EUBK Eurobancshares (MM)

SAN JUAN, Puerto Rico, May 11 /PRNewswire-FirstCall/ -- EuroBancshares, Inc. (NASDAQ:EUBK) ("EuroBancshares" or the "Company") today reported its results for the first quarter ended March 31, 2009. Net Income EuroBancshares reported a net income of $3.0 million, or $0.15 per diluted share, for the quarter ended March 31, 2009, compared with a net loss of $7.7 million, or $(0.41) per diluted share, and a net loss of $1.0 million, or $(0.06) per diluted share, for the quarters ended December 31, 2008 and March 31, 2008, respectively. Return on Average Assets for the first quarter of 2009 was 0.44%, compared to (1.11)% and (0.15)% for the quarters ended December 31, 2008 and March 31, 2008, respectively. Return on Average Common Equity for the first quarter of 2009 was 8.79%, compared to (21.79)% and (2.33)% for the quarters ended December 31, 2008 and March 31, 2008, respectively. Financial results for the quarter ended March 31, 2009 when compared to the previous quarter were predominantly impacted by decreased credit losses, a reduction in nonperforming assets and reduced specific allowances on impaired loans resulting in a $10.8 million decrease in our provision for loan and lease losses; a $4.0 million gain on sale of $107.3 million in investment securities; and a $808,000 other-than-temporary impairment adjustment in the investment portfolio, as discussed further below. Rafael Arrillaga-Torrens, Jr., Chairman of the Board, President and Chief Executive Officer said, "Our return to profitability in the first quarter is a reflection of the hard work and dedication we have devoted to improve the bank's performance. We are most pleased by the progress we have made in reducing the levels of problem assets. Nonetheless, we are not willing to delude ourselves into thinking that the worst is over. The overall economy of Puerto Rico continues to suffer and its GNP has continued to deteriorate. We are not immune from such pressures and therefore we are extremely cautious as to what lies ahead." Net Interest Income Total interest income for the first quarter of 2009 was $36.2 million, compared to $35.8 million for the previous quarter and $42.6 million for the quarter ended March 31, 2008. The decrease during the quarter ended March 31, 2009, when compared to the quarter ended March 31, 2008, was mainly driven by the combined effect of decreased loan yields resulting from interest rate cuts of 25 basis points in May 2008 and 175 basis points during the fourth quarter of 2008 accompanied by a $102.1 million decrease in average net loans and the effect caused by a $66.8 million increase in nonaccrual loans. During the quarter ended March 31, 2009, the average interest yield on a fully taxable equivalent basis earned on net loans was 5.71%, compared to 5.60% and 7.19% for the previous quarter and the quarter ended March 31, 2008, respectively. Average net loans amounted to $1.734 billion for the quarter ended March 31, 2009, compared to $1.762 billion for the previous quarter, and $1.836 billion for the quarter ended March 31, 2008. The amount of interest income we ceased to accrue on nonaccrual loans amounted to $3.7 million, $3.1 million and $1.7 million during the quarters ended March 31, 2009, December 31, 2008 and March 31, 2008, respectively. The amount of interest income we ceased to accrue during the same periods represented a reduction of approximately 55 basis points, 46 basis points and 26 basis points in the average interest yield on a fully taxable equivalent basis earned on net loans, respectively. Total interest expense for the quarter ended March 31, 2009 was $22.2 million, compared to $24.2 million and $27.4 million for the previous quarter and the quarter ended March 31, 2008, respectively. The decrease during the quarter ended March 31, 2009 when compared to the previous quarter resulted mainly from the net effect of a repricing in all deposit categories and other borrowings; and a net increase in average interest-bearing liabilities mainly concentrated in broker deposits and other time deposits. During the quarter ended March 31, 2009, the average interest rate on a fully taxable equivalent basis paid for interest-bearing liabilities decreased to 3.89%, from 4.37% for the previous quarter, and 5.13% for the quarter ended March 31, 2008. Average interest-bearing liabilities amounted to $2.518 billion for the quarter ended March 31, 2009, compared to $2.488 billion for the previous quarter, and $2.414 billion for the quarter ended March 31, 2008. For the quarter ended March 31, 2009, net interest margin and net interest spread on a fully taxable equivalent basis was 2.37% and 2.14%, respectively, compared to 2.00% and 1.71% for the previous quarter, and 2.39% and 1.96% for the quarter ended March 31, 2008. Net interest margin and net interest spread on a fully taxable equivalent basis remained relatively stable during the first quarter of 2009 when compared to the first quarter of 2008. The increase in net interest margin and net interest spread during the quarter ended March 31, 2009 when compared to the previous quarter were mainly caused by a reduction of 48 basis points in the interest rate paid on average interest-bearing liabilities, as previously mentioned. Provision for Loan and Lease Losses The provision for loan and lease losses for the quarter ended March 31, 2009 was $5.7 million, or 71.27% of net charge-offs, compared to $16.5 million and $7.8 million, or 193.87% and 82.09% of net charge-offs, for the quarters ended December 31, 2008 and March 31, 2008, respectively. These decreases in the provision for loan and lease losses were primarily attributable to decreased credit losses, and when compared to the previous quarter, a reduction in nonperforming assets and reduced specific allowances on impaired loans, as previously mentioned. As of March 31, 2009, there were $276.1 million in impaired loans with a specific allowance of $19.7 million, compared to $264.2 million and $115.7 million in impaired loans as of December 31, 2008 and March 31, 2008, respectively, which had specific allowances amounting to $22.4 million and $7.8 million, respectively. While impaired loans reflected a slight increase of 4.5% as of March 31, 2009, when compared to the previous quarter, the specific allowance on such loans was reduced by approximately $2.6 million. The reduction in the specific allowance was principally attributable to losses recognized in our construction loans portfolio. 