THE FINANCIAL HOLDING COMPANY OF WESTERNBANK PUERTO RICO
REPORTS AN INCREASE OF 27.73% IN NET INCOME
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2004

Mayagüez, Puerto Rico, October 20, 2004. W HOLDING COMPANY, INC. (NYSE: "WHI"), the financial holding company of WESTERNBANK PUERTO RICO, reported today its results for the three and nine months ended September 30, 2004.

W Holding reported a net income of $44.2 million or $0.35 earnings per basic common share ($0.34 on a diluted basis) for the quarter ended September 30, 2004, as compared to a net income of $34.6 million or $0.27 earnings per basic common share ($0.26 on a diluted basis) for the same period in 2003, after giving effect to the three-for-two (3x2) stock split in the form of a stock dividend and a two percent (2%) stock dividend declared on November 4, 2003 and November 11, 2003, respectively, and distributed both on December 10, 2003. This is an increase of $9.6 million or 27.73% over the prior year quarter.

For the nine months ended September 30, 2004, W Holding reported a net income of $125.8 million or $0.99 earnings per basic common share ($0.95 on a diluted basis), as compared to a net income of $75.2 million or $0.58 earnings per basic common share ($0.56 on a diluted basis) (as adjusted) for the same period in 2003, an increase of $50.6 million or 67.30%. The $75.2 million net income reported for the nine months ended September 30, 2003, was affected by a loss of $22.7 million ($17.0 million net of tax) on valuation and disposition of the Company’s investment in CBO’s and CLO’s, as previously reported. Excluding this $22.7 million loss ($17.0 million net of tax) for a more meaningful comparison against the nine months ended September 30, 2004 results, net income for the same period in 2003 would have been $92.2 million, which when compared to the net income of $125.8 million for the nine months ended September 30, 2004 represents an increase of $33.6 million or 36.44% over the adjusted comparable period of 2003.

The return on assets (ROA) and the return on common stockholders’ equity (ROCE) for the quarter ended September 30, 2004, were 1.33% and 28.81%, respectively, as compared to 1.36% and 28.69% reported for the same quarter in 2003. For the nine months ended September 30, 2004, the ROA and the ROCE were 1.34% and 28.67%, respectively, compared to 1.05% and 20.95%, for the same period in prior year. The ratios for the comparable nine month period ended September 30, 2003, were affected by the loss referred to in the previous paragraph.

At September 30, 2004, driven by strong increases in W Holding activities, total assets ended at $13.5 billion. Total assets grew $2.0 billion or 17.01%, from $11.5 billion at December 31, 2003. Loans receivable-net, grew by $1.0 billion or 22.08%, from $4.7 billion at December 31, 2003, as a result of the Company’s continued strategy of growing its loan portfolio through commercial real estate, asset-based and other commercial loans. The investment portfolio, excluding short-term money market instruments, increased $846.5 million or 14.65%, from $5.8 billion at December 31, 2003, to $6.6 billion at September 30, 2004.

On a year to year basis, total assets grew $2.7 billion or 24.65%, from $10.8 billion at September 30, 2003. Loans receivable-net, grew by $1.2 billion or 26.09%, from $4.5 billion at September 30, 2003, while the investment portfolio, excluding short-term money market instruments, increased $1.2 billion or 23.02%, from $5.4 billion at September 30, 2003.

Stockholders’ equity increased to $918.8 million as of September 30, 2004, compared to $828.5 million as of December 31, 2003. Such increase resulted primarily from the net income of $125.8 million generated during the nine months ended September 30, 2004, partially offset by dividends paid during the period of $17.6 million and $20.3 million on our common and preferred shares, respectively, and a decrease of $662,000 in other comprehensive loss, net of tax, on the mark to market of our portfolio of investment securities available for sale at September 30, 2004, when compared to December 31, 2003. The period-end number of common shares outstanding increased from 106,290,294 as of December 31, 2003, to 106,847,565 as of September 30, 2004, as a result of the conversion of 150,292 shares of the Company’s convertible preferred stock series A, into 342,521 shares of the Company’s common stock, and the issuance of 214,750 common shares from the exercise of stock options.

