Eurobancshares Inc - Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10 - Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

Commission File Number 000-50872

EUROBANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Commonwealth of Puerto Rico		66-0608955
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

State Road PR-1, Km. 24.5, Quebrada Arenas Ward, San Juan, Puerto Rico 00926
(Address of principal executive offices, including zip code)

(787) 751-7340
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

The number of shares outstanding of the issuer’s Common Stock as of May 12, 2008, was 19,500,315 shares.

EUROBANCSHARES, INC.

INDEX

		PAGE
PART I - FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	48
ITEM 4.	CONTROLS AND PROCEDURES	48

PART II - OTHER INFORMATION		48
ITEM 1.	LEGAL PROCEEDINGS	48
ITEM 1A. RISK FACTORS		48
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	49
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	49
ITEM 5.	OTHER INFORMATION	49
ITEM 6.	EXHIBITS	49

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

EUROBANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

March 31, 2008 and December 31, 2007

	March 31,			December 31,
	2008			2007
Assets
Cash and due from banks	$	16,465,733		$	15,866,221
Interest bearing deposits		400,000			32,306,909
Securities purchased under agreements to resell		34,494,833			19,879,008
Investment securities available for sale		793,244,021			707,103,432
Investment securities held to maturity		28,315,368			30,845,218
Other investments		15,819,700			13,354,300
Loans held for sale		3,424,816			1,359,494
Loans, net of allowance for loan and lease losses of $26,427,858 in 2008 and $28,137,104 in 2007		1,805,177,583			1,829,082,008
Accrued interest receivable		17,169,486			18,136,489
Customers’ liability on acceptances		143,243			430,767
Premises and equipment, net		33,364,986			33,083,169
Other assets		45,763,318			49,951,898
Total assets	$	2,793,783,087		$	2,751,398,913
Liabilities and Stockholders’ Equity
Deposits:
Noninterest bearing	$	123,280,473		$	120,082,912
Interest bearing		1,843,222,836			1,872,963,402
Total deposits		1,966,503,309			1,993,046,314

Securities sold under agreements to repurchase		565,723,000			496,419,250
Acceptances outstanding		143,243			430,767
Advances from Federal Home Loan Bank		25,440,183			30,453,926
Note payable to Statutory Trust		20,619,000			20,619,000
Accrued interest payable		19,095,768			17,371,698
Accrued expenses and other liabilities		14,059,032			13,139,809
		2,611,583,535			2,571,480,764
Stockholders’ equity:
Preferred stock:
Preferred stock Series A, $0.01 par value. Authorized 20,000,000 shares; issued and outstanding 430,537 in 2008 and 2007		4,305			4,305
Capital paid in excess of par value		10,759,120			10,759,120
Common stock:
Common stock, $0.01 par value. Authorized 150,000,000 shares; issued 20,439,398 shares in 2008 and 20,032,398 shares in 2007; outstanding: 19,500,315 shares in 2008 and 19,093,315 shares in 2007		204,394			200,324
Capital paid in excess of par value		109,999,191			107,936,531
Retained earnings:
Reserve fund		8,029,106			8,029,106
Undivided profits		60,600,032			61,789,048
Treasury stock, 939,083 shares at cost in 2008 and 2007		(9,910,458	)		(9,910,458	)
Accumulated other comprehensive gain		2,513,862			1,110,173
Total stockholders’ equity		182,199,552			179,918,149
Total liabilities and stockholders’ equity	$	2,793,783,087		$	2,751,398,913

See accompanying notes to condensed consolidated financial statements.

EUROBANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

For the three months ended March 31, 2008 and 2007

	Three Months Ended March 31,
	2008			2007
Interest income:
Loans, including fees	$	32,757,773		$	34,939,490
Investment securities:
Taxable		2,643			3,749
Exempt		9,491,802			6,644,134
Interest bearing deposits, securities purchased under agreements to resell, and other		386,987			726,369
Total interest income		42,639,205			42,313,742
Interest expense:
Deposits		21,773,166			20,056,619
Securities sold under agreements to repurchase, notes payable, and other		5,632,698			5,197,125
Total interest expense		27,405,864			25,253,744
Net interest income		15,233,341			17,059,998
Provision for loan and lease losses		7,833,000			5,279,000
Net interest income after provision for loan and lease losses		7,400,341			11,780,998
Noninterest income:
Service charges – fees and other		2,423,374			2,254,720
Net loss on sale of repossessed assets and on disposition of other assets		(33,759	)		(444,768	)
Gain on sale of loans and leases		1,235,195			112,758
Total noninterest income		3,624,810			1,922,710
Noninterest expense:
Salaries and employee benefits		5,578,914			5,735,170
Occupancy		2,942,768			2,597,434
Professional services		1,241,218			866,860
Insurance		646,591			452,268
Promotional		367,018			377,021
Other		2,489,195			2,101,070
Total noninterest expense		13,265,704			12,129,823
(Loss) income before income taxes		(2,240,553	)		1,573,885
(Benefit) provision for income taxes		(1,237,228	)		259,848
Net (Loss) income	$	(1,003,325	)	$	1,314,037

Basic (loss) earnings per share	$	(0.06	)	$	0.06

Diluted (loss) earnings per share	$	(0.06	)	$	0.06

See accompanying notes to condensed consolidated financial statements.

EUROBANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

and Comprehensive Income

(Unaudited)

For the three months ended March 31, 2008 and 2007

	2008			2007
Preferred stock:
Balance at beginning of period	$	4,305		$	4,305
Issuance of preferred stock		—			—
Balance at end of period		4,305			4,305
Capital paid in excess of par value - preferred stock:
Balance at beginning of period		10,759,120			10,759,120
Issuance of preferred stock		—			—
Balance at end of period		10,759,120			10,759,120
Common stock:
Balance at beginning of period		200,324			197,775
Exercised stock options		4,070			2,509
Balance at end of period		204,394			200,284
Capital paid in excess of par value – common stock:
Balance at beginning of period		107,936,531			106,539,383
Exercised stock options		2,024,930			1,126,370
Stock based compensation		37,730			75,176
Balance at end of period		109,999,191			107,740,929
Reserve fund:
Balance at beginning of period		8,029,106			7,553,381
Transfer from undivided profits		—			167,482
Balance at end of period		8,029,106			7,720,863
Undivided profits:
Balance at beginning of period		61,789,048			59,800,495
Net (loss) income		(1,003,325	)		1,314,037
Preferred stock dividends ($0.43 per share in 2008 and 2007)		(185,691	)		(183,651	)
Transfer to reserve fund		—			(167,482	)
Balance at end of period		60,600,032			60,763,399
Treasury stock
Balance at beginning of period		(9,910,458	)		(7,410,711	)
Purchase of common stock		—			—
Balance at end of period		(9,910,458	)		(7,410,711	)
Accumulated other comprehensive gain (loss), net of taxes:
Balance at beginning of period		1,110,173			(7,565,907	)
Unrealized net gain on investment securities available for sale		1,403,689			2,558,704
Balance at end of period		2,513,862			(5,007,203	)
Total stockholders’ equity	$	182,199,552		$	174,770,986

Comprehensive income:
Net (loss) income	$	(1,003,325	)	$	1,314,037
Other comprehensive income, net of tax:
Unrealized net gain on investments securities available for sale		1,403,689			2,558,704
Comprehensive income	$	400,364		$	3,872,741

See accompanying notes to condensed consolidated financial statements.

EUROBANCSHARES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the three months ended March 31, 2008 and 2007

	2008			2007
Cash flows from operating activities:
Net (loss) income	$	(1,003,325	)	$	1,314,037
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		761,286			824,984
Provision for loan and lease losses		7,833,000			5,279,000
Stock-based compensation		37,730			75,176
Deferred tax benefit		(1,246,472	)		(1,051,810	)
Net gain on sale of loans and leases		(1,235,195	)		(112,758	)
Net loss on sale of other real estate, repossessed assets and on disposition of other assets		33,759			444,768
Net amortization of premiums and accretion of discount on investment securities		(319,214	)		54,676
Valuation of repossessed assets		245,933			241,000
Net decrease in deferred loan origination costs		734,426			962,708
Origination of loans held for sale		(3,613,976	)		(4,863,142	)
Proceeds from sale of loans held for sale		3,672,590			4,975,624
Decrease in accrued interest receivable		967,003			821,451
Net decrease in other assets		8,943,258			917,109
Increase in accrued interest payable, accrued expenses, and other liabilities		2,643,292			7,416,414
Net cash provided by operating activities		18,454,096			17,299,237

Cash flows from investing actitivies:
Net (increase) decrease in securities purchased under agreements to resell		(14,615,825	)		14,958,533
Net decrease in interest-bearing deposits		31,906,909			49,050,368
Purchases of investment securities available for sale		(225,803,355	)		(3,000,000	)
Proceeds from principal payments and maturities of investment securities available for sale		141,413,649			32,271,839
Proceeds from principal payments, maturities, and calls of investment securities held to maturity		2,502,129			1,309,830
Purchases of other investments		(6,682,500	)		(1,574,400	)
Proceeds from principal payments, maturities, and calls of other investments		4,217,100			—
Net increase in loans		(27,385,762	)		(17,978,491	)
Proceeds from sale of leases		37,671,519			—
Proceeds from sale of other real estate, repossessed assets and on disposition of other assets		342,710			24,570
Capital expenditures		(1,011,469	)		(13,625,398	)
Net cash (used in) provided by investing activities		(57,444,895	)		61,436,851

Cash flows from financing activities:
Net (decrease) in deposits		(26,543,005	)		(80,792,826	)
Increase in securities sold under agreements to repurchase and other borrowings		69,303,750			765,000
Repayment of Federal Home Loan Bank Advances		(5,013,743	)		(13,155	)
Dividends paid to preferred stockholders		(185,691	)		(183,651	)
Net proceeds from issuance of common stock		2,029,000			1,128,879
Net cash provided by (used in) financing activities		39,590,311			(79,095,753	)

Net increase (decrease) in cash and due from banks		599,512			(359,665	)
Cash and due from banks beginning balance		15,866,221			25,527,489
Cash and due from banks ending balance	$	16,465,733		$	25,167,824

Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest	$	25,681,794		$	23,691,733

Noncash transactions:
Repossessed assets acquired through foreclosure of loans		8,492,365			10,488,282
Finance of repossessed assets acquired through foreclosure of loans		4,335,445			7,984,257
Change in fair value of available-for-sale securities, net of taxes		(1,403,688	)		(2,558,704	)

See accompanying notes to condensed consolidated financial statements.

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.	Nature of Operations and Basis of Presentation

EuroBancshares, Inc. (the Company or EuroBancshares) was incorporated on November 21, 2001, under the laws of the Commonwealth of Puerto Rico to engage, for profit, in any lawful acts or businesses and serve as the holding company for Eurobank (the Bank). As a financial holding company, the Company is subject to the provisions of the Bank Holding Company Act, and to the supervision and regulation by the board of governors of the Federal Reserve System.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. These statements are, in the opinion of management, a fair presentation of the financial position and results for the periods presented. These financial statements are unaudited but, in the opinion of management, include all necessary adjustments, all of which are of a normal recurring nature, for a fair presentation of such financial statements.

The presentation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting periods. These estimates are based on information available as of the date of the condensed consolidated financial statements. Therefore, actual results could differ from those estimates.

Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and, accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2007. The results of operations for the three months period ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year.

For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2008 presentation.

2.	Recent Accounting Pronouncements

The Financial Accounting Standard Board (FASB) issued SFAS 159, “ The Fair Value Option for Financial Assets and Financial Liabilities ” in February 2007. This statement includes an amendment to SFAS 115, “ Accounting for Certain Investments in Debt and Equity Securities ”, to allow entities to choose to measure at fair value many financial instruments that are not required to be measured at fair value under existing SFAS. The main focus of SFAS 159 is to improve the use of fair value measurement providing the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement does not affect the provisions of any other SFAS that requires fair value measurement for certain assets or liabilities. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Company did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008, the effective date of the standard .

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On February 12, 2008 the Financial accounting Standard Board (FASB) issued FASB staff position (FSP) No. 157-2, “Effective Date of FASB Statement No. 157” . This FSP delays the effective date of FAS 157, “Fair Value Measurements”, for nonfinancial assets and liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This FSP defers the effective date of of FAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP.

In March 2008 the Financial Standard Board (FASB) issued SFAS 161 “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB No. 133” . This statement addresses the amount and quality of required disclosures under FASB 133 and improves the transparency of financial reporting. Under FASB 161 all entities are required to enhance disclosures about how and why it uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB 133, and how derivative instruments and related hedged items affect an the entity’s financial position, financial performance, and cash flows. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company believes that this statement will not have a financial impact, other than additional disclosures, upon adoption.

3.	(Loss) Earnings Per Share

Basic (loss) earnings per share represent income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted (loss) earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.

The computation of (loss) earnings per share is presented below:

	Three months ended March 31,
	2008			2007
(Loss) income before preferred stock dividends	$	(1,003,325	)	$	1,314,037
Preferred stock dividends		(185,691	)		(183,651	)
(Loss) income available to common shareholders	$	(1,189,016	)	$	1,130,386

Weighted average number of common shares outstanding applicable to basic (loss) earnings per share		19,172,524			19,226,953
Effect of dilutive securities		57,852			272,739
Adjusted weighted average number of common shares outstanding applicable to diluted (loss) earnings per share		19,230,376			19,499,692

Net (loss) income per share:
Basic	$	(0.06	)	$	0.06
Diluted		(0.06	)		0.06

In computing diluted loss per common share for the first quarter of 2008, stock options of 174,000, 96,600, 76,800 and 74,670 shares on common stock with exercise price of $8.13, $21.00, $14.17 and $8.60, respectively, were not considered because they were antidilutive. For the first quarter of 2007 stock options of 78,800 and 109,000 shares on common stock with exercise price of $14.17 and $21.00 respectively, were not considered because they were antidilutive.

(continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

4.	Investment Securities Available for Sale

Investment securities available for sale and related contractual maturities as of March 31, 2008 and December 31, 2007 are as follows:

	2008
	Amortized		Gross unrealized		Gross unrealized			Fair
	cost		gains		losses			value
Commonwealth of Puerto
Rico obligations:
Less than one year	$	775,193	$	11,458	$	–		$	786,651
One through five years		9,159,695		44,249		–			9,203,944
Federal Farm Credit Bonds:
Less than one year		9,997,361		457,879		–			10,455,240
Federal Home Loan Bank notes:
Less than one year		24,992,505		186,130		–			25,178,635
One through five years		17,963,728		165,000		(49,477	)		18,079,251
Federal National Mortgage
Association notes:
One through five years		10,000,000		53,550		–			10,053,550
US Corporate Note
One through five years		7,938,159		–		(632,760	)		7,305,399
Mortgage-backed securities		709,901,674		5,867,640		(3,587,963	)		712,181,351
Total	$	790,728,315	$	6,785,906	$	(4,270,200	)	$	793,244,021

	2007
	Amortized		Gross unrealized		Gross unrealized			Fair
	cost		gains		losses			value
Commonwealth of Puerto
Rico obligations:
Less than one year	$	775,336	$	20,068	$	(140	)	$	795,264
One through five years		4,840,524		79,974		–			4,920,498
Federal Farm Credit Bonds:
Less than one year		27,454,067		251,882		–			27,705,949
Federal Home Loan Bank notes:
Less than one year		84,447,295		32,284		(19,739	)		84,459,840
One through five years		7,119,149		46,537		–			7,165,686
Federal National Mortgage
Association notes:
One through five years		10,000,000		66,900		–			10,066,900
US Corporate Note
One through five years		3,000,000		–		(256,500	)		2,743,500
Mortgage-backed securities		568,355,302		3,349,482		(2,458,989	)		569,245,795
Total	$	705,991,673	$	3,847,127	$	(2,735,368	)	$	707,103,432

Contractual maturities on certain investment securities available for sale could differ from actual maturities since certain issuers have the right to call or prepay these securities.

