EUBK Eurobancshares (MM)

SAN JUAN, Puerto Rico, July 31 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (NASDAQ:EUBK) ("EuroBancshares" or the "Company") today reported its results for the second quarter ended June 30, 2008. Net Income EuroBancshares reported a net loss of $1.8 million, or $(0.10) per diluted share, for the second quarter ended June 30, 2008, compared with a net loss of $1.0 million, or $(0.06) per diluted share, and a net income of $2.6 million, or $0.12 per diluted share, for the quarters ended March 31, 2008 and June 30, 2007, respectively. Return on Average Assets (ROAA) for the second quarter of 2008 was (0.25)%, compared to (0.15)% and 0.43% for the quarters ended March 31, 2008 and June 30, 2007, respectively. Return on Average Common Equity (ROAE) for the second quarter of 2008 was (4.28)%, compared to (2.33)% and 6.41% for the quarters ended March 31, 2008 and June 30, 2007, respectively. Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief Executive Officer said, "This year has proven to be, so far, one of the most difficult years in recent memory for the economy, our Bank, and our customers. Although we recognize that further challenges may still lie ahead, we continue to stay our course in this economic slowdown. We are aggressively identifying and addressing credit quality matters. While disappointed with our results for the quarter, operations have begun to reflect our emphasis on cost-cutting and also show a reduction in our cost of funds as we continued to call our callable broker deposits. We remain focused on ways to cut the cost of funds and making further reductions to our overhead, including personnel reductions for an estimated annualized savings of approximately $1.5 million, reflecting our changing environment, but without sacrificing our banking franchise. We navigate these most difficult and uncharted waters, with our long-term objectives and our Institutional Values ever-present so that we not only remain well capitalized but also emerge as a more competitive institution." Net Interest Income The Company reported total interest income of $40.3 million for the second quarter of 2008, compared to $42.6 million for the previous quarter and $42.9 million for the quarter ended June 30, 2007. Total interest income for the six months ended June 30, 2008 was $83.0 million, compared to total interest income of $85.3 million for prior year same period. The decrease during the quarter ended June 30, 2008 when compared to the previous quarter was mainly driven by the net effect of decreased yields resulting from an interest rate cut of 75 basis points in March 2008 and another 25 basis points in May 2008, partially offset by an increase in average interest-earning assets. The average interest yield on a fully taxable equivalent basis earned on interest- earning assets decreased to 6.61% and 6.84% during the quarter and six months ended June 30, 2008, respectively, from 7.09% for the previous quarter, and 7.84% and 7.77% for the quarter and six months ended June 30, 2007, respectively. Average interest-earning assets increased to $2.715 billion and $2.674 billion for the quarter and six months ended June 30, 2008, respectively, compared to $2.633 billion for the previous quarter, and $2.337 billion and $2.347 billion for the quarter and six months ended June 30, 2007, respectively. Total interest expense was $25.6 million for the quarter ended June 30, 2008, compared to $27.4 million and $25.5 million for the previous quarter and the quarter ended June 30, 2007, respectively. Total interest expense for the six months ended June 30, 2008 was $53.0 million, compared to total interest expense of $50.8 million for prior year same period. The decrease during the quarter ended June 30, 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 average interest rate on a fully taxable equivalent basis paid for interest-bearing liabilities decreased to 4.59% and 4.85% during the quarter and six months ended June 30, 2008, respectively, from 5.13% for the previous quarter, and 5.46% and 5.40% for the quarter and six months ended June 30, 2007, respectively. Average interest-bearing liabilities increased to $2.510 billion and $2.462 billion for the quarter and six months ended June 30, 2008, respectively, compared to $2.414 billion for the previous quarter, and $2.107 billion and $2.113 billion for the quarter and six months ended June 30, 2007, respectively. Net interest margin on a fully taxable equivalent basis was 2.37% for each of the quarter and six-month period ended June 30, 2008, respectively, compared to 2.39% for the previous quarter, and 2.92% and 2.91% for the quarter and six months ended June 30, 2007, respectively. For the second quarter and six-month period ended June 30, 2008, net interest spread on a fully taxable equivalent basis was 2.02% and 1.99%, respectively, compared to 1.96% for the previous quarter, and 2.38% and 2.37% for the same periods of prior year. The decreases in net interest margin and net interest spread during the quarter and six months period ended June 30, 2008 when compared to the same periods in 2007 were 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, 200 basis points during the first quarter of 2008, of which 75 basis points occurred in March 2008, and another 25 basis points in May 2008; and (ii) the write-off of $583,000 in unamortized commissions related to $227.0 million in broker deposits that were called back during the six months ended June 30, 2008. During the quarter ended June 30, 2008, we wrote-off $120,000 in unamortized commissions related to $64.6 million in broker deposits we called back during the quarter. In the second quarter