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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended March 31, 2007

or



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

For the transition period from  to

Commission File Number: 000-23565



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EASTERN VIRGINIA BANKSHARES,
INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|VIRGINIA                                                       |  | 54-1866052                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|330 Hospital Road, Tappahannock, Virginia                      |  | 22560                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(804) 443-8423

(Registrants telephone number, including area code)



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

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

Large accelerated filer ̈Accelerated filer  x            Non-accelerated filer ̈

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

The number of shares of the registrants Common Stock outstanding as of April 30, 2007 was 6,089,670.



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##### Table of Contents

EASTERN VIRGINIA BANKSHARES, INC.

FORM 10-Q

For the Quarter Ended March 31, 2007



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|Part I     |  | Financial Information                                                                 |  |   
|Item 1.    |  | Financial Statements                                                                  |  | 2 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 19
|Item 4.    |  | Controls and Procedures                                                               |  | 19
|           |  |                                                                                      
|Part II    |  | Other Information                                                                     |  |   
|Item 1.    |  | Legal Proceedings                                                                     |  | 19
|Item 1A.   |  | Risk Factors                                                                          |  | 19
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 19
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 19
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 19
|Item 5.    |  | Other Information                                                                     |  | 19
|Item 6.    |  | Exhibits                                                                              |  | 20
|Signatures |  | 21                                                                                   



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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 2007 (unaudited) |         |   | December 31 2006 (audited) |  
|Assets:                                                                                                                            |  |                           |         |   |                            |   |         |  
|Cash and due from banks                                                                                                            |  | $                         | 16,512  |   |                            | $ | 14,004  |  
|Federal funds sold                                                                                                                 |  |                           | 17,632  |   |                            |   | 22,411  |  
|Securities available for sale, at fair value                                                                                       |  |                           | 129,334 |   |                            |   | 127,167 |  
|Loans, net of unearned income                                                                                                      |  |                           | 660,732 |   |                            |   | 650,492 |  
|Allowance for loan losses                                                                                                          |  |                           | (7,113  | ) |                            |   | (7,051  | )
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Total loans, net                                                                                                                   |  |                           | 653,619 |   |                            |   | 643,441 |  
|Deferred income taxes                                                                                                              |  |                           | 3,992   |   |                            |   | 4,498   |  
|Bank premises and equipment, net                                                                                                   |  |                           | 17,003  |   |                            |   | 16,906  |  
|Accrued interest receivable                                                                                                        |  |                           | 3,910   |   |                            |   | 4,132   |  
|Goodwill                                                                                                                           |  |                           | 5,725   |   |                            |   | 5,725   |  
|Other assets                                                                                                                       |  |                           | 13,085  |   |                            |   | 13,114  |  
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Total assets                                                                                                                       |  | $                         | 860,812 |   |                            | $ | 851,398 |  
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Liabilities and Shareholders Equity:                                                                                              |  |                           |         |   |                            |   |         |  
|Liabilities                                                                                                                        |  |                           |         |   |                            |   |         |  
|Noninterest-bearing demand accounts                                                                                                |  | $                         | 97,619  |   |                            | $ | 99,253  |  
|Interest-bearing deposits                                                                                                          |  |                           | 562,316 |   |                            |   | 554,726 |  
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Total deposits                                                                                                                     |  |                           | 659,935 |   |                            |   | 653,979 |  
|Federal Home Loan Bank advances                                                                                                    |  |                           | 90,500  |   |                            |   | 90,500  |  
|Trust preferred debt                                                                                                               |  |                           | 10,310  |   |                            |   | 10,310  |  
|Accrued interest payable                                                                                                           |  |                           | 2,636   |   |                            |   | 2,278   |  
|Other liabilities                                                                                                                  |  |                           | 7,322   |   |                            |   | 6,524   |  
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Total liabilities                                                                                                                  |  |                           | 770,703 |   |                            |   | 763,591 |  
|                                                                                                                                   |  |                          
|Shareholders Equity                                                                                                               |  |                           |         |   |                            |   |         |  
|Common stock of $2 par value per share, authorized 50,000,000 shares, issued and outstanding 6,089,020 and 6,083,294,
respectively |  |                           | 12,178  |   |                            |   | 12,166  |  
|Surplus                                                                                                                            |  |                           | 21,293  |   |                            |   | 21,276  |  
|Retained earnings                                                                                                                  |  |                           | 60,022  |   |                            |   | 58,731  |  
|Accumulated other comprehensive (loss), net                                                                                        |  |                           | (3,384  | ) |                            |   | (4,366  | )
|                                                                                                                                   |  |                           |         |   |                            |   |         |  
|Total shareholders equity                                                                                                         |  |                           | 90,109  |   |                            |   | 87,807  |  
|                                                                                                                                   |  |                          
|Total liabilities and shareholders equity                                                                                         |  | $                         | 860,812 |   |                            | $ | 851,398 |  
|                                                                                                                                   |  |                           |         |   |                            |   |         |  

See Notes to Consolidated Financial Statements



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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income(Unaudited)

(Dollars in thousands except per share amounts)



|                                                    |  |                              |        |      |   |       
|--------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months Ended March 31,
|                                                    |  | 2007                         |        | 2006
|Interest and Dividend Income                        |  |                              |        |      |   |       
|Loans and fees on loans                             |  | $                            | 12,090 |      | $ | 10,096
|Interest on investments:                            |  |                              |        |      |   |       
|Taxable interest income                             |  |                              | 1,100  |      |   | 1,134 
|Tax exempt interest income                          |  |                              | 329    |      |   | 367   
|Dividends                                           |  |                              | 82     |      |   | 44    
|Interest on federal funds sold                      |  |                              | 314    |      |   | 40    
|                                                    |  |                              |        |      |   |       
|Total interest and dividend income                  |  |                              | 13,915 |      |   | 11,681
|Interest Expense                                    |  |                              |        |      |   |       
|Deposits                                            |  |                              | 4,591  |      |   | 3,276 
|Federal funds purchased                             |  |                              |       |      |   | 40    
|Interest on FHLB advances                           |  |                              | 1,002  |      |   | 692   
|Interest on trust preferred debt                    |  |                              | 208    |      |   | 182   
|                                                    |  |                              |        |      |   |       
|Total interest expense                              |  |                              | 5,801  |      |   | 4,190 
|                                                    |  |                              |        |      |   |       
|Net interest income                                 |  |                              | 8,114  |      |   | 7,491 
|Provision for Loan Losses                           |  |                              | 153    |      |   | 113   
|                                                    |  |                              |        |      |   |       
|Net interest income after provision for loan losses |  | $                            | 7,961  |      | $ | 7,378 
|Noninterest Income                                  |  |                              |        |      |   |       
|Service charges and fees on deposit accounts        |  |                              | 830    |      |   | 718   
|Gain on sale of available for sale securities, net  |  |                              |       |      |   | 4     
|Other operating income                              |  |                              | 519    |      |   | 427   
|                                                    |  |                              |        |      |   |       
|Total noninterest income                            |  |                              | 1,349  |      |   | 1,149 
|                                                    |  |                              |        |      |   |       
|Noninterest Expenses                                |  |                              |        |      |   |       
|Salaries and benefits                               |  |                              | 3,664  |      |   | 3,733 
|Net occupancy and equipment expense                 |  |                              | 1,010  |      |   | 971   
|Data processing                                     |  |                              | 78     |      |   | 152   
|Consultant fees                                     |  |                              | 138    |      |   | 253   
|Telephone                                           |  |                              | 147    |      |   | 141   
|Marketing and advertising                           |  |                              | 199    |      |   | 147   
|Other operating expenses                            |  |                              | 1,042  |      |   | 976   
|                                                    |  |                              |        |      |   |       
|Total noninterest expenses                          |  |                              | 6,278  |      |   | 6,373 
|                                                    |  |                              |        |      |   |       
|Income before income taxes                          |  |                              | 3,032  |      |   | 2,154 
|Income Tax Expense                                  |  |                              | 924    |      |   | 603   
|                                                    |  |                              |        |      |   |       
|Net income                                          |  | $                            | 2,108  |      | $ | 1,551 
|                                                    |  |                              |        |      |   |       
|Earnings per share, basic and assuming dilution     |  | $                            | 0.35   |      | $ | 0.32  
|Dividends per share                                 |  | $                            | 0.16   |      | $ | 0.15  

