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2009-05-20T00:53:00Z
2009-05-20T00:53:00Z
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PR Newswire
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SAN JUAN, Puerto Rico,
May 11 /PRNewswire-HISPANIC PR WIRE/ — EuroBancshares, Inc. (Nasdaq: EUBK)
(“EuroBancshares” or the “Company”) today reported its
results for the first quarter ended March 31, 2009.
Net Income
EuroBancshares reported
a net income of $3.0 million, or $0.15 per diluted share, for the quarter ended
March 31, 2009, compared with a net loss of $7.7 million, or $(0.41) per
diluted share, and a net loss of $1.0 million, or $(0.06) per diluted share,
for the quarters ended December 31, 2008 and March 31, 2008, respectively.
Return on Average
Assets for the first quarter of 2009 was 0.44%, compared to (1.11)% and (0.15)%
for the quarters ended December 31, 2008 and March 31, 2008, respectively. Return on Average Common Equity for the
first quarter of 2009 was 8.79%, compared to (21.79)% and (2.33)% for the
quarters ended December 31, 2008 and March 31, 2008, respectively.
Financial results for
the quarter ended March 31, 2009 when compared to the previous quarter were
predominantly impacted by decreased credit losses, a reduction in nonperforming
assets and reduced specific allowances on impaired loans resulting in a $10.8
million decrease in our provision for loan and lease losses; a $4.0 million
gain on sale of $107.3 million in investment securities; and a $808,000
other-than-temporary impairment adjustment in the investment portfolio, as
discussed further below.
Rafael Arrillaga-Torrens,
Jr., Chairman of the Board, President and Chief Executive Officer said,
“Our return to profitability in the first quarter is a reflection of the
hard work and dedication we have devoted to improve the bank’s performance. We are most pleased by the progress we have
made in reducing the levels of problem assets. Nonetheless, we are not willing to delude ourselves into
thinking that the worst is over. The
overall economy of Puerto Rico continues to suffer and its GNP has continued to
deteriorate. We are not immune from such pressures and therefore we are
extremely cautious as to what lies ahead.”
Net Interest Income
Total interest income
for the first quarter of 2009 was $36.2 million, compared to $35.8 million for
the previous quarter and $42.6 million for the quarter ended March 31,
2008. The decrease during the quarter
ended March 31, 2009, when compared to the quarter ended March 31, 2008, was
mainly driven by the combined effect of decreased loan yields resulting from
interest rate cuts of 25 basis points in May 2008 and 175 basis points during
the fourth quarter of 2008 accompanied by a $102.1 million decrease in average
net loans and the effect caused by a $66.8 million increase in nonaccrual
loans. During the quarter ended March 31,
2009, the average interest yield on a fully taxable equivalent basis earned on
net loans was 5.71%, compared to 5.60% and 7.19% for the previous quarter and
the quarter ended March 31, 2008, respectively. Average net loans amounted to $1.734 billion for the quarter
ended March 31, 2009, compared to $1.762 billion for the previous quarter, and
$1.836 billion for the quarter ended March 31, 2008. The amount of interest income we ceased to accrue on nonaccrual
loans amounted to $3.7 million, $3.1 million and $1.7 million during the
quarters ended March 31, 2009, December 31, 2008 and March 31, 2008,
respectively. The amount of interest
income we ceased to accrue during the same periods represented a reduction of approximately
55 basis points, 46 basis points and 26 basis points in the average interest
yield on a fully taxable equivalent basis earned on net loans, respectively.
Total interest expense
for the quarter ended March 31, 2009 was $22.2 million, compared to $24.2
million and $27.4 million for the previous quarter and the quarter ended March
31, 2008, respectively. The decrease
during the quarter ended March 31, 2009 when compared to the previous quarter
resulted mainly from the net effect of a repricing in all deposit categories
and other borrowings; and a net increase in average interest-bearing
liabilities mainly concentrated in broker deposits and other time
deposits. During the quarter ended
March 31, 2009, the average interest rate on a fully taxable equivalent basis
paid for interest-bearing liabilities decreased to 3.89%, from 4.37% for the
previous quarter, and 5.13% for the quarter ended March 31, 2008. Average interest-bearing liabilities
amounted to $2.518 billion for the quarter ended March 31, 2009, compared to
$2.488 billion for the previous quarter, and $2.414 billion for the quarter
ended March 31, 2008.
For the quarter ended
March 31, 2009, net interest margin and net interest spread on a fully taxable
equivalent basis was 2.37% and 2.14%, respectively, compared to 2.00% and 1.71%
for the previous quarter, and 2.39% and 1.96% for the quarter ended March 31,
2008.
Net interest margin and
net interest spread on a fully taxable equivalent basis remained relatively
stable during the first quarter of 2009 when compared to the first quarter of
2008. The increase in net interest
margin and net interest spread during the quarter ended March 31, 2009 when
compared to the previous quarter were mainly caused by a reduction of 48 basis points
in the interest rate paid on average interest-bearing liabilities, as
previously mentioned.
Provision for Loan and
Lease Losses
The provision for loan
and lease losses for the quarter ended March 31, 2009 was $5.7 million, or
71.27% of net charge-offs, compared to $16.5 million and $7.8 million, or
193.87% and 82.09% of net charge-offs, for the quarters ended December 31, 2008
and March 31, 2008, respectively. These
decreases in the provision for loan and lease losses were primarily attributable
to decreased credit losses, and when compared to the previous quarter, a
reduction in nonperforming assets and reduced specific allowances on impaired
loans, as previously mentioned. As of
March 31, 2009, there were $276.1 million in impaired loans with a specific
allowance of $19.7 million, compared to $264.2 million and $115.7 million in
impaired loans as of December 31, 2008 and March 31, 2008, respectively, which
had specific allowances amounting to $22.4 million and $7.8 million,
respectively. While impaired loans
reflected a slight increase of 4.5% as of March 31, 2009, when compared to the
previous quarter, the specific allowance on such loans was reduced by
approximately $2.6 million. The
reduction in the specific allowance was principally attributable to losses
recognized in our construction loans portfolio.
