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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended September 30, 2007

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: 000-23565



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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)

(804) 443-8423

(Registrants telephone number, including area code)



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

Indicate by check mark whether the registrant is 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 Exchange Act).    Yes ̈No  x

The number of shares of the registrants Common Stock outstanding as of November 1, 2007 was 5,954,726.



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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-Q

For the Period Ended September 30, 2007



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|Part I     |  | Financial Information                                                                 |  |   
|Item 1.    |  | Financial Statements                                                                  |  | 1 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 20
|Item 4.    |  | Controls and Procedures                                                               |  | 20
|           |  |                                                                                      
|Part II    |  | Other Information                                                                     |  |   
|Item 1.    |  | Legal Proceedings                                                                     |  | 21
|Item 1A.   |  | Risk Factors                                                                          |  | 21
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 21
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 21
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 21
|Item 5.    |  | Other Information                                                                     |  | 21
|Item 6.    |  | Exhibits                                                                              |  | 21
|Signatures |  | 22                                                                                   



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##### Table of Contents

PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

Eastern Virginia
Bankshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)



|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- | ----------- | ---------------- | ------- | - | --------------- | - | ------- | -
|                                                                                                                                   |             | September 302007 |         |   | December 312006 |  
|                                                                                                                                   | (unaudited) |                  |        
|Assets:                                                                                                                            |             |                  |         |   |                 |   |         |  
|Cash and due from banks                                                                                                            |             | $                | 16,710  |   |                 | $ | 14,004  |  
|Federal funds sold                                                                                                                 |             |                  | 523     |   |                 |   | 22,411  |  
|Securities available for sale, at fair value                                                                                       |             |                  | 149,879 |   |                 |   | 127,167 |  
|Loans, net of unearned income                                                                                                      |             |                  | 697,283 |   |                 |   | 650,492 |  
|Allowance for loan losses                                                                                                          |             |                  | (7,447  | ) |                 |   | (7,051  | )
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Total loans, net                                                                                                                   |             |                  | 689,836 |   |                 |   | 643,441 |  
|Deferred income taxes                                                                                                              |             |                  | 4,321   |   |                 |   | 4,498   |  
|Bank premises and equipment, net                                                                                                   |             |                  | 17,199  |   |                 |   | 16,906  |  
|Accrued interest receivable                                                                                                        |             |                  | 4,639   |   |                 |   | 4,132   |  
|Other real estate                                                                                                                  |             |                  | 951     |   |                 |   |        |  
|Goodwill                                                                                                                           |             |                  | 5,725   |   |                 |   | 5,725   |  
|Other assets                                                                                                                       |             |                  | 13,412  |   |                 |   | 13,114  |  
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Total assets                                                                                                                       |             | $                | 903,195 |   |                 | $ | 851,398 |  
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Liabilities and Shareholders Equity:                                                                                              |             |                  |         |   |                 |   |         |  
|Liabilities                                                                                                                        |             |                  |         |   |                 |   |         |  
|Noninterest-bearing demand accounts                                                                                                |             | $                | 100,751 |   |                 | $ | 99,253  |  
|Interest-bearing deposits                                                                                                          |             |                  | 557,036 |   |                 |   | 554,726 |  
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Total deposits                                                                                                                     |             |                  | 657,787 |   |                 |   | 653,979 |  
|Federal funds purchased                                                                                                            |             |                  | 5,805   |   |                 |   |        |  
|Federal Home Loan Bank advances (FHLB)                                                                                             |             |                  | 127,786 |   |                 |   | 90,500  |  
|Trust preferred debt                                                                                                               |             |                  | 10,310  |   |                 |   | 10,310  |  
|Accrued interest payable                                                                                                           |             |                  | 3,936   |   |                 |   | 2,278   |  
|Other liabilities                                                                                                                  |             |                  | 8,082   |   |                 |   | 6,524   |  
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Total liabilities                                                                                                                  |             |                  | 813,706 |   |                 |   | 763,591 |  
|                                                                                                                                   |             |                 
|Shareholders Equity                                                                                                               |             |                  |         |   |                 |   |         |  
|Common stock of $2 par value per share, authorized 50,000,000 shares, issued and outstanding 5,955,176 and 6,083,294,
respectively |             |                  | 11,910  |   |                 |   | 12,166  |  
|Surplus                                                                                                                            |             |                  | 19,097  |   |                 |   | 21,276  |  
|Retained earnings                                                                                                                  |             |                  | 62,503  |   |                 |   | 58,731  |  
|Accumulated other comprehensive (loss), net                                                                                        |             |                  | (4,021  | ) |                 |   | (4,366  | )
|                                                                                                                                   |             |                  |         |   |                 |   |         |  
|Total shareholders equity                                                                                                         |             |                  | 89,489  |   |                 |   | 87,807  |  
|                                                                                                                                   |             |                 
|Total liabilities and shareholders equity                                                                                         |             | $                | 903,195 |   |                 | $ | 851,398 |  
|                                                                                                                                   |             |                  |         |   |                 |   |         |  

See Notes to Consolidated Financial Statements



1



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##### Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income(Unaudited)

(Dollars in thousands except per share amounts)



|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|--------------------------------------------------- | ---- | ------------------------------ | ------ | ----------------------------- | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                    |      | Three Months EndedSeptember 30 |        | Nine Months EndedSeptember 30
|                                                    | 2007 |                                | 2006   |                               | 2007 |        | 2006
|Interest and Dividend Income                        |      |                                |        |                               |      |        |      |   |        |  |   |       
|Loans and fees on loans                             |      | $                              | 12,907 |                               | $    | 11,450 |      | $ | 37,561 |  | $ | 32,422
|Interest on investments:                            |      |                                |        |                               |      |        |      |   |        |  |   |       
|Taxable interest income                             |      |                                | 1,361  |                               |      | 1,073  |      |   | 3,625  |  |   | 3,313 
|Tax exempt interest income                          |      |                                | 374    |                               |      | 340    |      |   | 1,038  |  |   | 1,070 
|Dividends                                           |      |                                | 107    |                               |      | 155    |      |   | 314    |  |   | 287   
|Interest on federal funds sold                      |      |                                | 73     |                               |      | 119    |      |   | 573    |  |   | 195   
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Total interest and dividend income                  |      |                                | 14,822 |                               |      | 13,137 |      |   | 43,111 |  |   | 37,287
|                                                    |      |                                |        |                              
|Interest Expense                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Deposits                                            |      |                                | 4,797  |                               |      | 3,959  |      |   | 14,189 |  |   | 10,716
|Federal funds purchased                             |      |                                | 52     |                               |      | 2      |      |   | 57     |  |   | 81    
|Interest on FHLB advances                           |      |                                | 1,374  |                               |      | 990    |      |   | 3,470  |  |   | 2,464 
|Interest on trust preferred debt                    |      |                                | 216    |                               |      | 212    |      |   | 631    |  |   | 598   
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Total interest expense                              |      |                                | 6,439  |                               |      | 5,163  |      |   | 18,347 |  |   | 13,859
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Net interest income                                 |      |                                | 8,383  |                               |      | 7,974  |      |   | 24,764 |  |   | 23,428
|Provision for Loan Losses                           |      |                                | 325    |                               |      | 204    |      |   | 628    |  |   | 521   
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Net interest income after provision for loan losses |      | $                              | 8,058  |                               | $    | 7,770  |      | $ | 24,136 |  | $ | 22,907
|Noninterest Income                                  |      |                                |        |                               |      |        |      |   |        |  |   |       
|Service charges and fees on deposit accounts        |      |                                | 921    |                               |      | 839    |      |   | 2,658  |  |   | 2,382 
|Debit and credit card fees                          |      |                                | 233    |                               |      | 122    |      |   | 571    |  |   | 345   
|Investment services                                 |      |                                | 171    |                               |      | 97     |      |   | 348    |  |   | 273   
|Gain on sale of available for sale securities, net  |      |                                | 14     |                               |      | 5      |      |   | 14     |  |   | 36    
|Gain on sale of OREO or fixed assets                |      |                                |       |                               |      |       |      |   |       |  |   | 26    
|Other operating income                              |      |                                | 304    |                               |      | 296    |      |   | 878    |  |   | 751   
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Total noninterest income                            |      |                                | 1,643  |                               |      | 1,359  |      |   | 4,469  |  |   | 3,813 
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Noninterest Expenses                                |      |                                |        |                               |      |        |      |   |        |  |   |       
|Salaries and benefits                               |      |                                | 3,712  |                               |      | 3,634  |      |   | 10,892 |  |   | 10,958
|Net occupancy and equipment expense                 |      |                                | 1,106  |                               |      | 991    |      |   | 3,145  |  |   | 2,948 
|Consultant fees                                     |      |                                | 130    |                               |      | 108    |      |   | 426    |  |   | 549   
|Telephone                                           |      |                                | 146    |                               |      | 138    |      |   | 443    |  |   | 417   
|Marketing and advertising                           |      |                                | 180    |                               |      | 249    |      |   | 675    |  |   | 741   
|Other operating expenses                            |      |                                | 1,157  |                               |      | 1,273  |      |   | 3,502  |  |   | 3,716 
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Total noninterest expenses                          |      |                                | 6,431  |                               |      | 6,393  |      |   | 19,083 |  |   | 19,329
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Income before income taxes                          |      |                                | 3,270  |                               |      | 2,736  |      |   | 9,522  |  |   | 7,391 
|Income Tax Expense                                  |      |                                | 1,005  |                               |      | 767    |      |   | 2,834  |  |   | 2,070 
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Net income                                          |      | $                              | 2,265  |                               | $    | 1,969  |      | $ | 6,688  |  | $ | 5,321 
|                                                    |      |                                |        |                               |      |        |      |   |        |  |   |       
|Earnings per share, assuming dilution               |      | $                              | 0.38   |                               | $    | 0.40   |      | $ | 1.10   |  | $ | 1.08  
|Dividends per share                                 |      | $                              | 0.16   |                               | $    | 0.16   |      | $ | 0.48   |  | $ | 0.47  

