##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2010

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





EASTERN VIRGINIA BANKSHARES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)





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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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 May 12, 2010 was 5,967,493.









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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-Q

For the Period Ended March 31, 2010



|                             |  |                                                                                       |  |   
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|Part I Financial Information |  |                                                                                      
|Item 1.                      |  | Financial Statements                                                                  |  | 2 
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 19
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28
|Item 4.                      |  | Controls and Procedures                                                               |  | 28
|                             | 
|Part II Other Information    |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 28
|Item 1A.                     |  | Risk Factors                                                                          |  | 28
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 28
|Item 3.                      |  | Defaults Upon Senior Securities                                                       |  | 28
|Item 4.                      |  | (Removed and Reserved)                                                                |  | 28
|Item 5.                      |  | Other Information                                                                     |  | 29
|Item 6.                      |  | Exhibits                                                                              |  | 29
|Signatures                   |  | 30                                                                                   



1



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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)



|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | - | -------------------------- | - | --------- | -
|                                                                                                                                                                              |  | March 
31,2010(unaudited) |           |   | December 
31,2009(audited) |  
|Assets:                                                                                                                                                                       |  |                           |           |   |                            |   |           |  
|Cash and due from banks                                                                                                                                                       |  | $                         | 13,232    |   |                            | $ | 13,117    |  
|Interest bearing deposits with banks                                                                                                                                          |  |                           | 18,719    |   |                            |   | 15,571    |  
|Federal funds sold                                                                                                                                                            |  |                           | 918       |   |                            |   |          |  
|Securities available for sale, at fair value                                                                                                                                  |  |                           | 138,253   |   |                            |   | 169,442   |  
|Restricted securities, at cost                                                                                                                                                |  |                           | 8,941     |   |                            |   | 8,941     |  
|Loans, net of unearned income                                                                                                                                                 |  |                           | 859,102   |   |                            |   | 853,063   |  
|Allowance for loan losses                                                                                                                                                     |  |                           | (13,462   | ) |                            |   | (12,155   | )
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total loans, net                                                                                                                                                              |  |                           | 845,640   |   |                            |   | 840,908   |  
|Deferred income taxes                                                                                                                                                         |  |                           | 6,597     |   |                            |   | 6,929     |  
|Bank premises and equipment, net                                                                                                                                              |  |                           | 19,721    |   |                            |   | 20,035    |  
|Accrued interest receivable                                                                                                                                                   |  |                           | 3,698     |   |                            |   | 3,886     |  
|Other real estate owned                                                                                                                                                       |  |                           | 3,738     |   |                            |   | 4,136     |  
|Goodwill                                                                                                                                                                      |  |                           | 15,970    |   |                            |   | 15,970    |  
|Other assets                                                                                                                                                                  |  |                           | 26,228    |   |                            |   | 27,348    |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total assets                                                                                                                                                                  |  | $                         | 1,101,655 |   |                            | $ | 1,126,283 |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Liabilities and Shareholders Equity:                                                                                                                                         |  |                           |           |   |                            |   |           |  
|Liabilities                                                                                                                                                                   |  |                           |           |   |                            |   |           |  
|Noninterest-bearing demand accounts                                                                                                                                           |  | $                         | 97,219    |   |                            | $ | 89,529    |  
|Interest-bearing deposits                                                                                                                                                     |  |                           | 757,940   |   |                            |   | 763,333   |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total deposits                                                                                                                                                                |  |                           | 855,159   |   |                            |   | 852,862   |  
|Federal funds purchased and Repurchase agreements                                                                                                                             |  |                           | 2,228     |   |                            |   | 24,154    |  
|Federal Home Loan Bank advances                                                                                                                                               |  |                           | 118,214   |   |                            |   | 123,214   |  
|Trust preferred debt                                                                                                                                                          |  |                           | 10,310    |   |                            |   | 10,310    |  
|Accrued interest payable                                                                                                                                                      |  |                           | 1,629     |   |                            |   | 1,739     |  
|Other liabilities                                                                                                                                                             |  |                           | 7,457     |   |                            |   | 8,806     |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total liabilities                                                                                                                                                             |  |                           | 994,997   |   |                            |   | 1,021,085 |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Shareholders Equity                                                                                                                                                          |  |                           |           |   |                            |   |           |  
|Preferred stock, $2 par value per share, authorized 10,000,000, issued and outstanding Series A; $1,000 Stated Value 24,000
shares Fixed Rate Cumulative Perpetual Preferred, |  |                           | 24,000    |   |                            |   | 24,000    |  
|Common stock, $2 par value per share, authorized 50,000,000, issued and outstanding 5,967,493 and 5,966,662 including 21,900 and
28,400 nonvested shares, respectively        |  |                           | 11,891    |   |                            |   | 11,877    |  
|Surplus                                                                                                                                                                       |  |                           | 19,058    |   |                            |   | 18,965    |  
|Retained earnings                                                                                                                                                             |  |                           | 51,514    |   |                            |   | 50,850    |  
|Warrant                                                                                                                                                                       |  |                           | 1,481     |   |                            |   | 1,481     |  
|Discount on preferred stock                                                                                                                                                   |  |                           | (1,120    | ) |                            |   | (1,192    | )
|Accumulated other comprehensive (loss), net                                                                                                                                   |  |                           | (166      | ) |                            |   | (783      | )
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total shareholders equity                                                                                                                                                    |  |                           | 106,658   |   |                            |   | 105,198   |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  
|Total liabilities and shareholders equity                                                                                                                                    |  | $                         | 1,101,655 |   |                            | $ | 1,126,283 |  
|                                                                                                                                                                              |  |                           |           |   |                            |   |           |  

See Notes to Consolidated Financial Statements



2



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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

(Dollars in thousands except per share amounts)



|                                                                                                                              |  |                             |        |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------ | -
|                                                                                                                              |  | Three Months EndedMarch 31, |       
|                                                                                                                              |  | 2010                        |        | 2009 |  
|Interest and Dividend Income                                                                                                  |  |                             |        |      |   |        |  
|Loans and fees on loans                                                                                                       |  | $                           | 12,199 |      | $ | 12,215 |  
|Interest on investments:                                                                                                      |  |                             |        |      |   |        |  
|Taxable interest income                                                                                                       |  |                             | 973    |      |   | 1,278  |  
|Tax exempt interest income                                                                                                    |  |                             | 444    |      |   | 418    |  
|Dividends                                                                                                                     |  |                             | 5      |      |   |       |  
|Interest on deposits with banks                                                                                               |  |                             | 39     |      |   |       |  
|Interest on federal funds sold                                                                                                |  |                             |       |      |   | 22     |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Total interest and dividend income                                                                                            |  |                             | 13,660 |      |   | 13,933 |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Interest Expense                                                                                                              |  |                             |        |      |   |        |  
|Deposits                                                                                                                      |  |                             | 3,244  |      |   | 4,894  |  
|Federal funds purchased and repurchase agreements                                                                             |  |                             | 19     |      |   | 1      |  
|Interest on FHLB advances                                                                                                     |  |                             | 1,306  |      |   | 1,353  |  
|Interest on trust preferred debt                                                                                              |  |                             | 81     |      |   | 121    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Total interest expense                                                                                                        |  |                             | 4,650  |      |   | 6,369  |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Net interest income                                                                                                           |  |                             | 9,010  |      |   | 7,564  |  
|Provision for Loan Losses                                                                                                     |  |                             | 1,850  |      |   | 900    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Net interest income after provision for loan losses                                                                           |  |                             | 7,160  |      |   | 6,664  |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Noninterest Income                                                                                                            |  |                             |        |      |   |        |  
|Service charges and fees on deposit accounts                                                                                  |  |                             | 862    |      |   | 934    |  
|Debit/credit card fees                                                                                                        |  |                             | 295    |      |   | 269    |  
|Gain on sale of available for sale securities, net                                                                            |  |                             | 13     |      |   | 8      |  
|Other-than-temporary impairment losses on securities. ( no additional amounts were recognized in other comprehensive income.) |  |                             |       |      |   | (16    | )
|Gain on sale of other real estate owned                                                                                       |  |                             | 31     |      |   | 18     |  
|Gain on bank owned life insurance                                                                                             |  |                             | 604    |      |   |       |  
|Other operating income                                                                                                        |  |                             | 319    |      |   | 344    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Total noninterest income                                                                                                      |  |                             | 2,124  |      |   | 1,557  |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Noninterest Expenses                                                                                                          |  |                             |        |      |   |        |  
|Salaries and benefits                                                                                                         |  |                             | 3,990  |      |   | 3,996  |  
|Occupancy and equipment expense                                                                                               |  |                             | 1,278  |      |   | 1,192  |  
|Telephone                                                                                                                     |  |                             | 274    |      |   | 290    |  
|FDIC expense                                                                                                                  |  |                             | 468    |      |   | 300    |  
|Data processing expense                                                                                                       |  |                             | 230    |      |   | 193    |  
|Legal and professional expense                                                                                                |  |                             | 315    |      |   | 254    |  
|Marketing and advertising                                                                                                     |  |                             | 192    |      |   | 177    |  
|Lending expenses                                                                                                              |  |                             | 430    |      |   | 248    |  
|Other operating expenses                                                                                                      |  |                             | 708    |      |   | 729    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Total noninterest expenses                                                                                                    |  |                             | 7,885  |      |   | 7,379  |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Income before income taxes                                                                                                    |  |                             | 1,399  |      |   | 842    |  
|Income Tax Expense                                                                                                            |  |                             | 65     |      |   | 119    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Net income                                                                                                                    |  | $                           | 1,334  |      | $ | 723    |  
|Effective dividend on preferred stock                                                                                         |  |                             | 373    |      |   | 342    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Net income available to common shareholders                                                                                   |  | $                           | 961    |      | $ | 381    |  
|                                                                                                                              |  |                             |        |      |   |        |  
|Earnings per common share: basic                                                                                              |  | $                           | 0.16   |      | $ | 0.06   |  
|diluted                                                                                                                       |  | $                           | 0.16   |      | $ | 0.06   |  
|                                                                                                                              |  |                            
|Dividends per share, common                                                                                                   |  | $                           | 0.05   |      | $ | 0.16   |  