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. More details are discussed further in the Loans and Asset Quality and Delinquency sections of this document. Non-Interest Income Non-interest income for the quarter ended March 31, 2009 increased to $5.9 million, compared to $3.6 million for the quarter ended March 31, 2008. These changes were mainly due to the net effect of: (i) a $4.0 million gain on sale of securities resulting from the sale of $107.3 million in investment securities sold during the first quarter of 2009; (ii) a $808,000 other-than-temporary impairment adjustment in the investment portfolio, as previously mentioned; (iii) a $440,000 decrease in gain on sale of loans, mainly resulting from a $757,000 gain on sale of $19.6 million of lease financing contracts in March 2009, compared to a $1.2 million gain on sale of $37.7 million of lease financing contracts in March 2008; (iv) a $298,000 decrease in service charges, mainly due to a $296,000 reduction in non-sufficient and overdraft charges primarily resulting from a decrease in the average balance of overdrawn accounts; and (v) a $214,000 net loss on sale of repossessed assets for the quarter ended March 31, 2009, compared to a net loss of $34,000 for the quarter ended March 31, 2008. This change was concentrated on an increase of $62,000 in the loss on sale of repossessed vehicles and an increase of $75,000 in the loss on sale of OREO properties primarily attributable to our strategy of being more aggressive in the sale of repossessed assets to expedite their disposition and avoid build up of inventories. The $34,000 net loss on sale of repossessed assets for the first quarter of 2008 was net of a $66,000 gain on sale of OREO, repossessed boats and repossessed equipment. During the quarter ended March 31, 2009, we sold 392 vehicles and repossessed 295 vehicles, compared to 335 vehicles sold and 344 vehicles repossessed during the first quarter of 2008. During the same periods, we sold one OREO property and foreclosed seven OREO properties, compared to three OREO properties sold and three foreclosed OREO properties, respectively. More details on repossessed assets are discussed in the Loan and Asset Quality section below. During the first quarter of 2009, non-interest income increased to $5.9 million at March 31, 2009, from $2.2 million in the previous quarter. This increase was mainly due to the net effect of: (i) a $4.0 million gain on sale of securities resulting from the sale of $107.3 million in investment securities sold during the first quarter of 2009; (ii) a $808,000 other-than-temporary impairment adjustment in the investment portfolio, as previously mentioned; (iii) a $728,000 increase in gain on sale of loans, mainly resulting from a $757,000 gain on sale of $19.6 million of lease financing contracts in March 2009, as previously mentioned; and (iv) a $163,000 decrease in service charges, mainly due to a $114,000 reduction in non-sufficient and overdraft charges primarily resulting from a decrease in the average balance of overdrawn accounts, as previously mentioned. Non-Interest Expense Non-interest expense for the quarter ended March 31, 2009 was $12.5 million, compared to $13.3 million for the quarter ended March 31, 2008. This decrease in non-interest expense was mainly due to the net effect of: (i) a $777,000 decrease in salaries resulting from a $1.3 million decrease in salaries and employee benefits primarily related to a reduction in personnel, a reduction strategy in an effort to control expenses, and decreased bonus expenses partially off-set by a $494,000 decrease in deferred loan origination costs because of a reduction in loan originations; (ii) a $528,000 increase in insurance expense mainly related to the FDIC's new insurance premium assessments; (iii) a decrease of $395,000 in occupancy and equipment expenses, mainly related to a $185,000 decrease in telephone and data communications and a $72,000 decrease in security services mainly attributable to operational efficiencies and a cost reduction strategy, as previously mentioned; (iv) a $315,000 increase in professional services mainly due to the combined effect of: a $219,000 increase in professional fees primarily related to a BSA compliance review and other management consulting services; and a $145,000 increase in legal fees mainly related to legal collection proceedings, the new FDIC's TLGP program and other capital raising efforts; (v) a decrease of $249,000 in promotional expenses mainly because of a cost reduction strategy; and (vi) a $208,000 decrease in other expenses for the quarter ended March 31, 2009, mainly due to the combined effect of: a reduction in estimated losses on off-balance sheet items; decreased losses on other accounts receivables; and a reduction in other miscellaneous expenses. During the first quarter of 2009, the Company's non-interest expense amounted to $12.5 million, compared to $11.6 million for the previous quarter. Such increase was mainly due to the