of 2008, we continued experiencing lower funding costs in short term borrowings and commenced to see the benefits from calling back our callable broker deposits, stabilizing our net interest margin and spread on a fully taxable equivalent basis. During the quarter and six months ended June 30, 2008, the average interest rate on a fully taxable equivalent basis paid for broker deposits decreased to 4.91% and 5.24%, respectively, from 5.58% for the previous quarter, and 5.62% and 5.57% for the quarter and six months ended June 30, 2007, respectively. Average broker deposits increased to $1.381 billion and $1.344 billion for the quarter and six months ended June 30, 2008, respectively, compared to $1.307 billion for the previous quarter, and $1.195 billion and $1.187 billion for the quarter and six months ended June 30, 2007, respectively. Without the effect of the above mentioned write-off of unamortized commissions on broker deposits, net interest margin and spread on a fully taxable equivalent basis would have been 2.39% and 2.04% for the second quarter of 2008, 2.42% and 2.04% for the six months ended June 30, 2008, and 2.46% and 2.04% for the first quarter of 2008. During the quarter and six months ended June 30, 2008, the average interest rate on a fully taxable equivalent basis paid for other borrowings decreased to 4.77% and 5.08%, respectively, from 5.40% for the previous quarter, and 7.10% and 7.05% for the quarter and six months ended June 30, 2007, respectively. Average other borrowings increased to $569.7 million and $564.8 million for the quarter and six months ended June 30, 2008, respectively, compared to $559.9 million for the previous quarter, and $384.0 million and $388.6 million for the quarter and six months ended June 30, 2007, respectively. Provision for Loan and Lease Losses The provision for loan and lease losses for the quarter and six months ended June 30, 2008 was $9.9 million and $17.8 million, respectively, or 159.56% and 112.78% of net charge-offs, compared to $3.6 million and $8.9 million, or 104.60% and 121.58% of net charge-offs, for the same periods in 2007, and $7.8 million, or 82.09% of net charge-offs, for the quarter ended March 31, 2008. These increases in the provision for loan and lease losses were mainly driven by the weak condition of Puerto Rico's overall economy which resulted in increased delinquencies and impairments in our commercial and construction loans portfolio, as further discussed below. During 2008, the periodic evaluation of the allowance for loan and lease losses primarily considered the level of net charge-offs, nonperforming loans, delinquencies, related loss experience and overall economic conditions. Some of these factors are discussed further in the Loans and Asset Quality and Delinquency sections of this document. Non-Interest Income The Company's non-interest income in the second quarter and six months ended June 30, 2008 was $3.2 million and $6.9 million, respectively, compared to $2.1 million and $4.1 million for prior year same periods. These changes were mainly due to the net effect of: (i) a $1.2 million increase in gain on sale of loans, resulting from a $1.2 million gain on sale of $37.7 million of lease financing contracts in March 2008; (ii) a $685,000 and $854,000 increase in service charges for the quarter and six months ended June 30, 2008, respectively, mainly due to the recording in June 2008 of $596,000 in income related to the partial redemption of Visa, Inc. shares of stock as part of a series of transactions arising out of the restructuring of Visa, Inc. to become a public company; and also to an increase in ATM and POS fees, mainly from a change in the fee structure during the first quarter of 2008; and (iii) a $86,000 and $119,000 net loss on sale of repossessed assets for the quarter and six months ended June 30, 2008, respectively, compared to a net loss of $450,000 and $895,000 for prior year same periods. More details on repossessed assets are discussed in the Loan and Asset Quality section below. The Company's non-interest income for the quarter ended June 30, 2008 decreased to $3.2 million, from $3.6 million in the previous quarter. This decrease was mainly due to the net effect of: (i) a $1.1 million reduction in gain on sale of loans, resulting from a $1.2 million gain on sale of $37.7 million of lease financing contracts recorded in March 2008; and (ii) a $794,000 increase in service charges during the second quarter of 2008 mainly due to the partial redemption of Visa, Inc. Shares of stock and an increase in ATM and POS fees, as previously mentioned. Non-Interest Expense Non-interest expense for the quarter and six months ended June 30, 2008 was $12.6 million and $25.9 million, respectively, compared to $12.3 million and $24.4 million for the same periods in 2007. Such increases were mainly due to the net effect of: (i) a $155,000 increase in salaries, net of a $154,000 reduction in salaries related to Telefonica Empresas ("TE"), as further explained below, for the quarter ended June 30, 2008 when compared to the second quarter of 2007, mainly from a decrease in deferred loan origination costs because of a reduction in loan originations during the quarter; (ii) an increase of $127,000 and $472,000 in occupancy expenses for the quarter and six months period ended June 30, 2008, respectively, mainly related to an increase in equipment maintenance, and data and security services, primarily attributable to the expansion of our branch network, and other occupancy expenses paid for premises previously occupied while TE phased-out to their new facilities; (iii) a $235,000 and $610,000 increase in professional services for the