Inc.                                                                                                                                                                                                                
|              | 
|23.1          |  | Consent of Yount, Hyde & Barbour, P.C.                                                                                                                                                                                                                           
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer                                                                                                                                                                                                          
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer                                                                                                                                                                                                          
|              | 
|32.1          |  | Section 906 Certification of Chief Executive Officer                                                                                                                                                                                                             
|              | 
|32.2          |  | Section 906 Certification of Chief Financial Officer                                                                                                                                                                                                             

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

(b) Exhibits  See exhibit index included in Item 15(a)(3) above.



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(c) Financial Statement Schedules  See Item 15(a)(2) above.

(All exhibits not incorporated herein by reference are attached as exhibits to the Companys Annual Report on Form 10-K for the year ended December 31, 2006,
as filed with the Securities and Exchange Commission.)

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                                  |  |                         |  |  |  |  |  |       |  |              
|--------------------------------- |  | ----------------------- |  |  |  |  |  | ----- |  | -------------
|Eastern Virginia Bankshares, Inc. |  |                        
|                                  |  |                         |  |  | 
|By                                |  | /s/ Ronald L. Blevins   |  |  |  |  |  | Date: |  | March 1, 2007
|                                  |  | Ronald L. Blevins       |  |  |  |  |  |       |  |              
|                                  |  | Chief Financial Officer |  |  |  |  |  |       |  |              

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on March 1, 2007.



|                          |  |  |  |                                                    |  | 
|------------------------- |  |  |  | -------------------------------------------------- |  | 
|Signature                 |  |  |  | Title                                              |  | 
|                          |  |  | 
|/s/ W. Rand Cook          |  |  |  | Chairman of the Board of Directors                 |  | 
|W. Rand Cook              |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ F. L. Garrett, III    |  |  |  | Vice Chairman of the Board of Directors            |  | 
|F.L. Garrett, III         |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Joe A. Shearin        |  |  |  | President and Chief Executive Officer and Director |  | 
|Joe A. Shearin            |  |  |  | (Principal Executive Officer)                      |  | 
|                          |  |  | 
|/s/ Ira C. Harris         |  |  |  | Director                                           |  | 
|Ira C. Harris             |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ F. Warren Haynie, Jr. |  |  |  | Director                                           |  | 
|F. Warren Haynie, Jr.     |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ William L. Lewis      |  |  |  | Director                                           |  | 
|William L. Lewis          |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Charles R. Revere     |  |  |  | Director                                           |  | 
|Charles R. Revere         |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Howard R. Straughan   |  |  |  | Director                                           |  | 
|Howard R. Straughan       |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Leslie E. Taylor      |  |  |  | Director                                           |  | 
|Leslie E. Taylor          |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Jay T. Thompson       |  |  |  | Director                                           |  | 
|Jay T. Thompson           |  |  |  |                                                    |  | 
|                          |  |  | 
|/s/ Ronald L. Blevins     |  |  |  | Chief Financial Officer                            |  | 
|Ronald L. Blevins         |  |  |  | (Principal Financial and Accounting Officer)       |  | 



46



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LOGO

To the Shareholders and Board of Directors

Eastern Virginia Bankshares, Inc.

Tappahannock, Virginia

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance
sheets of Eastern Virginia Bankshares, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders equity, and cash flows for the years ended December 31, 2006,
2005 and 2004. We also have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting appearing under Item 9A, that Eastern Virginia Bankshares, Inc. maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Eastern Virginia Bankshares, Inc. and subsidiaries management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on these financial statements, an opinion on managements assessment, and an opinion on the effectiveness of Eastern Virginia Bankshares, Inc. and subsidiaries
internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes



50



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in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Eastern Virginia Bankshares,
Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended December 31, 2006, 2005 and 2004 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, managements assessment that Eastern Virginia Bankshares, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all
material respects, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, Eastern Virginia Bankshares,
Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

As described in Note 10 to the consolidated financial statements, on December 31,
2006, Eastern Virginia Bankshares, Inc. changed its method of accounting for its pension plan to adopt FASB Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans.

LOGO

Winchester, Virginia

March 1, 2007



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2006 and 2005



|                                                                                                                                      |  |                        |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                      |  | (dollars in thousands) |        
|                                                                                                                                      |  | 2006                   |         |   | 2005 |  
|Assets                                                                                                                                |  |                        |         |   |      |   |         |  
|                                                                                                                                      |  |                       
|Cash and due from banks                                                                                                               |  | $                      | 14,004  |   |      | $ | 21,516  |  
|Federal funds sold                                                                                                                    |  |                        | 22,411  |   |      |   |        |  
|Securities available for sale, at fair value                                                                                          |  |                        | 127,167 |   |      |   | 135,420 |  
|Loans, net of allowance for loan losses of $7,051 in 2006 and $6,601 in 2005                                                          |  |                        | 643,441 |   |      |   | 567,484 |  
|Deferred income taxes                                                                                                                 |  |                        | 4,498   |   |      |   | 2,820   |  
|Bank premises and equipment, net                                                                                                      |  |                        | 16,906  |   |      |   | 15,147  |  
|Accrued interest receivable                                                                                                           |  |                        | 4,132   |   |      |   | 3,583   |  
|Goodwill                                                                                                                              |  |                        | 5,725   |   |      |   | 5,725   |  
|Other assets                                                                                                                          |  |                        | 13,114  |   |      |   | 12,231  |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total assets                                                                                                                          |  | $                      | 851,398 |   |      | $ | 763,926 |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Liabilities and Shareholders Equity                                                                                                  |  |                        |         |   |      |   |         |  
|                                                                                                                                      |  |                       
|Liabilities                                                                                                                           |  |                        |         |   |      |   |         |  
|Noninterest-bearing demand accounts                                                                                                   |  | $                      | 99,253  |   |      | $ | 99,718  |  
|Interest bearing deposits                                                                                                             |  |                        | 554,726 |   |      |   | 528,625 |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total deposits                                                                                                                        |  |                        | 653,979 |   |      |   | 628,343 |  
|Federal funds purchased                                                                                                               |  |                        |        |   |      |   | 6,822   |  
|Federal Home Loan Bank Advances                                                                                                       |  |                        | 90,500  |   |      |   | 51,928  |  
|Trust preferred debt                                                                                                                  |  |                        | 10,310  |   |      |   | 10,310  |  
|Accrued interest payable                                                                                                              |  |                        | 2,278   |   |      |   | 1,264   |  
|Other liabilities                                                                                                                     |  |                        | 6,524   |   |      |   | 3,385   |  
|Commitments and contingent liabilities                                                                                                |  |                        |        |   |      |   |        |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total liabilities                                                                                                                     |  |                        | 763,591 |   |      |   | 702,052 |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Shareholders Equity                                                                                                                  |  |                        |         |   |      |   |         |  
|Common stock of $2 par value per share; authorized 50,000,000 shares; issued and outstanding, 6,083,294 in 2006 and 4,905,701 in
2005 |  |                        | 12,166  |   |      |   | 9,812   |  
|Surplus                                                                                                                               |  |                        | 21,276  |   |      |   |        |  
|Retained earnings                                                                                                                     |  |                        | 58,731  |   |      |   | 53,838  |  
|Accumulated other comprehensive income/(loss), net                                                                                    |  |                        | (4,366  | ) |      |   | (1,776  | )
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total shareholders equity                                                                                                            |  |                        | 87,807  |   |      |   | 61,874  |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  
|Total liabilities and shareholders equity                                                                                            |  | $                      | 851,398 |   |      | $ | 763,926 |  
|                                                                                                                                      |  |                        |         |   |      |   |         |  

See Notes to Consolidated Financial Statements.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

For
the Years Ended December 31, 2006, 2005 and 2004



|                                                    |  |                                               |        |      |   |        |  |   |       
|--------------------------------------------------- |  | --------------------------------------------- | ------ | ---- | - | ------ |  | - | ------
|                                                    |  | (dollars in thousands, except per share data)
|                                                    |  | 2006                                          |        | 2005 |   | 2004  
|Interest and Dividend Income                        |  |                                               |        |      |   |        |  |   |       
|Loans and fees on loans                             |  | $                                             | 44,503 |      | $ | 37,137 |  | $ | 33,298
|Interest on investments:                            |  |                                               |        |      |   |        |  |   |       
|Taxable interest income                             |  |                                               | 4,417  |      |   | 4,295  |  |   | 4,313 
|Tax exempt interest income                          |  |                                               | 1,405  |      |   | 1,539  |  |   | 1,933 
|Dividends                                           |  |                                               | 392    |      |   | 182    |  |   | 147   
|Interest on federal funds sold                      |  |                                               | 299    |      |   | 76     |  |   | 53    
|                                                    |  |                                               |        |      |   |        |  |   |       
|Total interest and dividend income                  |  |                                               | 51,016 |      |   | 43,229 |  |   | 39,744
|                                                    |  |                                               |        |      |   |        |  |   |       
|Interest Expense                                    |  |                                               |        |      |   |        |  |   |       
|Deposits                                            |  |                                               | 15,130 |      |   | 10,772 |  |   | 9,291 
|Federal funds purchased                             |  |                                               | 88     |      |   | 109    |  |   | 14    
|Interest on FHLB advances                           |  |                                               | 3,415  |      |   | 1,666  |  |   | 1,026 
|Interest on trust preferred debt                    |  |                                               | 811    |      |   | 651    |  |   | 439   
|                                                    |  |                                               |        |      |   |        |  |   |       
|Total interest expense                              |  |                                               | 19,444 |      |   | 13,198 |  |   | 10,770
|                                                    |  |                                               |        |      |   |        |  |   |       
|Net interest income                                 |  |                                               | 31,572 |      |   | 30,031 |  |   | 28,974
|Provision for Loan Losses                           |  |                                               | 725    |      |   | 552    |  |   | 1,279 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Net interest income after provision for loan losses |  |                                               | 30,847 |      |   | 29,479 |  |   | 27,695
|Noninterest Income                                  |  |                                               |        |      |   |        |  |   |       
|Service charges on deposit accounts                 |  |                                               | 3,234  |      |   | 2,986  |  |   | 2,953 
|Gain on sale of available for sale securities, net  |  |                                               | 36     |      |   | 224    |  |   | 303   
|Gain on sale of other real estate owned             |  |                                               |       |      |   | 22     |  |   |      
|Other operating income                              |  |                                               | 1,895  |      |   | 1,495  |  |   | 1,268 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Total noninterest income                            |  |                                               | 5,165  |      |   | 4,727  |  |   | 4,524 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Noninterest Expenses                                |  |                                               |        |      |   |        |  |   |       
|Salaries and benefits                               |  |                                               | 14,667 |      |   | 14,100 |  |   | 12,737
|Occupancy and equipment expense                     |  |                                               | 3,906  |      |   | 3,717  |  |   | 3,272 
|Printing and supplies                               |  |                                               | 393    |      |   | 391    |  |   | 629   
|Telephone                                           |  |                                               | 571    |      |   | 547    |  |   | 479   
|Data processing                                     |  |                                               | 441    |      |   | 754    |  |   | 647   
|Consultant fees                                     |  |                                               | 768    |      |   | 1,165  |  |   | 772   
|Marketing and advertising                           |  |                                               | 977    |      |   | 460    |  |   | 454   
|Other operating expenses                            |  |                                               | 4,096  |      |   | 3,759  |  |   | 3,358 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Total noninterest expense                           |  |                                               | 25,819 |      |   | 24,893 |  |   | 22,348
|                                                    |  |                                               |        |      |   |        |  |   |       
|Income before income taxes                          |  |                                               | 10,193 |      |   | 9,313  |  |   | 9,871 
|Income Tax Expense                                  |  |                                               | 2,956  |      |   | 2,587  |  |   | 2,631 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Net income                                          |  | $                                             | 7,237  |      | $ | 6,726  |  | $ | 7,240 
|                                                    |  |                                               |        |      |   |        |  |   |       
|Earnings Per Share, basic                           |  | $                                             | 1.45   |      | $ | 1.37   |  | $ | 1.49  
|                                                    |  |                                               |        |      |   |        |  |   |       
|Diluted earnings per share                          |  | $                                             | 1.45   |      | $ | 1.37   |  | $ | 1.48  
|                                                    |  |                                               |        |      |   |        |  |   |       
|Dividends Per Share                                 |  | $                                             | 0.63   |      | $ | 0.60   |  | $ | 0.60  
|                                                    |  |                                               |        |      |   |        |  |   |       

