SAN JUAN, Puerto Rico, July 31 /PRNewswire-FirstCall/ -- EuroBancshares,
Inc. (Nasdaq: EUBK) ("EuroBancshares" or the "Company") today reported its
results for the second quarter ended June 30, 2008.
Net Income
EuroBancshares reported a net loss of $1.8 million, or $(0.10) per diluted
share, for the second quarter ended June 30, 2008, compared with a net loss of
$1.0 million, or $(0.06) per diluted share, and a net income of $2.6 million,
or $0.12 per diluted share, for the quarters ended March 31, 2008 and June 30,
2007, respectively.
Return on Average Assets (ROAA) for the second quarter of 2008 was
(0.25)%, compared to (0.15)% and 0.43% for the quarters ended March 31, 2008
and June 30, 2007, respectively. Return on Average Common Equity (ROAE) for
the second quarter of 2008 was (4.28)%, compared to (2.33)% and 6.41% for the
quarters ended March 31, 2008 and June 30, 2007, respectively.
Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief
Executive Officer said, "This year has proven to be, so far, one of the most
difficult years in recent memory for the economy, our Bank, and our customers.
Although we recognize that further challenges may still lie ahead, we continue
to stay our course in this economic slowdown. We are aggressively identifying
and addressing credit quality matters. While disappointed with our results
for the quarter, operations have begun to reflect our emphasis on cost-cutting
and also show a reduction in our cost of funds as we continued to call our
callable broker deposits. We remain focused on ways to cut the cost of funds
and making further reductions to our overhead, including personnel reductions
for an estimated annualized savings of approximately $1.5 million, reflecting
our changing environment, but without sacrificing our banking franchise. We
navigate these most difficult and uncharted waters, with our long-term
objectives and our Institutional Values ever-present so that we not only
remain well capitalized but also emerge as a more competitive institution."
Net Interest Income
The Company reported total interest income of $40.3 million for the second
quarter of 2008, compared to $42.6 million for the previous quarter and $42.9
million for the quarter ended June 30, 2007. Total interest income for the
six months ended June 30, 2008 was $83.0 million, compared to total interest
income of $85.3 million for prior year same period. The decrease during the
quarter ended June 30, 2008 when compared to the previous quarter was mainly
driven by the net effect of decreased yields resulting from an interest rate
cut of 75 basis points in March 2008 and another 25 basis points in May 2008,
partially offset by an increase in average interest-earning assets. The
average interest yield on a fully taxable equivalent basis earned on interest-
earning assets decreased to 6.61% and 6.84% during the quarter and six months
ended June 30, 2008, respectively, from 7.09% for the previous quarter, and
7.84% and 7.77% for the quarter and six months ended June 30, 2007,
respectively. Average interest-earning assets increased to $2.715 billion and
$2.674 billion for the quarter and six months ended June 30, 2008,
respectively, compared to $2.633 billion for the previous quarter, and $2.337
billion and $2.347 billion for the quarter and six months ended June 30, 2007,
respectively.
Total interest expense was $25.6 million for the quarter ended June 30,
2008, compared to $27.4 million and $25.5 million for the previous quarter and
the quarter ended June 30, 2007, respectively. Total interest expense for the
six months ended June 30, 2008 was $53.0 million, compared to total interest
expense of $50.8 million for prior year same period. The decrease during the
quarter ended June 30, 2008 when compared to the previous quarter resulted
also from the net effect of a decrease in the cost of funds, as explained
further below, partially offset by an increase in average interest-bearing
liabilities. The average interest rate on a fully taxable equivalent basis
paid for interest-bearing liabilities decreased to 4.59% and 4.85% during the
quarter and six months ended June 30, 2008, respectively, from 5.13% for the
previous quarter, and 5.46% and 5.40% for the quarter and six months ended
June 30, 2007, respectively. Average interest-bearing liabilities increased
to $2.510 billion and $2.462 billion for the quarter and six months ended June
30, 2008, respectively, compared to $2.414 billion for the previous quarter,
and $2.107 billion and $2.113 billion for the quarter and six months ended
June 30, 2007, respectively.
Net interest margin on a fully taxable equivalent basis was 2.37% for each
of the quarter and six-month period ended June 30, 2008, respectively,
compared to 2.39% for the previous quarter, and 2.92% and 2.91% for the
quarter and six months ended June 30, 2007, respectively. For the second
quarter and six-month period ended June 30, 2008, net interest spread on a
fully taxable equivalent basis was 2.02% and 1.99%, respectively, compared to
1.96% for the previous quarter, and 2.38% and 2.37% for the same periods of
prior year.
The decreases in net interest margin and net interest spread during the
quarter and six months period ended June 30, 2008 when compared to the same
periods in 2007 were caused primarily by:
(i) the reduction in interest rates by the Federal Reserve, which
resulted in the reduction of the Prime Rate by 100 basis points during the
last four months of 2007, 200 basis points during the first quarter of 2008,
of which 75 basis points occurred in March 2008, and another 25 basis points
in May 2008; and
(ii) the write-off of $583,000 in unamortized commissions related to
$227.0 million in broker deposits that were called back during the six months
ended June 30, 2008. During the quarter ended June 30, 2008, we wrote-off
$120,000 in unamortized commissions related to $64.6 million in broker
deposits we called back during the quarter.
