EUBK Eurobancshares (MM)

In the news release, EuroBancshares, Inc. Reports Financial Results for the Third Quarter Ended September 30, 2008, issued Nov. 6 by EuroBancshares, Inc. over PR Newswire, we are advised by the company that in the table entitled "OPERATING RATIOS AND OTHER SELECTED DATA," for the column heading 'Quarter Ended, September 30, 2008,' the line item 'Book value per common share,' the correct number should read "$7.45", rather than "$7.53", and for the column heading 'Nine Months Ended September 30, 2008,' for the line item 'Provision for loan and lease losses,' the correct number should read "25,800", rather than "23,300". Complete, corrected release follows: SAN JUAN, Puerto Rico, Nov. 6 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (NASDAQ:EUBK) ("EuroBancshares" or the "Company") today reported its results for the third quarter ended September 30, 2008. Net Income EuroBancshares reported a net loss of $788,000, or $(0.05) per diluted share, for the third quarter ended September 30, 2008, compared with a net loss of $1.8 million, or $(0.10) per diluted share, and a net loss of $1.2 million, or $(0.07) per diluted share, for the quarters ended June 30, 2008 and September 30, 2007, respectively. Return on Average Assets (ROAA) for the third quarter of 2008 was (0.11)%, compared to (0.25)% and (0.20)% for the quarters ended June 30, 2008 and September 30, 2007, respectively. Return on Average Common Equity (ROAE) for the third quarter of 2008 was (2.09)%, compared to (4.28)% and (3.01)% for the quarters ended June 30, 2008 and September 30, 2007, respectively. For the nine-month period ended September 30, 2008, ROAA and ROAE were (0.17)% and (2.91)%, respectively, compared to 0.15% and 2.21% for the same period in 2007. Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief Executive Officer said, "We remain focused on resolving credit quality issues, reducing expenses, and increasing the profitability of our products. While disappointed with our results, it is noteworthy that this quarter we were successful in reducing by approximately $41 million the amount of loans moving into the 30 to 90 days delinquent category when compared to the amount that moved into such category as of June 30, 2008. We are confident in our plan of action in this most difficult and prolonged recession." Net Interest Income The Company reported total interest income of $40.2 million for the third quarter of 2008, compared to $40.3 million for the previous quarter and $43.7 million for the quarter ended September 30, 2007. Total interest income for the nine months ended September 30, 2008 was $123.2 million, compared to total interest income of $129.0 million for prior year same period. Total interest income during the quarter ended September 30, 2008 remained relatively stable when compared to the previous quarter. The average interest yield on a fully taxable equivalent basis earned on interest-earning assets was 6.69% and 6.79% during the quarter and nine months ended September 30, 2008, respectively, compared to 6.61% for the previous quarter, and 7.82% and 7.78% for the quarter and nine months ended September 30, 2007, respectively. Average interest-earning assets amounted to $2.678 billion and $2.675 billion for the quarter and nine months ended September 30, 2008, respectively, compared to $2.715 billion for the previous quarter, and $2.383 billion and $2.359 billion for the quarter and nine months ended September 30, 2007, respectively. Total interest expense was $24.5 million for the quarter ended September 30, 2008, compared to $25.6 million and $26.6 million for the previous quarter and the quarter ended September 30, 2007, respectively. Total interest expense for the nine months ended September 30, 2008 was $77.5 million, compared to total interest expense of $77.4 million for prior year same period. The decrease during the quarter ended September 30, 2008 when compared to the previous quarter resulted from the combined effect of a net decrease in the cost of funds, as explained further below, and a decrease in average interest-bearing liabilities. The average interest rate on a fully taxable equivalent basis paid for interest-bearing liabilities decreased to 4.43% and 4.71% during the quarter and nine months ended September 30, 2008, respectively, from 4.59% for the previous quarter, and 5.51% and 5.44% for the quarter and nine months ended September 30, 2007, respectively. Average interest-bearing liabilities amounted to $2.494 billion and $2.473 billion for the quarter and nine months ended September 30, 2008, respectively, compared to $2.510 billion for the previous quarter, and $2.157 billion and $2.128 billion for the quarter and nine months ended September 30, 2007, respectively. Net interest margin on a fully taxable equivalent basis was 2.57% and 2.44% for the quarter and nine-month period ended September 30, 2008, respectively, compared to 2.37% for the previous quarter, and 2.83% and 2.88% for the quarter and nine months ended September 30, 2007, respectively. For the third quarter and nine-month period ended September 30, 2008, net interest spread on a fully taxable equivalent basis was 2.26% and 2.08%, respectively, compared to 2.02% for the previous quarter, and 2.31% and 2.34% for the same periods of prior year. The increases in net interest margin and net interest spread during the quarter ended September 30, 2008 when compared to the previous quarter were mainly caused by our strategy of calling our callable broker deposits. Between late May 2008 and July 2008, we wrote-off of $176,000 in unamortized commissions related to $105.7 million in broker deposits that paid an average rate of 5.37% and were called back during that period. Out of this $105.7 million, in July 2008 we called $45.7 million in broker deposits that paid an average rate of 5.43%, writing-off $85,000 in unamortized commissions during that month. 