EUBK Eurobancshares (MM)

SAN JUAN, Puerto Rico, Feb. 6 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (NASDAQ:EUBK) (the "Company") today reported its results for the fourth quarter and year ended December 31, 2007. Net Income EuroBancshares reported a net income of $3.2 million, or $0.13 per diluted share, for the year ended December 31, 2007, compared with a net income of $8.0 million, or $0.37 per diluted share, for the year ended December 31, 2006. Net income for the quarter ended December 31, 2007 was $502,000, or $0.02 per diluted share, compared with a net loss of $1.2 million, or $0.07 per diluted share, and a net income of $9,000, or $(0.01) per diluted share, for the quarters ended September 30, 2007 and December 31, 2006, respectively. Return on Average Assets (ROAA) for the fourth quarter of 2007 was 0.08%, compared to (0.20)% and 0.0014% for the quarters ended September 30, 2007 and December 31, 2006, respectively. Return on Average Common Equity (ROAE) for the fourth quarter of 2007 was 1.20%, compared to (3.01)% and 0.02% for the quarters ended September 30, 2007 and December 31, 2006, respectively. Return on Average Assets (ROAA) for the year ended December 31, 2007 was 0.13%, compared to 0.33% for 2006. Return on Average Common Equity (ROAE) for the year ended December 31, 2007 was 1.96%, compared to 5.19% for 2006. Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief Executive Officer said, "Despite facing serious head winds for some time, we are content to announce that we were able to return to profitability. We continue to be proactive in addressing concerns as they develop and taking necessary steps to remain well positioned to perform when economic conditions improve. "We believe the consolidation of our corporate offices and operating locations into our new headquarters building during the last quarter of 2007 will improve our efficiency, helping us to be more agile and enhancing economies of scale. We kept on pursuing our initiatives by expanding our branch network, investing in our residential mortgage and trust operations to position them for future growth, conservatively growing our niche, and taking advantage of the attractive tax benefits associated with our international banking entity. In the present environment, it is unlikely that we will see marked improvement in our earnings from these steps until we see some progress in the Island's economic situation and relief from the fierce competition for deposits brought about by some of our peers." Net Interest Income The Company reported total interest income of $44.3 million for the fourth quarter of 2007, compared to $42.7 million for the fourth quarter of 2006. Total interest income for the year ended December 31, 2007 was $173.3 million, compared to total interest income of $162.1 million for 2006. These increases were driven by the combination of an increase in average interest- earning assets and increased yields resulting from higher interest rates, primarily during the nine-month period ended September 30, 2007. Average fourth quarter and average year-to-date interest-earning assets increased to $2.523 billion and $2.401 billion at December 31, 2007, respectively, compared to $2.401 billion and $2.348 billion for prior year same periods. Total interest expense was $28.1 million for the quarter ended December 31, 2007, compared to $26.9 million for the same quarter in 2006. Total interest expense for the year ended December 31, 2007 was $105.5 million, compared to total interest expense of $95.4 million for 2006. These increases resulted also from the combination of an increase in average interest-bearing liabilities and increased costs of funds, primarily during the nine-month period ended September 30, 2007. Average fourth quarter and average year-to- date interest-bearing liabilities increased to $2.302 billion and $2.172 billion at December 31, 2007, respectively, compared to $2.156 billion and $2.109 billion for prior year same periods. Net interest margin and net interest spread on a fully taxable equivalent basis was 2.58% and 2.10% for the quarter ended December 31, 2007, respectively, compared to 2.59% and 2.01% for the same quarter in 2006. For the year ended December 31, 2007, net interest margin and net interest spread on a fully taxable equivalent basis decreased to 2.80% and 2.29%, respectively, from 2.86% and 2.33% for 2006. The increase in net interest spread during the quarter ended December 31, 2007 when compared to the same period in 2006 was basically attributable to the net effect of the interest rate cuts between September 2007 and December 2007 and a decrease in other borrowing costs. The decrease in net interest margin and net interest spread during the year ended December 31, 2007 when compared to 2006 was basically caused by the combined effect of the interest rate cuts, primarily during the fourth quarter of 2007; the LIBOR inverted curve and the liquidity problems related to sub prime lending mortgages that major banks and brokers faced during 2007, which caused borrowing costs to stay at higher levels while Prime Rate was reduced by 100 basis points during the last four months of the year; and to the fact that the increase in average deposits has been substantially in broker deposits, a higher cost category, due to the fierce competition for core deposits on the Island, which made broker deposits an attractive funding alternative. Provision for Loan Losses The provision for loan and lease losses for the quarter and year ended December 31, 2007 was $6.9 million and $25.3 million, or 141.18% and 156.97% of net charge-offs, compared to $5.3 million and $16.9 million, or 111.34% and 104.64% of net charge-offs, for the same periods in 2006, and $9.6 million, or 241.36% of net charge-offs, for the quarter ended September 30, 2007. The increase in our provision for loan and lease losses during 2007 when compared to the previous year 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. 