SAN JUAN, Puerto Rico, Oct. 26 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (the "Company") today reported its results for the third quarter ended September 30, 2007.
Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief Executive Officer said: "The results of the third quarter of 2007 were disappointing as they reflect the impact of the market and economic conditions of Puerto Rico and speak for themselves. On the other hand, our leasing portfolio remained stable in terms of delinquency despite this challenging credit and economic environment.
Notwithstanding, the Company remains well positioned to perform when conditions improve. We continue to implement our strategic plan, conservatively growing our niche, evaluating new sources of income, and working on expense control measures to enhance such future performance. As was the case with our leasing portfolio, we believe we will be able to effectively manage any spill over of these difficult economic conditions to our commercial loan portfolio, which loans are principally secured by real estate."
Net Income
EuroBancshares reported a net loss of $1.2 million, or $0.07 per diluted share, for the third quarter of 2007, compared with a net income of $2.6 million, or $0.12 per diluted share, and net income of $1.5 million, or $0.07 per diluted share, for the quarters ended June 30, 2007 and September 30, 2006, respectively. The net loss we experienced in the third quarter of 2007 was caused by three business relationships, which became impaired during the quarter ended September 30, 2007 and required a specific reserve of $4.5 million, reducing our diluted earning per share for the quarter by $0.14, net of taxes.
Return on Average Assets (ROAA) for the third quarter of 2007 was (0.20)%, compared to 0.43% and 0.25% for the quarters ended June 30, 2007 and September 30, 2006, respectively. Return on Average Common Equity (ROAE) for the third quarter of 2007 was (3.01)%, compared to 6.41% and 3.97% for the quarters ended June 30, 2007 and September 30, 2006, respectively.
Net Interest Income
The Company reported total interest income of $43.7 million for the third quarter of 2007, compared to $41.9 million for the third quarter of 2006. Total interest income for the nine months ended September 30, 2007 was $129.0 million, compared to total interest income of $119.4 million for prior year same period. These increases were driven by the combination of a slight increase in average interest-earning assets and increased yields resulting from higher interest rates. Average third quarter and average year-to-date interest-earning assets increased to $2.383 billion and $2.359 billion at September 30, 2007, respectively, compared to $2.378 billion and $2.330 billion at September 30, 2006.
Total interest expense was $26.6 million for the quarter ended September 30, 2007, compared to $25.3 million for the same quarter in 2006. Total interest expense for the nine months ended September 30, 2007 was $77.4 million, compared to total interest expense of $68.5 million for prior year same period. These increases resulted also from the combination of a slight increase in average interest-bearing liabilities and increased costs of funds. Average third quarter and average year-to-date interest-bearing liabilities increased to $2.157 billion and $2.128 billion at September 30, 2007, respectively, compared to $2.142 billion and $2.094 billion at September 30, 2006.
Net interest margin and net interest spread on a fully taxable equivalent basis increased to 2.83% and 2.31% for the quarter ended September 30, 2007, respectively, compared to 2.74% and 2.20% for the same periods in 2006. For the nine-month period ended September 30, 2007, net interest margin and net interest spread on a fully taxable equivalent basis decreased to 2.88% and 2.34%, respectively, from 2.95% and 2.44% for prior year same periods. The increase in net interest margin and net interest spread during the quarter ended September 30, 2007 when compared to the same period in 2006 was basically attributable to an increase in the yields of our loan portfolio, which outpaced the increase in borrowing costs. The decrease in net interest margin and net interest spread during the nine-month period ended September 30, 2007 when compared to the same period in 2006 was basically caused by the rising short-term interest rates and the flattening of the yield curve, which caused borrowing costs to increase at a faster rate than the yield on earning- assets, and to the fact that the increase in average deposits has been substantially in brokered deposits, a higher cost category.
Provision for Loan Losses
The provision for loan and lease losses for the quarter and nine months ended September 30, 2007 was $9.6 million and $18.5 million, or 241.36% and 163.82% of net charge-offs, compared to $4.8 million and $11.6 million, or 94.50% and 101.86% of net charge-offs, for the same periods in 2006, and $3.6 million, or 104.60% of net charge-offs, for the quarter ended June 30, 2007. The increase in our provision for loan and lease losses during the quarter ended September 30, 2007 when compared to the previous quarter was mainly caused by three business relationships, which became impaired during the third quarter of 2007 and required a specific reserve of $4.5 million. These business relationships were comprised of two commercial business relationships amounting to $8.8 million partially secured by real estate, and another commercial business relationship amounting to $1.2 million not secured by real estate, which became impaired during the third quarter of 2007.