The provision for loan
and lease losses is part of the continuous evaluation of the allowance for
loans and lease losses. The periodic
evaluation of the allowance for loan and lease losses considers the level of
net charge-offs, nonperforming loans, delinquencies, related loss experience
and overall economic conditions. More
details are discussed further in the Loans and Asset Quality and Delinquency
sections of this document.
Non-Interest Income
Non-interest income for
the quarter ended March 31, 2009 increased to $5.9 million, compared to $3.6
million for the quarter ended March 31, 2008.
These changes were mainly due to the net effect of:
(i) a $4.0 million gain on sale of securities
resulting from the sale of $107.3 million in investment securities sold during
the first quarter of 2009;
(ii) a $808,000 other-than-temporary impairment
adjustment in the investment portfolio, as previously mentioned;
(iii) a $440,000
decrease in gain on sale of loans, mainly resulting from a $757,000 gain on
sale of $19.6 million of lease financing contracts in March 2009, compared to a
$1.2 million gain on sale of $37.7 million of lease financing contracts in
March 2008;
(iv) a $298,000 decrease in service charges,
mainly due to a $296,000 reduction in non-sufficient and overdraft charges
primarily resulting from a decrease in the average balance of overdrawn
accounts; and
(v) a $214,000 net loss on sale of repossessed
assets for the quarter ended March 31, 2009, compared to a net loss of $34,000
for the quarter ended March 31, 2008.
This change was concentrated on an increase of $62,000 in the loss on
sale of repossessed vehicles and an increase of $75,000 in the loss on sale of
OREO properties primarily attributable to our strategy of being more aggressive
in the sale of repossessed assets to expedite their disposition and avoid build
up of inventories. The $34,000 net loss
on sale of repossessed assets for the first quarter of 2008 was net of a
$66,000 gain on sale of OREO, repossessed boats and repossessed equipment. During the quarter ended March 31, 2009, we
sold 392 vehicles and repossessed 295 vehicles, compared to 335 vehicles
soldand 344 vehicles repossessed during the first quarter of 2008. During the same periods, we sold one OREO
property and foreclosed seven OREO properties, compared to three OREO
properties sold and three foreclosed OREO properties, respectively. More details on repossessed assets are
discussed in the Loan and Asset Quality section below.
During the first
quarter of 2009, non-interest income increased to $5.9 million at March 31,
2009, from $2.2 million in the previous quarter. This increase was mainly due to the net effect of:
(i) a $4.0 million gain on sale of securities
resulting from the sale of $107.3 million in investment securities sold during
the first quarter of 2009;
(ii) a $808,000 other-than-temporary impairment
adjustment in the investment portfolio, as previously mentioned;
(iii) a $728,000
increase in gain on sale of loans, mainly resulting from a $757,000 gain on
sale of $19.6 million of lease financing contracts in March 2009, as previously
mentioned; and
(iv) a $163,000 decrease in service charges,
mainly due to a $114,000 reduction in non-sufficient and overdraft charges
primarily resulting from a decrease in the average balance of overdrawn
accounts, as previously mentioned.
Non-Interest Expense
Non-interest expense
for the quarter ended March 31, 2009 was $12.5 million, compared to $13.3
million for the quarter ended March 31, 2008.
This decrease in non-interest expense was mainly due to the net effect
of:
(i) a $777,000 decrease in salaries resulting
from a $1.3 million decrease in salaries and employee benefits primarily
related to a reduction in personnel, a reduction strategy in an effort to
control expenses, and decreased bonus expenses partially off-set by a $494,000
decrease in deferred loan origination costs because of a reduction in loan
originations;
(ii) a $528,000 increase in insurance expense
mainly related to the FDIC’s new insurance premium assessments;
(iii) a decrease of
$395,000 in occupancy and equipment expenses, mainly related to a $185,000
decrease in telephone and data communications and a $72,000 decrease in
security services mainly attributable to operational efficiencies and a cost
reduction strategy, as previously mentioned;
(iv) a $315,000 increase in professional services
mainly due to the combined effect of: a $219,000 increase in professional fees
primarily related to a BSA compliance review and other management consulting
services; and a $145,000 increase in legal fees mainly related to legal
collection proceedings, the new FDIC’s TLGP program and other capital raising
efforts;
(v) a decrease of $249,000 in promotional
expenses mainly because of a cost reduction strategy; and
(vi) a $208,000 decrease in other expenses for
the quarter ended March 31, 2009, mainly due to the combined effect of: a reduction
in estimated losses on off-balance sheet items; decreased losses on other
accounts receivables; and a reduction in other miscellaneous expenses.
During the first
quarter of 2009, the Company’s non-interest expense amounted to $12.5 million,
compared to $11.6 million for the previous quarter. Such increase was mainly due to the net effect of:
(i) a $714,000 increase in salaries resulting
mainly from the effect of a $1.2 million reduction in bonus expense recorded
during the previous quarter;
(ii) an increase of $317,000 in insurance expense
mainly related to the new FDIC’s insurance premium assessments, as previously
mentioned;
(iii) a decrease of
$229,000 in occupancy and equipment expenses mainly related to a $90,000
decrease in telephone and data communications and a $47,000 decrease in
security services; and
(iv) a $152,000 increase in other expenses mainly
due to the net effect of a one-time income of $500,000 related to a recovery on
a boat’s insurance claim, which was recorded during the previous quarter.
