EUBK Eurobancshares (MM)

Reports on Its Assessment of Internal Control Over Financial Reporting SAN JUAN, Puerto Rico, Feb. 23 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (NASDAQ:EUBK) (the "Company") today reported its results for the fourth quarter and year ended December 31, 2005 and reported on its assessment of internal control over financial reporting. Rafael Arrillaga-Torrens, Jr., Chairman, President and Chief Executive Officer of the Company said, "We are pleased with our year end results and overall performance. Despite the challenging interest rate environment and fierce competition, we were able to significantly increase our commercial loan portfolio, which is our main line of business. Total commercial loans increased by $178.4 million, or 25.27%. Nevertheless, the effect of such growth has not yet been optimized and we expect to fully realize the benefits of this growth in the upcoming year. In addition, we are encouraged by the continued expansion of our net interest margin following the repositioning of our investment portfolio during the third quarter of 2005. 2005 was a very difficult year for the Puerto Rico banking industry and all financial institutions in general. In the last quarter of 2005, we increased our provision for loan and lease losses as we experienced an unexpected increase in the number of repossessed vehicles resulting from the impairment of certain leases in our automobile leasing portfolio. We intend to take all necessary steps to react proactively to the evolving lending environment. In order to maintain the quality of our leasing portfolio, we have tightened our underwriting standards for our automobile loans and hired additional experienced underwriting personnel. We have also hired senior collections personnel with significant experience in this area to better enable us to manage delinquencies and repossessed assets in the future. During 2005, we worked to complete the final stages of the integration of the former The Bank & Trust of Puerto Rico ("BankTrust"), which we acquired and merged into Eurobank, our banking subsidiary, on May 3, 2004. We have been preparing and adjusting our platform to leverage this acquisition and expand our business relations with the former customers of BankTrust. Also, we continued to spread our footprint throughout the Island by opening two additional branches in Canovanas and Aguadilla. While these initiatives, together with the costs associated with operating as a public company, have resulted in increased overhead, we are confident that we can optimize these efforts for the future benefit of the Company." Stock Repurchase Program On October 27, 2005, EuroBancshares announced the establishment of a stock repurchase program under Rule 10b-18 under the Securities and Exchange Act of 1934, as amended, pursuant to which EuroBancshares would acquire shares of its common stock for an aggregate purchase price of up to $10.0 million in open market purchases, block trades and privately negotiated transactions over a period of one year. Since that time, EuroBancshares has repurchased 163,550 shares for the aggregate purchase price of $1,924,192. EuroBancshares intends to continue to repurchase shares of its common stock pursuant to the stock repurchase program at such times and at such prices as it deems appropriate. Net Income EuroBancshares' net income before extraordinary gain for the fourth quarter of 2005 decreased to $1.7 million, or $0.08 per basic common share ($0.07 on a diluted basis) compared to $6.1 million, or $0.30 per common share ($0.29 on a diluted basis), for the same period in 2004. Net income before extraordinary gain for the year ended December 31, 2005 was $16.5 million, or $0.81 per common share ($0.78 on a diluted basis) compared to $18.3 million, or $1.08 per common share ($1.04 on a diluted basis), for the comparable period last year. Earnings per share gives effect to: * a two-for-one stock split effective July 15, 2004; * the issuance of 3,450,000 shares on August 11, 2004 in the Company's Initial Public Offering (IPO), and additional 517,500 shares on September 15, 2004, pursuant to the exercise of the underwriters' over- allotment option in connection with the IPO; * the repurchase of 163,550 shares between November and December 2005 in connection with a stock repurchase program approved by the Board of Directors in October 2005, and; * the recording of 1,688 shares held in treasury as a result of a payment in lieu of foreclosure from a former borrower. Return