See Notes to
Consolidated Financial Statements



3



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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                                         |  |                            |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                         |  | Three Months EndedMarch 31 |        
|                                                                                                         |  | 2010                       |         |   | 2009 |  
|Cash Flows from Operating Activities                                                                     |  |                            |         |   |      |   |         |  
|Net income                                                                                               |  | $                          | 1,334   |   |      | $ | 723     |  
|Adjustments to reconcile net income to net cash provided by operating activities:                        |  |                            |         |   |      |   |         |  
|Depreciation                                                                                             |  |                            | 553     |   |      |   | 568     |  
|Investment amortization / (accretion), net                                                               |  |                            | 61      |   |      |   | 21      |  
|Provision for loan losses                                                                                |  |                            | 1,850   |   |      |   | 900     |  
|(Gain) realized on available for sale securities transactions, net                                      |  |                            | (13     | ) |      |   | (8      | )
|Impairment charge on securities                                                                          |  |                            |        |   |      |   | 16      |  
|(Gain) on sale of other real estate owned                                                                |  |                            | (31     | ) |      |   | (18     | )
|(Gain) loss on LLC investment                                                                            |  |                            | 14      |   |      |   | (17     | )
|Stock based compensation                                                                                 |  |                            | 55      |   |      |   | 68      |  
|Change in assets and liabilities:                                                                        |  |                            |         |   |      |   |         |  
|Decrease in other assets                                                                                 |  |                            | 1,289   |   |      |   | 122     |  
|(Decrease) in other liabilities                                                                          |  |                            | (1,455  | ) |      |   | (958    | )
|                                                                                                         |  |                            |         |   |      |   |         |  
|Net cash provided by operating activities                                                                |  |                            | 3,657   |   |      |   | 1,417   |  
|                                                                                                         |  |                            |         |   |      |   |         |  
|Cash Flows from Investing Activities                                                                     |  |                            |         |   |      |   |         |  
|Proceeds from sales of securities available for sale                                                     |  |                            | 21,799  |   |      |   |        |  
|Proceeds from maturities, calls, and paydowns of securities                                              |  |                            | 32,831  |   |      |   | 29,982  |  
|Purchase of debt securities                                                                              |  |                            | (22,540 | ) |      |   | (36,194 | )
|Purchase of restricted stock, net                                                                        |  |                            |        |   |      |   | 293     |  
|Net increase in loans                                                                                    |  |                            | (7,101  | ) |      |   | (10,972 | )
|Proceeds from sale of other real estate owned                                                            |  |                            | 991     |   |      |   | 460     |  
|Improvements to other real estate owned                                                                  |  |                            | (43     | ) |      |   |        |  
|Purchases of bank premises and equipment                                                                 |  |                            | (239    | ) |      |   | (198    | )
|                                                                                                         |  |                            |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                                                      |  |                            | 25,698  |   |      |   | (16,629 | )
|                                                                                                         |  |                            |         |   |      |   |         |  
|Cash Flows from Financing Activities                                                                     |  |                            |         |   |      |   |         |  
|Net increase (decrease) in noninterest bearing and interest bearing demand deposits and savings accounts |  |                            | 5,910   |   |      |   | 37,145  |  
|Net increase (decrease) in certificates of deposit                                                       |  |                            | (3,613  | ) |      |   | 1,972   |  
|Issuance of common stock under dividend reinvestment plan                                                |  |                            | 53      |   |      |   | 120     |  
|Issuance of preferred stock to U. S. Treasury                                                            |  |                            |        |   |      |   | 24,000  |  
|Dividends declared - common and preferred stock                                                          |  |                            | (598    | ) |      |   | (1,066  | )
|Decrease in federal funds purchased and repurchase agreements                                            |  |                            | (21,926 | ) |      |   | (3,059  | )
|Decrease in FHLB advances                                                                                |  |                            | (5,000  | ) |      |   | (10,000 | )
|                                                                                                         |  |                            |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                                                      |  |                            | (25,174 | ) |      |   | 49,112  |  
|                                                                                                         |  |                            |         |   |      |   |         |  
|Increase in cash and cash equivalents                                                                    |  |                            | 4,181   |   |      |   | 33,900  |  
|Cash and cash equivalents                                                                                |  |                            | 28,688  |   |      |   | 13,214  |  
|                                                                                                         |  |                            |         |   |      |   |         |  
|Beginning of period                                                                                      |  |                            |         |   |      |   |         |  
|End of period                                                                                            |  |                            | 32,869  |   |      | $ | 47,114  |  
|                                                                                                         |  |                            |         |   |      |   |         |  
|Supplemental Disclosures of Cash Flow Information                                                        |  |                            |         |   |      |   |         |  
|Cash paid for:                                                                                           |  |                            |         |   |      |   |         |  
|Interest on deposits and other borrowings                                                                |  | $                          | 4,760   |   |      | $ | 6,437   |  
|Income taxes                                                                                             |  | $                          |        |   |      | $ | 130     |  
|Unrealized gain/(loss) on securities available for sale                                                  |  | $                          | 978     |   |      | $ | (3,455  | )
|Loans transferred to other real estate owned                                                             |  | $                          | 519     |   |      | $ | 843     |  

See Notes to
Consolidated Financial Statements



4



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders Equity (unaudited)

For the Quarters Ended March 31, 2010 and 2009

(dollars in thousands)



|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ----------- | ------ | -------------- | - | ------- |  | ---------------- | ------ |  | ------------------------------------------ | ------ | - | -------------------------- | - | ------- | ----- |  | ------ | - |  | - | ------- | -
|                                                                                |  | CommonStock |        | PreferredStock |   | Surplus |  | RetainedEarnings |        |  | AccumulatedOtherComprehensiveIncome (Loss) |        |   | ComprehensiveIncome (loss) |   |         | Total | 
|Balance, December 31, 2008                                                      |  | $           | 11,798 |                | $ |        |  | $                | 18,456 |  | $                                          | 62,804 |   |                            | $ | (15,029 | )     |  |        |   |  | $ | 78,029  |  
|Comprehensive income:                                                           |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Net income for the three months ended, March 31, 2009                           |  |             |        |                |   |         |  |                  |        |  |                                            | 723    |   |                            |   |         |       |  | 723    |   |  |   | 723     |  
|Other comprehensive income:                                                     |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Unrealized securities gains arising during period, (net of tax, $1.201 million) |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | (2,254 | ) |  |   |         |  
|Reclassification adjustment (net of tax, 3)                                     |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | (5     | ) |  |   |         |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Other comprehensive income                                                      |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   | (2,259  | )     |  | (2,259 | ) |  |   | (2,259  | )
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Total comprehensive income                                                      |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | (1,536 | ) |  |   |         |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Issuance of Preferred Stock to U.S. Treasury                                    |  |             |        |                |   | 24,000  |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   | 24,000  |  
|Cash dividends declared common and preferred                                    |  |             |        |                |   |         |  |                  |        |  |                                            | (1,066 | ) |                            |   |         |       |  |        |   |  |   | (1,066  | )
|Preferred Stock Discount                                                        |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |        |  
|Stock-based compensation                                                        |  |             |        |                |   | 72      |  |                  |        |  |                                            | (72    | ) |                            |   |         |       |  |        |   |  |   |        |  
|Issuance of common stock under dividend reinvestment plan                       |  |             | 24     |                |   |        |  |                  | 165    |  |                                            |       |   |                            |   |        |       |  |        |   |  |   | 189     |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Balance, March 31, 2009                                                         |  | $           | 11,822 |                | $ | 24,072  |  | $                | 18,621 |  | $                                          | 62,389 |   |                            | $ | (17,288 | )     |  |        |   |  | $ | 99,616  |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|                                                                                |  |             |        |                |   |         | 
|Balance, December 31, 2009                                                      |  | $           | 11,877 |                | $ | 24,289  |  | $                | 18,965 |  | $                                          | 50,850 |   |                            | $ | (783    | )     |  |        |   |  | $ | 105,198 |  
|Comprehensive income:                                                           |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Net income for the three months ended, March 31, 2010                           |  |             |        |                |   |         |  |                  |        |  |                                            | 1,334  |   |                            |   |         |       |  | 1,334  |   |  |   | 1,334   |  
|Other comprehensive income:                                                     |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Unrealized securities gains arising during period, (net of tax, $353 thousand)  |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | 625    |   |  |   |         |  
|Reclassification adjustment (net of tax, 5)                                     |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | (8     | ) |  |   |         |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Other comprehensive income                                                      |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   | 617     |       |  | 617    |   |  |   | 617     |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Total comprehensive income                                                      |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  | 1,951  |   |  |   |         |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Cash dividends declared common and preferred                                    |  |             |        |                |   |         |  |                  |        |  |                                            | (598   | ) |                            |   |         |       |  |        |   |  |   | (598    | )
|Preferred Stock Discount                                                        |  |             |        |                |   | 72      |  |                  |        |  |                                            | (72    | ) |                            |   |         |       |  |        |   |  |   |        |  
|Issuance of common stock under dividend reinvestment plan                       |  |             | 14     |                |   |        |  |                  | 93     |  |                                            |       |   |                            |   |        |       |  |        |   |  |   | 107     |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  
|Balance, March 31, 2010                                                         |  | $           | 11,891 |                | $ | 24,361  |  | $                | 19,058 |  | $                                          | 51,514 |   |                            | $ | (166    | )     |  |        |   |  | $ | 106,658 |  
|                                                                                |  |             |        |                |   |         |  |                  |        |  |                                            |        |   |                            |   |         |       |  |        |   |  |   |         |  



5



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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 March 31, 2010 and December 31, 2009, the results of operations for the three months ended
March 31, 2010 and 2009, and cash flows for the three months ended March 31, 2010 and 2009. 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, 2009 (the 2009 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 25 retail branches in the counties of Caroline,
Essex, Gloucester, Hanover, Henrico, King William, Lancaster, Middlesex, Northumberland, Southampton, Surry, Sussex and the City of Colonial Heights. Subsidiaries of EVB include EVB Investments, EVB Mortgage and EVB Title. The bank also has a 100%
interest in Dunston Hall LLC which was formed to hold the title to real estate acquired by EVB upon foreclosure of secured real estate secured loans. 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. 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, and the new bank began operating under the name EVB. All significant inter-company transactions and accounts have been eliminated in
consolidation.

The results of operations for the three month period ended March 31, 2010 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 March 31, 2010 and December 31,
2009 were as follows:



|                                        |  |                |         |                      |   |                       |  |                    |     |  |   |        
|--------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | ------------------ | --- |  | - | -------
|                                        |  | March 31, 2010
|(Dollars in thousands)                  |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFairValue
|Available for Sale:                     |  |                |         |                      |   |                       |  |                    |     |  |   |        
|Obligations of U.S. Government agencies |  | $              | 27,534  |                      | $ | 90                    |  | $                  | 15  |  | $ | 27,609 
|Agency Mortgage-backed securities       |  |                | 27,250  |                      |   | 986                   |  |                    | 4   |  |   | 28,232 
|Agency CMO securities                   |  |                | 27,542  |                      |   | 647                   |  |                    | 56  |  |   | 28,133 
|Non Agency CMO securities               |  |                | 4,612   |                      |   | 33                    |  |                    | 34  |  |   | 4,611  
|State and political subdivisions        |  |                | 44,426  |                      |   | 828                   |  |                    | 363 |  |   | 44,891 
|Pooled trust preferred securities       |  |                | 630     |                      |   | 53                    |  |                    |    |  |   | 683    
|FNMA and FHLMC preferred stock          |  |                | 77      |                      |   | 82                    |  |                    |    |  |   | 159    
|Corporate securities                    |  |                | 4,086   |                      |   | 68                    |  |                    | 219 |  |   | 3,935  
|                                        |  |                |         |                      |   |                       |  |                    |     |  |   |        
|Total                                   |  | $              | 136,157 |                      | $ | 2,787                 |  | $                  | 691 |  | $ | 138,253
|                                        |  |                |         |                      |   |                       |  |                    |     |  |   |        



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



|                                        |  |                   |         |                      |   |                       |  |                    |       |  |   |        
|--------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | ------------------ | ----- |  | - | -------
|                                        |  | December 31, 2009
|(dollars in thousands)                  |  | AmortizedCost     |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedFairValue
|Available for Sale:                     |  |                   |         |                      |   |                       |  |                    |       |  |   |        
|Obligations of U.S. Government agencies |  | $                 | 34,180  |                      | $ | 393                   |  | $                  | 51    |  | $ | 34,522 
|Agency Mortgage-backed securities       |  |                   | 39,774  |                      |   | 1,712                 |  |                    | 5     |  |   | 41,481 
|Agency CMO securities                   |  |                   | 29,727  |                      |   | 479                   |  |                    | 214   |  |   | 29,992 
|Non Agency CMO securities               |  |                   | 5,149   |                      |   | 36                    |  |                    | 40    |  |   | 5,145  
|State and political subdivisions        |  |                   | 47,938  |                      |   | 775                   |  |                    | 641   |  |   | 48,072 
|Pooled trust preferred securities       |  |                   | 632     |                      |   | 56                    |  |                    |      |  |   | 688    
|FNMA and FHLMC preferred stock          |  |                   | 77      |                      |   | 49                    |  |                    |      |  |   | 126    
|Corporate securities                    |  |                   | 10,819  |                      |   | 145                   |  |                    | 1,548 |  |   | 9,416  
|                                        |  |                   |         |                      |   |                       |  |                    |       |  |   |        
|Total                                   |  | $                 | 168,296 |                      | $ | 3,645                 |  | $                  | 2,499 |  | $ | 169,442
|                                        |  |                   |         |                      |   |                       |  |                    |       |  |   |        

There are no securities classified as Held to Maturity or
Trading and we do not hold any commercial mortgage backed securities.

