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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2007
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF
1934
 For the transition period from                 to
 Commission File No. 000-27377
 W HOLDING COMPANY, INC.
  Commonwealth of Puerto Rico
    
    66-0573197(State or Other Jurisdiction of
    
    (IRS EmployerIncorporation or Organization)
    
    Identification No.)19 West McKinley Street, Mayagüez, Puerto Rico
    
    00680(Address of Principal Executive Offices)
    
    (Zip Code)
 (787) 834-8000
  Common Stock ($1.00 par value per share)
    
    New York Stock Exchange(Title of Each Class)
    
    (Name of Each Exchange on Which Registered)
  Preferred Stock ($1.00 par value per share)*
    
    Nasdaq Stock Market(Title of Each Class)
    
    (Name of Each Exchange on Which Registered)
 
 *
    
    A Form 25 delisting the above-listed series of preferred stock was filed after the end of
the subject period on May 12, 2008. o þ
 o þ
 o þ
 o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 None




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-3.2EX-10.12EX-10.23EX-10.24EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
  
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At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Commercial real estate  mortgage (1)
    
    $
    5,556,789
    
    
    
    60.4
    %
    
    $
    4,963,117
    
    
    
    58.0
    %
    
    $
    4,268,251
    
    
    
    55.0
    %
    
    $
    3,154,679
    
    
    
    53.3
    %
    
    $
    2,261,465
    
    
    
    48.3
    %Residential real estate  mortgage (2)
    
    
    970,419
    
    
    
    10.5
    
    
    
    1,014,957
    
    
    
    11.9
    
    
    
    1,298,535
    
    
    
    16.7
    
    
    
    879,056
    
    
    
    14.9
    
    
    
    894,007
    
    
    
    19.1Construction  mortgage
    
    
    1,429,125
    
    
    
    15.5
    
    
    
    722,789
    
    
    
    8.4
    
    
    
    505,760
    
    
    
    6.5
    
    
    
    328,145
    
    
    
    5.5
    
    
    
    202,600
    
    
    
    4.3Commercial, industrial and agricultural (1)
    
    
    851,423
    
    
    
    9.3
    
    
    
    1,245,541
    
    
    
    14.6
    
    
    
    1,003,673
    
    
    
    12.9
    
    
    
    768,604
    
    
    
    13.0
    
    
    
    524,747
    
    
    
    11.2Consumer and others (3) (4)
    
    
    740,875
    
    
    
    8.0
    
    
    
    809,953
    
    
    
    9.5
    
    
    
    830,384
    
    
    
    10.7
    
    
    
    866,934
    
    
    
    14.6
    
    
    
    861,907
    
    
    
    18.4Total loans
    
    
    9,548,631
    
    
    
    103.7
    
    
    
    8,756,357
    
    
    
    102.4
    
    
    
    7,906,603
    
    
    
    101.8
    
    
    
    5,997,418
    
    
    
    101.3
    
    
    
    4,744,726
    
    
    
    101.3Allowance for loan losses
    
    
    (338,720
    )
    
    
    (3.7
    )
    
    
    (202,180
    )
    
    
    (2.4
    )
    
    
    (141,412
    )
    
    
    (1.8
    )
    
    
    (80,066
    )
    
    
    (1.3
    )
    
    
    (61,608
    )
    
    
    (1.3
    )Loans  net
    
    $
    9,209,911
    
    
    
    100.0
    %
    
    $
    8,554,177
    
    
    
    100.0
    %
    
    $
    7,765,191
    
    
    
    100.0
    %
    
    $
    5,917,352
    
    
    
    100.0
    %
    
    $
    4,683,118
    
    
    
    100.0
    %
 
 (1)
    
    Includes $998.0 million, $1.43 billion, $1.25 billion, $831.1 million and $641.1 million of the outstanding loans of Westernbank Business Credit division
at December 31, 2007, 2006, 2005, 2004 and 2003, respectively.(2)
    
    Includes fixed and floating interest rate loans to two mortgage originators groups in Puerto Rico mainly secured by mortgages on one-to-four
family residential properties as follows: $837.0 million, $940.0 million, $1.14 billion, $745.0 million and $750.6 million at December 31, 2007,
2006, 2005, 2004 and 2003, respectively.(3)
    
    Includes $112.3 million, $129.0 million, $135.0 million, $144.0 million and $155.6 million of Expresso of Westernbank division outstanding loans at
December 31, 2007, 2006, 2005, 2004 and 2003, respectively.(4)
    
    Includes $471.9 million, $490.7million, $585.9 million, $585.2 million and $521.6 million collateralized by first mortgages over real estate at December 31, 2007,
2006, 2005, 2004, 2003, respectively.   5




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At December 31, 2007, Westernbank has a significant lending concentration with an aggregate
unpaid principal balance of $375.0 million to a commercial group in Puerto Rico.
     6




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MaturitiesAfter one year to five years
    
    
    After five yearsBalance
    
    
    One year or
    
    
    Fixed
    
    
    Variable
    
    
    Fixed
    
    
    Variableoutstanding
    
    
    less
    
    
    interest
    
    
    interest
    
    
    interest
    
    
    interest(In thousands)Commercial real estate  mortgage
    
    $
    5,556,789
    
    
    $
    2,118,997
    
    
    $
    445,005
    
    
    $
    492,385
    
    
    $
    96,938
    
    
    $
    2,403,464Residential real estate  mortgage (1)
    
    
    970,419
    
    
    
    10,980
    
    
    
    67,764
    
    
    
    33,604
    
    
    
    857,961
    
    
    
    110Construction  mortgage
    
    
    1,429,125
    
    
    
    777,965
    
    
    
    16,706
    
    
    
    556,476
    
    
    
    3,525
    
    
    
    74,453Commercial, industrial and agricultural
    
    
    851,423
    
    
    
    572,183
    
    
    
    53,642
    
    
    
    170,291
    
    
    
    9,841
    
    
    
    45,466Consumer and others
    
    
    740,875
    
    
    
    130,413
    
    
    
    143,933
    
    
    
    10,961
    
    
    
    81,275
    
    
    
    374,293Total
    
    $
    9,548,631
    
    
    $
    3,610,538
    
    
    $
    727,050
    
    
    $
    1,263,717
    
    
    $
    1,049,540
    
    
    $
    2,897,786
 
 (1)
    
    Includes fixed and floating interest rate loans to two mortgage originator groups in Puerto Rico mainly
secured by mortgage on one-to-four familiy residential properties with an outstanding principal balance of
$837.0 million.        7




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TM TM
       8




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December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Commercial real-estate mortgage loans:Asset-based lending division
    
    $
    340,261
    
    
    $
    77,646
    
    
    $
    14,391
    
    
    $
    
    
    
    $
    Other
    
    
    717,928
    
    
    
    42,881
    
    
    
    41,416
    
    
    
    24,988
    
    
    
    23,582Sub-total
    
    
    1,058,189
    
    
    
    120,527
    
    
    
    55,807
    
    
    
    24,988
    
    
    
    23,582Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    266,189
    
    
    
    147,805
    
    
    
    79,795
    
    
    
    
    
    
    
    Other
    
    
    8,564
    
    
    
    2,026
    
    
    
    3,986
    
    
    
    429
    
    
    
    560Sub-total
    
    
    274,753
    
    
    
    149,831
    
    
    
    83,781
    
    
    
    429
    
    
    
    560Construction  mortgage loans
    
    
    429,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate mortgage and construction loans
    
    
    3,071
    
    
    
    1,641
    
    
    
    2,125
    
    
    
    1,730
    
    
    
    2,259Consumer loans (1)
    
    
    10,653
    
    
    
    9,309
    
    
    
    6,288
    
    
    
    7,122
    
    
    
    4,845Total non-performing loans
    
    
    1,776,053
    
    
    
    281,308
    
    
    
    148,001
    
    
    