In the second quarter of 2008, we continued experiencing lower funding
costs in short term borrowings and commenced to see the benefits from calling
back our callable broker deposits, stabilizing our net interest margin and
spread on a fully taxable equivalent basis. During the quarter and six months
ended June 30, 2008, the average interest rate on a fully taxable equivalent
basis paid for broker deposits decreased to 4.91% and 5.24%, respectively,
from 5.58% for the previous quarter, and 5.62% and 5.57% for the quarter and
six months ended June 30, 2007, respectively. Average broker deposits
increased to $1.381 billion and $1.344 billion for the quarter and six months
ended June 30, 2008, respectively, compared to $1.307 billion for the previous
quarter, and $1.195 billion and $1.187 billion for the quarter and six months
ended June 30, 2007, respectively.
Without the effect of the above mentioned write-off of unamortized
commissions on broker deposits, net interest margin and spread on a fully
taxable equivalent basis would have been 2.39% and 2.04% for the second
quarter of 2008, 2.42% and 2.04% for the six months ended June 30, 2008, and
2.46% and 2.04% for the first quarter of 2008.
During the quarter and six months ended June 30, 2008, the average
interest rate on a fully taxable equivalent basis paid for other borrowings
decreased to 4.77% and 5.08%, respectively, from 5.40% for the previous
quarter, and 7.10% and 7.05% for the quarter and six months ended June 30,
2007, respectively. Average other borrowings increased to $569.7 million and
$564.8 million for the quarter and six months ended June 30, 2008,
respectively, compared to $559.9 million for the previous quarter, and $384.0
million and $388.6 million for the quarter and six months ended June 30, 2007,
respectively.
Provision for Loan and Lease Losses
The provision for loan and lease losses for the quarter and six months
ended June 30, 2008 was $9.9 million and $17.8 million, respectively, or
159.56% and 112.78% of net charge-offs, compared to $3.6 million and $8.9
million, or 104.60% and 121.58% of net charge-offs, for the same periods in
2007, and $7.8 million, or 82.09% of net charge-offs, for the quarter ended
March 31, 2008. These increases in the provision for loan and lease losses
were mainly driven by the weak condition of Puerto Rico's overall economy
which resulted in increased delinquencies and impairments in our commercial
and construction loans portfolio, as further discussed below. During 2008,
the periodic evaluation of the allowance for loan and lease losses primarily
considered the level of net charge-offs, nonperforming loans, delinquencies,
related loss experience and overall economic conditions. Some of these
factors are discussed further in the Loans and Asset Quality and Delinquency
sections of this document.
Non-Interest Income
The Company's non-interest income in the second quarter and six months
ended June 30, 2008 was $3.2 million and $6.9 million, respectively, compared
to $2.1 million and $4.1 million for prior year same periods. These changes
were mainly due to the net effect of:
(i) a $1.2 million increase in gain on sale of loans, resulting from a
$1.2 million gain on sale of $37.7 million of lease financing contracts in
March 2008;
(ii) a $685,000 and $854,000 increase in service charges for the quarter
and six months ended June 30, 2008, respectively, mainly due to the recording
in June 2008 of $596,000 in income related to the partial redemption of Visa,
Inc. shares of stock as part of a series of transactions arising out of the
restructuring of Visa, Inc. to become a public company; and also to an
increase in ATM and POS fees, mainly from a change in the fee structure during
the first quarter of 2008; and
(iii) a $86,000 and $119,000 net loss on sale of repossessed assets for
the quarter and six months ended June 30, 2008, respectively, compared to a
net loss of $450,000 and $895,000 for prior year same periods. More details
on repossessed assets are discussed in the Loan and Asset Quality section
below.
The Company's non-interest income for the quarter ended June 30, 2008
decreased to $3.2 million, from $3.6 million in the previous quarter. This
decrease was mainly due to the net effect of:
(i) a $1.1 million reduction in gain on sale of loans, resulting from a
$1.2 million gain on sale of $37.7 million of lease financing contracts
recorded in March 2008; and
(ii) a $794,000 increase in service charges during the second quarter of
2008 mainly due to the partial redemption of Visa, Inc. Shares of stock and an
increase in ATM and POS fees, as previously mentioned.
Non-Interest Expense
Non-interest expense for the quarter and six months ended June 30, 2008
was $12.6 million and $25.9 million, respectively, compared to $12.3 million
and $24.4 million for the same periods in 2007. Such increases were mainly
due to the net effect of:
(i) a $155,000 increase in salaries, net of a $154,000 reduction in
salaries related to Telefonica Empresas ("TE"), as further explained below,
for the quarter ended June 30, 2008 when compared to the second quarter of
2007, mainly from a decrease in deferred loan origination costs because of a
reduction in loan originations during the quarter;
(ii) an increase of $127,000 and $472,000 in occupancy expenses for the
quarter and six months period ended June 30, 2008, respectively, mainly
related to an increase in equipment maintenance, and data and security
services, primarily attributable to the expansion of our branch network, and
other occupancy expenses paid for premises previously occupied while TE
phased-out to their new facilities;
(iii) a $235,000 and $610,000 increase in professional services for the
quarter and six months ended June 30, 2008, respectively, which include an
increase of $315,000 and $585,000 related to the information technology
outsourcing agreement entered with TE in August 2007. In connection with the
TE outsourcing agreement, the Bank had a reduction of $308,000 in related
salaries and employee benefits, and a reduction of $42,000 in expenses related
to compliance with Section 404 of the Sarbanes Oxley Act of 2002, both
experienced during the six months ended June 30, 2008, and estimated year-to-
date savings of $208,000 in other operational costs, all transferred to TE.
(iv) a $159,000 and $353,000 increase in insurance expense for the
quarter and six months period ended June 30, 2008, respectively, mainly
related to the FDIC's new insurance premium assessment, which, during fiscal
year 2007, was net of a one time assessment credit of $669,000;
(v) a decrease of $160,000 and $170,000 in promotional expenses for the
quarter and six months ended June 30, 2008, respectively, mainly because of a
cost reduction strategy; and
(vi) a $148,000 decrease and a $240,000 increase in other expenses for
the quarter and six months ended June 30, 2008, respectively, which were
mainly due to a decrease in the valuation allowance for subsequent declines in
value of repossessed vehicles during the second quarter of 2008, primarily
attributable to a decrease in the inventory of repossessed vehicles over six
months.