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 2.58% and 2.28% for the third quarter of 2008, 2.47% and 2.12% for the nine months ended September 30, 2008, and 2.39% and 2.04% for the previous quarter. During the quarter and nine months ended September 30, 2008, the average interest rate on a fully taxable equivalent basis paid for broker deposits decreased to 4.60% and 5.03%, respectively, from 4.94% for the previous quarter, and 5.61% and 5.57% for the quarter and nine months ended September 30, 2007, respectively. Average broker deposits amounted to $1.381 billion and $1.356 billion for the quarter and nine months ended September 30, 2008, respectively, compared to $1.381 billion for the previous quarter, and $1.257 billion and $1.211 billion for the quarter and nine months ended September 30, 2007, respectively. Provision for Loan and Lease Losses The provision for loan and lease losses for the quarter and nine months ended September 30, 2008 was $8.0 million and $25.8 million, respectively, or 177.61% and 127.13% of net charge-offs, compared to $9.6 million and $18.5 million, or 241.36% and 163.82% of net charge-offs, for the same periods in 2007, and $10.0 million, or 159.56% of net charge-offs, for the quarter ended June 30, 2008. The provision for loan and lease losses is part of the continuous evaluation of the allowance for loans and lease losses. The periodic evaluation of the allowance for loan and lease losses considers 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 third quarter and nine months ended September 30, 2008 was $2.4 million and $9.3 million, respectively, compared to $2.2 million and $6.3 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 for the nine months ended September 30, 2008, resulting from a $1.2 million gain on sale of $37.7 million of lease financing contracts in March 2008; (ii) a $72,000 and $925,000 increase in service charges for the quarter and nine months ended September 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 a year-to-date increase of $413,000 in ATM and POS fees, mainly from a change in the fee structure during the first quarter of 2008; (iii) a $280,000 and $399,000 net loss on sale of repossessed assets for the quarter and nine months ended September 30, 2008, respectively, compared to a net loss of $259,000 and $1.2 million for prior year same periods. More details on repossessed assets are discussed in the Loan and Asset Quality section below; and (iv) a $191,000 gain on sale of securities resulting from the sale of $18.9 million in investment securities sold during third quarter of 2008 in an effort to improve our net interest margin. The Company's non-interest income for the quarter ended September 30, 2008 decreased to $2.4 million, from $3.2 million in the previous quarter. This decrease was mainly due to the net effect of: (i) a $752,000 decrease in service charges during the third quarter of 2008 mainly due to the partial redemption of Visa, Inc. shares of stock recorded in the previous quarter, as previously mentioned; (ii) a $280,000 net loss on sale of repossessed assets for the quarter ended September 30, 2008, compared to a net loss of $86,000 for the previous quarter. More details on repossessed assets are discussed in the Loan and Asset Quality section below; and (iii) a $191,000 gain on sale of securities resulting from the sale of $18.9 million in investment securities sold during third quarter of 2008, as previously mentioned. Non-Interest Expense Non-interest expense for the quarter and nine months ended September 30, 2008 was $13.5 million and $39.4 million, respectively, compared to $12.3 million and $36.7 million for the same periods in 2007. Such increases were mainly due to the net effect of: (i) a $152,000 increase in salaries for the quarter ended September 30, 2008 when compared to the third 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 $596,000 in occupancy and equipment expenses for the nine-month period ended September 30, 2008 when compared to the same period in 2007, mainly related to a $103,000 increase in equipment maintenance, a $174,000 increase in utilities, and a $255,000 increase in security services, primarily attributable to the expansion of our branch network; (iii) a $574,000 increase in professional services for the nine months ended September 30, 2008 when compared to the same period in 2007, which was mainly due to the net effect of: an increase of $610,000 related to the information technology outsourcing agreement entered with Telefonica Empresas ("TE") in August 2007; a decrease of $248,000 in legal fees; and a $144,000 increase in regulatory examination fees as a consequence of our asset growth. In connection with the TE outsourcing agreement, the Bank has experienced a reduction of $448,000 in related salaries and employee benefits during the nine months ended September 30, 2008, and estimated year-to-date savings of $312,000 in other operational costs, all transferred to TE. (iv) a $492,000 and $845,000 increase in insurance expense for the quarter and nine-month period ended September 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 $221,000 and $392,000 in promotional expenses for the quarter and nine months ended September 30, 2008, respectively, mainly because of a cost reduction strategy; and (vi) a $605,000 and $845,000 increase in other expenses for the quarter and nine months ended September 30, 2008, respectively, which