on Average Assets (ROAA) for the fourth quarter of 2005 was 0.29%, compared to a ROAA of 1.20% for the same quarter in 2004. ROAA for the year ended December 31, 2005 was 0.74%, compared to a ROAA of 1.03% for the same period last year. Return on Average Common Equity (ROACE) for the year ended December 31, 2005 was 10.70%, compared to 18.67% for the same period in 2004. Net Interest Income The Company reported total interest income of $36.8 million for the fourth quarter of 2005, compared to $28.4 million for the fourth quarter of 2004. Total interest income for the year ended December 31, 2005 was $133.2 million, compared to total interest income of $95.4 million for prior year same period. Increases were due to the combined result of increases in average interest- earning assets and increased yields resulting from higher interest rates during 2005. Average fourth quarter and year-to-date interest-earning assets increased to $2.268 billion and $2.157 billion as of December 31, 2005, respectively, compared to $1.961 billion and $1.702 billion as of December 31, 2004, respectively. Total interest expense was $19.1 million for the fourth quarter ended December 31, 2005, compared to $12.2 million for the same quarter in 2004. Total interest expense for the year ended December 31, 2005 was $64.9 million, compared to total interest expense of $41.5 million for the year 2004. These increases resulted from the combination of higher interest-bearing deposits and borrowings and increased costs of funds during 2005. Average fourth quarter and year-to-date interest-bearing deposits and borrowings increased to $2.024 billion and $1.923 billion as of December 31, 2005, respectively, as compared to $1.724 billion and $1.526 billion as of December 31, 2004, respectively. Net interest margin on a fully taxable equivalent basis decreased to 3.23% for the fourth quarter of 2005, as compared to 3.45% for the same period in 2004. Net interest margin remained at 3.29% for the year ended December 31, 2005 when compared to the year ended December 31, 2004. Net interest spread on a fully taxable equivalent basis decreased to 2.76% and 2.88% for the fourth quarter and year end 2005, compared to 3.08% and 3.00%, respectively, for same periods in 2004. These declines in margin and spread were caused primarily by the rising short-term interest rates and flattening yield curve, which caused borrowing costs to increase at a faster rate than the yield on earning-assets. Additionally, the increase in average deposits has been substantially in brokered deposits, a higher cost category. On the other hand, net interest margin and spread on a fully taxable equivalent basis for the quarter ended December 31, 2005 increased to 3.23% and 2.76%, respectively, when compared to 3.14% and 2.73% for the quarter ended September 30, 2005. Mr. Arrillaga commented, "We have been operating in a difficult interest rate environment. However, the fact that we did not experience margin compression in the last quarter reflects our ability to react proactively to the changing environment and properly manage the Company's asset/liability mix and interest rate risk." Provision for Loan and Lease Losses The provision for loan and lease losses for the quarter ended December 31, 2005 was $6.4 million, compared to $1.3 million for the same quarter in 2004, and $12.8 million and $7.1 million for the years ended December 31, 2005 and 2004, respectively. The increase in the provision resulted from the growth in our loan portfolio and the net losses experienced, mainly in our leasing portfolio. More details on portfolio growth, net charge-offs and asset quality are discussed below. Net Non-Interest Income EuroBancshares' net non-interest income in the fourth quarter of 2005 was $1.8 million, compared to $3.4 million for the same quarter last year. This decrease was due to the net effect of: (i) a $94,000 increase in service charges, mainly on deposits; (ii) a $71,000 loss on sale of securities resulting from the sale of $45.0 million of US Treasury obligations held for sale in October 2005 in order to reposition the investment portfolio to take advantage of the rising rate environment; (iii) an increase of $501,000 in net losses on the sale of real estate owned and other repossessed assets, which consists primarily of losses realized from the disposition of vehicles and equipment resulting from our strategy to become more aggressive with selling repossessed units; and (iv) a $1.1 million decrease in gain on sale