    34,269
    
    
    
    31,246Foreclosed real estate held for sale
    
    
    10,971
    
    
    
    5,917
    
    
    
    4,137
    
    
    
    3,811
    
    
    
    4,082Total non-performing loans and foreclosed
real estate held for sale
    
    $
    1,787,024
    
    
    $
    287,225
    
    
    $
    152,138
    
    
    $
    38,080
    
    
    $
    35,328Interest that would have been recorded if the loans had
not been classified as non-performing
    
    $
    48,974
    
    
    $
    20,009
    
    
    $
    5,525
    
    
    $
    3,557
    
    
    $
    2,500Interest recorded on non-performing loans
    
    $
    17,068
    
    
    $
    5,046
    
    
    $
    743
    
    
    $
    243
    
    
    $
    583Total non-performing loans as a percentage
of total loans at end of period
    
    
    18.60
    %
    
    
    3.21
    %
    
    
    1.87
    %
    
    
    0.58
    %
    
    
    0.66
    %Total non-performing loans and foreclosed real estate
held for sale as a percentage of total assets at end of period
    
    
    9.97
    %
    
    
    1.68
    %
    
    
    0.94
    %
    
    
    0.27
    %
    
    
    0.31
    %
 
 (1)
    
    Includes $6.7 million, $4.9 million, $4.2 million, $5.0 million and $3.5 million of loans collateralized with real estate at
December 31, 2007, 2006, 2005, 2004 and 2003, respectively.   9




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Accounting by Creditors for Impairment of a Loan
     11




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Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Balance, beginning of year
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608
    
    
    $
    47,114Loans charged-off:Commercial real estate  mortgage loans:Asset-based lending division
    
    
    (10,200
    )
    
    
    (7,500
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (4,536
    )
    
    
    (4,049
    )
    
    
    (1,835
    )
    
    
    (3,958
    )
    
    
    (501
    )Sub-total
    
    
    (14,736
    )
    
    
    (11,549
    )
    
    
    (1,835
    )
    
    
    (3,958
    )
    
    
    (501
    )Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    (110,481
    )
    
    
    (8,255
    )
    
    
    (5,254
    )
    
    
    
    
    
    
    Other
    
    
    (1,441
    )
    
    
    (2,802
    )
    
    
    (1,144
    )
    
    
    (1,475
    )
    
    
    (1,978
    )Sub-total
    
    
    (111,922
    )
    
    
    (11,057
    )
    
    
    (6,398
    )
    
    
    (1,475
    )
    
    
    (1,978
    )Residential
real estate-mortgage loans
    
    
    (1,421
    )
    
    
    (94
    )
    
    
    (121
    )
    
    
    (297
    )
    
    
    (184
    )Consumer loans (1)
    
    
    (16,105
    )
    
    
    (12,576
    )
    
    
    (13,809
    )
    
    
    (16,473
    )
    
    
    (12,203
    )Total loans charged-off
    
    
    (144,184
    )
    
    
    (35,276
    )
    
    
    (22,163
    )
    
    
    (22,203
    )
    
    
    (14,866
    )Recoveries of loans previously
charged-off:Commercial real estate  mortgage loans:Asset-based lending division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    590
    
    
    
    2,685
    
    
    
    756
    
    
    
    746
    
    
    
    902Sub-total
    
    
    590
    
    
    
    2,685
    
    
    
    756
    
    
    
    746
    
    
    
    902Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    Other
    
    
    721
    
    
    
    161
    
    
    
    252
    
    
    
    743
    
    
    
    239Sub-total
    
    
    721
    
    
    
    161
    
    
    
    252
    
    
    
    1,098
    
    
    
    239Residential real estate-mortgage loans
    
    
    87
    
    
    
    66
    
    
    
    212
    
    
    
    206
    
    
    
    372Consumer loans (2)
    
    
    1,764
    
    
    
    2,252
    
    
    
    2,283
    
    
    
    1,920
    
    
    
    799Total recoveries of loans previously charged-off
    
    
    3,162
    
    
    
    5,164
    
    
    
    3,503
    
    
    
    3,970
    
    
    
    2,312Net loans charged-off
    
    
    (141,022
    )
    
    
    (30,112
    )
    
    
    (18,660
    )
    
    
    (18,233
    )
    
    
    (12,554
    )Provision for loan losses
    
    
    277,562
    
    
    
    90,880
    
    
    
    80,006
    
    
    
    36,691
    
    
    
    27,048Balance, end of year
    
    $
    338,720
    
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608Ratios:Allowance for loan losses to total loans at end of period
    
    
    3.55
    %
    
    
    2.31
    %
    
    
    1.79
    %
    
    
    1.34
    %
    
    
    1.30
    %Provision for loan losses to net loans charged-off
    
    
    196.82
    %
    
    
    301.81
    %
    
    
    428.76
    %
    
    
    201.23
    %
    
    
    215.45
    %Recoveries of loans to loans charged-off in previous period
    
    
    8.96
    %
    
    
    23.30
    %
    
    
    15.78
    %
    
    
    26.71
    %
    
    
    29.03
    %Net loans charged-off to average total loans (3)
    
    
    1.54
    %
    
    
    0.36
    %
    
    
    0.27
    %
    
    
    0.34
    %
    
    
    0.29
    %Allowance for loans losses to non-performing loans
    
    
    19.07
    %
    
    
    71.87
    %
    
    
    95.55
    %
    
    
    233.64
    %
    
    
    197.17
    %
 
 (1)
    
    Includes $11.0 million, $8.9 million, $9.8 million, $12.4 million and $7.9 million of
Expresso of Westernbank loan charge-offs, for the years ended December 31, 2007, 2006, 2005,
2004 and 2003, respectively.(2)
    
    Includes $1.1 million, $1.0 million, $1.1 million, $1.0 million and $17,000 of Expresso of
Westernbank loan recoveries, for the years ended December 31, 2007, 2006, 2005, 2004 and 2003,
respectively.(3)
    
    Average loans were computed using beginning and period-end balances.  12




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At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Allowance for loan losses:Commercial real estate-mortgage loans:Asset-based lending division
    
    $
    17,473
    
    
    $
    20,672
    
    
    $
    13,492
    
    
    $
    3,309
    
    
    $
    2,644Other
    
    
    133,930
    
    
    
    26,326
    
    
    
    30,890
    
    
    
    32,997
    
    
    
    27,296Sub-total
    
    
    151,403
    
    
    
    46,998
    
    
    
    44,382
    
    
    
    36,306
    
    
    
    29,940Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    37,409
    
    
    
    129,064
    
    
    
    65,906
    
    
    
    9,627
    
    
    
    3,928Other
    
    
    13,619
    
    
    
    3,080
    
    
    
    7,382
    
    
    
    8,560
    
    
    
    5,349Sub-total
    
    
    51,028
    
    
    
    132,144
    
    
    
    73,288
    
    
    
    18,187
    
    
    
    9,277Construction mortgage
    
    
    117,281
    
    
    
    3,616
    
    
    
    4,059
    
    
    
    3,715
    
    
    
    2,183Residential real estate mortgage
    
    
    4,532
    
    
    
    4,654
    
    
    
    3,275
    
    
    
    407
    
    
    
    415Consumer and others (1)
    
    
    14,476
    
    
    
    12,029
    
    
    
    14,430
    
    
    
    19,425
    
    
    
    17,472Unallocated
    
    
    
    
    
    
    2,739
    
    
    
    1,978
    
    
    
    2,026
    
    
    
    2,321Total allowance for loan losses
    
    $
    338,720
    
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608Loan portfolio composition percentages:Commercial real estate-mortgage loans:Asset-based lending division
    