Income Tax Expense
Puerto Rico income tax
law does not provide for the filing of a consolidated tax return; therefore,
the income tax expense/benefit reflected in our consolidated income statement
is the sum of our income tax expense/benefit and the income tax
expenses/benefits of our individual subsidiaries. Our revenues are generally not subject to U.S. federal income
tax, with the exception of interest income from interest-bearing deposits in
other financial institutions in the United States, which is not considered
portfolio interest, as defined in the Federal Internal Revenue Code.
On March 9, 2009, the
governor of Puerto Rico signed into law Act No. 7 (the “Act No. 7”),
also known as Special Act Declaring a Fiscal Emergency Status to Save the
Credit of Puerto Rico, which amended several sections of the Puerto Rico’s
Internal Revenue Code (the “Code”).
Act No. 7 amended various income, property, excise, and sales and use
tax provisions of the Code. Under the
provisions of Act No. 7, corporations with adjusted gross income of $100,000 or
more, among other taxpayers, will be subject to surtax of 5% on the total tax
determined (not on the taxable income).
In addition, Act No. 7 imposes a special income tax of 5% on the net
income of International Banking Entities (“IBE”), among a group of
exempt taxpayers. Both, the 5% surtax
and the special income tax rate of 5% are applicable for taxable years commencing
after December 31, 2008 and prior to January 1, 2012. Act No. 7 also revamps the alternative basic tax provisions of
the Code. Under the revised version,
our dividends, generally subject to a maximum 10% preferential rate tax, may
now be subject to an effective tax of 20% in the case of individuals with
income (computed with certain addition of exempt income and income subject to
preferential rates) in excess of $175,000, or 15% if such income is over
$125,000. Act No. 7 provides for
several additional changes to the Code, which the Company believes will have an
inconsequential financial impact or are not applicable since they are related
to individuals taxpayers.
We recorded an income
tax benefit of $1.2 million for each of the quarters ended March 31, 2009 and
2008. Our income tax benefit for the
quarter ended March 31, 2009 resulted mainly from the net effect of a deferred
tax benefit of $1.8 million and a current tax expense of $562,000, as explained
further below.
Our current income tax
expense for the quarter ended March 31, 2009 increased to $562,000 from $9,000
for the same period in 2008. Increase
in our current income tax expense during the quarter ended March 31, 2009 was
mainly due to the new special tax of 5% on IBEs’ net income which amounted to
approximately $552,000 during the period.
Remaining current income tax expense during the quarter ended March 31,
2009 was related to EuroSeguros, our nonbanking subsidiary and federal income
tax related to interest income on interest-bearing deposits in other financial
institutions in the United States.
There was no current tax expense related to the bank subsidiary
operations in Puerto Rico during the quarters ended March 31 2009 and 2008,
since the results of operations reported on this activity included a taxable
loss net of exempt income.
Our deferred tax
benefit for the quarter ended March 31, 2009 increased to $1.8 million from
$1.2 million for the same period in 2008.
This increase during the quarter ended March 31, 2009 was mainly due to
the combined effect of: (i) an increase of $2.8 million in the deferred tax
asset related to the net operating loss (“NOL”) carryforward from the
taxable loss in our banking subsidiary; and (ii) a year-to-date decrease of
$945,000 in the other net deferred tax assets primarily from a decrease in our
allowance for loan and lease losses and an increase in the deferred tax
liability related to the servicing asset from leases sold.
As of March 31, 2009,
we had net deferred tax assets of $26.9 million, compared to $23.8 million as
of December 31, 2008. This increase in
our net deferred tax assets was mainly attributable to the net effect of: (i)
an increase of the NOL carryforward in our banking subsidiary; (ii) a decrease
in our allowance for loan and lease losses; (iii) an increase in deferred tax
assets related to the net unrealized loss recognized in other comprehensive
income; and (iv) a decrease in the other net deferred tax assets primarily from
an increase in the deferred tax liability related to the servicing asset from
leases sold. 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 assets; 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 as of March
31, 2009 will be realized.
Balance Sheet Summary
and Asset Quality Data
Assets
Total assets increased
to $2.901 billion as of March 31, 2009, from $2.860 billion as of December 31,
2008. This increase was mainly due to
the net effect of:
(i) an net increase of $154.2 million in cash
and cash equivalents, mainly resulting from an increase in broker deposits;
(ii) a $74.8 million decrease in the investment
securities portfolio, mainly as a result of the $107.3 million sale of
securities in March 2009, as previously mentioned; and
(iii) a decrease of
$39.6 million in net loans, including the $19.6 million sale of lease financing
contracts in March 2009, as previously mentioned.
Investments
During the first
quarter 2009, the investment portfolio decreased by approximately $74.8 million
to $824.0 million, from $898.7 million as of December 31, 2008. This decrease was primarily due to the net
effect of:
(i) the sale of $107.3 million in FHLMC and
FNMA mortgage-backed securities, which were replaced with the purchase of
$109.0 million in GNMA mortgage-backed securities, as explained further below;
(ii) prepayments of approximately $58.9 million
on mortgage-backed securities and FHLB obligations;
(iii) a decrease of
$11.5 million in the market valuation of securities available for sale;
(iv) $5.9 million in FHLB obligations that were
called-back during the quarter;
(v) an increase of $4.0 million in the premium
related to purchases of securities and the net amortization of
premiums/discounts; and
(vi) a reduction of $3.4 million in FHLB stocks.
In March 2009, we
restructured our investment portfolio by selling approximately $90.8 million in
FNMA MBS and $16.5 million in FHLMC MBS with an aggregate estimated average
life of 7.48 years and an aggregate estimated average yield of approximately
5.20%. This sale of securities resulted
in a $4.0 million gain. The proceeds of
this sale were used to purchase approximately $109.0 million in GNMA MBS with
an estimated average life of 2.88 years and an average estimated yield of
approximately 4.32%. This transaction
did not only increase our capital through the gain, but also improved the
regulatory risk-based capital levels as the GNMA MBS acquired have a 0%
risk-based capital weight when compared to 20% on the MBS sold.