Non-interest expense decreased to $12.6 million for the quarter ended June
30, 2008, compared to $13.3 million for the previous quarter. Such decrease
was mainly due to the combined effect of: (i) a $261,000 decrease in salaries
resulting mainly from a reduction in personnel; (ii) a $185,000 decrease in
occupancy expenses mainly related to a reduction in communication expenses,
mainly because of economies of scale as part of the TE agreement; and (iii) a
$153,000 decrease in promotional expenses, a result of the cost reduction
measures previously mentioned.
The efficiency ratio on a fully taxable equivalent basis for the quarter
ended June 30, 2008 was 65.41%, compared to 63.92% for the quarter ended June
30, 2007, and 68.62% for the quarter ended March 31, 2008.
Income Tax Expense
Puerto Rico income tax law does not provide for the filing of a
consolidated tax return; therefore, the income tax expense reflected in our
consolidated income statement is the sum of our income tax expense and the
income tax expenses of our individual subsidiaries. Our revenues are
generally not subject to U.S. federal income tax.
For the quarter and six months ended June 30, 2008, we recorded an income
tax benefit of $2.9 million and $4.1 million, respectively, compared to an
income tax expense of $1.1 million and $1.3 million for the same periods in
2007. Our income tax benefit for the quarter and six months ended June 30,
2008 resulted mainly from a deferred tax benefit of $2.7 million and $4.0
million, respectively, as explained further below.
Our current income tax expense for the quarter and six months ended June
30, 2008 decreased to $1,000 and $10,000, respectively, from $1.5 million and
$2.9 million for the same periods in 2007. Decreases in our current income
tax expense during the six-month period ended June 30, 2008 were mainly due to
a taxable loss in our banking subsidiary primarily related to: (i) a loss
before income taxes of $4.7 million and $6.9 million for the quarter and six
months ended June 30, 2008, respectively, compared to income before taxes of
$3.7 million and $5.3 million for the same periods in 2007; and (ii) the year-
to-date recognition of charge-off on loans, for which specific allowances were
previously determined.
Our deferred tax benefit for the quarter and six months ended June 30,
2008 increased to $2.7 million and $4.0 million, respectively, from $451,000
and $1.5 million for the same periods in 2007. Increases during the six
months ended June 30, 2008 were mainly due to the combined effect of: (i) an
increase of $3.2 million in the deferred tax asset related to the net
operating loss carryforward from the taxable loss in our banking subsidiary;
and (ii) a year-to-date increase of $787,000 in the deferred tax assets
primarily from an increase in our allowance for loan and lease losses upon the
recognition of charge-offs on loans.
In addition, the income tax benefit for the quarter ended June 30, 2008,
included an income tax benefit of $179,000 related to tax credits received
from Puerto Rico's Treasury Department in excess of the amount paid on
transactions under the law No. 197. This law, signed on December 14, 2007,
offers tax credits to the financial institutions on the financing of qualified
residential mortgages. There were no tax credits under law No. 197 during the
first quarter of 2008.
As of June 30, 2008, we had net deferred tax assets of $14.9 million,
compared to $10.9 million as of December 31, 2007. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities; projected future taxable income; our
compliance with the Financial Accounting Standards Board Interpretation No.
48, Accounting for Uncertainty in Income Taxes; and tax planning strategies in
making this assessment. We believe it is more likely than not that the
benefits of these deductible differences at June 30, 2008 will be realized.
Balance Sheet Summary and Asset Quality Data
Assets
Total assets increased to $2.830 billion as of June 30, 2008, from $2.751
billion as of December 31, 2007. This increase was mainly due to the net
effect of:
(i) a $31.9 million decrease in interest bearing deposits;
(ii) an increase of $36.7 million in securities purchased under
agreements to resell;
(iii) a $77.0 million increase in the investment securities portfolio;
and
(iv) a decrease of $20.2 million in net loans, net of the $37.7 million
sale of lease financing contracts in March 2008, as previously mentioned.
The decrease in interest bearing deposits was mainly associated to the
increase in our investment portfolio. Details on investment securities and
loan portfolio variances are discussed further below.
Investments
During the first six months of 2008, the investment portfolio increased by
approximately $77.0 million to $828.3 million from $751.3 million as of
December 31, 2007. This increase was primarily due to the net effect of:
(i) the purchase of $293.9 million in mortgage-backed securities, FHLB
obligations, Puerto Rico government agencies obligations, and a corporate
note;
(ii) $126.3 million in US government agencies and PR bonds that matured
or were called-back during the quarter;
(iii) prepayments of approximately $75.5 million on mortgage-backed
securities and FHLB obligations; and
(iv) a decrease of $14.1 million in the market valuation on securities
available for sale.
Since 2007, we have been analyzing different market opportunities in an
attempt to improve our investment portfolio's average yield and to maintain an
adequate average life. Similar to the second half of 2007, during the first
six months of 2008, the market continued presenting some good investment
opportunities as a result of the liquidity crises faced by financial
institutions in the mainland, which made them reduce their total assets by
selling part of their investment securities portfolios at wider spreads.