See Notes to Consolidated Financial Statements



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Eastern Virginia Bankshares, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Unaudited)

(Dollars in thousands)



|                                                                                                |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                |  | Three Months Ended March 31 |        
|                                                                                                |  | 2007                        |         |   | 2006 |  
|Cash Flows from Operating Activities                                                            |  |                             |         |   |      |   |         |  
|Net income                                                                                      |  | $                           | 2,108   |   |      | $ | 1,551   |  
|Adjustments to reconcile net income to net cash provided by operating activities:               |  |                             |         |   |      |   |         |  
|Depreciation                                                                                    |  |                             | 477     |   |      |   | 494     |  
|Investment amortization/(accretion), net                                                        |  |                             | 20      |   |      |   | 184     |  
|Provision for loan losses                                                                       |  |                             | 153     |   |      |   | 113     |  
|(Gain) realized on available for sale securities transactions, net                             |  |                             |        |   |      |   | (4      | )
|(Increase) in other assets                                                                      |  |                             | 249     |   |      |   | (25     | )
|Increase in other liabilities                                                                   |  |                             | 1,154   |   |      |   | 1,166   |  
|                                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                                       |  |                             | 4,161   |   |      |   | 3,479   |  
|Cash Flows from Investing Activities                                                            |  |                             |         |   |      |   |         |  
|Proceeds from sales of securities available for sale                                            |  |                             |        |   |      |   | 449     |  
|Proceeds from maturities, calls, and paydowns of securities                                     |  |                             | 1,761   |   |      |   | 1,985   |  
|Purchase of debt securities                                                                     |  |                             | (2,500  | ) |      |   |        |  
|Purchase/(retirement) of restricted stock, net                                                  |  |                             | 43      |   |      |   | (1,272  | )
|Net increase in loans                                                                           |  |                             | (10,331 | ) |      |   | (21,955 | )
|Purchases of bank premises and equipment                                                        |  |                             | (574    | ) |      |   | (282    | )
|                                                                                                |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                                           |  |                             | (11,601 | ) |      |   | (21,075 | )
|Cash Flows from Financing Activities                                                            |  |                             |         |   |      |   |         |  
|Net (decrease) in noninterest bearing and interest bearing demand deposits and savings accounts |  |                             | 3,772   |   |      |   | (14,250 | )
|Net increase in certificates of deposit                                                         |  |                             | 2,184   |   |      |   | 13,496  |  
|Issuance of common stock under dividend reinvestment plan                                       |  |                             | 103     |   |      |   | 94      |  
|Stock based compensation                                                                        |  |                             | 63      |   |      |   | 53      |  
|Stock options exercised                                                                         |  |                             | 20      |   |      |   |        |  
|Dividends declared                                                                              |  |                             | (973    | ) |      |   | (736    | )
|Decrease in federal funds purchased                                                             |  |                             |        |   |      |   | (6,822  | )
|Increase in FHLB advances                                                                       |  |                             |        |   |      |   | 25,000  |  
|                                                                                                |  |                             |         |   |      |   |         |  
|Net cash provided by financing activities                                                       |  |                             | 5,169   |   |      |   | 16,835  |  
|                                                                                                |  |                             |         |   |      |   |         |  
|(Decrease) in cash and cash equivalents                                                         |  |                             | (2,271  | ) |      |   | (761    | )
|Cash and cash equivalents                                                                       |  |                             |         |   |      |   |         |  
|Beginning of period                                                                             |  |                             | 36,415  |   |      |   | 21,516  |  
|                                                                                                |  |                             |         |   |      |   |         |  
|End of period                                                                                   |  | $                           | 34,144  |   |      | $ | 20,755  |  
|                                                                                                |  |                             |         |   |      |   |         |  
|Supplemental Disclosures of Cash Flow Information                                               |  |                             |         |   |      |   |         |  
|Cash paid for:                                                                                  |  |                             |         |   |      |   |         |  
|Interest on deposits and other borrowings                                                       |  | $                           | 5,443   |   |      | $ | 3,936   |  
|Income taxes                                                                                    |  | $                           |        |   |      | $ | 240     |  
|Unrealized gain/(loss)                                                                          |  | $                           | 982     |   |      | $ | (403    | )

See Notes to Consolidated Financial Statements



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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) at March 31, 2007. The statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 (the 2006 Form 10-K). Certain previously reported amounts have been reclassified to conform to current period
presentation.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | We were organized and chartered under the laws of the Commonwealth of Virginia on September 5, 1997 and commenced operations effective December 29, 1997 when Southside
Bank and Bank of Northumberland, Inc. became our wholly owned subsidiaries. The transaction was accounted for using the pooling-of-interest method of accounting. We opened our third subsidiary in May 2000 when Hanover Bank began operations in
Hanover County, Virginia. On April 24, 2006, we completed the conversion to a one-bank holding company by merging the three banking subsidiaries. The new bank began operating under the name EVB on April 24, 2006. All
significant inter-company transactions and accounts have been eliminated in consolidation.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The results of operations for the three month periods ended March 31, 2007 are not necessarily indicative of the results to be expected for the full year.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Our amortized cost and estimated fair values of securities at March 31, 2007 and December 31, 2006 were as follows:
|-- | -------------------------------------------------------------------------------------------------------------------



|                                        |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|--------------------------------------- |  | ----------------- | ------- | ---------------------- | - | ----------------------- |  | -------------------- | ----- |  | - | -------
|                                        |  | March 31, 2007   
|(dollars in thousands)                  |  | Amortized Cost    |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Estimated Fair Value
|                                        |  |                   |         |                       
|Available for Sale:                     |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|Obligations of U.S. Government agencies |  | $                 | 31,605  |                        | $ | 33                      |  | $                    | 431   |  | $ | 31,207 
|Mortgage-backed securities              |  |                   | 27,996  |                        |   | 42                      |  |                      | 634   |  |   | 27,404 
|State and political subdivisions        |  |                   | 32,199  |                        |   | 304                     |  |                      | 354   |  |   | 32,149 
|Corporate, CMO and other securities     |  |                   | 33,037  |                        |   | 6                       |  |                      | 1,213 |  |   | 31,830 
|Restricted securities                   |  |                   | 6,744   |                        |   |                        |  |                      |      |  |   | 6,744  
|                                        |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|Total                                   |  | $                 | 131,581 |                        | $ | 385                     |  | $                    | 2,632 |  | $ | 129,334
|                                        |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|                                        | 
|                                        |  | December 31, 2006
|(dollars in thousands)                  |  | Amortized Cost    |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Estimated Fair Value
|                                        |  |                   |         |                       
|Available for Sale:                     |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|Obligations of U.S. Government agencies |  | $                 | 31,596  |                        | $ | 32                      |  | $                    | 496   |  | $ | 31,132 
|Mortgage-backed securities              |  |                   | 29,253  |                        |   | 5                       |  |                      | 701   |  |   | 28,557 
|State and political subdivisions        |  |                   | 32,429  |                        |   | 352                     |  |                      | 1,844 |  |   | 30,937 
|Corporate, CMO and other securities     |  |                   | 30,836  |                        |   | 37                      |  |                      | 1,119 |  |   | 29,754 
|Restricted securities                   |  |                   | 6,787   |                        |   |                        |  |                      |      |  |   | 6,787  
|                                        |  |                   |         |                        |   |                         |  |                      |       |  |   |        
|Total                                   |  | $                 | 130,901 |                        | $ | 426                     |  | $                    | 4,160 |  | $ | 127,167
|                                        |  |                   |         |                        |   |                         |  |                      |       |  |   |        