See Notes to Consolidated Financial Statements.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004



|                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                              |  | (dollars in thousands) |        
|                                                                              |  | 2006                   |         |   | 2005 |   |         | 2004 | 
|Cash Flows from Operating Activities                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net income                                                                    |  | $                      | 7,237   |   |      | $ | 6,726   |      |  | $ | 7,240   |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                        |         |   |      |   |         |      |  |   |         |  
|Loss from equity investment in partnership                                    |  |                        | 16      |   |      |   | 16      |      |  |   |        |  
|Depreciation and amortization, net                                            |  |                        | 1,917   |   |      |   | 2,090   |      |  |   | 2,055   |  
|Deferred tax provision (benefit)                                              |  |                        | (1,323  | ) |      |   | (186    | )    |  |   | 86      |  
|Provision for loan losses                                                     |  |                        | 725     |   |      |   | 552     |      |  |   | 1,279   |  
|(Gain) loss realized on fixed assets                                          |  |                        | (26     | ) |      |   | 57      |      |  |   | (1      | )
|(Gain) realized on available for sale securities, net                         |  |                        | (36     | ) |      |   | (224    | )    |  |   | (303    | )
|(Gain) realized on Other Real Estate                                          |  |                        |        |   |      |   | (22     | )    |  |   |        |  
|Accretion and amortization on securities, net                                 |  |                        | 265     |   |      |   | 896     |      |  |   | 926     |  
|Changes in assets and liabilities:                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|(Increase) decrease in accrued interest receivable                            |  |                        | (549    | ) |      |   | (593    | )    |  |   | 326     |  
|(Increase) decrease in other assets and goodwill                              |  |                        | (899    | ) |      |   | 976     |      |  |   | (890    | )
|Increase (decrease) in accrued interest payable                               |  |                        | 1,014   |   |      |   | 425     |      |  |   | (25     | )
|Increase (decrease) in other liabilities                                      |  |                        | 1,237   |   |      |   | (894    | )    |  |   | (37     | )
|                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                     |  |                        | 9,578   |   |      |   | 9,819   |      |  |   | 10,656  |  
|                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Proceeds from sales of securities available for sale                          |  |                        | 4,746   |   |      |   | 11,067  |      |  |   | 23,984  |  
|Maturities and principal repayments of securities available for sale          |  |                        | 12,977  |   |      |   | 19,112  |      |  |   | 42,174  |  
|Purchases of securities available for sale                                    |  |                        | (10,742 | ) |      |   | (36,172 | )    |  |   | (61,780 | )
|Proceeds from sale of other real estate                                       |  |                        |        |   |      |   | 321     |      |  |   |        |  
|Net (increase) in loans                                                       |  |                        | (76,681 | ) |      |   | (62,462 | )    |  |   | (26,898 | )
|Purchases of bank premises and equipment                                      |  |                        | (3,676  | ) |      |   | (1,889  | )    |  |   | (3,212  | )
|Proceeds from sale of bank premises and equipment                             |  |                        | 26      |   |      |   | 207     |      |  |   |        |  
|                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) investing activities                                       |  |                        | (73,350 | ) |      |   | (69,816 | )    |  |   | (25,732 | )
|                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004

(continued)



|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                          |  | (dollars in thousands) |        
|                                                                                                          |  | 2006                   |         |   | 2005 |   |        | 2004 | 
|Cash Flows from Financing Activities                                                                      |  |                        |         |   |      |   |        |      |  |   |        |  
|Net increase (decrease) in demand deposit accounts, interest-bearing demand deposits and savings accounts |  |                        | (25,657 | ) |      |   | (3,140 | )    |  |   | 4,575  |  
|Net increase in certificates of deposit                                                                   |  |                        | 51,293  |   |      |   | 41,605 |      |  |   | 4,154  |  
|Proceeds from Federal Home Loan Bank advances                                                             |  |                        | 40,000  |   |      |   | 30,500 |      |  |   |       |  
|Repayments of Federal Home Loan Bank advances                                                             |  |                        | (1,429  | ) |      |   | (1,429 | )    |  |   | (1,429 | )
|Increase (decrease) in federal funds purchased                                                            |  |                        | (6,822  | ) |      |   | (1,578 | )    |  |   | 8,400  |  
|Repurchases and retirement of stock                                                                       |  |                        |        |   |      |   |       |      |  |   | (191   | )
|Exercise of stock options                                                                                 |  |                        | 13      |   |      |   |       |      |  |   |       |  
|Issuance of common stock under dividend reinvestment plan                                                 |  |                        | 394     |   |      |   | 387    |      |  |   | 405    |  
|Issuance of common stock under stock offering                                                             |  |                        | 23,576  |   |      |   |       |      |  |   |       |  
|Stock-based compensation                                                                                  |  |                        | 210     |   |      |   | 181    |      |  |   | 85     |  
|Director stock grant                                                                                      |  |                        | 191     |   |      |   | 125    |      |  |   | 131    |  
|Dividends paid                                                                                            |  |                        | (3,098  | ) |      |   | (2,935 | )    |  |   | (2,920 | )
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Net cash provided by financing activities                                                                 |  |                        | 78,671  |   |      |   | 63,716 |      |  |   | 13,210 |  
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Cash and Cash Equivalents                                                                                 |  |                        |         |   |      |   |        |      |  |   |        |  
|Beginning of year                                                                                         |  |                        | 21,516  |   |      |   | 17,797 |      |  |   | 19,663 |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                        | 14,899  |   |      |   | 3,719  |      |  |   | (1,866 | )
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|End of year                                                                                               |  | $                      | 36,415  |   |      | $ | 21,516 |      |  | $ | 17,797 |  
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Supplemental Disclosures of Cash Flow Information                                                         |  |                        |         |   |      |   |        |      |  |   |        |  
|Cash payments for Interest                                                                                |  | $                      | 18,431  |   |      | $ | 12,774 |      |  | $ | 10,795 |  
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Cash payments for Income taxes                                                                            |  | $                      | 2,956   |   |      | $ | 1,680  |      |  | $ | 2,967  |  
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Supplemental Disclosures of Noncash Investing and Financing Activities                                    |  |                        |         |   |      |   |        |      |  |   |        |  
|Transfers from loans to foreclosed real estate                                                            |  | $                      |        |   |      | $ | 300    |      |  | $ |       |  
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  
|Unrealized (loss) on securities available for sale                                                        |  | $                      | (1,044  | ) |      | $ | (3,595 | )    |  | $ | (2,337 | )
|                                                                                                          |  |                        |         |   |      |   |        |      |  |   |        |  

See Notes to Consolidated Financial Statements.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders Equity

For the Years Ended December 31, 2006, 2005 and 2004

(dollars in thousands)



|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ----------- | ------ | - | ------- | - | ---------------- |  | - | ------------------------------------------- | - |  | ------------------- | ------ | - | ----- | - | ------ | - |  | - | ------ | -
|                                                                              |  | CommonStock |        |   | Surplus |   | RetainedEarnings |  |   | Accumulated OtherComprehensiveIncome/(loss) |   |  | ComprehensiveIncome |        |   | Total |  
|Balance, December 31, 2003                                                    |  | $           | 9,734  |   |         | $ |                 |  | $ | 44,682                                      |   |  | $                   | 2,140  |   |       |   |        |   |  | $ | 56,556 |  
|Comprehensive income:                                                         |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Net income2004                                                               |  |             |       |   |         |   |                  |  |   | 7,240                                       |   |  |                     |       |   |       | $ | 7,240  |   |  |   | 7,240  |  
|Other comprehensive income:                                                   |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Unrealized holding gains arising during period, (net of tax, ($898))          |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | (1,743 | ) |  |   |       |  
|Reclassification adjustment, (net of tax, $103)                               |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | 200    |   |  |   |       |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Other comprehensive income (net of tax, $795)                                 |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     | (1,543 | ) |       |   | (1,543 | ) |  |   | (1,543 | )
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Total comprehensive income                                                    |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       | $ | 5,697  |   |  |   |       |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Cash dividends declared                                                       |  |             |       |   |         |   |                  |  |   | (2,920                                      | ) |  |                     |       |   |       |   |        |   |  |   | (2,920 | )
|Stock-based compensation                                                      |  |             |       |   |         |   |                  |  |   | 85                                          |   |  |                     |       |   |       |   |        |   |  |   | 85     |  
|Director stock grant                                                          |  |             | 13     |   |         |   |                  |  |   | 118                                         |   |  |                     |       |   |       |   |        |   |  |   | 131    |  
|Issuance of common stock under dividend reinvestment plan, net of repurchases |  |             | 35     |   |         |   |                  |  |   | 370                                         |   |  |                     |       |   |       |   |        |   |  |   | 405    |  
|Shares purchased and retired                                                  |  |             | (19    | ) |         |   |                  |  |   | (172                                        | ) |  |                     |       |   |       |   |        |   |  |   | (191   | )
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Balance, December 31, 2004                                                    |  | $           | 9,763  |   |         | $ |                 |  | $ | 49,403                                      |   |  | $                   | 597    |   |       |   |        |   |  | $ | 59,763 |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Comprehensive income:                                                         |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Net income2005                                                               |  |             |       |   |         |   |                  |  |   | 6,726                                       |   |  |                     |       |   |       | $ | 6,726  |   |  |   | 6,726  |  
|Other comprehensive income:                                                   |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Unrealized securities losses arising during period, (net of tax, ($1,298))    |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | (2,521 | ) |  |   |       |  
|Reclassification adjustment, (net of tax, $76)                                |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | 148    |   |  |   |       |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Other comprehensive income (net of tax, ($1,222))                             |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     | (2,373 | ) |       |   | (2,373 | ) |  |   | (2,373 | )
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Total comprehensive income                                                    |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       | $ | 4,353  |   |  |   |       |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Cash dividends declared                                                       |  |             |       |   |         |   |                  |  |   | (2,935                                      | ) |  |                     |       |   |       |   |        |   |  |   | (2,935 | )
|Stock-based compensation                                                      |  |             |       |   |         |   |                  |  |   | 181                                         |   |  |                     |       |   |       |   |        |   |  |   | 181    |  
|Director stock grant                                                          |  |             | 12     |   |         |   |                  |  |   | 113                                         |   |  |                     |       |   |       |   |        |   |  |   | 125    |  
|Issuance of common stock under dividend reinvestment plan                     |  |             | 37     |   |         |   |                  |  |   | 350                                         |   |  |                     |       |   |       |   |        |   |  |   | 387    |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Balance, December 31, 2005                                                    |  | $           | 9,812  |   |         | $ |                 |  | $ | 53,838                                      |   |  | $                   | (1,776 | ) |       |   |        |   |  | $ | 61,874 |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Comprehensive income:                                                         |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Net income2006                                                               |  |             |       |   |         |   |                  |  |   | 7,237                                       |   |  |                     |       |   |       | $ | 7,237  |   |  |   | 7,237  |  
|Other comprehensive income:                                                   |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Unrealized securities losses arising during period, (net of tax, ($367))      |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | (713   | ) |  |   |       |  
|Reclassification adjustment, (net of tax, $12)                                |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   | 24     |   |  |   |       |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Other comprehensive income (net of tax, ($355))                               |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     | (689   | ) |       |   | (689   | ) |  |   | (689   | )
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Total comprehensive income                                                    |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       | $ | 6,548  |   |  |   |        |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Adjustment to initially apply FASB Statement                                  |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     | (1,901 | ) |       |   |        |   |  |   | (1,901 | )
|No. 158, net of tax ($980)                                                    |  |             |       |   |         |   |                  |  |   |                                            |   |  |                     |       |   |       |   |        |   |  |   |       |  
|Cash dividends declared                                                       |  |             |       |   |         |   |                  |  |   | (3,098                                      | ) |  |                     |       |   |       |   |        |   |  |   | (3,098 | )
|Stock-based compensation                                                      |  |             |       |   |         |   |                  |  |   | 210                                         |   |  |                     |       |   |       |   |        |   |  |   | 210    |  
|Director stock grant                                                          |  |             | 17     |   |         |   |                  |  |   | 174                                         |   |  |                     |       |   |       |   |        |   |  |   | 191    |  
|Stock options exercised                                                       |  |             | 1      |   |         |   |                  |  |   | 12                                          |   |  |                     |        |   |       |   |        |   |  |   | 13     |  
|Issuance of common stock under offering, net                                  |  |             | 2,300  |   |         |   | 21,276           |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   | 23,576 |  
|Issuance of common stock under dividend reinvestment plan                     |  |             | 36     |   |         |   |                  |  |   | 358                                         |   |  |                     |       |   |       |   |        |   |  |   | 394    |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  
|Balance, December 31, 2006                                                    |  | $           | 12,166 |   |         | $ | 21,276           |  | $ | 58,731                                      |   |  | $                   | (4,366 | ) |       |   |        |   |  | $ | 87,807 |  
|                                                                              |  |             |        |   |         |   |                  |  |   |                                             |   |  |                     |        |   |       |   |        |   |  |   |        |  