net effect of: (i) a $714,000 increase in salaries resulting mainly from the effect of a $1.2 million reduction in bonus expense recorded during the previous quarter; (ii) an increase of $317,000 in insurance expense mainly related to the new FDIC's insurance premium assessments, as previously mentioned; (iii) a decrease of $229,000 in occupancy and equipment expenses mainly related to a $90,000 decrease in telephone and data communications and a $47,000 decrease in security services; and (iv) a $152,000 increase in other expenses mainly due to the net effect of a one-time income of $500,000 related to a recovery on a boat's insurance claim, which was recorded during the previous quarter. Income Tax Expense Puerto Rico income tax law does not provide for the filing of a consolidated tax return; therefore, the income tax expense/benefit reflected in our consolidated income statement is the sum of our income tax expense/benefit and the income tax expenses/benefits of our individual subsidiaries. Our revenues are generally not subject to U.S. federal income tax, with the exception of interest income from interest-bearing deposits in other financial institutions in the United States, which is not considered portfolio interest, as defined in the Federal Internal Revenue Code. On March 9, 2009, the governor of Puerto Rico signed into law Act No. 7 (the "Act No. 7"), also known as Special Act Declaring a Fiscal Emergency Status to Save the Credit of Puerto Rico, which amended several sections of the Puerto Rico's Internal Revenue Code (the "Code"). Act No. 7 amended various income, property, excise, and sales and use tax provisions of the Code. Under the provisions of Act No. 7, corporations with adjusted gross income of $100,000 or more, among other taxpayers, will be subject to surtax of 5% on the total tax determined (not on the taxable income). In addition, Act No. 7 imposes a special income tax of 5% on the net income of International Banking Entities ("IBE"), among a group of exempt taxpayers. Both, the 5% surtax and the special income tax rate of 5% are applicable for taxable years commencing after December 31, 2008 and prior to January 1, 2012. Act No. 7 also revamps the alternative basic tax provisions of the Code. Under the revised version, our dividends, generally subject to a maximum 10% preferential rate tax, may now be subject to an effective tax of 20% in the case of individuals with income (computed with certain addition of exempt income and income subject to preferential rates) in excess of $175,000, or 15% if such income is over $125,000. Act No. 7 provides for several additional changes to the Code, which the Company believes will have an inconsequential financial impact or are not applicable since they are related to individuals taxpayers. We recorded an income tax benefit of $1.2 million for each of the quarters ended March 31, 2009 and 2008. Our income tax benefit for the quarter ended March 31, 2009 resulted mainly from the net effect of a deferred tax benefit of $1.8 million and a current tax expense of $562,000, as explained further below. Our current income tax expense for the quarter ended March 31, 2009 increased to $562,000 from $9,000 for the same period in 2008. Increase in our current income tax expense during the quarter ended March 31, 2009 was mainly due to the new special tax of 5% on IBEs' net income which amounted to approximately $552,000 during the period. Remaining current income tax expense during the quarter ended March 31, 2009 was related to EuroSeguros, our nonbanking subsidiary and federal income tax related to interest income on interest-bearing deposits in other financial institutions in the United States. There was no current tax expense related to the bank subsidiary operations in Puerto Rico during the quarters ended March 31 2009 and 2008, since the results of operations reported on this activity included a taxable loss net of exempt income. Our deferred tax benefit for the quarter ended March 31, 2009 increased to $1.8 million from $1.2 million for the same period in 2008. This increase during the quarter ended March 31, 2009 was mainly due to the combined effect of: (i) an increase of $2.8 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 decrease of $945,000 in the other net deferred tax assets primarily from a decrease in our allowance for loan and lease losses and an increase in the deferred tax liability related to the servicing asset from leases sold. As of March 31, 2009, we had net deferred tax assets of $26.9 million, compared to $23.8 million as of December 31, 2008. This increase in our net deferred tax assets was mainly attributable to the net effect of: (i) an increase of the NOL carryforward in our banking subsidiary; (ii) a decrease in our allowance for loan and lease losses; (iii) an increase in deferred tax assets related to the net unrealized loss recognized in other comprehensive income; and (iv) a decrease in the other net deferred tax assets primarily from an increase in the deferred tax liability related to the servicing asset from leases sold. 