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At March 31, 2007, investments in an unrealized loss position that were temporarily impaired were as
follows:



|                                         |  |                     |       |                   |   |            |  |                 |        |            |   |                 |  |   |        |  |   |      
|---------------------------------------- |  | ------------------- | ----- | ----------------- | - | ---------- |  | --------------- | ------ | ---------- | - | --------------- |  | - | ------ |  | - | -----
|                                         |  | March 31, 2007     
|                                         |  | Less than 12 months |       | 12 months or more |   | Total     
|(dollars in thousands)                   |  | Fair Value          |       | Unrealized Loss   |   | Fair Value |  | Unrealized Loss |        | Fair Value |   | Unrealized Loss
|                                         |  |                     |       |                   |   |           
|Description of Securities                |  |                     |       |                   |   |            |  |                 |        |            |   |                 |  |   |        |  |   |      
|Obligations of U. S. Government agencies |  | $                   | 926   |                   | $ | 74         |  | $               | 27,764 |            | $ | 357             |  | $ | 28,690 |  | $ | 431  
|Mortgage-backed securities               |  |                     |      |                   |   |           |  |                 | 29,583 |            |   | 634             |  |   | 29,583 |  |   | 634  
|State and political subdivisions         |  |                     | 2,056 |                   |   | 7          |  |                 | 8,248  |            |   | 347             |  |   | 10,304 |  |   | 354  
|Corporate, CMO and other securities      |  |                     | 1,838 |                   |   | 216        |  |                 | 17,831 |            |   | 997             |  |   | 19,669 |  |   | 1,213
|                                         |  |                     |       |                   |   |            |  |                 |        |            |   |                 |  |   |        |  |   |      
|                                         |  | $                   | 4,820 |                   | $ | 297        |  | $               | 83,426 |            | $ | 2,335           |  | $ | 88,246 |  | $ | 2,632
|                                         |  |                     |       |                   |   |            |  |                 |        |            |   |                 |  |   |        |  |   |      

Bonds with unrealized loss positions of less than 12 months duration at March 31, 2007
included 1 federal agency, 1 corporate bond, 3 federal agency preferred stocks and 6 municipal bonds. Securities with losses of 12 months or greater duration included 31 federal agencies, 44 mortgage-backed securities, 14 corporate bonds, 24
municipal bonds, 3 collateralized mortgage obligations (CMO) and 1 federal agency preferred stock. The unrealized loss positions at March 31, 2007 were primarily related to interest rate movements. Holdings of GMAC and Ford Motor
Credit Corp contained unrealized loss positions because these securities have been downgraded by Moodys and Standard & Poors rating agencies to levels below investment grade. As of March 31, 2007, we held $3.3 million in GMAC bonds and
$250 thousand in Ford Motor Credit Corp bonds. These holdings are monitored regularly by our Chief Financial Officer and reported to the EVB Board on a monthly basis. Given the attractive yield, our ability and intent to hold until maturity or
principal recovery and the belief that the risk of default is remote, we have not recommended sale of the holdings and believe the unrealized loss is temporary.

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



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



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|5. | Our loan portfolio was composed of the following at the dates indicated:
|-- | ------------------------------------------------------------------------



|                                              |  |                           |         |   |                            |   |         |                           |  |   |         |  
|--------------------------------------------- |  | ------------------------- | ------- | - | -------------------------- | - | ------- | ------------------------- |  | - | ------- | -
|(Dollars in thousands)                        |  | (unaudited) March 31 2007 |         |   | (audited) December 31 2006 |   |         | (unaudited) March 31 2006 | 
|                                              |  |                           |        
|Commercial, industrial and agricultural loans |  | $                         | 59,449  |   |                            | $ | 59,859  |                           |  | $ | 56,940  |  
|Residential real estate mortgage loans        |  |                           | 295,710 |   |                            |   | 288,114 |                           |  |   | 265,677 |  
|Real estate construction loans                |  |                           | 83,713  |   |                            |   | 85,910  |                           |  |   | 58,203  |  
|Commercial real estate loans                  |  |                           | 171,893 |   |                            |   | 164,948 |                           |  |   | 161,501 |  
|Consumer loans                                |  |                           | 49,619  |   |                            |   | 51,446  |                           |  |   | 53,481  |  
|All other loans                               |  |                           | 415     |   |                            |   | 305     |                           |  |   | 408     |  
|                                              |  |                           |         |   |                            |   |         |                           |  |   |         |  
|Total loans                                   |  |                           | 660,799 |   |                            |   | 650,582 |                           |  |   | 596,210 |  
|Less unearned income                          |  |                           | (67     | ) |                            |   | (90     | )                         |  |   | (257    | )
|                                              |  |                           |         |   |                            |   |         |                           |  |   |         |  
|Total loans net of unearned discount          |  |                           | 660,732 |   |                            |   | 650,492 |                           |  |   | 595,953 |  
|Less allowance for loan losses                |  |                           | (7,113  | ) |                            |   | (7,051  | )                         |  |   | (6,627  | )
|                                              |  |                           |         |   |                            |   |         |                           |  |   |         |  
|Net loans                                     |  | $                         | 653,619 |   |                            | $ | 643,441 |                           |  | $ | 589,326 |  
|                                              |  |                           |         |   |                            |   |         |                           |  |   |         |  

We had $2.4 million in non-performing loans at March 31, 2007 that included $977 thousand in
loans past due 90 days or more but still accruing and $1.4 million in nonaccrual loans.



|6. | Our allowance for loan losses was as follows at the dates indicated:
|-- | --------------------------------------------------------------------



|                                 |  |                           |       |   |                            |   |       |                           |  |   |       |  
|-------------------------------- |  | ------------------------- | ----- | - | -------------------------- | - | ----- | ------------------------- |  | - | ----- | -
|(Dollars in thousands)           |  | (unaudited) March 31 2007 |       |   | (audited) December 31 2006 |   |       | (unaudited) March 31 2006 | 
|                                 |  |                           |      
|Balance January 1                |  | $                         | 7,051 |   |                            | $ | 6,601 |                           |  | $ | 6,601 |  
|Provision charged against income |  |                           | 153   |   |                            |   | 725   |                           |  |   | 113   |  
|Recoveries of loans charged off  |  |                           | 143   |   |                            |   | 495   |                           |  |   | 142   |  
|Loans charged off                |  |                           | (234  | ) |                            |   | (770  | )                         |  |   | (229  | )
|                                 |  |                           |       |   |                            |   |       |                           |  |   |       |  
|Balance at end of period         |  | $                         | 7,113 |   |                            | $ | 7,051 |                           |  | $ | 6,627 |  
|                                 |  |                           |       |   |                            |   |       |                           |  |   |       |  

Following is a summary pertaining to impaired loans:



|                                                        |  |                |       |                  |   |       
|------------------------------------------------------- |  | -------------- | ----- | ---------------- | - | ------
|                                                        |  | March 31 2007  |       | December 31 2006
|                                                        |  | (in thousands)
|Impaired loans for which an allowance has been provided |  | $              | 4,287 |                  | $ | 3,653 
|                                                        |  |                |       |                  |   |       
|Allowance related to impaired loans                     |  | $              | 819   |                  | $ | 601   
|                                                        |  |                |       |                  |   |       
|Average balance of impaired loans                       |  | $              | 3,967 |                  | $ | 11,927
|                                                        |  |                |       |                  |   |       

No additional funds are committed to be advanced in connection with impaired loans. Nonaccrual
loans excluded from impaired loan disclosure under Statement of Financial Accounting Standards (SFAS) No. 114 amounted to $574 thousand and $103 thousand at March 31, 2007 and December 31, 2006, respectively.