See notes to consolidated financial statements



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Notes to Consolidated Financial Statements



Note 1. Summary of Significant Accounting Policies

The accounting and reporting policies of Eastern Virginia Bankshares, Inc. and subsidiaries (the Company, our Company, we
us or our) conform to accounting principles generally accepted in the United States of America and general practices within the banking industry. The following is a description of the more significant of those policies:

Business

Eastern Virginia Bankshares, Inc. is a bank
holding company headquartered in Tappahannock, Virginia that was organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997 and commenced operations on December 29, 1997. We conduct our primary operations
through our wholly-owned bank subsidiary, EVB. Two of our predecessor banks, Bank of Northumberland, Inc. and Southside Bank, were established in 1910. Seeking to accelerate our growth in a higher growth adjacent market, we started a de novo bank,
Hanover Bank, in 2000. The three predecessor banks were merged and the surviving bank re-branded as EVB in April 2006.

Our primary activity is retail
banking. Through our bank subsidiary, we provide full service banking including commercial and consumer demand and time deposit accounts, real estate, commercial and consumer loans, Visa revolving credit accounts, drive-in banking services,
automated teller machine transactions, internet banking and wire transfer services. With 22 branches at 2006 year end, our bank serves diverse markets that primarily are in the counties of Caroline, Essex, Gloucester, Hanover, King and Queen, King
William, Middlesex, Richmond, Northumberland, Southampton, Surry and Sussex. Ancillary services provided by our bank include travelers checks, safe deposit box rentals, collections and other customary bank services to its customers. The
largest majority of our revenue comes from retail banking in the form of interest earned on loans and investment securities and fees related to deposit services. The Company also owns EVB Statutory Trust I, a limited purpose entity that was created
in 2003 for the purpose of issuing our trust preferred debt.

Our bank owns EVB Financial Services, Inc., which in turn has 100% ownership of EVB
Investments, Inc. and a 50% ownership interest in EVB Mortgage, Inc. EVB Investments Inc. has a 5.15% ownership in Bankers Investment Group, LLC, which it uses as a brokerage firm for the investment services it provides. The bank also has a 75%
ownership interest in EVB Title, LLC, an 8% ownership interest in Bankers Title of Fredericksburg, LLC and a 2.33% interest in Virginia Bankers Insurance Center, LLC. EVB Title, LLC and Bankers Title of Fredericksburg, LLC sell title insurance,
while Virginia Bankers Insurance Center, LLC acts as a broker for insurance sales for its member banks. EVB Mortgage, Inc. was chartered in the first quarter of 2004 and began conducting business in the third quarter of 2004. The financial position
and operating results of all of these subsidiaries are not significant to us as a whole and are not considered principal activities of our Company at this time.

Principles of Consolidation

The consolidated financial statements include the accounts of Eastern Virginia Bankshares, Inc. and all
subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. FASB interpretation No. 46 (R) requires that we no longer eliminate through consolidation the $310 thousand that represents the equity
investment in EVB Statutory Trust I. The subordinated debt of the trust is reflected as a liability of our Company.



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Notes to Consolidated Financial Statements



Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan losses and deferred taxes.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash, balances due from banks and federal funds sold, which all mature within
ninety days.

Securities

Securities, including equity
securities with readily determinable fair values, are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. We do not have any
securities classified as held to maturity or trading.

Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other than temporary impairment
losses, we consider (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, and (3) our intent and ability to retain our investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Loans

We grant mortgage, commercial and consumer loans to customers.
A substantial portion of the loan portfolio is represented by mortgage loans in our market area. The ability of our debtors to honor their contracts is dependent upon the real estate and general economic conditions in our market area. Loans that we
have the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge- offs, the allowance for loan losses, and any deferred fees or
costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on loans, except credit cards and residential mortgage loans, is automatically discontinued at the time the loan is 90 days
delinquent. Credit card loans and other personal loans are typically charged off before reaching 180 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered
doubtful. Loans that are deemed to be impaired (i.e. probable that we will be unable to collect all amounts due according to the terms of the loan agreement) are measured based on the present value of expected future cash flows discounted at the
loans effective interest rate or, as a practical matter, at the loans observable market value or fair value of the collateral if the loan is collateral dependent. A valuation reserve is established to record the difference between the
stated loan amount and the present value or market value



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of the impaired loan. Impaired loans may be valued on a loan-by-loan basis (i.e. loans with risk characteristics unique to an individual borrower). Our
policy for recognition of interest income on impaired loans is the same as our interest income recognition policy for non-impaired loans. We discontinue the accrual of interest at the earlier of the date when the collectibility of such interest
becomes doubtful or the impaired loan becomes 90 days past due in payment of either interest or principal.

All interest accrued but not collected for
loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought within 90 days of being current and future payments are reasonably assured.

Allowance for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan
losses to an estimated balance considered adequate to absorb potential losses in the portfolio. Recoveries of amounts previously charged-off are credited to the allowance. Our determination of the adequacy of the allowance is based on an evaluation
of the portfolio, current economic conditions, historical loss experience, the value and adequacy of collateral, and other risk factors. Recovery of the carrying value of loans is dependent to some extent on future economic, operating and other
conditions that may be beyond our control. Unanticipated future adverse changes in such conditions could result in material adjustments to the allowance for loan losses.

The allowance consists of specific, general and unallocated components. The specific component generally relates to loans that are classified as either substandard or special mention. The general component covers
non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated
component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or
interest when due, according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment
is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of
collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify the individual consumer and residential loans for impairment
disclosures.



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Other Real Estate

Real estate acquired through, or in lieu of, foreclosure is held for sale and is initially recorded at the lower of the loan balance or fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by our management, and the assets are carried at the lower of the carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation are included in other
operating expenses.

Bank Premises and Equipment

Bank
premises and equipment are stated at cost, less accumulated depreciation. Land is carried at cost with no depreciation. Depreciation and amortization are computed using the straight-line or declining-balance method for financial reporting purposes
and are charged to expense over the estimated useful lives of the assets, ranging from three to thirty years. Depreciation for tax purposes is computed based upon accelerated methods. The costs of major renewals or improvements are capitalized while
the costs of ordinary maintenance and repairs are charged to expense as incurred.

Income Taxes

Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is determined based
on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

Stock Compensation Plan

At December 31, 2006, we had one
stock-based compensation plan, which is described more fully in Note 12. We account for this plan under the recognition and measurement principles of FASB Statement No. 123R Accounting for Stock-Based Compensation. Stock-based
compensation costs included in salaries and benefit expense totaled $210 thousand for the year 2006, $181 thousand for the year 2005 and $85 thousand for the year 2004.

Earnings Per Share

Basic earnings per share represents income available to common shareholders divided by the
weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to
income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury method. Earnings per share calculations are presented in
Note 11.

Comprehensive Income

Accounting principles
generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.



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Pension Plan

We
have a defined benefit pension plan covering employees meeting certain age and service requirements. We compute the net periodic pension cost of the plan in accordance with FASB No. 158, Employers Accounting for Pensions. See
Note 10.

Advertising

We practice the policy of
charging advertising costs to expense as incurred. Advertising expense totaled $621 thousand, $239 thousand, and $282 thousand for the three years ended December 31, 2006, 2005 and 2004, respectively.

Intangible Assets

Core deposit intangibles are included in other
assets and are being amortized on a straight-line basis over the period of expected benefit, which is 7 years. Core deposit intangible, net of amortization amounted to $1.0 million and $1.3 million at December 31, 2006 and 2005 respectively.

Goodwill

In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations. Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. SFAS No. 142 also prescribes the accounting for goodwill and intangible assets
subsequent to initial recognition. The provisions of SFAS No. 142 discontinue the amortization of goodwill and intangible assets with indefinite lives. Instead these assets are subject to at least an annual impairment review, and more
frequently if certain impairment indicators are in evidence.

Goodwill totaled $5.7 million at both December 31, 2006 and 2005. Goodwill is not
amortized, but instead tested for impairment at least annually. Based on the testing, there were no impairment charges in 2006, 2005 or 2004.

Reclassifications

Certain reclassifications have been made to prior period balances to conform to the current year presentation.

Recent Accounting Pronouncements

In September 2006,
the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC staffs views regarding the process of quantifying financial statement misstatements. SAB 108 expresses the SEC
staffs view that a registrants materiality evaluation of an identified unadjusted error should quantify the effects of the error on each financial statement and related financial statement disclosures and that prior year misstatements
should be considered in quantifying misstatements in current year financial statements. SAB 108 also states that correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such
correction may be made the next time the registrant files the prior year financial statements. The cumulative effect of the initial application should be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal
year and the offsetting adjustment should be made to the opening balance of retained earnings for that year. Registrants should disclose the nature and amount of each individual error being corrected in the cumulative adjustment. The SEC staff
encourages early application of the guidance in SAB 108 for interim periods of the first



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fiscal year ending after November 15, 2006.We do not expect adoption of SAB No. 108 to have a material impact on our operations or
financial results.

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 155,
Accounting for Certain Hybrid Financial Instruments  an amendment of FASB Statements No. 133 and 140 (SFAS 155). SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative
that otherwise would

require bifurcation. The Statement also clarifies which interest-only strips and principal-only strips are not subject to the
requirements of Statement 133. It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation. SFAS 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an
entitys first fiscal year that begins after September 15, 2006. We do not expect the implementation of SFAS 155 to have a material impact on our operations or consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets  an amendment of FASB
Statement No. 140 (SFAS 156). SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into certain servicing contracts. The Statement
also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS 156 permits an entity to choose between the amortization and fair value methods for subsequent
measurements. At initial adoption, the Statement permits a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights. SFAS 156 also requires separate presentation of servicing
assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the
beginning of an entitys first fiscal year that begins after September 15, 2006. We do not expect the implementation of SFAS 156 to have a material impact on our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some
entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. We do not expect the implementation of SFAS 157 to have a material impact on our
consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the over-funded or under-funded status of a
defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status of a benefit
plan will be measured as the difference between plan assets



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at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. For any other postretirement plan,
the benefit obligation is the accumulated postretirement benefit obligation. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The Statement also requires
additional disclosure in the notes to financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset
or obligation. We are required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure
plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. In 2006 we recorded a liability of $2.9 million. See Note 10
for more information on the impact of SFAS 158.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes: An Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with SFAS 109. The Interpretation
prescribes a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return that are not certain to be realized. FIN 48 is effective for fiscal
years beginning after December 15, 2006. We do not have any uncertain tax positions, and therefore adoption of FIN 48 did not impact our consolidated financial statements.