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 assets; 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 as of March 31, 2009 will be realized. Balance Sheet Summary and Asset Quality Data Assets Total assets increased to $2.901 billion as of March 31, 2009, from $2.860 billion as of December 31, 2008. This increase was mainly due to the net effect of: (1) an net increase of $154.2 million in cash and cash equivalents, mainly resulting from an increase in broker deposits; (ii) a $74.8 million decrease in the investment securities portfolio, mainly as a result of the $107.3 million sale of securities in March 2009, as previously mentioned; and (iii) a decrease of $39.6 million in net loans, including the $19.6 million sale of lease financing contracts in March 2009, as previously mentioned. Investments During the first quarter 2009, the investment portfolio decreased by approximately $74.8 million to $824.0 million, from $898.7 million as of December 31, 2008. This decrease was primarily due to the net effect of: (i) the sale of $107.3 million in FHLMC and FNMA mortgage-backed securities, which were replaced with the purchase of $109.0 million in GNMA mortgage-backed securities, as explained further below; (ii) prepayments of approximately $58.9 million on mortgage-backed securities and FHLB obligations; (iii) a decrease of $11.5 million in the market valuation of securities available for sale; (iv) $5.9 million in FHLB obligations that were called-back during the quarter; (v) an increase of $4.0 million in the premium related to purchases of securities and the net amortization of premiums/discounts; and (vi) a reduction of $3.4 million in FHLB stocks. In March 2009, we restructured our investment portfolio by selling approximately $90.8 million in FNMA MBS and $16.5 million in FHLMC MBS with an aggregate estimated average life of 7.48 years and an aggregate estimated average yield of approximately 5.20%. This sale of securities resulted in a $4.0 million gain. The proceeds of this sale were used to purchase approximately $109.0 million in GNMA MBS with an estimated average life of 2.88 years and an average estimated yield of approximately 4.32%. This transaction did not only increase our capital through the gain, but also improved the regulatory risk-based capital levels as the GNMA MBS acquired have a 0% risk-based capital weight when compared to 20% on the MBS sold. For the quarter ended March 31, 2009, after the above-mentioned transactions, the estimated average maturity of our investment portfolio was approximately 4.01 years and the estimated average yield was approximately 5.1%, compared to an estimated average maturity of 5.7 years and an estimated average yield of 5.2% for the year ended December 31, 2008. In April 2009, the FASB issued Staff Position ("FSP") No. 115-2, Recognition and Presentation of Other-Than-Temporary Impairments, which amends existing guidance for determining whether impairment is other-than-temporary for debt securities, and FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The FSP No. 115-2 requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, as defined in paragraph 8 of FSP No. 115-2, while impairment related to other factors is recognized in other comprehensive income. Additionally, this FSP expands and increases the frequency of existing disclosures about other-than-temporary impairments ("OTTI") for debt and equity securities. The FSP No. 157-4 emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. This FSP provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. This FSP also requires increased disclosures. These FSPs are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We elected to adopt the FSP No. 115-2 and FSP No. 157-4 for the quarter ended March 31, 2009. Adoption of FSP No. 115-2 resulted in $808,000 in OTTI recognized in earnings for the quarter ended March 31, 2009, as discussed further below. Adoption of FSP No. 157-4 did not have a financial impact, other than additional disclosures. With the assistance of a third party provider, we reviewed the investment portfolio as of March 31, 2009 using cash flow and valuation models and considering the provisions of FSP 115-2, for applicable securities. During the review, we identified securities with characteristics that warranted a more detailed analysis, as follows: (i) One security for $3.0 million of original par value and a current market value of $900,000 is a non-rated Trust Preferred Stock ("TPS"). Our review of the security's performance revealed that all cash flows have been received as scheduled since inception. However, considering the issuer's current financial position and that this security only receives dividend payments until maturity, expected cash flows may not be indicative of the inherent credit risk associated with this security for purposes of determining any possible OTTI. We considered that a more reasonable approach would be to use a methodology similar to the advance internal rating approach incorporated in the Basel II Accord in which expected credit losses are determined by using the expected default rate, the loss given the default, and the exposure at default. Based on this analysis and the information previously set forth, as of March 31, 2009, we estimated a $400,000 OTTI on this security due to the apparent deterioration of the credit quality. (ii) Sixteen private label MBS amounting to $79.1 million that have mixed credit ratings or other special characteristics. For each one of the private label MBS, we reviewed the collateral performance and considered the impact of current economic trends. These analyses were performed taking into consideration current U.S. market conditions and trends, forward projected cash flows and the present value of the forward projected cash flows. We determined the estimated present value of expected cash flows at the current book yield of these investments. Some of the analysis performed to the downgraded mortgage-backed securities included: a. the calculation of their coverage ratios; b. current credit support; c. total delinquency over sixty days; d. average loan-to-values; e. projected defaults considering a conservative additional downside scenario of (5)% in Housing Price Index values for each of the following three years; f. a mortgage loan Conditional Prepayment Rate ("CPR") speed equal to 8 or 15 depending on the approximately last six months