Net Interest Income

Net interest income for the third quarter ended September 30, 2004 was $77.0 million, an increase of $14.9 million or 24.04%, from $62.1 million for the same period of last year. Average interest-earning assets for the third quarter of 2004 increased by $3.3 billion or 34.42%, compared to the same quarter in previous year, mainly driven by increases in the average loan portfolio of $1.2 billion, particularly in the commercial real estate and other commercial loan portfolios, and in the average investment portfolio, excluding short-term money market instruments, which increased by $2.0 billion, primarily in tax exempt securities, such as U.S. Government and agencies obligations. For the nine months ended September 30, 2004, net interest income increased from $168.0 million, to $222.8 million, an increase of $54.8 million or 32.61%, primarily supported by an increase in average interest-earning assets of $3.2 billion or 36.33%. This increase in average interest-earning assets was driven by increases in the average loan portfolio of $1.1 billion, mainly in the commercial real estate and other commercial loan portfolios, and in the average investment portfolio, excluding short-term money market instruments, of $2.0 billion, primarily in tax exempt securities, such as U.S. Government and agencies obligations. The average yield earned in interest-earning assets decreased from 4.87% to 4.73% and from 4.98% to 4.72%, for the quarter and nine month periods ended September 30, 2004, respectively, when compared to prior year periods. The decrease in the average yield was mainly due to a lower average yield earned on the loans portfolio, primarily due to a higher volume of commercial real estate loans and other commercial loans with floating rates. The decrease in the average yield earned on the loans portfolio was partially offset by higher reinvestment rates on matured and called securities. Reinvestment rates for new securities were sequentially higher, when compared to the previous quarter, as the U.S. Treasury yield curve initially steepened ahead of the reaction by the Federal Reserve who started to increase interest rates in the second week of August 2004. As a result of this lagging factor, yields earned on floating rate loans were not adjusted as fast as on investment securities since the Prime Rate (an index used by the Bank to re-price most of its loans) was raised at a slower pace following the Federal Reserve action.

Our overall cost of rates paid increased 4 basis points, from 2.43% to 2.47%, for the quarter ended September 30, 2004, while for the nine month period ended September 30, 2004, the overall cost of rates paid decreased 21 basis points, from 2.61% to 2.40%. The increase on the overall cost of rates paid for the quarter ended September 30, 2004, was primarily due to an increase of 15 basis points on the average interest rate paid on deposits, from 2.27% at September 30, 2003, to 2.42% at September 30, 2004, partially offset by lower cost of rates in borrowings. As explained in the preceding paragraph, cost of rates for deposits adjusted immediately as the LIBOR rate (an index used by the Bank to re-price its deposits) increased by market conditions following the change in the U.S. Treasury yield curve. The strong growth in average interest-earning assets between both periods was in part offset by increases in the average interest-bearing liabilities of $3.1 billion or 35.11%, and $3.1 billion or 36.68%, for the three and nine month periods ended September 30, 2004, respectively. Interest-bearing deposits grew in average by $1.2 billion and $1.1 billion, during the quarter and the nine month periods ended September 30, 2004, while borrowings in average (mainly federal funds purchased, repurchase agreements and advances from FHLB) rose by $2.0 billion and $1.9 billion for the same periods, respectively.

Net Interest Margin

Our net interest margin decreased 20 basis points during the third quarter of 2004, to 2.40% from 2.60% in the third quarter of 2003. On a tax equivalent basis our net interest margin also decreased 19 basis points, from 3.03% to 2.84% for each period. The decrease in our net interest margin is mainly attributed to the decrease in our loan portfolio average yield, coupled with an increase in the cost of rates for deposits, as previously explained. On a linked quarterly comparison, our net interest margin decreased by 8 basis points, from 2.48% in the second quarter of 2004. On a tax equivalent basis, our net interest margin also decreased 8 basis points, from 2.92% in the second quarter of 2004. For the nine months ended September 30, 2004, our net interest margin decreased 7 basis points, but on a tax equivalent basis, it increased by 2 basis points, when compared to the nine months ended September 30, 2003, as the level of tax-exempt securities for the 2004 period was significantly higher than the one for the comparable 2003 period.

Under a flat interest rate scenario for the next twelve month period, based on our asset and liability composition as of September 30, 2004, we estimate our net interest margin will fluctuate within a range of 2.34% to 2.44% during said period. Assuming an instantaneous 100 basis points decrease in the fed funds rate, we estimate our net interest margin will fluctuate within a range of 2.30% to 2.44% during said period. Assuming a 100 basis points increase in the fed funds rate, we estimate our net interest margin will fluctuate within a range of 2.17% to 2.34%. Furthermore, a 200 basis points increase in the fed funds rate will cause our net interest margin to fluctuate between a range of 2.02% to 2.38%. Accordingly, the repricing of the Bank’s deposits and other borrowings coupled to the flattening of the yield curve could contract the net interest margin for the remaining term of the year. The lower and higher values of such range meaning the lowest and highest net interest margin for any given quarter within the said twelve month period. These ranges are management’s estimates based on instantaneous rate shocks of 100 and 200 basis points and does not consider any asset/liability management strategy it could undertake given such interest rate changes.