At March 31, 2008 and December 31, 2007, no investments that are payable from and secured by the same source of revenue or taxing authority, other than the U.S. government and U.S. agencies exceed 10% of stockholders’ equity.

(continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

During the first quarter of 2008 and for the 2007, there were no sales of investments securities available for sale.

At March 31, 2008 and December 31, 2007, gross unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

	2008
	Less than 12 months					12 months or more					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	losses			value		losses			value		losses			value
U.S. agency debt securities	$	(49,477	)		6,914,250		—			—	$	(49,477	)	$	6,914,250
U.S. Corporate Note		(632,760	)		7,305,400		—			—		(632,760	)		7,305,400
Mortgage-backed securities		(3,195,498	)		209,081,864		(392,465	)		20,265,824		(3,587,963	)		229,347,688
	$	(3,877,735	)	$	223,301,514	$	(392,465	)	$	20,265,824	$	(4,270,200	)	$	243,567,338

	2007
	Less than 12 months					12 months or more					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	losses			value		losses			value		losses			value
U.S. agency debt securities	$	–		$	–	$	(19,739	)	$	13,240,261	$	(19,739	)	$	13,240,261
State and municipal obligations		(140	)		200,196		–			–		(140	)		200,196
US Corporate Note		(256,500	)		2,743,500		–			–		(256,500	)		2,743,500
Mortgage-backed securities		(804,224	)		78,237,438		(1,654,765	)		136,618,716		(2,458,989	)		214,856,154
	$	(1,060,864	)	$	81,181,134	$	(1,674,504	)	$	149,858,977	$	(2,735,368	)	$	231,040,111

U.S. Agency Debt Securities – The unrealized losses on investments in U.S. agency debt securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment. Because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Mortgage-Backed Securities – The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases. The company has mortgage-backed securities that were issued by private corporations and by U.S. government enterprise. The contractual cash flows of the securities issued by a U.S. government enterprise are guaranteed by the U.S. government sponsored enterprise that issued the securities. It is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

US Corporate Notes- The unrealized losses on investments in U.S. corporate notes were caused primarily by changes in interest rate expectations. It is expected that the securities would not settle at a price less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporary impaired.

(continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5.	Investment Securities Held to Maturity

Investment securities held to maturity as of March 31, 2008 and December 31, 2007 are as follows:

	2008
	Amortized		Gross unrealized		Gross unrealized			Fair
	cost		gains		losses			value
U.S. agency debt securities	$	2,691,182	$	3,199	$	–		$	2,694,381
Mortgage-backed securities		25,624,186		51,377		(570,539	)		25,105,024
Total	$	28,315,368	$	51,377	$	(570,539	)	$	27,799,405

	2007
	Amortized		Gross unrealized		Gross unrealized			Fair
	cost		gains		losses			value
U.S. agency debt securities	$	2,774,712	$	–	$	(12,717	)	$	2,761,995
Mortgage-backed securities		28,070,506		16,983		(397,558	)		27,689,931
Total	$	30,845,218	$	16,983	$	(410,275	)	$	30,451,926

There were no sales of investment securities held to maturity during the three-month period ended March 31, 2008 and for the year ended December 31, 2007.

At March 31, 2008 and December 31,2007, gross unrealized losses on investment securities held to maturity and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

	2008
	Less than 12 months					12 months or more					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
	losses			value		losses			value		losses			value

U.S. agency debt securities	$	–		$	–	$	–		$	–	$	–		$	–
Mortgage-backed securities		(101,000	)		4,302,442		(469,539	)		10,386,652		(570,539	)		14,689,094
	$	(101,000	)	$	4,302,442	$	(469,539	)	$	10,386,652	$	(570,539	)	$	14,689,094

	2007
	Less than 12 months				12 months or more					Total
	Unrealized		Fair		Unrealized			Fair		Unrealized			Fair
	losses		value		losses			value		losses			value
U.S. agency debt securities	$	–	$	–	$	(12,717	)	$	2,761,995	$	(12,717	)	$	2,761,995
Mortgage-backed securities		–		–		(397,558	)		23,477,416		(397,558	)		23,477,416
	$	–	$	–	$	(410,275	)	$	26,239,411	$	(410,275	)	$	26,239,411

Mortgage-Backed Securities – The unrealized losses on investments in mortgage-backed securities were caused by interest rate increases. The company has mortgage-backed securities that were issued by private corporations and by U.S. government enterprise. The contractual cash flows of the securities issued by a U.S. government enterprise are guaranteed by the U.S. government sponsored enterprise that issued the securities. It is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

6.	Other Investments

Other investments at March 31, 2008 and December 31, 2007 consist of the following:

	2008		2007
FHLB stock, at cost	$	15,209,700		12,744,300
Investment in statutory trust		610,000		610,000
Other investments	$	15,819,700		13,354,300

7.	Loans and allowance for loan and lease losses

A summary of the Company’s loan portfolio at March 31, 2008 and December 31, 2007 is as follows:

	2008			2007
Loans secured by real estate:
Commercial and industrial	$	810,618,661		$	792,308,856
Construction		214,804,519			203,344,272
Residential mortgage		115,772,120			106,947,204
Consumer		2,101,771			779,610
		1,143,297,071			1,103,379,942

Commercial and industrial		297,003,823			302,530,197
Consumer		54,806,052			57,745,127
Lease financing contracts		329,175,181			385,390,263
Overdrafts		6,636,972			6,849,655
		1,830,919,099			1,855,895,184

Deferred loan origination costs, net		1,631,469			2,365,896
Unearned finance charges		(945,127	)		(1,041,968	)
Allowance for loan and lease losses		(26,427,858	)		(28,137,104	)
Loans, net	$	1,805,177,583		$	1,829,082,008

The following is a summary of information pertaining to impaired loans at March 31, 2008 and December 31, 2007:

	2008		2007
Impaired loans with related allowance	$	29,600,000	$	32,147,000
Impaired loans that did not require allowance		86,146,000		52,283,000
Total impaired loans	$	115,746,000	$	84,430,000
Allowance for impaired loans	$	7,832,000	$	9,538,000

No additional funds are committed to be advanced in connection with impaired loans.

As of March 31, 2008 and 2007, loans in which the accrual of interest has been discontinued amounted to $67,196,000 and $40,434,000, respectively. If these loans had been accruing interest, the additional interest income realized would have been approximately $1,699,000 and $1,441,000 for 2008 and 2007, respectively.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Commercial and industrial loans with principal outstanding balance amounting to approximately $2,106,000 as of March 31, 2008, are guaranteed by the U.S. government through the Small Business Administration at percentages varying from 75% to 90%. As of March 31, 2008, industrial loans with a principal outstanding balance of approximately $653,000 were guaranteed by the U.S. government through the U.S. Department of Agriculture at percentages varying from 80% to 90%.

The following analysis summarizes the changes in the allowance for loan and lease losses for the three-month periods ended March 31:

	2008			2007
Balance, beginning of period	$	28,137,104			18,936,841
Provision for loan and lease losses		7,833,000			5,279,000
Loans and leases charged-off		(10,074,657	)		(4,453,751	)
Recoveries		532,411			591,713
Balance, end of period	$	26,427,858			20,353,803

8.	Other Assets

Other assets at March 31, 2008 and December 31, 2007 consist of the following:

	2008		2007

Deferred tax assets, net	$	12,144,285		10,898,071
Merchant credit card items in process of collection		1,452,713		2,416,934
Auto insurance claims receivable on repossessed vehicles		1,184,374		1,148,782
Accounts receivable		672,075		8,828,058
Other real estate, net of valuation allowance of $104,857 in March 31, 2008 and $120,857 in December 31, 2007, respectively		7,241,189		8,124,572
Other repossessed assets, net of valuation allowance of $530,522 in March 31, 2008 and $565,767 in December 31, 2007, respectively		6,093,529		5,409,451
Net servicing assets		2,275,794		147,581
Prepaid expenses and deposits		5,884,786		6,766,081
Purchased option		1,955,000		3,950,000
Other		6,859,573		2,262,370
	$	45,763,318	$	49,951,898

Other repossessed assets are presented net of an allowance for losses. The following analysis summarizes the changes in the allowance for losses for the periods ended March 31:

	2008			2007
Balance, beginning of period	$	565,767		$	799,104
Provision for losses		245,933			231,000
Net charge-offs		(281,178	)		(373,585	)
Balance, end of period	$	530,522		$	656,519

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

9.	Deposits

Total deposits as of March 31, 2008 and December 31, 2007 consisted of the following:

	2008		2007

Non interest bearing deposits	$	123,280,473	$	120,082,912

Interest bearing deposits:
NOW & Money Market		61,556,276		60,893,298
Savings		129,996,481		131,604,327
Regular CD's & IRAS		95,556,167		92,544,566
Jumbo CD's		276,231,380		251,360,899
Brokered Deposits		1,279,882,532		1,336,560,312
		1,843,222,836		1,872,963,402
Total Deposits	$	1,966,503,309	$	1,993,046,314

10.

Advances from Federal Home Loan Bank

At March 31, 2008, the Company owes several advances to the FHLB as follows:

Maturity	Interest rate		2008
2008		2.78% - 2.79 %		25,000,000
2014		4.38 %		440,183
			$	25,440,183

Interest rates are fixed for the term of each advance and are payable on the first business day of the following month when the original maturity of the note exceeds six months. In notes with original terms of six months or less, interest is paid at maturity. Interest payments for the three-month periods ended March 31, 2008 and 2007 amounted to approximately $165,000 and $121,000, respectively. Advances are secured by mortgage loans and securities pledged at the FHLB. As of March 31, 2008, based on the collateral pledged at the FHLB, the Company had a borrowing capacity on advances of approximately $27,000,000.

11.

Derivative Financial Instruments

Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to the variation of the fair value of an asset or a liability imputable to a particular risk that has effects on the net profit are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

The Company’s objective in using derivatives is to manage interest rate risk exposure of the variable commercial loan portfolio and other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps as part of its fair value hedging strategy. Interest rate swaps designated as fair value hedges protect the Company against the changes in fair value of the hedged item over the life of the agreements without exchange of the underlying principal amount. The Company uses fair value hedges to protect against adverse changes in fair value of certain brokered certificates of deposit (CDs). The Company also uses options to mitigate certain financial risks as further described below. The Company’s objective in using option contracts is to offset the risk characteristics of the specifically identified assets or liabilities to which the contract is tied.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fair value hedges result in the immediate recognition in earnings of gains or losses on the derivative instrument, as well as corresponding losses or gains on the hedged item, to the extent they are attributable to the hedged risk. The ineffective portion of the gain or loss, if any, is recognized in current earnings.

As of March 31, 2008 and December 31, 2007, the Company had the following derivative financial instruments outstanding:

	2008					2007
	Notional amount		Fair value			Notional amount		Fair value

Libor-Rate interest rate swaps	$	24,800,000	$	(32,871	)	$	30,800,000	$	(415,176	)
	$	24,800,000	$	(32,871	)	$	30,800,000	$	(415,176	)

Purchased Option	$	25,000,000	$	1,955,000		$	25,000,000	$	3,950,000
	$	25,000,000	$	1,955,000		$	25,000,000	$	3,950,000

Written Option	$	25,000,000	$	(1,955,000	)	$	25,000,000	$	(3,950,000	)
	$	25,000,000	$	(1,955,000	)	$	25,000,000	$	(3,950,000	)

In February of 2007, the Corporation for the State Insurance Fund (FSE) for the Government of the Commonwealth of Puerto Rico invested approximately $25,000,000 in a CD indexed to a global equity basket. The return on the CD equals 100% appreciation of the equity basket at maturity, approximately 5 years. To protect against adverse changes in fair value of the CD, the Company purchased an option that offsets changes in fair value of the global equity basket. Consistent with the guidance in SFAS 133, the equity-based return on the CD represent a written option and is bifurcated and accounted for separately from the debt host as a derivative. Both the embedded equity-based return derivative and the purchased option are adjusted to their respective fair values through earnings. As the values of the two derivatives are equal and offset each other, the net effect on earnings is zero. At March 31, 2008, $1,955,000 was included in other assets and other liabilities related to the purchased option and equity-based return derivative.

As of March 31, 2008, the Company had three interest rate swap agreements, designated as fair value hedges, which converted $22,827,000 of fixed rate time deposits to variable rate time deposits, of which $10,216,000 will mature between 2010 and 2013 and $12,611,000 will mature in 2018, with semi-annual call options that match the call options on the swaps.

These interest rate swap agreements have been effective in achieving the economic objectives explained above. During the quarters ended March 31, 2008 and 2007, the net loss from fair value hedging ineffectiveness was considered inconsequential and reported within other non-interest income.

12.

Note Payable to Statutory Trust

On December 18, 2001, Eurobank Statutory Trust (the Trust) issued $25,000,000 of floating rate Trust Preferred Capital Securities Series 1 due in 2031 with a liquidation amount of $1,000 per security; with an option to redeem in five years. Distributions payable on each capital security was payable at an annual rate equal to 5.60% beginning on (and including) the date of original issuance and ending on (but excluding) March 18, 2002, and at an annual rate for each successive period equal to the three-month LIBOR, plus 3.60% with a ceiling rate of 12.50%. The capital securities of the Trust were fully and unconditionally guaranteed by EuroBancshares. EuroBancshares then issued $25,774,000 of floating rate junior subordinated deferrable interest debentures to the Trust due in 2031. The terms of the debentures, which comprise substantially all of the assets of the Trust, were the same as the terms of the capital securities issued by the Trust. These debentures were fully and unconditionally guaranteed by the Bank. The Bank subsequently issued an unsecured promissory note to EuroBancshares for the issued amount and at an annual rate equal to that being paid on the Trust Preferred Capital Securities Series 1 due in 2031. On December 18, 2006 the Trust fully redeemed the Trust Preferred Capital Securities and in the same manner, Eurobancshares redeemed the floating rate junior subordinated deferrable interest debentures in the Trust with the inflows from the repayment of a note payable from the Bank. On the redemption date, the Company charged to interest expense the write-off of approximately $626,000 in unamortized placement costs.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

On December 19, 2002, Eurobank Statutory Trust II (the Trust II) issued $20,000,000 of floating rate Trust Preferred Capital Securities due in 2032 with a liquidation amount of $1,000 per security; with an option to redeem in five years. Distributions payable on each capital security is payable at an annual rate equal to 4.66% beginning on (and including) the date of original issuance and ending on (but excluding) March 26, 2003, and at an annual rate for each successive period equal to the three-month LIBOR plus 3.25% with a ceiling rate of 11.75%. The capital securities of the Trust II are fully and unconditionally guaranteed by EuroBancshares. The Company then issued $20,619,000 of floating rate junior subordinated deferrable interest debentures to the Trust II due in 2032. The terms of the debentures, which comprise substantially all of the assets of the Trust II, are the same as the terms of the capital securities issued by the Trust II. These debentures are fully and unconditionally guaranteed by the Bank. The Bank subsequently issued an unsecured promissory note to EuroBancshares for the issued amount and at an annual rate equal to that being paid on the Trust Preferred Capital Securities due in 2032.

Interest expense on notes payable to statutory trusts amounted to approximately $402,000 and $431,000 for the three months ended March 31, 2008 and 2007, respectively.