average for each security; g. projected total future deal loss based on the previous conservative assumptions; h. excess credit support protection; i. projected tranche dollar loss; and j.projected tranche percentage loss, if any, and economic value. Based on this assessment, as of March 31, 2009, we estimated a $408,000 OTTI due to the apparent deterioration of the credit quality over ten private label MBS. Loans Total loans, net of unearned interest, decreased by $41.9 million, or 9.39% on an annualized basis, to $1.742 billion as of March 31, 2009, from $1.784 billion as of December 31, 2008. This decrease was mainly due to the net effect of: (i) a $36.5 million, or 54.64% annualized decrease in lease financing contracts from $267.3 million as of December 31, 2008 to $230.8 million as of March 31, 2009; (ii) a $11.3 million, or 4.04% annualized decrease in commercial loans, from $1.115 billion as of December 31, 2008 to $1.104 billion as of March 31, 2009; and (iii) a $9.8 million, or 17.72% annualized increase in construction loans, from $220.6 million as of December 31, 2008 to $230.4 million as of March 31, 2009. The $36.5 million decrease in lease financing contracts includes the sale of $19.6 million in March 2009, as previously mentioned. Occasionally, 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 because of 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 deceleration. The $11.3 million decrease in commercial loans resulted from a $16.6 million decrease in other commercial loans, net of a $5.3 million increase in commercial loans secured by real estate. Because of current economic conditions, we have enhanced our credit risk assessment and collection processes, working in a spirit of solidarity to assist our customers in these difficult times while also protecting and preserving the interest of our shareholders by maintaining our current loan customers, at terms favorable to the Bank. As of March 31, 2009, commercial loans secured by real estate equaled $856.8 million, or 77.64% of total commercial loans. The $9.8 million increase in construction loans secured by real estate resulted from disbursements on loan commitments we made during or before year 2007, 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 quarter ended March 31, 2009. Asset Quality and Delinquency Non-performing assets, which 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, amounted to $167.8 million as of March 31, 2009, compared to $177.4 million and $111.6 million as of December 31, 2008 and March 31, 2008, respectively. Nonperforming Loans 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 $154.3 million as of March 31, 2009, compared to $163.9 million as of December 31, 2008 and $98.3 million as of March 31, 2008. Although non-performing loans remained relatively stable when compared to the previous quarter, there was a $10.9 million net decrease in loans in nonaccrual status, mainly in commercial loans, and a $1.3 million increase in loans over 90 days still accruing. Repossessed Assets As of March 31, 2009 and December 31, 2008, repossessed assets amounted to $13.5 million, compared to $13.3 million as of March 31, 2008. Although repossessed assets remained relatively stable during the quarter ended March 31, 2009 when compared to the previous quarter, there was: (i) a $947,000 increase in OREO resulting from the net effect of the sale of 1 property and the foreclosure of 7 properties. (ii) a decrease of $1.0 million in other repossessed assets, mostly in the inventory of repossessed vehicles. During the quarter ended March 31, 2009, we sold 392 vehicles and repossessed 295 vehicles, decreasing our inventory of repossessed vehicles to 200 units as of March 31, 2009, from 297 units as of December 31, 2008. During the same period, we sold 8 boats and repossessed 3 boats, respectively, decreasing our inventory of repossessed boats to 10 units as of March 31, 2009, from 15 units as of December 31, 2008. Net Charge-Offs Annualized net charge-offs as a percentage of average loans decreased to 1.80% for the quarter ended March 31, 2009, from to 1.89% for the previous quarter, and 2.05% for the quarter ended March 31, 2008. Net charge-offs for the quarter ended March 31, 2009 were $8.0 million, compared to $8.5 million and $9.5 million for the quarters ended December 31, 2008 and March 31, 2008, respectively. Net charge-offs for the quarter ended March 31, 2009, compared to the quarters ended December 31, 2008 and March 31, 2008 were as follows: (i) $3.6 million in net charge-offs on loans partially secured by real estate for the first quarter of 2009, of which $3.0 million were construction loans, compared to $2.1 million for the fourth quarter of 2008, which included $582,000 in construction loans, and $3.5 million for the quarter ended March 31, 2008, most of which was related to commercial loans partially secured by real estate; (ii) $662,000 in net charge-offs on other commercial and industrial loans for the first quarter of 2009, compared to $3.3 million and $2.8 million for the quarters ended December 31, 2008 and March 31, 2008, respectively; (iii) $905,000 in net charge-offs on consumer loans for the first quarter of 2009, compared to $397,000 and $585,000 for the quarters ended December 31, 2008 and March 31, 2008, respectively; (iv) $2.7 million in net charge-offs on lease financing contracts for the first quarter of 2009 and the quarter ended December 31, 2008, compared to $2.5 million for the first quarter of 2008; and (v) $38,000 in net charge-offs on other loans for the first quarter of 2009, compared to $13,000 and $162,000 in net charge-offs for the quarters ended December 31, 2008 and March 31, 2008, respectively. Decreases in net charge-offs were