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, related loss experience and overall economic conditions, among other environmental factors. 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 for the quarter and year ended December 31, 2007 increased to $2.4 million and $8.7 million, respectively, from $1.1 million and $7.8 million for prior year same periods. The increase during the fourth quarter of 2007 when compared to the same quarter in 2006 was mainly due to the combined effect of: (i) the fact that we did not sell any investment securities during 2007, compared to a $1.1 million net loss on sale of securities during the fourth quarter of 2006; (ii) a $154,000 increase in service charges mainly due to an increase in non-sufficient fund charges on deposit accounts, ATM merchant and trust fees; and (iii) a $132,000 net loss mainly on the sale of repossessed autos during the fourth quarter of 2007, compared to a net loss of $259,000 and $185,000 for the quarters ended September 30, 2007 and December 31, 2006, respectively. The increase during the year ended December 31, 2007 when compared to 2006 was mainly due to the net effect of: (i) a $1.1 million increase in service charges mainly due to an increase in non-sufficient fund charges on deposit accounts, ATM merchant fees, trust fees, other fees on loan accounts, leasing license's commissions, and an increase in miscellaneous income mainly related to our credit card operations; (ii) the fact that we did not sell any investment securities during 2007, compared to a $1.1 million net loss on sale of securities during 2006; and (iii) a $1.3 million net loss on sale of OREO and other repossessed assets for the year ended December 31, 2007, compared to a gain of $16,000 for 2006. The net loss on other repossessed assets included a $140,000 and $1.2 million loss on sale of repossessed vehicles for the quarter and year ended December 31, 2007, compared to a $310,000 and a $368,000 loss on sale for prior year same periods, and a $179,000 loss on sale for the quarter ended September 30, 2007. The increase in the net loss on sale of repossessed assets during the year ended December 31, 2007 when compared to 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 five quarters in a row, sales of repossessed vehicles exceeded the number of units repossessed. The number of repossessed vehicles in inventory as of December 31, 2007 decreased to 325 units, or by approximately 11%, from 366 units as of September 30, 2007, and by approximately 42%, from 564 units as of December 31, 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 Loans and Asset Quality and Delinquency sections below. Non-Interest Expense Non-interest expense for the quarter and year ended December 31, 2007 was $11.5 million and $48.2 million, respectively, compared to $10.3 million and $43.4 million for the same periods in 2006. Such increases were mainly due to the net effect of: (i) a $547,000 and $2.4 million increase in salaries for the quarter and year ended December 31, 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, net of a decrease in the bonus expense; (ii) an increase of $380,000 and $1.3 million in occupancy expenses for the quarter and year ended December 31, 2007, respectively, primarily related to an increase in utilities, equipment maintenance, property tax expenses, and data, communications, and security services, mainly in connection with our new headquarters and the expansion of our branch network; (iii) a $228,000 and $392,000 increase in professional services for the quarter and year ended December 31, 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, internal audit outsourcing services, and other legal fees in connection with our trust operations; (iv) a $198,000 and $812,000 increase in insurance expense for the quarter and year ended December 31, 2007 respectively, mainly related to the FDIC's new insurance premium assessment, which commenced in January 2007; and (v) a $153,000 and $375,000 decrease in other expenses for the quarter and year ended December 31, 2007, mainly associated with the provision for losses on off-balance sheet items and insurance claim receivables. Non-interest expense decreased to $11.5 million for the quarter ended December 31, 2007, compared to $12.3 million for the quarter ended September 30, 2007. Such decrease was mainly due to the net effect of: (i) a $909,000 decrease in salaries resulting mainly from a decrease in the bonus expense; (ii) a $267,000 decrease in professional services mainly related to the legal fees on the information technology outsourcing agreement, as previously explained, and other legal fees in connection with our trust operations, both incurred during the previous quarter; and (iii) a $308,000 increase in other expenses, of which $144,000 resulted from an increase in the valuation allowance for subsequent declines in value over repossessed real estate properties and vehicles. The efficiency ratio on a fully taxable equivalent basis for the quarter ended December 31, 2007 was 61.31%, compared to 61.80% for the quarter ended December 31, 2006, and 64.68% for the quarter ended September 