We do not hold any commercial mortgage-backed securities.
Our mortgage-backed securities are all agency backed and AAA rated with no subprime issues. Our pooled trust preferred securities include one senior issue of Preferred Terms Securities XXVII which is current on all payments and on which we took an
impairment charge in the third quarter of 2009 to reduce our book value to the market value at September 30, 2009. That security is valued at March 31, 2010 at $53 thousand greater than the amortized cost after impairment. We also have an investment
in Preferred Term Securities XXIII mezzanine tranche which was impaired to a cost basis of $77 thousand at September 30, 2009 and which retains that value at March 31, 2010.

The following is a comparison of amortized cost and estimated fair values of our securities by contractual maturity at March 31, 2010. Expected
maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.



|                                       |  |                |         |                     |   |        
|-------------------------------------- |  | -------------- | ------- | ------------------- | - | -------
|                                       |  | March 31, 2010
|(dollars in thousands)                 |  | AmortizedCost  |         | EstimatedFair Value
|Due in one year or less                |  | $              | 40,386  |                     | $ | 40,456 
|Due after one year through five years  |  |                | 60,071  |                     |   | 61,772 
|Due after five years through ten years |  |                | 19,471  |                     |   | 19,732 
|Due after ten years                    |  |                | 16,229  |                     |   | 16,293 
|                                       |  |                |         |                     |   |        
|Total                                  |  | $              | 136,157 |                     | $ | 138,253
|                                       |  |                |         |                     |   |        

At March 31, 2010, investments in an unrealized loss position that
were temporarily impaired were as follows:



|                                        |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |    
|--------------------------------------- |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ----- | --------- | - | -------------- |  | - | ------ |  | - | ---
|                                        |  | March 31, 2010     
|                                        |  | Less than 12 months |        | 12 months or more |   | Total    
|(dollars in thousands)                  |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |       | FairValue |   | UnrealizedLoss
|Description of Securities               |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |    
|Obligations of U.S. Government agencies |  | $                   | 22,021 |                   | $ | 14        |  | $              | 298   |           | $ | 1              |  | $ | 22,319 |  | $ | 15 
|Agency Mortgage-backed securities       |  |                     | 17     |                   |   |          |  |                | 890   |           |   | 4              |  |   | 907    |  |   | 4  
|Agency CMO securities                   |  |                     | 7,075  |                   |   | 56        |  |                |      |           |   |               |  |   | 7,075  |  |   | 56 
|Non agency CMO securities               |  |                     |       |                   |   |          |  |                | 703   |           |   | 34             |  |   | 703    |  |   | 34 
|State and political subdivisions        |  |                     | 5,596  |                   |   | 81        |  |                | 2,233 |           |   | 282            |  |   | 7,829  |  |   | 363
|Corporate securities                    |  |                     |       |                   |   |          |  |                | 2,380 |           |   | 219            |  |   | 2,380  |  |   | 219
|                                        |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |    
|                                        |  | $                   | 34,709 |                   | $ | 151       |  | $              | 6,504 |           | $ | 540            |  | $ | 41,213 |  | $ | 691
|                                        |  |                     |        |                   |   |           |  |                |       |           |   |                |  |   |        |  |   |    

At December 31, 2009 investments in an unrealized loss position
that were temporarily impaired were as follows:



|                                         |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|---------------------------------------- |  | ------------------- | ------ | ----------------- | - | --------- |  | -------------- | ------ | --------- | - | -------------- |  | - | ------ |  | - | -----
|                                         |  | December 31, 2009  
|                                         |  | Less than 12 months |        | 12 months or more |   | Total    
|(dollars in thousands)                   |  | FairValue           |        | UnrealizedLoss    |   | FairValue |  | UnrealizedLoss |        | FairValue |   | UnrealizedLoss
|Description of Securities                |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|Obligations of U. S. Government agencies |  | $                   | 26,966 |                   | $ | 51        |  | $              |       |           | $ |               |  | $ | 26,966 |  | $ | 51   
|Agency Mortgage-backed securities        |  |                     | 898    |                   |   | 2         |  |                | 217    |           |   | 2              |  |   | 1,115  |  |   | 4    
|Agency CMO securities                    |  |                     | 13,174 |                   |   | 215       |  |                |       |           |   |               |  |   | 13,174 |  |   | 215  
|Non agency CMO securities                |  |                     |       |                   |   |          |  |                | 760    |           |   | 40             |  |   | 760    |  |   | 40   
|State and political subdivisions         |  |                     | 6,440  |                   |   | 127       |  |                | 4,511  |           |   | 514            |  |   | 10,951 |  |   | 641  
|Corporate securities                     |  |                     | 860    |                   |   | 140       |  |                | 5,914  |           |   | 1,408          |  |   | 6,774  |  |   | 1,548
|                                         |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      
|                                         |  | $                   | 48,338 |                   | $ | 535       |  | $              | 11,402 |           | $ | 1,964          |  | $ | 59,740 |  | $ | 2,499
|                                         |  |                     |        |                   |   |           |  |                |        |           |   |                |  |   |        |  |   |      

Bonds with unrealized loss positions of less than 12 months duration
at March 31, 2010 included 2 federal agencies, 4 CMO securities and 11 municipal bonds. Securities with unrealized losses of 12 months or greater duration included 1 federal agency, 4 mortgage-backed securities, 3 municipal bonds, 2 CMO
securities and 3 corporate bonds. The unrealized loss positions at March 31, 2010 were primarily related to the widened market spreads for mortgage backed and corporate securities. All of our securities with unrealized losses are income
producing and do not exhibit credit stress that would lead to other-than-temporary impairment.



7



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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



The tables that follow provide detail information as of both March 31, 2010 and December 31,
2009 on the corporate bond holdings that have been in a temporarily impaired position for 12 months or greater. These are all senior securities with no subordination.



|                                                |  |                     |       |           |   |                |  |   |          |   |                    |      |  |                       |   |  |         
|----------------------------------------------- |  | ------------------- | ----- | --------- | - | -------------- |  | - | -------- | - | ------------------ | ---- |  | --------------------- | - |  | --------
|March 31, 2010
(Dollars in thousands)
Issuer    |  | AmortizedCost Basis |       | FairValue |   | UnrealizedLoss |  |   | Maturity |   | CurrentMarketYield |      |  | Moody/S&PCreditRating
|HSBC CPI Floating CPI + 255 basis points        |  | $                   | 599   |           | $ | 535            |  | $ | (64      | ) |                    | 2013 |  | 8.18                  | % |  | A3/A    
|Bear Stearns/J P Morgan Floating CPI + 145 bp   |  |                     | 1,000 |           |   | 985            |  |   | (15      | ) |                    | 2014 |  | 4.49                  | % |  | Aa3/A+  
|Pacific Life Global FNDG Floating CPI +218 bp   |  |                     | 1,000 |           |   | 860            |  |   | (140     | ) |                    | 2016 |  | 7.89                  | % |  | A1/AA-  
|                                                |  |                     |       |           |   |                |  |   |          |   |                    |      |  |                       |   |  |         
|Total                                           |  | $                   | 2,599 |           | $ | 2,380          |  | $ | (219     | ) |                    |      |  |                       |   |  |         
|                                                |  |                     |       |           |   |                |  |   |          |   |                    |      |  |                       |   |  |         
|                                                |  |                     |       |           |   |               
|December 31, 2009
(Dollars in thousands)
Issuer |  | AmortizedCost Basis |       | FairValue |   | UnrealizedLoss |  |   | Maturity |   | CurrentMarketYield |      |  | Moody/S&PCreditRating
|HSBC CPI Floating CPI + 255 basis points        |  | $                   | 599   |           | $ | 532            |  | $ | (67      | ) |                    | 2013 |  | 5.21                  | % |  | A3/A    
|SLM Corp Floating 1 Month CPI + 212.5 bp        |  |                     | 1,000 |           |   | 769            |  |   | (231     | ) |                    | 2013 |  | 7.49                  | % |  | Ba1/BBB-
|SLM Corp Floating 1 Month CPI + 200 bp          |  |                     | 1,000 |           |   | 712            |  |   | (288     | ) |                    | 2014 |  | 8.72                  | % |  | Ba1/BBB-
|SLM Corp Floating 1 Month CPI + 162 bp          |  |                     | 1,000 |           |   | 709            |  |   | (291     | ) |                    | 2014 |  | 8.54                  | % |  | Ba1/BBB-
|Bear Stearns/J P Morgan Floating CPI + 145 bp   |  |                     | 1,000 |           |   | 987            |  |   | (13      | ) |                    | 2014 |  | 1.59                  | % |  | Aa3/A+  
|Pacific Life Global FNDG Floating CPI +218 bp   |  |                     | 1,000 |           |   | 860            |  |   | (140     | ) |                    | 2016 |  | 3.44                  | % |  | A1/AA-  
|GMAC 6.25% Fixed Rate                           |  |                     | 500   |           |   | 411            |  |   | (89      | ) |                    | 2013 |  | 12.62                 | % |  | CCC     
|GMAC 6.15% Fixed Rate                           |  |                     | 1,500 |           |   | 1,091          |  |   | (409     | ) |                    | 2016 |  | 12.61                 | % |  | CCC     
|GMAC 6.875% Fixed Rate                          |  |                     | 723   |           |   | 703            |  |   | (20      | ) |                    | 2018 |  | 12.57                 | % |  | CCC     
|                                                |  |                     |       |           |   |                |  |   |          |   |                    |      |  |                       |   |  |         
|                                                |  | $                   | 8,322 |           | $ | 6,774          |  | $ | (1,548   | ) |                    |      |  |                       |   |  |         
|                                                |  |                     |       |           |   |                |  |   |          |   |                    |      |  |                       |   |  |         

Other-Than-Temporarily Impaired Debt Securities

We review for other-than-temporary-impairment (OTTI) of debt securities classified as available for sale in accordance with Accounting
Standards Codification 320-10-65. As required by this ASC topic, we assess whether we intend to sell or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis less any current period
losses. For debt securities that are considered other-than-temporarily impaired, we separate the amount of impairment into the loss that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is
recognized in earnings and the difference between the securitys amortized cost basis and the present value of its expected cash flows discounted at the securitys effective yield. The remaining difference between the securitys fair
value and present value of future expected cash flows is due to factors that are not credit related, and therefore, is not required to be recognized as losses in the income statement but is recognized in other comprehensive income. We believe that
we will fully collect the carrying value of securities on which we have recorded a non-credit-related impairment in other comprehensive income.