In addition, the provision for loan and lease losses is a direct result of the periodic evaluation of the allowance for loan and lease losses, which considers the growth in the loan portfolio and the level of net-charge offs, delinquencies and related loss experience. Some of these factors are discussed further in the Loan and Asset Quality section of this document.
Non-Interest Income
The Company's non-interest income in the quarter and nine months ended September 30, 2007 was $2.2 million and $6.3 million, compared to $1.8 million and $6.7 million for prior year same periods. The increase during the third quarter of 2007 when compared to the same quarter in 2006 was mainly due to the net effect of: (i) a $239,000 increase in service charges mainly due to an increase in non-sufficient fund charges on deposit accounts of $80,000 and an increase in miscellaneous income of $176,000 mainly related to our credit card operations; and (ii) a $259,000 net loss mainly on the sale of OREO and other repossessed assets during the third quarter of 2007, compared to a net loss of $450,000 and $511,000 for the quarters ended June 30, 2007 and September 30, 2006, respectively. The decrease during the nine-month period ended September 30, 2007 when compared to the same period in 2006 was mainly due to the net effect of: (i) a $955,000 increase in service charges mainly due to an increase in non-sufficient fund charges on deposit accounts, trust fees, other fees on loan accounts, and an increase in miscellaneous income mainly due to our credit card operations; and (ii) a $1.2 million net loss on sale of OREO and other repossessed assets for the nine-month period ended September 30, 2007, compared to a gain of $201,000 for prior year same period. The net loss on other repossessed assets included a $179,000 and $1.0 million loss on sale of repossessed vehicles for the quarter and nine-month period ended September 30, 2007, compared to a $345,000 and a $58,000 loss on sale for prior year same periods, and a $394,000 loss on sale for the quarter ended June 30, 2007. The increase in the net loss on sale of repossessed assets during the nine- month period ended September 30, 2007 when compared to the same period in 2006 was directly attributable to our strategy of being more aggressive in the sale of repossessed vehicles to expedite their disposition and avoid the build up of our repossessed vehicles inventory, primarily during the first and second quarter of 2007. This strategy resulted in a significant reduction in the number of repossessed vehicles in inventory. During four quarters in a row, sales of repossessed vehicles exceeded the number of units repossessed. The number of repossessed vehicles in inventory as of September 30, 2007 decreased to 366 units, or by approximately 6%, from 391 units as of June 30, 2007, and by approximately 42%, from 628 units as of September 30, 2006. This is the lowest level of repossessed vehicles in inventory since August 2005. We continue monitoring this inventory very closely and taking measures to expedite its disposition. More details on repossessed assets are discussed in the Loan and Asset Quality section below.
Non-Interest Expense
Non-interest expense for the quarter and nine months ended September 30, 2007 was $12.3 million and $36.7 million, compared to $11.5 million and $33.0 million for prior year same periods. Such increases were mainly due to the net effect of: (i) a $415,000 and $1.8 million increase in salaries for the quarter and nine-month period ended September 30, 2007, respectively, mainly from increases in personnel, primarily in our residential mortgage and trust operations, the expansion of our branch network, normal salary increases and related employees' benefits, and the one-time employee termination benefits and related costs in connection with an information technology outsourcing agreement we entered with Telefonica Empresas in August 2007; (ii) an increase of $269,000 and $1.0 million in occupancy expenses for the quarter and nine- month period ended September 30, 2007, respectively, mainly related to an increase in rent, equipment maintenance, property tax expenses, and data, communications, and security services; (iii) a $478,000 and $164,000 increase in professional services for the quarter and nine-month period ended September 30, 2007, respectively, mainly related to the information technology outsourcing agreement we entered with Telefonica Empresas, as previously mentioned, the legal fees related to this outsourcing agreement, other compliance consulting services, and other legal fees in connection with our trust operations; (iv) a $186,000 and $615,000 increase in insurance expense for the quarter and nine-month period ended September 30, 2007 respectively, mainly related to the FDIC's new insurance premium assessment, which commenced in January 2007; (v) a $514,000 decrease in other real estate owned and repossessed assets expenses for the quarter ended September 30, 2007 resulting from a decrease in the valuation allowance for subsequent declines in value, mainly related to a decrease in the inventory of repossessed vehicles, as previously mentioned; and (vi) a $238,000 decrease in other expenses for the nine-month period ended September 30, 2007, mainly associated with the provision for losses on off-balance sheet items and insurance claim receivables.