During the six months ended June 30, 2008, we were able to purchase
approximately $293.9 million in mortgage-backed securities, FHLB obligations,
Puerto Rico government agencies obligations, and a corporate note, all with an
estimated average life of approximately 4.0 years and an estimated average
yield of 5.36%. Purchased mortgage-backed securities totaled $237.2 million
and included approximately $111.4 million in mortgage backed securities issued
by US government sponsored enterprises, $20.9 million in collateralized
mortgage obligations guaranteed by US government sponsored enterprises and
$104.9 million in private label collateral mortgage obligations with FICO
scores and loan-to-values similar to FNMA and FHLMC underwriting standards and
characteristics. The $104.9 million in private label collateral mortgage
obligations includes $24.9 million secured by Alt A first lien residential
mortgage loans, predominantly all of which carry fixed interest rates. During
the acquisition process we evaluated the potential risks and returns over the
expected life of the CMOs and various interest rate, credit loss, and
prepayment scenarios. These investments were priced to yield 9.02%, their
average expected life was approximately 4.6 years. These securities, through
subordination provided by junior CMO tranches that bear the initial losses on
the underlying loans, had an average credit enhancement at purchase date of
9.36%.
As of June 30, 2008, after above-mentioned transactions, the estimated
average maturity of the investment portfolio was approximately 4.7 years and
the average yield was approximately 5.17%, compared to an estimated average
maturity of 4.8 years and an average yield of 5.06% for the year ended
December 31, 2007.
Loans
Total loans, net of unearned interest, decreased by $18.2 million, or
1.96% on an annualized basis, to $1.840 billion as of June 30, 2008, from
$1.859 billion as of December 31, 2007. This decrease was mainly due to the
net effect of:
(i) a $76.4 million, or 39.64% annualized decrease in lease financing
contracts from $385.4 million as of December 31, 2007 to $309.0 million as of
June 30, 2008;
(ii) a $25.9 million, or 4.73% annualized increase in commercial loans,
from $1.095 billion as of December 31, 2007 to $1.121 billion as of June 30,
2008;
(iii) a $18.7 million, or 18.40% annualized increase in construction
loans, from $203.3 million as of December 31, 2007 to $222.1 million as of
June 30, 2008; and
(iv) a $21.1 million, or 39.03% annualized increase in residential
mortgages, from $108.3 million as of December 31, 2007 to $129.4 million as of
June 30, 2008.
The $76.4 million decrease in lease financing contracts includes the sale
of $37.7 million in March 2008, as previously mentioned. From time to time,
we sell lease financing contracts on a limited recourse basis to other
financial institutions and, typically, we retain the right to service the
leases we sold.
The $25.9 million increase in commercial loans resulted from the net
effect of a $36.0 million increase in commercial loans secured by real estate
and an $10.1 million decrease in other commercial loans. As of June 30, 2008,
commercial loans secured by real estate equaled $828.3 million, or 73.9% of
total commercial loans. Out of the $828.3 million in commercial loans secured
by real estate, $480.5 million have loan-to-values equal or less than 80%.
The $18.7 million increase in construction loans secured by real estate
resulted from disbursements on loan commitments we made during or before last
fiscal year, which were primarily related to loans for the construction of
residential multi-family projects that, although private, are moderately
priced or of the affordable type supported by government assisted programs,
and other loans for land development and the construction of commercial real
estate property. We did not grant any new construction loans during the six
months ended June 30, 2008.
Asset Quality and Delinquency
Non-performing assets consist of loans 90 days or more past due and still
accruing interest, loans and leases on nonaccrual status, other real estate
owned ("OREO"), and other repossessed assets. Non-performing assets amounted
to $141.1 million as of June 30, 2008, compared to $111.6 million as of March
31, 2008 and December 31, 2007, respectively.
Non-performing loans, which are comprised of loans 90 days or more past
due and still accruing interest, and loans and leases on nonaccrual status,
amounted to $126.9 million as of June 30, 2008, compared to $98.3 million as
of March 31, 2008 and $98.1 million as of December 31, 2007, respectively.
Changes during the second quarter of 2008 when compared to the previous
quarter included a $19.1 million increase in nonaccrual loans and a $9.6
million increase in loans over 90 days past due still accruing interest.
The $19.1 million increase in nonaccrual loans was mainly attributable to
the net effect of:
(i) a $13.0 million increase in construction loans, placed in
nonaccrual status mainly because of a slowdown in the sale of constructed
units;
(ii) an increase of $6.4 million in commercial and industrial loans;
(iii) a $609,000 decrease in lease financing contracts; and
(iv) an increase of $459,000 in marine loans.
The $9.6 million increase in loans over 90 days still accruing interest
was mainly due to the net effect of:
(i) an increase of $5.8 million in loans secured by real estate, all of
which had loan-to-values equal or less than 80%;
(ii) a $5.0 million increase in other commercial and industrial loans;
(iii) a decrease of $2.2 million in overdrafts; and
(iv) a $751,000 increase in lease financing contracts.
Repossessed assets amounted to $14.2 million as of June 30, 2008, compared
to $13.3 million and $13.5 million as of March 31, 2008 and December 31, 2007,
respectively. The increase during the quarter ended June 30, 2008 when
compared to the previous quarter was mainly attributable to the combined
effect of:
(i) an increase of $438,000 in other repossessed assets, of which
$347,000 was in the inventory of repossessed vehicles and $91,000 in the
inventory of repossessed boats. During the quarter ended June 30, 2008, we
sold 338 vehicles and repossessed 344 vehicles, respectively, moving our
inventory of repossessed vehicles to 357 units as of June 30, 2008, from 334
units as of March 31, 2008. During the same period, we sold 4 boats and
repossessed 2 boats, respectively, moving our inventory of repossessed boats
to 16 units as of June 30, 2008, from 18 units as of March 31, 2008.