For the quarter ended
March 31, 2009, after the above-mentioned transactions, the estimated average
maturity of our investment portfolio was approximately 4.01 years and the estimated
average yield was approximately 5.1%, compared to an estimated average maturity
of 5.7 years and an estimated average yield of 5.2% for the year ended December
31, 2008.
In April 2009, the FASB
issued Staff Position (“FSP”) No. 115-2, Recognition and Presentation
of Other-Than-Temporary Impairments, which amends existing guidance for
determining whether impairment is other-than-temporary for debt securities, and
FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for
the Asset and Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly.
The FSP No. 115-2
requires an entity to assess whether it intends to sell, or it is more likely
than not that it will be required to sell a security in an unrealized loss
position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between
amortized cost and fair value is recognized in earnings. For securities that do not meet the
aforementioned criteria, the amount of impairment recognized in earnings is
limited to the amount related to credit losses, as defined in paragraph 8 of
FSP No. 115-2, while impairment related to other factors is recognized in other
comprehensive income. Additionally,
this FSP expands and increases the frequency of existing disclosures about
other-than-temporary impairments (“OTTI”) for debt and equity
securities.
The FSP No. 157-4
emphasizes that even if there has been a significant decrease in the volume and
level of activity, the objective of a fair value measurement remains the
same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants. This FSP
provides a number of factors to consider when evaluating whether there has been
a significant decrease in the volume and level of activity for an asset or
liability in relation to normal market activity. In addition, when transactions or quoted prices are not
considered orderly, adjustments to those prices based on the weight of
available information may be needed to determine the appropriate fair
value. This FSP also requires increased
disclosures.
These FSPs are effective
for interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. We elected to adopt the FSP No. 115-2 and
FSP No. 157-4 for the quarter ended March 31, 2009. Adoption of FSP No. 115-2 resulted in $808,000 in OTTI recognized
in earnings for the quarter ended March 31, 2009, as discussed further
below. Adoption of FSP No. 157-4 did
not have a financial impact, other than additional disclosures.
With the assistance of
a third party provider, we reviewed the investment portfolio as of March 31,
2009 using cash flow and valuation models and considering the provisions of FSP
115-2, for applicable securities.
During the review, we identified securities with characteristics that
warranted a more detailed analysis, as follows:
(i) One security for $3.0 million of original
par value and a current market value of $900,000 is a non-rated Trust Preferred
Stock (“TPS”). Our review of
the security’s performance revealed that all cash flows have been received as
scheduled since inception. However,
considering the issuer’s current financial position and that this security only
receives dividend payments until maturity, expected cash flows may not be
indicative of the inherent credit risk associated with this security for
purposes of determining any possible OTTI. We considered that a more reasonable
approach would be to use a methodology similar to the advance internal rating
approach incorporated in the Basel II Accord in which expected credit losses
are determined by using the expected default rate, the loss given the default,
and the exposure at default. Based on
this analysis and the information previously set forth, as of March 31, 2009,
we estimated a $400,000 OTTI on this security due to the apparent deterioration
of the credit quality.
(ii) Sixteen private label MBS amounting to $79.1
million that have mixed credit ratings or other special characteristics. For each one of the private label MBS, we
reviewed the collateral performance and considered the impact of current
economic trends. These analyses were
performed taking into consideration current U.S. market conditions and trends,
forward projected cash flows and the present value of the forward projected
cash flows. We determined the
estimated present value of expected cash flows at the current book yield of
these investments. Some of the
analysis performed to the downgraded mortgage-backed securities included:
a. the
calculation of their coverage ratios;
b. current credit
support;
c. total
delinquency over sixty days;
d. average
loan-to-values;
e. projected
defaults considering a conservative additional downside scenario of (5)% in
Housing Price Index values for each of the following three years;
f. a mortgage
loan Conditional Prepayment Rate
(“CPR”) speed equal to 8 or 15 depending on the approximately last
six months average for each security;
g. projected
total future deal loss based on the previous conservative assumptions;
h. excess credit
support protection;
i. projected
tranche dollar loss; and
j. projected
tranche percentage loss, if any, and economic value.
Based on this
assessment, as of March 31, 2009, we estimated a $408,000 OTTI due
to the apparent deterioration of the credit quality over ten
private label MBS.
Loans
Total loans, net of
unearned interest, decreased by $41.9 million, or 9.39% on an annualized basis,
to $1.742 billion as of March 31, 2009, from $1.784 billion as of December 31,
2008. This decrease was mainly due to
the net effect of:
(i) a $36.5 million, or 54.64% annualized
decrease in lease financing contracts from $267.3 million as of December 31,
2008 to $230.8 million as of March 31, 2009;
(ii) a $11.3 million, or 4.04% annualized
decrease in commercial loans, from $1.115 billion as of December 31, 2008 to
$1.104 billion as of March 31, 2009; and
(iii) a $9.8 million,
or 17.72% annualized increase in construction loans, from $220.6 million as of
December 31, 2008 to $230.4 million as of March 31, 2009.
The $36.5 million
decrease in lease financing contracts includes the sale of $19.6 million in
March 2009, as previously mentioned.
Occasionally, 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 rest of
the decrease was mainly because of repayments and a reflection of decreased
originations resulting from tightened underwriting standards and our decision
to strategically pare back our automobile leasing business because of the
economy deceleration.