Non-interest expense remained at $12.3 million for the quarter ended September 30, 2007 when compared to the quarter ended June 30, 2007. Nonetheless, significant changes during the quarter ended September 30, 2007 included: (i) a $437,000 increase in professional services mainly related to an information technology outsourcing agreement, as previously explained, and other legal fees in connection with our trust operations; and (ii) a $331,000 decrease in other expenses resulting from a decrease in the valuation allowance for subsequent declines in value, mainly related to a decrease in the inventory of repossessed vehicles over six months. The number of repossessed vehicles in inventory over six months as of September 30, 2007 decreased to 53 units, or by approximately 51%, from 108 units in inventory over six months as of June 30, 2007.
The efficiency ratio on a fully taxable equivalent basis for the quarter ended September 30, 2007 was 64.68%, compared to 63.42% for the quarter ended September 30, 2006, and 63.92% for the quarter ended June 30, 2007.
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.
Income tax expense is the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is calculated by applying the statutory tax rate to taxable income. The deferred tax expense (benefit) reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in our financial statements.
During the third quarter of 2007, we recorded an income tax benefit of $1.4 million, compared to an income tax expense of $515,000 during the same quarter in 2006. For the nine-month period ended September 30, 2007, we recorded an income tax benefit of $30,000, compared to an income tax expense of $4.9 million for the same period in 2006. This decrease resulted from the combined effect of a $2.7 million pre-tax income and a (1.14)% effective tax rate for the nine-month period ended September 30, 2007, compared to a $13.0 million pre-tax income and a 37.97% effective tax rate for the same period in 2006. The decrease in the effective tax rate was mainly due to the combined effect of: (i) an increase in the deferred tax asset mainly related to the increase in the provision for loan and lease losses during the quarter ended September 30, 2007, as previously mentioned, which resulted in a deferred tax benefit; (ii) an increase in the exempt income as a percentage of total income during 2007; and (iii) the termination on December 31, 2006 of the additional temporary taxes of 4.5% imposed by the Puerto Rico Legislature in 2006.
Balance Sheet Summary and Asset Quality Data Assets
Total assets increased to $2.561 billion as of September 30, 2007 from $2.501 billion as of December 31, 2006. The increase was mainly due to the net effect of: (i) a $35.4 million decrease in interest bearing deposits; (ii) a $12.4 million decrease in securities purchased under agreements to resell; (iii) a $5.6 million increase in the investment securities portfolio; (iv) a $86.6 million increase in net loans; and (v) a $15.0 million increase in premises and equipment, resulting mainly from the acquisition of a building to relocate the headquarters and administrative offices of the Corporation. The decrease in interest bearing deposits and securities purchased under agreements to resell was mainly related to the increase in the loan portfolio. Details on investment securities and loan portfolio variances are discussed further below.
Investments
During the first nine months of 2007, the investment portfolio increased by approximately $5.6 million to $583.6 million as of September 30, 2007, from $577.9 million as of December 31, 2006. This increase was primarily due to the net effect of: (i) the purchase of $107.8 million in mortgage-back securities and corporate debt; (ii) prepayments of approximately $77.3 million on mortgage-backed securities and FHLB obligations; and (iii) the maturity of $28.9 million in US government agencies and PR government obligations.
During the past few years, we positioned our investment portfolio for an increase in interest rates by purchasing mostly investments with short term maturities or estimated maturities between 11/2 to 4 years. During 2007, we have been analyzing different market opportunities to reposition our investment portfolio in an attempt to improve its average yield and to maintain an adequate average life. During the nine-month period ended September 30, 2007, we purchased approximately $107.8 million in mortgage-back securities and corporate debt with an estimated average life of approximately 6.0 years and an estimated average yield of 5.80%. In addition, during the fourth quarter of 2006, we sold approximately $50.1 million of FHLB and mortgage-backed securities available for sale with an average yield of 3.64%. For the nine-month period ended September 30, 2007, after the above-mentioned transactions, the estimated average maturity was approximately 3.6 years and the average yield was approximately 4.92%, compared to an estimated average maturity of 3.2 years and an average yield of 4.64% for the period ended December 31, 2006. Looking forward, there are approximately $124.8 million in US and Puerto Rico agency obligations that can be called during the next quarter. We expect that the above-mentioned transactions shall continue to have a positive effect on the average yield of the portfolio during the upcoming quarters.
Loans
Total loans, net of unearned, increased by $93.8 million, or 7.14% on an annualized basis, to $1.844 billion as of September 30, 2007, from $1.751 billion as of December 31, 2006. This increase was mainly the net effect of: (i) a $58.1 million, or 61.37% annualized increase in construction loans, from $126.2 million as of December 31, 2006 to $184.3 million as of September 30, 2007; (ii) a $55.6 million, or 7.17% annualized increase in commercial loans, from $1.034 billion as of December 31, 2006 to $1.090 billion as of September 30, 2007; (iii) a $23.8 million, or 41.20% annualized increase in residential mortgages, from $77.2 million as of December 31, 2006 to $101.0 million as of September 30, 2007; and (iv) a $42.1 million, or 12.66% annualized decrease in lease financing contracts from $443.3 million as of December 31, 2006 to $401.2 million as of September 30, 2007.