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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



The table below presents a roll forward of the credit loss component recognized in earnings (referred to
as credit-impaired debt securities) on debt securities held by the Company for which a portion of an other-than-temporary impairment was recognized in other comprehensive income. The beginning balance represents the credit loss component
for debt securities for which OTTI occurred prior to the beginning of the period. There were no securities considered to cause an increase in OTTI in the first three months of either 2010 or 2009. Changes in the credit loss component of credit
-impaired debt securities were:



|                                                                     |  |                             |         |  
|-------------------------------------------------------------------- |  | --------------------------- | ------- | -
|(Dollars in thousands)                                               |  | Period EndedMarch 31, 
2010 |        
|Balance, beginning of period                                         |  | $                           | 18,919  |  
|Adjustment for debt securities that were totally written off in 2009 |  |                             | (15,626 | )
|Adjustment for 2009 impairment prior to April 1                      |  |                             | (17     | )
|                                                                     |  |                             |         |  
|Balance, beginning of period as restated                             |  |                             | 3,276   |  
|Additions                                                            |  |                             |         |  
|Initial credit impairments                                           |  |                             |        |  
|Subsequent credit impairments                                        |  |                             |        |  
|                                                                     |  |                             |         |  
|Balance end of period                                                |  | $                           | 3,276   |  
|                                                                     |  |                             |         |  

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



|                                              |  |          |         |   |             |   |         |          |  |   |         |  
|--------------------------------------------- |  | -------- | ------- | - | ----------- | - | ------- | -------- |  | - | ------- | -
|                                              |  | March 31 |         |   | December 31 |   |         | March 31 | 
|(Dollars in thousands)                        |  | 2010     |         |   | 2009        |   |         | 2009     | 
|Commercial, industrial and agricultural loans |  | $        | 76,846  |   |             | $ | 82,563  |          |  | $ | 74,942  |  
|Residential real estate mortgage loans        |  |          | 406,632 |   |             |   | 400,846 |          |  |   | 380,306 |  
|Real estate construction loans                |  |          | 91,176  |   |             |   | 87,782  |          |  |   | 99,635  |  
|Commercial real estate loans                  |  |          | 237,941 |   |             |   | 234,676 |          |  |   | 220,972 |  
|Consumer loans                                |  |          | 40,762  |   |             |   | 42,416  |          |  |   | 47,306  |  
|All other loans                               |  |          | 5,751   |   |             |   | 4,786   |          |  |   | 5,943   |  
|                                              |  |          |         |   |             |   |         |          |  |   |         |  
|Total loans                                   |  |          | 859,108 |   |             |   | 853,069 |          |  |   | 829,104 |  
|Less unearned income                          |  |          | (6      | ) |             |   | (6      | )        |  |   | (9      | )
|                                              |  |          |         |   |             |   |         |          |  |   |         |  
|Total loans net of unearned discount          |  |          | 859,102 |   |             |   | 853,063 |          |  |   | 829,095 |  
|Less allowance for loan losses                |  |          | (13,462 | ) |             |   | (12,155 | )        |  |   | (11,142 | )
|                                              |  |          |         |   |             |   |         |          |  |   |         |  
|Net loans                                     |  | $        | 845,640 |   |             | $ | 840,908 |          |  | $ | 817,953 |  
|                                              |  |          |         |   |             |   |         |          |  |   |         |  

We had $40.1 million in non-performing assets at March 31, 2010 that included $5.2 million in loans past due 90 days or
more but still accruing, $22.1 million in nonaccrual loans, $9.0 million in restructured loans and $3.7 million classified as OREO.

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



|                                 |  |              |        |   |                 |   |        |              |  |   |        |  
|-------------------------------- |  | ------------ | ------ | - | --------------- | - | ------ | ------------ |  | - | ------ | -
|(Dollars in thousands)           |  | March 312010 |        |   | December 312009 |   |        | March 312009 | 
|Balance at beginning of year     |  | $            | 12,155 |   |                 | $ | 10,542 |              |  | $ | 10,542 |  
|Provision charged against income |  |              | 1,850  |   |                 |   | 4,200  |              |  |   | 900    |  
|Recoveries of loans charged off  |  |              | 83     |   |                 |   | 407    |              |  |   | 84     |  
|Loans charged off                |  |              | (626   | ) |                 |   | (2,994 | )            |  |   | (384   | )
|                                 |  |              |        |   |                 |   |        |              |  |   |        |  
|Balance at end of period         |  | $            | 13,462 |   |                 | $ | 12,155 |              |  | $ | 11,142 |  
|                                 |  |              |        |   |                 |   |        |              |  |   |        |  

Following is a summary pertaining to impaired loans.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



|                                                                  |  |               |        |                   |   |       
|----------------------------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------
|(Dollars in thousands)                                            |  | March 31,2010 |        | December 
31,2009
|Impaired loans for which no valuation allowance has been provided |  | $             | 8,159  |                   | $ | 9,491 
|Impaired loans with a valuation allowance                         |  |               | 19,746 |                   |   | 19,880
|                                                                  |  |               |        |                   |   |       
|Allowance related to impaired loans                               |  | $             | 6,933  |                   | $ | 5,768 
|                                                                  |  |               |        |                   |   |       
|Average balance of impaired loans                                 |  | $             | 28,161 |                   | $ | 21,794
|                                                                  |  |               |        |                   |   |       

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.



|                       |  |               |         |                  |   |               |  |   |        
|---------------------- |  | ------------- | ------- | ---------------- | - | ------------- |  | - | -------
|(Dollars in thousands) |  | March 31,2010 |         | December 31,2009 |   | March 31,2009
|Amortizing Advances    |  | $             | 714     |                  | $ | 714           |  | $ | 2,143  
|Convertible Advances   |  |               | 117,500 |                  |   | 122,500       |  |   | 122,500
|                       |  |               |         |                  |   |               |  |   |        
|                       |  | $             | 118,214 |                  | $ | 123,214       |  | $ | 124,643
|                       |  |               |         |                  |   |               |  |   |        

The table presented below shows the maturities and potential call
dates of FHLB advances. All but $714 thousand of the FHLB borrowings are convertible advances that have a call provision.



|                       |  |                  |         |          |      |   |                |   |          |  |      |  
|---------------------- |  | ---------------- | ------- | -------- | ---- | - | -------------- | - | -------- |  | ---- | -
|(Dollars in thousands) |  | MaturitiesAmount |         | Avg Rate |      |   | CallableAmount |   | Avg Rate | 
|2010                   |  | $                | 714     |          | 3.15 | % |                | $ | 108,500  |  | 4.36 | %
|2011                   |  |                  | 10,000  |          | 5.01 | % |                |   | 9,000    |  | 2.44 | %
|2015                   |  |                  | 13,500  |          | 3.87 | % |                |   |         |  |      |  
|2016                   |  |                  | 10,000  |          | 4.85 | % |                |   |         |  |      |  
|2017                   |  |                  | 75,000  |          | 4.32 | % |                |   |         |  |      |  
|2018                   |  |                  | 9,000   |          | 2.44 | % |                |   |         |  |      |  
|                       |  |                  |         |          |      |   |                |   |          |  |      |  
|                       |  | $                | 118,214 |          | 4.22 | % |                | $ | 117,500  |  | 4.22 | %
|                       |  |                  |         |          |      |   |                |   |          |  |      |  

6. The following table shows the weighted average number of common 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 common shareholders for the three-month periods ended March 31,
2010 and 2009.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



|                                             |  |                    |  |                 |      |        |           |                  |   |     
|-------------------------------------------- |  | ------------------ |  | --------------- | ---- | ------ | --------- | ---------------- | - | ----
|                                             |  | Three Months Ended
|                                             |  | March 31, 2010     |  | March 31, 2009 
|                                             |  | Shares             |  | Per ShareAmount |      | Shares |           | Per 
ShareAmount
|Basic earnings per common share              |  | 5,957,246          |  | $               | 0.16 |        | 5,918,859 |                  | $ | 0.06
|Effect of dilutive securities, stock options |  |                   |  |                 |     |        |          |                  |   |    
|                                             |  |                    |  |                 |      |        |           |                  |   |     
|Diluted earnings per common share            |  | 5,957,246          |  | $               | 0.16 |        | 5,918,859 |                  | $ | 0.06
|                                             |  |                    |  |                 |      |        |           |                  |   |     

At March 31, 2010 and 2009, respectively, employees had options
to acquire 272,017 shares and 304,312 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 (the
2000 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 2000 Plan,
up to 400,000 shares of Company common stock may be granted. No options may be granted under the 2000 Plan after September 21, 2010. On April 17, 2003, the shareholders approved the 2003 Stock Incentive Plan, amending and restating the
2000 Plan (the 2003 Plan) while still authorizing the issuance of up to 400,000 shares of common stock. There are 51,538 shares still available under the 2003 Plan.

On April 19, 2007, our shareholders approved the Eastern Virginia Bankshares, Inc. 2007 Equity Compensation Plan (the 2007 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. The 2007 Plan authorizes the Company to issue up to 400,000
additional shares of common stock. No awards have been issued under the 2007 Plan.

Accounting standards require 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 an accounting standard 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.

Accounting standards also require 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 a new
accounting standard in 2004 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 where a participant reaches normal
retirement age of 65 prior to the normal vesting date. For the three-month periods ended March 31, 2010 and 2009, stock option compensation expense of $55 thousand and $68 thousand was 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 March 31, there have been no awards issued in 2010 and none were granted in 2009.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



Stock option plan activity for the three months ended March 31, 2010 is summarized below:



|                                         |  |         |   |  |                              |       |                                                    |      |                                                              |   |  
|---------------------------------------- |  | ------- | - |  | ---------------------------- | ----- | -------------------------------------------------- | ---- | ------------------------------------------------------------ | - | -
|                                         |  |         |   |  | 2010                         |       |                                                    |      |                                                             
|                                         |  | Shares  |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife (in years) |      | IntrinsicValue
ofUnexercisedIn-theMoneyOptions(in thousands)
|Outstanding at the beginning of the year |  | 276,967 |   |  | $                            | 19.45 |                                                    |      |                                                              |   |  
|Granted                                  |  |        |   |  |                              |      |                                                    |      |                                                              |   |  
|Exercised                                |  |        |   |  |                              |      |                                                    |      |                                                              |   |  
|Forfeited                                |  | (4,950  | ) |  |                              |      |                                                    |      |                                                              |   |  
|                                         |  |         |   |  |                              |       |                                                    |      |                                                              |   |  
|Outstanding at March 31, 2010            |  | 272,017 |   |  |                              | 19.46 |                                                    | 5.36 |                                                              | $ | 
|                                         |  |         |   |  |                              |       |                                                    |      |                                                              |   |  
|Options exercisable at March 31, 2010    |  | 134,142 |   |  |                              | 21.30 |                                                    | 3.75 |                                                              | $ | 
|                                         |  |         |   |  |                              |       |                                                    |      |                                                              |   |  

As of March 31, 2010, there was $233 thousand of unrecognized
compensation expense related to stock options that will be recognized over the remaining requisite average service period of approximately 1.5 years. There were no options granted in the three-month periods ended March 31, 2010 or 2009. There
were no shares exercised in the three month periods ended March 31, 2010 or 2009.

We awarded 18,000 shares of
restricted stock to employees on July 1, 2009. One half of these shares are subject to time vesting at 20% per year over a fiveyear period. The other half of the restricted share award is performance based and will vest on
June 30, 2012 if, and only if, 2011 financial achievements of the Company meet pre-specified targets for earnings per share or return on equity compared to a board compensation committee defined peer group. Performance share vesting is based on
a sliding scale at various levels for performance at or above the
50thpercentile of the peer group performance. We issued
no restricted stock in 2008, but did grant 15,000 shares in December 2007, again with a 50/50 split between time vested and performance vested. The 7,500 performance shares from the 2007 award was forfeited in the first quarter of 2009, and 800 of
the time vested shares were forfeited in 2009 when a former executive left the Company. There is a total of 3,900 shares from the 2007 award that are still outstanding and 2,800 shares have vested.

At March 31, 2010, there was $68 thousand of total unrecognized compensation related to restricted stock awards. This unearned
compensation is being amortized over the remaining vesting period for the time-based shares, and over the remaining vesting period for
1/3rdof the 2009 performance-based shares. The Company
assumes that only 1/3rdof the 2009 performance based
award will vest. Compensation is accounted for using the fair market value of our common stock on the date the restricted shares were awarded, which was $8.31 per share for the 2009 award and $17.25 per share for the 2007 award. For the three month
periods ended March 31, 2010 and 2009, restricted stock compensation expense of $9 thousand and $6 thousand, respectively, was included in salary and benefit expense.