13.

Commitments and Contingencies

The Company is involved as plaintiff or defendant in a variety of routine litigation incidental to the normal course of business. Management believe, based on the opinion of legal counsel, that it has adequate defense or insurance protection with respect to such litigations and that any losses there from, whether or not insured, would not have a material adverse effect on the results of operations or financial position of the Company.

14.

Sale of Receivable and Servicing Assets

During the quarter ended March 31, 2008 the Company sold to a third party lease financing contracts with carrying values of approximately $37,671,000. In this sale, the Company retained servicing responsibilities and servicing assets of $2,166,000 was recognized. The Company surrendered control of the lease financing receivables, as defined by SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities , and accounted for these transactions as sales and recognized net gains of approximately $1,177,000. Under the terms of the transactions, the Company has limited recourse obligations to repurchase defaulted leases up to 5% of the outstanding aggregate principal lease balance as of the cut-off date of all leases purchased. As of March 31, 2008, total amount accrued on books related to recourse liability amounted to approximately $474,000.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of servicing assets as of March 31, 2008 and December 31, 2007 are as follows:

	2008			2007
Servicing assets
Balance, beginning of year	$	148,880		$	1,157,706
Servicing retained on lease financing contracts sold		2,166,113			—
Change in valuation allowance		—			(379,659	)
Amortization		(37,900	)		(629,167	)
Balance, end of period	$	2,277,093		$	148,880
Valuation allowance for servicing assets
Balance, beginning of year		1,299			375,986
Direct write-downs		—			(374,687	)
Total valuation allowance		1,299			1,299
Balance, end of period, net	$	2,275,794		$	147,581

The estimated fair value of servicing assets as of March 31, 2008 was approximately $2,276,000. Such fair value was estimated by an independent financial advisor using the present value of expected cash flows associated with the servicing assets taking into account a prepayment assumption of 18.84%, a discount rate of 10.00% and a weighted average portfolio life of 3.33 years. No fair value impairment analysis was prepared as of December 31, 2007 since the servicing asset was considered inconsequential. There were no custodial escrow balances maintained in connection with serviced leases as of March 31, 2008 and December 31, 2007.

The estimated aggregate amortization expense related to servicing assets for the next five years is as follows:

2008	$	1,102,286
2009		845,353
2010		298,484
2011		13,972
2012		10,072
Thereafter		6,926
	$	2,277,093

During the quarters ended March 31, 2008 and 2007 the Company sold to third parties approximately $3,614,000 and $4,863,000 of mortgage loans, respectively. The Company surrendered control of the mortgage loans receivables, including servicing rights, as defined by SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities , and accounted for these transactions as a sale. The net proceeds from the sale from such loans amounted to approximately $3,673,000 and $4,976,000, resulting in a gain of approximately $59,000 and $113,000 during 2008 and 2007, respectively.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

15.

Stock Transactions

During the quarter ended March 31, 2008, the Company issued 407,000 of the common stock shares through stock options exercised, as follows:

	Number of		Exercise
Date	shares		Price		Total
January-08		50,000	$	5.00	$	250,000
March-08		351,000		5.00		1,755,000
March-08		6,000		4.00		24,000
		407,000			$	2,029,000

16.

Fair Value

SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). The fair values of mortgage-backed securities available for sale are determined by obtaining quoted prices from nationally recognized securities broker-dealers (Level 2 inputs). Quoted price for each mortgage-backed security is determined utilizing the risk free US Treasury Securities Yield Curve as the base plus a spread that represents the cost of the risks inherent to the characteristics (credit, option and other possible risks) of each investment alternative.

Currently, the Company uses Interest Rate Swaps and Call Options to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observable market interest rate curves.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The fair values of call options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if the values of a global equity basket of indices rise above the strike price of the caps for 100% appreciation of a global equity basket. The appreciation of a global equity basket used in the calculation of projected receipts on the cap are based on an expectation of future appreciation of a global equity basket value, derived from observable market appreciation of a global equity basket value curves and volatilities. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurement at March 31, 2008 using
			Quoted prices in		Significant other		Significant
			active markets		observable		unobservable
			for identical		inputs		inputs
	March 31, 2008		assets (Level 1)		(Level 2)		(Level 3)
Assets:
Available for sale securities	$	793,244,021	$	81,042,670	$	712,181,351	$	—
Purchased option jumbo CD		1,955,000		—		1,955,000		—

Liabilities:
Embedded option jumbo CD	$	1,955,000	$	—	$	1,955,000	$	—
FVH swaps valuation		32,871		—		32,871		—

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurement at March 31, 2008 using
			Quoted prices in		Significant other		Significant
			active markets		observable		unobservable
			for identical		inputs		inputs		Total gains
	March 31, 2008		assets (Level 1)		(Level 2)		(Level 3)		(losses)
Assets:
Servicing assets	$	2,275,794	$	—	$	—	$	2,275,794	$	—
Impaired loans		14,288,302		—		11,875,213		2,413,089		(1,520,452	)

The following represent a summary of the assumptions using significant unobservable inputs (Level 3) and impairment charges recognized during the period:

Servicing assets, which are carried at lower of cost or fair value, were issued and measured during the quarter ended March 31, 2008. Fair value was estimated by an independent financial advisor using the present value of expected cash flows associated with the servicing assets taking into account a prepayment assumption of 18.84%, a discount rate of 10.00% and a weighted average portfolio life of 3.33 years.

(Continued)

EUROBANCSHARES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a fair value of $14,288,000, net of a valuation allowance of $3,760,000, resulting in an additional provision for loan losses of $1,520,000 for the period. Those assets using significant unobservable inputs (level 3) are based in the physical condition of the collateral and the Company experience while disposing similar assets.

17.

Regulatory Matters

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I Capital (as defined) to average assets (Leverage) (as defined). Management believes, as of March 31, 2008 and December 31, 2007, that the Company and the Bank met all capital adequacy requirements to which they are subject.

The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based and Tier I Leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the institution’s capital category. The Company’s and the Bank’s actual capital amounts and ratios as of March 31, 2008 are also presented in the table.

At March 31, 2008 and December 31, 2007, required and actual regulatory capital amounts and ratios are as follows (dollars in thousands):

	2008
	Required					Actual					Well
	Amount		Ratio			Amount		Ratio			capitalized ratio
Total Capital (to risk-weighted assets):
Consolidated	$	166,896		8.00	%	$	225,546		10.81	%		N/A
Eurobank		166,877		8.00	%		222,893		10.69	%		> 10.00	%
Tier I Capital (to risk-weighted assets):
Consolidated		83,448		4.00	%		199,458		9.56	%		N/A
Eurobank		83,439		4.00	%		196,808		9.43	%		> 6.00	%
Tier I Capital (to average assets):
Consolidated		109,533		4.00	%		199,458		7.28	%		N/A
Eurobank		109,499		4.00	%		196,808		7.19	%		> 5.00	%

(Continued)

	2007
	Required					Actual					Well
	amount		Ratio			amount		Ratio			capitalized ratio
Total Capital (to risk-weighted assets):
Consolidated	$	166,720		8.00	%	$	224,873		10.79	%		N/A
Eurobank		166,719		8.00	%		224,137		10.76	%		> 10.00	%
Tier I Capital (to risk-weighted assets):
Consolidated		83,360		4.00	%		198,793		9.54	%		N/A
Eurobank		83,360		4.00	%		198,057		9.50	%		> 6.00	%
Tier I Capital (to average assets):
Consolidated		105,308		4.00	%		198,793		7.55	%		N/A
Eurobank		105,282		4.00	%		198,057		7.52	%		> 5.00	%

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presents our consolidated financial condition and results of operations for the three months ended March 31, 2008 and 2007. The discussion should be read in conjunction with our financial statements and the notes related thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

Statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including our expectations, intentions, beliefs, or strategies regarding the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “will continue,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions, customer disintermediation and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed under the section entitled “Risk Factors,” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2008, including the following:

if a significant number of our clients fail to perform under their loans, our business, profitability, and financial condition would be adversely affected;

our current level of interest rate spread may decline in the future, and any material reduction in our interest spread could have a material impact on our business and profitability;

the modification of the Federal Reserve Board’s current position on the capital treatment of our junior subordinated debt and trust preferred securities could have a material adverse effect on our financial condition and results of operations;

adverse changes in domestic or global economic conditions, especially in the Commonwealth of Puerto Rico, could have a material adverse effect on our business, growth, and profitability;

we could be liable for breaches of security in our online banking services, and fear of security breaches could limit the growth of our online services;

maintaining or increasing our market share depends on market acceptance and regulatory approval of new products and services;

significant reliance on loans secured by real estate may increase our vulnerability to downturns in the Puerto Rico real estate market and other variables impacting the value of real estate;

if we fail to retain our key employees, growth and profitability could be adversely affected;

we may be unable to manage our future growth;

we have no current intentions of paying cash dividends on common stock;

our directors and executive officers beneficially own a significant portion of our outstanding common stock;

the market for our common stock is limited, and potentially subject to volatile changes in price;

we face substantial competition in our primary market area;

we are subject to significant government regulation and legislation that increases the cost of doing business and inhibits our ability to compete;

we could be negatively impacted by downturns in the Puerto Rican economy;

the proportion of core and non-core funding contrast sharply with that of the mainland and in recent days contributed to a sharp increase in funding costs; and

we rely heavily on short-term funding sources, such as brokered deposits, which access could be restricted if our capital ratios fall below the levels necessary to be considered “well-capitalized” under current regulatory guidelines.

These factors and the risk factors referred in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2008 could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Executive Overview

Introduction

We are a diversified financial holding company headquartered in San Juan, Puerto Rico, offering a broad array of financial services through our wholly-owned banking subsidiary, Eurobank, and our wholly-owned insurance agency subsidiary, EuroSeguros, Inc. As of March 31, 2008, we had, on a consolidated basis, total assets of $2.8 billion, net loans and leases of $1.8 billion, total deposits of $2.0 billion, other borrowings of $611.8 million, and stockholders’ equity of $182.2 million. We currently operate through a network of 26 branch offices throughout Puerto Rico.

Over the past three years, we have experienced significant balance sheet growth. Our management team has implemented a strategy of building our core banking franchise by focusing on commercial loans, business transaction accounts, and our mortgage business. We believe that this strategy will increase recurring revenue streams, enhance profitability, broaden our product and service offerings and continue to build stockholder value.

Key Performance Indicators at March 31, 2008

We believe the following were key indicators of our performance and results of operations through the first quarter of 2008:

our total assets increased to $2.794 billion, or by 6.16% on an annualized basis, at the end of the first quarter of 2008, from $2.751 billion at the end of 2007;

our net loans and leases decreased to $1.809 billion at the end of the first quarter of 2008, representing a decrease of 4.77% on an annualized basis, from $1.830 billion at the end of 2007, resulting primarily from the sale of $37.7 million in lease financing contracts during March 2008;

our investment securities grew to $837.4 million, or 45.84% on an annualized basis, at the end of the first quarter of 2008, from $751.3 million at the end of 2007;

our total deposits decreased to $1.967 billion, or by 5.33% on an annualized basis, at the end of the first quarter of 2008, from $1.993 billion at the end of 2007;

our short-term borrowings increased to $611.8 million, or by 46.96% on an annualized basis, at the end of the first quarter of 2008, from $547.5 million at the end of 2007;

our nonperforming assets remained unchanged at $111.6 million at the end of the first quarter of 2008, compared to the end of 2007;

our total revenue grew to $46.3 million in the first quarter of 2008, representing an increase of 4.58%, from $44.2 million in the same period of 2007;

our net interest margin and spread on a fully taxable equivalent basis decreased to 2.39% and 1.96% for the first quarter of 2008, respectively, compared to 2.89% and 2.35%, respectively, for the same period in 2007;

our provision for loan and lease losses grew to $7.8 million in the first quarter of 2008, representing an increase of 48.38%, from $5.3 million in the same period of 2007;

our total noninterest income grew to $3.6 million in the first quarter of 2008, representing an increase of 88.53%, from $1.9 million in the same period of 2007, mainly as a result of the $1.2 million gain in the sale of $37.7 million in lease financing contracts during March 2008, as previously mentioned;

our total noninterest expense grew to $13.3 million in the first quarter of 2008, representing an increase of 9.36%, from $12.1 million in the same period of 2007; and

for the first quarter of 2008, we recorded a tax benefit of $1.2 million, compared to an income tax expense of $260,000 in the same period in 2007.

These items, as well as other factors, resulted in a net loss of $1.0 million for the first quarter of 2008, compared to a net income of $1.3 million for the same period in 2007, or ($0.06) per common share for the first quarter of 2008, compared to $0.06 per common share for the same period in 2007, assuming dilution. Key performance indicators and other factors are discussed in further detail throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. The following is a description of our significant accounting policies used in the preparation of the accompanying consolidated financial statements.

Loans and Allowance for Loan and Lease Losses

Loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances adjusted by any charge-offs, unearned finance charges, allowance for loan and lease losses, and net deferred nonrefundable fees or costs on origination. The allowance for loan and lease losses is an estimate to provide for probable incurred losses in our loan and lease portfolio. The allowance for loan and lease losses amounted to $26.4 million, $28.1 million and $20.4 million as of March 31, 2008, December 31, 2007 and March 31, 2007, respectively. Losses charged to the allowance amounted to $10.1 million for the three months ended March 31, 2008, including a $3.1 million partial charge-off on a commercial business relationship for which a specific allowance was previously determined, compared to $4.5 million for the same period in 2007. Recoveries were credited to the allowance in the amounts of $532,000 and $592,000 for those same periods, respectively. For additional information on the allowance for loan and lease losses, see the section of this discussion and analysis captioned “Allowance for Loan and Lease Losses.”

Servicing Assets

We have no contracts to service loans for others, except for servicing rights retained on lease sales. The total cost of loans or leases to be sold with servicing assets retained is allocated to the servicing assets and the loans or leases (without the servicing assets), based on their relative fair values. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing income. In addition, we assess capitalized servicing assets for impairment based on the fair value of those assets.

To estimate the fair value of servicing assets we consider prices for similar assets and the present value of expected future cash flows associated with the servicing assets calculated using assumptions that market participants would use in estimating future servicing income and expense, including discount rates, anticipated prepayment and credit loss rates. For purposes of evaluating and measuring impairment of capitalized servicing assets, we evaluate separately servicing retained for each loan portfolio sold. The amount of impairment recognized, if any, is the amount by which the capitalized servicing assets exceed its estimated fair value. Impairment is recognized through a valuation allowance with changes included in net income for the period in which the change occurs. The key assumptions we utilized in measuring the servicing assets for the sale of lease financing contracts completed in March 2008 were as follows: prepayment rate of 18.84%; weighted average live of 3.33 years; and a discount rate of 10.00%. There was no sale of lease financing contracts during 2007. Servicing assets are included as part of other assets in the balance sheets. Servicing assets recorded amounted to $2.3 million, $148,000 and $523,000 as of March 31, 2008, December 31, 2007, and March 31, 2007, respectively. Servicing assets as of December 31,2007 and March 31, 2007 were related to lease financing contracts sold in or before fiscal year 2005.

Other Real Estate Owned and Repossessed Assets

Other real estate owned, or OREO, and repossessed assets, normally obtained through foreclosure or other workout situations, are initially recorded at the lower of net realizable value or book value at the date of foreclosure, establishing a new cost basis. Any resulting loss is charged to the allowance for loan and lease losses. Appraisals of other real estate properties are made periodically after their acquisition, as necessary. Valuations of repossessed assets are made periodically after their acquisition. For OREO and repossessed assets, a comparison between the appraised value and the carrying value is performed. Additional declines in value after acquisition, if any, are charged to current operations. Gains or losses on disposition of OREO and repossessed assets, and related operating income and maintenance expenses, are included in current operations. Other real estate owned amounted to $7.2 million, $8.1 million, and $4.2 million as of March 31, 2008, December 31, 2007 and March 31, 2007, respectively.