The $58.1 million increase in construction loans was, in part, comprised of loans for land development and the construction of commercial real estate property, but primarily of 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. The $55.6 million increase in commercial loans was mainly concentrated in commercial loans secured by real estate.
Asset Quality
Non-performing assets increased to $79.7 million as of September 30, 2007, from $62.4 million and $63.0 million as of June 30, 2007 and December 31, 2006, respectively. Non-performing loans amounted to $69.2 million as of September 30, 2007, compared to $51.8 million as of June 30, 2007 and $50.0 million as of December 31, 2006. The $17.5 million increase in non-performing loans during the third quarter of 2007 when compared to the second quarter of 2007 was due to the net effect of a $3.6 million increase in loans over 90 days past due still accruing interest and a $13.9 million increase in nonaccrual loans.
The $3.6 million increase in loans over 90 days still accruing interest was mainly due to the net effect of a $4.8 million increase in loans secured by real estate and a $810,000 decrease in lease financing contracts. The $4.8 million increase in the loans secured by real estate was mainly caused by six commercial business relationships amounting to $3.9 million, which became over 90 days past due during the third quarter of 2007.
The $13.9 million increase in nonaccrual loans was mainly attributable to the net effect of: (i) a $13.4 million increase in commercial loans primarily caused by two commercial business relationships amounting to $8.8 million partially secured by real estate, and two other commercial business relationships amounting to $2.2 million not secured by real estate; (ii) an increase of $621,000 in lease financing contracts; and (iii) a $153,000 decrease in marine loans.
Repossessed assets decreased to $10.5 million as of September 30, 2007, compared to $10.6 million and $13.0 million as of June 30, 2007 and December 31, 2006, respectively. The decrease during the nine-month period ended September 30, 2007 when compared to year ended December 31, 2006 was mainly attributable to the net effect of: (i) a decrease of $3.2 million in other repossessed assets, mainly in the inventory of repossessed vehicles; and (ii) an increase of $703,000 in other real estate owned resulting from the net effect of the sale of three properties and the foreclosure of seven properties during the nine months ended September 30, 2007.
Annualized net charge-offs as a percentage of average loans was 0.87% for the quarter ended September 30, 2007, compared to 0.77% for the quarter ended June 30, 2007, and 1.10% and 0.97% for the fourth quarter and year ended December 31, 2006, respectively. Net charge-offs for the quarter ended September 30, 2007 were $4.0 million, compared to $3.4 million and $4.7 million for the quarters of June 2007 and December 2006, respectively. Net charge-offs for the quarter ended September 30, 2007, compared to the quarters ended June 30, 2007 and December 31, 2006 were as follows: (i) there were no net charge-offs on commercial loans secured by real estate for the quarter ended September 30, 2007, while there were $185,000 in net charge-offs for the second quarter of 2007 and $109,000 in net charge-offs for the quarter ended December 31, 2006; (ii) $640,000 in net charge-offs on other commercial and industrial loans for the third quarter of 2007, compared to $344,000 and $624,000 for the quarters ended June 30, 2007 and December 31, 2006, respectively; (iii) $370,000 in net charge-offs on consumer loans for the third quarter of 2007, compared to $222,000 and $424,000 for the quarters ended June 30, 2007 and December 31, 2006, respectively; (iv) $2.8 million in net charge-offs on lease financing contracts for the third quarter of 2007, compared to $2.7 million and $3.5 million for the quarters ended June 30, 2007 and December 31, 2006, respectively; and (v) $194,000 in net charge-offs on other loans for the third quarter of 2007, compared to $1,000 in net recoveries and $47,000 in net charge-offs for the quarters ended June 30, 2007 and December 31, 2006, respectively.
The increase in net charge-offs during the quarter ended September 30, 2007 when compared to the previous quarter was mainly concentrated in a $296,000 increase in net charge-offs on commercial loans not secured by real estate, and a $195,000 increase in net charge-offs on overdrafts.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses increased to $26.1 million as of September 30, 2007, from $20.5 million as of June 30, 2007, and $18.9 million as of December 31, 2006. The allowance for loan and lease losses is affected by net charge-offs and also by the provision for loan and lease losses for each related period. Net charge-offs, loan portfolio growth, and other economic conditions are taken into consideration when evaluating the adequacy of the allowance for loan and lease losses. Net charge-offs for the quarter ended September 30, 2007 increased to $4.0 million, from $3.4 million during the quarter ended June 30, 2007. Net charge-offs for the nine months ended September 30, 2007 amounted to $11.3 million, or $15.0 million on an annualized basis, compared to $16.2 million for the year ended December 31, 2006.