    
    5.78
    %
    
    
    7.10
    %
    
    
    8.18
    %
    
    
    7.32
    %
    
    
    6.93
    %Other
    
    
    52.41
    %
    
    
    49.59
    %
    
    
    45.80
    %
    
    
    45.28
    %
    
    
    40.73
    %Sub-total
    
    
    58.19
    %
    
    
    56.69
    %
    
    
    53.98
    %
    
    
    52.60
    %
    
    
    47.66
    %Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    4.67
    %
    
    
    9.22
    %
    
    
    7.63
    %
    
    
    6.54
    %
    
    
    6.59
    %Other
    
    
    4.25
    %
    
    
    5.00
    %
    
    
    5.07
    %
    
    
    6.28
    %
    
    
    4.47
    %Sub-total
    
    
    8.92
    %
    
    
    14.22
    %
    
    
    12.70
    %
    
    
    12.82
    %
    
    
    11.06
    %Construction mortgage
    
    
    14.97
    %
    
    
    8.25
    %
    
    
    6.40
    %
    
    
    5.47
    %
    
    
    4.27
    %Residential real estate mortgage
    
    
    10.16
    %
    
    
    11.59
    %
    
    
    16.42
    %
    
    
    14.66
    %
    
    
    18.84
    %Consumer and others
    
    
    7.76
    %
    
    
    9.25
    %
    
    
    10.50
    %
    
    
    14.45
    %
    
    
    18.17
    %Total loans
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %Allowance coverage ratio at
end of year applicable to:Commercial real estate-mortgage loans:Asset-based lending division
    
    
    3.16
    %
    
    
    3.33
    %
    
    
    2.09
    %
    
    
    0.75
    %
    
    
    0.80
    %Other
    
    
    2.68
    %
    
    
    0.61
    %
    
    
    0.85
    %
    
    
    4.93
    %
    
    
    1.36
    %Sub-total
    
    
    2.72
    %
    
    
    0.95
    %
    
    
    1.04
    %
    
    
    1.15
    %
    
    
    1.32
    %Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    8.39
    %
    
    
    15.99
    %
    
    
    10.93
    %
    
    
    2.46
    %
    
    
    1.26
    %Other
    
    
    3.36
    %
    
    
    0.70
    %
    
    
    1.84
    %
    
    
    2.27
    %
    
    
    2.52
    %Sub-total
    
    
    5.99
    %
    
    
    10.61
    %
    
    
    7.30
    %
    
    
    2.37
    %
    
    
    1.77
    %Construction mortgage
    
    
    8.21
    %
    
    
    0.50
    %
    
    
    0.80
    %
    
    
    1.13
    %
    
    
    1.08
    %Residential real estate mortgage
    
    
    0.47
    %
    
    
    0.46
    %
    
    
    0.25
    %
    
    
    0.05
    %
    
    
    0.05
    %Consumer and others
    
    
    1.95
    %
    
    
    1.49
    %
    
    
    1.74
    %
    
    
    2.24
    %
    
    
    2.03
    %Unallocated (as a percentage of total loans)
    
    
    0.00
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.05
    %Total loans
    
    
    3.55
    %
    
    
    2.31
    %
    
    
    1.79
    %
    
    
    1.34
    %
    
    
    1.30
    %
 
 (1)
    
    Includes an allowance of $8.7 million, $7.8 million, $8.4 million, $13.8 million and $10.0 million for the Expresso of
Westernbank loans portfolio at December 31, 2007, 2006, 2005, 2004 and 2003, respectively. 15




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Troubled Debt Restructurings
   Impaired Loans
    16




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##### Table of Contents



December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Investment in impaired loans:Covered by a valuation allowance:Asset-based lending division
    
    $
    129,159
    
    
    $
    215,035
    
    
    $
    107,406
    
    
    $
    23,908
    
    
    $
    14,314Construction  mortgage
    
    
    396,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    395,882
    
    
    
    22,267
    
    
    
    7,913
    
    
    
    6,067
    
    
    
    13,903Sub-total
    
    
    922,001
    
    
    
    237,302
    
    
    
    115,319
    
    
    
    29,975
    
    
    
    28,217Do not require a valuation allowance:Asset-based lending division
    
    
    469,339
    
    
    
    9,912
    
    
    
    10,887
    
    
    
    
    
    
    
    Construction  mortgage
    
    
    83,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    313,997
    
    
    
    21,513
    
    
    
    38,552
    
    
    
    24,200
    
    
    
    22,088Sub-total
    
    
    866,545
    
    
    
    31,425
    
    
    
    49,439
    
    
    
    24,200
    
    
    
    22,088Total
    
    $
    1,788,546
    
    
    $
    268,727
    
    
    $
    164,758
    
    
    $
    54,175
    
    
    $
    50,305Valuation allowance for impaired loans:Asset-based lending division
    
    $
    31,766
    
    
    $
    93,144
    
    
    $
    42,350
    
    
    $
    6,846
    
    
    $
    1,800Construction  mortgage
    
    
    66,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    76,292
    
    
    
    5,360
    
    
    
    2,187
    
    
    
    1,566
    
    
    
    2,846$
    175,046
    
    
    $
    98,504
    
    
    $
    44,537
    
    
    $
    8,412
    
    
    $
    4,646Percentage of valuation allowance
to impaired loans
    
    
    9.79
    %
    
    
    36.66
    %
    
    
    27.03
    %
    
    
    15.53
    %
    
    
    9.24
    %
 Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Average investment in impaired loans:Asset-based lending division
    
    $
    431,485
    
    
    $
    171,449
    
    
    $
    45,265
    
    
    $
    19,111
    
    
    $
    12,144Construction  mortgage
    
    
    132,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    221,932
    
    
    
    39,836
    
    
    
    32,665
    
    
    
    27,398
    
    
    
    34,532$
    786,100
    
    
    $
    211,285
    
    
    $
    77,930
    
    
    $
    46,509
    
    
    $
    46,676Interest collected and recognized as income
on non-performing and impaired loans:Asset-based lending division
    
    $
    14,335
    
    
    $
    2,920
    
    
    $
    
    
    
    $
    
    
    
    $
    Construction  mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    1,705
    
    
    
    2,124
    
    
    
    743
    
    
    
    243
    
    
    
    583$
    16,040
    
    
    $
    5,044
    
    
    $
    743
    
    
    $
    243
    
    
    $
    583
   17




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18




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19




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Held to maturity:US Government and agencies obligations
    
    $
    5,927,530
    
    
    $
    6,314,091
    
    
    $
    6,314,316Puerto Rico Government and agencies obligations (PRGOs)
    
    
    10,207
    
    
    
    11,663
    
    
    
    31,824Corporate notes
    
    
    21,436
    
    
    
    21,433
    
    
    
    26,429Mortgage-backed securities
    
    
    639,024
    
    
    
    660,392
    
    
    
    701,456Total
    
    
    6,598,197
    
    
    
    7,007,579
    
    
    
    7,074,025Available for sale:PRGOs
    
    
    15,305
    
    
    
    18,050
    
    
    
    Mortgage-backed securities
    
    
    461,790
    
    
    
    
    
    
    
    185Equity securities  common stock
    
    
    1,906
    
    
    
    2,491
    
    
    
    4,981Total
    
    
    479,001
    
    
    
    20,541
    
    
    
    5,166Total investments
    
    $
    7,077,198
    
    
    $
    7,028,120
    
    
    $
    7,079,191
  2007
    
    
    2006
    
    
    2005(In thousands)Available for sale:Collateralized mortgage obligations (CMOs) issued or guaranteed
by the Federal National Mortgage Association (FNMA)
    
    $
    445,478
    
    
    $
    
    
    
    $
    185CMOs issued or guaranteed by the Federal Home
Loan Mortgage Corporation (FHLMC)
    
    
    16,312
    
    
    
    
    
    
    
    Total available for sale
    
    
    461,790
    
    
    
    
    
    
    
    185Held to maturity:Government National Mortgage Association (GNMA) certificates
    
    
    6,254
    
    
    
    7,140
    
    
    