were mainly due to the combined effect of: a year-to-date increase of $368,000 in merchant commissions and ATM services fees, primarily from a change in the fee structure; and an increase of $268,000 in the valuation allowance for subsequent declines in value of repossessed assets during the third quarter of 2008, of which $126,000 was related to the market reevaluation of a slow-moving repossessed boat. Non-interest expense increased to $13.5 million for the quarter ended September 30, 2008, compared to $12.6 million for the previous quarter. Such increase was mainly due to the combined effect of: (i) an increase of $335,000 in insurance expense, attributable to an adjustment in the FDIC's insurance premium assessment; and (ii) a $422,000 increase in other expenses mainly related to a $172,000 increase in merchant commissions and ATH service fees, primarily from a change in the fee structure, and an increase of $126,000 in the market reevaluation of a slow-moving repossessed boat, as previously mentioned. 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 nine months ended September 30, 2008, we recorded an income tax benefit of $2.5 million and $6.6 million, respectively, compared to an income tax benefit of $1.4 million and $30,000 for the same periods in 2007. Our income tax benefit for the quarter and nine months ended September 30, 2008 resulted mainly from a deferred tax benefit of $2.3 million and $6.3 million, respectively, as explained further below. Our current income tax expense for the quarter and nine months ended September 30, 2008 decreased to $2,000 and $12,000, respectively, from $935,000 and $3.8 million for the same periods in 2007. Decreases in our current income tax expense during the nine-month period ended September 30, 2008 were mainly due to a taxable loss primarily related to: (i) a loss before income taxes of $3.2 million and $10.1 million for the quarter and nine months ended September 30, 2008, respectively, compared to a loss before taxes of $2.6 million and an income before taxes of $2.7 million for the same periods in 2007; and (ii) an increase in the exempt income as a percentage of total income during 2008. Our deferred tax benefit was $2.3 million for each of the quarters ended September 30, 2008 and 2007; while for the nine months ended September 30, 2008, it increased to $6.3 million, from $3.8 million for the same period in 2007. Increases during the nine months ended September 30, 2008 were mainly due to the combined effect of: (i) an increase of $3.8 million in the deferred tax asset related to the net operating loss ("NOL") carryforward from the taxable loss in our banking subsidiary; and (ii) a year-to-date increase of $2.5 million in the deferred tax assets primarily from an increase in our allowance for loan and lease losses. In addition, the income tax benefit for the quarter and nine-month period ended September 30, 2008, included an income tax benefit of $140,000 and $319,000, respectively, 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. As of September 30, 2008, we had net deferred tax assets of $17.2 million, compared to $10.9 million as of December 31, 2007. This increase in our net deferred tax assets was mainly attributable to the NOL carryforward in our banking subsidiary and the increase in our allowance for loan and lease losses, as previously mentioned. 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 September 30, 2008 will be realized. Balance Sheet Summary and Asset Quality Data Assets Total assets increased to $2.784 billion as of September 30, 2008, from $2.751 billion as of December 31, 2007. This increase was mainly due to the net effect of: (i) a $8.0 million increase in interest bearing deposits; (ii) an increase of $3.0 million in securities purchased under agreements to resell; (iii) a $75.8 million increase in the investment securities portfolio; and (iv) a decrease of $55.3 million in net loans, including the $37.7 million sale of lease financing contracts in March 2008, as previously mentioned. Details on investment securities and loan portfolio variances are discussed further below. Investments As of September 30, 2008, our investment portfolio amounted to $827.1 million, an increase of approximately $75.8 million when compared to $751.3 million as of December 31, 2007. This increase was primarily due to the net effect of: (i) the purchase of $370.7 million in mortgage-backed securities, FHLB obligations, Puerto Rico government agencies obligations, and a corporate note; (ii) $144.8 million in US government agencies, PR bonds, and private label collateral mortgage obligations that matured or were called-back during the quarter; (iii) prepayments of approximately $108.2 million on mortgage-backed securities and FHLB obligations; (iv) the sale of $10.0 million in a US agencies note and $8.9 million in a US agencies mortgage-backed security, both sold during the quarter in an effort to improve our net interest margin, as previously mentioned; and (v) a decrease of $21.8 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 nine months ended September 30, 2007, during the first nine 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 required them to reduce their total assets by selling part of their investment securities portfolios at wider spreads. During the nine-month period ended September 30, 2008, we were able to purchase approximately $370.7 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 5.4%. Purchased mortgage-backed securities totaled $314.0 million and included approximately $146.5 million in mortgage-backed securities issued by US government agencies and by US government sponsored enterprises, $60.2 million