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|7. | Borrowings from the Federal Home Loan Bank of Atlanta are disclosed below. We utilize FHLB borrowings for two purposes: (a) to match funds for specific loans or investments as
an interest rate risk management tool and (b) for general funding of loan growth when the cost of borrowing is substantially below that of aggressive deposit funding.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                     |  |                           |        |                            |   |       
|-------------------- |  | ------------------------- | ------ | -------------------------- | - | ------
|                     |  | (unaudited) March 31 2007 |        | (audited) December 31 2006
|Amortizing advances  |  | $                         | 5,000  |                            | $ | 5,000 
|Convertible advances |  |                           | 85,500 |                            |   | 85,500
|                     |  |                           |        |                            |   |       
|Total advances       |  | $                         | 90,500 |                            | $ | 90,500
|                     |  |                           |        |                            |   |       

The table presented below shows the maturities and potential call dates of FHLB advances. All but
$5.0 million of the FHLB borrowings are convertible advances that have a call provision.



|      |  |                   |        |         |      |   |                 |   |          |  |      |  
|----- |  | ----------------- | ------ | ------- | ---- | - | --------------- | - | -------- |  | ---- | -
|      |  | Maturities Amount |        | AvgRate |      |   | Callable Amount |   | Avg Rate | 
|2007  |  | $                 | 1,428  |         | 3.15 | % |                 | $ | 37,000   |  | 4.46 | %
|2008  |  |                   | 1,429  |         | 3.15 | % |                 |   | 25,000   |  | 4.48 | %
|2009  |  |                   | 1,429  |         | 3.15 | % |                 |   | 10,000   |  | 4.37 | %
|2010  |  |                   | 15,714 |         | 4.36 | % |                 |   | 13,500   |  | 3.87 | %
|2011  |  |                   | 10,000 |         | 5.01 | % |                 |   |         |  |      |  
|2012  |  |                   | 5,000  |         | 4.68 | % |                 |   |         |  |      |  
|2015  |  |                   | 20,500 |         | 3.78 | % |                 |   |         |  |      |  
|2016  |  |                   | 10,000 |         | 4.85 | % |                 |   |         |  |      |  
|2017  |  |                   | 25,000 |         | 4.29 | % |                 |   |         |  |      |  
|      |  |                   |        |         |      |   |                 |   |          |  |      |  
|Total |  | $                 | 90,500 |         | 4.29 | % |                 | $ | 85,500   |  | 4.36 | %
|      |  |                   |        |         |      |   |                 |   |          |  |      |  



|8. | The following table shows the weighted average number of shares used in computing per share earnings and the effect on the weighted average number of shares of diluted potential
common stock. Potential dilutive common stock had no effect on earnings per share otherwise available to shareholders for the three month periods ended March 31, 2007 and March 31, 2006.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                             |  |                    |  |                  |      |        |           |                  |   |     
|-------------------------------------------- |  | ------------------ |  | ---------------- | ---- | ------ | --------- | ---------------- | - | ----
|                                             |  | Three Months Ended
|                                             |  | March 31, 2007     |  | March 31, 2006  
|                                             |  | Shares             |  | Per Share Amount |      | Shares |           | Per Share Amount
|Basic earnings per share                     |  | 6,085,857          |  | $                | 0.35 |        | 4,907,788 |                  | $ | 0.32
|Effect of dilutive securities, stock options |  | 9,096              |  |                  |     |        | 13,850    |                  |   |    
|                                             |  |                    |  |                  |      |        |           |                  |   |     
|Diluted earnings per share                   |  | 6,094,953          |  | $                | 0.35 |        | 4,921,638 |                  | $ | 0.32
|                                             |  |                    |  |                  |      |        |           |                  |   |     



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As of March 31, 2007 and 2006, respectively, options to acquire 146,612 shares and 30,150 shares of
common stock were not included in computing diluted earnings per common share because their effects were anti-dilutive.



|9. | On September 21, 2000, we adopted the Eastern Virginia Bankshares, Inc. 2000 Stock Option Plan to provide a means for selected key employees and directors of the Company and
its subsidiaries to increase their personal financial interest in our Company, thereby stimulating their efforts and strengthening their desire to remain with us. Under the Plan, up to 400,000 shares of Company common stock may be granted. No
options may be granted under the Plan after September 21, 2010. On April 17, 2003, the shareholders approved the 2003 Stock Incentive Plan, amending and restating the 2000 Plan while still authorizing the issuance of up to 400,000 shares
of common stock. There are 156,243 shares still available under that Plan.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

SFAS 123R also requires that new rewards to employees eligible for retirement prior to the award becoming fully vested be recognized as
compensation cost over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. Our stock options granted to eligible participants prior to the adoption of SFAS
123R that had an accelerated vesting feature associated with employee retirement are being recognized, as required, as compensation cost over the vesting period except in the instance of participants actual retirement.

For the quarters ended March 31, 2007 and 2006, stock option compensation expense of $63 thousand and $53 thousand was included in salary and benefit
expense. No tax benefits were recognized in 2007 or 2006.

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



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

The dividend rate is calculated as the average quarterly dividend yield on our stock since our
inception in December 1997 by dividing the quarterly dividend by the average closing price of the stock for the quarter. Volatility is a measure of the standard deviation of the daily closing stock price plus dividend yield for the same period. The
risk-free interest rate is the 10 year Treasury strip rate on the date of the grant. The expected life is 10 years, but could be shorter in the event of a change in control of the Company or if a participant reaches their full retirement age of 65.