quarter and six months ended June 30, 2008, respectively, which include an increase of $315,000 and $585,000 related to the information technology outsourcing agreement entered with TE in August 2007. In connection with the TE outsourcing agreement, the Bank had a reduction of $308,000 in related salaries and employee benefits, and a reduction of $42,000 in expenses related to compliance with Section 404 of the Sarbanes Oxley Act of 2002, both experienced during the six months ended June 30, 2008, and estimated year-to- date savings of $208,000 in other operational costs, all transferred to TE. (iv) a $159,000 and $353,000 increase in insurance expense for the quarter and six months period ended June 30, 2008, respectively, mainly related to the FDIC's new insurance premium assessment, which, during fiscal year 2007, was net of a one time assessment credit of $669,000; (v) a decrease of $160,000 and $170,000 in promotional expenses for the quarter and six months ended June 30, 2008, respectively, mainly because of a cost reduction strategy; and (vi) a $148,000 decrease and a $240,000 increase in other expenses for the quarter and six months ended June 30, 2008, respectively, which were mainly due to a decrease in the valuation allowance for subsequent declines in value of repossessed vehicles during the second quarter of 2008, primarily attributable to a decrease in the inventory of repossessed vehicles over six months. Non-interest expense decreased to $12.6 million for the quarter ended June 30, 2008, compared to $13.3 million for the previous quarter. Such decrease was mainly due to the combined effect of: (i) a $261,000 decrease in salaries resulting mainly from a reduction in personnel; (ii) a $185,000 decrease in occupancy expenses mainly related to a reduction in communication expenses, mainly because of economies of scale as part of the TE agreement; and (iii) a $153,000 decrease in promotional expenses, a result of the cost reduction measures previously mentioned. The efficiency ratio on a fully taxable equivalent basis for the quarter ended June 30, 2008 was 65.41%, compared to 63.92% for the quarter ended June 30, 2007, and 68.62% for the quarter ended March 31, 2008. Income Tax Expense Puerto Rico income tax law does not provide for the filing of a consolidated tax return; therefore, the income tax expense reflected in our consolidated income statement is the sum of our income tax expense and the income tax expenses of our individual subsidiaries. Our revenues are generally not subject to U.S. federal income tax. For the quarter and six months ended June 30, 2008, we recorded an income tax benefit of $2.9 million and $4.1 million, respectively, compared to an income tax expense of $1.1 million and $1.3 million for the same periods in 2007. Our income tax benefit for the quarter and six months ended June 30, 2008 resulted mainly from a deferred tax benefit of $2.7 million and $4.0 million, respectively, as explained further below. Our current income tax expense for the quarter and six months ended June 30, 2008 decreased to $1,000 and $10,000, respectively, from $1.5 million and $2.9 million for the same periods in 2007. Decreases in our current income tax expense during the six-month period ended June 30, 2008 were mainly due to a taxable loss in our banking subsidiary primarily related to: (i) a loss before income taxes of $4.7 million and $6.9 million for the quarter and six months ended June 30, 2008, respectively, compared to income before taxes of $3.7 million and $5.3 million for the same periods in 2007; and (ii) the year- to-date recognition of charge-off on loans, for which specific allowances were previously determined. Our deferred tax benefit for the quarter and six months ended June 30, 2008 increased to $2.7 million and $4.0 million, respectively, from $451,000 and $1.5 million for the same periods in 2007. Increases during the six months ended June 30, 2008 were mainly due to the combined effect of: (i) an increase of $3.2 million in the deferred tax asset related to the net operating loss carryforward from the taxable loss in our banking subsidiary; and (ii) a year-to-date increase of $787,000 in the deferred tax assets primarily from an increase in our allowance for loan and lease losses upon the recognition of charge-offs on loans. In addition, the income tax benefit for the quarter ended June 30, 2008, included an income tax benefit of $179,000 related to tax credits received from Puerto Rico's Treasury Department in excess of the amount paid on transactions under the law No. 197. This law, signed on December 14, 2007, offers tax credits to the financial institutions on the financing of qualified residential mortgages. There were no tax credits under law No. 197 during the first quarter of 2008. As of June 30, 2008, we had net deferred tax assets of $14.9 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 June 30, 2008 will be realized. Balance Sheet Summary and Asset Quality Data Assets Total assets increased to $2.830 billion as of June 30, 2008, from $2.751 billion as of December 31, 2007. This increase was mainly due to the net effect of: (i) a $31.9 million decrease in interest bearing deposits; (ii) an increase of $36.7 million in securities purchased under agreements to resell; (iii) a $77.0 million increase in the investment securities portfolio; and (iv) a decrease of $20.2 million in net loans, net of the $37.7 million sale of lease financing contracts in March 2008, as previously mentioned. The decrease in interest bearing deposits was mainly associated to the increase in our investment portfolio. Details on investment securities and loan portfolio variances are discussed further below. Investments During the first six months of 2008, the investment portfolio increased by approximately $77.0 million to $828.3 million from $751.3 million as of December 31, 2007. This increase was primarily due to the net effect of: (i) the purchase of $293.9 million in mortgage-backed securities, FHLB obligations, Puerto Rico government agencies obligations, and a corporate note; (ii) $126.3 million in US government agencies and PR bonds that matured or were called-back during the quarter; (iii) prepayments of approximately $75.5 million on mortgage-backed securities and FHLB obligations; and (iv) a decrease of $14.1 million in the market valuation on securities available for sale. 