See Notes to Consolidated Financial Statements



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##### Table of Contents

Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                            |      |                               |         |      |  |   |         |  
|------------------------------------------------------------------------------------------- | ---- | ----------------------------- | ------- | ---- |  | - | ------- | -
|                                                                                            |      | Nine Months EndedSeptember 30 |        
|                                                                                            | 2007 |                               |         | 2006 | 
|Cash Flows from Operating Activities                                                        |      |                               |         |      |  |   |         |  
|Net income                                                                                  |      | $                             | 6,688   |      |  | $ | 5,321   |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |      |                               |         |      |  |   |         |  
|Depreciation and investment amortization/accretion, net                                     |      |                               | 1,505   |      |  |   | 1,712   |  
|Provision for loan losses                                                                   |      |                               | 628     |      |  |   | 521     |  
|(Gain) realized on available for sale securities                                            |      |                               | (14     | )    |  |   | (36     | )
|(Gain) on sale of fully depreciated fixed assets                                            |      |                               |        |      |  |   | (26     | )
|(Increase) in other assets                                                                  |      |                               | (706    | )    |  |   | (1,878  | )
|Increase in other liabilities                                                               |      |                               | 3,216   |      |  |   | 2,036   |  
|                                                                                            |      |                               |         |      |  |   |         |  
|Net cash provided by operating activities                                                   |      |                               | 11,317  |      |  |   | 7,650   |  
|Cash Flows from Investing Activities                                                        |      |                               |         |      |  |   |         |  
|Proceeds from sales of securities available for sale                                        |      |                               | 4,070   |      |  |   | 4,746   |  
|Proceeds from maturities, calls, and paydowns of securities                                 |      |                               | 6,555   |      |  |   | 10,622  |  
|Purchase of debt securities                                                                 |      |                               | (31,290 | )    |  |   | (6,375  | )
|Purchase of restricted stock                                                                |      |                               | (1,635  | )    |  |   | (1,436  | )
|Net increase in loans                                                                       |      |                               | (47,974 | )    |  |   | (63,290 | )
|Sale of fixed assets                                                                        |      |                               |        |      |  |   | 26      |  
|Purchases of bank premises and equipment                                                    |      |                               | (1,746  | )    |  |   | (2,580  | )
|                                                                                            |      |                               |         |      |  |   |         |  
|Net cash used in investing activities                                                       |      |                               | (72,020 | )    |  |   | (58,287 | )
|Cash Flows from Financing Activities                                                        |      |                               |         |      |  |   |         |  
|Net change in noninterest bearing and interest bearing demand deposits and savings accounts |      |                               | 8,014   |      |  |   | (28,204 | )
|Net change in certificates of deposit                                                       |      |                               | (4,206  | )    |  |   | 42,018  |  
|Issuance of common stock under dividend reinvestment plan                                   |      |                               | 310     |      |  |   | 295     |  
|Repurchases and retirement of stock                                                         |      |                               | (3,113  | )    |  |   |        |  
|Stock based compensation                                                                    |      |                               | 188     |      |  |   | 146     |  
|Stock options exercised                                                                     |      |                               | 37      |      |  |   | 13      |  
|Director stock grant                                                                        |      |                               | 116     |      |  |   | 191     |  
|Dividends declared                                                                          |      |                               | (2,916  | )    |  |   | (2,309  | )
|Net change in federal funds purchased                                                       |      |                               | 5,805   |      |  |   | (6,822  | )
|Increase in FHLB advances                                                                   |      |                               | 37,286  |      |  |   | 39,286  |  
|                                                                                            |      |                               |         |      |  |   |         |  
|Net cash provided by financing activities                                                   |      |                               | 41,521  |      |  |   | 44,614  |  
|                                                                                            |      |                               |         |      |  |   |         |  
|Decrease in cash and cash equivalents                                                       |      |                               | (19,182 | )    |  |   | (6,023  | )
|Cash and cash equivalents                                                                   |      |                               |         |      |  |   |         |  
|Beginning of period                                                                         |      |                               | 36,415  |      |  |   | 21,516  |  
|                                                                                            |      |                               |         |      |  |   |         |  
|End of period                                                                               |      | $                             | 17,233  |      |  | $ | 15,493  |  
|                                                                                            |      |                               |         |      |  |   |         |  
|Supplemental Disclosures of Cash Flow Information                                           |      |                               |         |      |  |   |         |  
|Cash paid for:                                                                              |      |                               |         |      |  |   |         |  
|Interest on deposits and other borrowings                                                   |      | $                             | 16,689  |      |  | $ | 13,139  |  
|Income taxes                                                                                |      | $                             | 3,304   |      |  | $ | 2,834   |  
|Loans transferred to other real estate owned                                                |      | $                             | 951     |      |  | $ |        |  

See Notes to Consolidated Financial Statements



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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



|1. | The accompanying unaudited consolidated financial statements, prepared in accordance with instructions for Form 10-Q, do not include all of the information and notes required by
accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) considered necessary to present fairly the financial position of Eastern Virginia Bankshares, Inc. (we, us, our, or Company) at September 30, 2007. The
statements should be read in conjunction with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 (the 2006 Form 10-K). Certain previously reported amounts
have been reclassified to conform to current period presentation.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Eastern Virginia Bankshares, Inc., based in Tappahannock,
VA, is the parent company of EVB. EVB operates 22 retail branches in the Virginia counties of Caroline, Essex, Gloucester, Hanover, King William, Lancaster, Middlesex, Northumberland, Southampton, Surry and Sussex. Subsidiaries of EVB include EVB
Investments, EVB Mortgage, EVB Insurance and EVB Title. The Companys stock trades on the NASDAQ Global Market under the symbol EVBS.

We were organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997 and commenced operations effective December 29, 1997 when Southside Bank and Bank of Northumberland, Inc. became our wholly owned
subsidiaries. The transaction was accounted for using the pooling-of-interest method of accounting. We opened our third subsidiary in May 2000 when Hanover Bank began operations in Hanover County, Virginia. On April 24, 2006, we completed the
conversion to a one-bank holding company by merging the three banking subsidiaries. The new bank began operating under the name EVB on April 24, 2006. All significant inter-company transactions and accounts have been eliminated in
consolidation.

In the third quarter of 2007, we moved forward on initiatives to expand and improve our franchise. We received approvals
from Virginias Bureau of Financial Institutions for a new branch in Quinton in New Kent County, Virginia and for the relocation of our Deltaville branch to a larger office. In addition, we are well into the remodeling of the Windmill branch in
Hanover County, where our Village branch will be relocated.

The results of operations for the three and nine month periods ended
September 30, 2007 are not necessarily indicative of the results to be expected for the full year.



|2. | Our amortized cost and estimated fair values of securities at September 30, 2007 and December 31, 2006 were as follows:
|-- | -----------------------------------------------------------------------------------------------------------------------



|                                        |  |                    |         |                      |   |                       |  |                     |       |  |   |        
|--------------------------------------- |  | ------------------ | ------- | -------------------- | - | --------------------- |  | ------------------- | ----- |  | - | -------
|                                        |  | September 30, 2007
|(dollars in thousands)                  |  | AmortizedCost      |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFair Value
|Available for Sale:                     |  |                    |         |                      |   |                       |  |                     |       |  |   |        
|Obligations of U.S. Government agencies |  | $                  | 36,782  |                      | $ | 116                   |  | $                   | 402   |  | $ | 36,496 
|Mortgage-backed securities              |  |                    | 26,122  |                      |   | 1                     |  |                     | 579   |  |   | 25,544 
|State and political subdivisions        |  |                    | 36,035  |                      |   | 263                   |  |                     | 384   |  |   | 35,914 
|Corporate, CMO and other securities     |  |                    | 45,730  |                      |   | 59                    |  |                     | 2,286 |  |   | 43,503 
|Restricted securities                   |  |                    | 8,422   |                      |   |                      |  |                     |      |  |   | 8,422  
|                                        |  |                    |         |                      |   |                       |  |                     |       |  |   |        
|Total                                   |  | $                  | 153,091 |                      | $ | 439                   |  | $                   | 3,651 |  | $ | 149,879
|                                        |  |                    |         |                      |   |                       |  |                     |       |  |   |        



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##### Table of Contents

|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        
|--------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | ------------------- | ----- |  | - | -------
|                                        |  | 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
|                                        |  |                   |         |                      |   |                       |  |                     |       |  |   |        

There are no securities classified as Held to Maturity or Trading.

