Q3 2003 W Holding Company, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day and welcome to the W Holding Company Inc. parent company of Western Bank conference call. This call is being recorded. At this time for opening remarks and introductions I'd like to turn the call over to Freddy Maldonado. Please go ahead, sir.

FREDDY MALDONADO, CHIEF FINANCIAL OFFICER, W HOLDING COMPANY: This is Freddy Maldonado, Chief Financial Officer of Western Bank and I'm here with Mr. Frank Stipes, Chairman and Chief Executive Officer of the Holding Company and (indiscernible) and Mr. Ricardo Hernandez the Vice President controller. We are here to review the results of the third-quarter 2003 that we just reported last night. We reported a very strong increase of 52 or 53 percent in net income for the third quarter September 2003; there was a net income of 34.6 million or 41 cents earning per share on a basic, and 40 percent on a diluted basis compared to 22.7 million or 30 cents basic and diluted for 2002. That's a very, very strong increase of 12 million or 53 per cent. Now for the nine months we reported 75.2 million, which is (indiscernible) to 88 cents to basic common share, 86 cents on a diluted basis, compared to 60.6 million, that's (indiscernible) to 80 cents for basic and diluted common share, which again is a very strong increase of 14.5 (ph) million or 23.97 percent.

Now we want to stress that result includes the special charge that we booked in the first six months of the year as results of liquidation of CBO and CLO portfolio that we haven't booked that we purchased back in 1999. There was however 22 million net of taxes, 17 million which considering that a special adjustment or charge, then the net income would have been 92 million or to reduce it to 52.14 percent instead of the 23 percent that we are reporting.

As you remember and as we explained on the last conference call, we made a special charge in the first-quarter and in the second quarter and we excluded those charges on each of those quarters the results or the increase for each of the quarter was around over 50 percent. So that is represent the very, very strong operation that we have and in fact, we want to stress that it is the result of pure core operation. We don't have or we don't depend on (indiscernible). We have really a very strong operation with just pure banking operation.

Now for the quarter, we have a return on average assets of 1.36 compared to 122 for the comparable period of 2002. On return on capital was 28.69 compared to 26.86 for the nine month period. We have the return average asset 105 and we (indiscernible) capital of 1.95 compared to 117 and 24.47 respectively for the previous year. We consider those ratios very, very strong particularly in view of the strong growth of assets that we are having on a yearly (ph) basis. The significant infusion that we are making to the capital because of the preferred common stock (indiscernible) that we have done in the past, (indiscernible) basically 18 months. Particularly take into consideration again the special charge that we make at the beginning of the first six months of this year which is not non return transaction. We are also very pleased and we want to report that for this quarter we broke the 10 million marker. We ended up with 10.8 billion in total assets. This is a goal that we have for 2004 and we are very pleased that we basically achieved that goal one year in advance. That is an increase of 2.6 million or 31.79 percent increase.

As to the capital, we increased the stockholder equity to approximately 797 million as of September, compared to 584 million as of December. That increase is a result of the infusion that we made of the (indiscernible) 6.8 million in total shares in the series of preferred stock 2003 F and 2003 E. The level of income that we put up in the first nine months which was upset by the payment of dividends during the first nine months of operations.

Now, we have said this is a pure banking operation. The main driver of the net income or the stronghold at net income was the net interest income for the period which we reported 62.41 million compared to 42.5 million for the previous quarter; that was an increase of 19.6 million or 46 percent. Of course the reason for that is the significant increase in average interest earning (indiscernible). For the nine-month period we reported 120 million compared -- I mean increase of from 120 to 168 which is a very strong growth of 48 million or approximately 40 percent. Again, because of the strong growth in average (indiscernible) and in earning assets. Of course we have a drop in the yield of earning assets which basically was reduced the impact because of the (indiscernible).

The net interest margin we increased it for the previous 28 basis points compared to the previous quarter in 2002. We reported 260 compared to 232 in 2002. On a linked quarterly comparison, the net interest margin continued growing on a quarterly basis and increased 8 basis points from 252 in the second quarter and 12 basis points from 248 that we reported in the first quarter. So it's increasing on a quarterly basis.

We also want to stress the impact of increasing interest rate going forward. Right now under our present (technical difficulty) scenario utilizing the same interest rates scenario we have in September, we project that operations will reflect the net interest margin of around 269 to 270 during the period. Now assuming that we have a 50 basis point decrease in the (indiscernible) rate, then the net interest margin will range between 260 and 263. If the rate on the contrary (ph) goes 50 basis points up then our net interest margin will be affected, increases slightly, and will range between 258 and 269. Furthermore, if interest goes 100 basis points then our net interest margin will be around 257 and 281. Let me give you some figures so that you can understand better.

If we have an increase of 100 basis points up for next year, our net interest income will be affected by 1.95 percent. We are talking about internal (indiscernible) around 3.5 million. If the rates go up 200 basis points up then our net interest income will be reduced by 6.5 percent, we are talking about 9 million internal lower amount, so whatever the results that Mr. Stipes (ph) will talk later, assuming that rates goes up (indiscernible) 200 basis points up would be decreasing by approximately 9 million on a 200 basis point interest rate increase. That is basically evidence that we have been managing very, very well the level of interest rate risk.

Operating expense, we have an increase of 2.1 million or 10.85 percent compared to 6.78 in 2002. Again, the main driver increases in operating expenses is salary. We run a very tight operation but we have an increase of employees compared to last year because of the creation of the new division that we have Expresso. Nevertheless we continue to maintain a very strict cost control and we are reporting for the quarter a (indiscernible) .62 efficiency ratio. That is a very world class efficiency ratio. As to the asset quality, we continue with a very strong asset quality which is well above our peer group. We have said continually we are essentially a secure lender having approximately 81 or 82 percent of the (indiscernible) portfolio …