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