    8,082FHLMC certificates
    
    
    2,444
    
    
    
    3,055
    
    
    
    4,180FNMA certificates
    
    
    3,014
    
    
    
    3,358
    
    
    
    2,828CMOs certificates issued or guaranteed by FHLMC
    
    
    556,547
    
    
    
    573,735
    
    
    
    607,659CMOs certificates issued or guaranteed by FNMA
    
    
    70,765
    
    
    
    73,104
    
    
    
    78,707Total held to maturity
    
    
    639,024
    
    
    
    660,392
    
    
    
    701,456Total mortgage-backed securities
    
    $
    1,100,814
    
    
    $
    660,392
    
    
    $
    701,641
  20




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Carrying
    
    
    Weightedamount
    
    
    average yield(Dollars in thousands)US Government and agencies obligations:Due within one year
    
    $
    1,246,025
    
    
    
    3.65
    %Due after one year through five years
    
    
    4,506,505
    
    
    
    4.00Due after five years through ten years
    
    
    175,000
    
    
    
    4.005,927,530
    
    
    
    3.93Puerto Rico Government and agencies obligations:Due within one year
    
    
    4,003
    
    
    
    5.05Due after one year through five years
    
    
    15,331
    
    
    
    4.00Due after five years through ten years
    
    
    6,178
    
    
    
    4.6625,512
    
    
    
    4.32Other:Due after ten years
    
    
    21,436
    
    
    
    8.33Total
    
    
    5,974,478
    
    
    
    3.95Mortgage-backed securities
    
    
    1,100,814
    
    
    
    4.72Equity securities
    
    
    1,906
    
    
    
    2.21Total
    
    $
    7,077,198
    
    
    
    4.07
    %
     21




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##### Table of Contents



(In thousands)3 months or less
    
    $
    294,405over 3 months through 6 months
    
    
    95,248over 6 months through 12 months
    
    
    76,358over 12 months
    
    
    59,666Total
    
    $
    525,677
 22




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2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Averageamount
    
    
    rate
    
    
    amount
    
    
    rate
    
    
    amount
    
    
    rate(Dollars in thousands)Time deposits
    
    $
    8,543,989
    
    
    
    5.17
    %
    
    $
    7,305,932
    
    
    
    4.72
    %
    
    $
    6,004,119
    
    
    
    3.64
    %Savings deposits
    
    
    706,989
    
    
    
    2.11
    %
    
    
    755,800
    
    
    
    2.06
    %
    
    
    802,994
    
    
    
    2.09
    %Interest bearing demand
deposits
    
    
    279,992
    
    
    
    2.46
    %
    
    
    279,886
    
    
    
    2.08
    %
    
    
    200,804
    
    
    
    2.88
    %Noninterest bearing demand
deposits
    
    
    407,998
    
    
    
    
    
    
    
    429,913
    
    
    
    
    
    
    
    368,688
    
    
    
    $
    9,938,968
    
    
    
    4.66
    %
    
    $
    8,771,531
    
    
    
    4.17
    %
    
    $
    7,376,605
    
    
    
    3.27
    %
   December 31,2007
    
    
    2006
    
    
    2005(In thousands)Federal funds purchased and repurchase agreements (1)
    
    $
    6,146,693
    
    
    $
    6,320,481
    
    
    $
    6,260,029Advances from Federal Home Loan Bank (FHLB)
    
    
    102,000
    
    
    
    127,000
    
    
    
    172,000Mortgage note payable
    
    
    35,465
    
    
    
    35,968
    
    
    
    36,432$
    6,284,158
    
    
    $
    6,483,449
    
    
    $
    6,468,461
 
 (1)
    
    Federal funds purchased amounted to $100.0 million at December 31, 2007, at a
weighted average interest rate of 4.44%, and mature the next business
day. No such borrowings were outstanding at December 31, 2006 and 2005.     23




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##### Table of Contents



2007
    
    2006
    
    2005(Dollars in thousands)Federal funds purchased:Balance at end of year
    
    $
    100,000
    
    
    $
    
    
    
    $
    Weighted-average interest rate at year end
    
    
    4.44
    %
    
    
    
    %
    
    
    
    %Monthly average outstanding balance
    
    $
    24,308
    
    
    $
    3,077
    
    
    $
    8,851Weighted-average interest rate for the year
    
    
    5.17
    %
    
    
    4.69
    %
    
    
    2.43
    %Maximum month-end balance
    
    $
    100,000
    
    
    $
    40,000
    
    
    $
    40,039Repurchase agreements:Balance at end of year
    
    $
    1,364,075
    
    
    $
    1,070,582
    
    
    $
    1,545,725Weighted-average interest rate at year end
    
    
    4.85
    %
    
    
    5.33
    %
    
    
    4.34
    %Monthly average outstanding balance
    
    $
    1,497,932
    
    
    $
    1,731,600
    
    
    $
    2,377,629Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %
    
    
    3.03
    %Maximum month-end balance
    
    $
    2,771,592
    
    
    $
    2,282,650
    
    
    $
    3,514,422Advances from FHLB:Balance at end of year
    
    $
    60,000
    
    
    $
    25,000
    
    
    $
    50,000Weighted-average interest rate at year end
    
    
    4.52
    %
    
    
    5.43
    %
    
    
    4.45
    %Monthly average outstanding balance
    
    $
    29,615
    
    
    $
    33,462
    
    
    $
    21,923Weighted-average interest rate for the year
    
    
    4.99
    %
    
    
    5.01
    %
    
    
    3.49
    %Maximum month-end balance
    
    $
    60,000
    
    
    $
    50,000
    
    
    $
    50,000Borrowings under line of credit:Balance at end of year
    
    $
    
    
    
    $
    
    
    
    $
    Weighted-average interest rate at year end
    
    
    
    %
    
    
    
    %
    
    
    
    %Monthly average outstanding balance
    
    $
    15,158
    
    
    $
    
    
    
    $
    Weighted-average interest rate for the year
    
    
    6.00
    %
    
    
    
    %
    
    
    
    %Maximum month-end balance
    
    $
    34,030
    
    
    $
    
    
    
    $
    Total short-term borrowings:Balance at end of year
    
    $
    1,524,075
    
    
    $
    1,095,582
    
    
    $
    1,595,725Weighted-average interest rate at year end
    
    
    4.81
    %
    
    
    5.33
    %
    
    
    4.34
    %Monthly average outstanding balance
    
    $
    1,567,013
    
    
    $
    1,768,139
    
    
    $
    2,408,403Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %
    
    
    3.03
    %Maximum month-end balance
    
    $
    2,865,622
    
    
    $
    2,322,650
    
    
    $
    3,579,461
 24




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Accounting for Derivative
Instruments and Hedging Activities,
       25




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26




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27




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Year ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageInterest
    
    

balance (1)
    
    
    yield / rate
    
    
    Interest
    
    

balance (1)
    
    
    yield / rate
    
    
    Interest
    
    

balance (1)
    
    
    yield / rate(Dollars in thousands)Normal Spread:Interest-earning assets:Loans, including loan fees (2)
    
    $
    723,765
    
    
    $
    8,898,688
    
    
    
    8.13
    %
    
    $
    661,095
    
    
    $
    8,116,951
    
    
    
    8.14
    %
    
    $
    476,918
    
    
    $
    6,916,243
    
    
    
    6.90
    %Investment securities (3)
    
    
    260,300
    
    
    
    6,458,955
    
    
    
    4.03
    
    
    
    261,971
    
    
    
    6,519,398
    
    
    
    4.02
    
    
    
    247,533
    
    
    
    6,267,159
    
    
    
    3.95Mortgage-backed securities (4)
    
    
    45,291
    
    
    
    935,269
    
    
    
    4.84
    
    
    
    28,489
    
    
    
    632,792
    
    
    
    4.50
    
    
    
    32,321
    
    
    
    752,839
    
    
    