mainly attributable to decreased nonperforming loans and a decrease on specific allowances on impaired loans, principally attributable to losses recognized in our construction loans portfolio, as previously mentioned. Other Delinquency As of March 31, 2009, loans between 30 and 89 days past due and still accruing interest amounted to $74.5 million, compared to $126.1 million and $128.5 million as of December 31, 2008 and March 31, 2008, respectively. Changes in loans between 30 and 89 days past due and still accruing interest during the first quarter of 2009 when compared to the previous quarter include a decrease of $33.7 million in commercial loans; and a $19.1 million decrease in construction loans. The sharp decrease in delinquency as of March 31, 2009, when compared to December 31, 2008, is in part the result of heightened collection processes and procedures which include, among others, restructuring of the collection and workout groups, launching of loss mitigation programs and enhancing the credit risk assessment process. Management recognizes the impact of current economic conditions on the Bank's credit risk and will continue closely monitoring all factors affecting the quality of the credit portfolio. Allowance for Loan and Lease Losses The allowance for loan and lease losses was $39.3 million as of March 31, 2009, compared to $41.6 million and $26.4 million as of December 31, 2008 and March 31, 2008, respectively. The allowance for loan and lease losses was affected by net charge-offs, nonperforming loans, loan portfolio balance, and also by the provision for loan and lease losses. However, the decrease in the allowance for loan and lease losses during the quarter ended March 31, 2009 was primarily impacted by $3.0 million in losses recognized on two construction loans extended for land development and the construction of two residential housing projects for which specific allowances had been previously determined, as mentioned above. For the general portion of our allowance, we follow a consistent procedural discipline and account for loan and lease loss contingencies in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. Also, another component is used in the evaluation of the adequacy of our general allowance to measure the probable effect that current internal and external environmental factors could have on the historical loss factors currently in use. In addition to our general portfolio allowances, specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate a high probability that a loss have been incurred. These specific allowances are determined following a consistent procedural discipline in accordance with Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS No. 114"), as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. For impaired commercial and construction business relationships with aggregate balances exceeding $150,000, we measure the impairment following the guidance of SFAS No. 114. We believe that the allowance for loan and lease losses is adequate and it represents 2.26% of total loans as of March 31, 2009. Deposits and Borrowings As of March 31, 2009, total deposits amounted to $2.209 billion, compared to $2.084 billion as of December 31, 2008. This $124.5 million increase was mainly concentrated in broker deposits, jumbo and regular time deposits. During the first quarter of 2009, the fierce competition for local deposits continued. In an effort to control increases in our funding cost, we focused on other funding alternatives, including attracting other time deposits from the US national markets at lower competitive rates. Other borrowings decreased to $517.7 million as of March 31, 2009, from $592.5 million as of December 31, 2008. This decrease in other borrowings was mainly attributable to our strategy of focusing on other funding alternatives to lower our cost of fund, as mentioned above. Stockholders' Equity The Company's stockholders' equity decreased to $149.2 million as of March 31, 2009, from $156.6 million as of December 31, 2008, representing an annualized decrease of 18.84%. Besides earnings and losses from operations, which amounted to a $3.0 million net income for the quarter ended March 31, 2009 and a $11.3 million net loss for the year ended December 31, 2008, the stockholders' equity was impacted by accumulated other comprehensive losses of $22.7 million as of March 31, 2009, compared to $12.4 million as of December 31, 2008. In addition, the following items also impacted the Company's stockholders' equity: (i) the exercise of 50,000 and 357,000 stock options in January 2008 and March 2008, respectively, for a total of $2.0 million; and (ii) 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 March 31, 2009, we and Eurobank both qualified as "well-capitalized" institutions under the regulatory framework for prompt corrective action. As of March 31, 2009, our leverage, Tier 1 and total risk-based capital ratios were 6.52%, 8.94% and 10.20%, respectively, compared to 6.55%, 8.99% and 10.25% as of the previous quarter. We continue evaluating opportunities to increase our capital position. 