8. Components of net periodic benefit cost related to the Companys pension plan were as follows for the periods indicated:



|                                        |  |                             |      |   |      |   |      |  
|--------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                        |  | Three Months EndedMarch 
31 |     
|                                        |  | 2010                        |      |   | 2009 |  
|                                        |  | (Dollars in thousands)      |     
|Components of Net Periodic Benefit Cost |  |                             |      |   |      |   |      |  
|Service cost                            |  | $                           | 146  |   |      | $ | 165  |  
|Interest cost                           |  |                             | 195  |   |      |   | 191  |  
|Expected return on plan assets          |  |                             | (237 | ) |      |   | (179 | )
|Amortization of prior service cost      |  |                             | 5    |   |      |   | 5    |  
|Net (gain) / loss                       |  |                             | 14   |   |      |   | 53   |  
|                                        |  |                             |      |   |      |   |      |  
|Net periodic benefit cost               |  | $                           | 123  |   |      | $ | 235  |  
|                                        |  |                             |      |   |      |   |      |  



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



We made our required 2009 fiscal year contribution to the pension plan in December 2009 in the amount of
$941 thousand. We project that we will make a contribution of $780 thousand in 2010, an amount $288 thousand above the minimum required contribution for the year.

9. Fair Value Measurements

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

We adopted Fair Value Measurements (ASC 820) , on
January 1, 2008 to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Accounting standards clarify that fair value of certain assets and liabilities is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

In October of
2008, accounting standards were issued to clarify the application of ASC 820 in a market that is not active and to provide key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.
ASC 820 was effective upon issuance, including prior periods for which financial statements were not issued.

Accounting standards specify a
hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market
assumptions. The three levels of the fair value hierarchy under accounting standards based on these two types of inputs are as follows:



| |  |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| | - |  | -------------------------------------------------------------------------------------------------------------

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy:

Securities available for sale: Securities available for sale are recorded at fair
value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar
securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using
pricing models that considers observable market data (Level 2). We obtain a single quote for all securities. Quotes for most securities are provided by our securities accounting and safekeeping correspondent bank which uses Reuters for securities
other than municipals for which they use a pricing matrix. The correspondent also uses securities trader quotations for a small number of securities. Securities pricing for a single pooled trust preferred senior security is provided through another
correspondent by Moodys Analytics. We do not adjust any quotes or prices provided by these third party sources. We perform a review of pricing data by comparing prices received from third party vendors to the previous months quote for the same
security and evaluate any substantial changes.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



The following table presents the balances as of March 31, 2010 and December 31, 2009 of
financial assets and liabilities measured at fair value on a recurring basis.



|                              |  |                               |         |                                                           |   |                                           |  |                                         |         |  |   |  
|----------------------------- |  | ----------------------------- | ------- | --------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------------------- | ------- |  | - | -
|                              |  |                               |         | Fair Value Measurements at March 31, 2010 Using          
|(in thousands)
Description    |  | Balance as ofMarch 
31,2010   |         | Quoted Pricesin
ActiveMarkets
forIdenticalAssets(Level
1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputes(Level 3)
|Assets:                       |  |                               |         |                                                           |   |                                           |  |                                         |         |  |   |  
|Available-for-sale securities |  | $                             | 138,253 |                                                           | $ |                                          |  | $                                       | 138,253 |  | $ | 
|                              |  |                               |         |                                                           |   |                                           |  |                                         |         |  |   |  
|                              |  |                              
|                              |  |                               |         | Fair Value Measurements at December 31, 2009 Using       
|Description                   |  | Balance as
ofDecember 31,2009 |         | Quoted Pricesin
ActiveMarkets
forIdenticalAssets(Level
1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputes(Level 3)
|Assets:                       |  |                               |         |                                                           |   |                                           |  |                                         |         |  |   |  
|Available-for-sale securities |  | $                             | 169,442 |                                                           | $ |                                          |  | $                                       | 169,442 |  | $ | 
|                              |  |                               |         |                                                           |   |                                           |  |                                         |         |  |   |  

Certain financial assets are measured at fair value on a nonrecurring
basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used to measure certain assets recorded at fair value on a nonrecurring basis in the financial
statements:

Impaired Loans: Loans are designated as impaired when, in the judgment of management based on current information and
events, it is probable that some portion of the amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of
the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.
The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed external appraiser using observable
market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. If a real estate loan becomes a
nonperforming loan, and if the valuation is over one year old, either an evaluation by an officer of the bank or an outside vendor, or an appraisal is performed to determine current market value. We consider the value of a partially completed
project for our loan analysis. For nonperforming construction loans, we obtain a valuation of each partially completed project as is from a third party appraiser. We use this third party valuation to determine if any charge-offs are
necessary.

The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable
businesss financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans
allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We
believe that the fair value component in our valuation or OREO follows the provisions of accounting standards.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



The following table summarizes our assets that were measured at fair value on a nonrecurring basis as of
March 31, 2010.



|                                   |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|---------------------------------- |  | ------------------------------ | ------ | --------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------------------- | ----- |  | - | -----
|                                   |  |                                |        | Fair Value Measurements at March 31, 2010 Using          
|(Dollars in thousands)
Description |  | Balance as
ofMarch 31,2010     |        | Quoted Pricesin
ActiveMarkets forIdenticalAssets(Level
1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
 3)
|Assets:                            |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|Impaired loans                     |  | $                              | 12,813 |                                                           | $ |                                          |  | $                                       | 8,353 |  | $ | 4,460
|Other real estate owned            |  |                                | 3,738  |                                                           |   |                                          |  |                                         |      |  |   | 3,738
|                                   |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|Total                              |  | $                              | 16,551 |                                                           | $ |                                          |  | $                                       | 8,353 |  | $ | 8,198
|                                   |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|                                   |  |                               
|                                   |  |                                |        | Fair Value Measurements at December 31, 2009 Using       
|Description                        |  | Balance as ofDecember 
31,2009 |        | Quoted Pricesin
ActiveMarkets forIdenticalAssets(Level
1) |   | SignificantOtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level
 3)
|Assets:                            |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|Impaired loans                     |  | $                              | 14,112 |                                                           | $ |                                          |  | $                                       | 8,686 |  | $ | 5,426
|Other real estate owned            |  |                                | 4,136  |                                                           |   |                                          |  |                                         |      |  |   | 4,136
|                                   |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      
|Total                              |  | $                              | 18,248 |                                                           | $ |                                          |  | $                                       | 8,686 |  | $ | 9,562
|                                   |  |                                |        |                                                           |   |                                           |  |                                         |       |  |   |      

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

Cash and Short-Term
Investments

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

Securities

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

Loans

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

Deposit Liabilities

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

Short-Term Borrowings

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



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



Long-Term Debt

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

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Off-Balance-Sheet Financial Instruments

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

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

At March 31, 2010 and December 31, 2009, the fair
value of loan commitments and standby letters of credit are immaterial to fair value.

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



|                                         |  |                        |         |                        |   |                |  |                     |         |  |   |        
|---------------------------------------- |  | ---------------------- | ------- | ---------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                         |  | March 31, 2010         |         | December 31, 2009     
|                                         |  | CarryingAmount         |         | EstimatedFair Value    |   | CarryingAmount |  | EstimatedFair
Value
|                                         |  | (Dollars in thousands) |         | (Dollars in thousands)
|Financial assets:                        |  |                        |         |                        |   |                |  |                     |         |  |   |        
|Cash and short-term investments          |  | $                      | 14,150  |                        | $ | 14,150         |  | $                   | 13,117  |  | $ | 13,117 
|Interest-bearing deposits in other banks |  |                        | 18,719  |                        |   | 18,719         |  |                     | 15,571  |  |   | 15,571 
|Securities - available for sale          |  |                        | 138,253 |                        |   | 138,253        |  |                     | 169,442 |  |   | 169,442
|Loans, net                               |  |                        | 845,640 |                        |   | 860,736        |  |                     | 840,908 |  |   | 866,579
|Accrued interest receivable              |  |                        | 3,698   |                        |   | 3,698          |  |                     | 3,886   |  |   | 3,886  
|                                         |  |                        |         |                       
|Financial liabilities:                   |  |                        |         |                        |   |                |  |                     |         |  |   |        
|Noninterest-bearing deposits             |  | $                      | 97,219  |                        | $ | 97,219         |  | $                   | 89,529  |  | $ | 89,529 
|Interest-bearing deposits                |  |                        | 757,940 |                        |   | 750,961        |  |                     | 763,333 |  |   | 755,391
|Short-term borrowings                    |  |                        | 2,228   |                        |   | 2,228          |  |                     | 24,154  |  |   | 24,154 
|Federal Home Loan Bank advances          |  |                        | 118,214 |                        |   | 128,837        |  |                     | 123,214 |  |   | 134,143
|Trust preferred debt                     |  |                        | 10,310  |                        |   | 10,310         |  |                     | 10,310  |  |   | 10,310 
|Accrued interest payable                 |  |                        | 1,629   |                        |   | 1,629          |  |                     | 1,739   |  |   | 1,739  

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

10.Recent Accounting Pronouncements

In June 2009, the FASB issued new guidance relating to the accounting for transfers of financial assets. The new guidance, which was issued as SFAS
No. 166, Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140, was adopted into Codification in December 2009 through the issuance of Accounting Standards Updated (ASU) 2009-16. The new
standard provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial
assets. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.

In June
2009, the FASB issued new guidance relating to the variable interest entities. The new guidance, which was issued as SFAS No. 167, Amendments to FASB Interpretation No. 46(R), was adopted into Codification in December
2009. The objective of the guidance is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 is effective as
of January 1, 2010. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), Accounting for Own-Share Lending Arrangements in
Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15
is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of the new guidance did not have a material
impact on the Companys consolidated financial statements.

In January 2010, the FASB issued ASU 2010-04, Accounting for Various
Topics  Technical Corrections to SEC Paragraphs. ASU 2010-04 makes technical corrections to existing SEC guidance including the following topics: accounting for subsequent investments, termination of an interest rate swap, issuance of
financial statements - subsequent events, use of residential method to value acquired assets other than goodwill, adjustments in assets and liabilities for holding gains and losses, and selections of discount rate used for measuring defined benefit
obligation. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.

In
January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing
disclosures, require new disclosures, and includes conforming amendments to guidance on employers disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15,
2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for
interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Companys consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update No. 2010-08, Technical Corrections to Various Topics. ASU 2010-08
clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of the new guidance did not have a material impact on the Companys
consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update No. 2010-09, Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 addresses both the interaction of the requirements of Topic 855 with the SECs reporting requirements and the intended breadth of the reissuance
disclosures provisions related to subsequent events. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. ASU 2010-09 is effective immediately. The adoption of the new guidance did
not have a material impact on the Companys consolidated financial statements.

11. Preferred Stock and Warrant

On January 9, 2009, the Company signed a definitive agreement with the U. S. Department of the Treasury under the Economic
Stabilization Act of 2008 to participate in the Treasurys Capital Purchase Program. Pursuant to this agreement the Company sold 24,000 shares of its Series A Fixed Rate Cumulative Preferred Stock to the Treasury for an aggregate purchase price
of $24 million. This preferred stock pays a cumulative dividend at a rate of 5% for the first five years, and if not redeemed, pays a rate of 9.0% starting at the beginning of the sixth year. As part of its purchase of the preferred stock, Treasury
also was issued a warrant to purchase up to 373,832 shares of the Companys common stock at an initial exercise price of $9.63 per share. If not exercised, the warrant terminates at the expiration of ten years. Under the agreement with the
Treasury, the Company is subject to restrictions on its ability to increase the dividend rate on its common stock and to repurchase its common stock without Treasury consent.