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. For the quarter and year ended December 31, 2007, we recorded an income tax benefit of $218,000 and $249,000, respectively, compared to an income tax expense of $1.3 million and $6.3 million for the same periods in 2006. Our income tax benefit for the quarter and year ended December 31, 2007 was comprised of a current income tax expense of $602,000 and $4.4 million, and a deferred tax benefit of $820,000 and $4.6 million, respectively, as explained further below. Our current income tax expense for the quarter ended December 31, 2007 decreased to $602,000, from $1.4 million for the same quarter in 2006. For the year ended December 31, 2007, the current income tax expense decreased to $4.4 million, from $7.3 million for 2006. This decrease in our current income tax expense was mainly due to the net effect of: (i) a reduction in our income before taxes, (ii) an increase in the net exempt income during 2007; (iii) the total consumption during the quarter ended March 31, 2006 of net operating losses from acquired financial institutions; and (iv) the termination on December 31, 2006 of the additional transitory taxes of 4.5% imposed by the Puerto Rico Legislature in 2006. Our deferred tax benefit for the quarter ended December 31, 2007 increased to $820,000, from $70,000 for the same quarter in 2006. For the year ended December 31, 2007, the deferred tax benefit increased to $4.6 million, from $684,000 for 2006. This increase was mainly due to the combined effect of: (i) an increase in deferred tax assets mainly related to the increase in our provision for loan and lease losses as of December 31, 2007, primarily during the third quarter of 2007; (ii) the total consumption during the quarter ended March 31, 2006 of net operating losses from acquired financial institutions, as previously mentioned; and (iii) the benefit from the recently approved Law No. 197, as explained further below. As of December 31, 2007, we had net deferred tax assets of $10.9 million, compared to $6.3 million as of December 31, 2006. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities; projected future taxable income; our compliance with the Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes; and tax planning strategies in making this assessment. We believe it is more likely than not that the benefits of these deductible differences at December 31, 2007 will be realized. On December 14, 2007, the governor of Puerto Rico approved and signed Law No. 197, which offers tax credits to financial institutions on the financing of qualified residential mortgages. These tax credits vary based on whether the property to be financed is an existing dwelling or a new construction and whether it will be occupied by the buyer or is acquired for investment purposes. The tax credits are limited, subject to certain restrictions, to a maximum of a 20% of the property's selling price, or $25,000, whichever is lower. This law expires on June 30, 2008 or when the tax credits granted reach the total allotted amount of $220.0 million, whichever occurs first. The approval of this law resulted in an additional deferred tax benefit of $49,000 for the quarter and year ended December 31, 2007. Balance Sheet Summary and Asset Quality Data Assets Total assets increased to $2.751 billion as of December 31, 2007 from $2.501 billion as of December 31, 2006. The increase was mainly due to the net effect of: (i) a $31.3 million decrease in securities purchased under agreements to resell; (ii) a $173.4 million increase in the investment securities portfolio; (iii) a $98.5 million increase in net loans; and (iv) an $18.2 million increase in premises and equipment, resulting mainly from the acquisition of a building to relocate the headquarters and administrative offices of the Company. The decrease in securities purchased under agreements to resell was mainly associated to the increase in the loan portfolio. Details on investment securities and loan portfolio variances are discussed further below. Investments During 2007, the investment portfolio increased by approximately $173.4 million to $751.3 million, from $577.9 million as of December 31, 2006. This increase was due to the net effect of: (i) the purchase of $315.2 million in mortgage-backed securities and $3.0 million in corporate debt; (ii) prepayments of approximately $104.7 million on mortgage-backed securities and FHLB obligations; (iii) $52.7 million in a FNMA note and various US and Puerto Rico government agencies obligations that matured or were called-back during the year; (iv) a net increase of $9.0 million in FHLB stocks; (v) a market valuation improvement of $8.7 million, which resulted in a $1.1 million unrealized gain on investment securities as of December 31, 2007 compared to a $7.6 million unrealized loss on investment securities as of December 31, 2006; and (vi) a $5.2 million net increase in discount, mainly from the purchases mentioned above. Before 2007, we were positioning 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. As part of this positioning, in 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% since we expected an improvement in the yield curve during 2007. During 2007, we continued analyzing different market opportunities in an attempt to improve the investment portfolio's average yield and to maintain an adequate average life. During the second half of 2007, the market presented some good investment opportunities as a result of the liquidity crises faced by some banks and brokers in the mainland, which made them