of loans mainly because we did not sell any lease financing contracts in the fourth quarter of 2005, compared to $30.0 million sold in the same quarter last year. Net non-interest income for the year ended December 31, 2005 was $7.7 million, as compared to $9.1 million for the same period in 2004. This decrease resulted from the net effect of: (i) a $1.0 million increase in service charges, our main component of non-interest income; (ii) a $944,000 increase in net losses on non-hedging derivatives, which reflects a $1.1 million charge to earnings in the first quarter of 2005 for net losses on non- hedging derivatives on which hedge accounting had been discontinued, and a $132,000 gain on such derivatives in the second quarter of 2005; (iii) a $301,000 loss on sale of securities resulting from the sale of $40.0 million in U.S. Treasury obligations available for sale in March 2005 and $45.0 million sold in October 2005 in an effort to improve the yields of the available-for-sale securities portfolio to position it to better respond to the rising rates environment; (iv) an increase of $681,000 in the net loss on the sale of repossessed assets and on the disposition of other assets mainly attributable to our more aggressive strategy of disposing of repossessed vehicles and equipment as mentioned before; and (v) a $449,000 decrease in gain on the sale of loans mainly attributable to the lower yields on the loans sold in 2005 as compared to those sold in 2004. Non-Interest Expense Non-interest expense for the fourth quarter and year ended December 31, 2005 increased to $10.2 million and $37.6 million, respectively, compared to $8.9 million and $28.9, respectively, for the same periods in 2004. These increases were mainly concentrated in personnel, occupancy and professional expenses and continued to reflect the Company's organic growth as well as the growth related to the acquisition of BankTrust in May 2004 and increased legal, audit, consulting and professional fees related to operating as a publicly-traded corporation. The efficiency ratio on a fully taxable equivalent basis was 50.64% for the quarter ended December 31, 2005, compared to 43.80% for the fourth quarter of 2004. The efficiency ratio on a fully taxable equivalent basis for the years ended December 31, 2005 and 2004 were 47.84% and 44.44%, respectively. Income Tax Expense The Company recorded income tax expense of $1.2 million during the fourth quarter of 2005, down from $3.3 million during the same period in 2004. Income tax expense increased to $9.1 million for the year ended December 31, 2005, compared to $8.7 million for 2004. This increase resulted from a $25.6 million pre-tax income and a 35.4% effective tax rate for the year ended 2005, compared to a $27.0 million pre-tax income and a 32.1% effective tax rate for the same period in 2004. The increase in the effective rate mainly resulted from the increase in taxable income, primarily related to our loan portfolio, as a percentage of total income during 2005, when compared to 2004. On August 1, 2005, the governor of Puerto Rico approved a temporary increase of 2.5% on the taxable income, which increased the statutory tax rate from 39% to 41.5% for the years 2005 and 2006. This change in rate resulted in additional income tax expense for the year in the amount of $27,000, comprised of an increase in current income tax expense of $98,000 and a $71,000 estimated deferred tax benefit. In addition, on August 3, 2005, the governor of Puerto Rico submitted to the Puerto Rico Legislature a proposal to impose an additional transitory tax of 4% on net interest income applicable to Puerto Rico financial institutions. If approved, this additional tax will be effective for the taxable years 2005 and 2006. The proposal excludes from the definition of net interest income, exempt net interest earned on obligations of the United States, of any state or territory of the United States or political subdivision, of the District of Columbia, and of the Commonwealth of Puerto Rico or any instrumentality or political subdivision. The final impact of this proposal will depend on the final bill, if approved, the actual distribution of taxable and exempt income, and the regulations, if any, issued thereafter. Balance Sheet Summary and Asset Quality Data Assets EuroBancshares increased its total assets to $2.391 billion as of December 31, 2005 from $2.103 billion at December 31, 2004. Even with sales of finance leases totaling $29.9 million ($14.9 during the first quarter