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 six months of 2008, the market continued presenting some good investment opportunities as a result of the liquidity crises faced by financial institutions in the mainland, which made them reduce their total assets by selling part of their investment securities portfolios at wider spreads. During the six months ended June 30, 2008, we were able to purchase approximately $293.9 million in mortgage-backed securities, FHLB obligations, Puerto Rico government agencies obligations, and a corporate note, all with an estimated average life of approximately 4.0 years and an estimated average yield of 5.36%. Purchased mortgage-backed securities totaled $237.2 million and included approximately $111.4 million in mortgage backed securities issued by US government sponsored enterprises, $20.9 million in collateralized mortgage obligations guaranteed by US government sponsored enterprises and $104.9 million in private label collateral mortgage obligations with FICO scores and loan-to-values similar to FNMA and FHLMC underwriting standards and characteristics. The $104.9 million in private label collateral mortgage obligations includes $24.9 million secured by Alt A first lien residential mortgage loans, predominantly all of which carry fixed interest rates. During the acquisition process we evaluated the potential risks and returns over the expected life of the CMOs and various interest rate, credit loss, and prepayment scenarios. These investments were priced to yield 9.02%, their average expected life was approximately 4.6 years. These securities, through subordination provided by junior CMO tranches that bear the initial losses on the underlying loans, had an average credit enhancement at purchase date of 9.36%. As of June 30, 2008, after above-mentioned transactions, the estimated average maturity of the investment portfolio was approximately 4.7 years and the average yield was approximately 5.17%, compared to an estimated average maturity of 4.8 years and an average yield of 5.06% for the year ended December 31, 2007. Loans Total loans, net of unearned interest, decreased by $18.2 million, or 1.96% on an annualized basis, to $1.840 billion as of June 30, 2008, from $1.859 billion as of December 31, 2007. This decrease was mainly due to the net effect of: (i) a $76.4 million, or 39.64% annualized decrease in lease financing contracts from $385.4 million as of December 31, 2007 to $309.0 million as of June 30, 2008; (ii) a $25.9 million, or 4.73% annualized increase in commercial loans, from $1.095 billion as of December 31, 2007 to $1.121 billion as of June 30, 2008; (iii) a $18.7 million, or 18.40% annualized increase in construction loans, from $203.3 million as of December 31, 2007 to $222.1 million as of June 30, 2008; and (iv) a $21.1 million, or 39.03% annualized increase in residential mortgages, from $108.3 million as of December 31, 2007 to $129.4 million as of June 30, 2008. The $76.4 million decrease in lease financing contracts includes the sale of $37.7 million in March 2008, as previously mentioned. 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 we sold. The $25.9 million increase in commercial loans resulted from the net effect of a $36.0 million increase in commercial loans secured by real estate and an $10.1 million decrease in other commercial loans. As of June 30, 2008, commercial loans secured by real estate equaled $828.3 million, or 73.9% of total commercial loans. Out of the $828.3 million in commercial loans secured by real estate, $480.5 million have loan-to-values equal or less than 80%. The $18.7 million 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 grant any new construction loans during the six months ended June 30, 2008. Asset Quality and Delinquency Non-performing assets consist of loans 90 days or more past due and still accruing interest, loans and leases on nonaccrual status, other real estate owned ("OREO"), and other repossessed assets. Non-performing assets amounted to $141.1 million as of June 30, 2008, compared to $111.6 million as of March 31, 2008 and December 31, 2007, respectively. Non-performing loans, which are comprised of loans 90 days or more past due and still accruing interest, and loans and leases on nonaccrual status, amounted to $126.9 million as of June 30, 2008, compared to $98.3 million as of March 31, 2008 and $98.1 million as of December 31, 2007, respectively. Changes during the second quarter of 2008 when compared to the previous quarter included a $19.1 million increase in nonaccrual loans and a $9.6 million increase in loans over 90 days past due still accruing interest. The $19.1 million increase in nonaccrual loans was mainly attributable to the net effect of: (i) a $13.0 million increase in construction loans, placed in nonaccrual status mainly because of a slowdown in the sale of constructed units; (ii) an increase of $6.4 million in commercial and industrial loans; (iii) a $609,000 decrease in lease