sell part of their investment securities portfolios at wider spreads to reduce their total assets. We were able to acquire securities that improved our average yield and extended the average maturity of the portfolio. For the year ended December 31, 2007, we purchased approximately $318.2 million in mortgage- backed securities and corporate debt with an estimated average life of approximately 7.8 years and an estimated average yield of 6.02%. Purchased mortgage-backed securities included approximately $172.0 million in US agency obligations guaranteed by the US government sponsored enterprises and $142.2 million in private label collateral mortgage obligations with FICO scores and loan-to-values similar to FNMA and FHLMC underwriting standards and characteristics. For the year ended December 31, 2007, after the above- mentioned transactions, the estimated average maturity was approximately 4.8 years and the average yield was approximately 5.06%, compared to an estimated average maturity of 3.2 years and an average yield of 4.64% for the year ended December 31, 2006. Loans Total loans, net of unearned, increased by $107.7 million, or 6.15%, to $1.859 billion as of December 31, 2007, from $1.751 billion as of December 31, 2006. This increase was mainly the net effect of: (i) a $77.1 million, or 61.08% increase in construction loans, from $126.2 million as of December 31, 2006 to $203.3 million as of December 31, 2007; (ii) a $60.8 million, or 5.88% increase in commercial loans, from $1.034 billion as of December 31, 2006 to $1.095 billion as of December 31, 2007; (iii) a $31.2 million, or 40.37% increase in residential mortgages, from $77.2 million as of December 31, 2006 to $108.3 million as of December 31, 2007; and (iv) a $57.9 million, or 13.07% decrease in lease financing contracts from $443.3 million as of December 31, 2006 to $385.4 million as of December 31, 2007. The $77.1 million increase in construction loans was primarily comprised 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, and other loans for land development and the construction of commercial real estate property. Out of the $60.8 million increase in commercial loans, 91.7% was mainly concentrated in commercial loans secured by real estate. As of December 31, 2007, commercial loans secured by real estate equaled $792.3 million, or 72.4% of total commercial loans. Out of the $792.3 million in commercial loans secured by real estate, $452.9 million have loan-to-values equal or lesser than 80%. Asset Quality and Delinquency Non-performing assets consist of loans 90 days or more past due and still accruing interest, loans and leases on nonaccrual status, OREO, and other repossessed assets. Non-performing assets increased to $111.6 million as of December 31, 2007, from $79.7 million and $63.0 million as of September 30, 2007 and December 31, 2006, respectively. Non-performing loans, which are comprised of loans 90 days or more past due and still accruing interest, and loans and leases on nonaccrual status, amounted to $98.1 million as of December 31, 2007, compared to $69.2 million as of September 30, 2007 and $50.0 million as of December 31, 2006. The $28.9 million increase in non- performing loans during the fourth quarter of 2007 when compared to the third quarter of 2007 was due to the net effect of a $15.1 million increase in loans over 90 days past due still accruing interest and a $13.7 million increase in nonaccrual loans. The $15.1 million increase in loans over 90 days still accruing interest was mainly due to the combined effect of a $13.2 million increase in loans secured by real estate; a $777,000 increase in other commercial and industrial loans; a $749,000 increase in lease financing contracts; and a $421,000 increase in overdrafts. The $13.2 million increase in the loans secured by real estate was mainly caused by two commercial business relationships, of which one was in the construction industry amounting to $11.0 million; and the other was in the dairy farm business amounting to $2.6 million, which was partially secured by real estate, and also had milk production quotas among other assets serving as collateral. Both relationships became over 90 days past due during the fourth quarter of 2007. The $13.7 million increase in nonaccrual loans was mainly attributable to the net effect of: (i) a $9.6 million increase in commercial loans primarily caused by five commercial business relationships, of which two were in the dairy farm business amounting to $4.6 million partially secured by real estate, and also had milk production quotas serving as collateral, one was in the elective health services industry amounting to $3.0 million secured by real estate, and two other were in the commercial trade industry amounting to $1.8 million secured by real estate; and (ii) an increase of $4.5 related to one construction business relationship, which was partially secured by real estate, and also had other corporate guaranties. Repossessed assets increased to $13.5 million as of December 31, 2007, compared to $10.5 million and $13.0 million as of September 30, 2007 and December 31, 2006, respectively. The increase during the quarter ended December 31, 2007 when compared to the previous quarter was mainly attributable to the net effect of: (i) an increase of $3.8 in other real estate owned resulting from the net effect of the sale of four properties and the foreclosure of twenty-two properties (of which eighteen were land lots in the amount of $1.1 million belonging to one commercial customer); and (ii) a decrease of $763,000 in