At September 30, 2007, investments in an unrealized loss position that were temporarily impaired were as follows:



|                                                 |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|------------------------------------------------ |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ------ | --------- | - | -------------- |  | - | ------ |  | - | -----
|                                                 |  | September 30, 2007 
|                                                 |  | Less than 12 months |        | 12 months or more |   | Total    
|(dollars in thousands) Description of
Securities |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | FairValue |   | UnrealizedLoss
|Obligations of U.S. Government agencies          |  | $                   | 875    |                   | $ | 125       |  | $              | 26,860 |           | $ | 277            |  | $ | 27,735 |  | $ | 402  
|Mortgage-backed securities                       |  |                     | 1,737  |                   |   | 2         |  |                | 23,790 |           |   | 577            |  |   | 25,527 |  |   | 579  
|State and political subdivisions                 |  |                     | 5,973  |                   |   | 45        |  |                | 8,978  |           |   | 339            |  |   | 14,951 |  |   | 384  
|Corporate, CMO and other securities              |  |                     | 5,492  |                   |   | 286       |  |                | 18,728 |           |   | 2,000          |  |   | 24,220 |  |   | 2,286
|                                                 |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|                                                 |  | $                   | 14,077 |                   | $ | 458       |  | $              | 78,356 |           | $ | 3,193          |  | $ | 92,433 |  | $ | 3,651
|                                                 |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      

Bonds with unrealized loss positions of less than 12 months duration at September 30, 2007
included 1 federal agency, 3 corporate bonds, 1 mortgage-backed security, 3 federal agency preferred stocks and 14 municipal bonds. Securities with losses of 12 months or greater duration included 30 federal agencies, 36 mortgage-backed securities,
14 corporate bonds, 26 municipal bonds, 7 collateralized mortgage obligations (CMO) and 1 federal agency preferred stock. The unrealized loss positions at September 30, 2007 were primarily related to interest rate movements.
Holdings of GMAC and Ford Motor Credit Corp. contained unrealized loss positions because these securities have been downgraded by Moodys and Standard & Poors rating agencies to levels below investment grade. As of
September 30, 2007, we held $3.3 million in GMAC bonds and $250 thousand in Ford Motor Credit Corp. bonds. These holdings are monitored regularly by our Chief Financial Officer and reported to the EVB Board on a monthly basis. Given the
attractive yield, our ability and intent to hold until maturity or principal recovery and the belief that the risk of default is remote, we have not recommended sale of the holdings and believe the unrealized loss is temporary.



5



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##### Table of Contents

At December 31, 2006, investments in an unrealized loss position that were temporarily impaired were
as follows:



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



|3. | Our loan portfolio was composed of the following at the dates indicated:
|-- | ------------------------------------------------------------------------



|                                              |  |                          |         |   |                       |   |         |                          |  |   |         |  
|--------------------------------------------- |  | ------------------------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------- | -
|                                              |  | (unaudited) September 30 |         |   | (audited) December 31 |   |         | (unaudited) September 30 | 
|(dollars in thousands)                        |  | 2007                     |         |   | 2006                  |   |         | 2006                     | 
|Commercial, industrial and agricultural loans |  | $                        | 62,344  |   |                       | $ | 59,859  |                          |  | $ | 59,068  |  
|Residential real estate mortgage loans        |  |                          | 305,194 |   |                       |   | 288,114 |                          |  |   | 278,791 |  
|Real estate construction loans                |  |                          | 99,825  |   |                       |   | 85,910  |                          |  |   | 81,237  |  
|Commercial real estate loans                  |  |                          | 176,533 |   |                       |   | 164,948 |                          |  |   | 167,369 |  
|Consumer loans                                |  |                          | 52,149  |   |                       |   | 51,446  |                          |  |   | 50,582  |  
|All other loans                               |  |                          | 1,278   |   |                       |   | 305     |                          |  |   | 216     |  
|                                              |  |                          |         |   |                       |   |         |                          |  |   |         |  
|Total loans                                   |  |                          | 697,323 |   |                       |   | 650,582 |                          |  |   | 637,263 |  
|Less unearned income                          |  |                          | (40     | ) |                       |   | (90     | )                        |  |   | (130    | )
|                                              |  |                          |         |   |                       |   |         |                          |  |   |         |  
|Total loans net of unearned discount          |  |                          | 697,283 |   |                       |   | 650,492 |                          |  |   | 637,133 |  
|Less allowance for loan losses                |  |                          | (7,447  | ) |                       |   | (7,051  | )                        |  |   | (6,880  | )
|                                              |  |                          |         |   |                       |   |         |                          |  |   |         |  
|Net loans                                     |  | $                        | 689,836 |   |                       | $ | 643,441 |                          |  | $ | 630,253 |  
|                                              |  |                          |         |   |                       |   |         |                          |  |   |         |  

We had $4.0 million in non-performing assets at September 30, 2007 that included $733 thousand
in loans past due 90 days or more but still accruing, $2.3 million in nonaccrual loans and $951 thousand classified as OREO.



|4. | Our allowance for loan losses was as follows at the dates indicated:
|-- | --------------------------------------------------------------------



|                                 |  |                              |       |   |                           |   |       |                              |  |   |       |  
|-------------------------------- |  | ---------------------------- | ----- | - | ------------------------- | - | ----- | ---------------------------- |  | - | ----- | -
|(dollars in thousands)           |  | (unaudited) September 302007 |       |   | (audited) December 312006 |   |       | (unaudited) September 302006 | 
|Balance January 1                |  | $                            | 7,051 |   |                           | $ | 6,601 |                              |  | $ | 6,601 |  
|Provision charged against income |  |                              | 628   |   |                           |   | 725   |                              |  |   | 521   |  
|Recoveries of loans charged off  |  |                              | 358   |   |                           |   | 495   |                              |  |   | 369   |  
|Loans charged off                |  |                              | (590  | ) |                           |   | (770  | )                            |  |   | (611  | )
|                                 |  |                              |       |   |                           |   |       |                              |  |   |       |  
|Balance at end of period         |  | $                            | 7,447 |   |                           | $ | 7,051 |                              |  | $ | 6,880 |  
|                                 |  |                              |       |   |                           |   |       |                              |  |   |       |  



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##### Table of Contents

Following is a summary pertaining to impaired loans:



|                                                        |  |                  |       |                 |   |       
|------------------------------------------------------- |  | ---------------- | ----- | --------------- | - | ------
|                                                        |  | September 302007 |       | December 312006
|                                                        |  | (in thousands)  
|Impaired loans for which an allowance has been provided |  | $                | 2,885 |                 | $ | 3,653 
|                                                        |  |                  |       |                 |   |       
|Allowance related to impaired loans                     |  | $                | 876   |                 | $ | 601   
|                                                        |  |                  |       |                 |   |       
|Average balance of impaired loans                       |  | $                | 3,941 |                 | $ | 11,927
|                                                        |  |                  |       |                 |   |       

No additional funds are committed to be advanced in connection with impaired loans. Nonaccrual
loans excluded from impaired loan disclosure under Statement of Financial Accounting Standards (SFAS) No. 114 amounted to $806 thousand and $103 thousand at September 30, 2007 and December 31, 2006, respectively.



|5. | Borrowings from the Federal Home Loan Bank of Atlanta are disclosed below. We utilize FHLB borrowings for two purposes: (a) to match funds for specific loans or investments as
an interest rate risk management tool and (b) for general funding of loan growth when the cost of borrowing is substantially below that of aggressive deposit funding.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                        |  |                             |         |                          |   |                             |  |   |       
|----------------------- |  | --------------------------- | ------- | ------------------------ | - | --------------------------- |  | - | ------
|                        |  | (unaudited)September 302007 |         | (audited)December 312006 |   | (unaudited)September 302006
|Amortizing advances     |  | $                           | 4,286   |                          | $ | 5,000                       |  | $ | 5,714 
|LIBOR floating advances |  |                             | 10,000  |                          |   |                            |  |   |      
|Convertible advances    |  |                             | 113,500 |                          |   | 85,500                      |  |   | 85,500
|                        |  |                             |         |                          |   |                             |  |   |       
|Total advances          |  | $                           | 127,786 |                          | $ | 90,500                      |  | $ | 91,214
|                        |  |                             |         |                          |   |                             |  |   |       

The table presented below shows the maturities and potential call dates of FHLB advances. All but
$14.3 million of the FHLB borrowings are convertible advances that have a call provision.



|      |  |                  |         |          |      |   |                |   |          |  |      |  
|----- |  | ---------------- | ------- | -------- | ---- | - | -------------- | - | -------- |  | ---- | -
|      |  | MaturitiesAmount |         | Avg Rate |      |   | CallableAmount |   | Avg Rate | 
|2007  |  | $                | 714     |          | 3.15 | % |                | $ | 15,000   |  | 5.31 | %
|2008  |  |                  | 1,429   |          | 3.15 | % |                |   | 40,000   |  | 4.35 | %
|2009  |  |                  | 11,429  |          | 5.07 | % |                |   | 30,000   |  | 4.32 | %
|2010  |  |                  | 5,714   |          | 5.57 | % |                |   | 28,500   |  | 4.20 | %
|2011  |  |                  | 10,000  |          | 5.01 | % |                |   |         |  |      |  
|2015  |  |                  | 13,500  |          | 3.87 | % |                |   |         |  |      |  
|2016  |  |                  | 10,000  |          | 4.85 | % |                |   |         |  |      |  
|2017  |  |                  | 75,000  |          | 4.30 | % |                |   |         |  |      |  
|      |  |                  |         |          |      |   |                |   |          |  |      |  
|Total |  | $                | 127,786 |          | 4.46 | % |                | $ | 113,500  |  | 4.43 | %
|      |  |                  |         |          |      |   |                |   |          |  |      |  