In September 2006, the Emerging Issues Task Force issued EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. This
consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits in accordance with FASB Statement No. 106 (if, in substance, a postretirement
benefit plan exits) or APB Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. The consensus is effective for fiscal years beginning after
December 15, 2007. We are currently evaluating the effect that EITF No. 06-4 will have on our consolidated financial statements when implemented.

In September 2006, The Emerging Issues Task Force issued EITF 06-5, Accounting for Purchases of Life Insurance- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4. This
consensus concludes that a policyholder should consider any additional amounts included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized under the insurance
contract. A consensus also was reached that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in
a group policy). The consensuses are effective for fiscal years beginning after December 15, 2006. We are currently evaluating the effect that EITF No. 06-5 will have on our consolidated financial statements when implemented.



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Note 2. Cash and Due From Banks

To comply with Federal Reserve Regulations, our subsidiary bank is required to maintain certain average reserve balances. For the final weekly reporting period in the years ended December 31, 2006 and 2005, the
daily average required balances were approximately $75 thousand and $4.1 million, respectively.

Note 3. Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses, follows:



|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|--------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | ------------------- | ----- |  | - | -------
|                                        |  | December 31, 2006
|(dollars in thousands)                  |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFair Value
|Available for Sale:                     |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|Obligations of U.S. Government agencies |  | $                 | 31,596  |                      | $ | 32                    |  | $                   | 496   |  | $ | 31,132 
|Mortgage-backed securities              |  |                   | 29,253  |                      |   | 5                     |  |                     | 701   |  |   | 28,557 
|State and political subdivisions        |  |                   | 32,429  |                      |   | 352                   |  |                     | 1,844 |  |   | 30,937 
|Corporate, CMO and other securities     |  |                   | 30,836  |                      |   | 37                    |  |                     | 1,119 |  |   | 29,754 
|Restricted securities                   |  |                   | 6,787   |                      |   |                      |  |                     |      |  |   | 6,787  
|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|Total                                   |  | $                 | 130,901 |                      | $ | 426                   |  | $                   | 4,160 |  | $ | 127,167
|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|                                        | 
|                                        |  | December 31, 2005
|(dollars in thousands)                  |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFair Value
|Available for Sale:                     |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|Obligations of U.S. Government agencies |  | $                 | 29,849  |                      | $ | 1                     |  | $                   | 549   |  | $ | 29,301 
|Mortgage-backed securities              |  |                   | 36,010  |                      |   | 23                    |  |                     | 811   |  |   | 35,222 
|State and political subdivisions        |  |                   | 35,373  |                      |   | 584                   |  |                     | 162   |  |   | 35,795 
|Corporate, CMO and other securities     |  |                   | 31,959  |                      |   | 36                    |  |                     | 1,812 |  |   | 30,183 
|Restricted securities                   |  |                   | 4,919   |                      |   |                      |  |                     |      |  |   | 4,919  
|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|Total                                   |  | $                 | 138,110 |                      | $ | 644                   |  | $                   | 3,334 |  | $ | 135,420
|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        

The following is a comparison of amortized cost and estimated fair values of our securities by
contractual maturity at December 31, 2006.



|                                       |  |               |         |                     |   |        
|-------------------------------------- |  | ------------- | ------- | ------------------- | - | -------
|(dollars in thousands)                 |  | AmortizedCost |         | EstimatedFair Value
|Due in one year or less                |  | $             | 7,128   |                     | $ | 7,022  
|Due after one year through five years  |  |               | 77,852  |                     |   | 76,897 
|Due after five years through ten years |  |               | 28,824  |                     |   | 28,034 
|Due after ten years                    |  |               | 10,310  |                     |   | 8,427  
|Restricted securities                  |  |               | 6,787   |                     |   | 6,787  
|                                       |  |               |         |                     |   |        
|Total                                  |  | $             | 130,901 |                     | $ | 127,167
|                                       |  |               |         |                     |   |        



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At December 31, 2006, investments in an unrealized loss position that are temporarily impaired
are:



|                                     |  |                     |       |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|------------------------------------ |  | ------------------- | ----- | ----------------- | - | --------- |  | -------------- | ------ | --------- | - | -------------- |  | - | ------ |  | - | -----
|                                     |  | December 31, 2006  
|                                     |  | Less than 12 months |       | 12 months or more |   | Total    
|(dollars in thousands)               |  | FairValue           |       | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | FairValue |   | UnrealizedLoss
|Description of Securities            |  |                     |       |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|U. S. Treasury and federal agencies  |  | $                   |      |                   | $ |          |  | $              | 29,123 |           | $ | 496            |  | $ | 29,123 |  | $ | 496  
|Mortgage-backed securities           |  |                     |      |                   |   |          |  |                | 28,016 |           |   | 728            |  |   | 28,016 |  |   | 728  
|States and political subdivisions    |  |                     | 3,680 |                   |   | 22        |  |                | 4,718  |           |   | 1,822          |  |   | 8,398  |  |   | 1,844
|All other securities including CMOs |  |                     |      |                   |   |          |  |                | 20,756 |           |   | 1,092          |  |   | 20,756 |  |   | 1,092
|                                     |  |                     |       |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|                                     |  | $                   | 3,680 |                   | $ | 22        |  | $              | 82,613 |           | $ | 4,138          |  | $ | 86,293 |  | $ | 4,160
|                                     |  |                     |       |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      

Bonds with unrealized loss positions of less than 12 months duration at 2006 year-end included 11
municipal bonds. Securities with losses of one year or greater duration included 33 federal agencies, 40 mortgage-backed securities, 17 municipal bonds and 1 federal agency preferred stock. The unrealized loss positions at December 31, 2006
were primarily related to interest rate movements. Holdings of GMAC and Ford Motor Credit contained unrealized loss positions because these securities have been downgraded by Moodys and Standard & Poors rating agencies to levels below
investment grade. As of year-end, the Company held $3.3 million in GMAC bonds and $250 thousand in Ford Motor Credit Corp bonds. These holdings are monitored regularly by the Companys Chief Financial Officer and reported to the EVB board on a
monthly basis. Given the attractive yield and the belief that the risk of default is remote, we have not recommended sale of the holdings.

At December 31, 2005, investments in an unrealized loss position that were temporarily impaired were:



|                                     |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|------------------------------------ |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ------ | --------- | - | -------------- |  | - | ------ |  | - | -----
|                                     |  | December 31, 2005  
|                                     |  | Less than 12 months |        | 12 months or more |   | Total    
|(dollars in thousands)               |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | FairValue |   | UnrealizedLoss
|Description of Securities            |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|U. S. Treasury and federal agencies  |  | $                   | 17,448 |                   | $ | 255       |  | $              | 10,601 |           | $ | 294            |  | $ | 28,049 |  | $ | 549  
|Mortgage-backed securities           |  |                     | 23,925 |                   |   | 520       |  |                | 9,986  |           |   | 291            |  |   | 33,911 |  |   | 811  
|States and political subdivisions    |  |                     | 7,566  |                   |   | 53        |  |                | 3,120  |           |   | 109            |  |   | 10,686 |  |   | 162  
|All other securities including CMOs |  |                     | 16,218 |                   |   | 460       |  |                | 7,229  |           |   | 1,352          |  |   | 23,447 |  |   | 1,812
|                                     |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|                                     |  | $                   | 65,157 |                   | $ | 1,288     |  | $              | 30,936 |           | $ | 2,046          |  | $ | 96,093 |  | $ | 3,334
|                                     |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      

For the years ended December 31, 2006, 2005 and 2004, proceeds from sales of securities
available for sale amounted to $4.7 million, $11.0 million, and $24.0 million, respectively. Net realized gains amounted to $36 thousand, $224 thousand, and $303 thousand in 2006, 2005 and 2004 respectively. The book value of securities pledged to
secure public deposits and other purposes amounted to $20.1 million and $22.1 million at December 31, 2006 and 2005, respectively.



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Note 4. Loans

The following is a comparison of loans by type that were outstanding at December 31, 2006 and 2005.



|                                                                           |  |                |         |   |      |   |         |  
|-------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                                           |  | 2006           |         |   | 2005 |  
|                                                                           |  | (in thousands) |        
|Real estateconstruction                                                   |  | $              | 85,910  |   |      | $ | 47,620  |  
|Real estatemortgage                                                       |  |                | 288,114 |   |      |   | 263,191 |  
|Commercial real estate                                                     |  |                | 164,948 |   |      |   | 151,897 |  
|Commercial, industrial and agricultural loans                              |  |                | 59,859  |   |      |   | 55,732  |  
|Loans to individuals for household, family and other consumer expenditures |  |                | 51,446  |   |      |   | 55,680  |  
|All other loans                                                            |  |                | 305     |   |      |   | 321     |  
|                                                                           |  |                |         |   |      |   |         |  
|Total gross loans                                                          |  |                | 650,582 |   |      |   | 574,441 |  
|Less unearned income                                                       |  |                | (90     | ) |      |   | (356    | )
|Less allowance for loan losses                                             |  |                | (7,051  | ) |      |   | (6,601  | )
|                                                                           |  |                |         |   |      |   |         |  
|Total net loans                                                            |  | $              | 643,441 |   |      | $ | 567,484 |  
|                                                                           |  |                |         |   |      |   |         |  

Within the loan portfolio, we have a concentration of loans in special categories. Marina loans
represent 1.7%, boat loans 1.3%, church loans 1.8% and golf course loans 1.0% of the total loan portfolio. The concentration in recreational businesses is representative of the market that we serve. Church loans have historically been excellent
loans usually secured by property. As can be calculated in the preceding table, real estate construction loans represent 13.2% of total loans, commercial real estate 25.4% and real estate mortgages 44.3%. In addition to the percent of total loans,
we look at the percent of capital in determining the concentration definition.

Note 5. Allowance for Loan Losses

The following is a summary of the activity in the allowance for loan losses:



|                                 |  |                |       |   |      |   |        |      |  |   |        |  
|-------------------------------- |  | -------------- | ----- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                 |  | December 31    |      
|                                 |  | 2006           |       |   | 2005 |   |        | 2004 | 
|                                 |  | (in thousands) |      
|Balance at beginning of year     |  | $              | 6,601 |   |      | $ | 6,676  |      |  | $ | 6,495  |  
|Provision charged against income |  |                | 725   |   |      |   | 552    |      |  |   | 1,279  |  
|Recoveries of loans charged off  |  |                | 495   |   |      |   | 491    |      |  |   | 411    |  
|Loans charged off                |  |                | (770  | ) |      |   | (1,118 | )    |  |   | (1,509 | )
|                                 |  |                |       |   |      |   |        |      |  |   |        |  
|Balance at end of year           |  | $              | 7,051 |   |      | $ | 6,601  |      |  | $ | 6,676  |  
|                                 |  |                |       |   |      |   |        |      |  |   |        |  

The following is a summary of information pertaining to impaired loans:



|                                                           |  |                |        |      |   |        |  |   |       
|---------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                           |  | December 31   
|                                                           |  | 2006           |        | 2005 |   | 2004  
|                                                           |  | (in thousands)
|Impaired loans for which an allowance has been provided    |  | $              | 3,653  |      | $ | 14,293 |  | $ | 19,657
|                                                           |  |                |        |      |   |        |  |   |       
|Allowance related to impaired loans                        |  | $              | 601    |      | $ | 1,849  |  | $ | 2,383 
|                                                           |  |                |        |      |   |        |  |   |       
|Average balance of impaired loans                          |  | $              | 11,927 |      | $ | 17,175 |  | $ | 5,068 
|                                                           |  |                |        |      |   |        |  |   |       
|Interest income recognized and collected on impaired loans |  | $              | 266    |      | $ | 1,028  |  | $ | 1,046 
|                                                           |  |                |        |      |   |        |  |   |       



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No additional funds are committed to be advanced in connection with impaired loans. Nonaccrual loans
excluded from impaired loan disclosure under FASB 114 amounted to $103 thousand, and $772 thousand at December 31, 2006 and 2005. If interest on these loans had been accrued such income would have approximated $3 thousand and $35 thousand,
respectively. Loans past due 90 days or greater and still accruing interest amounted to $1.50 million, $1.69 million and $1.61 million at December 31, 2006, 2005 and 2004, respectively.