The $11.3 million
decrease in commercial loans resulted from a $16.6 million decrease in other
commercial loans, net of a $5.3 million increase in commercial loans secured by
real estate. Because of current
economic conditions, we have enhanced our credit risk assessment and collection
processes, working in a spirit of solidarity to assist our customers in these
difficult times while also protecting and preserving the interest of our
shareholders by maintaining our current loan customers, at terms favorable to
the Bank. As of March 31, 2009,
commercial loans secured by real estate equaled $856.8 million, or 77.64% of
total commercial loans.
The $9.8 million
increase in construction loans secured by real estate resulted from
disbursements on loan commitments we made during or before year 2007, 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 quarter ended March 31, 2009.
Asset Quality and
Delinquency
Non-performing assets,
which 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, amounted to $167.8 million as
of March 31, 2009, compared to $177.4 million and $111.6 million as of December
31, 2008 and March 31, 2008, respectively.
Nonperforming Loans
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 $154.3 million
as of March 31, 2009, compared to $163.9 million as of December 31, 2008 and
$98.3 million as of March 31, 2008.
Although non-performing loans remained relatively stable when compared
to the previous quarter, there was a $10.9 million net decrease in loans in
nonaccrual status, mainly in commercial loans, and a $1.3 million increase in
loans over 90 days still accruing.
Repossessed Assets
As of March 31, 2009
and December 31, 2008, repossessed assets amounted to $13.5 million, compared
to $13.3 million as of March 31, 2008.
Although repossessed assets remained relatively stable during the
quarter ended March 31, 2009 when compared to the previous quarter, there was:
(i) a $947,000 increase in OREO resulting from
the net effect of the sale of 1 property and the foreclosure of 7 properties.
(ii) a decrease of $1.0 million in other
repossessed assets, mostly in the inventory of repossessed vehicles. During the quarter ended March 31, 2009, we
sold 392 vehicles and repossessed 295 vehicles, decreasing our inventory of
repossessed vehicles to 200 units as of March 31, 2009, from 297 units as of
December 31, 2008. During the same
period, we sold 8 boats and repossessed 3 boats, respectively, decreasing our
inventory of repossessed boats to 10 units as of March 31, 2009, from 15 units
as of December 31, 2008.
Net Charge-Offs
Annualized net
charge-offs as a percentage of average loans decreased to 1.80% for the quarter
ended March 31, 2009, from to 1.89% for the previous quarter, and 2.05% for the
quarter ended March 31, 2008.
Net charge-offs for the
quarter ended March 31, 2009 were $8.0 million, compared to $8.5 million and
$9.5 million for the quarters ended December 31, 2008 and March 31, 2008,
respectively. Net charge-offs for the
quarter ended March 31, 2009, compared to the quarters ended December 31, 2008
and March 31, 2008 were as follows:
(i) $3.6 million in net charge-offs on loans
partially secured by real estate for the first quarter of 2009, of which $3.0
million were construction loans, compared to $2.1 million for the fourth
quarter of 2008, which included $582,000 in construction loans, and $3.5
million for the quarter ended March 31, 2008, most of which was related to
commercial loans partially secured by real estate;
(ii) $662,000 in net charge-offs on other
commercial and industrial loans for the first quarter of 2009, compared to $3.3
million and $2.8 million for the quarters ended December 31, 2008 and March 31,
2008, respectively;
(iii) $905,000 in net
charge-offs on consumer loans for the first quarter of 2009, compared to
$397,000 and $585,000 for the quarters ended December 31, 2008 and March 31,
2008, respectively;
(iv) $2.7 million in net charge-offs on lease
financing contracts for the first quarter of 2009 and the quarter ended
December 31, 2008, compared to $2.5 million for the first quarter of 2008; and
(v) $38,000 in net charge-offs on other loans
for the first quarter of 2009, compared to $13,000 and $162,000 in net
charge-offs for the quarters ended December 31, 2008 and March 31, 2008,
respectively.
Decreases in net
charge-offs were mainly attributable to decreased nonperforming loans and a
decrease on specific allowances on impaired loans, principally attributable to
losses recognized in our construction loans portfolio, as previously mentioned.
Other Delinquency
As of March 31, 2009,
loans between 30 and 89 days past due and still accruing interest amounted to
$74.5 million, compared to $126.1 million and $128.5 million as of December 31,
2008 and March 31, 2008, respectively.
Changes in loans between 30 and 89 days past due and still accruing
interest during the first quarter of 2009 when compared to the previous quarter
include a decrease of $33.7 million in commercial loans; and a $19.1 million
decrease in construction loans. The
sharp decrease in delinquency as of March 31, 2009, when compared to December
31, 2008, is in part the result of heightened collection processes and
procedures which include, among others, restructuring of the collection and
workout groups, launching of loss mitigation programs and enhancing the credit
risk assessment process. Management
recognizes the impact of current economic conditions on the Bank’s credit risk
and will continue closely monitoring all factors affecting the quality of the
credit portfolio.
Allowance for Loan and
Lease Losses
The allowance for loan
and lease losses was $39.3 million as of March 31, 2009, compared to $41.6
million and $26.4 million as of December 31, 2008 and March 31, 2008,
respectively. The allowance for loan
and lease losses was affected by net charge-offs, nonperforming loans, loan
portfolio balance, and also by the provision for loan and lease losses. However, the decrease in the allowance for
loan and lease losses during the quarter ended March 31, 2009 was primarily
impacted by $3.0 million in losses recognized on two construction loans
extended for land development and the construction of two residential housing
projects for which specific allowances had been previously determined, as
mentioned above.
For the general portion
of our allowance, we follow a consistent procedural discipline and account for
loan and lease loss contingencies in accordance with Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies. Also, another component is used in the
evaluation of the adequacy of our general allowance to measure the probable
effect that current internal and external environmental factors could have on
the historical loss factors currently in use.