in collateralized mortgage obligations guaranteed by US government agencies and by US government sponsored enterprises, and $107.3 million in private label collateral mortgage obligations with FICO scores and loan-to-values similar to FNMA and FHLMC underwriting standards and characteristics. In September 2008, we evaluated the possibility of repositioning a portion of the securities portfolio taking into consideration the reduction in market rates, the current economic environment and the statements and actions taken by the Federal Government. This evaluation resulted in the sale of $18.9 million in US agencies obligations with a yield of 4.80% and an estimated average life of 2.5 years. The proceeds of this sale were used to purchase $19.3 million in US agencies mortgage-backed securities at a yield of approximately 5.28% and an expected average life of 5.0 years. As of September 30, 2008, after the above-mentioned transactions, the estimated average maturity of our investment portfolio was approximately 5.3 years with an average yield of approximately 5.20%, compared to an estimated average maturity of 4.8 years and an average yield of 5.06% for the year ended December 31, 2007. We reviewed our investment portfolio as of September 30, 2008 using models on the SFAS No. 115, Accounting for Certain Investments in Debt and Equity, and the EITF 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, for applicable mortgage-backed securities ("MBS"). During the review, we found that nine private label MBS amounting to approximately $30.2 million have mixed credit ratings. For each one of the identified securities, we reviewed the collateral performance and determined that, as of September 30, 2008, it was probable that all expected cash flows of these investments would be received. Some of the analysis performed to the downgraded MBS securities included: (i) the calculation of their coverage ratios; (ii) current credit support; (iii) total delinquency over sixty days; (iv) average loan-to-values; (v) projected defaults considering a conservative additional downside scenario of (5)% in Housing Price Index values for each of the following 3 years; (vi) a mortgage loan prepayment speed of 6CPR; (vii) projected loss deal based on the previous conservative assumptions; (viii) excess protection; (ix) projected tranche dollar loss; and (x) projected tranche percentage loss and economic value. These analyses were performed taking into consideration current U.S. market conditions and forward projected cash flows. Based on this assessment, we concluded that no other than temporary impairment needs to be recorded for this reporting period. Loans Total loans, net of unearned interest, decreased by $49.8 million, or 3.57% on an annualized basis, to $1.809 billion as of September 30, 2008, from $1.859 billion as of December 31, 2007. This decrease was mainly due to the net effect of: (i) a $97.6 million, or 33.76% annualized decrease in lease financing contracts from $385.4 million as of December 31, 2007 to $287.8 million as of September 30, 2008; (ii) a $34.0 million, or 4.14% annualized increase in commercial loans, from $1.095 billion as of December 31, 2007 to $1.129 billion as of September 30, 2008; (iii) a $6.2 million, or 4.04% annualized increase in construction loans, from $203.3 million as of December 31, 2007 to $209.5 million as of September 30, 2008; and (iv) a $17.3 million, or 21.25% annualized increase in residential mortgages, from $108.3 million as of December 31, 2007 to $125.6 million as of September 30, 2008. The $97.6 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 rest of the decrease was mainly due to repayments and a reflection of decreased originations resulting from tightened underwriting standards and our decision to strategically pare back our automobile leasing business because of the economy slowdown. The $34.0 million increase in commercial loans resulted from the net effect of a $61.4 million increase in commercial loans secured by real estate and a $27.4 million decrease in other commercial loans. As of September 30, 2008, commercial loans secured by real estate equaled $853.7 million, or 75.63% of total commercial loans. The $6.2 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 nine months ended September 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 $175.2 million as of September 30, 2008, compared to $141.1 million and $111.6 million as of June 30, 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 $162.7 million as of September 30, 2008, compared to $126.9 million as of June 30, 2008 and $98.1 million as of December 31, 2007, respectively. Changes during the third quarter of 2008 when compared to the previous quarter included a $29.8 million increase in loans over 90 days past due still accruing interest and a $6.0 million increase in nonaccrual loans. Contrary to the previous two quarters, the $35.8 million increase in nonperforming loans was mainly compensated by a $40.6 million decrease in loans between 30 and 89 days past due and still accruing interest, as discussed further below. The $29.8 million increase in loans over 90 days still accruing interest was mainly due to the combined effect of: (i) an increase of $19.6 million in commercial loans secured by real estate; (ii) a $7.8 million increase in construction industrial loans; and (iii) a $3.1 increase in residential mortgages. The $6.0 million increase in nonaccrual loans was mainly attributable to an increase of $5.6 million in commercial loans. Repossessed assets amounted to $12.4 million as of September 30, 2008, compared to $14.2 million and $13.5 million as of June 30, 2008 and December 31, 