    4.29Money market instruments
    
    
    40,833
    
    
    
    860,093
    
    
    
    4.75
    
    
    
    38,235
    
    
    
    845,375
    
    
    
    4.52
    
    
    
    36,433
    
    
    
    950,980
    
    
    
    3.83Total
    
    
    1,070,189
    
    
    
    17,153,005
    
    
    
    6.24
    
    
    
    989,790
    
    
    
    16,114,516
    
    
    
    6.14
    
    
    
    793,205
    
    
    
    14,887,221
    
    
    
    5.33Interest-bearing liabilities:Deposits
    
    
    463,298
    
    
    
    9,938,968
    
    
    
    4.66
    
    
    
    366,063
    
    
    
    8,771,531
    
    
    
    4.17
    
    
    
    241,268
    
    
    
    7,376,605
    
    
    
    3.27Federal funds purchased and
repurchase agreements
    
    
    315,030
    
    
    
    6,289,605
    
    
    
    5.01
    
    
    
    307,463
    
    
    
    6,290,818
    
    
    
    4.89
    
    
    
    234,791
    
    
    
    6,398,451
    
    
    
    3.67Advances from FHLB
    
    
    5,691
    
    
    
    102,684
    
    
    
    5.54
    
    
    
    7,893
    
    
    
    147,780
    
    
    
    5.34
    
    
    
    7,688
    
    
    
    184,153
    
    
    
    4.17Borrowings under line of credit
    
    
    1,107
    
    
    
    18,220
    
    
    
    6.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    785,126
    
    
    
    16,349,477
    
    
    
    4.80
    
    
    
    681,419
    
    
    
    15,210,129
    
    
    
    4.48
    
    
    
    483,747
    
    
    
    13,959,209
    
    
    
    3.47Net interest income
    
    $
    285,063
    
    
    
    
    
    
    
    
    
    
    $
    308,371
    
    
    
    
    
    
    
    
    
    
    $
    309,458Interest rate spread
    
    
    
    
    
    
    
    
    
    
    1.44
    %
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.86
    %Net interest-earning assets
    
    
    
    
    
    $
    803,528
    
    
    
    
    
    
    
    
    
    
    $
    904,387
    
    
    
    
    
    
    
    
    
    
    $
    928,012Net yield on interest-earning
assets (5)
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.91
    %
    
    
    
    
    
    
    
    
    
    
    2.08
    %Ratio of
interest-earning assets to interest-bearing liabilities
    
    
    
    
    
    
    104.91
    %
    
    
    
    
    
    
    
    
    
    
    105.95
    %
    
    
    
    
    
    
    
    
    
    
    106.65
    %Tax Equivalent Spread:Interest-earnings assets
    
    $
    1,070,189
    
    
    $
    17,153,005
    
    
    
    6.24
    %
    
    $
    989,790
    
    
    $
    16,114,516
    
    
    
    6.14
    %
    
    $
    793,205
    
    
    $
    14,887,221
    
    
    
    5.33
    %Tax equivalent adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,626
    
    
    
    
    
    
    
    0.21Interest-earning assets -
tax equivalent
    
    
    1,070,189
    
    
    
    17,153,005
    
    
    
    6.24
    
    
    
    989,790
    
    
    
    16,114,516
    
    
    
    6.14
    
    
    
    824,831
    
    
    
    14,887,221
    
    
    
    5.54Interest-bearing liabilities
    
    
    785,126
    
    
    $
    16,349,477
    
    
    
    4.80
    
    
    
    681,419
    
    
    $
    15,210,129
    
    
    
    4.48
    
    
    
    483,747
    
    
    $
    13,959,209
    
    
    
    3.47Net interest income
    
    $
    285,063
    
    
    
    
    
    
    
    
    
    
    $
    308,371
    
    
    
    
    
    
    
    
    
    
    $
    341,084Interest rate spread
    
    
    
    
    
    
    
    
    
    
    1.44
    %
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    2.07
    %Net yield on interest-earning assets (5)
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.91
    %
    
    
    
    
    
    
    
    
    
    
    2.29
    %
 
 (1)
    
    Average balance on interest-earning assets and interest-bearing liabilities is computed using
daily monthly average balances during the period.(2)
    
    Average loans exclude the average balance of non-performing loans amounting to $367.9 million,
$209.4 million and $40.9 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Loans fees, net amounted to $17.1 million, $15.8 million and $16.3 million for the years ended
December 31, 2007, 2006 and 2005, respectively.(3)
    
    Includes available for sale securities.(4)
    
    Includes trading and available for sale securities.(5)
    
    Net interest income divided by average interest-earning assets. 28




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Year ended December 31,2007 vs. 2006
    
    
    2006 vs. 2005Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(In thousands)Interest income:Loans
    
    $
    63,580
    
    
    $
    (910
    )
    
    $
    62,670
    
    
    $
    90,136
    
    
    $
    94,041
    
    
    $
    184,177Investment securities (1)
    
    
    (2,439
    )
    
    
    768
    
    
    
    (1,671
    )
    
    
    10,084
    
    
    
    4,354
    
    
    
    14,438Mortgage-backed securities (2)
    
    
    14,507
    
    
    
    2,295
    
    
    
    16,802
    
    
    
    (5,515
    )
    
    
    1,683
    
    
    
    (3,832
    )Money market instruments
    
    
    648
    
    
    
    1,950
    
    
    
    2,598
    
    
    
    (4,324
    )
    
    
    6,126
    
    
    
    1,802Total increase in interest income
    
    
    76,296
    
    
    
    4,103
    
    
    
    80,399
    
    
    
    90,381
    
    
    
    106,204
    
    
    
    196,585Interest expense:Deposits
    
    
    51,754
    
    
    
    45,481
    
    
    
    97,235
    
    
    
    50,744
    
    
    
    74,051
    
    
    
    124,795Federal funds purchased and
repurchase agreements
    
    
    (59
    )
    
    
    7,626
    
    
    
    7,567
    
    
    
    (3,880
    )
    
    
    76,552
    
    
    
    72,672Advances from FHLB
    
    
    (2,512
    )
    
    
    310
    
    
    
    (2,202
    )
    
    
    (495
    )
    
    
    700
    
    
    
    205Borrowings under line of credit
    
    
    1,107
    
    
    
    
    
    
    
    1,107
    
    
    
    
    
    
    
    
    
    
    
    Total increase in interest expense
    
    
    50,290
    
    
    
    53,417
    
    
    
    103,707
    
    
    
    46,369
    
    
    
    151,303
    
    
    
    197,672Increase (decrease) in
net interest income
    
    $
    26,006
    
    
    $
    (49,314
    )
    
    $
    (23,308
    )
    
    $
    44,012
    
    
    $
    (45,099
    )
    
    $
    (1,087
    )
 
 (1)
    
    Includes available for sale securities.(2)
    
    Includes trading and available for sale securities.  Year ended December 31, (1)2007
    
    2006
    
    2005Return on assets (2)
    
    
    (0.39
    )%
    
    
    0.36
    %
    
    
    0.81
    %Return on common stockholders equity (3)
    
    
    (19.46
    )
    
    
    3.66
    
    
    
    14.55Dividend payout ratio to common stockholders (4)
    
    
    (29.76
    )
    
    
    137.79
    
    
    
    35.34Equity-to-asset ratio (5)
    
    
    6.12
    
    
    
    6.93
    
    
    
    7.33
 
 (1)
    
    Averages computed using beginning and period-end balances.(2)
    
    Net income (loss) divided by average total assets.(3)
    
    Income (loss) attributable to common stockholders divided by average common stockholders equity.(4)
    
    Common stockholders dividend declared divided by income (loss) attributable to common stockholders.
Is the Company policy to distribute in the form of dividends to stockholders on the basis of a given percentage
applicable to the average consolidated earnings for the last two preceding years.(5)
    
    Average equity divided by average total assets. 29




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30




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Current Fiscal Situation
    Rating Downgrades on the Government of Puerto Ricos Debt Obligations
   31




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
    
    Reduced Westernbanks risk-weighted assets by shifting the composition of its
investment portfolio from called agency securities with a risk-weight of 20% to GNMA
mortgage-backed securities and collateralized mortgage obligations with a risk-weight of
0%.
    