In addition to our general portfolio allowances, specific allowances are
established in cases where management has identified significant conditions or
circumstances related to a credit that management believes indicate a high
probability that a loss have been incurred.
These specific allowances are determined following a consistent
procedural discipline in accordance with Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan
(“SFAS No. 114”), as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan — Income
Recognition and Disclosures. For
impaired commercial and construction business relationships with aggregate
balances exceeding $150,000, we measure the impairment following the guidance
of SFAS No. 114.
We believe that the
allowance for loan and lease losses is adequate and it represents 2.26% of
total loans as of March 31, 2009.
Deposits and Borrowings
As of March 31, 2009,
total deposits amounted to $2.209 billion, compared to $2.084 billion as of
December 31, 2008. This $124.5 million
increase was mainly concentrated in broker deposits, jumbo and regular time
deposits. During the first quarter of
2009, the fierce competition for local deposits continued. In an effort to control increases in our
funding cost, we focused on other funding alternatives, including attracting
other time deposits from the US national markets at lower competitive rates.
Other borrowings
decreased to $517.7 million as of March 31, 2009, from $592.5 million as of
December 31, 2008. This decrease in
other borrowings was mainly attributable to our strategy of focusing on other
funding alternatives to lower our cost of fund, as mentioned above.
Stockholders’ Equity
The Company’s
stockholders’ equity decreased to $149.2 million as of March 31, 2009, from
$156.6 million as of December 31, 2008, representing an annualized decrease of
18.84%. Besides earnings and losses
from operations, which amounted to a $3.0 million net income for the quarter
ended March 31, 2009 and a $11.3 million net loss for the year ended December
31, 2008, the stockholders’ equity was impacted by accumulated other
comprehensive losses of $22.7 million as of March 31, 2009, compared to $12.4
million as of December 31, 2008. In
addition, the following items also impacted the Company’s stockholders’ equity:
(i) the exercise of 50,000 and 357,000 stock
options in January 2008 and March 2008, respectively, for a total of $2.0
million; and
(ii) the repurchase of 800 unvested restricted
shares from former employees during the third quarter of 2008, for a total of
$6,504. These restricted shares were
originally granted in April 2004.
As of March 31, 2009,
we and Eurobank both qualified as “well-capitalized” institutions
under the regulatory framework for prompt corrective action. As of March 31, 2009, our leverage, Tier 1
and total risk-based capital ratios were 6.52%, 8.94% and 10.20%, respectively,
compared to 6.55%, 8.99% and 10.25% as of the previous quarter. We continue evaluating opportunities to
increase our capital position.
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 Balance Sheets
(Unaudited)
March
31, 2009 and December 31, 2008
Assets
2009 2008
Cash and cash
equivalents
Cash and due from
banks $241,929,900 $43,275,239
Interest bearing
deposits 400,000 400,000
Federal funds
sold
– 44,470,925
Total cash and cash
equivalents 242,329,900 88,146,164
Securities purchased
under agreements to
resell
13,318,062
24,486,774
Investment securities
available for sale 691,913,203 751,016,565
Investment securities
held to maturity 120,510,965 132,798,181
Other investments 11,565,700 14,932,400
Loans held for
sale
317,703 1,873,445
Loans, net of allowance
for loan and
lease losses of
$39,345,917 in 2009
and $41,639,051 in
2008 1,702,485,926 1,740,539,113
Accrued interest
receivable
13,671,602
14,614,445
Customers’ liability on
acceptances 354,114 405,341
Premises and equipment,
net 34,390,756 34,466,471
Deferred tax assets,
net 26,922,047 23,825,896
Other assets 43,005,652 33,324,128
Total
assets
$2,900,785,630
$2,860,428,923
Liabilities and
Stockholders’ Equity
Deposits:
Noninterest
bearing
$105,239,063
$108,645,242
Interest bearing 2,103,599,076 1,975,662,802
Total
deposits
2,208,838,139 2,084,308,044
Securities sold under
agreements to
repurchase
496,675,000
556,475,000
Acceptances
outstanding
354,114 405,341
Advances from Federal
Home Loan Bank 383,683 15,398,041
Note payable to
Statutory Trust
20,619,000
20,619,000
Accrued interest
payable
14,806,081
16,073,737
Accrued expenses and
other liabilities 9,914,172 10,579,960
2,751,590,189 2,703,859,123
Stockholders’
equity:
Preferred stock:
Preferred stock
Series A, $0.01
par value.