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EASTERN VIRGINIA BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(UNAUDITED)



Accounting for the issuance of preferred stock included entries to the equity portion of our balance
sheet to recognize preferred stock at the full amount of the issuance, the warrant and discount on preferred stock at values calculated by discounting the future cash flows by a prevailing interest rate that a similar security would receive in the
current market environment. At time of issuance that discount rate was determined to be 12%. The fair value of the warrants of $950 thousand was calculated using the Black Scholes model with inputs of 7 year volatility, average rate of quarterly
dividends, 7 year Treasury strip rate and the exercise price of $9.63 per share exercisable for up to 10 years. The present value of the preferred stock using a 12% discount rate was $14.4 million. The preferred stock discount determined by the
allocation of discount to the warrants is being accreted quarterly over a 5 year period on a constant effective yield method at a rate of approximately 6.4%. Allocation of the preferred stock discount and the warrant is provided in the table below:



|                                   |  |            |                        |                 |   |            |               |  |   |       
|---------------------------------- |  | ---------- | ---------------------- | --------------- | - | ---------- | ------------- |  | - | ------
|                                   |  | 2009      
|Warrants value                     |  |            |                        |                 |   |            |               |  |   |       
|Preferred                          |  |            |                        |                 | $ | 24,000,000 |               |  |   |       
|Price                              |  |            |                        |                 |   | 9.63       |               |  |   |       
|Warrants - shares                  |  |            |                        |                 |   | 373,832    |               |  |   |       
|Value per warrant                  |  |            |                        |                 |   | 2.54       |               |  |   |       
|                                   |  |            |                        |                 |   |            |               |  |   |       
|Fair value of warrants             |  |            |                        |                 | $ | 949,533    |               |  |   |       
|                                   |  |            |                       
|NPV of preferred stock             |  |            |                        |                 |   |            |               |  |   |       
|@ 12% discount rate                |  |            | (dollars in thousands)
|                                   |  |            |                       
|                                   |  | Fair Value |                        | RelativeValue % |   |            | RelativeValue
|$24 million 1/09/2009              |  |            |                        |                 |   |            |               |  |   |       
|NPV of Preferred 12% discount rate |  | $          | 14,446                 |                 |   | 93.8%      |               |  | $ | 22,519
|Fair value of warrants             |  |            | 950                    |                 |   | 6.2%       |               |  |   | 1,481 
|                                   |  |            |                        |                 |   |            |               |  |   |       
|                                   |  | $          | 15,396                 |                 |   | 100.0      | %             |  | $ | 24,000
|                                   |  |            |                        |                 |   |            |               |  |   |       

12. Subsequent Events

The Company evaluated subsequent events that have occurred after the balance sheet date, but before the financial statements are issued. There are two
types of subsequent events (1) recognized, or those that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and
(2) nonrecognized, or those that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.

Based on the evaluation, the Company did not identify any recognized or nonrecognized subsequent events that would have required adjustment to or
disclosure in the financial statements.



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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 2009 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 supplement 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) Statement of Financial Accounting Standards FASB ACS 450, originally SFAS No.5, Accounting for Contingencies, which requires that losses be accrued when their occurrence is probable and



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estimable and (ii) FASB ACS 310, originally 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, such as nonaccrual loans, loans past due 90 days or more, restructured loans and other loans selected by management as required by FASB ACS 310. 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 FASB ACS 450. In an effort to better develop the estimate used for allowance for loan loss, we have implemented a PC based software system to document and perform consistent calculations and document the logic and
reasons for the estimate on a monthly basis. While it gives a more controlled environment, some decisions or estimates as to the collectability of a loan are left with the Chief Credit Officer and the loan committee. Specific information, including
the comments of the loan officer and the credit officer, is maintained within this software by utilizing a separate tab for each loan that has a specific reserve assigned. Each tab has the same format and performs the calculations based on the
prescribed procedure.

For loans without individual measures of impairment, we make estimates of losses for groups of loans as required by
FASB ACS 450. 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 local economic conditions. The
allowance for loan loss software maintains a tab which calculates the reserve assigned to each group based on the variables listed above.

The
amounts of estimated losses for loans individually evaluated for impairment and groups of loans are added together for a total estimate of loan losses. The estimate of losses is compared to our allowance for loan losses as of the evaluation date
and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be considered. 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. In 2009 and 2010, additional provisions were made to bring the
total allowance in line with the projected estimate.

Other-Than-Temporary Impairment of Securities

On a quarterly basis our Investment Committee reviews any securities which are considered to be impaired as defined by accounting guidance. During this
review, the Committee determines if the impairment is deemed to be other-than-temporary. If it is determined that the impairment is other-than-temporary, i.e. impaired because of credit issues rather than interest rate, the investment is written
down through the Statement of Operations in accordance with accounting guidance.

Goodwill and Intangible Assets

The accounting standard (ASC 805) Business Combinations requires the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. For purchase acquisitions, we are required to record assets acquired, including identifiable intangible assets, and liabilities at their fair value, which in many instances involves estimates based on
third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques. Effective January 1, 2001, we adopted Intangibles  Goodwill and Other (ASC 350) which prescribes the
accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of the accounting standards discontinue the amortization of goodwill and intangible assets with indefinite lives, but require at least an annual
impairment review and more frequently if certain impairment indicators are in evidence.

Goodwill totaled $16.0 million at both March 31,
2010 and December 31, 2009. Based on the testing of goodwill for impairment, no impairment charges have been recorded. Core deposit intangible assets are being amortized over the period of expected benefit, which ranges from 2.39 to 7.0 years.
Core deposit intangibles, net of amortization, amounted to $143 thousand and $215 thousand, at March 31, 2010 and December 31, 2009, respectively, and are included in other assets. This expense will end in the third quarter of 2010.



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OVERVIEW

Over the past three years, the banking industry has been significantly impacted by adverse economic conditions, first manifested in the deterioration of
the mortgage markets and the corresponding decline in housing values and many investment securities including the receivership of Fannie Mae and Freddie Mac. The effect of significant credit pressure in loan portfolios and large security write downs
caused many bank failures in 2009 and many more to be labeled as troubled as we entered 2010. While we are very fortunate to have limited the adverse effects of the economic downturn on our results and condition thus far, we do not believe that we
have reached a point where asset values have stabilized and lending activity has returned to normal levels in terms of health as well as growth. We believe that 2010 will again be a year of significant stress in the banking industry which will
require us to carefully manage our credit relationships and position the company for growth once the economic climate has improved.

In fact,
there are some economic indicators which suggest that our economy is coming out of the recession. We believe however, that many of our local customers have yet to see the improving conditions on a wide scale basis, and we remain vigilant in
indentifying and resolving problem credits to reduce potential losses in our portfolio. There is a significant and fundamental difference in the business models of large national banks and investment houses which derive a substantial portion of
earnings through large diversified income streams and transactional fees compared to independent community banks. In this recession, the community banks which deploy a vast majority of assets in the local communities continue to struggle, just as we
have, with increased allowance requirements for problem loans as slowing loan payments have resulted in continued deterioration of asset quality. We expect this trend to continue during 2010 and our challenge will be to manage our loan portfolio
proactively while remaining profitable.

We are encouraged by the continued trend in net interest income. In the first quarter of 2010, net
interest income increased $1.4 million, primarily the result of a $1.7 million decrease in our funding costs. This is attributable to the delayed impact of decreased interest rates which were lowered by the Federal Reserve in 2008. This timing
difference resulted in lower earnings on assets including variable rate loans and investment securities while our longer term certificates of deposit, one of our largest funding sources, did not reprice as quickly as our assets. This positive
movement in interest income can be measured by the increase in the net interest margin which has risen from 3.17% to 3.71% for the first quarter for 2010 as compared to the same quarter in 2009. One of managements primary goals in 2010 is to
diversify and lower the cost of funding sources while managing the mix of our assets and liabilities to ensure proper interest rate risk mitigation.

Total assets have declined slightly from 2009 year-end balance as we reduced the risk of our investment portfolio, and loan demand continued to be tepid.
More specifically, securities available for sale decreased $31.1 million compared to December 31, 2009, while loans grew $6.0 million or less than 1%. We also used the opportunity to allow higher cost funding sources (an FHLB advance) to mature
and have elected not to replace it at this time. The decrease in the investment portfolio also allowed us to reduce the amount of fed funds purchases and repurchase agreements by $21.9 million in the first quarter of 2010. Also of note, deposits
grew $2.3 million during the first quarter of 2010 with interest- bearing deposits declining $5.4 million while noninterest- bearing deposits increased $7.7 million. Equity increased $1.5 million during the first three months of 2010. The net result
of these changes is a more liquid balance sheet with reduced risk in our investments portfolio and a lower cost of our funding liabilities. We have excess cash and expect to grow deposits in 2010, which will fund the anticipated growth in our loan
and investment portfolios.

As a result of the impairments in 2009 related to the trust preferred investments, our investment income declined
$257 thousand from $1.7 million to $1.5 million year over year as of March 2010. Loan loss provision for the first quarter was $1.9 million compared to $900 thousand in the first quarter of 2009 as a result of continuing deterioration in credit
quality. The first quarter was also impacted by a $604 thousand gain related to Bank Owned Life Insurance proceeds (BOLI) resulting from the death of a former officer.

Looking to the remainder of 2010, we expect the slow economic improvement to begin to impact a broader portion of the economy. There will likely be a lag
between economic growth and improved credit quality and we will continue to closely monitor and make adjustments as necessary to ensure that we are adequately reserved for potential credit losses. Given the FOMCs guidance of low rates for an
extended period we expect our funding rate to remain fairly stable through 2010. We believe our Company is in a position to take advantage of economic growth and has the potential for more profitable quarters in the later part of the year. However,
if the economic growth slows or loan quality deteriorates further, we could be negatively impacted.

In 2010, we will be celebrating our 100
year anniversary as a bank. In 1910, Bank of Northumberland and Southside Bank both received charters as banks in the state of Virginia. As noted above, these banks were the founding institutions in the corporation and were merged into EVB with the
name change and consolidation in 2006. While the name changed, we are



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proud of our roots in these communities, of our ability to serve many generations of customers and of our predecessor institutions financial stamina to survive and grow throughout the numerous
economic changes during that time span. Coming out of the worst economic downturn since the great depression, we expect to maintain the tradition and commitment to service in all the communities that we serve.

Financial Condition

Return on average assets (ROA) for the first quarter of 2010 was 0.35%, compared to 0.14% in the same quarter of 2009, and return on common
average equity (ROE) increased year over year to 4.74% compared to 2.01% for the quarter ended March 31, 2009. Net income for the first quarter of 2010 was $1.3 million compared to $723 thousand for the same quarter in 2009. Income
available to common shareholders was $962 thousand compared to $381 thousand in the first quarter of 2009 and is the result of subtracting the dividend to preferred stock holders of $372 thousand and $342 thousand in the respective years.

Total assets at March 31, 2010 were $1.102 billion, a decline of $24.6 million, or 2.2%, from $1.126 billion at year-end 2009 and up
$3.6 million, less than 1% from March 31, 2009, when total assets were $1.098 billion. This decrease is the result of restructuring the securities portfolio which declined $31.2 million from $169.4 million at year end 2009 to $138.3 million at
March 31, 2010 and the maturity of a higher cost FHLB advance which was not replaced. Yield on the investment portfolio during the first quarter of 2010 was 4.34% compared to 5.25% for the same quarter in the prior year. This was the result of
elimination of trust preferred income and a movement to slightly lower yielding tax exempt municipal investments. There were no securities impairments in the first quarter 2009 or 2010. By taking impairments later in 2009, we decreased our income
flow short term while substantially lowering the risk profile of our balance sheet. For more detail, see securities Note 2 to the consolidated financial statements earlier in the document. The investment portfolio is designed to balance interest
rate risk and provide liquidity and is an active tool in our balance sheet management.