financing contracts; and (iv) an increase of $459,000 in marine loans. The $9.6 million increase in loans over 90 days still accruing interest was mainly due to the net effect of: (i) an increase of $5.8 million in loans secured by real estate, all of which had loan-to-values equal or less than 80%; (ii) a $5.0 million increase in other commercial and industrial loans; (iii) a decrease of $2.2 million in overdrafts; and (iv) a $751,000 increase in lease financing contracts. Repossessed assets amounted to $14.2 million as of June 30, 2008, compared to $13.3 million and $13.5 million as of March 31, 2008 and December 31, 2007, respectively. The increase during the quarter ended June 30, 2008 when compared to the previous quarter was mainly attributable to the combined effect of: (i) an increase of $438,000 in other repossessed assets, of which $347,000 was in the inventory of repossessed vehicles and $91,000 in the inventory of repossessed boats. During the quarter ended June 30, 2008, we sold 338 vehicles and repossessed 344 vehicles, respectively, moving our inventory of repossessed vehicles to 357 units as of June 30, 2008, from 334 units as of March 31, 2008. During the same period, we sold 4 boats and repossessed 2 boats, respectively, moving our inventory of repossessed boats to 16 units as of June 30, 2008, from 18 units as of March 31, 2008. (ii) a $386,000 decrease in OREO resulting from the net effect of the sale of four properties and the foreclosure of five properties. Annualized net charge-offs as a percentage of average loans was 1.36% for the quarter ended June 30, 2008, compared to 2.05% for the previous quarter, and 1.05% for the quarter ended December 31, 2007. Net charge-offs for the quarter ended June 30, 2008 were $6.3 million, compared to $9.5 million and $4.9 million for the quarters ended March 31, 2008 and December 31, 2007, respectively. Net charge-offs for the quarter ended June 30, 2008, compared to the quarters ended March 31, 2008 and December 31, 2007 were as follows: (i) $2.7 million in net charge-offs on loans partially secured by real estate for the quarter ended June 30, 2008, primarily commercial loans for which specific allowances amounting to $1.4 million had been previously established, compared to $3.5 million and $159,000 for the quarters ended March 31, 2008 and December 31, 2007, respectively; (ii) $194,000 in net charge-offs on other commercial and industrial loans for the second quarter of 2008, for which specific allowances had been previously established, compared to $2.8 million and $1.4 million for the quarters ended March 31, 2008 and December 31, 2007, respectively; (iii) $501,000 in net charge-offs on consumer loans for the second quarter of 2008, compared to $585,000 and $385,000 for the quarters ended March 31, 2008 and December 31, 2007, respectively; (iv) $2.8 million in net charge-offs on lease financing contracts for the second quarter of 2008, compared to $2.5 million for the previous quarter and $2.8 million for the quarter ended December 31, 2007; and (v) $62,000 in net charge-offs on other loans for the second quarter of 2008, compared to $162,000 and $48,000 in net charge-offs for the quarters ended March 31, 2008 and December 31, 2007, respectively. Loans between 30 and 89 days past due and still accruing interest amounted to $128.2 million, $128.5 million, and $92.1 million for the quarters ended June 30, 2008, March 31, 2008 and December 31, 2007, respectively. Changes in loans between 30 and 89 days past due and still accruing interest during the second quarter of 2008 when compared to the previous quarter include: (i) an increase of $10.7 million in loans secured by real estate, of which $9.7 million was in commercial loans with loan-to-values equal or less than 80%; (ii) a $5.8 million decrease in other commercial and industrial loans; and (iii) a decrease of $5.5 million in lease financing contracts. Allowance for Loan and Lease Losses The allowance for loan and lease losses was $30.2 million as of June 30, 2008, compared to $26.4 million as of March 31, 2008, and $28.1 million as of December 31, 2007. The allowance for loan and lease losses was affected by net charge-offs, nonperforming loans, loan portfolio growth, and also by the provision for loan and lease losses for each related period, which continued to be impacted by the overall economic condition on the Island as it continues in a weakening trend. Net charge-offs for the quarter ended June 30, 2008 decreased to $6.3 million, from $9.5 million during the quarter ended March 31, 2008. Net charge-offs during the second quarter of 2008 included $2.6 million in net charge-offs to commercial business relationships, for which, as mentioned before, specific allowances amounting to $1.6 million had been previously established. We believe that the allowance for loan and lease losses is adequate and it represents 1.64% of total loans as of June 30, 2008. Deposits and Borrowings Total deposits as of June 30, 2008 amounted to $2.050 billion, compared to $1.993 billion as of December 31, 2007. This $56.7 million increase was mainly concentrated in broker deposits. The fierce competition for core deposits on the Island continued during the second quarter of 2008. Because of this fierce competition for local deposits, replacing called-back broker deposits resulted in an attractive funding alternative, lowering funding costs when compared to the unusually higher rates offered locally for time deposits. We decided to continue replacing called-back broker deposits in an attempt to control increases in our funding cost. Stockholders' Equity The Company's stockholders' equity decreased to $164.7 million as of June 