Authorized 20,000,000
shares; issued and
outstanding
430,537 in 2009
and 2008 (aggregate
liquidation
preference value of
$10,763,425) 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 2009
and 2008;
outstanding: 19,499,515
shares in 2009 and
2008 204,394 204,394
Capital paid in
excess of par value 110,145,985 110,109,207
Retained
earnings:
Reserve fund 8,358,806 8,029,106
Undivided
profits
52,305,152
49,773,573
Treasury stock,
939,883 shares in 2009
and 2008, at
cost
(9,916,962)
(9,916,962)
Accumulated other
comprehensive loss:
Unrealized loss on
available for sale
securities (8,715,914) (12,392,943)
Other-than-temporary impairment losses
for which a
portion has been
recognized in
earnings
(13,949,445) –
Total
stockholders’ equity
149,195,441
156,569,800
Total
liabilities and
stockholders’
equity $2,900,785,630 $2,860,428,923
EUROBANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
For the
three-month periods ended March 31, 2009 and 2008
and the
three-month period and year ended December 31, 2008
Three Months Ended Year Ended
March 31, March 31, December 31, December 31,
2009 2008 2008 2008
Interest income:
Loans, including
fees $24,599,905
$32,757,773 $24,445,799 $115,273,672
Investment
securities:
Taxable 1,947 2,643 1,967 9,572
Exempt 11,519,062 9,491,802 11,171,821 42,425,867
Interest bearing
deposits, securities
purchased under
agreements to
resell,
and other 78,790 386,987 158,384 1,301,093
Total interest
income 36,199,704 42,639,205
35,777,971 159,010,204
Interest expense:
Deposits 17,542,319 21,773,166 18,875,032 80,509,682
Securities sold under
agreements to
repurchase, notes
payable, and
other 4,619,903 5,632,698 5,316,923 21,206,699
Total interest
expense 22,162,222 27,405,864
24,191,955 101,716,381
Net interest
income 14,037,482 15,233,341 11,586,016 57,293,823
Provision for loan and
lease losses 5,689,000 7,833,000
16,514,000 42,313,800
Net interest
(expense)
income after
provision
for loan and
lease
losses 8,348,482 7,400,341 (4,927,984) 14,980,023
Noninterest
income:
Other-than-temporary
impairment
losses:
Total other-than-
temporary
impairment
losses (15,491,220) – – –
Portion of loss
recognized in
other
comprehensive
income 14,683,627 – – –
Net impairment
losses
recognized in
earnings (807,593) –
– –
Net gain on sale of
securities 4,036,387 –
– 190,956
Service charges — –
fees and other 2,124,879 2,423,374
2,287,486 10,395,736
Net loss on sale of
repossessed assets
and on disposition
of other assets (213,724) (33,759) (196,892) (595,966)
Net gain on sale of
loans and
leases 795,572 1,235,195 67,805 1,467,668
Total
noninterest
income 5,935,521 3,624,810
2,158,399 11,458,394
Noninterest
expense:
Salaries and
employee
benefits 4,802,139 5,578,914 4,088,565 20,087,767
Occupancy, furniture
and equipment 2,548,096 2,942,768
2,777,297 11,414,201
Professional services
1,556,474 1,241,218 1,560,831 5,453,867
Insurance 1,174,569 646,591 857,614 3,111,260
Promotional 117,918 367,018
147,463 881,594
Other 2,280,973 2,489,195 2,128,525 9,966,305
Total
Noninterest
expense 12,480,169 13,265,704
11,560,295 50,914,994
Income (loss)
before income
taxes 1,803,834 (2,240,553) (14,329,880)
(24,476,577)
Income tax benefit (1,241,097) (1,237,228)
(6,615,433) (13,207,948)
Net income
(loss) $3,044,931 $(1,003,325) $(7,714,447) $(11,268,629)
Basic earnings
(loss) per share $0.15
$(0.06) $(0.41) $(0.62)
Diluted earnings
(loss) per
share $0.15 $(0.06) $(0.41) $(0.62)
EUROBANCSHARES, INC.
AND SUBSIDIARIES
OPERATING RATIOS AND
OTHER SELECTED DATA
(Dollars in thousands,
except share data)
Unaudited
As of
March 31, December 31,
2009 2008 2008
Loan Mix
——–
Loans secured by real
estate
Commercial and
industrial $856,835 $810,618 $851,494
Construction 230,352 214,805 220,579
Residential
mortgage 125,511 115,772 125,557
Consumer 2,519 2,102 2,445
1,215,217 1,143,297 1,200,075
Commercial and
industrial 246,738 297,004 263,332
Consumer 47,366 54,806 49,415
Lease financing
contracts 230,828 329,175 267,325
Overdrafts 2,140 6,637 2,146
Total 1,742,289 1,830,919 1,782,293
Deposit Mix
———–
Noninterest-bearing
deposits 105,239 123,280 108,645
Now and money
market 56,040
61,556 59,309
Savings 103,575 129,997 104,424
Broker deposits 1,530,107 1,279,883 1,423,814
Regular CD’s &
IRAS 124,077 95,556 109,732
Jumbo CD’s 289,800 276,231 278,384
Total 2,208,838 1,966,503 2,084,308
Balance Sheet Data
(at end of period)
——————-
Total assets 2,900,786 2,793,783 2,860,429
Total investments 823,990
837,379 898,747
Loans and leases, net
of
unearned 1,742,150 1,835,030 1,784,052
Allowance for loan and
lease
losses 39,346 26,428 41,639
Total deposits 2,208,838 1,966,503 2,084,308
Other borrowings 517,678 611,782 592,492
Preferred stock 10,763 10,763 10,763
Shareholders’
equity 149,195 182,200 156,570
Capital Ratios
————–
Leverage ratio 6.52% 7.28% 6.55%
Tier 1 risk-based
capital 8.94 9.56 8.99
Total risk-based
capital 10.20 10.81 10.25
Quarters Ended Year Ended
March 31, December 31, December 31,
2009 2008 2008 2008
Common Share Data
—————–
Average shares
outstanding –
basic 19,499,515 19,172,524 19,499,515
19,418,526
Average shares
outstanding –
assuming dilution