of 2005 and $15.0 in the third quarter of 2005) total loans still increased by $189.6 million, or 13.66%, to $1.577 billion as of December 31, 2005, from $1.388 billion as of December 31, 2004. Commercial loans, the Company's main line of business, increased by $178.4 million, or 25.27%, to $884.4 million as of December 31, 2005, from $706.0 million as of December 31, 2004. Loans Loan portfolio growth during year 2005 has been mostly concentrated in commercial loans secured by real estate, for which the risk of loss is smaller than in certain other loan categories. During 2005, commercial loans secured by real estate increased by $148.9 million, representing 78.58% of the total increase of our loan portfolio during the year. Allowance for Loan and Lease Losses and Asset Quality The allowance for loan and lease losses decreased to $18.2 as of December 31, 2005, compared to $19.0 million as of December 31, 2004. A periodic evaluation of the allowance for loan and lease losses is performed, considering portfolio growth, net-charge offs, delinquencies, and related loss experience. Management considers that the allowance for loan and lease losses, which is 1.15% of total loans and leases at December 31, 2005, is adequate to absorb probable losses in the portfolio. During the last quarter of 2005, net charge-offs amounted to $3.5 million, compared to $2.4 million for the quarter ended December 31, 2004. Net charge- offs for the year ended December 31, 2005 were $13.6 million, compared to $8.4 million for the year ended December 31, 2004. The increase in net charge-offs for the year ended December 31, 2005 from the year ended December 31, 2004 was distributed as follows: (i) $1.4 million increase in net charge-offs from consumer loans; (ii) $1.2 million increase in net charge-offs from commercial and industrial loans; and (iii) $2.7 million increase in net charge-offs from our leasing portfolio mainly as a result of an increase in the repossessed vehicles inventory. The increase in net charge-offs from consumer loans and in the commercial and industrial loans portfolio included $1.1 million and $643,000 related to marine and commercial loans acquired from BankTrust, respectively, for which adequate reserves were previously established. Annualized net charge-offs as a percentage of average loans were 0.91% for the fourth quarter of 2005 and 0.92% for the year ended December 31, 2005, compared to 0.99% for the quarter ended on September 30, 2005 and 0.69% for the year ended December 31, 2004. Non-performing loans to total loans decreased to 2.30% as of December 31, 2005 when compared to 2.92% as of December 31, 2004, although there was a slight increase when compared with 2.27% as of September 30, 2005. Non- performing assets to total assets decreased to 1.91% as of December 31, 2005 as compared to 2.23% as of December 31, 2004, but increased slightly when compared to 1.88% as of September 30, 2005. Investments The investment portfolio increased by approximately $66.5 million to $680.2 million as of December 31, 2005 from $613.7 million as of December 31, 2004. This increase was primarily due to the net effect of: (i) the sale of $85.0 million of US Treasury obligations which would have matured between August and November of 2005, (ii) a decrease of $7.9 million in FHLB investments due to monthly principal prepayments and maturity of FHLB obligations and the redemption of FHLB stock and a decrease of $1.5 million in Puerto Rico Bonds due to maturity of the PR Public Finance Corp. Bonds, (iii) the monthly prepayments of approximately $136.8 million of mortgage backed securities, (iv) the purchase of $142.1 million in US government agencies obligations, $8.3 million in FHLB stocks and $159.8 million in mortgage backed securities, and (v) a net premium amortization of $4.6 million. During the past few years, we positioned our investment portfolio for an increase in interest rates by purchasing mostly investments with maturities or estimated maturities between 1 1/2 to 4 years. During the year 2005, we have seen higher interest rates in the short term part of the yield curve and we have been able to reinvest at higher yields and for maturities or estimated maturities from 2 years to 5 years. As of December 31, 2005, after the above- mentioned transactions, the estimated average maturity was approximately 2.77 years and the average yield was approximately 4.26% compared to an estimated average maturity of 2.64 years and to an estimated average yield of 4.15% as of