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|                                      |  |         |   |  |                                 |       |                                                        |      |                                          |   |    
|------------------------------------- |  | ------- | - |  | ------------------------------- | ----- | ------------------------------------------------------ | ---- | ---------------------------------------- | - | ---
|                                      |  | Shares  |   |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual Life (in years) |      | Aggregate Intrinsic Value (in thousands)
|Outstanding at beginning of year      |  | 213,832 |   |  | $                               | 21.19 |                                                        |      |                                          |   |    
|Granted                               |  |        |   |  |                                 |       |                                                        |      |                                          |   |    
|Exercised                             |  | (1,225  | ) |  |                                 | 16.10 |                                                        |      |                                          |   |    
|Forfeited                             |  |        |   |  |                                 |      |                                                        |      |                                          |   |    
|                                      |  |         |   |  |                                 |       |                                                        |      |                                          |   |    
|Outstanding at March 31, 2007         |  | 212,607 |   |  | $                               | 21.22 |                                                        | 7.80 |                                          | $ | 276
|Options exercisable at March 31, 2007 |  | 23,720  |   |  |                                 | 16.10 |                                                        | 5.00 |                                          | $ | 157

As of March 31, 2007, there was $511 thousand of unrecognized compensation expense related to
stock options that will be recognized over the remaining requisite service period of approximately 2.96 years. There were no options granted in the three months ended March 31, 2007 or 2006. There were 1,225 shares exercised in the quarter
ended March 31, 2007 at an average price of $16.10 providing cash proceeds of $20 thousand, those shares having an intrinsic value at time of exercise of $8,832. There were no shares exercised or exercisable in the first quarter of 2006.



|10. | Components of net periodic benefit cost were as follows for the periods indicated:
|--- | ----------------------------------------------------------------------------------



|                                             |  |                             |      |   |      |   |      |  
|-------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                             |  | Three Months Ended March 31 |     
|                                             |  | 2007                        |      |   | 2006 |  
|                                             |  | (in thousands)              |     
|Components of Net Periodic Benefit Cost      |  |                             |      |   |      |   |      |  
|Service cost                                 |  | $                           | 373  |   |      | $ | 350  |  
|Interest cost                                |  |                             | 196  |   |      |   | 179  |  
|Expected return on plan assets               |  |                             | (189 | ) |      |   | (163 | )
|Amortization of prior service cost           |  |                             | 5    |   |      |   | 5    |  
|Amortization of net obligation at transition |  |                             | 1    |   |      |   | 1    |  
|Recognized net actuarial loss                |  |                             | 20   |   |      |   | 33   |  
|                                             |  |                             |      |   |      |   |      |  
|Net periodic benefit cost                    |  | $                           | 406  |   |      | $ | 405  |  
|                                             |  |                             |      |   |      |   |      |  

We made our required 2007 fiscal year contribution to the pension plan in December 2006 in the
amount of $1.62 million. We anticipate that we will make our 2008 contribution in December 2007. The pension plan has a fiscal year ending September 30, providing us flexibility as to the calendar year in which we make pension plan
contributions. We estimate that our 2008 contribution to the Plan in late 2007 will be approximately $1.62 million.



|11. | In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. We do not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to
choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair
value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a
fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157, Fair Value Measurements. The Company is in the process of evaluating the impact this statement may have on
its consolidated financial statements but does not intend to adopt early.



|12. | The following table displays detail of comprehensive income for the three month periods ended March 31, 2007 and 2006:
|--- | ----------------------------------------------------------------------------------------------------------------------



|                                                                               |  |                             |       |      |   |       |  
|------------------------------------------------------------------------------ |  | --------------------------- | ----- | ---- | - | ----- | -
|                                                                               |  | Three Months Ended March 31 |      
|                                                                               |  | 2007                        |       | 2006 |  
|Net income                                                                     |  | $                           | 2,108 |      | $ | 1,551 |  
|Unrealized gains (losses) on securities available for sale, net of tax expense |  |                             | 982   |      |   | (400  | )
|Less: reclassification adjustment, net of tax                                  |  |                             |      |      |   | (3    | )
|                                                                               |  |                             |       |      |   |       |  
|Total comprehensive income                                                     |  | $                           | 3,090 |      | $ | 1,148 |  
|                                                                               |  |                             |       |      |   |       |  

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
Annual Report on Form 10-K for the year ended December 31, 2006. Operating results include those of all our operating entities combined for all periods presented.

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

CRITICAL ACCOUNTING POLICIES

General

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



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Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS No. 5, Accounting for
Contingencies, which requires that losses be accrued when their occurrence is probable and estimable and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the
differences between the value of the collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

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

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

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

OVERVIEW

Net income for the quarter ended March 31, 2007 was $2.1 million, an increase of $557 thousand or 35.9% compared to first quarter 2006 net income of $1.6 million. Increases in net interest income of 8.3% and
noninterest income of 17.4% and a decline of 1.5% in noninterest expense aided the net income growth. Net interest income increased $623 thousand for the quarter ended March 31, 2007, compared to the same period in 2006. This increase was the
result of continued loan growth that increased interest income on loans by $2.0 million, to $12.1 million for the first three months of 2007 compared to $10.1 million in the first quarter of 2006. Income from the securities portfolio declined $34
thousand, the result of a decrease in average portfolio investments. Interest expense on deposits and other borrowings increased $1.6 million for the first quarter of 2007 compared to the first quarter of 2006. Noninterest income increased $200
thousand largely as a result of increased deposit service charge fees of $112 thousand and an increase in other income of $92 thousand. Noninterest expense decreased $95 thousand compared to the quarter ended March 31, 2006. Tax expense
increased $321 thousand or 53.2% from the combination of decreased tax exempt income and an increase in our statutory tax rate. Earnings per share were $0.35 for March 2007 compared to $0.32 for the same period last year, an increase of 9.4%,
impacted $0.04 per share by the stock offering discussed below.

Our underwritten stock offering in December 2006 increased average earning assets in the
first quarter by $23.5 million, producing $304 thousand of increased interest income and net interest income in the first quarter of 2007. The after tax impact on net income was an increase of $198 thousand while the impact on earnings per share was
a decrease of $0.04. Most of the interest income impact from investment of the stock offering proceeds is reflected in the interest on federal funds sold line item, which increased $274 thousand.



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A flat-to-sometimes-inverted yield curve continues to contribute to higher interest rates on deposits. Loan growth in the
first quarter of 2007 was funded by the combination of a $6.0 million increase in deposits and a $4.8 million decrease in federal funds sold. There was no change in the level of Federal Home Loan Bank borrowings during the quarter ended
March 31, 2007. Our Reward Checking product introduced in the third quarter of 2006 continues to be an important tool in addressing a challenging deposit environment. While that product has a detrimental impact on net interest
income, it has increased debit card fee income while decreasing operational expenses. We have also implemented a number of certificate of deposit and IRA deposit specials. Still, deposit growth continues to lag loan growth.

Total assets at March 31, 2007 were $860.8 million, up $77.7 million, or 9.9%, from $783.1 million at March 31, 2006 and up $9.4 million, or 1.1%, from $851.4
million at December 31, 2006. For the quarter, total assets averaged $857.3 million, 10.5% above the first quarter 2006 average of $775.7 million. Total loans, net of unearned income, amounted to $660.7 million at March 31, 2007, an
increase of $64.8 million, or 10.9%, from $596.0 million at March 31, 2006, and an increase of $10.2 million, or 1.6%, from $650.5 million at December 31, 2006. Net loans as a percent of total assets were 75.9% at March 31, 2007, as
compared to 75.3% at March 31, 2006 and 75.6% at 2006 year-end. Loan demand continues to be strong with the slowdown in first quarter of 2007 reflecting some cyclical impacts on our loan portfolio. Due to our current loan pipeline, we expect
increased loan growth in the second quarter of 2007.

At March 31, 2007, the investment portfolio totaled $129.3 million, a decline of $4.1 million
from $133.5 million at March 31, 2006 and up $2.2 million, or 1.7%, from $127.2 million at December 31, 2006. The decline in the investment portfolio from March 31, 2007 is primarily related to using investment portfolio cash flow to
fund strong loan growth. Most of the funds that are invested in the investment portfolio are part of managements effort to balance interest rate risk and to provide liquidity. There were $17.6 million of federal funds sold at March 31,
2007, while there were $523 thousand in federal funds sold at March 31, 2006 and $22.4 million at December 31, 2006.