    Reduced by 74% the payment of cash dividends on common stock in 2008.
    
    Increased Westernbanks borrowing capacity with the FHLB  At December 31, 2008, the
Companys borrowing capacity with the FHLB increased to $510.0 million from $39.0 million
at December 31, 2007.
    
    Sold unused real estate owned  During 2008, Westernbank sold certain land lots
originally held for future branch development and recognized a gain on sale of $14.7
million.
    
    Negotiated tax settlements  During the first quarter of 2008, Westernbank negotiated
tax agreements with local and federal authorities that yielded a benefit of $33.3 million.
    
    Transferred the Companys insurance agency to Westernbank in 2008, resulting in a
capital infusion to Westernbank of $2.9 million.
  32




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th
       34




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Issuanceprice andliquidation
    
    
    
    
    
    
    Proceeds fromIssuance
    
    
    
    
    Dividend
    
    
    preference
    
    
    Shares
    
    
    issuance, net of
    
    
    Issuanceyear
    
    
    Type of preferred stock
    
    rate
    
    
    per share
    
    
    issued
    
    
    issuance costs
    
    
    costs1998
    
    
    Convertible, 1998 Series A
    
    
    7.125
    %
    
    $
    25
    
    
    
    1,219,000
    
    
    $
    29,143,000
    
    
    $
    1,332,0001999
    
    
    Non-convertible, 1999 Series B
    
    
    7.250
    
    
    
    25
    
    
    
    2,001,000
    
    
    
    48,273,000
    
    
    
    1,752,0002001
    
    
    Non-convertible, 2001 Series C
    
    
    7.600
    
    
    
    25
    
    
    
    2,208,000
    
    
    
    53,103,000
    
    
    
    2,097,0002001
    
    
    Non-convertible, 2001 Series D
    
    
    7.400
    
    
    
    25
    
    
    
    1,791,999
    
    
    
    43,238,000
    
    
    
    1,562,0002002
    
    
    Non-convertible, 2002 Series E
    
    
    6.875
    
    
    
    25
    
    
    
    1,725,000
    
    
    
    41,463,000
    
    
    
    1,662,0002003
    
    
    Non-convertible, 2003 Series F
    
    
    6.700
    
    
    
    25
    
    
    
    4,232,000
    
    
    
    102,192,000
    
    
    
    3,608,0002003
    
    
    Non-convertible, 2003 Series G
    
    
    6.900
    
    
    
    25
    
    
    
    2,640,000
    
    
    
    63,671,000
    
    
    
    2,329,0002004
    
    
    Non-convertible, 2004 Series H
    
    
    6.700
    
    
    
    50
    
    
    
    2,675,500
    
    
    
    129,311,000
    
    
    
    4,464,0002005
    
    
    Non-convertible, 2004 Series H
    
    
    6.700
    
    
    
    50
    
    
    
    401,300
    
    
    
    19,450,000
    
    
    
    615,000Total
    
    
    
    
    
    
    
    
    
    
    18,893,799
    
    
    $
    529,844,000
    
    
    $
    19,421,000
  Redemption price per shareDecember 31,
    
    Series A
    
    Series B
    
    Series C
    
    Series D
    
    Series E
    
    Series F
    
    Series G
    
    Series H2008
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.25
    
    
    $
    25.50
    
    
    $
    25.50
    
    
    $
    2009
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.25
    
    
    
    25.25
    
    
    
    51.002010
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    50.502011 and thereafter
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    50.00
 43




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2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageNumber of
    
    
    exercise
    
    
    Number of
    
    
    exercise
    
    
    Number of
    
    
    exerciseoptions
    
    
    price
    
    
    options
    
    
    price
    
    
    options
    
    
    priceBeginning of year
    
    
    154,174
    
    
    $
    192.00
    
    
    
    156,906
    
    
    $
    189.50
    
    
    
    142,228
    
    
    $
    151.00Options granted
    
    
    9,800
    
    
    
    164.01
    
    
    
    9,700
    
    
    
    298.00
    
    
    
    15,800
    
    
    
    532.50Options excercised
    
    
    (8,404
    )
    
    
    148.64
    
    
    
    (7,521
    )
    
    
    142.50
    
    
    
    (1,122
    )
    
    
    142.50Options forfeited
    
    
    (16,350
    )
    
    
    403.07
    
    
    
    (4,911
    )
    
    
    392.00
    
    
    
    
    
    
    
    End of year
    
    
    139,220
    
    
    $
    169.12
    
    
    
    154,174
    
    
    $
    192.00
    
    
    
    156,906
    
    
    $
    189.50
 44




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CommonstockmarketGrant
    
    Options
    
    
    Option
    
    
    price atdate
    
    granted (1)
    
    
    price (1)
    
    
    the grant date (1)January 30, 2007
    
    
    700
    
    
    $
    302.50
    
    
    $
    289.50January 31, 2007
    
    
    200
    
    
    
    302.50
    
    
    
    263.00September 3, 2007
    
    
    4,500
    
    
    
    150.00
    
    
    
    113.00October 1, 2007
    
    
    4,000
    
    
    
    150.00
    
    
    
    108.00October 5, 2007
    
    
    400
    
    
    
    150.00
    
    
    
    109.00Total
    
    
    9,800
 
 (1)
    
    As adjusted to reflect the one-for-fifty reverse stock split approved on
November 7, 2008 and effective on December 1, 2008.         45




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A continuation of recent turmoil in the financial markets, particularly if economic conditions
worsen more than expected, could have an adverse effect on our financial position or results of
operations.
  We rely heavily on brokered deposits to meet our liquidity needs.
  Our allowance for loan losses may not be adequate to cover actual loan losses determined in the
future, which may require us to take a charge to our earnings and adversely impact our financial
condition and results of operations.
  We may
face adverse consequences if Westernbank is  not categorized as a
well-capitalized institution.
  We rely heavily on brokered deposits to meet our liquidity needs.
 47




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The soundness of other financial services institutions may adversely affect our credit risk.
  Difficult market conditions have adversely affected our industry.
  
    
    We expect to face increased regulation of our industry. Compliance
with such regulation may increase our costs and limit our ability to
pursue business opportunities.
    
    Market developments may affect customer confidence levels and may
cause increases in delinquencies and default rates, which we expect
could impact our charge-offs and provision for loan losses.
    
    Our ability to borrow from other financial institutions or to access
the debt or equity capital markets on favorable terms or at all could
be adversely affected by further disruptions in the capital markets or
other events, including actions by rating agencies and deteriorating
investor expectations.
    
    Competition in our industry could intensify as a result of the
increasing consolidation of financial services companies in connection
with current market conditions.
 There can be no assurance that recent actions by governmental agencies and regulators, as well as
recently enacted legislation authorizing the U.S. government to invest in, and purchase large
amounts of illiquid assets from, financial institutions will help stabilize the U.S. financial
system.
  48




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Participation in the Treasurys Troubled Asset Relief Program (TARP) may not be available to the
Company or may have a dilutive effect on current shareholders.
  We may not be able to raise additional capital necessary to fund our growth and remain
adequately-capitalized.
  The FDICs proposed increase in deposit insurance premiums is expected to cause a significant
increase in our non-interest expense.
  Additional increases in FDIC insurance premiums may cause our earnings to decrease.
  49




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Our operations and activities are now subject to heightened regulatory oversight and the Bank is
subject to certain terms and conditions under regulatory agreements between the Banks Board of
Directors, the FDIC and the OCIF.
    