other repossessed assets, mainly in the inventory of repossessed vehicles. During the quarter ended December 31, 2007, a total of 372 vehicles were repossessed, 394 vehicles were sold, and 19 vehicles were re-activated by the customer or were paid-off by the insurance company. This is the fifth quarter in a row in which the number of repossessed vehicles sold exceeded the number of units repossessed. Annualized net charge-offs as a percentage of average loans was 1.05% and 0.90% for the quarter and year ended December 31, 2007, respectively, compared to 0.87% for the quarter ended September 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 December 31, 2007 were $4.9 million, compared to $4.0 million and $4.7 million for the quarters of September 2007 and December 2006, respectively. Net charge-offs for the quarter ended December 31, 2007, compared to the quarters ended September 30, 2007 and December 31, 2006 were as follows: (i) $159,000 in net charge-offs on commercial loans secured by real estate for the quarter ended December 31, 2007, while there were no net charge-offs for the third quarter of 2007 and there were $109,000 in net charge-offs for the quarter ended December 31, 2006; (ii) $1.4 million in net charge-offs on other commercial and industrial loans for the fourth quarter of 2007, compared to $640,000 and $624,000 for the quarters ended September 30, 2007 and December 31, 2006, respectively; (iii) $385,000 in net charge-offs on consumer loans for the fourth quarter of 2007, compared to $370,000 and $424,000 for the quarters ended September 30, 2007 and December 31, 2006, respectively; (iv) $2.8 million in net charge-offs on lease financing contracts for each of the fourth and the third quarter of 2007, compared to $3.5 million for the quarter ended December 31, 2006; and (v) $48,000 in net charge-offs on other loans for the fourth quarter of 2007, compared to $194,000 and $47,000 in net charge-offs for the quarters ended September 30, 2007 and December 31, 2006, respectively. Net charge-offs for the year ended December 31, 2007 were $16.1 million, compared to $16.2 million for 2006. Net charge-offs for the year ended December 31, 2007, compared to 2006 were as follows: (i) $320,000 in net charge-offs on commercial loans secured by real estate for 2007, compared to $674,000 in 2006; (ii) $2.8 million in net charge-offs on other commercial and industrial loans for 2007, compared to $2.5 million for 2006; (iii) $1.4 million in net charge-offs on consumer loans for 2007, compared to $1.5 million for 2006; (iv) $11.3 million in net charge-offs on lease financing contracts for each of the years ended December 31, 2007 and 2006; and (v) $375,000 in net charge-offs on other loans for 2007, compared to $128,000 for 2006. The increase in net charge-offs during the quarter ended December 31, 2007 when compared to the previous quarter was mainly concentrated in a $159,000 increase in net charge-offs on commercial loans secured by real estate, and a $806,000 increase in net charge-offs on other commercial and industrial loans. Total net charge-offs during the year ended December 31, 2007 remained stable when compared to 2006. Nonetheless, significant changes during the year ended December 31, 2007 included: a $354,000 decrease in net charge-offs on commercial loans secured by real estate, a $287,000 increase in net charge- offs on other commercial and industrial loans, and a $247,000 increase in net charge-offs on other loans. Loans between 30 and 89 days past due and still accruing interest amounted to $92.1 million, $111.3 million, and $59.4 million for the quarters ended December 31, 2007, September 30, 2007 and December 31, 2006, respectively. The increase in loans between 30 and 89 days past due and still accruing interest during 2007 when compared to 2006 was mainly due to the combined effect of an increase of $26.1 million in loans secured by real estate, of which $23.3 million was between 30 and 59 days past due and still accruing interest, a $4.3 million increase in other commercial and industrial loans, and a $1.2 million increase in lease financing contracts. The $26.1 million increase in the loans secured by real estate was mainly caused by seven commercial business relationships, of which two were in the construction industry amounting to $12.3 million; four were in the service industry amounting to $11.6 million; and the other was in the elective health services industry amounting to $2.4 million. The $4.3 million increase in other commercial and industrial loans included $2.5 million related to floor plans. The decrease in loans between 30 and 89 days past due and still accruing interest during the fourth quarter of 2007 when compared to the previous quarter was mainly due to the combined effect of a decrease of $16.5 million in loans secured by real estate, a $1.2 million decrease in other commercial and industrial loans, and a $1.5 million decrease in lease financing contracts. The $16.5 million decrease in the loans secured by real estate was mainly comprised by commercial loans, which were either paid-off by the customers or became current during the fourth quarter of 2007. Allowance for Loan and Lease Losses The allowance for loan and lease losses increased to $28.1 million as of December 31, 2007, from $26.1 million as of September 30, 2007, and $18.9 million as of December 31, 2006. The allowance for loan and lease losses is affected by net charge-offs, loan portfolio growth, and also by the provision for loan and lease losses for each related period, which was certainly