30, 2008, from $179.9 million as of December 31, 2007, representing an annualized decrease of 16.87%. Besides earnings and losses from operations, the Company's stockholders' equity was impacted by an accumulated other comprehensive loss of $13.0 million as of June 30, 2008, compared to an accumulated other comprehensive gain of $1.1 million as of December 31, 2007. In addition, the following items also impacted the Company's stockholders' equity: (i) 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 (ii) the repurchase of 285,368 shares for $2.5 million during the second and third quarters of 2007 in connection with a stock repurchase program approved by the Board of Directors on May 31, 2007. About EuroBancshares, Inc. EuroBancshares, Inc. is a diversified financial holding company headquartered in San Juan, Puerto Rico, offering a broad array of financial services through its wholly-owned banking subsidiary, Eurobank; EBS Overseas, Inc., an international banking entity subsidiary of Eurobank; and its wholly- owned insurance agency, EuroSeguros. Forward-Looking Statements Statements concerning future performance, events, expectations for growth and market forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations. Specific factors include, but are not limited to, loan volumes, the ability to expand net interest margin, loan portfolio performance, the ability to continue to attract low-cost deposits, success of expansion efforts, competition in the marketplace and general economic conditions. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes included in EuroBancshares' most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission as they may be amended from time to time. Results of operations for the most recent quarter are not necessarily indicative of operating results for any future periods. Any projections in this release are based on limited information currently available to management, which is subject to change. Although any such projections and the factors influencing them will likely change, the bank will not necessarily update the information, since management will only provide guidance at certain points during the year. Such information speaks only as of the date of this release. Additional information on these and other factors that could affect our financial results are included in filings by EuroBancshares with the Securities and Exchange Commission. EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) For the three-month periods ended June 30, 2008 and 2007 and March 31, 2008, and six-month periods ended June 30, 2008 and 2007 Three Months Ended June 30, June 30, March 31, 2008 2007 2008 Interest income: Loans, including fees $29,106,477 $36,040,114 $32,757,773 Investment securities: Taxable 2,588 2,932 2,643 Exempt 10,822,424 6,185,255 9,491,802 Interest bearing deposits, securities purchased under agreements to resell, and other 411,651 721,301 386,987 Total interest income 40,343,140 42,949,603 42,639,205 Interest expense: Deposits 20,609,064 20,380,548 21,773,166 Securities sold under agreements to repurchase, notes payable, and other 5,030,573 5,126,660 5,632,698 Total interest expense 25,639,637 25,507,208 27,405,864 Net interest income 14,703,503 17,442,395 15,233,341 Provision for loan and lease losses 9,986,800 3,594,000 7,833,000 Net interest income after provision for loan and lease losses 4,716,703 13,848,395 7,400,341 Noninterest income: Service charges - fees and other 3,218,454 2,533,170 2,423,374 Net loss on sale of repossessed assets and on disposition of other assets (85,721) (450,321) (33,759) Gain on sale of loans 116,942 49,826 1,235,195 Total noninterest income 3,249,675 2,132,675 3,624,810 Noninterest expense: Salaries and employee benefits 5,318,139 5,163,004 5,578,914 Occupancy, furniture and equipment 2,757,843 2,631,039 2,942,768 Professional services 1,243,021 1,007,732 1,241,218 Insurance 636,177 477,602 646,591 Promotional 213,655 373,950 367,018 Other 2,463,228 2,611,727 2,489,195 Total noninterest expense 12,632,063 12,265,054 13,265,704 (Loss) Income before income taxes (4,665,685) 3,716,016 (2,240,553) (Benefit) provision for income taxes (2,902,780) 1,088,265 (1,237,228) Net (loss) income $(1,762,905) $2,627,751 $(1,003,325) Basic (loss) earnings per share $(0.10) $0.13 $(0.06) Diluted (loss) earnings per share $(0.10) $0.12 $(0.06) Six Months Ended June 30, 2008 2007 Interest income: Loans, including fees $61,864,250 $70,979,604 Investment securities: Taxable 5,230 6,681 Exempt 20,314,226 12,829,389 Interest bearing deposits, securities purchased under agreements to resell, and other 798,638 1,447,671 Total interest income 82,982,345 85,263,345 Interest expense: Deposits 42,382,230 40,437,167 Securities sold under agreements to repurchase, notes payable, and other 10,663,271 10,323,785 Total interest expense 53,045,501 50,760,952 Net interest income 29,936,844 34,502,393 Provision for loan and lease losses 17,819,800 8,873,000 Net interest income after provision for loan and lease losses 12,117,044 25,629,393 Noninterest income: Service charges - fees and other 5,641,828 4,787,890 Net loss on sale of repossessed assets and on disposition of other assets (119,479) (895,089) Gain on sale of loans 1,352,137 162,584 Total noninterest income 6,874,486 4,055,385 Noninterest expense: Salaries and employee benefits 10,897,052 10,898,174 Occupancy, furniture and equipment 5,700,611 5,228,473 Professional services 2,484,239 1,874,592 Insurance 1,282,768 929,870 Promotional 580,673 750,972 Other 4,952,425 4,712,797 Total noninterest expense 25,897,768 24,394,878 (Loss) Income before income taxes (6,906,238) 5,289,900 (Benefit) provision for income taxes (4,140,008) 1,348,113 Net (loss) income $(2,766,230) $3,941,787 Basic (loss) earnings per share $(0.16) $0.19 Diluted (loss) earnings per share $(0.16) $0.18 EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) June 30, 2008 and December 31, 2007 Assets 2008 2007 Cash and due from banks $26,656,428 $15,866,221 Interest bearing deposits 400,000 32,306,909 Securities purchased under agreements to resell 56,583,043 19,879,008 Investment securities available for sale 786,721,919 707,103,432 Investment securities held to maturity 25,962,454 30,845,218 Other investments 15,586,100 13,354,300 Loans held for sale 2,984,419 1,359,494 Loans, net of allowance for loan and lease losses of $30,155,840 in 2008 and $28,137,104 in 2007 1,807,269,262 1,829,082,008 Accrued interest receivable 17,229,609 18,136,489 Customers' liability on acceptances 167,595 430,767 Premises and equipment, net 33,705,211 33,083,169 Other assets 56,450,253 49,951,898 Total assets $2,829,716,293 $2,751,398,913 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $118,313,428 $120,082,912 Interest bearing 1,931,475,977 1,872,963,402 Total deposits 2,049,789,405 1,993,046,314 Securities sold under agreements to repurchase 531,073,000 496,419,250 Acceptances outstanding 167,595 430,767 Advances from Federal Home Loan Bank 25,426,289 30,453,926 Note payable to Statutory Trust 20,619,000 20,619,000 Accrued interest payable 15,852,559 17,371,698 Accrued expenses and other liabilities 22,049,221 13,139,809 2,664,977,069 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 110,035,651 107,936,531 Retained earnings: Reserve fund 8,029,106 8,029,106 Undivided profits 58,651,436 61,789,048 Treasury stock, 939,083 shares at cost in 2008 and 2007 (9,910,458) (9,910,458) Accumulated other comprehensive (loss) income (13,034,330) 1,110,173 Total stockholders' equity 164,739,224 179,918,149 Total liabilities and stockholders' equity $2,829,716,293 $2,751,398,913 EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited Quarter Ended June 30, March 31, 2008 2007 2008 Average shares outstanding - basic 19,500,315 19,371,991 19,172,524 Average shares outstanding - assuming dilution 19,530,491 19,585,806 19,230,376 Number of shares outstanding at end of period 19,500,315 19,269,545 19,500,315 Book value per common share $7.90 $8.44 $8.79 Average Balances Total assets 2,833,262 2,435,355 2,743,069 Loans and leases, net of unearned 1,846,116 1,779,829 1,865,993 Interest-earning assets (1) 2,714,924 2,336,812 2,632,947 Interest-bearing deposits 1,940,606 1,722,865 1,853,624 Other borrowings 569,708 383,981 559,888 Preferred stock 10,763 10,763 10,763 Shareholders' equity 175,390 174,681 183,211 Loan Mix Loans secured by real estate Commercial and industrial 828,277 764,038 810,618 Construction 222,056 165,075 214,805 Residential mortgage 126,458 93,150 115,772 Consumer 2,228 744 2,102 1,179,019 1,023,007 1,143,297 Commercial and industrial 292,435 299,152 297,004 Consumer 52,657 59,965 54,806 Lease financing contracts 309,011 417,400 329,175 Overdrafts 3,902 6,270 6,637 Total 1,837,024 1,805,794 1,830,919 Deposit Mix Noninterest-bearing deposits 118,313 130,791 123,280 Now and money market 68,881 64,793 61,556 Savings 110,388 142,056 129,997 Broker deposits 1,393,935 1,223,847 1,279,883 Regular CD's & IRAS 97,103 89,606 95,556 Jumbo CD's 261,169 225,647 276,231 Total 2,049,789 1,876,740 1,966,503 Financial Data Total assets 2,829,716 2,458,941 2,793,783 Total investments 828,270 511,782 837,379 Loans and leases, net of unearned 1,840,410 1,809,066 1,835,030 Allowance for loan and lease losses 30,156 20,512 26,428 Total deposits 2,049,789 1,876,740 1,966,503 Other borrowings 577,118 377,339 611,782 Preferred stock 10,763 10,763 10,763 Shareholders' equity 164,739 173,335 182,200 Dividends on preferred stock 186 186 186 Total interest income 40,343 42,949 42,639 Total interest expense 25,639 25,507 27,406 Provision for loan and lease losses 9,987 3,594 7,833 Services charges - fees and other 3,218 2,533 2,424 Gain on sale of loans 117 50 1,235 Net loss on sale of other assets (86) (450) (34) Non-interest expense 12,632 12,265 13,266 (Tax benefit) income tax (2,903) 1,088 (1,238) Net (loss) income (1,763) 2,628 (1,003) Nonperforming assets 141,099 62,374 111,602 Nonperforming loans 126,940 51,753 98,267 Net charge-offs 6,259 3,436 9,542 Performance Ratios Return on average assets (2) (0.25)% 0.43 % (0.15) Return on average common equity (3) (4.28) 6.41 (2.33) Net interest spread (4) 2.02 2.38 1.96 Net interest margin (5) 2.37 2.92 2.39 Efficiency ratio (6) 65.41 63.91 68.62 (Loss) earnings per common share - basic $(0.10) 0.13 $(0.06) (Loss) earnings per common share - diluted (0.10) 0.12 (0.06) Asset Quality Ratios Nonperforming assets to total assets 4.99 % 2.54 % 3.99 Nonperforming loans to total loans 6.90 2.86 5.36 Allowance for loan and lease losses to total loans 1.64 1.13 1.44 Net loan and lease charge-offs to average loans 1.36 0.77 2.05 Provision for loan and lease losses to net loan and lease charge-offs 159.56 104.60 82.09 Six Months Ended June 30, 2008 2007 Average shares outstanding - basic 19,336,419 19,299,873 Average shares outstanding - assuming dilution 19,380,971 19,543,551 Number of shares outstanding at end of period 19,500,315 19,269,545 Book value per common share $7.90 $8.44 Average Balances Total assets 2,787,916 2,443,232 Loans and leases, net of unearned 1,856,054 1,769,545 Interest-earning assets (1) 2,673,936 2,347,335 Interest-bearing deposits 1,897,115 1,724,582 Other borrowings 564,798 388,602 Preferred stock 10,763 10,763 Shareholders' equity 179,300 173,189 Loan Mix Loans secured by real estate Commercial and industrial 828,277 764,038 Construction 