Other repossessed assets amounted to $6.1 million, $5.4 million and $7.7 million as of March 31, 2008, December 31, 2007 and March 31, 2007, respectively. Other repossessed assets are mainly comprised of vehicles from our leasing operation and boats from our marine loans portfolio.

We monitor the total loss ratio on sale of repossessed assets, which is determined by dividing the sum of declines in value, repairs, and gain or loss on sale by the book value of repossessed assets sold at the time of repossession. The total loss ratio on sale of repossessed vehicles was 13.2% and 8.8% for the first quarter of 2008 and 2007, respectively. This increase in our total loss ratio on the sale of repossessed vehicles was directly attributable to our decision to increase the valuation allowance of repossessed vehicles, reducing the book value of the repossessed vehicle in an effort to expedite the disposition of slow moving inventory.

For the first quarter of 2008, the total gain on sale of repossessed equipment was $18,000, compared to a total loss of $19,000 for the same period in 2007. There was no repossessed equipment in inventory as of March 31, 2008.

For the first quarter of 2008, the total loss on sale of repossessed boats was $64,000, compared to $67,000 for the first quarter of 2007. The boat financing portfolio amounted to $33.5 million and $37.9 million as of March 31, 2008 and 2007, respectively.

During the first quarter of 2008, three OREO were sold resulting in a total gain of $18,000. There was no sale of OREO during the first quarter of 2007.

For additional information on OREO and the composition of other repossessed assets, see the section of this discussion and analysis captioned “Nonperforming Loans, Leases and Assets.”

Results of Operations for the Three months ended March 31, 2008

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income, principally from loan, lease and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Net interest income is our principal source of earnings. Changes in net interest income result from changes in volume, spread and margin. Volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. Margin refers to net interest income divided by average interest-earning assets, and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.

Net interest income decreased by 10.71%, or $1.8 million, to $15.2 million in the first quarter of 2008, from $17.1 million for the same period in 2007. This decrease resulted mainly from a decrease in yields, which was partially offset by a decrease in the cost of funds, as shown on table on page 26.

Total interest income for the first quarter of 2008 amounted to $42.6 million, compared to $44.3 million for the fourth quarter of 2007 and $42.3 million for the quarter ended March 31, 2007. The decrease during the quarter ended March 31, 2008 when compared to the previous quarter was mainly driven by the net effect of decreased yields resulting from interest rates cuts of 200 basis points during the first quarter of 2008, partially offset by an increase in average interest-earning assets. The average interest yield on a fully taxable equivalent basis we received for interest-earning assets decreased to 7.09% during the quarter ended March 31, 2008, from 7.57% and 7.69% for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively. Average interest-earning assets increased to $2.633 billion for the quarter ended March 31, 2008, compared to $2.523 billion and $2.358 billion for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively.

Total interest expense was $27.4 million for the quarter ended March 31, 2008, compared to $28.1 million and $25.3 million for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively. The decrease during the quarter ended March 31, 2008 when compared to the previous quarter resulted also from the net effect of a decrease in the cost of funds, as explained further below, partially offset by an increase in average interest-bearing liabilities. The increase during the first quarter of 2008 when compared to first quarter of 2007 was mainly attributable to the net effect of an increase in average interest-bearing liabilities partially offset by a decrease in the cost of funds, as explained further below. The average interest rate on a fully taxable equivalent basis we paid for interest-bearing liabilities decreased to 5.13% during the quarter ended March 31, 2008, from 5.47% and 5.34% for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively. Average interest-bearing liabilities increased to $2.414 billion for the quarter ended March 31, 2008, compared to $2.302 billion and $2.120 billion for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively.

Net interest margin and net interest spread on a fully taxable equivalent basis was 2.39% and 1.96% for the quarter ended March 31, 2008, respectively, compared to 2.58% and 2.10% for the fourth quarter of 2007, and 2.89% and 2.35% for the quarter ended March 31, 2007. The decrease in net interest margin and net interest spread during the quarter ended March 31, 2008 when compared to the fourth quarter of 2007 and the quarter ended March 31, 2007 was caused primarily by: (i) the reduction in interest rates by the Federal Reserve, which resulted in the reduction of the Prime Rate by 100 basis points during the last four months of 2007 and another 200 basis points during the first quarter of 2008; and (ii) the write-off of $463,000 in unamortized commissions related to $162.4 million in broker deposits that were called-back during the first quarter of 2008. Although borrowing costs were influenced by the interest rate cuts, our broker deposits remained at higher levels, causing our borrowing costs to decrease at a lower pace. The fierce competition for core deposits on the Island and the fact that our broker deposits remained at higher levels, made other short-term borrowings an attractive funding alternative. During the first quarter of 2008, the average interest rate on a fully taxable equivalent basis we paid for other borrowings decreased to 5.40%, from 6.57% and 7.00% for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively. Average other borrowings increased to $559.9 million for the first quarter of 2008, compared to $438.5 million and $393.3 million for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively.

The following tables set forth, for the periods indicated, our average balances of assets, liabilities and stockholders’ equity, in addition to the major components of net interest income and our net interest margin. Net loans and leases shown on these tables include nonaccrual loans although interest accrued but not collected on these loans is placed in nonaccrual status and reversed against interest income.

	Three Months Ended March 31,
	2008							2007
	Average Balance		Interest		Average Rate/ Yield ⁽¹⁾			Average Balance		Interest		Average Rate/ Yield ⁽¹⁾
	(Dollars in thousands)

ASSETS:
Interest-earning assets:
Net loans and leases ⁽²⁾	$	1,836,179	$	32,759		7.19	%	$	1,738,311	$	34,939		8.13	%
Securities of U.S. government agencies ⁽³⁾		528,074		6,487		6.83			509,974		5,923		6.47
Other investment securities ⁽³⁾		216,164		2,931		7.54			45,879		616		7.30
Puerto Rico government obligations ⁽³⁾		6,388		76		6.61			9,540		109		6.35
Securities purchased under agreements to resell and federal funds sold		34,308		281		3.86			37,892		514		6.08
Interest-earning deposits		11,834		106		3.58			16,378		213		5.20
Total interest-earning assets	$	2,632,947	$	42,640		7.09	%	$	2,357,974	$	42,314		7.69	%
Total noninterest-earning assets		110,122							93,251
TOTAL ASSETS	$	2,743,069						$	2,451,225

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Money market deposits	$	17,825	$	139		3.14	%	$	18,652	$	117		2.53	%
NOW deposits		41,267		246		2.39			44,102		241		2.19
Savings deposits		129,961		727		2.24			152,304		935		2.46
Time certificates of deposit in denominations of $100,000 or more ⁽⁴⁾		1,570,456		19,623		5.41			1,416,580		17,778		5.41
Other time deposits		94,115		1,038		4.42			94,680		986		4.17
Other borrowings		559,888		5,633		5.40			393,274		5,197		7.00
Total interest-bearing liabilities	$	2,413,512	$	27,406		5.13	%	$	2,119,592	$	25,254		5.34	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		115,691							123,013
Other liabilities		30,655							36,939
Total noninterest-bearing liabilities		146,346							159,952
STOCKHOLDERS’ EQUITY		183,211							171,681
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,743,069						$	2,451,225
Net interest income ⁽⁵⁾			$	15,234						$	17,060
Net interest spread ⁽⁶⁾						1.96	%						2.35	%
Net interest margin ⁽⁷⁾						2.39	%						2.89	%

(1)	Interest yield and expense is calculated on a fully taxable equivalent basis assuming a 39% tax rate for each of the quarters ended March 31, 2008 and 2007.

(2)

The amortization of loan costs has been included in the calculation of interest income. Net loan costs were approximately $13,000 for the quarter ended March 31, 2008, while net loan costs amounted to $340,000 for the quarter ended March 31, 2007. Loans include nonaccrual loans, which balance as of the periods ended March 31, 2008 and 2007 was $67.2 million and $40.4 million, respectively, and are net of the allowance for loan and lease losses, deferred fees, unearned income, and related direct costs.

(3)	Available-for-sale investments are adjusted for unrealized gain or loss.

(4)

For the quarter ended March 31, 2007, interest expense on time certificates of deposit in denominations of $100,000 or more was reduced by approximately $107,000 of capitalized interest on construction in progress. This capitalized interest was mainly related to the improvements being performed to our new headquarters purchased in February 2007.

(5)	Net interest income on a tax equivalent basis was $15.7 million and $17.0 million for the first quarters ended March 31, 2008 and 2007, respectively.

(6)	Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities on a fully taxable equivalent basis.

(7)	Represents net interest income on a fully taxable equivalent basis as a percentage of average interest-earning assets.

The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for interest-earning assets and interest-bearing liabilities and the amount of change attributable to changes in average daily balances (volume) or changes in average daily interest rates (rate). All changes in interest owed and paid for interest-earning assets and interest-bearing liabilities are attributable to either volume or rate. The impact of changes in the mix of interest-earning assets and interest-bearing liabilities is reflected in our net interest income.

	Three Months Ended March 31, 2008 Over 2007 Increases/(Decreases) Due to Change in
	Volume			Rate			Net
	(In thousands)
INTEREST EARNED ON:
Net loans ⁽¹⁾	$	1,967		$	(4,147	)	$	(2,180	)
Securities of U.S. government agencies		210			354			564
Other investment securities		2,286			29			2,315
Puerto Rico government obligations		(36	)		3			(33	)
Securities purchased under agreements to resell and federal funds sold		(49	)		(184	)		(233	)
Interest-earning deposits		(59	)		(48	)		(107	)

Total interest-earning assets	$	4,319		$	(3,993	)	$	326

INTEREST PAID ON:
Money market deposits	$	(5	)	$	27		$	22
NOW deposits		(15	)		20			5
Savings deposits		(137	)		(71	)		(208	)
Time certificates of deposit in denominations of $100,000 or more		1,931			(86	)		1,845
Other time deposits ⁽²⁾		(6	)		58			52
Other borrowings		2,202			(1,766	)		436

Total interest-bearing liabilities	$	3,970		$	(1,818	)	$	2,152

Net interest income	$	349		$	(2,175	)	$	(1,826	)

(1)

(2)

Provision for Loan and Lease Losses

The provision for loan and lease losses for the quarter ended March 31, 2008 was $7.8 million, or 82.09% of net charge-offs, compared to $5.3 million, or 136.69% of net charge-offs, for the same period in 2007, and $6.9 million, or 141.18% of net charge-offs, for the quarter ended December 31, 2007. During the first quarter of 2008, the decrease in the provision for loan and lease losses as a percentage of net charge-offs was mainly attributable to a $3.1 million partial charge-off to a commercial business relationship for which a specific allowance was previously determined, as mentioned before. The increase in our provision for loan and lease losses during the first quarter of 2008 when compared to the previous quarter was impacted by the overall condition of the economy and increased delinquencies and adverse classifications in our commercial loans portfolio, which resulted in additional adjustments to the loss factors considered when determining the adequacy of our allowance for loan and lease losses. During the first quarter of 2008, the periodic evaluation of the allowance for loan and lease losses primarily considered the level of net-charge offs, delinquencies, related loss experience and overall economic conditions. For more detail on net charge-offs please refer to the “Allowance for Loan and Lease Losses” section herein.

Noninterest Income

The following tables set forth the various components of our noninterest income for the periods indicated:

	Three Months Ended March 31,
	2008						2007
	(Amount)			(%)			(Amount)			(%)
	(Dollars in thousands)
Service charges and other fees	$	2,424			66.8	%	$	2,255			117.2	%
Gain on sale of loans , net		1,235			34.1			113			5.9
Loss on sale of repossessed assets and on disposition of other assets, net		(34	)		(0.9	)		(445	)		(23.1	)

Total noninterest income	$	3,625			100.0	%	$	1,923			100.0	%

Our total noninterest income for the first quarter of 2008 was $3.6 million, compared to $1.9 million for the same period in 2007. Noninterest income represented approximately 0.13% and 0.08% of average assets as of March 31, 2008 and 2007, respectively.

Our largest noninterest income source is service charges, primarily on deposit accounts. The service charges and other fees increased to $2.4 million at March 31, 2008, from $2.3 million at the same period in 2007. This increase was primarily due to an increase in ATM fees, mainly from a change in the service provider’s fee structure.

Gain on sale of loans of $1.2 million was the second largest source of noninterest income during the first quarter of 2008, compared to $113,000 for the same period in 2007. This source of noninterest income was derived primarily from the sale of lease financing contracts and mortgage loans. In March 2008, we sold lease financing contracts on a limited recourse basis to a third party with carrying values of $37.7 million. We retained servicing responsibilities of the lease financing contracts sold. We surrendered control of the lease financing receivables, as defined by SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities , and accounted for this transaction as sale, recognizing a net gain of approximately $1.2 million. We did not sell lease financing contracts during 2007. While the estimated losses on the limited recourse obligations assumed in the sale of our lease financing contracts is not significant, we established an allowance of $471,000 in March 2008 and have included such estimate in the other liabilities section of our balance sheet as of March 31, 2008. Also, during the first quarter of 2008, we sold $3.5 million in mortgage loans to other financial institutions, compared to $4.9 million for the same period in 2007. In addition, during the first quarter of 2008, we sold $142,000 in individual residential construction loans to other financial institution. We did not sell individual residential construction loans during the first quarter of 2007. We did not retain the servicing rights on these loans and we accounted for these transactions as sales, resulting in a gain of approximately $59,000 and $113,000 for those same periods respectively.

During first quarter of 2008, we experienced a net loss on sale of repossessed assets of $34,000, compared to $445,000 during the same period in 2007. This mainly resulted from our decision to increase the valuation allowance of repossessed vehicles, reducing the book value of the repossessed vehicle in an effort to expedite the disposition of slow moving inventory, as previously mentioned. During the first quarter of 2008, we sold 325 vehicles and repossessed 344 vehicles, compared to 532 and 446 units during the same period in 2007, respectively. Our inventory of repossessed vehicles decreased by 27% to 334 units as of March 31, 2008, from 457 units as of March 31, 2007.

Noninterest Expense

The following tables set forth a summary of noninterest expenses for the periods indicated:

	Three Months Ended March 31,
	2008					2007
	(Amount)		(%)			(Amount)		(%)
	(Dollars in thousands)
Salaries and employee benefits	$	5,579		41.9	%	$	5,735		47.3	%
Occupancy and equipment		2,943		22.2			2,597		21.4
Professional services, including directors’ fees		1,241		9.4			867		7.1
Office supplies		332		2.5			329		2.7
Other real estate owned and other repossessed assets expenses		488		3.7			445		3.7
Promotion and advertising		367		2.8			377		3.1
Lease expenses		147		1.1			136		1.1
Insurance		647		4.9			452		3.7
Municipal and other taxes		493		3.7			420		3.5
Commissions and service fees credit and debit cards		418		3.2			348		2.9
Other noninterest expense		611		4.6			424		3.5
Total noninterest expense	$	13,266		100.0	%	$	12,130		100.0	%

Our total noninterest expense increased to $13.3 million in the first quarter of 2008, compared to $12.1 million for the same period in 2007. This represents an increase of 9.37% in noninterest expense. This increase can be attributed mainly to increased professional services, occupancy and insurance expenses. Noninterest expenses as a percentage of average assets slightly changed to 0.48% in the first quarter of 2008, compared to 0.49% for the same period in 2007. Our efficiency ratio was 68.62% in the first quarter of 2008, compared to 63.98% for the same period in 2007. The efficiency ratio is determined by dividing total noninterest expense by an amount equal to net interest income on a fully taxable equivalent basis plus noninterest income.