(ii) a $386,000 decrease in OREO resulting from the net effect of the
sale of four properties and the foreclosure of five properties.
Annualized net charge-offs as a percentage of average loans was 1.36% for
the quarter ended June 30, 2008, compared to 2.05% for the previous quarter,
and 1.05% for the quarter ended December 31, 2007.
Net charge-offs for the quarter ended June 30, 2008 were $6.3 million,
compared to $9.5 million and $4.9 million for the quarters ended March 31,
2008 and December 31, 2007, respectively. Net charge-offs for the quarter
ended June 30, 2008, compared to the quarters ended March 31, 2008 and
December 31, 2007 were as follows:
(i) $2.7 million in net charge-offs on loans partially secured by real
estate for the quarter ended June 30, 2008, primarily commercial loans for
which specific allowances amounting to $1.4 million had been previously
established, compared to $3.5 million and $159,000 for the quarters ended
March 31, 2008 and December 31, 2007, respectively;
(ii) $194,000 in net charge-offs on other commercial and industrial
loans for the second quarter of 2008, for which specific allowances had been
previously established, compared to $2.8 million and $1.4 million for the
quarters ended March 31, 2008 and December 31, 2007, respectively;
(iii) $501,000 in net charge-offs on consumer loans for the second
quarter of 2008, compared to $585,000 and $385,000 for the quarters ended
March 31, 2008 and December 31, 2007, respectively;
(iv) $2.8 million in net charge-offs on lease financing contracts for
the second quarter of 2008, compared to $2.5 million for the previous quarter
and $2.8 million for the quarter ended December 31, 2007; and
(v) $62,000 in net charge-offs on other loans for the second quarter of
2008, compared to $162,000 and $48,000 in net charge-offs for the quarters
ended March 31, 2008 and December 31, 2007, respectively.
Loans between 30 and 89 days past due and still accruing interest amounted
to $128.2 million, $128.5 million, and $92.1 million for the quarters ended
June 30, 2008, March 31, 2008 and December 31, 2007, respectively.
Changes in loans between 30 and 89 days past due and still accruing
interest during the second quarter of 2008 when compared to the previous
quarter include:
(i) an increase of $10.7 million in loans secured by real estate, of
which $9.7 million was in commercial loans with loan-to-values equal or less
than 80%;
(ii) a $5.8 million decrease in other commercial and industrial loans;
and
(iii) a decrease of $5.5 million in lease financing contracts.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses was $30.2 million as of June 30,
2008, compared to $26.4 million as of March 31, 2008, and $28.1 million as of
December 31, 2007. The allowance for loan and lease losses was affected by
net charge-offs, nonperforming loans, loan portfolio growth, and also by the
provision for loan and lease losses for each related period, which continued
to be impacted by the overall economic condition on the Island as it continues
in a weakening trend. Net charge-offs for the quarter ended June 30, 2008
decreased to $6.3 million, from $9.5 million during the quarter ended March
31, 2008. Net charge-offs during the second quarter of 2008 included $2.6
million in net charge-offs to commercial business relationships, for which, as
mentioned before, specific allowances amounting to $1.6 million had been
previously established. We believe that the allowance for loan and lease
losses is adequate and it represents 1.64% of total loans as of June 30, 2008.
Deposits and Borrowings
Total deposits as of June 30, 2008 amounted to $2.050 billion, compared to
$1.993 billion as of December 31, 2007. This $56.7 million increase was
mainly concentrated in broker deposits. The fierce competition for core
deposits on the Island continued during the second quarter of 2008. Because
of this fierce competition for local deposits, replacing called-back broker
deposits resulted in an attractive funding alternative, lowering funding costs
when compared to the unusually higher rates offered locally for time deposits.
We decided to continue replacing called-back broker deposits in an attempt to
control increases in our funding cost.
Stockholders' Equity
The Company's stockholders' equity decreased to $164.7 million as of June
30, 2008, from $179.9 million as of December 31, 2007, representing an
annualized decrease of 16.87%. Besides earnings and losses from operations,
the Company's stockholders' equity was impacted by an accumulated other
comprehensive loss of $13.0 million as of June 30, 2008, compared to an
accumulated other comprehensive gain of $1.1 million as of December 31, 2007.
In addition, the following items also impacted the Company's stockholders'
equity:
(i) the exercise of 250,862, 4,000, 50,000 and 357,000 stock options in
February 2007, July 2007, January 2008 and March 2008, respectively, for a
total of $3.2 million; and
(ii) the repurchase of 285,368 shares for $2.5 million during the second
and third quarters of 2007 in connection with a stock repurchase program
approved by the Board of Directors on May 31, 2007.
About EuroBancshares, Inc.
EuroBancshares, Inc. is a diversified financial holding company
headquartered in San Juan, Puerto Rico, offering a broad array of financial
services through its wholly-owned banking subsidiary, Eurobank; EBS Overseas,
Inc., an international banking entity subsidiary of Eurobank; and its wholly-
owned insurance agency, EuroSeguros.
Forward-Looking Statements
Statements concerning future performance, events, expectations for growth
and market forecasts, and any other guidance on future periods, constitute
forward-looking statements that are subject to a number of risks and
uncertainties that might cause actual results to differ materially from stated
expectations. Specific factors include, but are not limited to, loan volumes,
the ability to expand net interest margin, loan portfolio performance, the
ability to continue to attract low-cost deposits, success of expansion
efforts, competition in the marketplace and general economic conditions. The
financial information contained in this release should be read in conjunction
with the consolidated financial statements and notes included in
EuroBancshares' most recent reports on Form 10-K and Form 10-Q, as filed with
the Securities and Exchange Commission as they may be amended from time to
time. Results of operations for the most recent quarter are not necessarily
indicative of operating results for any future periods. Any projections in
this release are based on limited information currently available to
management, which is subject to change. Although any such projections and the
factors influencing them will likely change, the bank will not necessarily
update the information, since management will only provide guidance at certain
points during the year. Such information speaks only as of the date of this
release. Additional information on these and other factors that could affect
our financial results are included in filings by EuroBancshares with the
Securities and Exchange Commission.
EUROBANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
For the three-month periods ended June 30, 2008 and 2007 and
March 31, 2008, and six-month periods ended June 30, 2008 and 2007
Three Months Ended
June 30, June 30, March 31,
2008 2007 2008
Interest income:
Loans, including fees $29,106,477 $36,040,114 $32,757,773
Investment securities:
Taxable 2,588 2,932 2,643
Exempt 10,822,424 6,185,255 9,491,802
Interest bearing deposits,
securities purchased
under agreements to
resell, and other 411,651 721,301 386,987
Total interest
income 40,343,140 42,949,603 42,639,205
Interest expense:
Deposits 20,609,064 20,380,548 21,773,166
Securities sold under
agreements to repurchase,
notes payable, and other 5,030,573 5,126,660 5,632,698
Total interest
expense 25,639,637 25,507,208 27,405,864
Net interest income 14,703,503 17,442,395 15,233,341
Provision for loan and lease
losses 9,986,800 3,594,000 7,833,000
Net interest income
after provision
for loan
and lease losses 4,716,703 13,848,395 7,400,341
Noninterest income:
Service charges - fees and
other 3,218,454 2,533,170 2,423,374
Net loss on sale of
repossessed assets and on
disposition of other assets (85,721) (450,321) (33,759)
Gain on sale of loans 116,942 49,826 1,235,195
Total noninterest
income 3,249,675 2,132,675 3,624,810
Noninterest expense:
Salaries and employee
benefits 5,318,139 5,163,004 5,578,914
Occupancy, furniture and
equipment 2,757,843 2,631,039 2,942,768
Professional services 1,243,021 1,007,732 1,241,218
Insurance 636,177 477,602 646,591
Promotional 213,655 373,950 367,018
Other 2,463,228 2,611,727 2,489,195
Total noninterest
expense 12,632,063 12,265,054 13,265,704
(Loss) Income
before income
taxes (4,665,685) 3,716,016 (2,240,553)
(Benefit) provision for
income taxes (2,902,780) 1,088,265 (1,237,228)
Net (loss) income $(1,762,905) $2,627,751 $(1,003,325)
Basic (loss) earnings per
share $(0.10) $0.13 $(0.06)
Diluted (loss) earnings per
share $(0.10) $0.12 $(0.06)
Six Months Ended June 30,
2008 2007
Interest income:
Loans, including fees $61,864,250 $70,979,604
Investment securities:
Taxable 5,230 6,681
Exempt 20,314,226 12,829,389
Interest bearing deposits,
securities purchased
under agreements to resell, and
other 798,638 1,447,671
Total interest income 82,982,345 85,263,345
Interest expense:
Deposits 42,382,230 40,437,167
Securities sold under agreements to
repurchase, notes payable, and other 10,663,271 10,323,785
Total interest expense 53,045,501 50,760,952
Net interest income 29,936,844 34,502,393
Provision for loan and lease losses 17,819,800 8,873,000
Net interest income after
provision for loan
and lease losses 12,117,044 25,629,393
Noninterest income:
Service charges - fees and other 5,641,828 4,787,890
Net loss on sale of repossessed
assets and on disposition of
other assets (119,479) (895,089)
Gain on sale of loans 1,352,137 162,584
Total noninterest income 6,874,486 4,055,385
Noninterest expense:
Salaries and employee benefits 10,897,052 10,898,174
Occupancy, furniture and equipment 5,700,611 5,228,473
Professional services 2,484,239 1,874,592
Insurance 1,282,768 929,870
Promotional 580,673 750,972
Other 4,952,425 4,712,797
Total noninterest expense 25,897,768 24,394,878
(Loss) Income before income
taxes (6,906,238) 5,289,900
(Benefit) provision for income taxes (4,140,008) 1,348,113
Net (loss) income $(2,766,230) $3,941,787
Basic (loss) earnings per share $(0.16) $0.19
Diluted (loss) earnings per share $(0.16) $0.18
EUROBANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2008 and December 31, 2007
Assets 2008 2007
Cash and due from banks $26,656,428 $15,866,221
Interest bearing deposits 400,000 32,306,909
Securities purchased under agreements
to resell 56,583,043 19,879,008
Investment securities available for
sale 786,721,919 707,103,432
Investment securities held to maturity 25,962,454 30,845,218
Other investments 15,586,100 13,354,300
Loans held for sale 2,984,419 1,359,494
Loans, net of allowance for loan and
lease losses of $30,155,840 in 2008
and $28,137,104 in 2007 1,807,269,262 1,829,082,008
Accrued interest receivable 17,229,609 18,136,489
Customers' liability on acceptances 167,595 430,767
Premises and equipment, net 33,705,211 33,083,169
Other assets 56,450,253 49,951,898
Total assets $2,829,716,293 $2,751,398,913
Liabilities and Stockholders' Equity
Deposits:
Noninterest bearing $118,313,428 $120,082,912
Interest bearing 1,931,475,977 1,872,963,402
Total deposits 2,049,789,405 1,993,046,314
Securities sold under agreements to
repurchase 531,073,000 496,419,250
Acceptances outstanding 167,595 430,767
Advances from Federal Home Loan Bank 25,426,289 30,453,926
Note payable to Statutory Trust 20,619,000 20,619,000
Accrued interest payable 15,852,559 17,371,698
Accrued expenses and other liabilities 22,049,221 13,139,809
2,664,977,069 2,571,480,764
Stockholders' equity:
Preferred stock:
Preferred stock Series A, $0.01
par value. Authorized 20,000,000
shares; issued and outstanding
430,537 in 2008 and 2007 4,305 4,305
Capital paid in excess of par value 10,759,120 10,759,120
Common stock:
Common stock, $0.01 par value.