19,499,515 19,230,376 19,499,515 19,418,526
Number of shares
outstanding at
end of period 19,499,515 19,500,315
19,499,515 19,499,515
Book value per
common share $7.10 $8.79
$7.48 $7.48
Balance Sheet Data
(average
balances)
——————
Total assets 2,796,011 2,743,069
2,778,475 2,787,833
Loans and leases,
net of unearned 1,777,171 1,865,993
1,798,441 1,834,281
Interest-earning
assets(1) 2,673,977 2,632,947
2,660,312 2,672,214
Interest-bearing
deposits 1,969,054 1,853,624
1,909,598 1,904,762
Other borrowings 549,205 559,888
578,002 571,644
Preferred stock 10,763 10,763
10,763 10,763
Shareholders’
equity 149,302 183,211 152,384
168,113
Other Financial
Data
——————–
Total interest
income 36,200 42,639 35,778
159,010
Total interest
expense 22,162 27,406 24,192
101,716
Provision for
loan and lease
losses 5,689 7,833 16,514
42,314
OTTI losses
recognized in
earnings (808) – –
–
Gain on sale of
securities 4,036 –
– 191
Services charges –
fees and other 2,125 2,424
2,288 10,396
Gain on sale of
loans 796 1,235 68
1,468
Net loss on sale
of other assets (214) (34)
(197) (596)
Non-interest
expense 12,480 13,266 11,560
50,915
Tax benefit (1,241) (1,238)
(6,615) (13,208)
Net income (loss) 3,045 (1,003)
(7,714) (11,268)
Dividends on
preferred stock 184 186
188 747
Nonperforming
assets 167,754 111,602 177,400
177,400
Nonperforming
loans 154,297 98,267 163,894
163,894
Net charge-offs 7,982 9,542
8,518 28,812
Performance Ratios
——————
Return on average
assets(2) 0.44% (0.15)%
(1.11)% (0.40)%
Return on average
common equity(3) 8.79 (2.33)
(21.79) (7.16)
Net interest
spread(4) 2.14 1.96
1.71 1.99
Net interest
margin (5) 2.37 2.39
2.00 2.33
Efficiency ratio
(6) 57.47 68.62
75.03 69.11
Earnings (loss)
per common
share – basic $0.15 $(0.06)
$(0.41) $(0.62)
Earnings (loss)
per common share
– diluted 0.15 (0.06)
(0.41) (0.62)
Asset Quality
Ratios
——————–
Nonperforming
assets to total
assets 5.78% 3.99% 6.20%
6.20%
Nonperforming
loans to total
loans 8.86 5.36 9.19
9.19
Allowance for
loan and lease
losses to
total loans 2.26 1.44
2.33 2.33
Net loan and
lease charge-offs
to average loans 1.80 2.05
1.89 1.57
Provision for loan and
lease losses to
net loan and
lease charge-offs 71.27 82.09
193.87 146.86
(1) Includes nonaccrual
loans, which balance as of the periods ended
March 31, 2009 and
2008, and December 31, 2008 was $130.4 million,
$67.2 million, and
$141.3 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
March
31, December 31, March 31,
2009 2008 2008
Loans contractually
past due 90 days
or more but still
accruing interest $23,898 $22,590 $31,071
Nonaccrual loans 130,399 141,304 67,196
Total nonperforming
loans 154,297 163,894 98,267
Repossessed
property:
Other real estate 9,706 8,759 7,241
Other repossessed
assets 3,751 4,747 6,094
Total repossessed
property 13,457 13,506 13,335
Total nonperforming
assets $167,754 $177,400 $111,602
Nonperforming loans to
total loans 8.86% 9.19% 5.36%
Nonperforming assets to
total loans
plus repossessed
property 9.56 9.87 6.04
Nonperforming assets to
total assets 5.78 6.20 3.99
EUROBANCSHARES, INC.
AND SUBSIDIARIES
NET CHARGE-OFFS
(Dollars in
thousands)
Unaudited
Quarter Ended
March 31, December 31, September 30,
2009 2008 2008
—- —- —-
Charge-offs:
————
Real estate
secured $3,648 $2,129 $420
Other commercial
and
industrial 704 3,363 516
Consumer 992 496 421
Leases financing
contracts 3,098 3,086 3,541
Other 38 14 25
Total
charge-offs 8,480 9,088 4,923
Recoveries:
———–
Real estate
secured $- $1 $2
Other commercial and
industrial 42 70 65
Consumer 87 99 97
Leases financing
contracts 369 399 263
Other – 1 3
Total recoveries 498 570 430
Net charge-offs:
—————-
Real estate
secured $3,648 $2,128 $418
Other commercial
and
industrial 662 3,293 451
Consumer 905 397 324
Leases financing
contracts 2,729 2,687 3,278
Other 38 13
22
Total net
charge-offs $7,982 $8,518 $4,493
Net charge-offs to
average
loans:
————————–
Real estate
secured 1.21% 0.71% 0.14%
Other commercial
and
industrial 1.03 4.84 0.63
Consumer 7.42 3.13 2.47
Leases financing
contracts 4.20 3.87 4.39
Other 7.08 2.06 2.52
Total net charge-offs
to
average loans 1.80% 1.89% 0.98%
Quarter Ended Year Ended
June 30, March 31, December 31,
2008 2008
2008
—- —-
—-
Charge-offs:
————
Real estate
secured $2,683 $3,515 $8,748
Other commercial
and
industrial 654
2,929 7,461
Consumer 563 649 2,129
Leases financing
contracts 3,064 2,817 12,508
Other 65 164 268
Total
charge-offs 7,029 10,074 31,114
Recoveries:
———–
Real estate
secured $3 $15 $21
Other commercial
and
industrial 460 142 737
Consumer 62 64 322
Leases financing
contracts 242 309 1,213
Other 3 2 9
Total recoveries 770 532 2,302
Net charge-offs:
—————-
Real estate
secured $2,680 $3,500 $8,727
Other commercial
and
industrial 194 2,787 6,724
Consumer 501 585 1,807
Leases financing
contracts 2,822 2,508 11,295
Other 62 162 259
Total net
charge-offs $6,259 $9,542 $28,812
Net charge-offs to
average
loans:
————————–
Real estate
secured 0.92% 1.25% 0.75%
Other commercial
and
industrial 0.26 3.64 2.30
Consumer 3.71 4.14 3.38
Leases financing
contracts 3.53 2.69 3.57
Other 4.70 8.92 5.59
Total net charge-offs
to
average loans 1.36% 2.05% 1.57%
SOURCE EuroBancshares,
Inc