Attached as Exhibits IIIa, IIIb and IIIc are supplemental unaudited data schedules providing additional information on the net interest margin including average balances and average rates for both interest-earning assets and interest-bearing liabilities, as well as changes in volumes and rates for the periods presented.

Noninterest Income (Loss)

Noninterest income (loss) increased $900,000 for the three month period ended September 30, 2004, when compared to the same period in 2003. This increase was the result of an increased of $573,000 on the net gain (loss) on sales and valuation of loans, securities and other assets and an increase of $303,000 in the gain (loss) on derivative instruments. The increase on the net gain (loss) on sales and valuation of loans, securities and other assets was primarily due to a realized gain of $525,000 of an investment security, while the increase in the unrealized gain (loss) on derivative instruments relate to changes in the valuation of these instruments. Service charges on deposits accounts and other fees and commissions increased slightly by $24,000, when compared to same quarter in year 2003.

For the nine months ended September 30, 2004, noninterest income (loss) increased $22.8 million, when compared to the same period in 2003. The increase was mainly due to the net loss of $22.7 million recorded during the same period in 2003, relating to our investment in CBO’s and CLO’s, and included in loss on sales and valuation of loans, securities and other assets, as previously reported. Service charges on deposit accounts and other fees and commissions increased by $810,000, when compared to the nine months ended September 30, 2003.

Noninterest Expenses

Total noninterest expenses increased $3.4 million or 15.71% for the three-month period ended September 30, 2004, and $13.4 million or 21.96% for the nine months ended September 30, 2004, when compared to the corresponding periods in 2003. Salaries and employees' benefits, which is the largest component of total noninterest expenses, increased $1.4 million or 17.35% for the third quarter of year 2004, and $3.0 million or 12.25% for the nine months ended September 30, 2004, as compared to the corresponding periods in 2003. Such increases are attributed to the continued expansion of the Company, including increases in personnel, normal salary increases and related employees’ benefits, principally attributed to our continued expansion in the San Juan Metropolitan area. At September 30, 2004, the Company had 1,141 full-time employees, including its executive officers, an increase of 70 employees or 6.54%, since September 30, 2003.

Advertising expense increased by $1.1 million or 53.39% for the three months ended September 30, 2004, and $3.9 million or 78.51% for the nine months ended September 30, 2004, when compared to the same periods in 2003. These increases are principally due to various radio, newspaper and television campaigns promoting Westernbank’s institutional image and positioning the Company for its strategy in the San Juan Metropolitan area, as well as 2004 promotional campaigns for several Bank’s products.

Noninterest expenses, other than salaries and employees’ benefits, and advertising discussed above, increased $947,000 or 8.14% for the third quarter of 2004, and $6.4 million or 20.64% for the nine months ended September 30, 2004, resulting primarily from costs associated with the Company’s growth and expansion.

Eventhough such increases in noninterest expenses, the Company maintained noninterest expenses at adequate levels, and achieved an efficiency ratio of 29.92% for the third quarter of year 2004, and 30.38% for the nine months ended September 30, 2004, well below management’s long term target of 40% to 42%.

Provision for Income Taxes

The current provision for Puerto Rico income taxes for the three and nine month periods ended September 30, 2004, amounted to $6.3 million and $19.9 million, compared to $6.7 million and $20.4 million in the same periods of 2003. The increase in the income before the provision for income taxes includes a significant increase in the Company’s exempt interest income derived from the investment in tax exempt securities, primarily in U.S. Government and Agencies Obligations, as previously explained. The deferred income tax credit decreased in 2004 since in 2003, the Company recorded a deferred income tax asset related to a capital loss carryforward on the liquidation of the Company’s CBO’s and CLO’s portfolio which is available to offset capital gains in future years. Therefore, the Company’s effective tax rate is substantially below the statutory rate.