We anticipate that the overall volume of our noninterest expense will continue to increase as we grow. However, we remain committed to controlling costs and efficiency and expect to moderate these increases relative to our revenue growth.

Salaries and employee benefits totaled $5.6 million for the first quarter of 2008, compared to $5.7 million for the same period in 2007, representing a decrease of 2.72% from the comparable period. This decrease in salaries and employee benefits resulted from decreased personnel in connection with the information technology outsourcing agreement we entered with Telefónica Empresas (“TE”) in August 2007. As of March 31, 2008, we had 514 full-time equivalent employees, compared with 520 as of March 31, 2007. Our volume of assets per employee increased to $5.4 million as of March 31, 2008, from $4.7 million for the same period in 2007.

Occupancy and equipment expenses totaled $2.9 million for the first quarter of 2008, compared to $2.6 million for the same period in 2007, representing an increase of 13.32% from the comparable period. This increase was mainly attributable to increased utilities, equipment maintenance, and data, communications and security services, related to the expansion of our branch network. Also, during the first quarter of 2008, occupancy expenses included $63,000 mainly related to the phasing-out of TE for the premises we previously occupied, of which, once TE relocates to its own facilities, $27,000 will be paid as part of TE outsourcing fees.

Professional and directors’ fees were $1.2 million and $867,000, or 9.4% and 7.1% of total noninterest expenses, for the first quarter of 2008 and 2007, respectively. This increase was mainly attributable to: (i) a $270,000 increase related to TE outsourcing fees, offset by a reduction of $154,000 in related salaries and employee benefits, as previously mentioned, a reduction of $21,000 in related SOX expenses, both experienced during the first quarter of 2008, and estimated quarter savings of $104,000 in other operational costs transferred to TE; and (ii) a $40,000 increase in regulatory examination fees as a consequence of our asset growth.

Insurance expenses were $647,000, or 4.9% of total noninterest expenses, for the first quarter of 2008, compared to $452,000, or 3.7% of total noninterest expense, for the same period in 2007. This increase was mainly attributable to the FDIC’s insurance premium assessment, which, during fiscal year 2007, was net of a one time assessment credit of $669,000.

Municipal and other taxes increased to $493,000 for the first quarter of 2008, from $420,000 for the same period in 2007. This increase was mainly attributable to an increase in the gross income of our wholly-owned banking subsidiary.

Commissions and service fees on credit and debit cards were $418,000 and $348,000, or 3.2% and 2.9% of total noninterest expenses, for the first quarter of 2008 and 2007, respectively. This increase was mainly attributable to increased ATM service fees, primarily from a change in the service provider’s fee structure, as previously mentioned.

Other noninterest expenses were $611,000 for the first quarter of 2008, compared to $424,000 for the same period in 2007. Other noninterest expenses are mainly comprised of other non-recurrent miscellaneous expenses.

Provision for Income Taxes

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.

For the quarter ended March 31, 2008, we recorded an income tax benefit of $1.2 million, compared to an income tax expense of $260,000 and an income tax benefit of $218,000 for the quarters ended March 31, 2007 and December 31, 2007, respectively. Our income tax benefit for the quarter ended March 31, 2008 was mainly caused by a deferred tax benefit of $1.2 million, as explained further below.

Our current income tax expense for the quarter ended March 31, 2008 decreased to $9,000, from $1.3 million for the same quarter in 2007, and $602,000 in the quarter ended December 31, 2007. These decreases in our current income tax expense were mainly due to a taxable loss in our banking subsidiary related to: (i) the recognition of charge-offs on loans, for which specific allowances were previously determined; and (ii) a loss before income taxes of $2.2 million as of March 31, 2008, compared to income before taxes of $1.6 million and $284,000 for the quarters ended March 31, 2007 and December 31, 2007, respectively.

Our deferred tax benefit for the quarter ended March 31, 2008 increased to $1.2 million, from $1.1 million for the same quarter in 2007, and $820,000 in the quarter ended December 31, 2007. These increases were mainly due to the net effect of: (i) a decrease in the deferred tax assets primarily from a decrease in our allowance for loan and lease losses upon the recognition of charge-off on loans, as mentioned above; (ii) an increase in the deferred tax asset related to the net operating loss carryforward from the taxable loss in our banking subsidiary; and (iii) an increase in the deferred tax liability related to the new servicing asset in connection with the $37.7 million sale of lease financing contracts in March 2008, as previously mentioned.

As of March 31, 2008, we had net deferred tax assets of $12.1 million, compared to $10.9 million as of December 31, 2007. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities; projected future taxable income; our compliance with the Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes ; and tax planning strategies in making this assessment. We believe it is more likely than not that the benefits of these deductible differences at March 31, 2008 will be realized.

Financial Condition

Our total assets increased to $2.794 billion as of March 31, 2008 from $2.751 billion as of December 31, 2007. This $42.4 million increase, or 6.16% on an annualized basis, was mainly due to the net effect of: (i) a $31.9 million decrease in interest bearing deposits; (ii) a $14.6 million increase in securities purchased under agreements to resell; (iii) a $86.1 million increase in the investment securities portfolio; and (iv) a $21.8 million decrease in net loans, net of the $37.7 million sale of lease financing contracts, as previously mentioned.

Our total deposits decreased to $1.967 billion as of March 31, 2008, from $1.993 billion as of December 31, 2007. This $26.5 million decrease, or 5.33% on an annualized basis, was mainly due to the net effect of: (i) a $56.7 million decrease in broker deposits; and (ii) a $24.9 million increase in jumbo time deposits. The fierce competition for core deposits on the Island continued during the first quarter of 2008. Because of this fierce competition for local deposits, and the fact that rates on broker deposits have remained at higher levels, other short-term borrowings result in an attractive funding alternative, lowering funding costs when compared to broker deposits and the unusually higher rates offered locally for time deposits. We decided to pursue the use of the other short-term borrowing alternatives in an attempt to control increases in our funding cost. As a result, other borrowings increased to $611.8 million as of March 31, 2008, from $547.5 million as of December 31, 2007. This change in other borrowings was mainly concentrated in the securities sold under agreements to repurchase. For more information on deposits, see the section of this discussion and analysis captioned “Deposits.”

Our stockholders’ equity increased to $182.2 million, from $179.9 million as of December 31, 2007, representing an annualized increase of 5.07%. Besides earnings and losses from operations, the Company’s stockholders’ equity was impacted by an accumulated other comprehensive gain of $2.5 million and $1.1 million as of March 31, 2008 and December 31, 2007, respectively.

Short-Term Investments and Interest-bearing Deposits in Other Financial Institutions

We sell federal funds, purchase securities under agreements to resell, and deposit funds in interest-bearing accounts in other financial institutions to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of March 31, 2008, we had $400,000 in interest-bearing deposits in other financial institutions, compared to $32.3 million as of December 31, 2007. Also, we had $34.5 million and $19.9 million in purchased securities under agreements to resell as of March 31, 2008 and December 31, 2007, respectively. The decrease in interest bearing deposits was mainly associated to the increase in our investment securities portfolio. On a fully taxable equivalent basis, the yield on interest-bearing deposits and the purchased securities under agreements to resell was 3.79% and 5.82% for the three-month periods ended March 31, 2008 and 2007, respectively.

Investment Securities

Our investment portfolio primarily serves as a source of interest income and, secondarily, as a source of liquidity and a management tool for our interest rate sensitivity. We manage our investment portfolio according to a written investment policy implemented by our Asset/Liability Management Committee. Our investment policy is reviewed at least annually by our Board of Directors. Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and our interest rate risk management objectives. Our liquidity levels take into consideration anticipated future cash flows and all available sources of credits and are maintained at levels management believes are appropriate to assure future flexibility in meeting our anticipated funding needs.

Our investment portfolio mainly consists of securities classified as “available-for-sale” and a small portion of securities we intend to hold until maturity, or “held-to-maturity securities.” The carrying values of our available-for-sale securities are adjusted for unrealized gain or loss as a valuation allowance, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income (loss). Held-to-maturity securities are presented at amortized cost.

The following table presents the composition, book value and fair value of our investment portfolio by major category as of the dates indicated:

	Available–for–Sale				Held–to–Maturity				Other Investments				Total
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
March 31, 2008:
U.S. government agencies obligations	$	62,953	$	63,767	$	2,691	$	2,694	$	—	$	—	$	65,644	$	66,461
Collateralized mortgage obligations		451,539		451,795		21,190		20,641		—		—		472,729		472,436
Mortgage-backed securities		258,363		260,386		4,434		4,464		—		—		262,797		264,850
State and municipal obligations		9,935		9,991		—		—		—		—		9,935		9,991
U.S. Corporate Notes		7,938		7,305		—		—		—		—		7,938		7,305
Other investments		—		—		—		—		15,820		15,820		15,820		15,820
Total	$	790,728	$	793,244	$	28,315	$	27,799	$	15,820	$	15,820	$	834,863	$	836,863
December 31, 2007:
U.S. government agencies obligations	$	129,020	$	129,398	$	2,775	$	2,762	$	—	$	—	$	131,795	$	132,160
Collateralized mortgage obligations		404,804		404,856		23,421		23,092		—		—		428,225		427,948
Mortgage-backed securities		163,552		164,390		4,649		4,598		—		—		168,201		168,988
State and municipal obligations		5,616		5,716		—		—		—		—		5,616		5,716
U.S. Corporate Notes		3,000		2,744		—		—		—		—		3,000		2,744
Other investments		—		—		—		—		13,354		13,354		13,354		13,354
Total	$	705,992	$	707,104	$	30,845	$	30,452	$	13,354	$	13,354	$	750,191	$	750,910

During the first quarter of 2008, the investment portfolio increased by approximately $86.1 million to $837.4 million from $751.3 million as of December 31, 2007. The increase from December 31, 2007 was primarily due to the net effect of:

the purchase of $227.5 million in mortgage-backed securities, FHLB obligations, Puerto Rico government agencies obligations, and a corporate note ;

$111.3 million in US government agencies that matured or were called-back during the quarter; and

prepayments of approximately $32.6 million on mortgage-backed securities and FHLB obligations.

Since 2007, we have been analyzing different market opportunities in an attempt to improve our investment portfolio’s average yield and to maintain an adequate average life. Similar to the second half of 2007, during the first quarter of 2008, the market continued to present some good investment opportunities as a result of the liquidity crises faced by financial institutions in the mainland, which has forced them to reduce their total assets by selling part of their investment securities portfolios at wider spreads. During the quarter ended March 31, 2008, we were able to purchase approximately $227.5 million in mortgage-backed securities, FHLB obligations, Puerto Rico government agencies obligations, and a corporate note, all with an estimated average life of approximately 4.5 years and an estimated average yield of 5.08%. Purchased mortgage-backed securities totaled $172.9 million and included approximately $101.4 million in mortgage-backed securities issued by U.S. government sponsored enterprises, $1.5 million in collateralized mortgage obligations guaranteed by U.S. government sponsored enterprises and $70.1 million in private label collateral mortgage obligations with FICO scores and loan-to-values similar to FNMA and FHLMC underwriting standards and characteristics. As of March 31, 2008, after the above-mentioned transactions, the estimated average maturity of the investment portfolio was approximately 5.1 years and the average yield was approximately 5.12%, compared to an estimated average maturity of 4.8 years and an average yield of 5.06% for the year ended December 31, 2007. As of March 31, 2008, investment securities having a carrying value of approximately $741.4 million were pledged to secure borrowings and deposits of public funds and to comply with other pledging requirements.

Investment Portfolio — Maturity and Yields

The following table summarizes the estimated average maturity of investment securities held in our investment portfolio and their weighted average yields:

	Three Months Ended March 31, 2008
	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Total
	Amount		Yield ⁽⁴⁾			Amount		Yield ⁽⁴⁾			Amount		Yield ⁽⁴⁾			Amount		Yield ⁽⁴⁾			Amount		Yield ⁽⁴⁾
	(Dollars in thousands)
Investments available–for–sale: ⁽¹⁾⁽²⁾
U.S. government agencies obligations	$	45,688		4.80	%	$	18,079		4.56	%	$	—		—	%	$	—		—	%	$	63,767		4.73	%
Mortgage backed securities ⁽³⁾		1,708		3.73			64,668		4.88			179,970		5.10			14,039		5.82			260,385		5.08
Collateral mortgage obligations ⁽³⁾		34,096		4.38			289,047		5.27			115,201		5.40			13,451		5.52			451,795		5.24
State & political subdivisions		787		6.11			9,204		4.74			—		—			—		—			9,991		4.84
Other debt securities		2,368		4.60			4,938		5.73			—		—			—		—			7,306		5.31
Total investments available-for-sale	$	84,647		4.62	%	$	385,936		5.16	%	$	295,171		5.22	%	$	27,490		5.68	%	$	793,244		5.14	%

Investments held–to–maturity: ⁽²⁾
U.S. government agencies obligations	$	—		—	%	$	2,691		3.95	%	$	—		—	%	$	—		—	%	$	2,691		3.95	%
Mortgage backed securities ⁽³⁾		—		—			4,434		4.93			—		—			—		—			4,434		4.93
Collateral mortgage obligations ⁽³⁾		5,776		3.89			7,403		4.51			8,011		4.68			—		—			21,190		4.40
Total investments held-to-maturity	$	5,776		3.89	%	$	14,528		4.53	%	$	8,011		4.68	%	$	—		—	%	$	28,315		4.44	%

Other Investments:
FHLB stock	$	15,210		8.40	%		—		—	%		—		—	%		—		—	%	$	15,210		8.40	%
Investment in statutory trust		—		—			—		—			—		—			610		5.86			610		5.86
Total other investments	$	15,210		8.40	%	$	—		—	%	$	—		—	%	$	610		5.86	%	$	15,820		8.30	%
Total investments	$	105,633		5.12	%	$	400,464		5.14	%	$	303,182		5.20	%	$	28,100		5.68	%	$	837,379		5.18	%

(1)	Based on estimated fair value.

(2)	Almost all of our income from investments in securities is tax exempt because 99.47% of these securities are held in our IBEs. The yields shown in the above table are not calculated on a fully taxable equivalent basis.

(3)	Maturities of mortgage-backed securities and collateralized mortgage obligations, or CMOs, are based on anticipated lives of the underlying mortgages, not contractual maturities. CMO maturities are based on cash flow (or payment) windows derived from broker market consensus.

(4)

Represents the present value of the expected future cash flows of each instrument discounted at the estimated market rate offered by other instruments that are currently being traded in the market with similar credit quality, expected maturity and cash flows. For other investments, it represents the last dividend received.

Other Investments

For various business purposes, we make investments in earning assets other than the interest-earning securities discussed above. As of March 31, 2008, our investment in other earning assets included $15.2 million in FHLB stock and $610,000 equity in our statutory trust. The following table presents the balances of other earning assets as of the dates indicated:

	As of March 31,		As of December 31,
Type	2008		2007
	(In thousands)

Statutory trust	$	610	$	610
FHLB stock		15,210		12,744
Total	$	15,820	$	13,354

Dividends on FHLB stock amounted to $178,000 and $119,000 for the quarters ended March 31, 2008 and 2007, respectively.