7



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##### Table of Contents

|6. | The following table shows the weighted average number of shares used in computing per share earnings and the effect on the weighted average number of shares of diluted potential
common stock. Potential dilutive common stock had no effect on earnings per share otherwise available to shareholders for the three and nine month periods ended September 30, 2007 and September 30, 2006.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                             |  |                    |  |                    |      |        |           |                 |   |     
|-------------------------------------------- |  | ------------------ |  | ------------------ | ---- | ------ | --------- | --------------- | - | ----
|                                             |  | Three Months Ended
|                                             |  | September 30, 2007 |  | September 30, 2006
|                                             |  | Shares             |  | Per ShareAmount    |      | Shares |           | Per ShareAmount
|Basic earnings per share                     |  | 6,008,935          |  | $                  | 0.38 |        | 4,923,556 |                 | $ | 0.40
|Effect of dilutive securities, stock options |  | 5,046              |  |                    | 0.00 |        | 5,853     |                 |   | 0.00
|                                             |  |                    |  |                    |      |        |           |                 |   |     
|Diluted earnings per share                   |  | 6,013,981          |  | $                  | 0.38 |        | 4,929,409 |                 | $ | 0.40
|                                             |  |                    |  |                    |      |        |           |                 |   |     
|                                             | 
|                                             |  | Nine Months Ended 
|                                             |  | September 30, 2007 |  | September 30, 2006
|                                             |  | Shares             |  | Per ShareAmount    |      | Shares |           | Per ShareAmount
|Basic earnings per share                     |  | 6,062,038          |  | $                  | 1.10 |        | 4,914,795 |                 | $ | 1.08
|Effect of dilutive securities, stock options |  | 5,736              |  |                    | 0.00 |        | 6,456     |                 |   | 0.00
|                                             |  |                    |  |                    |      |        |           |                 |   |     
|Diluted earnings per share                   |  | 6,067,774          |  | $                  | 1.10 |        | 4,921,251 |                 | $ | 1.08
|                                             |  |                    |  |                    |      |        |           |                 |   |     

At September 30, 2007 and 2006, respectively, options to acquire 187,387 shares and 128,012
shares of common stock were not included in computing diluted earnings per common share because their effects were anti-dilutive.



|7. | 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 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 151,243
shares still available under that Plan.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On April 19, 2007, our shareholders approved the Eastern Virginia Bankshares,
Inc. 2007 Equity Compensation Plan to enhance our ability to recruit and retain officers, directors and employees with ability and initiative and to encourage such persons to have a greater financial interest in the company. That Plan authorizes the
Company to issue up to 400,000 additional shares of common stock. No awards have been issued under this Plan.

In December 2004, the
Financial Accounting Standards Board (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.



8



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##### Table of Contents

SFAS 123R also requires that new awards to employees eligible for retirement prior to the awards 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 three and nine month periods ended September 30, 2007 and 2006, stock option compensation expense of $62 thousand
and $188 thousand for 2007, and $47 thousand and $146 thousand for 2006 were included in salary and benefit expense.

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. Through September 30, there have been no awards issued in 2007. The weighted
average estimated fair value of stock options granted in the years 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:



|                        |  |          |   |  |          |   |  |          |  
|----------------------- |  | -------- | - |  | -------- | - |  | -------- | -
|                        |  | 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. The expected life is 10 years, but could be shorter in the event of a change in control of the Company or if a participant reaches his or her full retirement age of
65. Subsequent to September 30, 2007 the Company granted stock options for 49,750 shares at an exercise price of $19.25 per share with four year vesting and 10 year expiration, the option price being the closing price of EVBS shares on the
grant date of October 1, 2007.



|                                          |  |         |   |  |                              |       |                                                   |      |                                       |   |   
|----------------------------------------- |  | ------- | - |  | ---------------------------- | ----- | ------------------------------------------------- | ---- | ------------------------------------- | - | --
|                                          |  | Shares  |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife(in years) |      | AggregateIntrinsicValue(in thousands)
|Outstanding at beginning of year          |  | 213,832 |   |  | $                            | 21.19 |                                                   |      |                                       |   |   
|Granted                                   |  |        |   |  |                              |       |                                                   |      |                                       |   |   
|Exercised                                 |  | (2,320  | ) |  |                              | 16.10 |                                                   |      |                                       |   |   
|Forfeited                                 |  | (1,500  | ) |  |                              | 20.86 |                                                   |      |                                       |   |   
|                                          |  |         |   |  |                              |       |                                                   |      |                                       |   |   
|Outstanding at September 30 2007          |  | 210,012 |   |  | $                            | 21.25 |                                                   | 7.40 |                                       | $ | 77
|Options exercisable at September 30, 2007 |  | 22,625  |   |  |                              | 16.10 |                                                   | 4.50 |                                       | $ | 77

As of September 30, 2007, there was $381 thousand of unrecognized compensation expense related
to stock options that will be recognized over the remaining requisite service period of approximately 1.96 years. There were no options granted in the three- or nine-month periods ended September 30, 2007 or 2006. There were no shares exercised
in the three months and 2,320 shares exercised in the nine months ended September 30, 2007 at an average price of $16.10 providing cash proceeds of $37 thousand. Those shares had an intrinsic value at the time of exercise of $15 thousand. There
were 825 shares exercised in the first nine months of 2006 at an average price of $16.10 providing cash proceeds of $13 thousand, with an intrinsic value of $5 thousand.



9



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##### Table of Contents

|8. | Components of net periodic benefit cost were as follows for the periods indicated:
|-- | ----------------------------------------------------------------------------------



|                                             |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|-------------------------------------------- |  | ------------------------------ | ---- | - | ----------------------------- | - | ---- | ---- |  | - | ----- | - |  | - | ----- | -
|                                             |  | Three Months EndedSeptember 30 |      |   | Nine Months EndedSeptember 30 |  
|                                             |  | 2007                           |      |   | 2006                          |   |      | 2007 |  |   | 2006  |  
|                                             |  | (in thousands)                 |      |   | (in thousands)                |  
|Components of Net Periodic Benefit Cost      |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Service cost                                 |  | $                              | 373  |   |                               | $ | 350  |      |  | $ | 1,119 |   |  | $ | 1,050 |  
|Interest cost                                |  |                                | 196  |   |                               |   | 179  |      |  |   | 588   |   |  |   | 537   |  
|Expected return on plan assets               |  |                                | (189 | ) |                               |   | (163 | )    |  |   | (567  | ) |  |   | (489  | )
|Amortization of prior service cost           |  |                                | 5    |   |                               |   | 5    |      |  |   | 16    |   |  |   | 15    |  
|Amortization of net obligation at transition |  |                                | 1    |   |                               |   | 1    |      |  |   | 3     |   |  |   | 3     |  
|Recognized net actuarial loss                |  |                                | 20   |   |                               |   | 33   |      |  |   | 60    |   |  |   | 99    |  
|                                             |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Net periodic benefit cost                    |  | $                              | 406  |   |                               | $ | 405  |      |  | $ | 1,219 |   |  | $ | 1,215 |  
|                                             |  |                                |      |   |                               |   |      |      |  |   |       |   |  |   |       |  

We made our required 2006 fiscal year contribution to the pension plan in December 2006 in the
amount of $1.62 million. We anticipate making our 2007 contribution of approximately $1.62 million in December 2007.



|9. | 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 February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve
financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value
option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after
November 15, 2007. We are in the process of evaluating the impact SFAS 159 may have on our consolidated financial statements.



|10. | The following table displays detail of comprehensive income for the three and nine month periods ended September 30, 2007 and 2006:
|--- | -----------------------------------------------------------------------------------------------------------------------------------



|                                                                               |  |                                |       |   |                               |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------------------------ |  | ------------------------------ | ----- | - | ----------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                               |  | Three Months EndedSeptember 30 |       |   | Nine Months EndedSeptember 30 |  
|(dollars in thousands)                                                         |  | 2007                           |       |   | 2006                          |   |       | 2007 |  |   | 2006  |  
|Net income                                                                     |  | $                              | 2,265 |   |                               | $ | 1,969 |      |  | $ | 6,688 |   |  | $ | 5,321 |  
|Unrealized gains (losses) on securities available for sale, net of tax expense |  |                                | 439   |   |                               |   | 1,931 |      |  |   | 348   |   |  |   | (47   | )
|Less: reclassification adjustment, net of tax                                  |  |                                | (9    | ) |                               |   | (3    | )    |  |   | (9    | ) |  |   | (24   | )
|                                                                               |  |                                |       |   |                               |   |       |      |  |   |       |   |  |   |       |  
|Total comprehensive income                                                     |  | $                              | 2,695 |   |                               | $ | 3,897 |      |  | $ | 7,027 |   |  | $ | 5,250 |  
|                                                                               |  |                                |       |   |                               |   |       |      |  |   |       |   |  |   |       |  



10



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

We present managements discussion and analysis of financial information to aid the reader in understanding and evaluating our financial condition and results of operations. This discussion provides information
about our major components of the results of operations, financial condition, liquidity and capital resources. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements
presented elsewhere in this report and in the 2006 Form 10-K. Operating results include those of all our operating entities combined for all periods presented.

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.

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.

We evaluate non-performing loans individually for impairment
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



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estimate of losses is greater than 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.