    
    Reduced Westernbanks risk-weighted assets by shifting the composition of its
investment portfolio from called agency securities with a risk-weight of 20% to GNMA
mortgage-backed securities and collateralized mortgage obligations with a risk-weight of
0%.
    
    Reduced by 74% the payment of cash dividends on common stock in 2008.
    
    Increased Westernbanks borrowing capacity with the FHLB  At December 31, 2008, the
Companys borrowing capacity with the FHLB increased to $510.0 million from $39.0 million
at December 31, 2007.
    
    Sold unused real estate owned  During 2008, Westernbank sold certain land lots
originally held for future branch development and recognized a gain on sale of $14.7
million.
    
    Negotiated tax settlements  During the first quarter of 2008, Westernbank negotiated
tax agreements with local and federal authorities that yielded a benefit of $33.3 million.
    
    Transferred the Companys insurance agency to Westernbank in 2008, resulting in a
capital infusion to Westernbank of $2.9 million.
  We are subject to pending litigation that, if decided against us, could require us to pay
substantial judgments, settlements or other penalties.
  Our construction loans are based upon estimates of costs and value associated with the completed
project. These construction estimates could be inaccurate, which could affect our ability to fully
collect on such loans.
  Westernbank is exposed to commercial and consumer credit risks.
  50




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We have been adversely impacted by deteriorating credit quality in our loan portfolio, and a
substantial portion of the portfolio currently consists of non-performing loans or is otherwise
adversely classified. No assurance can be given that the portfolio will not experience further
weakness or loss.
  Our business is concentrated in Puerto Rico and continued weakness of the Puerto Rico economy may
continue to adversely affect our financial performance.
  Our use of appraisals in deciding whether to make a loan secured by real property does not ensure
the value of the real property collateral.
  Our disclosure controls and procedures and internal control over financial reporting were
determined not to be effective as of December 31, 2007, as evidenced by the material weaknesses
that existed in our internal controls. Our disclosure controls and procedures and internal control
over financial reporting may not be effective in future periods, as a result of existing or newly
identified material weaknesses in internal controls.
 Item 9A. Controls and Procedures
 51




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Item 9A. Controls and Procedures
 Due to
the restatement and the time involved in the preparation  of the 2007 consolidated
financial statements, we are late in our filings with the SEC, and, as a result, we will be limited in
our ability to register our securities for offer and sale until we are deemed a current filer with
the SEC.
  The lack of current financial and operating information about the Company, along with the
restatement of our consolidated financial statements and related events, have had, and likely will
continue to have, a material adverse effect on our business and reputation, including increased
regulatory requirements and legislative and regulatory scrutiny.
  We expect to continue to incur significant expenses related to our internal control over financial
reporting and the preparation of our financial statements.
  The SEC has requested information and documentation relating to our loans to Inyx, Inc. The SEC
Staff may disagree with the manner in which we have accounted for and reported the financial impact
of the adjustments to previously filed financial statements.
  52




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We have counterparty exposure to Lehman Brothers Inc. in connection with certain securities
repurchase agreements.
  Our performance is subject to interest rate risk.
  Changes to business strategy to diversify the Companys revenue and liquidity sources.
  
    
    Reduced net interest income as a result of the decrease in short-term rates and the
decrease in spread between prime rates and LIBOR; specifically, the Companys loan
portfolio is mostly tied to prime rates while the Companys funding is tied to LIBOR, thus,
a reduction in the spread has an adverse effect on the Companys results of operations;
    
    the continued downturn in the economy of Puerto Rico;
    
    increase in the level of non-performing loans; and
    
    increase in general and administrative costs as a result of the restatement process.
  
    
    Continue with the expansion into the San Juan Metropolitan Area
    
    Diversify the Companys loan portfolio
    
    Diversify the Companys liquidity sources
    
    Diversify the Companys business mix by improving services and product offerings to the
affluent professional, consumer, and corporate segment
 Diversification of the Companys loan portfolio
  53




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Diversification
of the Companys liquidity sources.
    Diversify the Companys business mix by improving services and product offerings to the affluent
professional, consumer, and corporate segment.
 Diversification of its business mix by developing the affluent segment
  Diversification of its business mix by strengthening the consumer product offering
  Diversifying the Companys business mix by enhancing cash management products
  Competition with other financial institutions could adversely affect our profitability.
  54




---



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Changes in statutes and regulations, including tax laws and rules, could adversely affect us.
  Natural disasters and geopolitical events beyond our control could adversely affect us.
  Applicable laws restrict our ability to pay dividends.
  Provisions of our charter and applicable law may prevent a change of control.
  The loss of a key employee may adversely affect our prospects.
  
   55




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
    
    Westernbank World Plaza  a 23-story office building located at Puerto
Ricos main business district and which serves as Westernbank San Juan metropolitan
area headquarters, our regional commercial lending office and the headquarters for
the Westernbank Business Credit and Expresso of Westernbank divisions. The book
value of this property at December 31, 2007, was $52.5 million. This property is
encumbered by a mortgage, the terms of which are discussed in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Borrowings.
  
   Shareholder Securities Class Action. Hildenbrand v. W Holding Company, Inc., et al. Webb v. W Holding Company, Inc., et al. Saavedra v. W Holding
Company, Inc., et al. Hildenbrand
 Shareholder Derivative Action. Wylie v. Stipes,
et al., and W Holding Company, Inc.
 56




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SEC Informal Inquiry.
 Litigation Relating to the Inyx Loan:
 Westernbank Puerto Rico v. Kachkar, et al., 07-civ.-1606 (ADC) (D.P.R.):
  th
 Inyx, Inc., et al. v. Westernbank Puerto Rico, et al, Case No. 07-22140-Civ-Cooke
 
   
    
    to vote on a proposal to adopt an amendment to our
Certificate of Incorporation to effect a reverse stock split
of the Companys common stock, at any time prior to December
31, 2008, at a specific ratio to be determined by the Board
of Directors in its sole discretion within the range of
one-for-10 to one-for-50, inclusive.
 57




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For
    
    
    128,140,337Against
    
    
    17,830,730Abstain
    
    
    190,121Total Shares
    
    
    146,161,188
  
  
    Quarter ended
    
    High(1)
    
    Low (1)December 2008
    
    $
    32.50
    
    
    $
    7.29September 2008 (2)
    
    
    49.00
    
    
    
    23.00June 2008 (2)
    
    
    61.00
    
    
    
    42.50March 2008 (2)
    
    
    79.50
    
    
    
    50.50December 2007(2)
    
    $
    118.50
    
    
    $
    37.50September 2007 (2)
    
    
    149.00
    
    
    
    91.50June 2007 (2)
    
    
    282.50
    
    
    
    125.00March 2007 (2)
    
    
    311.00
    
    
    
    233.00December 2006 (2)
    
    $
    335.00
    
    
    $
    275.00September 2006 (2)
    
    
    341.00
    
    
    
    250.00June 2006(2)
    
    
    400.00
    
    
    
    303.50March 2006 (2)
    
    
    456.00
    
    
    
    359.00
 
 (1)
    
    Prices in table are rounded.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008.  58




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Record date
    

Payable date

    

Amount per share (1) (2)Year 2007January 31, 2007
    
    February 15, 2007
    
    $
    0.7915February 28, 2007
    
    March 15, 2007
    
    
    0.7915March 30, 2007
    
    April 17, 2007
    
    
    0.7915April 30, 2007
    
    May 15, 2007
    
    
    0.7915May 31, 2007
    
    June 15, 2007
    
    
    0.7915June 29, 2007
    
    July 17, 2007
    
    
    0.7915July 31, 2007
    
    August 15, 2007
    
    
    0.7915August 31, 2007
    
    September 17, 2007
    
    
    0.7915September 28, 2007
    
    October 15, 2007
    
    
    0.7915October 31, 2007
    
    November 15, 2007
    
    
    0.7915November 30, 2007
    
    December 17, 2007
    
    
    0.7915December 31, 2007
    
    January 15, 2008
    
    
    0.7915Total
    
    
    