Loan and Lease Portfolio

Our primary source of income is interest on loans and leases. The following table presents the composition of our loan and lease portfolio by category as of the dates indicated, excluding loans held for sale secured by real estate amounting to $3.4 million and $1.4 million as of March 31, 2008 and December 31, 2007, respectively:

	As of March 31,			As of December 31,
	2008			2007
	(In thousands)
Real estate secured	$	928,492		$	900,036
Leases		329,175			385,390
Other commercial and industrial		297,004			302,530
Consumer		54,806			57,745
Real estate – construction		214,805			203,344
Other loans ⁽¹⁾		6,637			6,850
Gross loans and leases	$	1,830,919		$	1,855,895
Plus: Deferred loan costs, net		1,632			2,366
Total loans, including deferred loan costs, net	$	1,832,551		$	1,858,261
Less: Unearned income		(945	)		(1,042	)
Total loans, net of unearned income	$	1,831,606		$	1,857,219
Less: Allowance for loan and lease losses		(26,428	)		(28,137	)
Loans, net	$	1,805,178		$	1,829,082

(1) Other loans are comprised of overdrawn deposit accounts.

As of March 31, 2008 and December 31, 2007, our total loans and leases, net of unearned income, were $1.831 billion and $1.857 billion, respectively. The decrease in our loan and lease volume during the first quarter of 2008 resulted primarily from the sale of $37.7 million in lease financing contracts during March 2008, as previously mentioned. Our total loans and leases, net of unearned income as a percentage of total assets was 65.7% and 67.6% as of March 31, 2008 and December 31, 2007, respectively.

Real estate secured loans, the largest component of our loan and lease portfolio, include residential mortgages but is primarily comprised of commercial real estate loans and/or commercial lines of credit that are extended to finance the purchase and/or improvement of commercial real estate and/or businesses thereon or for business working capital purposes. The properties may be either owner-occupied or for investment purposes. Our loan policy adheres to the real estate loan guidelines promulgated by the FDIC in 1993. The policy provides guidelines including, among other things, review of appraised value, limitation on loan-to-value ratio, and minimum cash flow requirements to service debt. On occasions, the bank grants real estate secured loans for which the loan-to-values exceed 100%. In those instances, additional forms of collateral or guaranties are obtained. Loans secured by real estate, excluding construction loans, equaled $928.5 million and $900.0 million as of March 31, 2008 and December 31, 2007, respectively. The volume of our real estate loans, excluding real estate construction loans, has increased as a result of our organic growth. Real estate secured loans, excluding real estate secured construction loans, as a percentage of total loans and leases increased to 50.7% as of March 31, 2008, from 48.5% as of December 31, 2007.

Loans secured by real estate included residential mortgages amounting to $115.8 million as of March 31, 2008, which increased by $8.8 million, or by 33.01% on an annualized basis, when compared to $106.9 million as of December 31, 2007. This increase in residential mortgages mainly resulted from our strategy of expanding our residential mortgage operations to take advantage of opportunities in this area on the Island.

Lease financing contracts, the second largest component of our loan portfolio, consist of automobile and equipment leases made to individuals and corporate customers. We continue our emphasis on automobile leasing. During the first quarter of 2008, approximately 63.66% of our lease financing contracts originations were for new automobiles, approximately 33.52% were for used automobiles and the remaining 2.82% consisted primarily of construction and medical equipment leases. The volume of our lease financing contracts decreased to $329.2 million as of March 31, 2008, from $385.4 million as of December 31, 2007. This decrease resulted mainly from the sale of $37.7 million in lease financing contracts during March 2008, as mentioned above. From time to time, we sell lease financing contracts on a limited recourse basis to other financial institutions and, typically, we retain the right to service the leases as well. As previously mentioned, in this sale, we retained the right to service the leases sold, surrendered the control of the lease financing receivables, and accounted for the transaction as sale, recognizing a net gain of approximately $1.2 million. Lease financing contracts, as a percentage of total loans and leases were 18.0% and 20.8% as of March 31, 2008 and at the end of 2007, respectively. We did not sell lease financing contracts during 2007.

On a monthly basis, we review the existing lease portfolio to determine the repayment performance of borrowers displaying subprime lending characteristics. This analysis contemplates the segregation of the lease portfolio in two different categories, sub-prime and prime, based on the characteristics of each borrower. The review consists of the segregation of the monthly delinquency report into these categories to compare the percentage of the outstanding balance for each category in different delinquent stratas. For the first three months of 2008, the analysis revealed there was a similar repayment performance for both categories. This review enables us to better monitor and control sub-prime borrowers and to reduce risk of repossessions and future losses.

Other commercial and industrial loans include revolving lines of credit as well as term business loans, which are primarily collateralized by accounts receivable and the assets being acquired, such as equipment or inventory, and other forms of collaterals or guaranties. Other commercial and industrial loans decreased to $297.0 million as of March 31, 2007, from $302.5 million as of December 31, 2007. Other commercial and industrial loans as a percentage of total loans were 16.2% and 16.3% at March 31, 2008 and at the end of 2007, respectively.

Construction loans secured by real estate totaled $214.8 million and $203.3 million as of March 31, 2008 and December 31, 2007, respectively. Construction loans secured by real estate as a percentage of total loans and leases were 11.7% and 11.0% for those same periods, respectively. During the first quarter of 2008, the increase in construction loans secured by real estate resulted from disbursements on loan commitments we made during or before last fiscal year, which were primarily related to loans for the construction of residential multi-family projects that, although private, are moderately priced or of the affordable type supported by government assisted programs, and other loans for land development and the construction of commercial real estate property. We did not make any new construction loans during the first quarter of 2008.

Consumer loans have historically represented a small part of our total loan and lease portfolio. The majority of consumer loans consist of personal installment loans, credit cards, boat loans, and consumer lines of credit. We make consumer loans only to complement our commercial business, and these loans are not emphasized by our branch managers. As a result, repayment on this portfolio has generally exceeded or equaled origination. Consumer loans as a percentage of total loans and leases were 3.1% and 3.2% at March 31, 2008 and at the end of 2007, respectively. Consumer loans as of March 31, 2008 and December 31, 2007, included a boat portfolio of $33.5 million and $35.0 million, respectively; $14.3 million and $13.4 million, respectively, in unsecured installment loans; and credit cards and open-end loans for $9.1 million and $9.3 million, respectively.

Our loan terms vary according to loan type. Commercial term loans generally have maturities of three to five years, while we generally limit commercial loans secured by real estate maturities to five to eight years. Lines of credit, in general, are extended on an annual basis to businesses that need temporary working capital and/or import/export financing. Leases are offered for terms up to 72 months.

The following table shows our maturity distribution of loans and leases, including loans held for sale of $3.4 million, as of March 31, 2008, excluding non-accrual loans amounting to $67.2 million as of the same date. A significant part of our non-consumer loan portfolio is floating rate loans which comprise both commercial and industrial loans and commercial real estate loans. By contrast, residential mortgage loans originated by Eurobank are fixed rate. Residential mortgage loans are included in the real estate - secured category in the following table.

	As of March 31, 2008
			Over 1 Year through 5 Years				Over 5 Years
	One Year or Less ⁽¹⁾		Fixed Rate		Floating or Adjustable Rate		Fixed Rate		Floating or Adjustable Rate		Total
	(In thousands)

Real estate — construction	$	170,822	$	280	$	70,273	$	525	$	-	$	241,900
Real estate — secured		268,496		197,966		220,739		141,553		13,617		842,371

Other commercial and industrial		223,803		28,381		31,348		4,366		10,798		298,696
Consumer		6,613		15,328		1,586		30,430		213		54,170
Leases		18,809		279,022		-		26,468		-		324,299
Other loans		6,398		-		-		-		-		6,398
Total	$	694,941	$	520,977	$	323,946	$	203,342	$	24,628	$	1,767,834

(1)	Maturities are based upon contract dates. Demand loans are included in the one year or less category and totaled $150.3 million as of March 31, 2008.

Nonperforming Loans, Leases and Assets

Nonperforming assets consist of loans and leases on nonaccrual status, loans 90 days or more past due and still accruing interest, loans that have been restructured resulting in a reduction or deferral of interest or principal, OREO, and other repossessed assets.

The following table sets forth the amounts of nonperforming assets (net of the portion guaranteed by the United States government) as of the dates indicated:

	As of March 31,			As of December 31,
	2008			2007
	(Dollars in thousands)
Loans contractually past due 90 days or more but still accruing interest	$	31,071		$	29,075
Nonaccrual loans		67,196			68,990
Total nonperforming loans		98,267			98,065
Other real estate owned		7,241			8,125
Other repossessed assets		6,094			5,409
Total nonperforming assets	$	111,602		$	111,599
Nonperforming loans to total loans and leases		5.36	%		5.28	%
Nonperforming assets to total loans and leases plus repossessed assets		6.04			5.96
Nonperforming assets to total assets		3.99			4.06

We continually review present and estimated future performance of the loans and leases within our portfolio and risk-rate such loans in accordance with a risk rating system. More specifically, we attempt to reduce the exposure to risks through: (1) reviewing each loan request and renewal individually; (2) utilizing a centralized approval system for all unsecured loans and secured loans over individual managers’ limit; (3) strictly adhering to written loan policies; and (4) conducting an independent credit review. In general, we receive and review financial statements of borrowing customers on an ongoing basis during the term of the relationship and respond to any deterioration noted.

Loans are generally placed on nonaccrual status when they become 90 days past due, unless we believe the loan is adequately collateralized and we are in the process of collection. For loans placed in nonaccrual status, the nonrecognition of interest income on an accrual basis does not constitute forgiveness of the interest, and collection efforts are continuously pursued. Loans may be restructured by management when a borrower has experienced some change in financial status, resulting in an inability to meet the original repayment terms, and when we believe the borrower will eventually overcome financial difficulties and repay the loan in full.

All interest accrued but not collected for loans and leases that are placed on nonaccrual status or charged-off is reversed against interest income. The interest on these loans is accounted for on a cost recovery method, until qualifying for return to accrual status.

While non-performing loans remained stable during the first quarter of 2008 when compared to the fourth quarter of 2007, changes during the quarter included a $2.0 million increase in loans over 90 days past due still accruing interest and a $1.8 million decrease in nonaccrual loans.

The $2.0 million increase in loans over 90 days still accruing interest was mainly due to the net effect of a $748,000 increase in other commercial and industrial loans; a $1.1 million decrease in lease financing contracts; and a $2.4 million increase in overdrafts, of which approximately $1.3 million was covered as of April 24, 2008. The $1.8 million decrease in nonaccrual loans was mainly attributable to a $1.4 million decrease in commercial loans.

We believe all loans and leases, with which we have serious doubts as to collectibility, are classified within the category of nonperforming loans and leases and are appropriately reserved.

Repossessed assets decreased to $13.3 million as of March 31, 2008, compared to $13.5 million as of December 31, 2007. The decrease during the quarter ended March 31, 2008 when compared to the previous quarter was mainly attributable to the net effect of: (i) a decrease of $884,000 in OREO resulting from the net effect of the sale of three properties and the foreclosure of three properties, including the sale of 18 land lots in the amount of $1.1 million, which had been repossessed from a commercial customer during the fourth quarter of 2007; and (ii) an increase of $685,000 in other repossessed assets, mainly in the inventory of repossessed boats.

As of March 31, 2008, our OREO consisted of 28 properties with an aggregate value of $7.2 million, as compared to 45 properties with an aggregate value of $8.1 million as of December 31, 2007.

As of March 31, 2008 and December 31, 2007, other repossessed assets were comprised of: repossessed vehicles amounting to $4.4 million and $4.3 million, respectively; repossessed boats amounting to $1.7 million and $991,000 respectively; and repossessed equipment amounting to $88,000 as of December 31, 2007. There was no repossessed equipment in inventory as of March 31, 2008.

Allowance for Loan and Lease Losses

We have established an allowance for loan and lease losses to provide for loans and leases in our portfolio that may not be repaid in their entirety. The allowance is based on our regular, monthly assessments of the probable estimated losses inherent in the loan and lease portfolio. Our methodology for measuring the appropriate level of the allowance relies on several key elements, as discussed below, and specific allowances for identified problem loans and portfolio segments.

When analyzing the adequacy of our allowance, our portfolio is segmented into major loan categories. Although the evaluation of the adequacy of our allowance focuses on loans and leases and pools of similar loans and leases, no part of our allowance is segregated for, or allocated to, any particular asset or group of assets. Our allowance is available to absorb all credit losses inherent in our loan and lease portfolio.

Each component would normally have similar characteristics, such as classification, type of loan or lease, industry or collateral. As needed, we separately analyze the following components of our portfolio and provide for them in our allowance:

credit quality;

sufficiency of credit and collateral documentation;

proper lien perfection;

appropriate approval by the loan officer and the loan committees;

adherence to any loan agreement covenants; and

compliance with internal policies and procedures and laws and regulations.

For the general portion of our allowance, we follow a consistent procedural discipline and account for loan and lease loss contingencies in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. The general portion of our allowance is calculated by applying loss factors to all categories of loans and leases outstanding i n our portfolio. We use historic loss rates determined over a period of 1 to 5 years, which, at least on an annual basis, are adjusted to reflect any current conditions that are expected to result in loss recognition.

The resulting loss factors are then multiplied against the current period’s balance of loans outstanding to derive an estimated loss. Rates for each pool are based on those factors management believes are applicable to that pool. When applied to a pool of loans or leases, the adjusted historical loss rate is a measure of the total inherent losses in the portfolio that would have been estimated if each individual loan or lease had been reviewed.

In addition, another component is used in the evaluation of the adequacy of the allowance. This additional component serves as a management tool to measure the probable effect that current internal and external environmental factors could have on the historical loss factors currently in use. Factors that we consider include, but are not limited to:

levels of, and trends in, delinquencies and nonaccruals;

levels of, and trends in, charge-offs, and recoveries;

trends in volume and terms of loans;

effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices;

changes in the experience, ability and depth of our lending management and relevant staff;

national and local economic business trends and conditions.

banking industry conditions; and

effect of changes in concentrations of credit that might affect loss experience across one or more components of the portfolio.

On a quarterly basis, a risk percentage is assigned to each environmental factor based on our judgment of the implied risk over each loan category. The result of our assumptions is then applied to the current period’s balance of loans outstanding to derive the probable effect these current internal and external environmental factors could have over the general portion of our allowance. The net allowance resulting from this procedure is included as an additional component in the evaluation of the adequacy of our allowance.

In addition to our general portfolio allowances, specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate a high probability that a loss will be incurred. This amount is determined following a consistent procedural discipline in accordance with Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS No. 114”) , as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures .

To mitigate any difference between estimates and actual results relative to the determination of the allowance for loan and lease losses, our loan review department is specifically charged with reviewing monthly delinquency reports to determine if additional allowances are necessary. Delinquency reports and analysis of the allowance for loan and lease losses are also provided to senior management and the Board of Directors on a monthly basis.

The loan review department evaluates significant changes in delinquency with regard to a particular loan portfolio to determine the potential for continuing trends, and loss projections are estimated and adjustments are made to the historical loss factor applied to that portfolio in connection with the calculation of loss allowances.

Portfolio performance is also monitored through the monthly calculation of the percentage of non-performing loans to the total portfolio outstanding. A significant change in this percentage may trigger a review of the portfolio and eventually lead to additional allowances. We also track the ratio of net charge-offs to total portfolio outstanding.

With the exception of residential mortgages with a 60% or lower loan-to-value, and the commercial and construction loans pools, loans that are more than 90 days delinquent result in an additional allowance. When commercial and construction loans become 90 days delinquent, or earlier if deemed by management, each is subjected to full review by the loan review officer including, but not limited to, a review of financial statements, repayment ability and collateral held. Depending on the review results, our allowance may be increased. In connection with this review, the loan review officer will determine what economic factors may have led to the change in the client’s ability to service the obligation, and this in turn may result in an additional review of a particular sector of the economy.

