Eastern Virginia Bankshares prepays advances from the Federal Home Loan Bank
Tappahannock-based Eastern Virginia Bankshares Inc., the parent company for the bank EVB, has prepaid $107.5 million of long-term Federal Home Loan Bank advances.
Bank officials said the move will eliminate an estimated $4.5 million in annualized interest cost, reducing its overall future cost of funds.
“In this low-interest rate environment, these high cost long-term borrowings have created a sizeable amount of negative pressure on our balance sheet,” Joe A. Shearin, the company’s president and CEO, said in a statement. “Prepayment of these advances has allowed us to utilize excess liquidity, modestly shrink the balance sheet, improve our net interest margin and reduce our reliance on non-core funding while maintaining a prudent interest rate risk profile.”
Prepayment also is expected to improve the company's annualized net interest margin by approximately 65 basis points and better position it to compete in the current interest rate environment.
The Federal Home Loan Bank (FHLB) borrowings were fixed-rate advances with a weighted average remaining maturity of 3.5 years and a current weighted average interest rate of 4.14 percent.
Repayment of the advances triggered a prepayment penalty of $11.5 million, or 67 cents per fully diluted share, which will be recognized in the third quarter of 2013.
The company expects to offset that cost in future periods by a higher net interest margin. The remaining $10 million of long-term FHLB advances will be paid off at maturity in September 2013.