Total deposits of $659.9
million at March 31, 2007 represented an increase of $32.3 million, or 5.2%, from $627.6 million one year ago and an increase of $6.0 million, or 0.9%, from $654.0 million at December 31, 2006. We offer attractive, yet competitive, rates
to maintain a strong stable deposit base. At March 31, 2007, noninterest-bearing demand deposits of $97.6 million were flat when compared to $97.5 million at March 31, 2006 and declined $1.6 million from $99.3 million at year end 2006. At
March 31, 2007, interest-bearing deposits were up $32.2 million, or 6.1%, at $562.3 compared to $530.1 at March 31, 2006 and up $7.6 million, or 1.4%, compared to year end 2006. The quarter continues the pattern that we have seen for over
a year with higher-cost certificates of deposit growing $40.0 million year-over-year while non-maturity interest-bearing and non interest-bearing deposits have decreased $7.6 million.

FHLB borrowings at March 31, 2007 totaled $90.5 million, a $13.6 million, or 17.6%, increase over $76.9 million at March 31, 2006 and no change from December 31, 2006. With loan demand continuing to
outpace deposit growth, we expect to continue to expand our earning asset base using the funding source that provides the best risk/return reward characteristics.

SFAS No. 115 requires the Company to show the effect of market changes in the value of securities available for sale. The effect of the change in market value of securities, net of income taxes, is reflected in a line titled
Accumulated other comprehensive (loss), net in the Shareholders Equity section of the Consolidated Balance Sheets and was ($1.5 million) at March 31, 2007, an improvement of $557 thousand from ($2.2 million) at March 31,
2006 and an improvement of $982 thousand from ($2.5 million) at December 31, 2006. The unrealized (loss) on securities is presented as a value at one specific point in time but fluctuates significantly over time depending on interest rate
changes. In addition, adoption of SFAS No. 158, relative to the difference in the fair value of pension assets and the expected benefits cost at the end of 2006, added a negative $1.9 million to the Accumulated Other Comprehensive (loss), net
line on the Consolidated Balance Sheet.

RESULTS OF OPERATIONS

Net Income

Net income increased 35.9% to $2.1 million for the three months ended March 31, 2007, compared to $1.6 million for the same
period in 2006. Diluted earnings per share increased 9.4% to $0.35 for the first quarter of 2007, compared to $0.32 for the same quarter in 2006. Net interest income increased $623 thousand for the quarter ended March 31, 2007, when compared to
the same period in 2006. This increase in net interest income for the first quarter 2007 was the result



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##### Table of Contents

of higher earnings on the loan portfolio from an increase in the loan portfolio balances and rates, a decrease in investment income, an increase of $274
thousand in interest on federal funds sold, all netted against a $1.6 million increase in total funding costs. Loan loss provision of $153 thousand for the quarter increased $40 thousand compared to $113 thousand in the first quarter of 2006,
primarily due to growth in the loan portfolio. Noninterest income excluding securities gains was up $200 thousand, or 17.4%, for the quarter when compared to the same period in 2006. This increase comes from a $112 thousand, or 15.6%, increase in
service charge income resulting from both rate and volume increases and a $92 thousand, or 21.5%, increase in other noninterest income as the investment and mortgage functions had higher income than for the period ended March 31, 2006. There
were no securities gains in the first quarter 2007 compared to a $4 thousand gain in the first quarter of 2006.

Noninterest expense for the three months
ended March 31, 2007 decreased $95 thousand or 1.5% to $6.3 million compared to $6.4 million for the same quarter of 2006. Salaries and benefits decreased $69 thousand or 1.8%, as a result of efficiencies from the 2006 conversion to a one-bank
holding company. Net occupancy expense rose $39 thousand to $1.0 million compared to $971 thousand in the first quarter of 2006. Occupancy expense was impacted by increased costs associated with the relocation of the leased Air Park branch to a new
owned branch at Kings Charter, lower equipment depreciation and higher equipment maintenance costs. Other expenses decreased $95 thousand with a $115 thousand decrease in consulting fees. Without taking the consulting fee into consideration, other
operating expense would have increased $20 thousand which is less than a 1% increase from the prior year and which reflects the impact of increasing expense control.

Return on average assets increased to 1.00%, compared to 0.81% in the first quarter of 2006, and return on average equity declined to 9.66% compared to 10.07% for the quarters ended March 31, 2007 and 2006,
respectively. Without considering the December 2006 stock offering, ROE would have been 11.92% while ROA would have been 0.93%. As anticipated, the stock offering transaction had a current period positive impact on ROA and a negative impact on ROE.

Net Interest Income

Net interest income on a fully
tax equivalent basis totaled $8.3 million for the first quarter 2007, a $605 thousand increase over the first quarter of 2006. Average earning assets for the quarter ended March 31, 2007 increased 11.3% to $806.3 million compared to $724.4
million for the same quarter of 2006. Average loans increased 11.8%, average securities decreased 5.5% and average federal funds sold increased $20.0 million when comparing the first quarter of 2007 to the same period in 2006. The fully tax
equivalent net interest margin for the three-month period ended March 31, 2007 was 4.15% compared to 4.28% for the quarter ended March 31, 2006. For the quarter, the yield on earning assets was up 44 basis points and the cost of interest
bearing liabilities was up 78 basis points, narrowing the spread between the yield on earning assets and the cost of funds. This reflects continued intense competition in loan pricing even as the cost of funding is increasing. Our increase in
funding costs is more specifically related to year-over-year increases in interest checking, large dollar certificates of deposit and other certificates of deposit of 94, 86 and 81 basis points, respectively. The cost of money market savings
increased 85 basis points while the balances declined $6.8 million. Savings deposit balances fell $23.6 million with a 5 basis point decline in interest rate.

Tax-effective yield on earning assets was 7.07% for the quarter ended March 31, 2007 compared to 6.63% for the same period in 2006. The cost of interest bearing liabilities for the quarter ended March 31, 2007 of 3.55% was an
increase of 78 basis points when compared to 2.77% for the quarter ended March 31, 2006. These results are from a continued flat to inverted yield curve where short term interest rates (one year or less) are higher than longer term rates. We
believe that depositors resist committing their funds for more than a year, leaving our bank working hard to match longer term assets to the high rate deposits and causing a continued decrease of the net interest margin. We are well aware of the
challenge that we face and believe that wholesale funding and development/implementation of new deposit products are ways to manage the margin. We anticipate that a return to a positively sloping yield curve would enhance the margin.



14



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##### Table of Contents

A table that discloses fully tax equivalent net interest income calculations for the quarters ended March 31, 2007
and 2006 follows.