Although our management believes that the allowance for loan and lease losses is adequate to absorb probable losses on existing loans and leases that may become uncollectible, there can be no assurance that our allowance will prove sufficient to cover actual loan and lease losses in the future. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the adequacy of our allowance for loan and lease losses. Such agencies may require us to make additional provisions to the allowance based upon their judgments about information available to them at the time of their examinations.

The table below summarizes, for the periods indicated, loan and lease balances at the end of each period, the daily average balances during the period, changes in the allowance for loan and lease losses arising from loans and leases charged-off, recoveries on loans and leases previously charged-off, and additions to the allowance, and certain ratios related to the allowance for loan and lease losses:

	Three Months Ended March 31,		Year Ended December 31,
	2008		2007
	(Dollars in thousands)
Average total loans and leases outstanding during period	$	1,865,993	$	1,804,099
Total loans and leases outstanding at end of period, including loans held for sale		1,835,030		1,858,579
Allowance for loan and lease losses:
Allowance at beginning of period		28,137		18,937
Charge-offs:
Real estate — secured		3,515		372
Commercial and industrial		2,929		3,122
Consumer		649		1,699
Leases		2,817		12,680
Other loans		164		398
Total charge-offs		10,074		18,271

	Three Months Ended March 31,			Year Ended December 31,
	2008			2007
Recoveries:
Real estate — secured		15			52
Commercial and industrial		142			319
Consumer		64			319
Leases		309			1,410
Other loans		2			23
Total recoveries		532			2,123
Net loan and lease charge-offs		9,542			16,148
Provision for loan and lease losses		7,833			25,348
Allowance at end of period	$	26,428		$	28,137
Ratios:
Net loan and lease charge-offs to average total loans ⁽¹⁾		2.05	%		0.90	%
Allowance for loan and lease losses to total loans at end of period		1.44			1.51
Net loan and lease charge-offs to allowance for loan losses at end of period ⁽¹⁾		144.42			57.39
Net loan and lease charge-offs to provision for loan and lease losses		121.82			63.71

(1) Annualized as of March 31, 2008.

The allowance for loan and lease losses decreased to $26.4 million, from $28.1 million as of December 31, 2007. The allowance for loan and lease losses as a percentage of total loans and leases also decreased to 1.44% at March 31, 2008, from 1.51% at the end of year 2007. 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 March 31, 2008 increased to $9.5 million, from $4.9 million during the quarter ended December 31, 2007. Net charge-offs during the first quarter of 2008 included a $3.1 million partial charge-off to a commercial business relationship, for which a specific allowance had been previously determined.

On a quarterly basis, we have the practice of effecting partial charge-offs on all lease finance contracts that are over 120 days past due. This is done based on our historical lease loss experience during the previous calendar year. Accordingly, all lease finance contracts that are over 120 days past due at the end of each quarter are partially charged-off. For each of the periods ended March 31, 2008 and December 31, 2007, we used a historical loss ratio in lease finance contracts of approximately 23%. For the quarters ended March 31, 2008 and 2007, approximately $475,000 and $408,000 was charged-off for this purpose, respectively.

Also, except for leases in a payment plan, bankruptcy or other legal proceedings, we have the practice of charging-off most of our lease finance contracts that were over 365 days past due. This full charge-off is made on a quarterly basis. Accordingly, most of our lease finance contracts that are over 365 days past due at the end of each quarter are fully charged-off. For the quarters ended March 31, 2008 and 2007, approximately $251,000 and $242,000 was charged-off for this purpose, respectively.

We monitor the ratio of net charge-offs on the leasing business to the average balance of our leasing portfolio. The annualized net charge-off ratio on the leasing business for the quarter ended March 31, 2008 was 2.70%, compared to 2.88% and 2.71% for the quarter and year ended December 31, 2007, respectively. The decrease in this ratio during the first quarter of 2008 was mainly due to the net effect of a decrease in net charge-offs and a decrease in our lease portfolio. The amount of net charge-offs in our leasing portfolio for the quarter ended March 31, 2008 decreased to $2.5 million, from $2.8 million in the previous quarter, and $3.0 million in the first quarter of 2007. As of March 31, 2008, annualized net charge-offs in our leasing portfolio amounted to $10.0 million, compared to $11.3 million for the year ended December 31, 2007. Our lease portfolio decreased to $329.2 million as of March 31, 2008, from $385.4 million at the end of fiscal 2007. This decrease in our leasing portfolio includes the sale of $37.7 million in lease financing contracts in March 2008, as previously mentioned. We continue closely monitoring the lease portfolio and have tightened underwriting standards in an attempt to reduce possible future losses.

Annualized net charge-offs as a percentage of average loans was 2.05% for the quarter ended March 31, 2008, compared to 1.05% and 0.90% for the quarter and year ended December 31, 2007, respectively. Net charge-offs as a percentage of the allowance for loan and lease losses was 144.42% for the quarter ended March 31, 2008, compared to 69.29% and 57.39% for the quarter and year ended December 31, 2007, respectively. Net charge-offs as a percentage of provision for loan and lease losses was 121.82% for the quarter ended March 31, 2008, compared to 70.83% and 63.71% for the quarter and year ended December 31, 2007, respectively. The increase in these ratios was impacted by the $3.1 million partial charge-off to a commercial business relationship, the overall condition of the economy, increased delinquencies and adverse classifications in our commercial loans portfolio, as previously mentioned.

Nonearning Assets

Premises, leasehold improvements and equipment, net of accumulated depreciation and amortization, totaled $33.4 million as of March 31, 2008 and $33.1 million as of December 31, 2007. We have no definitive agreements regarding acquisition or disposition of owned or leased facilities and, for the near-term future, we do not expect significant changes in our total occupancy expense or levels of nonearning assets.

Deposits

Deposits are our primary source of funds. Average deposits for the first quarter of 2008 were $1.969 billion, compared to $1.893 billion for the year 2007. This increase in average deposits during the first quarter of 2008 was mainly concentrated in brokered deposits. The following table sets forth, for the periods indicated, the distribution of our average deposit account balances and average cost of funds on each category of deposits:

	Three Months Ended March 31,								Year Ended December 31,
	2008								2007
	Average Balance		Percent of Deposits			Average Rate			Average Balance		Percent of Deposits			Average Rate
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	115,691		5.87	%		–	%	$	119,004		6.29	%		–	%
Money market deposits		17,825		0.91			3.12			18,361		0.97			2.90
NOW deposits		41,267		2.10			2.38			47,068		2.49			2.23
Savings deposits		129,961		6.60			2.24			141,120		7.45			2.48
Time certificates of deposit in denominations of $100,000 or more		263,145		13.36			4.53			236,057		12.47			5.01
Brokered certificates of deposits in denominations of $100,000 or more		1,307,312		66.38			5.09			1,239,885		65.48			5.13
Other time deposits		94,115		4.78			4.41			91,887		4.85			4.37

Total deposits	$	1,969,316		100.00	%				$	1,893,382		100.00	%

Total deposits at March 31, 2008 and December 31, 2007 were $1.967 billion and $1.993 billion, respectively, representing a decrease of $26.5 million, or 5.33% on an annualized basis, during the first three months of 2008. The following table presents the composition of our deposits by category as of the dates indicated:

	As of March 31,		As of December 31,
	2008		2007
	(In thousands)
Interest bearing deposits:
Now and money market	$	61,556	$	60,893
Savings		129,997		131,604
Brokered certificates of deposits in denominations of less than $100,000		98		104
Brokered certificates of deposits in denominations of $100,000 or more		1,279,785		1,336,456
Time certificates of deposits in denominations of $100,000 or more		276,231		251,361
Other time deposits		95,556		92,545
Total interest bearing deposits	$	1,843,223	$	1,872,963
Plus: non interest bearing deposits		123,280		120,083
Total deposits	$	1,966,503	$	1,993,046

In addition to the deposits we generate locally, we have also accepted brokered deposits to augment retail deposits and to fund asset growth. During the first quarter of 2008, the decrease in brokered deposits resulted mainly from the call-back of $162.4 million in broker deposits in an effort to improve our net interest margin. As of March 31, 2008, there were $142.6 million in callable broker deposits, which included $90.3 million that could be called-back during the second quarter of 2008, while remaining $52.3 million could be called-back in July 2008. Assuming that callable broker deposits are called-back at the projected callable dates, approximately $199,000 and $62,000 in unamortized commissions would be written-off during those same periods, respectively. Average interest rate paid on these callable broker deposits is 5.33%.

The following table sets forth the amount and maturities of the time deposits of $100,000 or more as of the dates indicated, including broker deposits and excluding individual retirement accounts:

	March 31, 2008		December 31, 2007
	(In thousands)
Three months or less	$	587,848	$	360,168
Over three months through six months		267,122		318,440
Over six months through 12 months ⁽¹⁾		169,711		195,976
Over 12 months ⁽²⁾		531,336		713,233
Total	$	1,556,016	$	1,587,817

__________________________

(1)

Includes $24.0 million in callable broker deposits.

(2)

Includes $118.6 million in callable broker deposits.

Other Sources of Funds

As previously mentioned, the fierce competition for core deposits on the Island and the fact that our broker deposits remained at higher levels made other short-term borrowings an attractive funding alternative. During the first quarter of 2008, the average interest rate on a fully taxable equivalent basis we paid for other borrowings decreased to 5.40%, from 6.57% and 7.00% for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively. Average other borrowings increased to $559.9 million for the first quarter of 2008, compared to $438.5 million and $393.3 million for the fourth quarter of 2007 and the quarter ended March 31, 2007, respectively.

Securities Sold Under Agreements to Repurchase

To support our asset base, we sell securities subject to obligations to repurchase to securities dealers and the FHLB. These repurchase transactions generally have maturities of one month to less than five years. The following table summarizes certain information with respect to securities under agreements to repurchase for the three months ended March 31, 2008 and the year ended December 31, 2007:

	Three Months Ended March 31,			Year Ended December 31,
	2008			2007
	(Dollars in thousands)
Balance at period-end	$	565,723		$	496,419
Average monthly balance outstanding during the period		514,203			372,935
Maximum aggregate balance outstanding at any month-end		583,205			496,419
Weighted average interest rate for the quarter		3.87	%		5.04	%
Weighted average interest rate for the last month		3.68	%		4.60	%

FHLB Advances

Although deposits and repurchase agreements are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the Federal Home Loan Bank of New York as an alternative source of liquidity. The following table provides a summary of FHLB advances for the three months ended March 31, 2008 and the year ended December 31, 2007:

	Three Months Ended March 31,			Year Ended December 31,
	2008			2007
	(Dollars in thousands)
Balance at period-end	$	25,440		$	30,454
Average monthly balance outstanding during the period		24,676			3,668
Maximum aggregate balance outstanding at any month-end		30,449			30,454
Weighted average interest rate for the quarter		3.64	%		5.26	%
Weighted average interest rate for the last month		2.81	%		4.64	%

Note Payable to Statutory Trust

For more detail on note payable to statutory trust please refer to the “Note 12 – Note Payable to Statutory Trust” to our condensed consolidated financial statements included herein.

Fair Value of Assets and Liabilities

On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Also, the SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on the source of the market data obtained. This hierarchy is comprised of three levels. If the market data is obtained from sources independent of the reporting entity, the market data is considered an “observable input” and related assets or liabilities will be classified within Levels 1 and 2 of the hierarchy. When the reporting entity’s own assumptions are used as market participant assumptions, the market data is considered an “unobservable input” and related assets or liabilities are classified within Level 3 of the hierarchy. A brief description of possible inputs under each level of the hierarchy is further discussed below.

Level 1. Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities we have the ability to access.

Level 2. Level 2 inputs are those other than unadjusted quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than unadjusted quoted prices, such as: interest rates; foreign exchange rates; and yield curves that are observable at commonly quoted intervals.

Level 3. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

Where the fair value measurement is based on inputs from different levels, the level within which the entire fair value measurement falls will be based on the lowest most significant level used to determine the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability being valued.

The fair value of financial assets requiring to be presented at their fair market value is measured on a recurring basis. The fair value of non-financial assets or financial assets requiring to be presented at the lower of cost or fair market value is measured on a non-recurring basis.

As of March 31, 2008, we had $795.2 million and $2.0 million in assets and liabilities measured on a recurring basis, respectively. Out of the $795.2 million in assets measured on a recurring basis, $714.9 million was Level 2 assets, while remaining assets were classified within Level 1 of the hierarchy. All liabilities measured on a recurring basis as of March 31, 2008 were classified within Level 2 of the hierarchy. As of the same date, we had $16.6 million in assets measured on a non-recurring basis, of which $11.9 million and $4.7 million were Level 2 and Level 3 assets, respectively. The unobservable inputs used to determine the fair value of Level 3 assets were not considered material.

Assets measured on a recurring basis as of March 31, 2008 included $793.2 million in securities available for sale, of which $712.2 million, comprised of mortgage-backed securities, was Level 2 assets, while remaining securities available for sale were classified within Level 1 of the hierarchy. On a monthly basis, we obtained quoted prices from two nationally recognized brokers (the “NRB”) to determine the fair value of securities available for sale. Every month, we compare the valuation received from one NRB to valuation received from the other NRB, and consistently evaluate any difference in market price equal or greater than 2.0%.

Significant inputs considered to determine the fair value of securities available for sale include the market yield curve, credit rating of issuer and collateral. A change in the slope or an increase in the market yield curve, or deterioration of the issuer’s credit rating or collateral, can significantly reduce the fair market value of securities available for sale. Also, a change in the slope or a decrease in the market yield curve, or an upgrade of the issuer’s credit rating or collateral, can significantly increase the fair market value of securities available for sale. Changes in the fair market value of securities available for sale are reported as part of total stockholders’ equity in other comprehensive income. A decrease in the fair market value of securities available for sale, can reduce our liquidity levels, adversely impacting our borrowing capacity and reducing our total capital. On the contrary, an increase in the fair market value of securities available for sale, can augment our liquidity levels, positively impacting our borrowing capacity and increasing our total capital. For more information on the fair value of assets and liabilities please refer to “Note 2 – Recent Accounting Pronouncements” and “Note 16 – Fair Value” to our condensed consolidated financial statements included herein.

Capital Resources and Capital Adequacy Requirements

We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can trigger regulatory actions that could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that rely on quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

We monitor compliance with bank regulatory capital requirements, focusing primarily on the risk-based capital guidelines. Under the risk-based capital method of capital measurement, the ratio computed is dependent on the amount and composition of assets recorded on the balance sheet and the amount and composition of off-balance sheet items, in addition to the level of capital. Generally, Tier 1 capital includes common stockholders’ equity our Series A Preferred Stock, our junior subordinated debentures (subject to certain limitations) less goodwill. Total capital represents Tier 1 plus the allowance for loan and lease losses (subject to certain limits).

In the past three years, our primary sources of capital have been internally generated operating income through retained earnings. As of March 31, 2008 and December 31, 2007, total stockholders’ equity was $182.2 million and $179.9 million, respectively. In addition, the following items also impacted ours stockholders’ equity:

the exercise of 250,862, 4,000, 50,000 and 357,000 stock options in February 2007, July 2007, January 2008 and March 2008, respectively, for a total of $3.2 million; and

the repurchase of 285,368 shares for $2.5 million during the second and third quarter of 2007 in connection with a stock repurchase program approved by the Board of Directors on May 31, 2007.