222,056 165,075 Residential mortgage 126,458 93,150 Consumer 2,228 744 1,179,019 1,023,007 Commercial and industrial 292,435 299,152 Consumer 52,657 59,965 Lease financing contracts 309,011 417,400 Overdrafts 3,902 6,270 Total 1,837,024 1,805,794 Deposit Mix Noninterest-bearing deposits 118,313 130,791 Now and money market 68,881 64,793 Savings 110,388 142,056 Broker deposits 1,393,935 1,223,847 Regular CD's & IRAS 97,103 89,606 Jumbo CD's 261,169 225,647 Total 2,049,789 1,876,740 Financial Data Total assets 2,829,716 2,458,941 Total investments 828,270 511,782 Loans and leases, net of unearned 1,840,410 1,809,066 Allowance for loan and lease losses 30,156 20,512 Total deposits 2,049,789 1,876,740 Other borrowings 577,118 377,339 Preferred stock 10,763 10,763 Shareholders' equity 164,739 173,335 Dividends on preferred stock 371 369 Total interest income 82,982 85,263 Total interest expense 53,046 50,761 Provision for loan and lease losses 17,820 8,873 Services charges - fees and other 5,642 4,788 Gain on sale of loans 1,352 163 Net loss on sale of other assets (119) (895) Non-interest expense 25,897 24,395 (Tax benefit) income tax (4,140) 1,348 Net (loss) income (2,766) 3,942 Nonperforming assets 141,099 62,374 Nonperforming loans 126,940 51,753 Net charge-offs 15,801 7,298 Performance Ratios Return on average assets (2) (0.20)% 0.32 Return on average common equity (3) (3.28) 4.85 Net interest spread (4) 1.99 2.37 Net interest margin (5) 2.37 2.91 Efficiency ratio (6) 67.02 63.95 (Loss) earnings per common share - basic $(0.16) 0.19 (Loss) earnings per common share - diluted (0.16) 0.18 Asset Quality Ratios Nonperforming assets to total assets 4.99 % 2.54 Nonperforming loans to total loans 6.90 2.86 Allowance for loan and lease losses to total loans 1.64 1.13 Net loan and lease charge-offs to average loans 1.70 0.82 Provision for loan and lease losses to net loan and lease charge-offs 112.78 121.58 (1) Includes nonaccrual loans, which balance as of the periods ended June 30, 2008 and 2007 and March 31, 2008 was $86.3 million, $41.4 million, and $67.2 million, respectively. (2) Return on average assets (ROAA) is determined by dividing net income by average assets. (3) Return on average common equity (ROAE) is determined by dividing net income by average common equity. (4) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (5) Represents net interest income on fully taxable equivalent basis as a percentage of average interest-earning assets. (6) The efficiency ratio is determined by dividing total noninterest expense by an amount equal to net interest income (fully taxable equivalent) plus noninterest income. EUROBANCSHARES, INC. AND SUBSIDIARIES NONPERFORMING ASSETS (Dollars in thousands) Unaudited For the periods ended June 30, March 31, December 31, June 30, 2008 2008 2007 2007 Loans contractually past due 90 days or more but still accruing interest $40,626 $31,071 $29,075 $10,382 Nonaccrual loans 86,314 67,196 68,990 41,371 Total nonperforming loans 126,940 98,267 98,065 51,753 Repossessed property: Other real estate 7,627 7,241 8,125 4,344 Other repossesed assets 6,532 6,094 5,409 6,277 Total repossessed property 14,159 13,335 13,534 10,621 Total nonperforming assets $141,099 $111,602 $111,599 $62,374 Nonperforming loans to total loans 6.90 % 5.36 % 5.28 % 2.86 % Nonperforming assets to total loans plus repossessed property 7.61 6.04 5.96 3.43 Nonperforming assets to total assets 4.99 3.99 4.06 2.54 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended June 30, March 31, Dec. 31, Sept. 30, June 30, 2008 2008 2007 2007 2007 Charge-offs: Real estate secured $2,683 $3,515 $163 $- $198 Other commercial and industrial 654 2,929 1,508 667 491 Consumer 563 649 494 435 310 Leases financing contracts 3,064 2,817 3,151 3,113 3,027 Other 65 164 60 194 5 Total charge-offs 7,029 10,074 5,376 4,409 4,031 Recoveries: Real estate secured $3 $15 $4 $- $13 Other commercial and industrial 460 142 62 27 147 Consumer 62 64 109 65 88 Leases financing contracts 242 309 315 342 341 Other 3 2 12 - 6 Total recoveries 770 532 502 434 595 Net charge-offs: Real estate secured $2,680 $3,500 $159 $- $185 Other commercial and industrial 194 2,787 1,446 640 344 Consumer 501 585 385 370 222 Leases financing contracts 2,822 2,508 2,836 2,771 2,686 Other 62 162 48 194 (1) Total net charge-offs $6,259 $9,542 $4,874 $3,975 $3,436 Net charge-offs to average loans: Real estate secured 0.92 % 1.25 % 0.06 % - % 0.07 Other commercial and industrial 0.26 3.64 1.90 0.85 0.47 Consumer 3.71 4.14 2.63 2.47 1.47 Leases financing contracts 3.53 2.69 2.88 2.71 2.54 Other 4.70 8.92 2.53 9.87 (0.05) Total net charge-offs to average loans 1.36 % 2.05 % 1.05 % 0.87 % 0.77 Year Ended December 31, 2007 Charge-offs: Real estate secured $372 Other commercial and industrial 3,122 Consumer 1,699 Leases financing contracts 12,680 Other 398 Total charge-offs 18,271 Recoveries: Real estate secured $52 Other commercial and industrial 319 Consumer 319 Leases financing contracts 1,410 Other 23 Total recoveries 2,123 Net charge-offs: Real estate secured $320 Other commercial and industrial 2,803 Consumer 1,380 Leases financing contracts 11,270 Other 375 Total net charge-offs $16,148 Net charge-offs to average loans: Real estate secured 0.03 Other commercial and industrial 0.94 Consumer 2.31 Leases financing contracts 2.71 Other 4.73 Total net charge-offs to average loans 0.90 DATASOURCE: EuroBancshares, Inc. CONTACT: Rafael Arrillaga-Torrens, Jr., Chairman, President and CEO, Yadira R. Mercado, Executive Vice-President, CFO, +1-787-751-7340; Marilynn Meek, General Inquiries, Financial Relations Board, +1-212-827-3773

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