2007, respectively. The decrease during the quarter ended September 30, 2008 when compared to the previous quarter was attributable to the combined effect of: (i) a decrease of $1.2 million in other repossessed assets, of which $813,000 was in the inventory of repossessed boats and $412,000 in the inventory of repossessed vehicles. During the quarter ended September 30, 2008, we sold 9 boats and repossessed 6 boats, respectively, decreasing our inventory of repossessed boats to 13 units as of September 30, 2008, from 16 units as of June 30, 2008. During the same period, we sold 385 vehicles and repossessed 362 vehicles, respectively, decreasing our inventory of repossessed vehicles to 334 units as of September 30, 2008, from 357 units as of June 30, 2008. (ii) a $498,000 decrease in OREO resulting from the net effect of the sale of 1 property and the foreclosure of 4 properties. Annualized net charge-offs as a percentage of average loans was 0.98% and 1.47% for the quarter and nine months ended September 30, 2008, respectively, compared to 1.36% for the previous quarter, and 1.05% and 0.90% for the quarter and year ended December 31, 2007. Net charge-offs for the quarter ended September 30, 2008 were $4.5 million, compared to $6.3 million and $4.9 million for the quarters ended June 30, 2008 and December 31, 2007, respectively. Net charge-offs for the quarter ended September 30, 2008, compared to the quarters ended June 30, 2008 and December 31, 2007 were as follows: (i) $418,000 in net charge-offs on loans partially secured by real estate for the quarter ended September 30, 2008, compared to $2.7 million and $159,000 for the quarters ended June 30, 2008 and December 31, 2007, respectively; (ii) $451,000 in net charge-offs on other commercial and industrial loans for the third quarter of 2008, compared to $194,000 and $1.4 million for the quarters ended June 30, 2008 and December 31, 2007, respectively; (iii) $324,000 in net charge-offs on consumer loans for the third quarter of 2008, compared to $501,000 and $385,000 for the quarters ended June 30, 2008 and December 31, 2007, respectively; (iv) $3.3 million in net charge-offs on lease financing contracts for the third quarter of 2008, compared to $2.8 million for the previous quarter and the quarter ended December 31, 2007; and (v) $22,000 in net charge-offs on other loans for the third quarter of 2008, compared to $62,000 and $48,000 in net charge-offs for the quarters ended June 30, 2008 and December 31, 2007, respectively. The increase in net charge-offs on our leasing portfolio for the quarter ended September 30, 2008 when compared to the previous quarter was mainly attributable to the combined effect of a $250,000 increase in the initial market valuation adjustments on high-end repossessed vehicles and an increase of $250,000 in partial charge-offs related to lease financing contracts that remained over 120 days past due at the end of the current quarter, as further explained below. The economic distress on the Island reduced the number of repossessed vehicles sold to the dealers. To compensate this slow down in sales, we reinforced our decision of being more aggressive in the sale of repossessed vehicles, increasing the initial market valuation adjustment on repossessed units. At the end of the third quarter of 2008, new dealers were added to our floor plan portfolio. We believe these new additions will facilitate disposal of vehicles and reduce market value charge-offs toward the year-end. Loans between 30 and 89 days past due and still accruing interest amounted to $87.5 million, $128.2 million, and $92.1 million as of September 30, 2008, June 30, 2008 and December 31, 2007, respectively. Changes in loans between 30 and 89 days past due and still accruing interest during the third quarter of 2008 when compared to the previous quarter include: (i) a decrease of $33.6 million in commercial loans secured by real estate; (ii) a $4.7 million decrease in residential mortgages; (iii) a decrease of $1.3 million in construction loans; and (iv) an $868,000 decrease in overdrafts. During the quarter ended September 30, 2008, we continued taking proactive measures to strengthen our collection processes, including the recruiting of a senior collections officer with previous experience on larger banks. Allowance for Loan and Lease Losses The allowance for loan and lease losses was $33.6 million as of September 30, 2008, compared to $30.2 million as of June 30, 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. We believe that the allowance for loan and lease losses is adequate and it represents 1.86% of total loans as of September 30, 2008. Deposits and Borrowings Total deposits as of September 30, 2008 amounted to $2.026 billion, compared to $1.993 billion as of December 31, 2007. This $32.5 million increase was mainly concentrated in broker deposits. The fierce competition for core deposits on the Island continued during the third 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 $156.1 million as of September 30, 2008, from $179.9 million as of December 31, 2007, representing an annualized decrease of 16.50%. Besides losses and earnings from operations, which amounted to a $3.6 million net loss and a $2.7 million net income for the nine-month periods ended September 30, 2008 and 2007, respectively, the Company's stockholders' equity was impacted by an accumulated other comprehensive loss of $20.7 million as of September 30, 2008, compared to an accumulated other comprehensive income 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; (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; and (iii) the repurchase of 800 unvested restricted shares from former