We are not aware of any material trends that could materially affect our capital resources other than those described in the section entitled “ Risk Factors, ” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2008.

As of March 31, 2008, we and Eurobank both qualified as “well-capitalized” institutions under the regulatory framework for prompt corrective action. The following table presents the regulatory standards for well-capitalized institutions, compared to our capital ratios for Eurobank as of the dates specified:

Actual

For Minimum Capital

Adequacy Purposes

To Be Well Capitalized

Under Prompt Corrective

Action Provision

Amount Is

Ratio Is

Amount

Must Be

Ratio

Must Be

Amount

Must Be

Ratio

Must Be

(Dollars in thousands)

As of March 31, 2008:

Total Capital (to Risk Weighted Assets)

EuroBancshares, Inc

225,547

10.81

≥ 166,896

≥ 8.00

N/A

Eurobank.

222,893

10.69

≥ 166,877

≥ 8.00

≥ 208,597

≥ 10.00

Tier 1 Capital (to Risk Weighted Assets)

EuroBancshares, Inc

199,458

9.56

≥ 83,448

≥ 4.00

N/A

Eurobank

196,808

9.43

≥ 83,439

≥ 4.00

≥ 125,158

≥ 6.00

Leverage (to average assets)

EuroBancshares, Inc

199,458

7.28

≥ 109,533

≥ 4.00

N/A

Eurobank

196,808

7.19

≥ 109,499

≥ 4.00

≥ 136,874

≥ 5.00

As of December 31, 2007:

Total Capital (to Risk Weighted Assets)

EuroBancshares, Inc

224,873

10.79

≥ 166,720

≥ 8.00

N/A

Eurobank.

224,137

10.76

≥ 166,719

≥ 8.00

≥ 208,399

≥ 10.00

Tier 1 Capital (to Risk Weighted Assets)

EuroBancshares, Inc

198,793

9.54

≥ 83,360

≥ 4.00

N/A

Eurobank

198,057

9.50

≥ 83,360

≥ 4.00

≥ 125,039

≥ 6.00

Leverage (to average assets)

EuroBancshares, Inc

198,793

7.55

≥ 105,308

≥ 4.00

N/A

Eurobank

198,057

7.52

≥ 105,282

≥ 4.00

≥ 131,603

≥ 5.00

Liquidity Management

Maintenance of adequate core liquidity requires that sufficient resources be available at all times to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of customers and to take advantage of investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive additional cost. For this purpose, the bank chose to maintain a minimum target liquidity referred as “Core Basis Surplus” and defined as the portion of the bank’s funds maintained in short term investments and other marketable assets, less the liabilities’ portions secured by any of these assets to cover a portion of time deposits maturing in 30 days and a portion of the non-maturity deposits, expressed as a percentage of total assets. This Core Basis Surplus number generally should be positive, but it may vary as our Asset and Liability Committee decides to maintain relatively large or small liquidity coverage, depending on its estimates of the general business climate, its expectations regarding the future course of interest rates in the near term, and the bank's current financial position. Two additional factors that will impact the magnitude of the Core Basic Surplus target are: 1) the available borrowing capacity at the Federal Home Loan Bank (FHLB), as represented by qualifying loans on the balance sheet, and 2) unused brokered time deposits’ capacity relative to the bank’s related policy limit on acceptable levels of these deposits. For this reason, current FHLB advances and broker time deposits availability are part of the bank's liquidity presentation. Our liquid assets at March 31, 2008 and December 31, 2007 totaled approximately $234.9 million and $239.8 million, respectively. Our Core Basis Surplus liquidity level was 5.1% and 5.7% as of the same periods, respectively. The decrease in our Core Basic Surplus liquidity level indicated above was mainly attributable to the combined effect of a reduction in interest bearing deposits and the growth in our total assets, primarily in our investment portfolio.

As mentioned above, in addition to the normal influx of liquidity from core deposit growth, together with repayments and maturities of loans and investments, we utilize FHLB advances and broker and out-of-market certificates of deposit to meet our liquidity needs. Other funding alternatives are borrowing lines with brokers and the Federal Reserve Bank of New York, and unsecured lines of credit with correspondent banks.

Advances from the FHLB are typically secured by qualified residential and commercial mortgage loans, and investment securities. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the FHLB’s assessment of the institution’s creditworthiness. As of March 31, 2008, we had FHLB borrowing capacity of $82.2 million, including FHLB advances and securities sold under agreements to repurchase. Also, as of the same date, we had $385.0 million in pre-approved repurchase agreements with major brokers and banks, subject to acceptable unpledged marketable securities available for sale. In addition, Eurobank is able to borrow up to $10.0 million from the Federal Reserve Bank using securities currently pledged as collateral. Eurobank also maintains pre-approved overnight borrowing lines with correspondent banks, which provided additional short-term borrowing capacity of $10.0 million at March 31, 2008 .

In order to participate in the broker time deposits market, we must be categorized as “well-capitalized” under the regulatory framework for prompt corrective action unless we obtain a waiver from the Federal Deposit Insurance Corporation. Restrictions on our ability to participate in this market could place limitations on our growth strategy or could result in our participation in other more expensive funding sources. In case of restrictions, our expansion strategies would have to be reviewed to reflect the possible limitation to funding sources and changes in cost structures. As of March 31, 2008, we and Eurobank both qualified as “well-capitalized” institutions under the regulatory framework for prompt corrective action.

Our minimum target Core Basis Surplus liquidity ratio established in our Asset/Liability Management Policy is 2.0%. Our liquidity demands are not seasonal and all trends have been stable over the last three years. We are not aware of any trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to materially impair our liquidity. Generally, financial institutions determine their target liquidity ratios internally, based on the composition of their liquidity assets and their ability to participate in different funding markets that can provide the required liquidity. In addition, the local market has unique characteristics, which make it very difficult to compare our liquidity needs and sources to the liquidity needs and sources of our peers in the rest of the nation. After careful analysis of the diversity of liquidity sources available to us, our asset quality and the historic stability of our core deposits, we have determined that our target liquidity ratio is adequate.

Our net cash inflows from operating activities for the first quarter of 2008 was $18.5 million, compared to $34.0 million from operating activities in 2007. The net operating cash inflows during the first quarter of 2008 resulted primarily from the combined effect of: ( i) proceeds from sale of loans held for sale; (ii) an increase in accrued interest receivable; and (iii) a net decrease in other assets . The net operating cash inflows during fiscal 2007 resulted primarily from the net effect of: (i) proceeds from sale of loans held for sale; (ii) an increase in accrued interest receivable; (iii) an increase in accrued interest payable, accrued expenses and other liabilities; and (iv) a net increase in other assets .

Our net cash outflows from investing activities for the first quarter of 2008 was $57.4 million, compared to $281.7 million from investing activities in 2007. The net investing cash outflows experienced during the first quarter of 2008 and the year 2007 were primarily used for the growth in our investment and loan portfolios.

Our net cash inflows from financing activities for the first quarter of 2008 was $39.6 million, compared to $238.1 million from financing activities in 2007. The net financing cash inflows experienced during the first quarter of 2008 and the year 2007 were primarily provided by an increase in securities sold under agreement to repurchase and other borrowings.

Quantitative and Qualitative Disclosure About Market Risks

Interest rate risk is the most significant market risk affecting us. Other types of market risk, such as foreign currency risk and commodity price risk, do not arise in the normal course of our business activities. Interest rate risk can be defined as the exposure to a movement in interest rates that could have an adverse effect on our net interest income or the market value of our financial instruments. The ongoing monitoring and management of this risk is an important component of our asset and liability management process, which is governed by policies established by Eurobank’s Board of Directors and carried out by Eurobank’s Asset/Liability Management Committee. The Asset/Liability Management Committee’s objectives are to manage our exposure to interest rate risk over both the one year planning cycle and the longer term strategic horizon and, at the same time, to provide a stable and steadily increasing flow of net interest income. Interest rate risk management activities include establishing guidelines for tenor and repricing characteristics of new business flow, the maturity ladder of wholesale funding, investment security purchase and sale strategies and mortgage loan sales, as well as derivative financial instruments. Eurobank may enter into interest rate swap agreements, in which it exchanges the periodic payments, based on a notional amount and agreed-upon fixed and variable interest rates. Also, Eurobank may use contracts to transform the interest rate characteristics of specifically identified assets or liabilities to which the contract is tied. At March 31, 2008, the Bank had interest rate swap agreements which converted $22.8 million of fixed rate time deposits to variable rate time deposits of which $10.2 million will mature between 2010 and 2013 and $12.6 million will mature in 2018 but with semi-annual call options which match call options on the swaps. In addition, as of March 31, 2008, Eurobank had $2.0 million related to an option and equity-based return derivative, which was purchased in January 2007 to fix the interest rate expense on a $25.0 million certificate of deposit. For more detail on derivative financial instruments please refer to “Note 11 – Derivative Financial Instruments” to our condensed consolidated financial statements included herein.

Our primary measurement of interest rate risk is earnings at risk, which is determined through computerized simulation modeling. The primary simulation model assumes a static balance sheet, using the balances, rates, maturities and repricing characteristics of all of the bank’s existing assets and liabilities, including off-balance sheet financial instruments. Net interest income is computed by the model assuming market rates remaining unchanged and compares those results to other interest rate scenarios with changes in the magnitude, timing and relationship between various interest rates. At March 31, 2008, we modeled rising ramp and declining interest rate simulations in 100 basis point increments over two years. The impact of embedded options in such products as callable and mortgage-backed securities, real estate mortgage loans and callable borrowings were considered. Changes in net interest income in the rising and declining rate scenarios are then measured against the net interest income in the rates unchanged scenario. The Asset/Liability Management Committee utilizes the results of the model to quantify the estimated exposure of net interest income to sustained interest rate changes and to understand the level of risk/volatility given a range of reasonable and plausible interest rate scenarios. In this context, the core interest rate risk analysis examines the balance sheet under rates up/down scenarios that are neither too modest nor too extreme. All rate changes are “ramped” over a 12 month horizon based upon a parallel yield curve shift and maintained at those levels over the remainder of the simulation horizon. Using this approach, we are able to obtain results that illustrate the effect that both a gradual change of rates (year 1) and a rate shock (year 2 and beyond) has on margin expectations .

In the March 31, 2008 simulation, our model indicated no material exposure in the level of net interest income to gradual rising rates “ramped” for the first 12-month period, and no exposure in the level of net interest income to a rate shock of rising rates for the second 12-month period. This is caused by the effect of the volume of our commercial and industrial loans variable rate portfolio and the maturity distribution of the repurchase agreements and broker deposits, our primary funding source, from 30 days to approximately 2 years. The hypothetical rate scenarios consider a change of 100 and 200 basis points during two years. The decreasing rate scenarios have a floor of 200 basis points. At March 31, 2008, the net interest income at risk for year one in the 100 basis point falling rate scenario was calculated at $1.1 million, or 1.55% lesser than the net interest income in the rates unchanged scenario, and $2.8 million, or 3.89% lesser than the net interest income in the rates unchanged scenario at the March 31, 2008 simulation with a 200 basis point decrease. The net interest income at risk for year two in the 100 basis point falling rate scenario was calculated at $3.9 million, or 5.45% higher than the net interest income in the rates unchanged scenario, and $142,000, or 0.20% lesser than the net interest income in the rates unchanged scenario at the March 31, 2008 simulation with a 200 basis point decrease. At March 31, 2008, the net interest income at risk for year one in the 100 basis point rising rate scenario was calculated to be $643,000, or 0.91% higher than the net interest income in the rates unchanged scenario, and $981,000, or 1.38% higher than the net interest income in the rate unchanged scenario at the March 31, 2008 simulation with a 200 basis point increase. The net interest income at risk for year two in the 100 basis point rising rate scenario was calculated at $4.0 million, or 5.71% higher than the net interest income in the rates unchanged scenario, and $1.0 million, or 1.45% higher than the net interest income in the rates unchanged scenario at the March 31, 2008 simulation with a 200 basis point increase. These exposures are well within our policy guidelines of 15.0% and 25.0% for 100 and 200 basis points changes in rate scenarios, respectively. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan and security prepayments, deposit run-offs and pricing and reinvestment strategies and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions we may take in response to changes in interest rates. We cannot assure you that our actual net interest income would increase or decrease by the amounts computed by the simulations.

The following table indicates the estimated impact on net interest income under various interest rate scenarios as of March 31, 2008:

	Change in Future Net Interest Income Gradual Raising Rate Scenario – Year 1
	At March 31, 2008
Change in Interest Rates	Dollar Change			Percentage Change
	(Dollars in thousands)
+200 basis points over year 1	$	981			1.38	%
+100 basis points over year 1		643			0.91
- 100 basis points over year 1		(1,100	)		(1.55	)
- 200 basis points over year 1		(2,760	)		(3.89	)

	Change in Future Net Interest Income Rate Shock Scenario – Year 2
	At March 31, 2008
Change in Interest Rates	Dollar Change			Percentage Change
	(Dollars in thousands)
+200 basis points over year 2	$	1,028			1.45	%
+100 basis points over year 2		4,050			5.71
- 100 basis points over year 2		3,866			5.45
- 200 basis points over year 2		(142	)		(0.20	)

We also monitor core funding utilization in each interest rate scenario as well as market value of equity. These measures are used to evaluate long-term interest rate risk beyond the two-year planning horizon.

Aggregate Contractual Obligations

The following table represents our on and off-balance sheet aggregate contractual obligations, other than deposit liabilities, to make future payments to third parties as of the date specified:

	As of March 31, 2008
	Less than One Year		One Year to Three Years		Over Three Years to Five Years		Over Five Years
	(In thousands)
FHLB advances	$	25,000	$	—	$	—	$	440
Notes payable to statutory trusts		—		—		—		20,619
Operating leases		1,760		3,176		2,804		15,819
Total	$	26,760	$	3,176	$	2,804	$	36,878

Off-Balance Sheet Arrangements

During the ordinary course of business, we provide various forms of credit lines to meet the financing needs of our customers. These commitments, which have a term of less than one year, represent a credit risk and are not represented in any form on our balance sheets.

As of March 31, 2008 and December 31, 2007, we had commitments to extend credit of $279.5 million and $265.3 million, respectively. These commitments included standby letters of credit of $14.9 million and $13.6 million, for March 31, 2008 and December 31, 2007, respectively, and commercial letters of credit of $681,000 and $1.5 million for those same periods, respectively.

The effect on our revenues, expenses, cash flows and liquidity of the unused portions of these commitments cannot reasonably be predicted because there is no guarantee that the lines of credit will be used.

Recent Accounting Pronouncements

For more detail on recent accounting pronouncements please refer to “Note 2 – Recent Accounting Pronouncements” to our condensed consolidated financial statements included herein.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as set forth in Part I, Item 2 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(f) under the Securities Exchanges Act of 1934, as amended.

Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the fiscal quarter covered by this report, such disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission; and (b) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There were no significant changes in our internal controls over financial reporting during the quarter ended March 31, 2008 that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we and our subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are cu r rently considered to have a material impact on our financial position or results of operation.

ITEM 1A. Risk Factors

None.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Exhibit Number		Description of Exhibit
31.1		Rule 13a-14(a) Certification of Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of Chief Financial Officer.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	EUROBANCSHARES, INC.

Date: May 12, 2008	By:	/s/ Rafael Arrillaga Torréns, Jr.
		Rafael Arrillaga Torréns, Jr.
		Chairman of the Board, President and Chief
		Executive Officer

Date: May 12, 2008	By:	/s/ Yadira R. Mercado
		Yadira R. Mercado
		Chief Financial Officer