Note 6. Related Party Transactions

Loans to
directors and officers totaled $8.5 million and $14.9 million at December 31, 2006 and 2005, respectively. New advances to directors and officers totaled $6.9 million and repayments totaled $6.6 million in the year ended December 31, 2006.
The remainder of the decrease in related party balances is due to loans attributable to directors who are no longer on one of the boards, totaling $6.7 million.

Note 7. Bank Premises and Equipment

A summary of the cost and accumulated depreciation of bank premises and equipment
follows:



|                                     |  |                |        |      |   |       
|------------------------------------ |  | -------------- | ------ | ---- | - | ------
|                                     |  | 2006           |        | 2005
|                                     |  | (in thousands)
|Land and improvements                |  | $              | 4,182  |      | $ | 3,869 
|Buildings and leasehold improvements |  |                | 12,695 |      |   | 12,675
|Furniture, fixtures and equipment    |  |                | 10,897 |      |   | 10,073
|Construction in progress             |  |                | 3,017  |      |   | 512   
|                                     |  |                |        |      |   |       
|                                     |  |                | 30,791 |      |   | 27,129
|Less accumulated depreciation        |  |                | 13,885 |      |   | 11,982
|                                     |  |                |        |      |   |       
|Net balance                          |  | $              | 16,906 |      | $ | 15,147
|                                     |  |                |        |      |   |       

For 2006, depreciation and amortization of premises and equipment was $1.9 million. Depreciation
and amortization expense amounted to $2.1 million for both 2005 and 2004.

Note 8. Deposits

The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was $117.1 million and $91.0 million at December 31, 2006 and
2005, respectively.

At December 31, 2006, the scheduled maturities of certificates of deposit were as follows:



|           |  |                |        
|---------- |  | -------------- | -------
|           |  | (in thousands)
|2007       |  | $              | 267,009
|2008       |  |                | 25,388 
|2009       |  |                | 18,504 
|2010       |  |                | 17,977 
|2011       |  |                | 5,153  
|Thereafter |  |                |       
|           |  |                |        
|Total      |  | $              | 334,031
|           |  |                |        

At December 31, 2006 and 2005, overdraft demand deposits reclassified to loans totaled $287
thousand and $253 thousand, respectively.



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Note 9. Income Taxes

Net deferred tax assets consist of the following components as of December 31, 2006 and 2005.



|                                                     |  |                |       |      |   |      
|---------------------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                                     |  | 2006           |       | 2005
|                                                     |  | (in thousands)
|Deferred tax assets:                                 |  |                |       |      |   |      
|Allowance for loan losses                            |  | $              | 2,398 |      | $ | 2,139
|Interest on nonaccrual loans                         |  |                | 15    |      |   | 12   
|Accrued benefit cost                                 |  |                | 980   |      |   |     
|Net unrealized loss on available for sale securities |  |                | 1,270 |      |   | 915  
|Depreciation and amortization                        |  |                | 168   |      |   | 8    
|                                                     |  |                |       |      |   |      
|                                                     |  |                | 4,831 |      |   | 3,074
|                                                     |  |               
|Deferred tax liabilities:                            |  |                |       |      |   |      
|FHLB dividend                                        |  |                | 8     |      |   | 8    
|Pension liability                                    |  |                |      |      |   | 4    
|Goodwill and other intangible assets                 |  |                | 274   |      |   | 196  
|Other                                                |  |                | 51    |      |   | 46   
|                                                     |  |                |       |      |   |      
|                                                     |  |                | 333   |      |   | 254  
|                                                     |  |                |       |      |   |      
|Net deferred tax assets                              |  | $              | 4,498 |      | $ | 2,820
|                                                     |  |                |       |      |   |      

Income tax expense charged to operations for the years ended December 31, 2006, 2005 and 2004,
consists of the following:



|                       |  |                |        |   |      |   |       |      |  |   |      
|---------------------- |  | -------------- | ------ | - | ---- | - | ----- | ---- |  | - | -----
|                       |  | 2006           |        |   | 2005 |   |       | 2004
|                       |  | (in thousands)
|Currently payable      |  | $              | 4,279  |   |      | $ | 2,773 |      |  | $ | 2,545
|Deferred tax provision |  |                | (1,323 | ) |      |   | (186  | )    |  |   | 86   
|                       |  |                |        |   |      |   |       |      |  |   |      
|                       |  | $              | 2,956  |   |      | $ | 2,587 |      |  | $ | 2,631
|                       |  |                |        |   |      |   |       |      |  |   |      

The income tax provision differs from the amount of income tax determined by applying the U.S.
Federal income tax rate to pretax income for the years ended December 31, 2006, 2005 and 2004, due to the following.



|                                             |  |                |       |   |      |   |       |      |  |   |       |  
|-------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                             |  | 2006           |       |   | 2005 |   |       | 2004 | 
|                                             |  | (in thousands) |      
|Expected tax expense at statutory rate (34%) |  | $              | 3,400 |   |      | $ | 3,167 |      |  | $ | 3,356 |  
|Expected tax expense at statutory rate (35%) |  |                | 68    |   |      |   |      |      |  |   |      |  
|Increase (decrease) in taxes resulting from: |  |                |       |   |      |   |       |      |  |   |       |  
|Tax exempt interest                          |  |                | (550  | ) |      |   | (597  | )    |  |   | (618  | )
|Other                                        |  |                | 38    |   |      |   | 17    |      |  |   | (107  | )
|                                             |  |                |       |   |      |   |       |      |  |   |       |  
|                                             |  | $              | 2,956 |   |      | $ | 2,587 |      |  | $ | 2,631 |  
|                                             |  |                |       |   |      |   |       |      |  |   |       |  



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Note 10. Employee Benefit Plans

Pension Plan

We have a defined benefit pension plan covering substantially all of our employees.
Benefits are based on years of service and the employees compensation during the last five years of employment. Our funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions
are intended to provide not only for benefits attributable to service to date but also for those expected to be earned in the future. Information about the plan follows:



|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                    |  | 2006           |        |   | 2005 |   |        | 2004 | 
|                                                                    |  | (in thousands) |       
|Change in Benefit Obligation                                        |  |                |        |   |      |   |        |      |  |   |        |  
|Obligations at beginning of year                                    |  | $              | 12,494 |   |      | $ | 9,869  |      |  | $ | 8,189  |  
|Service cost                                                        |  |                | 1,400  |   |      |   | 1,094  |      |  |   | 792    |  
|Interest cost                                                       |  |                | 715    |   |      |   | 589    |      |  |   | 529    |  
|Actuarial (gain) loss                                               |  |                | (801   | ) |      |   | 1,234  |      |  |   | 1,473  |  
|Benefits paid                                                       |  |                | (672   | ) |      |   | (292   | )    |  |   | (1,114 | )
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|Benefit obligation, end of year                                     |  | $              | 13,136 |   |      | $ | 12,494 |      |  | $ | 9,869  |  
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|Change in Plan Assets                                               |  |                |        |   |      |   |        |      |  |   |        |  
|Fair value of plan assets, beginning                                |  | $              | 8,609  |   |      | $ | 6,595  |      |  | $ | 6,018  |  
|Actual return on plan assets                                        |  |                | 701    |   |      |   | 995    |      |  |   | 782    |  
|Employer contributions                                              |  |                | 1,618  |   |      |   | 1,311  |      |  |   | 909    |  
|Benefits paid                                                       |  |                | (672   | ) |      |   | (292   | )    |  |   | (1,114 | )
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|Fair value of plan assets, end of year                              |  | $              | 10,256 |   |      | $ | 8,609  |      |  | $ | 6,595  |  
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|Funded Status at the End of the Year                                |  | $              | (2,881 | ) |      | $ | (3,885 | )    |  | $ | (3,274 | )
|                                                                    |  |                |       
|Amounts Recognized in the Balance Sheet                             |  |                |        |   |      |   |        |      |  |   |        |  
|Other liabilities, accrued pension                                  |  | $              | (2,881 | ) |      |   |        |      |  | $ |       |  
|Other assets, prepaid pension                                       |  |                |       |   |      |   | 34     |      |  |   | 34     |  
|                                                                    |  |                |       
|Amounts Recognized in Accumulated Other Comprehensive (Income)/Loss |  |                |        |   |      |   |        |      |  |   |        |  
|Net (gains) / loss                                                  |  | $              | 2,709  |   |      | $ |       |      |  | $ |       |  
|Prior service cost                                                  |  |                | 166    |   |      |   |       |      |  |   |       |  
|Deferred income tax benefit                                         |  |                | (980   | ) |      |   |        |      |  |   |        |  
|Net obligation at transition                                        |  |                | 6      |   |      |   |       |      |  |   |       |  
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  
|Amount recognized                                                   |  | $              | 1,901  |   |      | $ |       |      |  | $ |       |  
|                                                                    |  |                |        |   |      |   |        |      |  |   |        |  



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|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|Funded Status                                                                                |  |   |         |   |  |   |         |   |  |   |        |  
|Benefit obligation                                                                           |  | $ | (13,136 | ) |  | $ | (12,494 | ) |  | $ | (9,869 | )
|Fair value of assets                                                                         |  |   | 10,255  |   |  |   | 8,609   |   |  |   | 6,595  |  
|Unrecognized net actuarial (gain)/loss                                                       |  |   | 2,709   |   |  |   | 3,721   |   |  |   | 3,084  |  
|Unrecognized net obligation at transition                                                    |  |   | 6       |   |  |   | 10      |   |  |   | 14     |  
|Unrecognized prior service cost                                                              |  |   | 166     |   |  |   | 188     |   |  |   | 210    |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Prepaid benefit cost included in other assets                                                |  | $ |        |   |  | $ | 34      |   |  | $ | 34     |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Components of Net Periodic Benefit Cost                                                      |  |   |         |   |  |   |         |   |  |   |        |  
|Service cost                                                                                 |  | $ | 1,400   |   |  | $ | 1,094   |   |  | $ | 792    |  
|Interest cost                                                                                |  |   | 715     |   |  |   | 589     |   |  |   | 529    |  
|Expected return on plan assets                                                               |  |   | (653    | ) |  |   | (514    | ) |  |   | (480   | )
|Amortization of prior service cost                                                           |  |   | 22      |   |  |   | 22      |   |  |   | 22     |  
|Amortization of net obligation at transition                                                 |  |   | 4       |   |  |   | 4       |   |  |   | 4      |  
|Recognized net actuarial loss                                                                |  |   | 130     |   |  |   | 116     |   |  |   | 64     |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Net periodic benefit cost                                                                    |  | $ | 1,618   |   |  | $ | 1,311   |   |  | $ | 931    |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Other Changes in Plan Assets and Benefit Obligations Recognizedin Other Comprehensive Income |  |   |         |   |  |   |         |   |  |   |        |  
|Net (gain) / loss                                                                            |  | $ | 2,709   |   |  | $ |        |   |  | $ |       |  
|Prior service cost                                                                           |  |   | 166     |   |  |   |        |   |  |   |       |  
|Amortization of prior service cost                                                           |  |   |        |   |  |   |        |   |  |   |       |  
|Net obligation at transition                                                                 |  |   | 6       |   |  |   |        |   |  |   |       |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Total recognized in Other Comprehensive Income                                               |  | $ | 2,881   |   |  | $ |        |   |  | $ |       |  
|                                                                                             |  |   |         |   |  |   |         |   |  |   |        |  
|Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income                 |  | $ | 4,499   |   |  | $ | 1,311   |   |  | $ | 931    |  
|                                                                                             |  |   |        
|Weighted-Average Assumptions for Benefit Obligation. End of Year                             |  |   |         |   |  |   |         |   |  |   |        |  
|Discount rate                                                                                |  |   | 6.00    | % |  |   | 5.75    | % |  |   | 6.00   | %
|Rate of compensation increase                                                                |  |   | 5.00    | % |  |   | 5.00    | % |  |   | 5.00   | %
|                                                                                             |  |   |        
|Weighted-Average Assumptions for Net Periodic Benefit Cost                                   |  |   |         |   |  |   |         |   |  |   |        |  
|Discount rate                                                                                |  |   | 5.75    | % |  |   | 6.00    | % |  |   | 6.50   | %
|Expected return on plan assets                                                               |  |   | 8.50    | % |  |   | 8.50    | % |  |   | 8.50   | %
|Rate of compensation increase                                                                |  |   | 5.00    | % |  |   | 5.00    | % |  |   | 5.00   | %