The increase in our allowance for loan and lease losses during the quarter ended September 30, 2007 when compared to the previous quarter was mainly caused by three business relationships, which became impaired during the third quarter of 2007 and required a specific reserve of $4.5 million, as previously mentioned. We believe that the allowance for loan and lease losses is adequate and it represents 1.42% of total loans as of September 30, 2007.
Deposits and Borrowings
Total deposits as of September 30, 2007 amounted to $1.964 billion, compared to $1.905 billion as of December 31, 2006. This $58.6 million increase was mainly due to the net effect of: (i) a $14.9 million decrease in noninterest-bearing deposits; (ii) a $22.3 million decrease in savings accounts; (iii) a $16.3 increase in jumbo time deposits; and (iv) a $78.2 million increase in brokered time deposits. The decrease in core deposits is mainly attributable to the fierce competition for core deposits on the Island due to a reduction of local funding sources. This fierce competition for local deposits has made brokered deposit an attractive funding alternative, resulting in lower funding costs when compared to the unusually higher rates offered locally for time deposits. We decided to pursue the use of the brokered deposits alternative in an attempt to control the continuous increase in our funding cost. Other borrowings decreased to $382.5 million as of September 30, 2007, compared to $395.0 million as of December 31, 2006.
Stockholders' Equity
The Company's stockholders' equity increased to $175.4 million as of September 30, 2007, from $169.9 million as of December 31, 2006, representing an increase of 4.36% on an annualized basis. Besides earnings and losses from operations, the Company's stockholders' equity was impacted by accumulated other comprehensive losses of $2.9 million and $7.6 million as of September 30, 2007 and December 31, 2006, respectively. In addition, the following items also impacted the Company's stockholders' equity:
-- the repurchase of 488,477 shares during 2006 in connection with a stock repurchase program approved by the Board of Directors in October 2005, which expired in October 2006; -- the exercise of 150,000, 56,450, 7,000, 250,862 and 4,000 stock options in February 2006, June 2006, September 2006, February 2007 and July 2007, respectively; and -- the repurchase of 285,368 shares between the second and third quarter 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 September 30, 2007 and 2006 and June 30, 2007, and nine-month periods ended September 30, 2007 and 2006 Three Months Ended September 30, September 30, June 30, 2007 2006 2007 Interest income: Loans, including fees $36,677,073 $33,648,864 $36,040,114 Investment securities: Taxable 2,776 36,658 2,932 Exempt 6,252,137 7,577,037 6,185,256 Interest bearing deposits, securities purchased under agreements to resell, and other 802,667 633,292 721,301 Total interest income 43,734,653 41,895,851 42,949,603 Interest expense: Deposits 21,553,077 17,730,807 20,380,548 Securities sold under agreements to repurchase, notes payable, and other 5,071,618 7,584,739 5,126,660 Total interest expense 26,624,695 25,315,546 25,507,208 Net interest income 17,109,958 16,580,305 17,442,395 Provision for loan and lease losses 9,594,000 4,849,000 3,594,000 Net interest income after provision for loan and lease losses 7,515,958 11,731,305 13,848,395 Noninterest income: Service charges - fees and other 2,394,869 2,155,924 2,533,170 Net (loss) gain on sale of repossessed assets and on disposition of other assets (258,889) (510,980) (450,321) Gain on sale of loans 76,560 133,431 49,826 Total noninterest income 2,212,540 1,778,375 2,132,675 Noninterest expense: Salaries and employee benefits 4,950,481 4,535,978 5,163,004 Occupancy, furniture and equipment 2,812,295 2,542,896 2,631,039 Professional services 1,444,487 966,790 1,007,732 Insurance 479,219 293,349 477,602 Promotional 374,800 323,538 373,950 Other 2,280,458 2,813,905 2,611,727 Total noninterest expense 12,341,740 11,476,456 12,265,054 (Loss) income before income taxes (2,613,242) 2,033,224 3,716,016 Provision for income