OVERVIEW

Year-to-date net
income through September 30, 2007 increased $1.4 million or 25.7% when compared to the same period in 2006. Net income for the quarter ended September 30, 2007 was $2.3 million, an increase of $296 thousand or 15.0% compared to third
quarter 2006 net income of $2.0 million. Increases in net interest income of 5.1% and noninterest income of 20.9% and flat noninterest expense aided the net income growth for the quarter. Net interest income increased $409 thousand for the quarter
ended September 30, 2007, compared to the same period in 2006. This increase was the result of continued loan growth that increased interest income on loans by $1.5 million, to $12.9 million for the third quarter of 2007 compared to $11.5
million in the third quarter of 2006. Income from the securities portfolio increased $274 thousand for the third quarter and $307 thousand year-to-date, which resulted from increases in both yield on the portfolio and volume for both periods.
Interest expense on deposits and other borrowings increased $1.3 million for the third quarter of 2007 compared to the same quarter of 2006. Noninterest income for the third quarter 2007 compared to the 2006 third quarter increased $284 thousand
largely as a result of increased deposit service charge fees of $82 thousand, an increase in debit/credit card fees of $111 thousand and a $74 thousand increase in income from our investment subsidiary. Noninterest expense was relatively flat,
increasing $38 thousand in the third quarter of 2007, compared to the quarter ended September 30, 2006. Tax expense increased $238 thousand or 31.0% from the combination of an increase in our statutory tax rate in the third quarter of 2007 and
higher income compared to the third quarter of 2006. Earnings per share were $0.38 for the quarter ended September 30, 2007, compared to $0.40 for the comparable period last year, a decrease of 5.0%. While net income for the quarter increased
15.0%, earnings per share decreased because of the dilutive effect of the issuance of additional shares in the December 2006 stock offering. Earnings per share were $1.10 for the first nine months of 2007, compared to $1.08 for the comparable period
last year, an increase of 1.9%.

A changing yield curve which was high on short term rates, inverted on mid level rates and more normal on longer term
rates continued to contribute to higher interest rates on deposits, until late in the third quarter when the Federal Reserve lowered the fed funds rate. A $28.0 million increase in Federal Home Loan Bank borrowings funded loan growth and securities
growth in the third quarter of 2007. Our Reward Checking product introduced in the third quarter of 2006 continues to be an important tool in addressing a challenging deposit environment and the balances for this product continue to
grow. While the 5.01% interest rate on that product has a detrimental impact on net interest income, it has increased debit card fee income while decreasing operational expenses. We also allowed a run off in hot money certificates of
deposits due to the expectation of restocking these funds at lower interest rates in the future. Hot money represents deposits, primarily certificates of deposit, that are received from customers searching for a higher rate. These
deposits leave the bank at the first opportunity the customer has to get a better rate. With the lowering of the federal funds rate and anticipation of another reduction in the future, we believe this strategy to be reasonable and prudent.

Total assets at September 30, 2007 were $903.2 million, up $87.4 million, or 10.7%, from $815.8 million at September 30, 2006 and up $51.8
million, or 6.1%, from $851.4 million at December 31, 2006. For the quarter, total assets averaged $892.6 million, 10.8% above the third quarter 2006 average of $805.5 million. At September 30, 2007, total loans, net of unearned income,
amounted to $697.3 million an increase of $60.2 million, or 9.4%, from $637.1 million at September 30, 2006, and an increase of $46.8 million, or 7.2%, from $650.5 million at December 31, 2006. Net loans as a percent of total assets were
76.4% at September 30, 2007, as compared to 77.3% at September 30, 2006 and 75.6% at 2006 year-end. Loan demand was strong in the second and third quarters of 2007, compared to the cyclical slowdown in the first quarter of 2007.

At September 30, 2007, the investment portfolio totaled $149.9 million, an increase of $22.3 million from $127.5 million at September 30, 2006
and up $22.7 million, or 17.9%, from $127.2 million at December 31, 2006. In the third quarter we took advantage of some arbitrage situations to get attractive yields in adding both taxable and tax exempt investments to the portfolio. Most of
the funds that are invested in the investment portfolio are part of managements effort to balance interest rate risk and to provide liquidity. There was a net of $5.3 million of federal funds purchased at September 30, 2007, while there
was $1.0 million in federal funds sold at September 30, 2006 and $22.4 million in federal funds sold at December 31, 2006.



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Total deposits of $657.8 million at September 30, 2007 represented an increase of $15.6 million, or 2.4%, from
$642.2 million one year ago and an increase of $3.8 million, or 0.6%, from $654.0 million at December 31, 2006. We had a number of hot money certificates maturing in the third quarter, which we elected to allow to run off rather
than paying higher rates than the cost of FHLB borrowings. At September 30, 2007, noninterest-bearing demand deposits of $100.8 million were down $1.7 million when compared to $102.4 million at September 30, 2006 and up $1.5 million from
$99.3 million at year end 2006. Interest-bearing deposits at September 30, 2007, increased $17.3 million, or 3.2%, to $557.0 million compared to $539.7 million at September 30, 2006 and up $2.3 million, or 0.4%, compared to year end 2006.
While the third quarter continued the pattern that we have seen for over a year with higher-cost certificates of deposit growing year-over-year while non-maturity interest-bearing and non interest-bearing deposits have decreased, the rate of change
has slowed as interest-bearing deposits increased $17.3 million when compared with the same period in 2006.

FHLB borrowings at September 30, 2007
totaled $127.8 million, a $36.6 million, or 40.1%, increase over $91.2 million at September 30, 2006 and up $37.3 million from $90.5 million at December 31, 2006. With loan demand continuing to outpace deposit growth in the third quarter,
we expanded our earning asset base using the funding source that provides the best risk/return reward characteristics. With the Federal Reserve lowering the fed funds rate, we look to the fourth quarter to be a transition period, as we expect to
attract lower cost deposits to match with loans that will be repricing at lower rates and to cover loan growth.

SFAS No. 115, discussed in the 2006
Form 10-K, requires the Company to show the effect of market changes in the value of securities available for sale. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled Accumulated other
comprehensive (loss), net in the Shareholders Equity section of the Consolidated Balance Sheets, which includes the change in securities and a $1.9 million balance for the difference in the fair value of pension assets. The securities
portion was a negative $2.1 million at September 30, 2007, a decline of $273 thousand from a negative $1.8 million at September 30, 2006 and an improvement of $345 thousand from a negative $2.5 million at December 31, 2006. The
unrealized loss on securities is presented as a value at one specific point in time but fluctuates significantly over time depending on interest rate changes.

RESULTS OF OPERATIONS

Net Income

Net
income increased 15.0% to $2.3 million for the three months ended September 30, 2007, compared to $2.0 million for the same period in 2006. Diluted earnings per share decreased 5.0% to $0.38 for the third quarter of 2007, compared to $0.40 for
the same quarter in 2006. Net interest income increased $409 thousand for the quarter ended September 30, 2007, when compared to the same period in 2006. This increase in net interest income for the third quarter 2007 was the result of higher
earnings on the loan portfolio, the result of an increase in the loan portfolio balances and rates and an increase in investment income. The $1.8 million increase in loan and investment interest was netted against a decrease of $95 thousand in
dividend and fed funds sold income and a $1.3 million increase in total funding costs. Loan loss provision of $325 thousand for the quarter increased $121 thousand compared to $204 thousand in the third quarter of 2006, as management set aside extra
funds to cover an impairment charge for a single credit. Noninterest income excluding securities gains was up $275 thousand, or 20.3%, for the quarter when compared to the same period in 2006. This increase comes from an $82 thousand, or 9.8%,
increase in service charge income resulting from both rate and volume increases, a $111 thousand, or 91.0%, increase in debit/credit card income and a $74 thousand, or 76.3%, increase in investment services income compared to the third quarter 2006.

Noninterest expense for the three months ended September 30, 2007 increased $38 thousand or 0.6% to $6.4 million, compared to $6.4 million for the
same quarter of 2006. Salaries and benefits increased $78 thousand or 2.1%, as a result of normal growth. Net occupancy expense rose $115 thousand to $1.1 million compared to $991 thousand in the third quarter of 2006. Occupancy expense was impacted
by increased costs associated with the relocation of the leased Air Park branch to a new owned branch at Kings Charter and building repair costs associated with branch upgrades and various annual increases in service contracts. Marketing expense
decreased $69 thousand, while other operating expenses decreased $116 thousand with a $40 thousand decrease in data processing, a $39 thousand decline in operating expense and a $14 thousand decrease in director fees.



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Net income for the nine months ended September 30, 2007 increased $1.4 million, or 25.7%, to $6.7 million from $5.3
million in the first nine months of 2006. Diluted earnings per share increased 1.9% to $1.10 for the first nine months of 2007, compared to $1.08 for the same period in 2006. Year-to-date net interest income increased $1.3 million or 5.7%. Provision
for loan losses increased $107 thousand or 20.5% due to a reserve for one credit. Noninterest income excluding securities gains and losses increased $678 thousand or 18.0%. Noninterest expense decreased $246 thousand or 1.3%. The decrease in
noninterest expense is a direct result of the April 2006 conversion to a one-bank holding company as salaries and benefits decreased $66 thousand and consulting fees decreased $123 thousand, both compared to the nine months ended September 30,
2006.

Return on average assets (ROA) increased to 1.01% in the third quarter of 2007, compared to 0.97% in the third quarter of 2006, and return on
average equity (ROE) declined to 10.03% compared to 12.21% for the quarters ended September 30, 2007 and 2006, respectively. Year-to-date, ROA increased to 1.02%, compared to 0.90% in the nine months ended September 30, 2006 while ROE
declined to 9.99% compared to 11.29% for the same nine-month periods. As anticipated, the stock offering transaction in late 2006 had a current period positive impact on ROA and a negative impact on ROE.