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



|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|------------------------------------------------------- |  | ---------------------------- | ------- | - | --------------- | - | ----------- |  | ---- | --------------- |  | - | --------------- | - | ----------- | - | ------ |  | ---- | -
|                                                        |  | Three Months Ended March 31, |        
|                                                        |  | 2007                         |         |   | 2006            |  
|                                                        |  | Average Balance              |         |   | Income/ Expense |   | Yield/ Rate |  |      | Average Balance |  |   | Income/ Expense |   | Yield/ Rate |  
|Assets:                                                 |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Securities                                              |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Taxable                                                 |  | $                            | 95,835  |   |                 | $ | 1,182       |  | 5.00 | %               |  | $ | 99,209          |   |             | $ | 1,180  |  | 4.82 | %
|Tax exempt (1)                                          |  |                              | 31,699  |   |                 |   | 474         |  | 6.06 | %               |  |   | 35,741          |   |             |   | 528    |  | 5.99 | %
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total securities                                        |  |                              | 127,534 |   |                 |   | 1,656       |  | 5.27 | %               |  |   | 134,950         |   |             |   | 1,708  |  | 5.13 | %
|Federal funds sold                                      |  |                              | 23,456  |   |                 |   | 314         |  | 5.43 | %               |  |   | 3,437           |   |             |   | 40     |  | 4.72 | %
|Loans, net of unearned income (2)                       |  |                              | 655,335 |   |                 |   | 12,090      |  | 7.48 | %               |  |   | 586,037         |   |             |   | 10,096 |  | 6.99 | %
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total earning assets                                    |  |                              | 806,325 |   |                 |   | 14,060      |  | 7.07 | %               |  |   | 724,424         |   |             |   | 11,844 |  | 6.63 | %
|Less allowance for loan losses                          |  |                              | (7,115  | ) |                 |   |             |  |      |                 |  |   | (6,682          | ) |             |   |        |  |      |  
|Total non-earning assets                                |  |                              | 58,102  |   |                 |   |             |  |      |                 |  |   | 57,962          |   |             |   |        |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total assets                                            |  | $                            | 857,312 |   |                 |   |             |  |      |                 |  | $ | 775,704         |   |             |   |        |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Liabilities and Shareholders Equity:                   |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Interest bearing deposits                               |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Checking                                                |  | $                            | 94,857  |   |                 | $ | 320         |  | 1.37 | %               |  | $ | 79,956          |   |             | $ | 84     |  | 0.43 | %
|Savings                                                 |  |                              | 85,581  |   |                 |   | 257         |  | 1.22 | %               |  |   | 109,227         |   |             |   | 341    |  | 1.27 | %
|Money market savings                                    |  |                              | 41,484  |   |                 |   | 243         |  | 2.38 | %               |  |   | 48,295          |   |             |   | 182    |  | 1.53 | %
|Large dollar certificates of deposit (3)                |  |                              | 119,484 |   |                 |   | 1,417       |  | 4.81 | %               |  |   | 96,975          |   |             |   | 945    |  | 3.95 | %
|Other certificates of deposit                           |  |                              | 217,029 |   |                 |   | 2,354       |  | 4.40 | %               |  |   | 194,899         |   |             |   | 1,724  |  | 3.59 | %
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total interest-bearing deposits                         |  |                              | 558,435 |   |                 |   | 4,591       |  | 3.33 | %               |  |   | 529,352         |   |             |   | 3,276  |  | 2.51 | %
|Federal funds purchased                                 |  |                              |        |   |                 |   |            |  | 0.00 | %               |  |   | 3,609           |   |             |   | 40     |  | 4.49 | %
|Other borrowings                                        |  |                              | 104,421 |   |                 |   | 1,210       |  | 4.70 | %               |  |   | 79,966          |   |             |   | 874    |  | 4.43 | %
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total interest-bearing liabilities                      |  |                              | 662,856 |   |                 |   | 5,801       |  | 3.55 | %               |  |   | 612,927         |   |             |   | 4,190  |  | 2.77 | %
|Noninterest-bearing liabilities                         |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Demand deposits                                         |  |                              | 95,478  |   |                 |   |             |  |      |                 |  |   | 94,312          |   |             |   |        |  |      |  
|Other liabilities                                       |  |                              | 10,504  |   |                 |   |             |  |      |                 |  |   | 6,006           |   |             |   |        |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total liabilities                                       |  |                              | 768,838 |   |                 |   |             |  |      |                 |  |   | 713,245         |   |             |   |        |  |      |  
|Shareholders equity                                    |  |                              | 88,474  |   |                 |   |             |  |      |                 |  |   | 62,459          |   |             |   |        |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Total liabilities and shareholders equity              |  | $                            | 857,312 |   |                 |   |             |  |      |                 |  | $ | 775,704         |   |             |   |        |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|                                                        |  |                              |        |   |                 |   |             |  |      |                 |  |   |                |   |             |   |        |  |      |  
|Net interest income                                     |  |                              |         |   |                 | $ | 8,259       |  |      |                 |  |   |                 |   |             | $ | 7,654  |  |      |  
|                                                        |  |                              |         |   |                 |   |             |  |      |                 |  |   |                 |   |             |   |        |  |      |  
|Interest rate spread (4)                                |  |                              |         |   |                 |   |             |  | 3.52 | %               |  |   |                 |   |             |   |        |  | 3.86 | %
|Interest expense as a percent of average earning assets |  |                              |         |   |                 |   |             |  | 2.92 | %               |  |   |                 |   |             |   |        |  | 2.35 | %
|Net interest margin (5)                                 |  |                              |         |   |                 |   |             |  | 4.15 | %               |  |   |                 |   |             |   |        |  | 4.28 | %

---

Notes:



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

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

|(3) | 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 excluding net realized gains on securities sales was $1.3 million for the first quarter of 2007 compared to $1.1
million for the same quarter in 2006. Service charges on deposit accounts for the quarter ended March 31, 2007 were $830 thousand, compared to $718 thousand for the comparable period in 2006. Other operating income increased to $519 thousand
for the quarter, compared to $427 thousand for the three months ended March 31, 2006. Service charge increases were from a combination of rate and volume increases. Other operating income increases on a year-to-date basis were primarily
impacted by an $81 thousand increase from our joint venture investment in EVB Mortgage, LLC.

Noninterest Expense

This category includes all expenses other than interest paid on deposits and borrowings. Total noninterest expense decreased $95 thousand, or 1.5%, from $6.4 million for
the first quarter of 2006 to $6.3 million for the three months ended March 31, 2007. Noninterest expense changes included increases of 4.0% in occupancy expense, 35.4% in marketing expense and 6.8% in other expenses, offset by decreases of 1.8%
in salary and benefit expense, 48.7% in data processing expense and 45.5% in consulting fees. The marketing increase represents the cost of promoting our Reward Checking product and providing our markets an awareness of EVB. Consulting
fees and other expenses are down as a result of efficiencies from the 2006 conversion to a one-bank holding company.

Total salary and benefits expense of
$3.7 million in the first quarter of 2007 represented a decrease of $69 thousand, or 1.8%, compared to the first quarter of 2006. Net occupancy and equipment expense increased $39 thousand to $1.0 million for the quarter ended March 31, 2007
compared to the same period in 2006. This was primarily from equipment enhancements and the new building for the relocation of the Air Park branch in Hanover County.

Other noninterest expenses as a whole decreased $65 thousand to $1.6 million for the first quarter of 2007 from $1.7 million for the same period in 2006. A consulting expense decrease of $115 thousand and a data
processing expense decrease of $74 thousand more than offset increases of $52 thousand in marketing and advertising and $66 thousand in other operating expenses. The largest changes in the other operating expenses were a result of a $32 thousand
increase in education/training and a $30 thousand increase in the Virginia franchise tax accrual.

Income Taxes

Income tax expense for the quarter ended March 31, 2007 was $924 thousand, compared to $603 thousand for the same period in 2006. The effective tax rate for the
quarter was 30.5%, an increase from 28.0% in 2006 first quarter. The increase in the effective tax rate is caused by a combination of growth that has increased our statutory tax rate from 34% to 35% on taxable income and a decrease in the percentage
of tax exempt income compared to total income.

ASSET QUALITY

The Companys allowance for loan losses is an estimate of the amount needed to provide for possible losses in the loan portfolio. In determining adequacy of the allowance, management considers the Companys historical loss
experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, effects of credit
concentrations and economic conditions. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge offs, net of recoveries. Because the risk of loan loss includes general economic trends as well as
conditions affecting individual borrowers, the allowance for loan losses can only be an estimate. (See the Allowance for Loan Losses discussion under Critical Accounting Policies earlier in this section.)