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Notes to Consolidated Financial Statements



Incremental Effect of Applying FASB Statement No. 158 on Individual Line Items in the Balance
Sheet



|                                              |  |                                  |         |   |             |   |        |                                 |  |   |         |  
|--------------------------------------------- |  | -------------------------------- | ------- | - | ----------- | - | ------ | ------------------------------- |  | - | ------- | -
|                                              |  | December 31, 2006 (in thousands) |        
|                                              |  | BeforeApplicationof Statement158 |         |   | Adjustments |   |        | AfterApplicationof Statement158 | 
|Deferred income taxes                         |  | $                                | 3,518   |   |             | $ | 980    |                                 |  | $ | 4,498   |  
|Total assets                                  |  |                                  | 850,418 |   |             |   | 980    |                                 |  |   | 851,398 |  
|Other liabilities                             |  |                                  | 3,643   |   |             |   | 2,881  |                                 |  |   | 6,524   |  
|Total liabilities                             |  |                                  | 760,710 |   |             |   | 2,881  |                                 |  |   | 763,591 |  
|Accumulated other comprehensive income/(loss) |  |                                  | (2,465  | ) |             |   | (1,901 | )                               |  |   | (4,366  | )
|Total shareholders equity                    |  |                                  | 89,708  |   |             |   | (1,901 | )                               |  |   | 87,807  |  

Long Term Rate of Return

In consultation with their investment advisors and actuary, our plan sponsor selects the expected long-term rate of return on assets assumption. This rate
is intended to reflect the average rate of earnings expected to be earned on the funds invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset
classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience, that may not continue over the measurement period, with significance placed on current forecasts of future long-term
economic conditions. The discount rate used to calculate funding requirements and benefit expense was decreased effective October 1, 2004 from 6.50% to 6.00% and again on October 1, 2005 to 5.75%, resulting in an increase in plan expense
for 2005 and 2006.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Solely for this purpose,
the plan is assumed to continue in force and not terminate during the period during which the assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust,
and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated with periodic cost). Our estimate of contributions to the plan for 2007 is $1.6 million.

The pension plans weighted average asset allocations at December 31, 2006 and 2005, by asset category are as follows:



|                          |  |             |   |  |      |  
|------------------------- |  | ----------- | - |  | ---- | -
|                          |  | Plan Assets |  
|                          |  | 2006        |   |  | 2005 |  
|Asset Category:           |  |             |   |  |      |  
|Cash and equivalents      |  | 8           | % |  | 0    | %
|Mutual fundsfixed income |  | 21          | % |  | 19   | %
|Mutual fundsequity       |  | 71          | % |  | 81   | %
|                          |  |             |   |  |      |  
|Total                     |  | 100         | % |  | 100  | %
|                          |  |             |   |  |      |  



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The trust fund is sufficiently diversified to maintain a reasonable level of risk without imprudently
sacrificing return, with a targeted asset allocation of 25% fixed income and 75% equities. The Investment Manager selects investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for
the implementation of the Plans investment strategy. The Investment Manager will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of our Trustee to administer the investments of the Trust within reasonable costs, being careful to avoid
sacrificing quality. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the Trust. There is no Company common stock included in the Plan assets.

Estimated Future Benefit Payments

The following benefit payments reflecting the appropriate expected future service are expected to be paid:



|                    |  |                 |      
|------------------- |  | --------------- | -----
|                    |  | PensionBenefits
|                    |  | (in thousands) 
|10/1/20069/30/2007 |  | $               | 156  
|10/1/20079/30/2008 |  |                 | 167  
|10/1/20089/30/2009 |  |                 | 171  
|10/1/20099/30/2010 |  |                 | 250  
|10/1/20109/30/2011 |  |                 | 253  
|10/1/20119/30/2016 |  |                 | 3,476

401(k) Plan

We have a 401(k) defined contribution plan applicable to all eligible employees. Contributions to the Plan are made in accordance with proposals set forth and approved by the Board of Directors. Employees may elect to
contribute to the Plan an amount not to exceed 20% of their salary. The Company has elected to contribute amounts not to exceed 50% of the first 6% of the employees contribution. Contributions to this Plan by the Company of $222 thousand, $208
thousand and $186 thousand were included in expenses for the years ended December 31, 2006, 2005, and 2004, respectively. There is no Company common stock included in the 401 (k) Plan assets.

Note 11. Earnings Per Share

The following shows the
weighted average number of shares used in computing the earnings per share and the effect on weighted average number of shares of diluted potential common stock. Potential diluted common stock had no effect on income available to common
shareholders. There were 188,987 shares excluded from the 2006 calculations, 89,862 shares from the 2005 calculations and 30,150 shares from the 2004 calculations because their effects were anti-dilutive.



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|                                             |  |                         |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  
|-------------------------------------------- |  | ----------------------- |  | --------------- | ---- | ------ | --------- | --------------- | - | ------ |  | --------------- |  | - | ----- | -
|                                             |  | Years Ended December 31 | 
|                                             |  | 2006                    |  | 2005            |      | 2004   |          
|                                             |  | Shares                  |  | Per ShareAmount |      | Shares |           | Per ShareAmount |   | Shares |  | Per ShareAmount | 
|Basic earnings per share                     |  | 4,985,078               |  | $               | 1.45 |        | 4,893,259 |                 | $ | 1.37   |  | 4,873,271       |  | $ | 1.49  |  
|Effect of dilutive securities, stock options |  | 6,542                   |  |                 |     |        | 9,143     |                 |   |       |  | 10,288          |  |   | (0.01 | )
|                                             |  |                         |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  
|Diluted earnings per share                   |  | 4,991,620               |  |                 | 1.45 |        | 4,902,402 |                 |   | 1.37   |  | 4,883,559       |  | $ | 1.48  |  
|                                             |  |                         |  |                 |      |        |           |                 |   |        |  |                 |  |   |       |  

Note 12. Stock Compensation Plan

On September 21, 2000, we adopted the Eastern Virginia Bankshares, Inc. 2000 Stock Option Plan to provide a means for selected key employees and
directors of the Company and its subsidiaries to increase their personal financial interest in our Company, thereby stimulating their efforts and strengthening their desire to remain with us. Under the Plan, up to 400,000 shares of Company common
stock may be granted. No options may be granted under the Plan after September 21, 2010. On April 17, 2003, the shareholders approved the 2003 Stock Incentive Plan, amending and restating the 2000 Plan while still authorizing the issuance
of up to 400,000 shares of common stock. There are 156,243 shares still available under that Plan.

In December 2004, the FASB issued SFAS
No. 123R, Share-Based Payment. SFAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date
of grant. We had already adopted SFAS No. 123 in 2002 and began recognizing compensation expense for stock option grants in that year as all such grants had an exercise price not less than the fair market value on the date of the grant.

SFAS 123R also requires that new rewards to employees eligible for retirement prior to the award becoming fully vested be recognized as
compensation cost over the period through the date that the employee first becomes eligible to retire and is

no longer required to provide
service to earn the award. Our stock options granted to eligible participants prior to the adoption of SFAS 123R that had an accelerated vesting feature associated with employee retirement are being recognized, as required, as compensation cost over
the vesting period except in the instance of participants actual retirement.

For the years ended December 31, 2006, 2005 and
2004, stock option compensation expense of $210 thousand, $181 thousand and $85 thousand were included in salary and benefit expense and are separately identified in both the Statement of Consolidated Cash Flows and the Consolidated Statement of
Changes in Shareholders Equity. No tax benefits were recognized in 2006, 2005 and 2004.

Stock option compensation expense is the
estimated fair value of options granted amortized on a straight-line basis over the requisite service period for each stock grant award. The weighted average estimated fair value of stock options granted in the years ended December 31, 2006,
2005 and 2004 was $5.40, $5.31 and $5.78, respectively. Fair value is estimated using the Black-Scholes option-pricing model with the assumptions indicated in the table below:



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|                         |  |          |   |  |          |   |  |          |  
|------------------------ |  | -------- | - |  | -------- | - |  | -------- | -
|                         |  | 2006     |   |  | 2005     |   |  | 2004     |  
|Dividend rate:           |  | 2.97     | % |  | 2.76     | % |  | 2.78     | %
|Price Volatility:        |  | 22.94    | % |  | 23.61    | % |  | 24.99    | %
|Risk-free interest rate: |  | 4.65     | % |  | 4.13     | % |  | 4.95     | %
|Expected life:           |  | 10 Years |   |  | 10 Years |   |  | 10 Years |  

The dividend rate is calculated as the average quarterly dividend yield on our stock since our
inception in December 1997 by dividing the quarterly dividend by the average closing price of the stock for the quarter. Volatility is a measure of the standard deviation of the daily closing stock price plus dividend yield for the same period. The
risk-free interest rate is the 10 year Treasury strip rate on the date of the grant.

Stock option plan activity for the year ended
December 31, 2006 is summarized below:



|                                         |  |         |   |  |                              |       |                                                   |     |                                                      |   |    
|---------------------------------------- |  | ------- | - |  | ---------------------------- | ----- | ------------------------------------------------- | --- | ---------------------------------------------------- | - | ---
|                                         |  | Shares  |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife(in years) |     | Value ofUnexercisedIn-the MoneyOptions(in thousands)
|Outstanding at beginning of year         |  | 159,807 |   |  | $                            | 21.18 |                                                   |     |                                                      |   |    
|Granted                                  |  | 60,875  |   |  |                              | 20.57 |                                                   |     |                                                      |   |    
|Exercised                                |  | (825    | ) |  |                              | 16.10 |                                                   |     |                                                      |   |    
|Forfeited                                |  | (6,025  | ) |  |                              | 21.19 |                                                   |     |                                                      |   |    
|                                         |  |         |   |  |                              |       |                                                   |     |                                                      |   |    
|Outstanding at December 31, 2006         |  | 213,832 |   |  | $                            | 21.19 |                                                   | 8.2 |                                                      | $ | 470
|Options exercisable at December 31, 2006 |  | 24,945  |   |  |                              |       |                                                   | 5.3 |                                                      | $ | 161

As of December 31, 2006, there was $571 thousand of unrecognized compensation expense related
to nonvested options which will be recognized over the remaining requisite service period. Cash proceeds from options exercised in 2006 were $13 thousand. There were no stock options exercised or exercisable in 2005. There were no tax benefits
realized from the exercise of stock options during 2006.

Note 13. Commitments and Contingent Liabilities

We entered into a long-term land lease for our Hartfield branch. The lease was entered into on May 9, 1988 for an original term of fifteen years and
renewed for an additional term of ten years in 2003. We have an option to renew for an additional term of ten years and three additional terms of five years each and, thereafter, for five additional terms of five years each.

We rent our principal location in Mechanicsville from a related party under an operating lease. The lease was entered into on May 1, 2000 and renewed
for an additional term of five years on May 1, 2005. The lease provided for two additional renewal options of five years each.

We
lease a banking facility in Ashland, Virginia under an operating lease. The lease was entered into on April 26, 2001 for an original term of three years and was renewed in January 2004 for an additional term of four years. We have relocated the
office that was in this building and may attempt to sublease the space for the remainder of the lease term.

We lease a banking facility in
the Ashland-Hanover Office Building under an operating lease.



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The lease was entered into on July 1, 2001 and renewed for an additional term of five years and
provides for one additional renewal option of five years.

We lease office space at Hanover Green Drive in Mechanicsville, Virginia under an
operating lease. The lease was entered into on May 27, 2004 and provides for a term of five years expiring May 31, 2009 with three renewal options of five years each.