taxes (1,378,559) 514,732 1,088,265 Net (loss) income $(1,234,683) $1,518,492 $2,627,751 Basic (loss) earnings per share $(0.07) $0.07 $0.13 Diluted (loss) earnings per share $(0.07) $0.07 $0.12 Nine Months Ended September 30, 2007 2006 Interest income: Loans, including fees $107,656,676 $95,523,250 Investment securities: Taxable 9,457 89,308 Exempt 19,081,526 22,297,717 Interest bearing deposits, securities purchased under agreements to resell, and other 2,250,338 1,535,692 Total interest income 128,997,997 119,445,967 Interest expense: Deposits 61,990,244 49,013,326 Securities sold under agreements to repurchase, notes payable, and other 15,395,403 19,451,835 Total interest expense 77,385,647 68,465,161 Net interest income 51,612,350 50,980,806 Provision for loan and lease losses 18,467,000 11,629,000 Net interest income after provision for loan and lease losses 33,145,350 39,351,806 Noninterest income: Service charges - fees and other 7,182,759 6,228,010 Net (loss) gain on sale of repossessed assets and on disposition of other assets (1,153,979) 200,768 Gain on sale of loans 239,143 262,470 Total noninterest income 6,267,923 6,691,248 Noninterest expense: Salaries and employee benefits 15,848,655 14,012,230 Occupancy, furniture and equipment 8,040,768 7,023,753 Professional services 3,319,078 3,154,810 Insurance 1,409,089 794,427 Promotional 1,125,772 840,593 Other 6,993,252 7,216,039 Total noninterest expense 36,736,614 33,041,852 (Loss) income before income taxes 2,676,659 13,001,202 Provision for income taxes (30,446) 4,936,685 Net (loss) income $2,707,105 $8,064,517 Basic (loss) earnings per share $0.11 $0.39 Diluted (loss) earnings per share $0.11 $0.38 Note: Certain adjustments resulting from the initial adoption of SAB 108 as of December 31, 2006 were made to comparable periods in 2006. EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) September 30, 2007 and December 31, 2006 September 30, December 31, Assets 2007 2006 Cash and due from banks $19,707,364 $25,527,489 Interest bearing deposits 13,631,666 49,050,368 Securities purchased under agreements to resell 38,761,166 51,191,323 Investment securities available for sale 544,784,240 535,159,009 Investment securities held to maturity 32,892,220 38,432,820 Other investments 5,889,375 4,329,200 Loans held for sale 487,250 879,000 Loans, net of allowance for loan and lease losses of $26,130,647 in 2007 and $18,936,841 in 2006 1,818,021,788 1,731,022,290 Accrued interest receivable 17,867,297 15,760,852 Customers' liability on acceptances 274,198 1,561,736 Premises and equipment, net 29,912,639 14,889,456 Other assets 38,399,160 33,116,690 Total assets $2,560,628,363 $2,500,920,233 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $125,443,542 $140,321,373 Interest bearing 1,838,505,762 1,765,034,834 Total deposits 1,963,949,304 1,905,356,207 Securities sold under agreements to repurchase 361,414,250 365,664,250 Acceptances outstanding 274,198 1,561,736 Advances from Federal Home Loan Bank 467,519 8,707,420 Notes payable to Statutory Trust 20,619,000 20,619,000 Accrued interest payable 18,170,901 18,047,074 Accrued expenses and other liabilities 20,294,002 11,086,705 2,385,189,174 2,331,042,392 Stockholders' equity: Preferred stock: Preferred stock Series A, $0.01 par value. Authorized 20,000,000 shares; issued and outstanding 430,537 in 2007 and 2006 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: 20,032,398 shares in 2007 and 19,777,536 shares in 2006; outstanding: 19,093,315 shares in 2007 and 19,123,821 shares in 2006 200,324 197,775 Capital paid in excess of par value 107,824,152 106,539,383 Retained earnings: Reserve fund 7,938,161 7,553,381 Undivided profits 61,565,747 59,800,495 Treasury stock, 939,083 shares at cost in 2007 and 653,715 at cost in 2006 (9,910,458) (7,410,711) Accumulated other comprehensive loss (2,942,162) (7,565,907) Total stockholders' equity 175,439,189 169,877,841 Total liabilities and stockholders' equity $2,560,628,363 $2,500,920,233 EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited Quarter Ended September 30, June 30, 2007 2006 2007 Average shares outstanding - basic 19,160,985 19,118,191 