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 Balance Sheets (Unaudited) March 31, 2009 and December 31, 2008 Assets 2009 2008 Cash and cash equivalents Cash and due from banks $241,929,900 $43,275,239 Interest bearing deposits 400,000 400,000 Federal funds sold - 44,470,925 Total cash and cash equivalents 242,329,900 88,146,164 Securities purchased under agreements to resell 13,318,062 24,486,774 Investment securities available for sale 691,913,203 751,016,565 Investment securities held to maturity 120,510,965 132,798,181 Other investments 11,565,700 14,932,400 Loans held for sale 317,703 1,873,445 Loans, net of allowance for loan and lease losses of $39,345,917 in 2009 and $41,639,051 in 2008 1,702,485,926 1,740,539,113 Accrued interest receivable 13,671,602 14,614,445 Customers' liability on acceptances 354,114 405,341 Premises and equipment, net 34,390,756 34,466,471 Deferred tax assets, net 26,922,047 23,825,896 Other assets 43,005,652 33,324,128 Total assets $2,900,785,630 $2,860,428,923 Liabilities and Stockholders' Equity Deposits: Noninterest bearing $105,239,063 $108,645,242 Interest bearing 2,103,599,076 1,975,662,802 Total deposits 2,208,838,139 2,084,308,044 Securities sold under agreements to repurchase 496,675,000 556,475,000 Acceptances outstanding 354,114 405,341 Advances from Federal Home Loan Bank 383,683 15,398,041 Note payable to Statutory Trust 20,619,000 20,619,000 Accrued interest payable 14,806,081 16,073,737 Accrued expenses and other liabilities 9,914,172 10,579,960 2,751,590,189 2,703,859,123 Stockholders' equity: Preferred stock: Preferred stock Series A, $0.01 par value. Authorized 20,000,000 shares; issued and outstanding 430,537 in 2009 and 2008 (aggregate liquidation preference value of $10,763,425) 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 2009 and 2008; outstanding: 19,499,515 shares in 2009 and 2008 204,394 204,394 Capital paid in excess of par value 110,145,985 110,109,207 Retained earnings: Reserve fund 8,358,806 8,029,106 Undivided profits 52,305,152 49,773,573 Treasury stock, 939,883 shares in 2009 and 2008, at cost (9,916,962) (9,916,962) Accumulated other comprehensive loss: Unrealized loss on available for sale securities (8,715,914) (12,392,943) Other-than-temporary impairment losses for which a portion has been recognized in earnings (13,949,445) - Total stockholders' equity 149,195,441 156,569,800 Total liabilities and stockholders' equity $2,900,785,630 $2,860,428,923 EUROBANCSHARES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) For the three-month periods ended March 31, 2009 and 2008 and the three-month period and year ended December 31, 2008 Three Months Ended Year Ended March 31, March 31, December 31, December 31, 2009 2008 2008 2008 Interest income: Loans, including fees $24,599,905 $32,757,773 $24,445,799 $115,273,672 Investment securities: Taxable 1,947 2,643 1,967 9,572 Exempt 11,519,062 9,491,802 11,171,821 42,425,867 Interest bearing deposits, securities purchased under agreements to resell, and other 78,790 386,987 158,384 1,301,093 Total interest income 36,199,704 42,639,205 35,777,971 159,010,204 Interest expense: Deposits 17,542,319 21,773,166 18,875,032 80,509,682 Securities sold under agreements to repurchase, notes payable, and other 4,619,903 5,632,698 5,316,923 21,206,699 Total interest expense 22,162,222 27,405,864 24,191,955 101,716,381 Net interest income 14,037,482 15,233,341 11,586,016 57,293,823 Provision for loan and lease losses 5,689,000 7,833,000 16,514,000 42,313,800 Net interest (expense) income after provision for loan and lease losses 8,348,482 7,400,341 (4,927,984) 14,980,023 Noninterest income: Other-than-temporary impairment losses: Total other-than- temporary impairment losses (15,491,220) - - - Portion of loss recognized in other comprehensive income 14,683,627 - - - Net impairment losses recognized in earnings (807,593) - - - Net gain on sale of securities 4,036,387 - - 190,956 Service charges - fees and other 2,124,879 2,423,374 2,287,486 10,395,736 Net loss on sale of repossessed assets and on disposition of other assets (213,724) (33,759) (196,892) (595,966) Net gain on sale of loans and leases 795,572 1,235,195 67,805 1,467,668 Total noninterest income 5,935,521 3,624,810 2,158,399 11,458,394 Noninterest expense: Salaries and employee benefits 4,802,139 5,578,914 4,088,565 20,087,767 Occupancy, furniture and equipment 2,548,096 2,942,768 2,777,297 11,414,201 Professional services 1,556,474 1,241,218 1,560,831 5,453,867 Insurance 1,174,569 646,591 857,614 3,111,260 Promotional 117,918 367,018 147,463 881,594 Other 2,280,973 2,489,195 2,128,525 9,966,305 Total Noninterest expense 12,480,169 13,265,704 11,560,295 50,914,994 Income (loss) before income taxes 1,803,834 (2,240,553) (14,329,880) (24,476,577) Income tax benefit (1,241,097) (1,237,228) (6,615,433) (13,207,948) Net income (loss) $3,044,931 $(1,003,325) $(7,714,447) $(11,268,629) Basic earnings (loss) per share $0.15 $(0.06) $(0.41) $(0.62) Diluted earnings (loss) per share $0.15 $(0.06) $(0.41) $(0.62) EUROBANCSHARES, INC. AND SUBSIDIARIES OPERATING RATIOS AND OTHER SELECTED DATA (Dollars in thousands, except share data) Unaudited As of March 31, December 31, 2009 2008 2008 Loan Mix -------- Loans secured by real estate Commercial and industrial $856,835 $810,618 $851,494 Construction 230,352 214,805 220,579 Residential mortgage 125,511 115,772 125,557 Consumer 2,519 2,102 2,445 1,215,217 1,143,297 1,200,075 Commercial and industrial 246,738 297,004 263,332 Consumer 47,366 54,806 49,415 Lease financing contracts 230,828 329,175 267,325 Overdrafts 2,140 6,637 2,146 Total 1,742,289 1,830,919 1,782,293 Deposit Mix ----------- Noninterest-bearing deposits 105,239 123,280 108,645 Now and money market 56,040 61,556 59,309 Savings 103,575 129,997 104,424 Broker deposits 1,530,107 1,279,883 1,423,814 Regular CD's & IRAS 124,077 95,556 109,732 Jumbo CD's 289,800 276,231 278,384 Total 2,208,838 1,966,503 2,084,308 Balance Sheet Data (at end of period) ------------------- Total assets 2,900,786 2,793,783 2,860,429 Total investments 823,990 837,379 898,747 Loans and leases, net of unearned 1,742,150 1,835,030 1,784,052 Allowance for loan and lease losses 39,346 26,428 41,639 Total deposits 2,208,838 1,966,503 2,084,308 Other borrowings 517,678 611,782 592,492 Preferred stock 10,763 10,763 10,763 Shareholders' equity 149,195 182,200 156,570 