We lease office space at the Glenns intersection of Routes 17 and 33 in Gloucester County, Virginia under an operating lease. The lease was entered into
on June 30, 2004 and provides for a term of 10 years with three renewal options of five years each.

Total rent expense was $278
thousand, $250 thousand and $202 thousand for 2006, 2005, and 2004, respectively, and was included in occupancy expense.

The following is a
schedule by year of future minimum lease requirements required under the long-term non-cancelable lease agreements:



|               |  |   |      
|-------------- |  | - | -----
|(in thousands)
|2007           |  | $ | 267  
|2008           |  |   | 271  
|2009           |  |   | 246  
|2010           |  |   | 195  
|2011           |  |   | 145  
|2012           |  |   | 108  
|2013           |  |   | 108  
|2014           |  |   | 81   
|2015           |  |   | 56   
|2016           |  |   |     
|               |  |   |      
|Total          |  | $ | 1,477
|               |  |   |      

In the normal course of business there are outstanding various commitments and contingent
liabilities, which are not reflected in the accompanying financial statements. We do not anticipate any material losses as a result of these transactions.

See Note 17 with respect to financial instruments with off-balance-sheet risk.

Note 14. Restrictions on Transfers to
Parent

Transfers of funds from banking subsidiaries to the Parent Company in the form of loans, advances and cash dividends, are
restricted by federal and state regulatory authorities. As of December 31, 2006, retained net income, which was free of restriction, amounted to $17.6 million.

Note 15. Long-Term Debt

Federal Home Loan Bank Advances and Available Lines of Credit

At December 31, 2006 our Federal Home Loan Bank (FHLB) debt consisted of advances of $90.5 million, $85.5 million of which is
callable$62 million in 2007, $10 million in 2008 and $13.5 million in 2010. There are two advances totaling $5.0 million at December 31, 2006 which are payable semi-annually over a seven-year period beginning in 2003. Advances mature
through 2015. At December 31, 2006, the interest rates ranged from 3.10% to 5.92% with a weighted average interest



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rate of 4.14%. Advances on the line are secured by a blanket lien on qualified 1 to 4 family residential real estate loans. Immediate available credit
amounted to $79.0 million.

Aggregate annual maturities of FHLB advances (based on final maturity dates) are as follows:



|               |  |   |       
|-------------- |  | - | ------
|(in thousands)
|2007           |  | $ | 1,429 
|2008           |  |   | 1,429 
|2009           |  |   | 1,429 
|2010           |  |   | 15,713
|2011           |  |   | 10,000
|2012           |  |   | 5,000 
|2013           |  |   |      
|2014           |  |   |      
|2015           |  |   | 20,500
|2016           |  |   | 35,000
|               |  |   |       
|Total          |  | $ | 90,500
|               |  |   |       

We have unused lines of credit totaling $20.0 million with nonaffiliated banks as of
December 31, 2006.

Trust Preferred Securities

On September 5, 2003, EVB Statutory Trust I (the Trust), a wholly-owned subsidiary of the Company, was formed for the purpose of issuing redeemable capital securities. On September 17, 2003, $10 million of
trust preferred securities were issued through a pooled underwriting totaling approximately $650 million. The Trust issued $310 thousand in common equity to the Company. The securities have a LIBOR indexed floating rate of interest. The interest
rate at December 31, 2006 was 8.31%. The securities have a mandatory redemption date of September 17, 2033, and are subject to varying call provisions beginning September 17, 2008. The principal asset of the Trust is $10.31 million of
our junior subordinated debt securities with the same maturity and interest rate structures as the capital securities.

The trust preferred
securities may be included in Tier I capital for regulatory capital adequacy purposes as long as their amount does not exceed 25% of Tier I capital, including total trust preferred securities. The portion of the trust preferred securities not
considered as Tier I capital, if any, may be included in Tier 2 capital. The total amount ($10 million) of trust preferred securities issued by the Trust can be included in our Tier I capital.

Our obligations with respect to the issuance of the capital securities constituted a full and unconditional guarantee by the Company of the Trusts
obligations with respect to the capital securities. Subject to certain exceptions and limitations, we may elect from time to time to defer interest payments on the junior subordinated debt securities, which would result in a deferral of distribution
payments on the related capital securities.



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Note 16. Dividend Reinvestment Plan

We have in effect a Dividend Reinvestment Plan, which provides an automatic conversion of dividends into common stock for enrolled shareholders. It is
based on the stocks fair market value on the three trading days prior to each dividend record date, and allows for voluntary contributions to purchase stock up to $5 thousand per shareholder per calendar quarter.

Note 17. Financial Instruments with Off-Balance-Sheet Risk

We are party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby
letters of credit. To varying degrees those instruments involve elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of
involvement we have in particular classes of financial instruments.

Our exposure to credit loss is represented by the contractual amount of
these commitments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

At December 31, 2006 and 2005, the following financial instruments were outstanding whose contract amounts represent credit risk:



|                                                                          |  |                  |        |      |   |       
|------------------------------------------------------------------------- |  | ---------------- | ------ | ---- | - | ------
|                                                                          |  | Contract Amounts
|                                                                          |  | 2006             |        | 2005
|                                                                          |  | (in thousands)  
|Commitments to grant loans and unfunded commitments under lines of credit |  | $                | 89,092 |      | $ | 88,833
|Standby letters of credit                                                 |  |                  | 5,132  |      |   | 1,879 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore,
the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by us, is based on managements credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines of credit are usually uncollateralized and do not always contain a specified maturity date and may not be drawn upon to the total extent to which we are committed.

Standby letters of credit are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We generally hold collateral supporting those commitments if deemed necessary.

We maintain cash accounts in other commercial banks. The amount on deposit with correspondent institutions at December 31, 2006 exceeded the
insurance limits of the Federal Deposit Insurance Corporation by $9.3 million.



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Note 18. Fair Value of Financial Instruments and Interest Rate Risk

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Companys various financial instruments. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the fair discount rate and estimates of future cash flows. Accordingly, the fair value estimates may
not be realized in an immediate settlement of the instrument. SFAS No.107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not
necessarily represent the underlying fair value of our Company.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate that value.

Cash and Short-Term Investments

For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities

For securities and
marketable equity securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar securities.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values
for other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.

Deposit Liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated using market rates for deposits of similar remaining maturities.

Short-Term Borrowings

The carrying amounts of federal funds purchased and other short-term borrowings maturing within 90
days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the current incremental borrowing rates for similar types of borrowing arrangements.

Long-Term Debt

The fair values of our
long-term borrowings are estimated using discounted cash flow analyses based on our current incremental borrowing rates for similar types of borrowing arrangements.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.



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Off-Balance-Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting date.

At December 31, 2006 and 2005, the fair value of loan
commitments and standby letters of credit are immaterial to fair value.

The estimated fair values and related carrying amounts of our
financial instruments are as follows:



|                                |  |                   |         |                     |   |                |  |                     |         |  |   |        
|------------------------------- |  | ----------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                |  | December 31, 2006 |         | December 31, 2005  
|                                |  | CarryingAmount    |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|                                |  | (in thousands)    |         | (in thousands)     
|Financial assets:               |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Cash and short-term investments |  | $                 | 36,415  |                     | $ | 36,415         |  | $                   | 21,516  |  | $ | 21,516 
|Securitiesavailable for sale   |  |                   | 127,167 |                     |   | 127,167        |  |                     | 135,420 |  |   | 135,420
|Loans, net                      |  |                   | 643,441 |                     |   | 678,853        |  |                     | 567,484 |  |   | 564,397
|Accrued interest receivable     |  |                   | 4,132   |                     |   | 4,132          |  |                     | 2,820   |  |   | 2,820  
|                                |  |                   |         |                    
|Financial liabilities:          |  |                   |         |                     |   |                |  |                     |         |  |   |        
|Noninterest-bearing deposits    |  | $                 | 99,253  |                     | $ | 99,523         |  | $                   | 99,718  |  | $ | 99,718 
|Interest-bearing deposits       |  |                   | 554,726 |                     |   | 552,072        |  |                     | 528,625 |  |   | 527,111
|Short-term borrowings           |  |                   |        |                     |   |               |  |                     | 6,822   |  |   | 6,822  
|Federal Home Loan Bank advances |  |                   | 90,500  |                     |   | 89,622         |  |                     | 51,928  |  |   | 51,167 
|Trust preferred debt            |  |                   | 10,310  |                     |   | 10,785         |  |                     | 10,310  |  |   | 10,310 
|Accrued interest payable        |  |                   | 2,278   |                     |   | 2,278          |  |                     | 1,264   |  |   | 1,264  

We assume interest rate risk (the risk that general interest rate levels will change) as a result
of our normal operations. As a result, the fair values of our financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to us. We attempt to match maturities of assets and liabilities
to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw
funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. We monitor rates and maturities of assets and liabilities and attempt to minimize interest rate risk by adjusting terms of new loans and
deposits and by investing in securities with terms that mitigate our overall interest rate risk.

Note 19. Regulatory Matters

The Company (on a consolidated basis) and EVB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure
to meet minimum capital requirements can initiate certain mandatory and possibly



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additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the our and EVBs financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, we and EVB must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to
bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require us and EVB to maintain minimum
amounts and ratios (set forth in the table that follows) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). We believe, as of
December 31, 2006 and 2005, that we and EVB meet all capital adequacy requirements to which we are subject.

As of December 31,
2006, based on regulatory guidelines, we believe that EVB is well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, EVB must maintain minimum total risk-based, Tier 1 risk-based, and Tier
1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the banks category.

Our Companys and the banks actual capital amounts and ratios are presented in the following table.



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|                                          |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|----------------------------------------- |  | ---------------------- | ------- | ----- | -------------------------- | - | ------ | -------------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                          |  | Actual                 |         |       | Minimum CapitalRequirement |   |        | Minimum To Be WellCapitalized UnderPrompt CorrectiveAction Provision |       
|                                          |  | Amount                 |         | Ratio |                            |   | Amount |                                                                      | Ratio  |  |      | Amount |  | Ratio |       
|                                          |  | (dollars in thousands) |        
|As of December 31, 2006                   |  |                        |         |      
|Total capital to risk weighted assets     |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 102,448 |       | 16.15                      | % |        | $                                                                    | 50,743 |  | 8.00 | %      |  |       | NA     |  | NA    |  
|EVB                                       |  |                        | 71,900  |       | 11.36                      | % |        |                                                                      | 50,620 |  | 8.00 | %      |  | $     | 63,275 |  | 10.00 | %
|                                          |  |                        |         |       |                            |  
|Tier 1 capital to risk weighted assets    |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 95,397  |       | 15.04                      | % |        | $                                                                    | 25,371 |  | 4.00 | %      |  |       | NA     |  | NA    |  
|EVB                                       |  |                        | 62,849  |       | 9.93                       | % |        |                                                                      | 25,310 |  | 4.00 | %      |  | $     | 37,965 |  | 6.00  | %
|                                          |  |                        |         |       |                            |  
|Tier 1 capital to average adjusted assets |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 95,397  |       | 11.57                      | % |        | $                                                                    | 33,243 |  | 4.00 | %      |  |       | NA     |  | NA    |  
|EVB                                       |  |                        | 62,849  |       | 7.62                       | % |        |                                                                      | 25,310 |  | 4.00 | %      |  | $     | 31,637 |  | 5.00  | %
|                                          |  |                        |         |       |                            |  
|As of December 31, 2005                   |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Total capital to risk weighted assets     |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 73,195  |       | 13.23                      | % |        | $                                                                    | 44,253 |  | 8.00 | %      |  |       | NA     |  | NA    |  
|EVB (formerly SSB)                        |  |                        | 35,940  |       | 12.22                      | % |        |                                                                      | 23,527 |  | 8.00 | %      |  | $     | 29,409 |  | 10.00 | %
|BNI                                       |  |                        | 21,252  |       | 14.21                      | % |        |                                                                      | 11,968 |  | 8.00 | %      |  |       | 14,960 |  | 10.00 | %
|HB                                        |  |                        | 11,768  |       | 10.84                      | % |        |                                                                      | 8,687  |  | 8.00 | %      |  |       | 10,859 |  | 10.00 | %
|                                          |  |                        |         |       |                            |  
|Tier 1 capital to risk weighted assets    |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 66,594  |       | 12.04                      | % |        | $                                                                    | 22,127 |  | 4.00 | %      |  |       | NA     |  | NA    |  
|EVB (formerly SSB)                        |  |                        | 31,777  |       | 10.81                      | % |        |                                                                      | 11,764 |  | 4.00 | %      |  | $     | 17,645 |  | 6.00  | %
|BNI                                       |  |                        | 18,377  |       | 12.28                      | % |        |                                                                      | 5,984  |  | 4.00 | %      |  |       | 8,976  |  | 6.00  | %
|HB                                        |  |                        | 10,602  |       | 9.76                       | % |        |                                                                      | 4,344  |  | 4.00 | %      |  |       | 6,515  |  | 6.00  | %
|                                          |  |                        |         |       |                            |  
|Tier 1 capital to average adjusted assets |  |                        |         |       |                            |   |        |                                                                      |        |  |      |        |  |       |        |  |       |  
|Consolidated                              |  | $                      | 66,594  |       | 8.87                       | % |        | $                                                                    | 30,047 |  | 4.00 | %      |  |       | NA     |  | NA    |  
|EVB (formerly SSB)                        |  |                        | 31,777  |       | 7.73                       | % |        |                                                                      | 16,437 |  | 4.00 | %      |  | $     | 20,546 |  | 5.00  | %
|BNI                                       |  |                        | 18,377  |       | 8.36                       | % |        |                                                                      | 8,794  |  | 4.00 | %      |  |       | 10,992 |  | 5.00  | %
|HB                                        |  |                        | 10,602  |       | 8.40                       | % |        |                                                                      | 5,051  |  | 4.00 | %      |  |       | 6,314  |  | 5.00  | %