Total nonperforming assets, which consist of nonaccrual loans, loans past due 90 days and still accruing interest and foreclosed properties, were $2.4 million at
March 31, 2007, $2.9 million at December 31, 2006 and $1.8 million at March 31, 2006. Nonperforming assets are composed largely (96.4%) of loans secured by real estate in the Companys market area. Based on estimated fair
values of the related real estate, management considers these amounts recoverable, with any individual deficiency covered by the allowance for loan losses.

Total loan charge-offs, less recoveries, amounted to $91 thousand for the first quarter of 2007 compared to $87 thousand for the same quarter in 2006. while the annualized ratio of net charge-offs to total average loans, net of unearned
income, was 0.06% for the first quarter of both 2007 and 2006. Full year 2006 net charge-offs were $275 thousand, or



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0.04%, of average loans. The ratio of nonperforming loans to total loans at March 31, 2007 was 0.36%, down from 0.45% at December 31, 2006 and up
from 0.31% at March 31, 2006. These continued strong numbers reflect the emphasis that management places on credit quality management.

The allowance
for loan losses of $7.1 million at March 31, 2007 increased $486 thousand when compared to $6.6 million at March 31, 2006 and was up moderately from $7.0 million at December 31, 2006. This reasonably flat balance in the allowance
reflects strong asset quality over the prior year and first quarter of 2007 as increases to the provision reflected the inherent strength of new loans as well as a decline in impaired loans and their associated specific reserves from the
March 31, 2006 level. The ratio of allowance for loan losses to total loans was 1.08% at March 31, 2007 and at 2006 year-end and 1.11% at March 31, 2006. The allowance for loan losses at March 31, 2007 included $819 thousand of
specific impaired loan reserves.

At March 31, 2007, the Company reported $4.3 million in impaired loans, an increase of $634 thousand from $3.7
million at December 31, 2006 and a decrease of $9.2 million from $13.5 million at March 31, 2006. The average balance of impaired loans for the three months ended March 31, 2007 was $4.0 million.

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

Nonperforming Assets



|                                                          |  |               |        |   |                  |   |        |               |  |   |        |  
|--------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | ------------- |  | - | ------ | -
|(Dollars in thousands)                                    |  | March 31 2007 |        |   | December 31 2006 |   |        | March 31 2006 | 
|                                                          |  |               |       
|Nonaccrual loans                                          |  | $             | 1,414  |   |                  | $ | 1,400  |               |  | $ | 868    |  
|Restructured loans                                        |  |               |       |   |                  |   |       |               |  |   |       |  
|Loans past due 90 days and accruing interest              |  |               | 977    |   |                  |   | 1,504  |               |  |   | 970    |  
|                                                          |  |               |        |   |                  |   |        |               |  |   |        |  
|Total nonperforming loans                                 |  | $             | 2,391  |   |                  | $ | 2,904  |               |  | $ | 1,838  |  
|Other real estate owned                                   |  |               |       |   |                  |   |       |               |  |   |       |  
|                                                          |  |               |        |   |                  |   |        |               |  |   |        |  
|Total nonperforming assets                                |  | $             | 2,391  |   |                  | $ | 2,904  |               |  | $ | 1,838  |  
|Nonperforming assets to total loans and other real estate |  |               | 0.36   | % |                  |   | 0.45   | %             |  |   | 0.31   | %
|Allowance for loan losses to nonaccrual loans             |  |               | 503.22 | % |                  |   | 503.52 | %             |  |   | 763.58 | %
|Net charge-offs to average loans for the year             |  |               | 0.06   | % |                  |   | 0.04   | %             |  |   | 0.06   | %
|Allowance for loan losses to period end loans             |  |               | 1.08   | % |                  |   | 1.08   | %             |  |   | 1.11   | %

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.

While there were no net FHLB borrowing changes during the first quarter of 2007, we did
replace a $25 million called loan with two separate loan structures that diversify interest rate risk. We have made it a practice to fund growth at times with FHLB borrowings if the rates were below our interest bearing deposit costs. These
borrowings have some potential long-term interest risk if rates fall significantly but overall give us an acceptable spread and funding rate. We have relied on FHLB borrowings to support our growth at times in the past. We will continue to evaluate
funding opportunities as necessary to support future growth. These were the only changes to our contractual obligations that would impact liquidity since the 2006 Form 10-K disclosure. At March 31, 2007, we had immediate available credit with
the FHLB of $81.8 million and with nonaffiliated banks of $20 million. See Note 7 for further FHLB information.

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



17



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##### Table of Contents

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

CAPITAL RESOURCES

Our risk-based capital position at March 31, 2007 was $96.8 million, or 15.06% of risk-weighted assets, for Tier 1 capital and $103.9 million, or 16.17%, for total risk based capital. Our Tier 1 leverage ratio at March 31, 2007
was 11.40%. These ratios are all up slightly from the comparable year end ratios of 15.04%, 16.15% and 11.57%, respectively. Enhancing our capital ratios to support future growth was the primary reason for the December 2006 registered stock
offering. One year ago at March 31, 2006 these ratios were a much more modest 11.73%, 12.88% and 8.80%, respectively.

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

INFLATION

In financial institutions, unlike most other industries,
virtually all of the assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on a banks performance than the effects of general levels of inflation. While interest rates are significantly
impacted by inflation, neither the timing nor the magnitude of the changes are directly related to price level movements. The impact of inflation on interest rates, loan demand, and deposits is reflected in the Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

Certain information
contained in this discussion may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We caution you
to be aware of the speculative nature of forward-looking statements. These statements are not guarantees of performance or results. Statements that are not historical in nature, including statements that include the words
may, anticipate, estimate, could, should, would, will, plan, predict, project, potential, expect,
believe, intend, continue, assume and similar expressions, are intended to identify forward-looking statements. Although these statements reflect our good faith belief based on current expectations,
estimates and projections about (among other things) the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to a number of
known and unknown risks and uncertainties, including the risks and uncertainties discussed in this Form 10-Q, including the following:



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



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



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



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



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



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



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



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



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



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



18



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##### Table of Contents

| |  |  | 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.
| | - |  | ----------------------------------------------------------

Consequently, 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 refer to risks detailed under the Risk Factors section included in our Form 10-K for the period ending December 31, 2006 and
otherwise included in our periodic and current reports filed with the Securities and Exchange Commission for specific factors that could cause our actual results to be significantly different from those expressed or implied by our forward-looking
statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide assurance that
the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange
Commission. An evaluation of the effectiveness of the design and operations of our disclosure controls and procedures as of the end of the period covered by this report was carried out under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer. Based on such evaluation, such officers concluded that our disclosure controls and procedures were effective as of the end of such period. In addition, while we have reorganized and
centralized many functions over the last year, we have maintained the control points that have been established. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2007 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We believe that the merger of our subsidiary banks has had a positive impact on internal controls by decreasing the number of banks and
accounts.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds(not applicable)

Item 3. Defaults Upon Senior Securities(not applicable)

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

Item 5. Other Information(not applicable)



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##### Table of Contents

Item 6. Exhibits



|             |  |   |  |                                                                                                                                              
|------------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3.1  |  | - |  | Bylaws of the Company, as amended through March 15, 2007, incorporated by reference to the Current Report on Form 8-K filed on March 23, 2007
|             |  |  
|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 4, 2007



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##### Table of Contents

Exhibit Index

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

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

Exhibit 32.1 - Section 906 Certification of Chief Executive Officer

Exhibit 32.2  Section 906 Certification of Chief Financial Officer



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