Asset Quality

W Holding’s asset quality continues to be strong, as measured by our reserves to total loans, non-performing loans as a percentage of total loans and net charge-offs to average loans. W Holding is essentially a secured lender having 82% of its loan portfolio as of September 30, 2004 secured by real estate. Our combined delinquency on all portfolios for the categories of 60 days and over continues to be below our benchmark of 1% for both periods, being 0.82% at September 30, 2004, and 0.84% at September 30, 2003.The delinquency ratio on the commercial loan portfolio for the categories of 60 days and over, decreased 13 basis points to 0.75% (less than 1%), when compared to 0.88% reported for the year ago period. The delinquency ratio on the consumer loan portfolio, including the Expresso of Westernbank loan portfolio, for the categories of 60 days and over increased 47 basis points, to 1.62% at September 30, 2004, when compared to 1.15% for the comparable period last year. Such increase was mainly due to regular consumer loans past due over 90 days which are collateralized by real estate properties.

The provision for possible loan losses amounted to $10.4 million for the quarter ended September 30, 2004, up from $7.9 million for the same period in the previous year, an increase of $2.5 million or 31.50%. The allowance for possible loan losses reached $76.6 million as of September 30, 2004. The increase in the provision for loan losses is attributable to the overall growth in the Company’s loan portfolio, particularly those of its commercial real estate loans portfolio and the loan portfolio of its asset-based lending division, Westernbank Business Credit, and to cover the write-off experience of the loan portfolio of the Expresso of Westernbank. The commercial real estate loan portfolio grew to $3.0 billion at September 30, 2004, an increase of $690.0 million or 30.51%, when compared to December 31, 2003. On a year to year basis, the commercial real estate loan portfolio grew $807.1 million or 37.64%, from $2.1 billion at September 30, 2003. Westernbank Business Credit loan portfolio grew to $795.5 million at September 30, 2004, an increase of $156.9 million or 24.58%, when compared to December 31, 2003, and an increase of $146.9 million or 22.64%, when compared to September 30, 2003. The Expresso of Westernbank loan portfolio decreased from $150.4 million at December 31, 2003, to $144.6 million at September 30, 2004, a decrease of $5.7 million or 3.81%. On a year to year basis, the Expresso of Westernbank loan portfolio decreased by $5.7 million or 3.80%, from $150.3 million at September 30, 2003. The decrease in the Expresso of Westernbank loan portfolio was mainly due to management’s strategy of stabilizing charge-offs as the division portfolio matures and average yields continue to increase. The average yields of Westernbank Business Credit and the Expresso of Westernbank loan portfolios were 6.26% and 19.17%, respectively, for the nine months ended September 30, 2004.

Non-performing loans stand at $38.7 million or 0.67% (less than 1%) of Westernbank’s loan portfolio at September 30, 2004, relatively stable when compared to 0.66% reported at December 31, 2003. In absolute amounts, non-performing loans increased by $7.5 million, from $31.2 million as of December 31, 2003. The increase in non-performing loans primarily comes from the Company’s commercial and regular consumer loan portfolios. Non-performing loans on the commercial loan portfolio increased by $4.0 million, when compared to December 31, 2003. This increase is mostly attributed to two commercial loans with principal balances of $1.5 million and $1.1 million, and two other loans with outstanding principal balances below $1.0 million, all of which are collateralized by real estate properties. At September 30, 2004, only two of these loans with principal balances of $1.1 million and $979,000, had a specific valuation allowance of $277,000 and $235,000, respectively. At September 30, 2004, the allowance for possible loan losses was 197.84% of total non-performing loans (reserve coverage), compared to the 197.17% reported at December 31, 2003. Moreover, of the total allowance of $76.6 million, $9.3 million is for our specific allowance and the remaining $67.3 million is for our general allowance.

Net loans charge-off in the third quarter of 2004 were $6.2 million or 0.44% (annualized) to average loans, compared to $3.8 million or 0.35% to average loans for the same period in 2003, an increase of $2.4 million, but still very low charge-off ratios for both periods. For the nine month period ended September 30, 2004, net charge-offs amounted to $15.2 million or 0.38% (annualized) to average loans, an increase of $6.5 million, when compared to $8.7 million or 0.28% (annualized) to average loans in 2003. Both increases were primarily due to loans charged-off in the ordinary course of business, mainly in our consumer loan portfolio. The increase in consumer loans charged-off for the quarter and nine month periods ended September 30, 2004, was principally due to loans charged-off by the Expresso of Westernbank division, which amounted to $3.2 million and $9.9 million, respectively, for the three and nine month periods ended September 30, 2004. On a linked quarter comparison, loans charged-off by the Expresso of Westernbank division decreased from $3.4 million for the second quarter of 2004, to $3.2 million for the third quarter of 2004. The delinquency ratio of the Expresso of Westernbank division portfolio at September 30, 2004, was 2.60% for the categories of 60 days and over. This ratio is slightly above management’s estimate and accordingly, management is emphasizing an increase in the overall yield charged on such loans, continuously revising its underwriting policies, as well as increasing the level of collateralized loans, to compensate for such higher delinquency. The loan portfolio of Expresso of Westernbank collateralized by real estate at September 30, 2004, accounts for 12.07% of the outstanding balance, attaining our goal of having at least 10% of the Expresso loan portfolio collateralized by real estate.