Authorized 150,000,000
shares; issued: 20,439,398
shares in 2008 and 20,032,398
shares in 2007;
outstanding: 19,500,315 shares
in 2008 and 19,093,315 shares
in 2007 204,394 200,324
Capital paid in excess of par value 110,035,651 107,936,531
Retained earnings:
Reserve fund 8,029,106 8,029,106
Undivided profits 58,651,436 61,789,048
Treasury stock, 939,083 shares at
cost in 2008 and 2007 (9,910,458) (9,910,458)
Accumulated other comprehensive
(loss) income (13,034,330) 1,110,173
Total stockholders' equity 164,739,224 179,918,149
Total liabilities and
stockholders' equity $2,829,716,293 $2,751,398,913
EUROBANCSHARES, INC. AND SUBSIDIARIES
OPERATING RATIOS AND OTHER SELECTED DATA
(Dollars in thousands, except share data)
Unaudited
Quarter Ended
June 30, March 31,
2008 2007 2008
Average shares outstanding -
basic 19,500,315 19,371,991 19,172,524
Average shares outstanding -
assuming dilution 19,530,491 19,585,806 19,230,376
Number of shares outstanding at
end of period 19,500,315 19,269,545 19,500,315
Book value per common share $7.90 $8.44 $8.79
Average Balances
Total assets 2,833,262 2,435,355 2,743,069
Loans and leases, net of unearned 1,846,116 1,779,829 1,865,993
Interest-earning assets (1) 2,714,924 2,336,812 2,632,947
Interest-bearing deposits 1,940,606 1,722,865 1,853,624
Other borrowings 569,708 383,981 559,888
Preferred stock 10,763 10,763 10,763
Shareholders' equity 175,390 174,681 183,211
Loan Mix
Loans secured by real estate
Commercial and industrial 828,277 764,038 810,618
Construction 222,056 165,075 214,805
Residential mortgage 126,458 93,150 115,772
Consumer 2,228 744 2,102
1,179,019 1,023,007 1,143,297
Commercial and industrial 292,435 299,152 297,004
Consumer 52,657 59,965 54,806
Lease financing contracts 309,011 417,400 329,175
Overdrafts 3,902 6,270 6,637
Total 1,837,024 1,805,794 1,830,919
Deposit Mix
Noninterest-bearing deposits 118,313 130,791 123,280
Now and money market 68,881 64,793 61,556
Savings 110,388 142,056 129,997
Broker deposits 1,393,935 1,223,847 1,279,883
Regular CD's & IRAS 97,103 89,606 95,556
Jumbo CD's 261,169 225,647 276,231
Total 2,049,789 1,876,740 1,966,503
Financial Data
Total assets 2,829,716 2,458,941 2,793,783
Total investments 828,270 511,782 837,379
Loans and leases, net of unearned 1,840,410 1,809,066 1,835,030
Allowance for loan and lease losses 30,156 20,512 26,428
Total deposits 2,049,789 1,876,740 1,966,503
Other borrowings 577,118 377,339 611,782
Preferred stock 10,763 10,763 10,763
Shareholders' equity 164,739 173,335 182,200
Dividends on preferred stock 186 186 186
Total interest income 40,343 42,949 42,639
Total interest expense 25,639 25,507 27,406
Provision for loan and lease losses 9,987 3,594 7,833
Services charges - fees and other 3,218 2,533 2,424
Gain on sale of loans 117 50 1,235
Net loss on sale of other assets (86) (450) (34)
Non-interest expense 12,632 12,265 13,266
(Tax benefit) income tax (2,903) 1,088 (1,238)
Net (loss) income (1,763) 2,628 (1,003)
Nonperforming assets 141,099 62,374 111,602
Nonperforming loans 126,940 51,753 98,267
Net charge-offs 6,259 3,436 9,542
Performance Ratios
Return on average assets (2) (0.25)% 0.43 % (0.15)
Return on average common equity (3) (4.28) 6.41 (2.33)
Net interest spread (4) 2.02 2.38 1.96
Net interest margin (5) 2.37 2.92 2.39
Efficiency ratio (6) 65.41 63.91 68.62
(Loss) earnings per common share -
basic $(0.10) 0.13 $(0.06)
(Loss) earnings per common share -
diluted (0.10) 0.12 (0.06)
Asset Quality Ratios
Nonperforming assets to total assets 4.99 % 2.54 % 3.99
Nonperforming loans to total loans 6.90 2.86 5.36
Allowance for loan and lease
losses to total loans 1.64 1.13 1.44
Net loan and lease charge-offs to
average loans 1.36 0.77 2.05
Provision for loan and lease
losses to net loan and lease
charge-offs 159.56 104.60 82.09
Six Months Ended June 30,
2008 2007
Average shares outstanding - basic 19,336,419 19,299,873
Average shares outstanding - assuming
dilution 19,380,971 19,543,551
Number of shares outstanding at end
of period 19,500,315 19,269,545
Book value per common share $7.90 $8.44
Average Balances
Total assets 2,787,916 2,443,232
Loans and leases, net of unearned 1,856,054 1,769,545
Interest-earning assets (1) 2,673,936 2,347,335
Interest-bearing deposits 1,897,115 1,724,582
Other borrowings 564,798 388,602
Preferred stock 10,763 10,763
Shareholders' equity 179,300 173,189
Loan Mix
Loans secured by real estate
Commercial and industrial 828,277 764,038
Construction 222,056 165,075
Residential mortgage 126,458 93,150