19,371,991 Average shares outstanding - assuming dilution 19,350,582 19,467,678 19,585,806 Number of shares outstanding at end of period 19,093,315 19,123,821 19,269,545 Book value per common share $8.62 $8.34 $8.44 Average Balances Total assets 2,482,760 2,461,414 2,435,355 Loans and leases, net of unearned 1,825,334 1,687,070 1,779,829 Interest-earning assets (1) 2,383,321 2,378,352 2,336,812 Interest-bearing deposits 1,783,308 1,597,529 1,722,865 Other borrowings 374,091 544,248 383,981 Preferred stock 10,763 10,763 10,763 Shareholders' equity 174,672 163,542 174,681 Loan Mix Loans secured by real estate Commercial and industrial 786,259 708,658 764,038 Construction 184,347 104,538 165,075 Residential mortgage 100,509 69,617 93,150 Consumer 802 800 744 1,071,917 883,613 1,023,007 Commercial and industrial 303,430 289,451 299,152 Consumer 59,533 61,534 59,965 Lease financing contracts 401,209 458,473 417,400 Overdrafts 6,399 7,335 6,270 Total 1,842,488 1,700,406 1,805,794 Deposit Mix Noninterest-bearing deposits 125,443 128,406 130,791 Now and money market 68,754 70,124 64,793 Savings 133,739 165,532 142,056 Broker deposits 1,304,359 1,066,828 1,223,847 Regular CD's & IRAS 90,632 104,123 89,606 Jumbo CD's 241,022 210,237 225,647 Total 1,963,949 1,745,250 1,876,740 Financial Data Total assets 2,560,628 2,500,249 2,458,941 Loans and leases, net of unearned 1,844,640 1,706,225 1,809,066 Allowance for loan and lease losses 26,131 18,400 20,512 Total deposits 1,963,949 1,745,249 1,876,740 Other borrowings 382,501 556,214 377,339 Preferred stock 10,763 10,763 10,763 Dividends on preferred stock 188 188 186 Shareholders' equity 175,439 170,335 173,335 Total interest income 43,735 41,896 42,949 Total interest expense 26,625 25,315 25,507 Provision for loan and lease losses 9,594 4,849 3,594 Services charges - fees and other 2,395 2,156 2,533 Net (loss) gain on sale of loans and other assets (182) (378) (400) Non-interest expense 12,341 11,477 12,265 Income taxes (1,379) 515 1,088 Net income (1,233) 1,518 2,628 Nonperforming assets 79,716 65,903 62,374 Nonperforming loans 69,212 52,151 51,753 Net charge-offs 3,975 5,131 3,436 Performance Ratios Return on average assets (2) (0.20)% 0.25 % 0.43 Return on average common equity (3) (3.01) 3.97 6.41 Net interest spread (4) 2.31 2.20 2.38 Net interest margin (5) 2.83 2.74 2.92 Efficiency ratio (6) 64.68 63.42 63.91 Earnings per common share - basic $(0.07) $0.07 $0.13 Earnings per common share - diluted (0.07) 0.07 0.12 Asset Quality Ratios Nonperforming assets to total assets 3.11 % 2.64 % 2.54 Nonperforming loans to total loans 3.75 3.06 2.86 Allowance for loan and lease losses to total loans 1.42 1.08 1.13 Net loan and lease charge-offs to average loans 0.87 1.22 0.77 Provision for loan and lease losses to net loan and lease charge-offs 241.36 94.50 104.60 Nine Months Ended September 30, 2007 2006 Average shares outstanding - basic 19,253,068 19,248,639 Average shares outstanding - assuming dilution 19,478,288 19,721,754 Number of shares outstanding at end of period 19,093,315 19,123,821 Book value per common share $8.62 $8.34 Average Balances Total assets 2,457,321 2,409,935 Loans and leases, net of unearned 1,788,346 1,641,073 Interest-earning assets (1) 2,359,461 2,330,986 Interest-bearing deposits 1,744,372 1,589,606 Other borrowings 383,712 504,246 Preferred stock 10,763 10,763 Shareholders' equity 173,689 163,403 Loan Mix Loans secured by real estate Commercial and industrial 786,259 708,658 Construction 184,347 104,538 Residential mortgage 100,509 69,617 Consumer 802 800 1,071,917 883,613 Commercial and industrial 303,430 289,451 Consumer 59,533 61,534 Lease financing contracts 401,209 458,473 Overdrafts 6,399 7,335 Total 1,842,488 1,700,406 Deposit Mix Noninterest-bearing deposits 125,443 128,406 Now and money market 68,754 70,124 Savings 133,739 165,532 Broker deposits 1,304,359 1,066,828 Regular CD's & IRAS 90,632 104,123 Jumbo CD's 241,022 210,237 Total 1,963,949 1,745,250 Financial Data Total assets 2,560,628 2,500,249 Loans and leases, net of unearned 1,844,640 1,706,225 Allowance for loan and lease losses 26,131 18,400 Total deposits 1,963,949 1,745,249 