Note 20. Common Stock Offering

On December 13, 2006, we issued 1,150,000 shares of common stock in a registered public offering at $22.00 per share before commissions and expenses.
Gross proceeds amounted to $25.3 million. Net proceeds after commissions, but prior to other offering expenses were approximately $23.8 million. We are using the net proceeds from this offering to provide additional capital to the bank and to
support anticipated growth.



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Note 21. Condensed Financial InformationParent Company Only

EASTERN VIRGINIA BANKSHARES, INC.

(Parent Corporation Only)

Balance Sheets

December 31, 2006 and 2005



|                                                          |  |                        |         |   |      |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------ | -
|                                                          |  | (dollars in thousands) |        
|                                                          |  | 2006                   |         |   | 2005 |  
|Assets:                                                   |  |                        |         |   |      |   |        |  
|Cash on deposit with subsidiary banks                     |  | $                      | 29,798  |   |      | $ | 2,223  |  
|Subordinated debt in subsidiaries                         |  |                        | 2,000   |   |      |   | 2,000  |  
|Investment in subsidiaries                                |  |                        | 67,470  |   |      |   | 66,346 |  
|Other investments                                         |  |                        |        |   |      |   | 118    |  
|Deferred income taxes                                     |  |                        | 979     |   |      |   | 93     |  
|Premises and equipment, net                               |  |                        |        |   |      |   | 1,028  |  
|Other assets                                              |  |                        | 848     |   |      |   | 799    |  
|                                                          |  |                        |         |   |      |   |        |  
|Total assets                                              |  | $                      | 101,095 |   |      | $ | 72,607 |  
|                                                          |  |                        |         |   |      |   |        |  
|Liabilities:                                              |  |                        |         |   |      |   |        |  
|Trust preferred debt                                      |  | $                      | 10,310  |   |      | $ | 10,310 |  
|Deferred income taxes                                     |  |                        |        |   |      |   |       |  
|Accrued benefit cost                                      |  |                        | 2,881   |   |      |   |       |  
|Other liabilities                                         |  |                        | 97      |   |      |   | 423    |  
|                                                          |  |                        |         |   |      |   |        |  
|                                                          |  |                        | 13,288  |   |      |   | 10,733 |  
|                                                          |  |                        |         |   |      |   |        |  
|Shareholders Equity:                                     |  |                        |         |   |      |   |        |  
|Common stock                                              |  |                        | 12,166  |   |      |   | 9,812  |  
|Surplus                                                   |  |                        | 21,276  |   |      |   |       |  
|Retained earnings                                         |  |                        | 58,731  |   |      |   | 53,838 |  
|Accumulated other comprehensive income/(loss), pension    |  |                        | (1,901  | ) |      |   |       |  
|Accumulated other comprehensive income/(loss), securities |  |                        | (2,465  | ) |      |   | (1,776 | )
|                                                          |  |                        |         |   |      |   |        |  
|Total shareholders equity                                |  |                        | 87,807  |   |      |   | 61,874 |  
|                                                          |  |                        |         |   |      |   |        |  
|Total liabilities and shareholders equity                |  | $                      | 101,095 |   |      | $ | 72,607 |  
|                                                          |  |                        |         |   |      |   |        |  



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EASTERN VIRGINIA BANKSHARES, INC.

(Parent Corporation Only)

Statements of Income

For the Years Ended December 31, 2006, 2005 and 2004



|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|--------------------------------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                                |  | (dollars in thousands) |      
|                                                                |  | 2006                   |       |   | 2005 |   |        | 2004 | 
|Income:                                                         |  |                        |       |   |      |   |        |      |  |   |       |  
|Dividends from subsidiaries                                     |  | $                      | 6,000 |   |      | $ |       |      |  | $ |      |  
|Dividends                                                       |  |                        |      |   |      |   | 2      |      |  |   | 1     |  
|Interest from subsidiaries                                      |  |                        | 54    |   |      |   | 5      |      |  |   | 14    |  
|Interest from subordinated debt                                 |  |                        | 140   |   |      |   | 233    |      |  |   | 644   |  
|Management fee, corporate services and operations services      |  |                        |      |   |      |   | 6,873  |      |  |   | 5,533 |  
|Loss on disposal of fixed assets                                |  |                        |      |   |      |   | (44    | )    |  |   |      |  
|Miscellaneous income                                            |  |                        | 1     |   |      |   | 4      |      |  |   | 5     |  
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|                                                                |  |                        | 6,195 |   |      |   | 7,073  |      |  |   | 6,197 |  
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|Expenses:                                                       |  |                        |       |   |      |   |        |      |  |   |       |  
|Interest on trust preferred debt                                |  |                        | 811   |   |      |   | 651    |      |  |   | 439   |  
|Salaries and benefits                                           |  |                        |      |   |      |   | 4,382  |      |  |   | 2,950 |  
|Occupancy and equipment expense                                 |  |                        |      |   |      |   | 1,099  |      |  |   | 1,017 |  
|Data processing                                                 |  |                        |      |   |      |   | 643    |      |  |   | 493   |  
|Consultant fees                                                 |  |                        |      |   |      |   | 994    |      |  |   | 690   |  
|Postage                                                         |  |                        |      |   |      |   | 273    |      |  |   | 253   |  
|Printing and supplies                                           |  |                        |      |   |      |   | 125    |      |  |   | 189   |  
|Directors fees                                                  |  |                        | 77    |   |      |   | 219    |      |  |   | 160   |  
|Miscellaneous                                                   |  |                        | 178   |   |      |   | 609    |      |  |   | 497   |  
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|                                                                |  |                        | 1,066 |   |      |   | 8,995  |      |  |   | 6,688 |  
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|Net income (loss) before undistributed earnings of subsidiaries |  |                        | 5,129 |   |      |   | (1,922 | )    |  |   | (491  | )
|Undistributed earnings of subsidiaries                          |  |                        | 1,812 |   |      |   | 8,113  |      |  |   | 7,631 |  
|Income tax benefit                                              |  |                        | (296  | ) |      |   | (535   | )    |  |   | (100  | )
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  
|Net income                                                      |  | $                      | 7,237 |   |      | $ | 6,726  |      |  | $ | 7,240 |  
|                                                                |  |                        |       |   |      |   |        |      |  |   |       |  



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##### Table of Contents

Notes to Consolidated Financial Statements



EASTERN VIRGINIA BANKSHARES, INC.

(Parent Corporation Only)

Statements of Cash Flows

For the Years Ended December 31, 2006, 2005 and 2004



|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                              |  | (dollars in thousands) |       
|                                                                              |  | 2006                   |        |   | 2005 |   |        | 2004 | 
|Cash Flows from Operating Activities                                          |  |                        |        |   |      |   |        |      |  |   |        |  
|Net income                                                                    |  | $                      | 7,237  |   |      | $ | 6,726  |      |  | $ | 7,240  |  
|Adjustments to reconcile net income to cash provided by operating activities: |  |                        |        |   |      |   |        |      |  |   |        |  
|Undistributed earnings of subsidiaries                                        |  |                        | (1,812 | ) |      |   | (8,113 | )    |  |   | (7,631 | )
|Depreciation and amortization                                                 |  |                        |       |   |      |   | 574    |      |  |   | 677    |  
|Deferred income taxes                                                         |  |                        | 94     |   |      |   | (74    | )    |  |   | (102   | )
|Loss on sale/disposal of fixed assets                                         |  |                        |       |   |      |   | 44     |      |  |   |       |  
|Decrease (increase) in other assets                                           |  |                        | (49    | ) |      |   | 551    |      |  |   | (534   | )
|(Decrease) in other liabilities                                               |  |                        | (327   | ) |      |   | (89    | )    |  |   | (45    | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided by (used in) operating activities                           |  |                        | 5,143  |   |      |   | (381   | )    |  |   | (395   | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash Flows from Investing Activities                                          |  |                        |        |   |      |   |        |      |  |   |        |  
|Proceeds from disposal of fixed assets                                        |  |                        | 1,028  |   |      |   |       |      |  |   |       |  
|Proceeds from sale of investments                                             |  |                        | 118    |   |      |   |       |      |  |   |       |  
|Purchases of premises and equipment                                           |  |                        |       |   |      |   | (697   | )    |  |   | (335   | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided by / (used in) investing activities                         |  |                        | 1,146  |   |      |   | (697   | )    |  |   | (335   | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash Flows from Financing Activities                                          |  |                        |        |   |      |   |        |      |  |   |        |  
|Capital transferred to subsidiaries                                           |  |                        |       |   |      |   | (5,200 | )    |  |   |       |  
|Subordinated debt to subsidiary banks                                         |  |                        |       |   |      |   | 7,200  |      |  |   |       |  
|Dividends paid                                                                |  |                        | (3,098 | ) |      |   | (2,935 | )    |  |   | (2,920 | )
|Exercise of stock options                                                     |  |                        | 13     |   |      |   |       |      |  |   |       |  
|Stock-based compensation                                                      |  |                        | 210    |   |      |   | 181    |      |  |   | 85     |  
|Director stock grant                                                          |  |                        | 191    |   |      |   | 125    |      |  |   | 131    |  
|Issuance of common stock under offering, net                                  |  |                        | 23,576 |   |      |   |       |      |  |   |       |  
|Issuance of common stock under dividend reinvestment plan, net of repurchases |  |                        | 394    |   |      |   | 387    |      |  |   | 405    |  
|Repurchases and retirement of stock                                           |  |                        |       |   |      |   |       |      |  |   | (191   | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Net cash provided by / (used in) financing activities                         |  |                        | 21,286 |   |      |   | (242   | )    |  |   | (2,490 | )
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Increase (decrease) in cash and cash equivalents                              |  |                        | 27,575 |   |      |   | (1,320 | )    |  |   | (3,220 | )
|Cash and Cash Equivalents, beginning of year                                  |  |                        | 2,223  |   |      |   | 3,543  |      |  |   | 6,763  |  
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  
|Cash and Cash Equivalents, end of year                                        |  | $                      | 29,798 |   |      | $ | 2,223  |      |  | $ | 3,543  |  
|                                                                              |  |                        |        |   |      |   |        |      |  |   |        |  



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