Total Loans, Investments and Deposits

Loans receivable-net, grew $1.0 billion or 22.08%, to $5.7 billion at September 30, 2004, compared to $4.7 billion at December 31, 2003, and $1.2 billion or 26.09% compared to $4.5 billion at September 30, 2003. These increases reflect the Company’s emphasis on continued growth in its loan portfolio through commercial real estate, asset-based, consumer and construction lending. As a result, the portfolio of real estate loans secured by first mortgages, increased from $3.2 billion as of September 30, 2003, to $3.4 billion as of December 31, 2003, and to $4.2 billion as of September 30, 2004, up by $977.0 million or 30.45% on a year to year basis, and $826.9 million or 24.62%, when compared to December 31, 2003. Commercial real estate loans secured by first mortgages increased from $2.2 billion as of September 30, 2003, to $2.3 billion as of December 31, 2003, and to $3.0 billion as of September 30, 2004, an increase of $807.1 million or 37.64% on a year to year basis and $690.0 million or 30.51%, when compared to December 31, 2003. Other loans portfolio, including commercial loans not collateralized by real estate, consumer loans (including the Expresso of Westernbank loans portfolio), loans on deposits and credit cards, increased from $1.4 billion as of September 30, 2003 and December 31, 2003, to $1.6 billion as of September 30, 2004, up by $223.5 million or 16.14% on a year to year basis, and $221.9 million or 16.00%, when compared to December 31, 2003. The unsecured portion of the Expresso of Westernbank loan portfolio remained relatively unchanged increasing slightly from $128.9 million at December 31, 2003, to $132.0 million at September 30, 2004, as management has sought to stabilize charge offs as the portfolio matures and average yields continue to increase. Attached as Exhibit IV is a supplemental unaudited data schedule providing additional information on W Holding loan portfolio.

W Holding investment portfolio, excluding short-term money market instruments, stands at $6.6 billion at September 30, 2004, growing $846.5 million or 14.65% in comparison to December 31, 2003. Such growth is focused principally on tax-exempt securities guaranteed by the United States Government and agencies, accounting for 96% of our investment portfolio as of September 30, 2004. The investment portfolio at September 30, 2004, had an average contractual maturity of 55 months. The Company’s interest rate risk model, takes into consideration the callable feature of certain investment securities. Taking into consideration the callable features of these securities, the investment portfolio as of September 30, 2004, had a remaining average maturity of 7 months. However, no assurance can be given that such levels will be maintained in future periods.

As of September 30, 2004, total deposits reached $6.2 billion, from $5.4 billion at December 31, 2003, representing an increase of $847.1 million or 15.73%, while federal funds purchased and repurchase agreements increased to $6.0 billion, from $5.0 billion at December 31, 2003, an increase of $965.7 million or 19.14%, mainly to fund W Holding strong loans-net growth of 22.08% and investments growth of 14.56%.

This press release may contain some information that constitutes “forward-looking statements.” Such information can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “intend,” “continue,” or “believe” or the negatives or other variations of these terms or comparable terminology. Forward-looking statements with respect to future financial conditions, results of operations and businesses of the Company are always subject to various risk and market factors out of management’s control which could cause future results to differ materially from current management expectations or estimates and as such should be understood. Such factors include particularly, but are not limited, to the possibility of prolonged adverse economic conditions or that an adverse interest rate environment could develop.

WESTERNBANK PUERTO RICO, a wholly-owned subsidiary of W HOLDING COMPANY, INC., is the second largest commercial bank in Puerto Rico, based on total assets, operating throughout 51 full fledged branches, including 33 in the Southwestern region of Puerto Rico, 7 in the Northeastern region, and 11 at the San Juan Metropolitan area of Puerto Rico. W HOLDING COMPANY, INC. also owns Westernbank Insurance Corp., a general insurance agent placing property, casualty, life and disability insurance, whose results of operations and financial condition are reported on a consolidated basis.

W Holding’s management also informed that this coming Friday, October 22, 2004, will open the most advanced banking branch of the world in the historic city of Old San Juan, Puerto Rico.

FINANCIAL HIGHLIGHT
AND ADDITIONAL EXHIBITS

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