Other borrowings 382,501 556,214 Preferred stock 10,763 10,763 Dividends on preferred stock 557 557 Shareholders' equity 175,439 170,335 Total interest income 128,998 119,446 Total interest expense 77,386 68,465 Provision for loan and lease losses 18,467 11,629 Services charges - fees and other 7,183 6,228 Net (loss) gain on sale of loans and other assets (915) 463 Non-interest expense 36,737 33,042 Income taxes (30) 4,936 Net income 2,706 8,065 Nonperforming assets 79,716 65,903 Nonperforming loans 69,212 52,151 Net charge-offs 11,273 11,417 Performance Ratios Return on average assets (2) 0.15 % 0.45 Return on average common equity (3) 2.21 7.04 Net interest spread (4) 2.34 2.44 Net interest margin (5) 2.88 2.95 Efficiency ratio (6) 64.19 56.66 Earnings per common share - basic $0.11 $0.39 Earnings per common share - diluted 0.11 0.38 Asset Quality Ratios Nonperforming assets to total assets 3.11 % 2.64 Nonperforming loans to total loans 3.75 3.06 Allowance for loan and lease losses to total loans 1.42 1.08 Net loan and lease charge-offs to average loans 0.84 0.93 Provision for loan and lease losses to net loan and lease charge-offs 163.82 101.86 (1) Includes nonaccrual loans, which balance as of the periods ended June 30, 2007 and 2006 was $41.4 million, $31.9 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. Note: Certain adjustments resulting from the initial adoption of SAB 108 as of December 31, 2006 were made to comparable periods in 2006. EUROBANCSHARES, INC. AND SUBSIDIARIES NONPERFORMING ASSETS (Dollars in thousands) Unaudited For the periods ended September 30, June 30, December 31, September 30, 2007 2007 2006 2006 Loans contractually past due 90 days or more but still accruing interest: $13,936 $10,382 $12,723 $18,224 Nonaccrual loans: 55,276 41,371 37,255 33,927 Total nonperforming loans 69,212 51,753 49,978 52,151 Repossessed property: Other real estate 4,332 4,344 3,629 3,763 Other repossesed assets 6,172 6,277 9,419 9,989 Total repossessed property 10,504 10,621 13,048 13,752 Total nonperforming assets $79,716 $62,374 $63,026 $65,903 Nonperforming loans to total loans 3.75 % 2.86 % 2.85 % 3.05 % Nonperforming assets to total loans plus repossessed property 4.30 3.43 3.57 3.83 Nonperforming assets to total assets 3.11 2.54 2.52 2.64 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2007 2007 2007 2006 2006 Charge-offs: Real estate secured $- $198 $11 $109 $551 Other commercial and industrial 667 491 456 657 1,179 Consumer 435 310 460 571 423 Leases financing contracts 3,113 3,027 3,388 3,827 3,610 Other 194 5 139 52 5 Total charge-offs 4,409 4,031 4,454 5,216 5,768 Recoveries: Real estate secured $- $13 $35 $- $11 Other commercial and industrial 27 147 83 33 92 Consumer 65 88 57 147 97 Leases financing contracts 342 341 412 294 434 Other - 6 5 5 3 Total recoveries 434 595 592 479 637 Net charge-offs: Real estate secured $- $185 $(24) $109 $540 Other commercial and industrial 640 344 373 624 1,087 Consumer 370 222 403 424 326 Leases financing contracts 2,771 2,686 2,976 3,533 3,176 Other 194 (1) 134 47 2 Total net charge-offs $3,975 $3,436 $3,862 $4,737 $5,131 Net charge-offs to average loans: Real estate secured - % 0.07 % (0.01)% 0.05 % 0.25 % Other commercial and industrial 0.85 0.47 0.51 0.82 1.50 Consumer 2.47 1.47 2.67 2.77 2.12 Leases financing contracts 2.71 2.54 2.73 3.14 2.72 Other 9.87 (0.05) 6.20 2.09 0.10 Total net charge-offs to average loans 0.87 % 0.77 % 0.88 % 1.10 % 1.22 % Year Ended December 31, 2006 Charge-offs: Real estate secured $685 Other commercial and industrial 3,050 Consumer 1,978 Leases financing contracts 12,927 Other 149 Total charge-offs 18,789 Recoveries: Real estate secured $11 Other commercial and industrial 534 Consumer 465 Leases financing contracts 1,604 Other 21 Total recoveries 2,635 Net charge-offs: Real estate secured $674 Other commercial and industrial 2,516 Consumer 1,513 Leases financing contracts 11,323 Other 128 Total net charge-offs $16,154 Net charge-offs to average loans: Real estate secured 0.08 % Other commercial and industrial 0.88 Consumer 2.42 Leases financing contracts 2.40 Other 1.52 Total net charge-offs to average loans 0.97 %