employees during the third quarter of 2008, for a total of $6,504. These restricted shares were originally granted in April 2004. As of September 30, 2008, we and Eurobank both qualified as "well- capitalized" institutions under the regulatory framework for prompt corrective action. As of September 30, 2008, our Tier 1 and total risk-based capital ratios were 9.52% and 10.78%, respectively, compared to 9.36% and 10.61% as of the previous quarter. We are evaluating opportunities to increase our capital position, including the possible participation in the U.S. Treasury's recently announced TARP Capital Purchase Program. About EuroBancshares, Inc. EuroBancshares, Inc. is a diversified financial holding company headquartered in San Juan, Puerto Rico, offering a broad array of financial services through its wholly-owned banking subsidiary, Eurobank; EBS Overseas, Inc., an international banking entity subsidiary of Eurobank; and its wholly- owned insurance agency, EuroSeguros. Forward-Looking Statements Statements concerning future performance, events, expectations for growth and market forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations. Specific factors include, but are not limited to, loan volumes, the ability to expand net interest margin, loan portfolio performance, the ability to continue to attract low-cost deposits, success of expansion efforts, competition in the marketplace and general economic conditions. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes included in EuroBancshares' most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission as they may be amended from time to time. Results of operations for the most recent quarter are not necessarily indicative of operating results for any future periods. Any projections in this release are based on limited information currently available to management, which is subject to change. Although any such projections and the factors influencing them will likely change, the bank will not necessarily update the information, since management will only provide guidance at certain points during the year. Such information speaks only as of the date of this release. Additional information on these and other factors that could affect our financial results are included in filings by EuroBancshares with the Securities and Exchange Commission. EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) For the three-month periods ended September 30, 2008 and 2007 and June 30, 2008, and nine-month periods ended September 30, 2008 and 2007 Three Months Ended September 30, September 30, June 30, 2008 2007 2008 Interest income: Loans, including fees $28,963,623 $36,677,073 $29,106,477 Investment securities: Taxable 2,375 2,776 2,588 Exempt 10,939,820 6,252,137 10,822,424 Interest bearing deposits, securities purchased under agreements to resell, and other 344,071 802,667 411,651 Total interest income 40,249,889 43,734,653 40,343,140 Interest expense: Deposits 19,252,420 21,553,077 20,609,064 Securities sold under agreements to repurchase, notes payable, and other 5,226,505 5,071,618 5,030,573 Total interest expense 24,478,925 26,624,695 25,639,637 Net interest income 15,770,964 17,109,958 14,703,503 Provision for loan and lease losses 7,980,000 9,594,000 9,986,800 Net interest income after provision for loan and lease losses 7,790,964 7,515,958 4,716,703 Noninterest income: Service charges - fees and other 2,466,422 2,394,869 3,218,454 Net gain on sale of securities 190,956 - Net loss on sale of repossessed assets and on disposition of other assets (279,595) (258,889) (85,721) Gain on sale of loans 47,726 76,560 116,942 Total noninterest income 2,425,509 2,212,540 3,249,675 Noninterest expense: Salaries and employee benefits 5,102,149 4,950,481 5,318,139 Occupancy, furniture and equipment 2,936,293 2,812,295 2,757,843 Professional services 1,408,797 1,444,487 1,243,021 Insurance 970,878 479,219 636,177 Promotional 153,458 374,800 213,655 Other 2,885,356 2,280,458 2,463,228 Total noninterest expense 13,456,931 12,341,740 12,632,063 (Loss) Income before income taxes (3,240,458) (2,613,242) (4,665,685) Income tax benefit (2,452,507) (1,378,559) (2,902,780) Net income (loss) $(787,951) $(1,234,683) $(1,762,905) Basic earnings (loss) per share $(0.05) $(0.07) $(0.10) Diluted earnings (loss) per share $(0.05) $(0.07) $(0.10) Nine Months Ended September 30, 2008 2007 Interest income: Loans, including fees $90,827,873 $107,656,676 Investment securities: Taxable 7,605 9,457 Exempt 31,254,046 19,081,526 Interest bearing deposits, securities purchased under agreements to resell, and other 1,142,709 2,250,338 Total interest income 123,232,233 128,997,997 Interest expense: Deposits 61,634,650 61,990,244 Securities sold under agreements to repurchase, notes payable, and other 15,889,775 15,395,403 Total interest expense 77,524,425 77,385,647 Net interest income 45,707,808 51,612,350 Provision for loan and lease losses 25,799,800 18,467,000 Net interest income after provision for loan and lease losses 19,908,008 33,145,350 Noninterest income: Service charges - fees and other 8,108,250 7,182,759 Net gain on sale of securities 190,956 - Net loss on sale of repossessed assets and on disposition of other assets (399,074) (1,153,979) Gain on sale of loans 1,399,864 239,143 Total noninterest income 9,299,996 6,267,923 Noninterest expense: Salaries and employee benefits 15,999,202 15,848,655 Occupancy, furniture and equipment 8,636,904 8,040,768 Professional services 3,893,036 3,319,078 Insurance 2,253,646 1,409,089 Promotional 734,131 1,125,772 Other 7,837,782 6,993,252 Total noninterest expense 39,354,701 36,736,614 (Loss) Income before income taxes (10,146,697) 2,676,659 Income