December 31, 2004. Deposits and Borrowings Total deposits as of December 31, 2005 increased to $1.734 billion, from $1.409 billion as of December 31, 2004. This increase was concentrated in time deposits over $100,000 and brokered deposits mainly due to the fierce competition for core deposits on the Island. On the other hand, other borrowings decreased to $475.7 million as of December 31, 2005, compared to $520.2 million at December 31, 2004. Such decrease was mainly concentrated in the securities sold under agreements to repurchase. Management's Assessment of Internal Control over Financial Reporting In connection with its ongoing evaluation and testing activities under Section 404 of the Sarbanes Oxley Act of 2002 and related rules and regulations, management of EuroBancshares is currently in the process of assessing the effectiveness of EuroBancshares' internal control over financial reporting as of December 31, 2005. In making its assessment of internal control over financial reporting, management is using the criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the criteria established in COSO, management has concluded that certain conditions exist which constitute a "material weakness" in its internal control over financial reporting as of December 31, 2005. EuroBancshares' methodology for the determination of the adequacy of the allowance for loan and lease losses for impaired loans is based on classifications of loans into various categories and loss percentages that are commonly used for regulatory purposes. For non-classified loans, the estimated allowance is based on historical loss experiences as adjusted for changes in trends and conditions on an annual basis. These trends are monitored to prevent possible deviations from the loss factors used for the methodology. As part of management's assessment of the effectiveness of internal controls over the allowance for loan and lease losses adequacy, management identified several deficiencies, which when evaluated in the aggregate, were considered a material weakness. Such deficiencies are related to controls over certain aspects of the monitoring and documentation of recent loss trends of portfolios, the segregation of portfolios for purposes of the calculations of the adequacy of the allowance for loan and lease losses, and the documentation of the unallocated portion of the allowance. As a result of the material weakness, management will be unable to conclude that EuroBancshares' internal controls over financial reporting were effective as of December 31, 2005. Notwithstanding the foregoing, the accompanying financial information has been adjusted by management to properly account for recent loss trends and conditions. In addition, management has commenced a remediation process post year end and intends to take the following actions to improve and remediate the material weakness in the Company's internal control over financial reporting: * A detailed quarterly review and monitoring of loan and lease loss ratios will be documented in order to detect any trend which may require adjustment of loss percentages allocated in the general reserve for loan and lease portfolios. * New reports will be produced in order to compare portfolio balances with prior month to identify key variances. Analysis procedures will be formalized and documented to ensure the accuracy of these reports. * A memorandum will be prepared by the Loan Review Officer and submitted to management and the Board of Directors on a monthly basis to document the unallocated portion of the allowance for loan and lease losses following the guidelines set forth in Staff Accounting Bulletin No. 102. Management believes that these actions will strengthen the Company's internal control over financial reporting and will address the material weakness identified above. Mr. Arrillaga stated, "We intend to vigorously pursue a rapid remediation of the deficiencies identified in our internal controls over financial reporting to ensure proper monitoring and documentation procedures going forward." 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, an international banking entity, and its wholly owned insurance agency, EuroSeguros. 