impacted by the overall economic condition on the Island. Net charge-offs for the quarter ended December 31, 2007 increased to $4.9 million, from $4.0 million during the quarter ended September 30, 2007. Net charge-offs for the year ended December 31, 2007 amounted to $16.1 million, compared to $16.2 million for the year ended December 31, 2006. We believe that the allowance for loan and lease losses is adequate and it represents 1.51% of total loans as of December 31, 2007. Deposits and Borrowings Total deposits as of December 31, 2007 amounted to $1.993 billion, compared to $1.905 billion as of December 31, 2006. This $87.7 million increase was mainly due to the net effect of: (i) a $20.2 million decrease in noninterest-bearing deposits; (ii) a $24.5 million decrease in savings accounts; (iii) a $26.6 increase in jumbo time deposits; and (iv) a $110.4 million increase in broker 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 broker deposits and other borrowings 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 broker deposits and other borrowings' alternative in an attempt to control the continuous increase in our funding cost. As a result, other borrowings increased to $547.5 million as of December 31, 2007, from $395.0 million as of December 31, 2006. Stockholders' Equity The Company's stockholders' equity increased to $179.9 million as of December 31, 2007, from $169.9 million as of December 31, 2006, representing an increase of 5.91%. Besides earnings and losses from operations, the Company's stockholders' equity was impacted by an accumulated other comprehensive gain of $1.1 million as of December 31, 2007 and an accumulated other comprehensive loss of $7.6 million as of December 31, 2006. In addition, the following items also impacted the Company's stockholders' equity: * the repurchase of 488,477 shares for $5.5 million 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, for a total of $2.0 million; and * the repurchase of 285,368 shares for $2.5 million 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 December 31, 2007 and 2006 and September 30, 2007, and years ended December 31, 2007 and 2006 Three Months Ended December 31, December 31, September 30, 2007 2006 2007 Interest income: Loans, including fees $35,703,774 $34,479,299 $36,677,073 Investment securities: Taxable 2,694 61,045 2,776 Exempt 7,865,189 7,397,753 6,252,137 Interest bearing deposits, securities purchased under agreements to resell, and other 755,537 761,756 802,667 Total interest income 44,327,194 42,699,853 43,734,653 Interest expense: Deposits 22,685,755 19,531,825 21,553,077 Securities sold under agreements to repurchase, notes payable, and other 5,398,934 7,366,361 5,071,618 Total interest expense 28,084,689 26,898,186 26,624,695 Net interest income 16,242,505 15,801,667 17,109,958 Provision for loan and lease losses 6,881,000 5,274,000 9,594,000 Net interest income after provision for loan and lease losses 9,361,505 10,527,667 7,515,958 Noninterest income: Service charges - fees and other 2,401,774 2,247,590 2,394,869 Net loss on sale of securities - (1,091,627) - Net (loss) gain on sale of repossessed assets and on disposition of other assets (131,980) (184,675) (258,889) Gain on sale of loans 140,478 138,019 76,560 Total noninterest income 2,410,272 1,109,307 2,212,540 Noninterest expense: Salaries and employee benefits 4,041,718 3,494,592 4,950,481 Occupancy, furniture and equipment 2,858,220 2,477,955 2,812,295 Professional services 1,177,205 949,633 1,444,487 Insurance 456,264 258,496 479,219 Promotional 366,469 358,980 374,800 Other 2,588,351 2,740,898 2,280,458 Total noninterest expense 11,488,227 10,280,554 12,341,740 Income (loss) before income taxes 283,550 1,356,420 (2,613,242) Provision (benefit) for income taxes (218,428) 1,347,299 (1,378,559) Net income (loss) $501,978 $9,121 $(1,234,683) Basic earnings (loss) per share $0.02 $(0.01) $(0.07) Diluted earnings (loss) per share $0.02 $(0.01) $(0.07) Years Ended December 31, 2007 2006 Interest income: Loans, including fees $143,360,450 $130,003,150 Investment securities: Taxable 12,152 371,546 Exempt 26,946,714 29,474,276 Interest bearing deposits, securities purchased under agreements to resell, and other 3,005,875 2,297,448 Total interest income 173,325,191 162,146,420 Interest expense: Deposits 84,675,999 68,545,152 Securities sold under agreements to repurchase, notes payable, and other 20,794,338 26,818,196 Total interest expense 105,470,337 95,363,348 Net interest income 67,854,854 66,783,072 Provision for loan and lease losses 25,348,000 16,903,000 Net interest income after provision for loan and lease losses 42,506,854 49,880,072 Noninterest income: Service charges - fees and other 9,584,533 8,475,600 Net loss on sale of securities - (1,091,627) Net (loss) gain on sale of repossessed assets and on disposition of other assets (1,285,958) 16,092 Gain on sale of loans 379,622 400,489 Total noninterest income 8,678,197 7,800,554 Noninterest expense: Salaries and employee benefits 19,890,373 17,506,822 Occupancy, furniture and equipment 10,898,988 9,565,036 Professional services 4,496,283 4,104,442 Insurance 1,865,353 1,052,922 Promotional 1,492,240 1,199,574 Other 9,581,605 9,956,935 Total noninterest expense 48,224,842 43,385,731 Income (loss) before income taxes 2,960,209 14,294,895 Provision (benefit) for income taxes (248,874) 6,283,010 Net income (loss) $3,209,083 $8,011,885 Basic earnings (loss) per share $0.13 $0.38 Diluted earnings (loss) per share $0.13 $0.37 EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) December 31, 