tax benefit (6,592,515) (30,446) Net income (loss) $(3,554,182) $2,707,105 Basic earnings (loss) per share $(0.21) $0.11 Diluted earnings (loss) per share $(0.21) $0.11 EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) September 30, 2008 and December 31, 2007 Assets 2008 2007 Cash and due from banks $15,336,891 $15,866,221 Interest bearing deposits 40,350,962 32,306,909 Securities purchased under agreements to resell 22,898,911 19,879,008 Investment securities available for sale 768,625,439 707,103,432 Investment securities held to maturity 42,903,026 30,845,218 Other investments 15,585,500 13,354,300 Loans held for sale 404,100 1,359,494 Loans, net of allowance for loan and lease losses of $33,643,190 in 2008 and $28,137,104 in 2007 1,774,740,788 1,829,082,008 Accrued interest receivable 16,881,501 18,136,489 Customers' liability on acceptances 313,373 430,767 Premises and equipment, net 34,002,856 33,083,169 Other assets 52,378,962 49,951,898 Total assets $2,784,422,309 $2,751,398,913 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $111,653,646 $120,082,912 Interest bearing 1,913,890,007 1,872,963,402 Total deposits 2,025,543,653 1,993,046,314 Securities sold under agreements to repurchase 527,715,000 496,419,250 Acceptances outstanding 313,373 430,767 Advances from Federal Home Loan Bank 25,412,242 30,453,926 Note payable to Statutory Trust 20,619,000 20,619,000 Accrued interest payable 16,360,879 17,371,698 Accrued expenses and other liabilities 12,329,090 13,139,809 2,628,293,237 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: 19,499,515 shares in 2008 and 19,093,315 shares in 2007 204,394 200,324 Capital paid in excess of par value 110,072,429 107,936,531 Retained earnings: Reserve fund 8,029,106 8,029,106 Undivided profits 57,675,752 61,789,048 Treasury stock, 939,883 shares at cost in 2008 and 2007 (9,916,962) (9,910,458) Accumulated other comprehensive (loss) income (20,699,072) 1,110,173 Total stockholders' equity 156,129,072 179,918,149 Total liabilities and stockholders' equity $2,784,422,309 $2,751,398,913 EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited Quarter Ended September 30, June 30, 2008 2007 2008 Average shares outstanding - basic 19,499,967 19,160,985 19,500,315 Average shares outstanding - assuming dilution 19,499,967 19,350,582 19,530,491 Number of shares outstanding at end of period 19,499,515 19,093,315 19,500,315 Book value per common share $7.45 $8.62 $7.90 Average Balances Total assets 2,797,116 2,482,760 2,833,262 Loans and leases, net of unearned 1,827,049 1,825,334 1,846,116 Interest-earning assets(1) 2,678,180 2,383,321 2,714,924 Interest-bearing deposits 1,915,053 1,783,308 1,940,606 Other borrowings 578,831 374,091 569,708 Preferred stock 10,763 10,763 10,763 Shareholders' equity 161,723 174,672 175,390 Loan Mix Loans secured by real estate Commercial and industrial 853,682 786,259 828,277 Construction 209,509 184,347 222,056 Residential mortgage 125,167 100,509 126,458 Consumer 2,564 802 2,228 1,190,922 1,071,917 1,179,019 Commercial and industrial 275,146 303,430 292,435 Consumer 51,718 59,533 52,657 Lease financing contracts 287,801 401,209 309,011 Overdrafts 2,508 6,399 3,902 Total 1,808,095 1,842,488 1,837,024 Deposit Mix Noninterest-bearing deposits 111,654 125,443 118,313 Now and money market 61,318 68,754 68,881 Savings 110,843 133,739 110,388 Broker deposits 1,385,816 1,304,359 1,393,935 Regular CD's & IRAS 102,393 90,632 97,103 Jumbo CD's 253,520 241,022 261,169 Total 2,025,544 1,963,949 2,049,789 Financial Data Total assets 2,784,422 2,560,628 2,829,716 Total investments 827,114 583,566 828,270 Loans and leases, net of unearned 1,808,788 1,844,640 1,840,410 Allowance for loan and lease losses 33,643 26,131 30,156 Total deposits 2,025,544 1,963,949 2,049,789 Other borrowings 573,746 382,501 577,118 Preferred stock 10,763 10,763 10,763 Shareholders' equity 156,129 175,439 164,739 Dividends on preferred stock 188 188 186 Total interest income 40,250 43,735 40,343 Total interest expense 24,479 26,625 25,639 Provision for loan and lease losses 7,980 9,594 9,987 Services charges - fees and other 2,466 2,395 3,218 Gain on sale of loans 48 77 117 Gain on sale of securities 191 - - Net loss on sale of other assets (280) (259) (86) Non-interest expense 13,457 12,341 12,632 Tax benefit (2,453) (1,379) (2,903) Net income (loss) (788) (1,233) (1,763) Nonperforming assets 175,156 79,716 141,099 Nonperforming loans 162,709 69,212 126,940 Net charge-offs 4,493 3,975 6,259 Performance Ratios Return on average assets(2) (0.11)% (0.20)% (0.25)% Return on average common equity(3) (2.09) (3.01) (4.28) Net interest spread(4) 2.26 2.31 2.02 Net interest margin (5) 2.57 2.83 2.37 Efficiency ratio (6) 68.56 64.68 65.41 Earnings (loss) per common share - basic $(0.05) $(0.07) $(0.10) Earnings (loss) per common share - diluted (0.05) (0.07) (0.10) Asset Quality Ratios Nonperforming assets to total assets 6.29 % 3.11 % 4.99 % Nonperforming loans to total loans 9.00 3.75 6.90 Allowance for loan and lease losses to total loans 1.86 1.42 1.64 Net loan and lease charge-offs to average loans 0.98 0.87 1.36 Provision for loan and lease losses to net loan and lease charge-offs 177.61 241.36 159.56 Capital Ratios: Leverage ratio 6.89 7.97 6.86 Tier 1 risk-based capital 9.52 9.75 9.36 Total risk-based capital 10.78 11.00 10.61 Nine Months Ended September 30, 2008 2007 Average shares outstanding - basic 19,391,333 19,253,068 Average shares outstanding - assuming dilution 19,397,259 19,478,288 Number of shares outstanding at end of period 19,499,515 19,093,315 Book value per common share $7.53 $8.62 Average Balances Total assets 2,790,981 2,457,321 Loans and leases, net