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 and years ended December 31, 2005 and 2004 Three Months Ended Years Ended December 31, December 31, 2005 2004 2005 2004 Interest income: Loans, including fees $29,009,163 $24,105,649 $107,970,892 $82,790,251 Investment securities: Available- for-sale 6,780,826 3,940,186 21,997,813 11,887,768 Held-to- maturity 469,321 201,017 1,874,044 201,017 Interest- bearing deposits, securities purchased under agreements to resell, and other 573,094 123,809 1,389,732 514,602 Total interest income 36,832,404 28,370,661 133,232,481 95,393,638 Interest expense: Deposits 13,328,035 9,066,862 44,933,645 33,309,033 Securities sold under agreements to repurchase, notes payable, and other 5,815,080 3,104,420 20,002,104 8,172,239 Total interest expense 19,143,115 12,171,282 64,935,749 41,481,272 Net interest income 17,689,289 16,199,379 68,296,732 53,912,366 Provision for loan and lease losses 6,435,000 1,250,000 12,775,000 7,100,000 Net interest income after provision for loan and lease losses 11,254,289 14,949,379 55,521,732 46,812,366 Noninterest income: Service charges - fees and other 2,366,818 2,272,429 9,068,560 8,056,482 Net loss on non-hedging derivatives - - (943,782) - Net loss on sale of securities (71,036) - (301,053) - Net loss on sale of repossessed assets and on disposition of other assets (524,852) (23,833) (1,040,206) (358,890) Gain on sale of loans 23,283 1,116,870 945,613 1,395,105 Total noninterest income 1,794,213 3,365,466 7,729,132 9,092,697 Noninterest expense: Salaries and employee benefits 3,934,544 3,068,792 14,727,209 11,110,819 Occupancy 2,451,047 1,928,358 8,554,524 6,942,603 Professional services 1,124,572 918,009 3,911,659 2,196,101 Insurance 287,250 351,786 1,095,193 803,727 Promotional 148,179 158,433 686,080 545,128 Other 2,229,129 2,447,025 8,668,608 7,343,310 Total noninterest expense 10,174,721 8,872,403 37,643,273 28,941,688 Income before income taxes and extra- ordinary item 2,873,781 9,442,442 25,607,591 26,963,375 Provision for income taxes 1,200,410 3,319,084 9,077,228 8,662,633 Income before extra- ordinary item 1,673,371 6,123,358 16,530,363 18,300,742 Extraordinary gain on acquisition of BankTrust - 4,898 - 4,419,118 Net income $1,673,371 $6,128,256 $16,530,363 $22,719,860 Earnings per share: Basic: Income before extraordinary item $0.08 $0.30 $0.81 $1.08 Extraordinary item - - - 0.27 Net income $0.08 $0.30 $0.81 $1.35 Diluted: Income before extraordinary item $0.07 $0.29 $0.78 $1.04 Extraordinary item - - - 0.26 Net income $0.07 $0.29 $0.78 $1.30 Note: Reclassifications decreasing loan interest income with corresponding equal decreases in salaries and employee benefits have been made in the amount of $2.1 million for the quarter ended December 31, 2004 and $8.1 million for the year ended December 31, 2004 to conform with this quarter's presentation. EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) December 31, 2005 and December 31, 2004 Assets 2005 2004 Cash and due from banks $20,993,485 $18,597,116 Interest-bearing deposits 20,773,171 3,271,377 Securities purchased under agreements to resell 54,132,673 42,810,479 Investment securities available-for-sale: Pledged securities with creditors' right to repledge 445,434,078 457,247,716 Other securities available-for-sale 181,646,198 98,234,027 Investment securities held-to-maturity: Pledged securities with creditors' right to repledge 41,379,674 34,390,675 Other securities held-to-maturity 1,091,110 15,113,768 Other investments 10,652,000 8,715,600 Loans held for sale 936,281 2,684,063 Loans, net of allowance for loan and lease losses of $18,188,130 in 2005 and $19,038,836 in 2004 1,558,071,526 1,365,890,375 Accrued interest receivable 14,979,784 11,167,973 Customers' liability on acceptances 501,195 395,161 Premises and equipment, net 11,167,981 11,261,213 Other assets 29,523,653 33,009,509 Total assets $2,391,282,809 $2,102,789,052 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $146,637,966 $137,895,861 Interest bearing 1,587,490,180 1,271,140,575 Total deposits 1,734,128,146 1,409,036,436 Securities sold under agreements to repurchase 419,859,750 463,409,056 Acceptances outstanding 501,195 395,161 Advances from Federal Home Loan Bank 8,758,626 10,403,638 Notes payable to Statutory Trusts 46,393,000 46,393,000 Other borrowings 700,175 - Accrued interest payable 9,263,493 6,719,851 Accrued expenses and other liabilities 6,711,389 8,130,222 2,226,315,774 1,944,487,364 Stockholders' equity: Preferred stock: Preferred stock Series A, $0.01 par value. Authorized 20,000,000 shares; issued and outstanding 430,537 in 2005 and 2004 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 and outstanding 19,398,848 shares in 2005 and 19,564,086 shares in 2004 195,641 195,641 Capital paid in excess of par value 105,508,402 105,408,402 Retained earnings: Reserve fund 6,528,519 4,721,756 Undivided profits 54,348,750 40,369,955 Treasury stock, 165,238 shares at cost in 2005 (1,946,052) - Accumulated other comprehensive loss (10,431,650) (3,157,491) Total stockholders' equity 164,967,035 158,301,688 Total liabilities and stockholders' equity $2,391,282,809 $2,102,789,052 EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited Quarter Ended December 31, September 30, 2005 2004 2005 Average shares outstanding - basic 19,474,653 19,520,978 19,564,086 Average shares outstanding - assuming dilution 20,133,103 20,327,629 20,303,481 Number of shares outstanding at end of period 19,398,848 19,564,086 19,564,086 Average Balances Total assets $2,345,256 $2,037,687 $2,330,063 Loans and leases, net of unearned 1,541,561 1,378,947 1,525,898 Interest-earning assets (1) 2,267,537 1,961,032 2,249,979 Interest-bearing deposits 1,490,294 1,251,336 1,389,032 Interest-bearing liabilities 533,590 472,310 625,465 Preferred stock 10,763 10,763 10,763 Shareholders' equity 167,666 156,645 169,078 Loan Mix Commercial & industrial secured by real estate 612,376 463,500 576,449 Other commercial & industrial 272,005 242,480 265,333 Construction secured by real estate 82,468 79,334 69,794 Other construction 200 1,124 950 Mortgage 44,841 51,730 46,430 Consumer secured by real estate 906 1,311 891 Other consumer 63,980 74,755 66,575 Lease financing contracts 487,863 459,251 484,792 Overdrafts 5,336 6,134 6,966 Total 1,569,975 1,379,619 1,518,180 Deposit Mix Noninterest-bearing deposits 146,638 137,896 136,022 Now and money market 70,962 118,077 82,313 Savings 223,665 278,802 239,592 Broker deposits 967,206 512,005 786,654 Regular CD's & IRAS 121,950 161,782 129,094 Jumbo CD's 203,707 200,474 208,150 Total 1,734,128 1,409,036 1,581,825 Financial Data Total assets 2,391,283 2,102,789 2,380,589 Loans and leases, net of unearned 1,577,196 1,387,613 1,526,412 Allowance for loan and lease losses 18,188 19,039 15,266 Total deposits 1,734,128 1,409,036 1,581,825 Total borrowings 475,712 520,206 613,293 Preferred stock 10,763 10,763 10,763 Dividends on preferred stock 188 188 188 Shareholders' equity 164,967 158,302 167,814 Net income 1,673 6,129 4,797 Total interest income 36,832 28,371 34,714 Total interest expense 19,143 12,171 17,623 Provision for loan and lease losses 6,435 1,250 3,015 Non-interest income 2,367 2,272 2,325 Net gain (loss) on non-hedge derivatives - - - Net gain (loss) on sale of loans and other assets (573) 1,093 143 Non-interest expense 10,175 8,872 9,330 Income taxes 1,200 3,319 2,417 Net income before extraordinary item 1,673 6,124 4,797 Extraordinary item - 5 - Nonperforming assets 45,780 46,974 44,828 Nonperforming loans 36,263 40,533 34,633 Net charge-offs 3,513 2,397 3,792 Performance Ratios Return on average assets (2) 0.29% 1.20% 0.82% Return on average common equity (3) 4.27 16.79 12.12 Net interest spread (4) 2.76 3.08 2.73 Net interest margin (5) 3.23 3.45 3.14 Efficiency ratio (6) 50.64 43.80 46.33 Earnings per common share before extraordinary item - basic $0.08 $0.30 $0.24 Earnings per common share before extraordinary item - diluted 0.07 0.29 0.23 Earnings per common share - basic 0.08 0.30 0.24 Earnings per common share - diluted 0.07 0.29 0.23 Asset Quality Ratios Nonperforming assets to total assets 1.91% 2.23% 1.88% Nonperforming loans to total loans 2.30 2.92 2.27 Allowance for loan and lease losses to total loans 1.15 1.37 1.00 Net loan and lease charge-offs to average loans 0.91 0.70 0.99 Years Ended December 31, 2005 2004 Average shares outstanding - basic 19,541,544 16,523,373 Average shares outstanding - assuming dilution 20,277,799 17,152,261 Number of shares outstanding at end of period 19,398,848 19,564,086 Average Balances Total assets $2,234,987 $1,772,926 Loans and leases, net of unearned 1,487,850 1,217,723 Interest-earning assets (1) 2,157,375 1,701,842 Interest-bearing deposits 1,374,972 1,156,643 Interest-bearing liabilities 548,141 369,064 Preferred stock 10,763 7,176 Shareholders' equity 165,236 108,138 Loan Mix Commercial & industrial secured by real estate 612,376 463,500 Other commercial & industrial 272,005 242,480 Construction secured by real estate 82,468 79,334 Other construction 200 1,124 Mortgage 44,841 51,730 Consumer secured by real estate 906 1,311 Other consumer 63,980 74,755 Lease financing contracts 487,863 459,251 Overdrafts 5,336 6,134 Total 1,569,975 1,379,619 Deposit Mix Noninterest-bearing deposits 146,638 137,896 Now and money market 70,962 118,077 Savings 223,665 