The decrease in total assets was partially offset by
loan growth of $6.0 million and interest bearing deposits in other banks of $3.1 million. Loan growth for the first quarter of 2010 was lower than anticipated resulting from weaker loan demand. For the quarter ended March 31, 2010, average
total loans, net of unearned income and nonaccrual loans, were $834.7 million, an increase of $26.1 million, or 3.2%, from $808.6 million for the same period in 2009. At March 31, 2010, net loans as a percent of total assets were 76.8%,
compared to 74.7% at December 31, 2009. While we expect the portfolio to be able to generate a strong earnings stream, the current economic uncertainty as it relates to credit quality could impact our near term earnings

Deposits continue to grow, with a balance of $855.2 million at March 31, 2010 compared to $852.9 million at year end 2009, an increase of $2.3
million, or less than 1% and up $2.5 million from the first quarter 2009 balance of $852.6 million. Noninterest bearing demand deposits increased $7.7 million from $89.5 million at year end 2009 to $97.2 million at March 31, 2010 and $7.3
million from $89.9 million at March 31, 2009. Interest bearing deposits decreased $5.4 million from $763.3 million at year end 2009 to $757.9 million at March 31, 2010. The decrease in this category is driven by the managed run off of
brokered deposits. Year over year, certificate balances decreased $72.4 million, or 16.6%. This decrease was mostly offset by increases of $56.2 million in NOW accounts, $8.2 million in MMD accounts and $3.2 million in savings accounts. Within the
certificate category, we did have an increase of $1.7 million in our IRA certificates due to a marketing promotion run during the first quarter 2010. Average interest-bearing deposits increased $19.3 million from $737.7 million in the first quarter
2009 to $756.9 million during first quarter 2010. Average demand deposits increased slightly by $1.0 million to $91.9 million at March 31, 2010.

FHLB borrowings at March 31, 2010 totaled $118.2 million, a $5.0 million, or 4.1%, decrease compared to $123.2 million at December 31, 2009 and
a $6.4 million, or a 5.1% decrease from $124.6 million at March 31, 2009.

RESULTS OF OPERATIONS

Net Income

The
addition of the preferred stock on our balance sheet requires an additional level of analysis with respect to earnings: first, net income before the effective preferred dividends, and secondly, net income available to common shareholders. Preferred
dividends and accretion of discount on the preferred stock are recorded before any dividends are paid to the common stock holders and reduce the amount of income from operations that are available to stockholders.

For the first quarter 2010, net income available to common shareholders increased $581 thousand, or 152.5% to $962 thousand compared to $381 thousand in
the first quarter of 2009. Diluted and basic earnings per common share increased $0.10 to $0.16, compared to $0.06 for the same quarter in 2009. A primary cause of this improvement was a $1.7 million



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decrease in liability funding costs which resulted in net interest income of $1.4 million. Net interest income for the first quarter of 2010 was $9.0 million compared to $7.6 million in 2009.
Total interest income decreased $273 thousand, and primarily resulted from a $305 thousand decline in taxable interest income related to the 2009 impairments on trust preferred securities. Interest income was also negatively impacted by targeted
investment portfolio sales designed to reduce overall risk in the investment portfolio. Interest on loans was $12.2 million in the first quarter 2010 down $16 thousand from $12.2 million in 2009. We currently hold a large liquid cash position in
deposits with other banks which earned $39 thousand in the first quarter compared to a $22 thousand expense from short term cash borrowings during the first quarter of 2009. We have benefited from shifting funds out of the traditional fed funds
category and will continue to explore other higher earning investment alternatives to improve earnings on our cash position. The total of other interest bearing liabilities expense for the first quarter 2010 decreased a net $69 thousand compared to
the same quarter in 2009. Loan loss provision for the first quarter 2010 was $1.9 million compared to $900 thousand for the first quarter 2009. This continues a trend where over the last seven quarters, we have set aside $9.5 million in provision to
prepare for potential credit losses and anticipate continuing this higher than usual provision for the near term.

Noninterest income for the
first quarter of 2010 was $2.1 million, an increase of $567 thousand, or 36.4% compared to $1.6 million in the prior year first quarter. The increase is attributable to the proceeds from a Bank Owned Life Insurance (BOLI) contract that was received
as the result of the death of a former employee. Without this gain, noninterest income would have declined $37 thousand, or 2.4%.

Noninterest
expense for the first quarter of 2010 increased $506 thousand, or 6.9% to $7.9 million compared to $7.4 million in the first quarter of 2009. The increase was primary related to increased FDIC insurance assessments ($168 thousand) and lending
expenses associated with collections costs ($182 thousand). Management continues to monitor controllable expenses closely.

Net Interest Income

Net
interest income is our primary source of income and for the first quarter of 2010, net interest income on a fully tax equivalent basis increased $1.5 million to $9.2 million, compared to $7.7 million in the first quarter of 2009. Average earning
assets for the quarter ended March 31, 2010 were $1.01 billion, an increase of $15.6 million compared to $990 million for the same period in 2009. Average loans accruing interest increased $26.1 million, or 3.2%. Average securities increased
$6.2 million, or 4.3%. Average federal funds sold decreased $35.8 million, or 97.9%, for the first quarter of 2010, reflecting a decrease in balances and a redistribution of our excess funds to other earning assets. Fully tax equivalent net interest
margin for the three-month period ended March 31, 2010 was 3.71% compared to 3.17% for the same quarter in 2009 and exemplifies the benefit of the lower cost of funds, especially deposits. At March 31, 2010, the yield on earning assets was
5.59% a decline of 19 basis points compared to 5.78% in the first quarter 2009. By comparison, the cost of interest bearing liabilities was down 85 basis points to 2.10% from 2.95% in the same period in 2009. Deposit interest expense is the primary
factor in this cost of funds decrease as it declined 95 basis points from 2.69% in the first quarter 2009 to 1.74% in the first quarter 2010. This expense change also reflects the change in the deposit mix as average certificate balances decreased
$71.6 million while the other deposit categories rose a combined $90.9 million for a net increase in average deposits of $19.3 million. For the three months ended March 31, 2010 the average balances for interest checking and money market
savings increased $58.5 million and $27.4 million respectively compared to March 31, 2009 balances. During the same time period, the rates on these deposits have been reduced by 52 and 104 basis points for interest checking and money market
savings, respectively. In addition, jumbo certificates rates dropped 139 basis points and other certificates dropped 74 basis points. The declining cost of funding trend that has been enjoyed over the past year is coming to a close and will likely
become more stable over the remaining year which will tend to hold margins steady as we move forward but could allow an expansion in net interest income under a rising rate scenario over the intermediate term.



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As we go into the remainder of 2010, managements objective is to increase low cost core deposits while
increasing the yield and balance levels of earning assets to further enhance the net interest margin. Competition for deposits, the level of nonaccrual loans and the general economic climate will clearly impact our ability to achieve these
objectives. The following schedule show the derivation of the tax equivalent interest amount that is added to GAAP net interest income. The tables below disclose fully tax equivalent net interest income calculations for the three-month period ended
March 31, 2010 and 2009:

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



|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|------------------------------------------------------- |  | ---------------------------- | --------- | - | -------------- | - | ---------- |  | ---- | -------------- |  | - | -------------- | - | ---------- | - | ------ |  | ---- | -
|                                                        |  | Three Months Ended March 31, |          
|                                                        |  | 2010                         |           |   | 2009           |  
|                                                        |  | AverageBalance               |           |   | Income/Expense |   | Yield/Rate |  |      | AverageBalance |  |   | Income/Expense |   | Yield/Rate |  
|Assets:                                                 |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Securities                                              |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Taxable, available for sale                             |  | $                            | 97,374    |   |                | $ | 973        |  | 4.05 | %              |  | $ | 95,327         |   |            | $ | 1,278  |  | 5.44 | %
|Restricted securities                                   |  |                              | 8,941     |   |                | $ | 5          |  | 0.23 | %              |  |   | 8,867          |   |            | $ |       |  | 0.00 | %
|Tax exempt, available for sale (1)                      |  |                              | 44,963    |   |                |   | 639        |  | 5.77 | %              |  |   | 40,909         |   |            |   | 602    |  | 5.97 | %
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total securities                                        |  |                              | 151,278   |   |                |   | 1,617      |  | 4.34 | %              |  |   | 145,103        |   |            |   | 1,880  |  | 5.25 | %
|Interest bearing deposits with banks                    |  |                              | 19,145    |   |                |   | 39         |  | 0.83 | %              |  |   |               |   |            |   |       |  |      |  
|Federal funds sold                                      |  |                              | 773       |   |                |   |           |  | 0.00 | %              |  |   | 36,578         |   |            |   | 22     |  | 0.24 | %
|Loans accruing interest (2)                             |  |                              | 834,694   |   |                |   | 12,199     |  | 5.93 | %              |  |   | 808,627        |   |            |   | 12,215 |  | 6.13 | %
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total earning assets                                    |  |                              | 1,005,890 |   |                |   | 13,855     |  | 5.59 | %              |  |   | 990,308        |   |            |   | 14,117 |  | 5.78 | %
|Less allowance for loan losses                          |  |                              | (12,450   | ) |                |   |            |  |      |                |  |   | (10,727        | ) |            |   |        |  |      |  
|Total non-earning assets                                |  |                              | 106,440   |   |                |   |            |  |      |                |  |   | 97,137         |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total assets                                            |  | $                            | 1,099,880 |   |                |   |            |  |      |                |  | $ | 1,076,718      |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |  
|Liabilities & Shareholders Equity:                     |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest bearing deposits                               |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Checking                                                |  | $                            | 220,284   |   |                | $ | 698        |  | 1.29 | %              |  | $ | 161,749        |   |            | $ | 718    |  | 1.80 | %
|Savings                                                 |  |                              | 76,789    |   |                |   | 116        |  | 0.61 | %              |  |   | 71,801         |   |            |   | 148    |  | 0.84 | %
|Money market savings                                    |  |                              | 98,643    |   |                |   | 327        |  | 1.34 | %              |  |   | 71,244         |   |            |   | 419    |  | 2.39 | %
|Large dollar certificates of deposit (3)                |  |                              | 168,895   |   |                |   | 946        |  | 2.27 | %              |  |   | 182,472        |   |            |   | 1,647  |  | 3.66 | %
|Other certificates of deposit                           |  |                              | 192,333   |   |                |   | 1,157      |  | 2.44 | %              |  |   | 250,396        |   |            |   | 1,962  |  | 3.18 | %
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total interest-bearing deposits                         |  |                              | 756,944   |   |                |   | 3,244      |  | 1.74 | %              |  |   | 737,662        |   |            |   | 4,894  |  | 2.69 | %
|Federal funds purchased & REPOs                        |  |                              | 7,871     |   |                |   | 19         |  | 0.98 | %              |  |   | 573            |   |            |   | 1      |  | 0.71 | %
|Other borrowings                                        |  |                              | 132,691   |   |                |   | 1,387      |  | 4.24 | %              |  |   | 137,397        |   |            |   | 1,474  |  | 4.35 | %
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total interest-bearing liabilities                      |  |                              | 897,506   |   |                |   | 4,650      |  | 2.10 | %              |  |   | 875,632        |   |            |   | 6,369  |  | 2.95 | %
|Noninterest-bearing liabilities                         |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Demand deposits                                         |  |                              | 91,876    |   |                |   |            |  |      |                |  |   | 90,866         |   |            |   |        |  |      |  
|Other liabilities                                       |  |                              | 4,299     |   |                |   |            |  |      |                |  |   | 11,350         |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total liabilities                                       |  |                              | 993,681   |   |                |   |            |  |      |                |  |   | 977,848        |   |            |   |        |  |      |  
|Shareholders equity                                    |  |                              | 106,199   |   |                |   |            |  |      |                |  |   | 98,870         |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Total liabilities and shareholders equity              |  | $                            | 1,099,880 |   |                |   |            |  |      |                |  | $ | 1,076,718      |   |            |   |        |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Net interest income                                     |  |                              |           |   |                | $ | 9,205      |  |      |                |  |   |                |   |            | $ | 7,748  |  |      |  
|                                                        |  |                              |           |   |                |   |            |  |      |                |  |   |                |   |            |   |        |  |      |  
|Interest rate spread (4)                                |  |                              |           |   |                |   |            |  | 3.49 | %              |  |   |                |   |            |   |        |  | 2.83 | %
|Interest expense as a percent of average earning assets |  |                              |           |   |                |   |            |  | 1.83 | %              |  |   |                |   |            |   |        |  | 2.61 | %
|Net interest margin (5)                                 |  |                              |           |   |                |   |            |  | 3.71 | %              |  |   |                |   |            |   |        |  | 3.17 | %