of unearned 1,846,315 1,788,346 Interest-earning assets(1) 2,675,327 2,359,461 Interest-bearing deposits 1,903,138 1,744,372 Other borrowings 569,510 383,712 Preferred stock 10,763 10,763 Shareholders' equity 173,396 173,689 Loan Mix Loans secured by real estate Commercial and industrial 853,682 786,259 Construction 209,509 184,347 Residential mortgage 125,167 100,509 Consumer 2,564 802 1,190,922 1,071,917 Commercial and industrial 275,146 303,430 Consumer 51,718 59,533 Lease financing contracts 287,801 401,209 Overdrafts 2,508 6,399 Total 1,808,095 1,842,488 Deposit Mix Noninterest-bearing deposits 111,654 125,443 Now and money market 61,318 68,754 Savings 110,843 133,739 Broker deposits 1,385,816 1,304,359 Regular CD's & IRAS 102,393 90,632 Jumbo CD's 253,520 241,022 Total 2,025,544 1,963,949 Financial Data Total assets 2,784,422 2,560,628 Total investments 827,114 583,566 Loans and leases, net of unearned 1,808,788 1,844,640 Allowance for loan and lease losses 33,643 26,131 Total deposits 2,025,544 1,963,949 Other borrowings 573,746 382,501 Preferred stock 10,763 10,763 Shareholders' equity 156,129 175,439 Dividends on preferred stock 559 557 Total interest income 123,232 128,998 Total interest expense 77,524 77,386 Provision for loan and lease losses 25,800 18,467 Services charges - fees and other 8,108 7,183 Gain on sale of loans 1,400 239 Gain on sale of securities 191 - Net loss on sale of other assets (399) (1,154) Non-interest expense 39,355 36,737 Tax benefit (6,593) (30) Net income (loss) (3,554) 2,706 Nonperforming assets 175,156 79,716 Nonperforming loans 162,709 69,212 Net charge-offs 20,294 11,273 Performance Ratios Return on average assets(2) (0.17)% 0.15 % Return on average common equity(3) (2.91) 2.21 Net interest spread(4) 2.08 2.34 Net interest margin(5) 2.44 2.88 Efficiency ratio(6) 67.54 64.19 Earnings (loss) per common share - basic $(0.21) $0.11 Earnings (loss) per common share - diluted (0.21) 0.11 Asset Quality Ratios Nonperforming assets to total assets 6.29 % 3.11 % Nonperforming loans to total loans 9.00 3.75 Allowance for loan and lease losses to total loans 1.86 1.42 Net loan and lease charge-offs to average loans 1.47 0.84 Provision for loan and lease losses to net loan and lease charge-offs 127.13 163.82 Capital Ratios: Leverage ratio 6.89 7.97 Tier 1 risk-based capital 9.52 9.75 Total risk-based capital 10.78 11.00 (1) Includes nonaccrual loans, which balance as of the periods ended September 30, 2008 and 2007, and June 30, 2008 was $92.3 million, $55.3 million, and $86.3 million, respectively. (2) Return on average assets (ROAA) is determined by dividing net income by average assets. (3) Return on average common equity (ROAE) is determined by dividing net income by average common equity. (4) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (5) Represents net interest income on fully taxable equivalent basis as a percentage of average interest-earning assets. (6) The efficiency ratio is determined by dividing total noninterest expense by an amount equal to net interest income (fully taxable equivalent) plus noninterest income. EUROBANCSHARES, INC. AND SUBSIDIARIES NONPERFORMING ASSETS (Dollars in thousands) Unaudited For the periods ended September 30, June 30, December 31, September 30, 2008 2008 2007 2007 Loans contractually past due 90 days or more but still accruing interest $70,383 $40,626 $29,075 $13,936 Nonaccrual loans 92,326 86,314 68,990 55,276 Total nonperforming loans 162,709 126,940 98,065 69,212 Repossessed property: Other real estate 7,129 7,627 8,125 4,332 Other repossessed assets 5,318 6,532 5,409 6,172 Total repossessed property 12,447 14,159 13,534 10,504 Total nonperforming assets $175,156 $141,099 $111,599 $79,716 Nonperforming loans to total loans 9.00 % 6.90 % 5.28 % 3.75 % Nonperforming assets to total loans plus repossessed property 9.62 7.61 5.96 4.30 Nonperforming assets to total assets 6.29 4.99 4.06 3.11 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended Quarter Ended Year Ended Sept. June March Dec. Sept. Dec. 30, 30, 31, 31, 30, 31, 2008 2008 2008 2007 2007 2007 Charge-offs: Real estate secured $420 $2,683 $3,515 $163 $- $372 Other commercial and industrial 516 654 2,929 1,508 667 3,122 Consumer 421 563 649 494 435 1,699 Leases financing contracts 3,541 3,064 2,817 3,151 3,113 12,680 Other 25 65 164 60 194 398 Total charge-offs 4,923 7,029 10,074 5,376 4,409 18,271 Recoveries: Real estate secured $2 $3 $15 $4 $- $52 Other commercial and industrial 65 460 142 62 27 319 Consumer 97 62 64 109 65 319 Leases financing contracts 263 242 309 315 342 1,410 Other 3 3 2 12 - 23 Total recoveries 430 770 532 502 434 2,123 Net charge-offs: Real estate secured $418 $2,680 $3,500 $159 $- $320 Other commercial and industrial 451 194 2,787 1,446 640 2,803 Consumer 324 501 585 385 370 1,380 Leases financing contracts 3,278 2,822 2,508 2,836 2,771 11,270 Other 22 62 162 48 194 375 Total net charge-offs $4,493 $6,259 $9,542 $4,874 $3,975 $16,148 Net charge-offs to average loans: Real estate secured 0.14 % 0.92 % 1.25 % 0.06 % - % 0.03 % Other commercial and industrial 0.63 0.26 3.64 1.90 0.85 0.94 Consumer 2.47 3.71 4.14 2.63 2.47 2.31 Leases financing contracts 4.39 3.53 2.69 2.88 2.71 2.71 Other 2.52 4.70 8.92 2.53 9.87 4.73 Total net charge-offs to average loans 0.98 % 1.36 % 2.05 % 1.05 % 0.87 % 0.90 % DATASOURCE: EuroBancshares, Inc. CONTACT: Rafael Arrillaga-Torrens, Jr., Chairman, President and CEO, or Yadira R. Mercado, Executive Vice-President, CFO, both of EuroBancshares, +1- 787-751-7340; or General Inquiries, Marilynn Meek of Financial Relations Board, +1-212-827-3773, for EuroBancshares

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