Net Interest Income

Net interest income on a fully tax equivalent
basis totaled $8.5 million for the third quarter of 2007, a $424 thousand increase over the third quarter of 2006. When comparing the third quarter of 2007 to the same quarter in 2006, average earning assets increased 11.0% to $840.6 million
compared to $757.1 million, average loans increased $67.3 million, or 10.8%, average securities increased $19.3 million, or 15.3% and average federal funds sold decreased $3.1 million, or 35.0%. The fully tax equivalent net interest margin for the
three-month period ended September 30, 2007 was 4.03% compared to 4.26% for the quarter ended September 30, 2006. For the quarter, the yield on earning assets was up 11 basis points to 7.07%, compared to 6.96% for the third quarter of
2006, and the cost of interest bearing liabilities was up 47 basis points to 3.70% from 3.23% in the same period in 2006, narrowing the spread between the yield on earning assets and the cost of funds. This reflects continued intense competition in
loan pricing even as the cost of funding is increasing. Our increase in funding costs is more specifically related to year-over-year increases in interest checking, large dollar certificates of deposit and other certificates of deposit of 152, 36
and 44 basis points, respectively. The cost of money market savings increased 9 basis points while the average balances declined $4.1 million. Savings deposit average balances fell $15.4 million with a 4 basis point decline in interest rate.

We believe that depositors resist committing their funds for more than one year, leaving our bank working hard to match longer term assets to the high
rate short-term deposits and causing a continued decrease of the net interest margin. We are well aware of the challenge that we face and believe that wholesale funding and development/implementation of new deposit products are ways to manage the
margin. We anticipate that a return to a positively sloping yield curve will enhance the margin. With the Federal Reserves lowering of the fed funds rate, we expect lower cost deposits to be available in the fourth quarter of 2007.

Comparing the nine months ended September 30, 2007 to the same period in 2006, net interest income on a fully tax-equivalent basis of $25.2 million increased
$1.3 million, average earning assets increased $83.7 million, or 11.3% from $738.9 million to $822.6 million, average loans increased $70.0 million, or 11.6%, average securities increased $4.3 million, or 3.3%, and federal funds sold increased $9.4
million to $14.5 million. The fully tax-equivalent net interest margin for the nine-month period ended September 30, 2007 was 4.10%, compared to 4.32% for the nine months ended September 30, 2006. The continuing decrease in net interest
margin is a direct result of the cost of interest-bearing funds increasing 64 basis points while the yield on earning assets was increasing only 25 basis points. We anticipate continued pressure on the net interest margin in the fourth quarter of
2007 as the impact of lower rates work through the balance sheet. Further lowering of rates should benefit us in 2008.



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Tables that disclose fully tax equivalent net interest income calculations for the three- and nine-month periods ended
September 30, 2007 and 2006 follow:

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



|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|------------------------------------------------------- |  | -------------------------------- | ------- | - | -------------- | - | ---------- |  | ---- | -------------- |  | - | -------------- | - | ---------- | - | ------ |  | ---- | -
|                                                        |  | Three Months Ended September 30, |        
|                                                        |  | 2007                             |         |   | 2006           |  
|                                                        |  | AverageBalance                   |         |   | Income/Expense |   | Yield/Rate |  |      | AverageBalance |  |   | Income/Expense |   | Yield/Rate |  
|Assets:                                                 |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Securities                                              |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Taxable                                                 |  | $                                | 109,151 |   |                | $ | 1,468      |  | 5.34 | %              |  | $ | 92,991         |   |            | $ | 1,229  |  | 5.24 | %
|Tax exempt (1)                                          |  |                                  | 36,026  |   |                |   | 539        |  | 5.93 | %              |  |   | 32,930         |   |            |   | 489    |  | 5.89 | %
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total securities                                        |  |                                  | 145,177 |   |                |   | 2,007      |  | 5.48 | %              |  |   | 125,921        |   |            |   | 1,718  |  | 5.41 | %
|Federal funds sold                                      |  |                                  | 5,763   |   |                |   | 73         |  | 5.03 | %              |  |   | 8,866          |   |            |   | 119    |  | 5.33 | %
|Loans, net of unearned income (2)                       |  |                                  | 689,645 |   |                |   | 12,907     |  | 7.43 | %              |  |   | 622,343        |   |            |   | 11,450 |  | 7.30 | %
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total earning assets                                    |  |                                  | 840,585 |   |                |   | 14,987     |  | 7.07 | %              |  |   | 757,130        |   |            |   | 13,287 |  | 6.96 | %
|Less allowance for loan losses                          |  |                                  | (7,300  | ) |                |   |            |  |      |                |  |   | (6,870         | ) |            |   |        |  |      |  
|Total non-earning assets                                |  |                                  | 59,317  |   |                |   |            |  |      |                |  |   | 55,234         |   |            |   |        |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total assets                                            |  | $                                | 892,602 |   |                |   |            |  |      |                |  | $ | 805,494        |   |            |   |        |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Liabilities & Shareholders Equity:                     |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest bearing deposits                               |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Checking                                                |  | $                                | 109,677 |   |                | $ | 526        |  | 1.90 | %              |  | $ | 77,532         |   |            | $ | 74     |  | 0.38 | %
|Savings                                                 |  |                                  | 81,218  |   |                |   | 244        |  | 1.19 | %              |  |   | 96,598         |   |            |   | 300    |  | 1.23 | %
|Money market savings                                    |  |                                  | 40,562  |   |                |   | 250        |  | 2.45 | %              |  |   | 44,699         |   |            |   | 266    |  | 2.36 | %
|Large dollar certificates of deposit (5)                |  |                                  | 117,164 |   |                |   | 1,426      |  | 4.83 | %              |  |   | 105,424        |   |            |   | 1,187  |  | 4.47 | %
|Other certificates of deposit                           |  |                                  | 207,323 |   |                |   | 2,351      |  | 4.50 | %              |  |   | 208,372        |   |            |   | 2,132  |  | 4.06 | %
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total interest-bearing deposits                         |  |                                  | 555,944 |   |                |   | 4,797      |  | 3.42 | %              |  |   | 532,625        |   |            |   | 3,959  |  | 2.95 | %
|Federal funds purchased                                 |  |                                  | 3,756   |   |                |   | 52         |  | 5.49 | %              |  |   | 134            |   |            |   | 2      |  | 5.92 | %
|Other borrowings                                        |  |                                  | 131,357 |   |                |   | 1,590      |  | 4.80 | %              |  |   | 100,593        |   |            |   | 1,202  |  | 4.74 | %
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total interest-bearing liabilities                      |  |                                  | 691,057 |   |                |   | 6,439      |  | 3.70 | %              |  |   | 633,352        |   |            |   | 5,163  |  | 3.23 | %
|Noninterest-bearing liabilities                         |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Demand deposits                                         |  |                                  | 99,669  |   |                |   |            |  |      |                |  |   | 100,594        |   |            |   |        |  |      |  
|Other liabilities                                       |  |                                  | 12,263  |   |                |   |            |  |      |                |  |   | 7,563          |   |            |   |        |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total liabilities                                       |  |                                  | 802,989 |   |                |   |            |  |      |                |  |   | 741,509        |   |            |   |        |  |      |  
|Shareholders equity                                    |  |                                  | 89,613  |   |                |   |            |  |      |                |  |   | 63,985         |   |            |   |        |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total liabilities and shareholders equity              |  | $                                | 892,602 |   |                |   |            |  |      |                |  | $ | 805,494        |   |            |   |        |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Net interest income                                     |  |                                  |         |   |                | $ | 8,548      |  |      |                |  |   |                |   |            | $ | 8,124  |  |      |  
|                                                        |  |                                  |         |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest rate spread (3)                                |  |                                  |         |   |                |   |            |  | 3.38 | %              |  |   |                |   |            |   |        |  | 3.73 | %
|Interest expense as a percent of average earning assets |  |                                  |         |   |                |   |            |  | 3.04 | %              |  |   |                |   |            |   |        |  | 2.71 | %
|Net interest margin (4)                                 |  |                                  |         |   |                |   |            |  | 4.03 | %              |  |   |                |   |            |   |        |  | 4.26 | %