Notes:

|(1) | Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%. The tax equivalent adjustment for the quarter is $195 thousand, compared to
$184 thousand in the prior year.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | Large dollar certificates of deposit are certificates issued in amounts of $100,000 or greater.
|--- | -----------------------------------------------------------------------------------------------

|(4) | Interest rate spread is the average yield on earning assets, calculated on a fully taxable basis, less the average rate incurred on interest-bearing liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Net interest margin is the net interest income, calculated on a fully taxable basis assuming a federal income tax rate of 34%, expressed as a percentage of average
earning assets.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 for the three months ended
March 31, 2010 was $2.1 million, an increase of $567 thousand from $1.6 million for the same three months of 2009. The BOLI gain mentioned earlier was the primary source of the increase which was offset by decreases to certain fee income
amounts. Management continues to focus on expanded services levels and growth to increase this line item.

Noninterest
Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expense was $7.9
million for the quarter ended March 31, 2010, an increase of $557 thousand, or 6.9%, compared to $7.4 million in the same quarter of 2009. The increase is primarily the result of a $168 thousand increase in the FDIC insurance assessment and
$182 thousand increase in lending expense due to higher collection and OREO expenses. Salary and benefits were held steady during the quarters ended March 31, 2009 and 2010.

Income Taxes

Income tax expense for the quarter ended March 31, 2010 was $65 thousand compared to $119 thousand in the same quarter of the prior year, a $54
thousand decrease. Most of this decrease is the result of increased earnings from tax exempt municipal bonds and the non-taxability of the BOLI gain.

ASSET QUALITY

The Companys
allowance for loan losses is an estimate of the amount needed to provide for potential 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, specifically 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.)

Total nonperforming assets, which consist of nonaccrual loans, restructured loans, loans past due 90 days and still accruing interest and foreclosed
properties, were $40.1 million at March 31, 2010, $33.2 million at December 31, 2009 and $20.9 million at March 31, 2009. This number has increased over the last two years as a result the economic climate that has significantly
increased unemployment and reduced the ability of many of our customers to keep their loans current.

Nonperforming assets are composed
largely of loans secured by real estate (79.3%) and repossessed properties, as reflected in our OREO balance reported on the Consolidated Balance Sheets. At the end of the first quarter OREO was $3.7 million compared to $4.1 million at year-end
2009 and $943 thousand at March 31, 2009. Nonaccrual loans are $22.1 million at March 31, 2010, an increase of $2.8 million from $19.3 million at year-end 2009 and an increase of $9.3 million from $17.2 million at March 31, 2009. Of
the current $22.1 million balance in nonaccrual loans, $21.4 million is secured. Within these secured loans, $16.3 million are secured by real estate while $5.1 million are secured by various commercial equipment and inventories and accounts
receivable. Of the real estate secured loans, $6.3 million are real estate construction, $4.4 million are residential real estate and $5.6 million are commercial properties. Despite the weak real estate market, management anticipates recovering a
major portion of the value and has made increased provision allotments to cover the potential losses.

At March 31, 2010, loans past due
90 days and still accruing interest, were $5.2 million, an increase of $2.1 million from year end 2009 and an increase of $2.4 million from a $2.8 million balance at March 31, 2009. All of these loans are secured by real estate with no losses
anticipated. The 90 day past due and still accruing category has been heavily impacted by the slow-down in payments on well secured residential mortgages that have little long-term loss exposure. At March 31, 2010 our restructured loans totaled
$9.0 million, compared to no restructured loans at the same date in 2009. The increase in this category is in direct response to our role as a community bank by seeking alternatives to foreclosure where possible.

While our real estate markets have been stable in the past with a very low historical loss experience, the present environment is very different from
past experiences and losses from real estate loans are likely in the near term. Management continues to closely monitor the status of collection efforts and trends to properly identify and report nonperforming assets.



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Loan charge-offs, less recoveries, amounted to $544 thousand for the first quarter of 2010 compared to $299
thousand for the same quarter in 2009. The annualized ratio of net charge-offs to total average loans, net of unearned income, was 0.26% for the first quarter of 2010, compared to 0.31% for the full year 2009 and 0.15% for the first quarter of 2009.
We anticipate that this charge-off rate will increase as the year progresses. Credit quality management continues to be our top priority. Loan officers, administrative staff and our collection department are maintaining close contact with our
customers facing economic challenges, but charge-offs are inevitable in this environment. Management believes that its reserve for credit losses is sufficient at this time to manage through the economic downturn but will continue to evaluate trends
and conditions each month.

At March 31, 2010, the allowance for loan losses was $13.5 million, an increase of $1.3 million when compared
to $12.2 million at December 31, 2009, and up $2.4 million, compared to $11.1 million at March 31, 2009. The increase in allowance has been necessitated by the declining asset quality. The allowance is a reflection of loss inherent in the
loan portfolio and not a forecast of actual current nonperforming loans. The ratio of allowance for loan losses to total loans was 1.57% at March 31, 2010, 1.42% at 2009 year-end and 1.34% at March 31, 2009. The allowance for loan losses
at March 31, 2010 included $6.9 million of specific impaired loan reserves.

At March 31, 2010, the Company reported a balance of
$27.9 million in impaired loans, a decrease of $3.8 million from $29.4 million at December 31, 2009. At March 31, 2010, impaired loans were composed of $17.4 million with specific reserves assigned and $8.2 million with no specific
reserves assigned. The average balance of impaired loans with a specific reserve for the three months ended March 31, 2010 was $28.2 million.

At March 31, 2010 we also had $3.0 million in loans classified as potential problem loans that were excluded from impaired and nonaccrual status.
These loans are currently performing and no loss is anticipated at this time based on managements on-going analysis. Management considers all loans that are adversely risk rated as potential problem loans. These loans are risk rated based on
the borrowers perceived ability to comply with current repayment terms. These loans are subject to constant management and Board attention, and their status is reviewed on a regular basis. Factors that cause a loan to be adversely risk rated
include:



| |  |  | Failure to provide the bank with current financial statement and tax return
| | - |  | ---------------------------------------------------------------------------



| |  |  | Declining or negative earnings trends
| | - |  | -------------------------------------



| |  |  | Declining or inadequate liquidity
| | - |  | ---------------------------------



| |  |  | Concerns about the business that is intended to provide the source of repayment
| | - |  | -------------------------------------------------------------------------------



| |  |  | Unfavorable competitive comparisons
| | - |  | -----------------------------------



| |  |  | High debt to worth ratio
| | - |  | ------------------------



| |  |  | Lack of well-defined secondary repayment source
| | - |  | -----------------------------------------------

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



|                                                          |  |              |        |   |                 |   |        |              |  |   |        |  
|--------------------------------------------------------- |  | ------------ | ------ | - | --------------- | - | ------ | ------------ |  | - | ------ | -
|Nonperforming Assets
(Dollars in thousands)               |  | March 312010 |        |   | December 312009 |   |        | March 312009 | 
|Nonaccrual loans                                          |  | $            | 22,081 |   |                 | $ | 19,321 |              |  | $ | 17,165 |  
|Restructured loans                                        |  |              | 9,025  |   |                 |   | 6,699  |              |  |   |       |  
|Loans past due 90 days and accruing interest              |  |              | 5,225  |   |                 |   | 3,090  |              |  |   | 2,824  |  
|                                                          |  |              |        |   |                 |   |        |              |  |   |        |  
|Total nonperforming loans                                 |  | $            | 36,331 |   |                 | $ | 29,110 |              |  | $ | 19,989 |  
|Other real estate owned                                   |  |              | 3,738  |   |                 |   | 4,136  |              |  |   | 943    |  
|                                                          |  |              |        |   |                 |   |        |              |  |   |        |  
|Total nonperforming assets                                |  | $            | 40,069 |   |                 | $ | 33,246 |              |  | $ | 20,932 |  
|Nonperforming assets to total loans and other real estate |  |              | 4.64   | % |                 |   | 3.88   | %            |  |   | 2.52   | %
|Allowance for loan losses to nonaccrual loans             |  |              | 60.97  | % |                 |   | 62.91  | %            |  |   | 64.91  | %
|Net charge-offs to average loans for the year             |  |              | 0.26   | % |                 |   | 0.31   | %            |  |   | 0.15   | %
|Allowance for loan losses to period end loans             |  |              | 1.57   | % |                 |   | 1.42   | %            |  |   | 1.34   | %

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.



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At March 31, 2010 our interest bearing deposits with banks and federal funds sold totaled $19.6 million
which is a $4.1 million increase over the March 31, 2009 level. Our investment portfolio, at March 31, 2010, has $73.1 million in unpledged securities that could be liquidated to meet liquidity obligations. Our FHLB borrowings declined
$5.0 million with a $5 million block maturing in the first quarter of 2010. These were the only changes to our contractual obligations that would impact liquidity since the 2009 Form 10-K disclosure. At March 31, 2010, we had immediate
available credit with the FHLB of $57.3 million and with nonaffiliated banks of $40.0 million. We continue to be in a strong liquidity position. See Note 5 to the Consolidated Financial Statements in the 2009 Form 10-K for further FHLB information.

There have been no material changes in off-balance sheet arrangements since the 2009 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

For Tier
1 capital, our risk-based capital position at March 31, 2010 was $99.2 million, or 11.81% of risk-weighted assets, and $105.1 million, or 12.51%, for total risk based capital. Our Tier 1 leverage ratio at March 31, 2010 was 9.19%. Our
year-end 2009 ratios were 11.60%, 12.29% and 9.08%, respectively. By enhancing our capital ratios, management positions the Company to grow at a faster pace in a better earnings environment. The infusion of the TARP funds in 2009 allowed us to
handle the challenges we have faced over the last year. At March 31, 2009, these ratios were 12.85%, 13.89% and 10.14%, respectively and reflect the $24 million in preferred stock that was added to capital in the first quarter of 2009.

Tier 1 capital consists primarily of common and preferred shareholders equity, while total risk based capital includes our trust
preferred borrowing and a portion of the allowance for loan losses. 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%. We are well above these levels.

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



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



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



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



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



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



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##### Table of Contents

| |  |  | 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 2008 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 2009 year end as disclosed in the 2009 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 March 31, 2010 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

Other than those identified
below, there have been no material changes in our risk factors from those disclosed in the 2009 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 have been no repurchases of common stock since
early in the second quarter of 2008. There is no stated expiration date for the Plan. No shares were repurchased in the first three months of 2010. A stipulation of the TARP agreement restricts the company from repurchasing common stock without
first obtaining Treasury approval.



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



|Item 4. | (Removed and Reserved)
|------- | ----------------------



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##### Table of Contents

|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   



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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:
May 12, 2010



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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   



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