2007 and December 31, 2006 Assets 2007 2006 Cash and due from banks $15,866,221 $25,527,489 Interest bearing deposits 32,306,909 49,050,368 Securities purchased under agreements to resell 19,879,008 51,191,323 Investment securities available for sale 707,103,432 535,159,009 Investment securities held to maturity 30,845,218 38,432,820 Other investments 13,354,300 4,329,200 Loans held for sale 1,359,494 879,000 Loans, net of allowance for loan and lease losses of $28,137,104 in 2007 and $18,936,841 in 2006 1,829,082,008 1,731,022,290 Accrued interest receivable 18,136,489 15,760,852 Customers' liability on acceptances 430,767 1,561,736 Premises and equipment, net 33,083,169 14,889,456 Other assets 49,951,898 33,116,690 Total assets $2,751,398,913 $2,500,920,233 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $120,082,912 $140,321,373 Interest bearing 1,872,963,402 1,765,034,834 Total deposits 1,993,046,314 1,905,356,207 Securities sold under agreements to repurchase 496,419,250 365,664,250 Acceptances outstanding 430,767 1,561,736 Advances from Federal Home Loan Bank 30,453,926 8,707,420 Notes payable to Statutory Trust 20,619,000 20,619,000 Accrued interest payable 17,371,698 18,047,074 Accrued expenses and other liabilities 13,139,809 11,086,705 2,571,480,764 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 107,936,531 106,539,383 Retained earnings: Reserve fund 8,029,106 7,553,381 Undivided profits 61,789,048 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 gain (loss) 1,110,173 (7,565,907) Total stockholders' equity 179,918,149 169,877,841 Total liabilities and stockholders' equity $2,751,398,913 $2,500,920,233 EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited Quarter Ended December 31, September 30, 2007 2006 2007 Average shares outstanding - basic 19,093,315 19,123,821 19,160,985 Average shares outstanding - assuming dilution 19,127,598 19,458,014 19,350,582 Number of shares outstanding at end of period 19,093,315 19,123,821 19,093,315 Book value per common share $8.86 $8.32 $8.62 Average Balances Total assets 2,632,453 2,483,677 2,482,760 Loans and leases, net of unearned 1,850,847 1,729,273 1,825,334 Interest-earning assets (1) 2,523,453 2,401,221 2,383,321 Interest-bearing deposits 1,863,419 1,671,009 1,783,308 Other borrowings 438,474 484,525 374,091 Preferred stock 10,763 10,763 10,763 Shareholders' equity 178,199 169,913 174,672 Loan Mix Loans secured by real estate Commercial and industrial 792,309 736,555 786,259 Construction 203,344 126,241 184,347 Residential mortgage 106,947 76,277 100,509 Consumer 780 783 802 1,103,380 939,856 1,071,917 Commercial and industrial 302,530 297,512 303,430 Consumer 57,745 60,682 59,533 Lease financing contracts 385,390 443,311 401,209 Overdrafts 6,850 5,015 6,399 Total 1,855,895 1,746,376 1,842,488 Deposit Mix Noninterest-bearing deposits 120,083 140,321 125,443 Now and money market 60,893 62,673 68,754 Savings 131,604 156,069 133,739 Broker deposits 1,336,560 1,226,156 1,304,359 Regular CD's & IRAS 92,545 95,396 90,632 Jumbo CD's 251,361 224,741 241,022 Total 1,993,046 1,905,356 1,963,949 Financial Data Total assets 2,751,399 2,500,920 2,560,628 Loans and leases, net of unearned 1,858,579 1,750,838 1,844,640 Allowance for loan and lease losses 28,137 18,937 26,131 Total deposits 1,993,046 1,905,356 1,963,949 Other borrowings 547,492 394,991 382,501 Preferred stock 10,763 10,763 10,763 Dividends on preferred stock 188 188 188 Shareholders' equity 179,918 169,878 175,439 Total interest income 44,327 42,700 43,735 Total interest expense 28,085 26,898 26,625 Provision for loan and lease losses 6,881 5,274 9,594 Services charges - fees and other 2,402 2,248 2,395 Net loss on sale of securities - (1,092) - Net gain (loss) on sale of loans and other assets 8 (47) (182) Non-interest expense 11,488 10,281 12,341 (Tax benefit) income tax (218) 1,347 (1,379) Net income (loss) 501 9 (1,233) Nonperforming assets 111,599 63,026 79,716 Nonperforming loans 98,065 49,978 69,212 Net charge-offs 4,874 4,737 3,975 Performance Ratios Return on average assets (2) 0.08 % 0.0014 % (0.20)% Return on average common equity (3) 1.20 0.02 (3.01) Net interest spread (4) 2.10 2.01 2.31 Net interest margin (5) 2.58 2.59 2.83 Efficiency ratio (6) 61.31 61.80 64.68 Earnings per common share - basic $0.02 $(0.01) $(0.07) Earnings per common share - diluted 0.02 (0.01) (0.07) Asset Quality Ratios Nonperforming assets to total assets 4.06 % 2.52 % 3.11 % Nonperforming loans to total loans 5.28 2.85 3.75 Allowance for loan and lease losses to total loans 1.51 1.08 1.42 Net loan and lease charge-offs to average loans 1.05 1.10 0.87 Provision for loan and lease losses to net loan and lease charge-offs 141.18 111.34 241.36 Years Ended December 31, 2007 2006 Average shares outstanding - basic 19,212,801 19,217,178 Average shares outstanding - assuming dilution 19,391,638 19,657,559 Number of shares outstanding at end of period 19,093,315 19,123,821 Book value per common share $8.86 $8.32 Average Balances Total assets 2,501,457 2,428,814 Loans and leases, net of unearned 1,804,099 1,663,330 Interest-earning assets (1) 2,400,797 2,348,079 Interest-bearing deposits 1,774,378 1,610,124 Other borrowings 397,515 499,275 Preferred stock 10,763 10,763 Shareholders' equity 174,825 165,034 Loan Mix Loans secured by real estate Commercial and industrial 792,309 736,555 Construction 203,344 126,241 Residential mortgage 106,947 76,277 Consumer 780 782 1,103,380 939,855 Commercial and industrial 302,530 297,511 Consumer 57,745 60,682 Lease financing contracts 385,390 443,311 Overdrafts 