---

Notes:

|(1) | Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 35%. The tax equivalent adjustment for the quarter is $165 thousand, compared to $150
thousand in the prior year.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|------------------------------------------------------- | -------------- | ------------------------- | ------- | -------------- |  | ---------- | ------ |  | -------------- | - |  | -------------- | ------- | ---------- |  | - | ------ |  | ---- | -
|                                                        |                | Nine Months Ended June 30 |        
|                                                        | 2007           |                           |         | 2006           | 
|                                                        | AverageBalance |                           |         | Income/Expense |  | Yield/Rate |        |  | AverageBalance |   |  | Income/Expense |         | Yield/Rate | 
|Assets:                                                 |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Securities                                              |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Taxable                                                 |                | $                         | 101,125 |                |  | $          | 3,939  |  | 5.21           | % |  | $              | 95,654  |            |  | $ | 3,600  |  | 5.03 | %
|Tax exempt (1)                                          |                |                           | 33,458  |                |  |            | 1,495  |  | 5.97           | % |  |                | 34,600  |            |  |   | 1,541  |  | 5.95 | %
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total securities                                        |                |                           | 134,583 |                |  |            | 5,434  |  | 5.40           | % |  |                | 130,254 |            |  |   | 5,141  |  | 5.28 | %
|Federal funds sold                                      |                |                           | 14,503  |                |  |            | 573    |  | 5.28           | % |  |                | 5,146   |            |  |   | 195    |  | 5.07 | %
|Loans, net of unearned income (2)                       |                |                           | 673,488 |                |  |            | 37,561 |  | 7.46           | % |  |                | 603,467 |            |  |   | 32,422 |  | 7.18 | %
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total earning assets                                    |                |                           | 822,574 |                |  |            | 43,568 |  | 7.08           | % |  |                | 738,867 |            |  |   | 37,758 |  | 6.83 | %
|Less allowance for loan losses                          |                |                           | (7,207  | )              |  |            |        |  |                |   |  |                | (6,759  | )          |  |   |        |  |      |  
|Total non-earning assets                                |                |                           | 58,622  |                |  |            |        |  |                |   |  |                | 56,080  |            |  |   |        |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total assets                                            |                | $                         | 873,989 |                |  |            |        |  |                |   |  | $              | 788,188 |            |  |   |        |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Liabilities & Shareholders Equity:                     |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Interest bearing deposits                               |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Checking                                                |                | $                         | 101,695 |                |  | $          | 1,268  |  | 1.67           | % |  | $              | 78,683  |            |  | $ | 218    |  | 0.37 | %
|Savings                                                 |                |                           | 83,281  |                |  |            | 748    |  | 1.20           | % |  |                | 103,047 |            |  |   | 966    |  | 1.25 | %
|Money market savings                                    |                |                           | 40,798  |                |  |            | 733    |  | 2.40           | % |  |                | 46,252  |            |  |   | 690    |  | 1.99 | %
|Large dollar certificates of deposit (5)                |                |                           | 118,879 |                |  |            | 4,288  |  | 4.82           | % |  |                | 100,134 |            |  |   | 3,138  |  | 4.19 | %
|Consumer certificates of deposit                        |                |                           | 213,976 |                |  |            | 7,152  |  | 4.47           | % |  |                | 200,544 |            |  |   | 5,704  |  | 3.80 | %
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total interest-bearing deposits                         |                |                           | 558,629 |                |  |            | 14,189 |  | 3.40           | % |  |                | 528,660 |            |  |   | 10,716 |  | 2.71 | %
|Federal funds purchased                                 |                |                           | 1,378   |                |  |            | 57     |  | 5.53           | % |  |                | 2,243   |            |  |   | 81     |  | 4.83 | %
|Other borrowings                                        |                |                           | 115,906 |                |  |            | 4,101  |  | 4.73           | % |  |                | 89,825  |            |  |   | 3,062  |  | 4.56 | %
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total interest-bearing liabilities                      |                |                           | 675,913 |                |  |            | 18,347 |  | 3.63           | % |  |                | 620,728 |            |  |   | 13,859 |  | 2.99 | %
|Noninterest-bearing liabilities                         |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Demand deposits                                         |                |                           | 97,348  |                |  |            |        |  |                |   |  |                | 98,094  |            |  |   |        |  |      |  
|Other liabilities                                       |                |                           | 11,186  |                |  |            |        |  |                |   |  |                | 6,348   |            |  |   |        |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total liabilities                                       |                |                           | 784,447 |                |  |            |        |  |                |   |  |                | 725,170 |            |  |   |        |  |      |  
|Shareholders equity                                    |                |                           | 89,542  |                |  |            |        |  |                |   |  |                | 63,018  |            |  |   |        |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Total liabilities and shareholders equity              |                | $                         | 873,989 |                |  |            |        |  |                |   |  | $              | 788,188 |            |  |   |        |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Net interest income                                     |                |                           |         |                |  | $          | 25,221 |  |                |   |  |                |         |            |  | $ | 23,899 |  |      |  
|                                                        |                |                           |         |                |  |            |        |  |                |   |  |                |         |            |  |   |        |  |      |  
|Interest rate spread (3)                                |                |                           |         |                |  |            |        |  | 3.45           | % |  |                |         |            |  |   |        |  | 3.85 | %
|Interest expense as a percent of average earning assets |                |                           |         |                |  |            |        |  | 2.98           | % |  |                |         |            |  |   |        |  | 2.51 | %
|Net interest margin (4)                                 |                |                           |         |                |  |            |        |  | 4.10           | % |  |                |         |            |  |   |        |  | 4.32 | %

---

Notes:

|(1) | Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 35%. The tax equivalent adjustment for the six months is $457 thousand, compared to $471
thousand in the prior year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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

Noninterest Income

This category includes all income not related to interest on investments and interest and fees on loans. Noninterest income excluding net realized gains on securities sales was $1.6 million for the third quarter of 2007 compared to $1.4
million for the same quarter in 2006. Service charges on deposit accounts for the quarter ended September 30, 2007 were $921 thousand, compared to $839 thousand for the comparable period in 2006. Debit and credit card fees increased $111
thousand or 91.0% for the third quarter 2007 to $233 thousand compared to $122 thousand in the third quarter 2006. For the quarter ended September 30, 2007, investment subsidiary fees were $171 thousand, an increase of $74 thousand or 76.3%
compared to $97 thousand for the same period in 2006. Service charge increases were from a combination of rate and volume increases. Debit and credit card increases were the result of more usage of debit cards which raised the fees related to these
transactions and more fee and interchange income from credit card transactions. The increase in investment services income is the result of excellent sales in the third quarter. Other operating income without debit and credit card fees or investment
services fees increased $8 thousand in the third quarter.

Noninterest income excluding net realized gains on securities sales was $4.5 million for the
nine months ended September 30, 2007, compared to $3.8 million in the first nine months of 2006. This increase was primarily impacted by a $276 thousand, or 11.6%, increase in service charges on deposit accounts, a $226 thousand, or 65.5%,
increase in debit/credit card fees and a $75 thousand, or 27.5%, increase in income from our investment subsidiary.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expense was relatively flat with an increase of $38
thousand, or 0.6%, from $6.4 million for the third quarter of 2006 to $6.4 million for the three months ended September 30, 2007. Noninterest expense changes included increases of $78 thousand in salaries and benefits and $115 thousand in
occupancy expense which were offset by decreases in marketing and advertising of $69 thousand and other operating expense of $116 thousand. Salaries and benefits increased as a result of higher brokerage commissions, higher group insurance and the
addition of new personnel to support growth. Occupancy expense increased from a new branch opened in late 2006 and building repairs. Marketing and advertising are down primarily from less TV/newspaper ads which were high in 2006 when we were
introducing a new product, Reward Checking. Other operating expenses are down primarily from a $70 thousand decrease in office supplies and printing/ forms expense, a $20 thousand decrease in dues and subscription expense and smaller decreases in a
number of other categories. These decreases can be tied to the savings created by our becoming a one bank holding company in 2006.

For the nine-month
period ended September 30, 2007, noninterest expense was down $246 thousand or 1.30% to $19.1 million from $19.3 million in the first nine months of 2006. The primary expense decreases were $66 thousand in salaries and benefits, $123 thousand
in consultant fees and $173 thousand in data processing. The largest category of increase was occupancy expense, up $197 thousand, or 6.7%, primarily from the relocation discussed in the previous paragraph, building repair expenses and increases in
many annually renewing service contracts.

Income Taxes

Income tax expense for the quarter ended September 30, 2007 was $1.0 million, compared to $767 thousand for the same period in 2006. The effective tax rate for the quarter was 30.7%, an increase from 28.0% in the 2006 third quarter.
This increase was a result of higher income and our effort to control tax expense. On a year to date basis, tax expense has increased from $2.1 million to $2.8 million with the effective tax rate increasing from 28.0% to 29.8%. The increase in the
year-to-date effective tax rate is caused by a combination of growth that has increased our statutory tax rate from 34% on the first $10 million of taxable income to 35% on taxable income that exceeds $10 million and, to a lesser degree, a decrease
in the percentage of tax-exempt income compared to total income.

ASSET QUALITY

The Companys allowance for loan losses is an estimate of the amount needed to provide for possible losses in the loan portfolio. In determining adequacy of the allowance, management considers the Companys
historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, 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. (See the Allowance for Loan Losses discussion under Critical Accounting Policies earlier in this section.)



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Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest and
foreclosed properties, were $4.0 million at September 30, 2007, $2.9 million at December 31, 2006 and $2.6 million at September 30, 2006. Nonperforming assets are composed largely (93.1%) of loans secured by real estate in the
Companys market area. In the third quarter of 2007, we added $951 thousand to OREO as we went into a forbearance agreement with a builder. The three properties associated with this situation are expected to sell for more than we have invested
in them. This reinforces managements belief that, based on estimated fair values of the related real estate, any individual deficiency is covered by the allowance for loan losses.

Total loan charge-offs, less recoveries, amounted to $83 thousand for the third quarter of 2007 compared to $115 thousand for the same quarter in 2006, while the annualized ratio of net charge-offs to total average
loans, net of unearned income, was 0.05% for the third quarter of 2007 compared to 0.07% for the same quarter in 2006. Year-to-date net charge-offs were $232 thousand, compared to $242 thousand in the first nine months of 2006 and the annualized
ratio net charge-offs to total average loans, net of unearned income, was 0.05% for both periods. Full year 2006 net charge-offs were $275 thousand, or 0.04%, of average loans. The ratio of nonperforming assets to total loans and OREO at
September 30, 2007 was 0.58%, up from 0.45% at December 31, 2006 and up from 0.40% at September 30, 2006. These strong numbers reflect the emphasis that management places on credit quality management, especially in an environment with
increasing credit risk in the financial services industry.