Consumer 2,228 744
1,179,019 1,023,007
Commercial and industrial 292,435 299,152
Consumer 52,657 59,965
Lease financing contracts 309,011 417,400
Overdrafts 3,902 6,270
Total 1,837,024 1,805,794
Deposit Mix
Noninterest-bearing deposits 118,313 130,791
Now and money market 68,881 64,793
Savings 110,388 142,056
Broker deposits 1,393,935 1,223,847
Regular CD's & IRAS 97,103 89,606
Jumbo CD's 261,169 225,647
Total 2,049,789 1,876,740
Financial Data
Total assets 2,829,716 2,458,941
Total investments 828,270 511,782
Loans and leases, net of unearned 1,840,410 1,809,066
Allowance for loan and lease losses 30,156 20,512
Total deposits 2,049,789 1,876,740
Other borrowings 577,118 377,339
Preferred stock 10,763 10,763
Shareholders' equity 164,739 173,335
Dividends on preferred stock 371 369
Total interest income 82,982 85,263
Total interest expense 53,046 50,761
Provision for loan and lease losses 17,820 8,873
Services charges - fees and other 5,642 4,788
Gain on sale of loans 1,352 163
Net loss on sale of other assets (119) (895)
Non-interest expense 25,897 24,395
(Tax benefit) income tax (4,140) 1,348
Net (loss) income (2,766) 3,942
Nonperforming assets 141,099 62,374
Nonperforming loans 126,940 51,753
Net charge-offs 15,801 7,298
Performance Ratios
Return on average assets (2) (0.20)% 0.32
Return on average common equity (3) (3.28) 4.85
Net interest spread (4) 1.99 2.37
Net interest margin (5) 2.37 2.91
Efficiency ratio (6) 67.02 63.95
(Loss) earnings per common share - basic $(0.16) 0.19
(Loss) earnings per common share - diluted (0.16) 0.18
Asset Quality Ratios
Nonperforming assets to total assets 4.99 % 2.54
Nonperforming loans to total loans 6.90 2.86
Allowance for loan and lease losses
to total loans 1.64 1.13
Net loan and lease charge-offs to
average loans 1.70 0.82
Provision for loan and lease losses
to net loan and lease charge-offs 112.78 121.58
(1) Includes nonaccrual loans, which balance as of the periods ended June
30, 2008 and 2007 and March 31, 2008 was $86.3 million, $41.4 million, and
$67.2 million, respectively.
(2) Return on average assets (ROAA) is determined by dividing net income
by average assets.
(3) Return on average common equity (ROAE) is determined by dividing net
income by average common equity.
(4) Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.
(5) Represents net interest income on fully taxable equivalent basis as a
percentage of average interest-earning assets.
(6) The efficiency ratio is determined by dividing total noninterest
expense by an amount equal to net interest income (fully taxable equivalent)
plus noninterest income.
EUROBANCSHARES, INC. AND SUBSIDIARIES
NONPERFORMING ASSETS
(Dollars in thousands)
Unaudited
For the periods ended
June 30, March 31, December 31, June 30,
2008 2008 2007 2007
Loans contractually past
due 90 days or more but
still accruing interest $40,626 $31,071 $29,075 $10,382
Nonaccrual loans 86,314 67,196 68,990 41,371
Total nonperforming
loans 126,940 98,267 98,065 51,753
Repossessed property:
Other real estate 7,627 7,241 8,125 4,344
Other repossesed assets 6,532 6,094 5,409 6,277
Total repossessed
property 14,159 13,335 13,534 10,621
Total nonperforming
assets $141,099 $111,602 $111,599 $62,374
Nonperforming loans to
total loans 6.90 % 5.36 % 5.28 % 2.86 %
Nonperforming assets to
total loans plus
repossessed property 7.61 6.04 5.96 3.43
Nonperforming assets to
total assets 4.99 3.99 4.06 2.54
EUROBANCSHARES, INC. AND SUBSIDIARIES
NET CHARGE-OFFS
(Dollars in thousands)
Unaudited
Quarter Ended
June 30, March 31, Dec. 31, Sept. 30, June 30,
2008 2008 2007 2007 2007
Charge-offs:
Real estate secured $2,683 $3,515 $163 $- $198
Other commercial and
industrial 654 2,929 1,508 667 491
Consumer 563 649 494 435 310
Leases financing contracts 3,064 2,817 3,151 3,113 3,027
Other 65 164 60 194 5
Total charge-offs 7,029 10,074 5,376 4,409 4,031
Recoveries:
Real estate secured $3 $15 $4 $- $13
Other commercial and
industrial 460 142 62 27 147
Consumer 62 64 109 65 88
Leases financing contracts 242 309 315 342 341
Other 3 2 12 - 6
Total recoveries 770 532 502 434 595
Net charge-offs:
Real estate secured $2,680 $3,500 $159 $- $185
Other commercial and
industrial 194 2,787 1,446 640 344
Consumer 501 585 385 370 222
Leases financing contracts 2,822 2,508 2,836 2,771 2,686
Other 62 162 48 194 (1)
Total net charge-offs $6,259 $9,542 $4,874 $3,975 $3,436
Net charge-offs to average
loans:
Real estate secured 0.92 % 1.25 % 0.06 % - % 0.07
Other commercial and
industrial 0.26 3.64 1.90 0.85 0.47
Consumer 3.71 4