6,850 5,015 Total 1,855,895 1,746,374 Deposit Mix Noninterest-bearing deposits 120,083 140,321 Now and money market 60,893 62,673 Savings 131,604 156,069 Broker deposits 1,336,560 1,226,156 Regular CD's & IRAS 92,545 95,396 Jumbo CD's 251,361 224,741 Total 1,993,046 1,905,356 Financial Data Total assets 2,751,399 2,500,920 Loans and leases, net of unearned 1,858,579 1,750,838 Allowance for loan and lease losses 28,137 18,937 Total deposits 1,993,046 1,905,356 Other borrowings 547,492 394,991 Preferred stock 10,763 10,763 Dividends on preferred stock 745 745 Shareholders' equity 179,918 169,878 Total interest income 173,325 162,146 Total interest expense 105,470 95,363 Provision for loan and lease losses 25,348 16,903 Services charges - fees and other 9,584 8,476 Net loss on sale of securities - (1,092) Net gain (loss) on sale of loans and other assets (906) 417 Non-interest expense 48,225 43,386 (Tax benefit) income tax (249) 6,283 Net income (loss) 3,209 8,012 Nonperforming assets 111,599 63,026 Nonperforming loans 98,065 49,978 Net charge-offs 16,148 16,154 Performance Ratios Return on average assets (2) 0.13 % 0.33 % Return on average common equity (3) 1.96 5.19 Net interest spread (4) 2.29 2.33 Net interest margin (5) 2.80 2.86 Efficiency ratio (6) 63.48 57.89 Earnings per common share - basic $0.13 $0.38 Earnings per common share - diluted 0.13 0.37 Asset Quality Ratios Nonperforming assets to total assets 4.06 % 2.52 % Nonperforming loans to total loans 5.28 2.85 Allowance for loan and lease losses to total loans 1.51 1.08 Net loan and lease charge-offs to average loans 0.90 0.97 Provision for loan and lease losses to net loan and lease charge-offs 156.97 104.64 (1) Includes nonaccrual loans, which balance as of the periods ended December 31, 2007 and 2006, and September 30, 2007 was $69.0 million, $37.3 million, and $55.3 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 December September December 31, 2007 30, 2007 31, 2006 Loans contractually past due 90 days or more but still accruing interest: $29,075 $13,936 $12,723 Nonaccrual loans: 68,990 55,276 37,255 Total nonperforming loans 98,065 69,212 49,978 Repossessed property: Other real estate 8,125 4,332 3,629 Other repossessed assets 5,409 6,172 9,419 Total repossessed property 13,534 10,504 13,048 Total nonperforming assets $111,599 $79,716 $63,026 Nonperforming loans to total loans 5.28 % 3.75 % 2.85 % Nonperforming assets to total loans plus repossessed property 5.96 4.30 3.57 Nonperforming assets to total assets 4.06 3.11 2.52 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended December 31, September 30, June 30, 2007 2007 2007 Charge-offs: Real estate secured $163 $- $198 Other commercial and industrial 1,508 667 491 Consumer 494 435 310 Leases financing contracts 3,151 3,113 3,027 Other 60 194 5 Total charge-offs 5,376 4,409 4,031 Recoveries: Real estate secured $4 $- $13 Other commercial and industrial 62 27 147 Consumer 109 65 88 Leases financing contracts 315 342 341 Other 12 - 6 Total recoveries 502 434 595 Net charge-offs: Real estate secured $159 $- $185 Other commercial and industrial 1,446 640 344 Consumer 385 370 222 Leases financing contracts 2,836 2,771 2,686 Other 48 194 (1) Total net charge-offs $4,874 $3,975 $3,436 Net charge-offs to average loans: Real estate secured 0.06 % - % 0.07 % Other commercial and industrial 1.90 0.85 0.47 Consumer 2.63 2.47 1.47 Leases financing contracts 2.88 2.71 2.54 Other 2.53 9.87 (0.05) Total net charge-offs to average loans 1.05 % 0.87 % 0.77 % Quarter Ended March 31, December 31, 2007 2006 Charge-offs: Real estate secured $11 $109 Other commercial and industrial 456 657 Consumer 460 571 Leases financing contracts 3,388 3,827 Other 139 52 Total charge-offs 4,454 5,216 Recoveries: Real estate secured $35 $- Other commercial and industrial 83 33 Consumer 57 147 Leases financing contracts 412 294 Other 5 5 Total recoveries 592 479 Net charge-offs: Real estate secured $(24) $109 Other commercial and industrial 373 624 Consumer 403 424 Leases financing contracts 2,976 3,533 Other 134 47 Total net charge-offs $3,862 $4,737 Net charge-offs to average loans: Real estate secured (0.01)% 0.05 % Other commercial and industrial 0.51 0.82 Consumer 2.67 2.77 Leases financing contracts 2.73 3.14 Other 6.20 2.09 Total net charge-offs to average loans 0.88 % 1.10 % Years Ended December 31, December 31, 2007 2006 Charge-offs: Real estate secured $372 $685 Other commercial and industrial 3,122 3,050 Consumer 1,699 1,978 Leases financing contracts 12,680 12,927 Other 398 149 Total charge-offs 18,271 18,789 Recoveries: Real estate secured $52 $11 Other commercial and industrial 319 534 Consumer 319 465 Leases financing contracts 1,410 1,604 Other 23 21 Total recoveries 2,123 2,635 Net charge-offs: Real estate secured $320 $674 Other commercial and industrial 2,803 2,516 Consumer 1,380 1,513 Leases financing contracts 11,270 11,323 Other 375 128 Total net charge-offs $16,148 $16,154 Net charge-offs to average loans: Real estate secured 0.03 % 0.08 % Other commercial and industrial 0.94 0.88 Consumer 2.31 2.42 Leases financing contracts 2.71 2.40 Other 4.73 1.52 Total net charge-offs to average loans 0.90 % 0.97 % DATASOURCE: EuroBancshares, Inc. CONTACT: Rafael Arrillaga-Torrens, Jr., Chairman, President and CEO, Yadira R. Mercado, Executive Vice-President, CFO, both of EuroBancshares, Inc., +1-787-751-7340; or AT FINANCIAL RELATIONS BOARD: Julie Tu - Investor Inquiries, +1-212-827-3776, or Marilynn Meek - General Inquiries, +1-212-827-3773

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