The allowance for loan losses of $7.4 million at September 30, 2007 increased $567
thousand when compared to $6.9 million at September 30, 2006 and was up from $7.1 million at December 31, 2006. Recoveries have helped slow the growth of the allowance as demonstrated by the increase in allowance of $396 thousand compared
to the total provision expense of $628 thousand for the same period. Management believes the balance in the allowance reflects strong asset quality, and the addition to provision expense in the third quarter demonstrates our conservative approach to
loan loss reserves. The ratio of allowance for loan losses to total loans was 1.07% at September 30, 2007, 1.08% at 2006 year-end and 1.08% at September 30, 2006. The allowance for loan losses at September 30, 2007 included $876
thousand of specific impaired loan reserves.

At September 30, 2007, the Company reported $2.9 million in impaired loans, a decrease of $768 thousand
from $3.7 million at December 31, 2006 and a decrease of $7.0 million from $9.9 million at September 30, 2006. The average balance of impaired loans for the three months ended September 30, 2007 was $3.9 million.

The following table summarizes the Companys nonperforming assets at the dates indicated.



|                                                          |  |              |        |   |             |   |        |              |  |   |        |  
|--------------------------------------------------------- |  | ------------ | ------ | - | ----------- | - | ------ | ------------ |  | - | ------ | -
|Nonperforming Assets                                      |  | September 30 |        |   | December 31 |   |        | September 30 | 
|(Dollars in thousands)                                    |  | 2007         |        |   | 2006        |   |        | 2006         | 
|Nonaccrual loans                                          |  | $            | 2,293  |   |             | $ | 1,400  |              |  | $ | 1,653  |  
|Restructured loans                                        |  |              |       |   |             |   |       |              |  |   |       |  
|Loans past due 90 days and accruing interest              |  |              | 733    |   |             |   | 1,504  |              |  |   | 906    |  
|                                                          |  |              |        |   |             |   |        |              |  |   |        |  
|Total nonperforming loans                                 |  | $            | 3,026  |   |             | $ | 2,904  |              |  | $ | 2,559  |  
|Other real estate owned                                   |  |              | 951    |   |             |   |       |              |  |   |       |  
|                                                          |  |              |        |   |             |   |        |              |  |   |        |  
|Total nonperforming assets                                |  | $            | 3,977  |   |             | $ | 2,904  |              |  | $ | 2,559  |  
|Nonperforming assets to total loans and other real estate |  |              | 0.58   | % |             |   | 0.45   | %            |  |   | 0.40   | %
|Allowance for loan losses to nonaccrual loans             |  |              | 324.80 | % |             |   | 503.52 | %            |  |   | 416.21 | %
|Net charge-offs to average loans for the year             |  |              | 0.04   | % |             |   | 0.04   | %            |  |   | 0.05   | %
|Allowance for loan losses to period end loans             |  |              | 1.07   | % |             |   | 1.08   | %            |  |   | 1.08   | %



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##### Table of Contents

LIQUIDITY

Liquidity
represents our ability to meet present and future deposit withdrawals, to fund loans, to maintain reserve requirements and to operate the organization. To meet our liquidity needs, we maintain cash reserves and have an adequate flow of funds from
maturing loans, securities and short-term investments. In addition, our subsidiary bank maintains borrowing arrangements with major regional banks and with the Federal Home Loan Bank (FHLB). We consider our sources of liquidity to be
sufficient to meet our estimated liquidity needs.

During the third quarter of 2007, we executed net new FHLB borrowings of $28 million to take advantage
of attractive rates. These new borrowings were used to fund loan growth during the quarter rather than buying hot money certificates when we anticipate deposit interest rates to decline in the fourth quarter. These new borrowings were
laddered to have future calls in 2008, 2009 and 2010. A part of the borrowing is a $10.0 million LIBOR based instrument that is match funded against LIBOR based investments. The average rate on the new fixed-rate borrowings is 4.34%. We have made it
a practice to fund growth at times with FHLB borrowings if the rates were below our interest bearing deposit costs. These borrowings have some potential long-term interest risk if rates fall significantly, but overall give us an acceptable spread
and funding rate. We have relied on FHLB borrowings to support our growth at times in the past and will continue to evaluate funding opportunities as necessary to support future growth. These were the only changes to our contractual obligations that
would impact liquidity since the 2006 Form 10-K disclosure. At September 30, 2007, we had immediate available credit with the FHLB of $5.5 million and with nonaffiliated banks of $14.2 million. See Note 5 to the Consolidated Financial
Statements for further FHLB information.

There have been no material changes in off-balance sheet arrangements since the 2006 Form 10-K disclosure.

Management believes that we maintain overall liquidity sufficient to satisfy our depositors requirements and meet our customers credit needs.

CAPITAL RESOURCES

Our risk-based capital position at
September 30, 2007 was $96.9 million, or 13.96% of risk-weighted assets, for Tier 1 capital and $102.9 million, or 14.82%, for total risk based capital. Our Tier 1 leverage ratio at September 30, 2007 was 10.96%. Our year end 2006 ratios
were 15.04%, 16.15% and 11.57%, respectively. Enhancing our capital ratios to support future growth was the primary reason for the December 2006 stock offering. At September 30, 2006, these ratios were a much more modest 11.19%, 12.28% and
8.82%, respectively.

Tier 1 capital consists primarily of common shareholders equity, while total risk based capital adds a portion of the allowance
for loan losses to Tier 1. Risk weighted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities. Under current risk based capital standards, all banks and bank holding companies
are required to have a Tier 1 capital of at least 4% and a total capital ratio of at least 8%.

INFLATION

In financial institutions, unlike most other industries, 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. While interest rates are significantly impacted by inflation, neither the timing nor the magnitude of the changes are directly related to price level
movements. The impact of inflation on interest rates, loan demand, and deposits is reflected in the Consolidated Financial Statements.

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-Q,
including the following:



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



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##### Table of Contents

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



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| |  |  | 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

All of the forward-looking statements made in this filing are qualified by these factors, 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 also refer to risks detailed under the Risk Factors section included in the 2006 Form 10-K and otherwise included 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.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There
have been no material changes in market risk since 2006 year end as disclosed in the 2006 Form 10-K.



|Item 4. | Controls and Procedures
|------- | -----------------------

We maintain disclosure controls and
procedures that are designed to provide assurance that the information required to be disclosed by us 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 as of 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 our disclosure controls and procedures were effective as of the end of
such period. In addition, while we have reorganized and centralized many functions over the last year, we have maintained the control points that had been previously established. There was no change in our internal control over financial reporting
that occurred during the quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We believe that the merger of our subsidiary banks has had a
positive impact on internal controls by decreasing the number of banks, accounts and internal processes and procedures.



20



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##### Table of Contents

PART II OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

There are no material pending
legal proceedings to which the registrant or any of its subsidiaries is a party. The only litigation in which we and our subsidiaries are involved pertains to collection suits involving delinquent loan accounts in the normal course of business.



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

There have been no material changes
in our risk factors from those disclosed in the 2006 Form 10-K.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

In January 2001, the Board of Directors gave the authority to management to repurchase up to 5% of the outstanding shares of the companys stock per calendar year based on the number of shares outstanding on December 31, of the
preceding year. This authority has been reaffirmed each year and was most recently reaffirmed in June of 2007. There were no share repurchases from September 2004 through June 2007. During the third quarter of 2007, taking advantage of a depressed
stock market, we repurchased 151,010 shares at an average price of $20.60 per share. As of year end 2006, there were 304,165 shares allowed to be purchased. There are 153,155 shares that can be purchased over the remainder of 2007. Repurchases may
be made either in the open market or through privately negotiated transactions, as management and the board of directors deem prudent. All repurchases during 2007 have been in the open market. The impact of repurchasing shares is to lower the number
of shares outstanding and thus potentially raise earnings per share and ROE.



|Item 3. | Defaults Upon Senior Securities(not applicable)
|------- | -----------------------------------------------



|Item 4. | Submission of Matters to a Vote of Security Holders(not applicable)
|------- | -------------------------------------------------------------------



|Item 5. | Other Information(not applicable)
|------- | ---------------------------------



|Item 6. | Exhibits
|------- | --------

Exhibit 31.1  Rule 13a-14(a)
Certification of Chief Executive Officer

Exhibit 31.2  Rule 13a-14(a) Certification of Chief Financial Officer

Exhibit 32.1  Section 906 Certification of Chief Executive Officer

Exhibit 32.2  Section 906 Certification of Chief Financial Officer



21



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##### Table of Contents

SIGNATURES

Pursuant to the requirements 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.    
|                                     
|/s/ Joe A. Shearin                   
|Joe A. Shearin                       
|President and Chief Executive Officer
|                                     
|/s/ Ronald L. Blevins                
|Ronald L. Blevins                    
|Chief Financial Officer              

Date: November 2, 2007



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##### Table of Contents

Exhibit Index

Exhibit 31.1  Rule 13a-14(a) Certification of Chief Executive Officer

Exhibit 31.2  Rule 13a-14(a) Certification of
Chief Financial Officer

Exhibit 32.1  Section 906 Certification of Chief Executive Officer

Exhibit 32.2  Section 906 Certification of Chief Financial Officer



23