Capital Ratios -------------- Leverage ratio 6.52% 7.28% 6.55% Tier 1 risk-based capital 8.94 9.56 8.99 Total risk-based capital 10.20 10.81 10.25 Quarters Ended Year Ended March 31, December 31, December 31, 2009 2008 2008 2008 Common Share Data ----------------- Average shares outstanding - basic 19,499,515 19,172,524 19,499,515 19,418,526 Average shares outstanding - assuming dilution 19,499,515 19,230,376 19,499,515 19,418,526 Number of shares outstanding at end of period 19,499,515 19,500,315 19,499,515 19,499,515 Book value per common share $7.10 $8.79 $7.48 $7.48 Balance Sheet Data (average balances) ------------------ Total assets 2,796,011 2,743,069 2,778,475 2,787,833 Loans and leases, net of unearned 1,777,171 1,865,993 1,798,441 1,834,281 Interest-earning assets(1) 2,673,977 2,632,947 2,660,312 2,672,214 Interest-bearing deposits 1,969,054 1,853,624 1,909,598 1,904,762 Other borrowings 549,205 559,888 578,002 571,644 Preferred stock 10,763 10,763 10,763 10,763 Shareholders' equity 149,302 183,211 152,384 168,113 Other Financial Data -------------------- Total interest income 36,200 42,639 35,778 159,010 Total interest expense 22,162 27,406 24,192 101,716 Provision for loan and lease losses 5,689 7,833 16,514 42,314 OTTI losses recognized in earnings (808) - - - Gain on sale of securities 4,036 - - 191 Services charges - fees and other 2,125 2,424 2,288 10,396 Gain on sale of loans 796 1,235 68 1,468 Net loss on sale of other assets (214) (34) (197) (596) Non-interest expense 12,480 13,266 11,560 50,915 Tax benefit (1,241) (1,238) (6,615) (13,208) Net income (loss) 3,045 (1,003) (7,714) (11,268) Dividends on preferred stock 184 186 188 747 Nonperforming assets 167,754 111,602 177,400 177,400 Nonperforming loans 154,297 98,267 163,894 163,894 Net charge-offs 7,982 9,542 8,518 28,812 Performance Ratios ------------------ Return on average assets(2) 0.44% (0.15)% (1.11)% (0.40)% Return on average common equity(3) 8.79 (2.33) (21.79) (7.16) Net interest spread(4) 2.14 1.96 1.71 1.99 Net interest margin (5) 2.37 2.39 2.00 2.33 Efficiency ratio (6) 57.47 68.62 75.03 69.11 Earnings (loss) per common share - basic $0.15 $(0.06) $(0.41) $(0.62) Earnings (loss) per common share - diluted 0.15 (0.06) (0.41) (0.62) Asset Quality Ratios -------------------- Nonperforming assets to total assets 5.78% 3.99% 6.20% 6.20% Nonperforming loans to total loans 8.86 5.36 9.19 9.19 Allowance for loan and lease losses to total loans 2.26 1.44 2.33 2.33 Net loan and lease charge-offs to average loans 1.80 2.05 1.89 1.57 Provision for loan and lease losses to net loan and lease charge-offs 71.27 82.09 193.87 146.86 (1) Includes nonaccrual loans, which balance as of the periods ended March 31, 2009 and 2008, and December 31, 2008 was $130.4 million, $67.2 million, and $141.3 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 March 31, December 31, March 31, 2009 2008 2008 Loans contractually past due 90 days or more but still accruing interest $23,898 $22,590 $31,071 Nonaccrual loans 130,399 141,304 67,196 Total nonperforming loans 154,297 163,894 98,267 Repossessed property: Other real estate 9,706 8,759 7,241 Other repossessed assets 3,751 4,747 6,094 Total repossessed property 13,457 13,506 13,335 Total nonperforming assets $167,754 $177,400 $111,602 Nonperforming loans to total loans 8.86% 9.19% 5.36% Nonperforming assets to total loans plus repossessed property 9.56 9.87 6.04 Nonperforming assets to total assets 5.78 6.20 3.99 EUROBANCSHARES, INC. AND SUBSIDIARIES NET CHARGE-OFFS (Dollars in thousands) Unaudited Quarter Ended March 31, December 31, September 30, 2009 2008 2008 ---- ---- ---- Charge-offs: ------------ Real estate secured $3,648 $2,129 $420 Other commercial and industrial 704 3,363 516 Consumer 992 496 421 Leases financing contracts 3,098 3,086 3,541 Other 38 14 25 Total charge-offs 8,480 9,088 4,923 Recoveries: ----------- Real estate secured $- $1 $2 Other commercial and industrial 42 70 65 Consumer 87 99 97 Leases financing contracts 369 399 263 Other - 1 3 Total recoveries 498 570 430 Net charge-offs: ---------------- Real estate secured $3,648 $2,128 $418 Other commercial and industrial 662 3,293 451 Consumer 905 397 324 Leases financing contracts 2,729 2,687 3,278 Other 38 13 22 Total net charge-offs $7,982 $8,518 $4,493 Net charge-offs to average loans: -------------------------- Real estate secured 1.21% 0.71% 0.14% Other commercial and industrial 1.03 4.84 0.63 Consumer 7.42 3.13 2.47 Leases financing contracts 4.20 3.87 4.39 Other 7.08 2.06 2.52 Total net charge-offs to average loans 1.80% 1.89% 0.98% Quarter Ended Year Ended June 30, March 31, December 31, 2008 2008 2008 ---- ---- ---- Charge-offs: ------------ Real estate secured $2,683 $3,515 $8,748 Other commercial and industrial 654 2,929 7,461 Consumer 563 649 2,129 Leases financing contracts 3,064 2,817 12,508 Other 65 164 268 Total charge-offs 7,029 10,074 31,114 Recoveries: ----------- Real estate secured $3 $15 $21 Other commercial and industrial 460 142 737 Consumer 62 64 322 Leases financing contracts 242 309 1,213 Other 3 2 9 Total recoveries 770 532 2,302 Net charge-offs: ---------------- Real estate secured $2,680 $3,500 $8,727 Other commercial and industrial 194 2,787 6,724 Consumer 501 585 1,807 Leases financing contracts 2,822 2,508 11,295 Other 62 162 259 Total net charge-offs $6,259 $9,542 $28,812 Net charge-offs to average loans: -------------------------- Real estate secured 0.92% 1.25% 0.75% Other commercial and industrial 0.26 3.64 2.30 Consumer 3.71 4.14 3.38 Leases financing contracts 3.53 2.69 3.57 Other 4.70 8.92 5.59 Total net charge-offs to average loans 1.36% 2.05% 1.57% 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

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