278,802 Broker deposits 967,206 512,005 Regular CD's & IRAS 121,950 161,782 Jumbo CD's 203,707 200,474 Total 1,734,128 1,409,036 Financial Data Total assets 2,391,283 2,102,789 Loans and leases, net of unearned 1,577,196 1,387,613 Allowance for loan and lease losses 18,188 19,039 Total deposits 1,734,128 1,409,036 Total borrowings 475,712 520,206 Preferred stock 10,763 10,763 Dividends on preferred stock 745 498 Shareholders' equity 164,967 158,302 Net income 16,530 22,720 Total interest income 133,232 95,394 Total interest expense 64,936 41,481 Provision for loan and lease losses 12,775 7,100 Non-interest income 9,069 8,056 Net gain (loss) on non-hedge derivatives (944) - Net gain (loss) on sale of loans and other assets (395) 1,036 Non-interest expense 37,643 28,942 Income taxes 9,077 8,663 Net income before extraordinary item 16,530 18,301 Extraordinary item - 4,419 Nonperforming assets 45,780 46,974 Nonperforming loans 36,263 40,533 Net charge-offs 13,626 8,357 Performance Ratios Return on average assets (2) 0.74% 1.03% Return on average common equity (3) 10.70 18.67 Net interest spread (4) 2.88 2.99 Net interest margin (5) 3.29 3.29 Efficiency ratio (6) 47.84 44.44 Earnings per common share before extraordinary item - basic $0.81 $1.08 Earnings per common share before extraordinary item - diluted 0.78 1.04 Earnings per common share - basic 0.81 1.35 Earnings per common share - diluted 0.78 1.30 Asset Quality Ratios Nonperforming assets to total assets 1.91% 2.23% Nonperforming loans to total loans 2.30 2.92 Allowance for loan and lease losses to total loans 1.15 1.37 Net loan and lease charge-offs to average loans 0.92 0.69 (1) Includes nonaccrual loans, which balance as of the periods ended December 31, 2005 and 2004, and September 30, 2005 was $27.7 million, $32.2 million and $27.0 million, respectively. (2) Return on average assets (ROAA) is determined by dividing net income before extraordinary gain by average assets. (3) Return on average common equity (ROAE) is determined by dividing net income before extraordinary gain 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: Reclassifications decreasing loan interest income with corresponding equal decreases in salaries and employee benefits have been made in the amount of $2.1 million for the quarter ended December 31, 2004 and $8.1 million for the year ended December 31, 2004 to conform with this quarter's presentation. EUROBANCSHARES, INC. AND SUBSIDIARIES NONPERFORMING ASSETS (Dollars in thousands) Unaudited For the periods ended Dec. 31, Sept. 30, Dec. 31, 2005 2005 2004 Loans contractually past due 90 days or more but still accruing interest: $8,560 $7,598 $8,365 Nonaccrual loans: 27,703 27,035 32,168 Total nonperforming loans 36,263 34,633 40,533 Repossessed property: Other real estate 1,542 2,963 2,875 Other repossesed assets 7,975 7,232 3,566 Total repossessed property 9,517 10,195 6,441 Total nonperforming assets $45,780 $44,828 $46,974 Nonperforming loans to total loans 2.30% 2.27% 2.92% Nonperforming assets to total loans plus repossessed property 2.89 2.92 3.37 Nonperforming assets to total assets 1.91 1.88 2.23 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended Years Ended Dec. Sept. June March December 31, 30, 30, 31, 31, 2005 2005 2005 2005 2005 2004 Charge-offs: Real estate secured $- $- $- $- $- $5 Commercial and industrial 544 1,830 1,612 862 4,848 3,329 Consumer 639 403 1,173 385 2,600 1,196 Leases financing contracts 2,993 2,504 1,751 1,743 8,991 5,806 Other 28 62 53 7 150 164 Total charge-offs 4,204 4,799 4,589 2,997 16,589 10,500 Recoveries: Real estate secured $- $- $- $- $- $- Commercial and industrial 40 327 49 70 486 154 Consumer 63 55 68 70 256 233 Leases financing contracts 588 623 473 526 2,210 1,741 Other - 2 1 8 11 15 Total recoveries 691 1,007 591 674 2,963 2,143 Net charge-offs: Real estate secured $- $- $- $- $- $5 Commercial and industrial 504 1,503 1,563 792 4,362 3,175 Consumer 576 348 1,105 315 2,344 963 Leases financing contracts 2,405 1,881 1,278 1,217 6,781 4,065 Other 28 60 52 (1) 139 149 Total net charge-offs $3,513 $3,792 $3,998 $2,323 $13,626 $8,357 DATASOURCE: EuroBancshares, Inc. CONTACT: Rafael Arrillaga-Torrens, Jr., Chairman, President and CEO, or Yadira R. Mercado-Pineiro, Executive Vice-President, CFO, both of EuroBancshares, Inc., +1-787-751-7340; or Julie Tu - Investor Inquiries, +1-212-445-8456, or Marilynn Meek, General Inquiries, +1-212-827-3773, both of Financial Relations Board

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