    
    
    $
    9.5000Year 2006January 31, 2006
    
    February 15, 2006
    
    $
    0.7915February 28, 2006
    
    March 15, 2006
    
    
    0.7915March 31, 2006
    
    April 17, 2006
    
    
    0.7915April 28, 2006
    
    May 15, 2006
    
    
    0.7915May 31, 2006
    
    June 15, 2006
    
    
    0.7915June 30, 2006
    
    July 17, 2006
    
    
    0.7915July 31, 2006
    
    August 15, 2006
    
    
    0.7915August 31, 2006
    
    September 15, 2006
    
    
    0.7915September 29, 2006
    
    October 16, 2006
    
    
    0.7915October 31, 2006
    
    November 15, 2006
    
    
    0.7915November 30, 2006
    
    December 15, 2006
    
    
    0.7915December 29, 2006
    
    January 16, 2007
    
    
    0.7915Total
    
    
    
    
    
    $
    9.5000
 
 (1)
    
    Dividends amounts in the table are rounded.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split approved on November 7,
2008 and effective on December 1, 2008.   59




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##### Table of Contents



Equity compensation plans approved by shareholders:
 Number of securities remaining availablefor future issuance under equityNumber of securities to be issued upon
    
    Weighted-average exercise
    
    
    compensation plans (excluding securitiesexercise of outstanding options (1) (2)
    
    price of outstanding
options  (1)
    
    
    reflected in column (a)) (1)(a)
    
    (b)
    
    
    (c)124,630
    
    $
    166.17
    
    
    
    108,706
 
 (1)
    
    Adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008
and effective on December 1, 2008, a three-for-two stock split and a 2% stock dividend
on the Companys common stock declared on December 6, 2004 and December 13, 2004,
respectively, distributed on January 10, 2005; the three-for-two stock split and a 2%
stock dividend declared on November 4, 2003 and November 11, 2003, respectively,
distributed on December 10, 2003; and the three-for-two stock split declared on June 17,
2002 and distributed on July 10, 2002.(2)
    
    Excludes 47,028 shares (as adjusted) issued upon exercise of stock options through
December 31, 2007. 60




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##### Table of Contents



12/02
    
    12/03
    
    12/04
    
    12/05
    
    12/06
    
    12/07W Holding Company, Inc.
    
    
    100.00
    
    
    
    175.95
    
    
    
    223.85
    
    
    
    122.85
    
    
    
    91.57
    
    
    
    19.99Dow Jones US index
    
    
    100.00
    
    
    
    130.75
    
    
    
    146.45
    
    
    
    155.72
    
    
    
    179.96
    
    
    
    190.77Dow Jones US Banks index
    
    
    100.00
    
    
    
    132.94
    
    
    
    152.03
    
    
    
    155.32
    
    
    
    182.84
    
    
    
    136.79
  (A)
    
    The lines represent monthly index levels derived from
compounded daily returns that include all dividends.(B)
    
    The indexes are reweighted daily, using the market
capitalization on the previous trading day.(C)
    
    If the monthly interval, based on the fiscal year-end, is not
a trading day, the preceding trading day is used.(D)
    
    The index level for all series was set to $100.00 on
December 31, 2002.       61




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##### Table of Contents



Year ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(As Restated)(2)
    

(As
Restated)(2)(7)(Amounts in thousands, except per share data)Income Statement Data:Interest income
    
    $
    1,070,189
    
    
    $
    989,790
    
    
    $
    793,205
    
    
    $
    591,376
    
    
    $
    461,894Interest expense
    
    
    785,126
    
    
    
    681,419
    
    
    
    483,747
    
    
    
    314,219
    
    
    
    245,102Net interest income
    
    
    285,063
    
    
    
    308,371
    
    
    
    309,458
    
    
    
    277,157
    
    
    
    216,792Provision for loan losses
    
    
    (277,562
    )
    
    
    (90,880
    )
    
    
    (80,006
    )
    
    
    (36,691
    )
    
    
    (27,048
    )Net interest income after provision for loan losses
    
    
    7,501
    
    
    
    217,491
    
    
    
    229,452
    
    
    
    240,466
    
    
    
    189,744Noninterest income
    
    
    47,798
    
    
    
    37,098
    
    
    
    35,820
    
    
    
    53,628
    
    
    
    25,295Noninterest expenses
    
    
    (163,409
    )
    
    
    (124,518
    )
    
    
    (108,230
    )
    
    
    (100,125
    )
    
    
    (84,821
    )Income (loss) before income taxes
    
    
    (108,110
    )
    
    
    130,071
    
    
    
    157,042
    
    
    
    193,969
    
    
    
    130,218Income taxes
    
    
    39,772
    
    
    
    (70,492
    )
    
    
    (33,547
    )
    
    
    (22,093
    )
    
    
    (19,263
    )Net income (loss)
    
    
    (68,338
    )
    
    
    59,579
    
    
    
    123,495
    
    
    
    171,876
    
    
    
    110,955Preferred stock dividends
    
    
    36,910
    
    
    
    36,911
    
    
    
    36,985
    
    
    
    27,158
    
    
    
    21,593Income (loss) attributable to common stockholders
    
    $
    (105,248
    )
    
    $
    22,668
    
    
    $
    86,510
    
    
    $
    144,718
    
    
    $
    89,362Share Data:Basic earnings (loss) per common share (1)
    
    $
    (31.92
    )
    
    $
    6.89
    
    
    $
    26.37
    
    
    $
    44.30
    
    
    $
    27.80Diluted earnings (loss) per common share (1)
    
    $
    (31.92
    )
    
    $
    6.74
    
    
    $
    25.61
    
    
    $
    42.80
    
    
    $
    27.03Cash dividends declared per common share (1)(3)
    
    $
    9.50
    
    
    $
    9.50
    
    
    $
    9.30
    
    
    $
    7.19
    
    
    $
    5.69Cash dividends declared on common shares
    
    $
    31,327
    
    
    $
    31,236
    
    
    $
    30,575
    
    
    $
    23,502
    
    
    $
    18,322Period end number of common shares outstanding (1)
    
    
    3,298
    
    
    
    3,290
    
    
    
    3,282
    
    
    
    3,278
    
    
    
    3,252Weighted average number of common
shares outstanding (1)
    
    
    3,297
    
    
    
    3,288
    
    
    
    3,280
    
    
    
    3,267
    
    
    
    3,215Weighted average number of common shares
outstanding on a fully diluted basis (1)
    
    
    3,297
    
    
    
    3,361
    
    
    
    3,412
    
    
    
    3,409
    
    
    
    3,306Dividend
payout ratio (4)
    
    
    (29.76
    )%
    
    
    137.80
    %
    
    
    35.34
    %
    
    
    16.24
    %
    
    
    20.50
    %Book value per share data (1)
    
    $
    141.12
    
    
    $
    187.40
    
    
    $
    189.81
    
    
    $
    172.59
    
    
    $
    135.14
 62




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##### Table of Contents



Year ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(As Restated)(2)
    

(As
Restated)(2)(7)(Amounts in thousands, except per share data)Performance ratios:Return on
assets (5)
    
    
    (0.39
    )%
    
    
    0.36
    %
    
    
    0.81
    %
    
    
    1.33
    %
    
    
    1.12
    %Return on
common stockholders equity (5)
    
    
    (19.46
    )
    
    
    3.66
    
    
    
    14.55
    
    
    
    28.79
    
    
    
    22.37Efficiency ratio
    
    
    49.45
    
    
    
    35.99
    
    
    
    30.85
    
    
    
    30.66
    
    
    
    32.17Operating expenses to total end-of-period assets
    
    
    0.91
    
    
    
    0.73
    
    
    
    0.67
    
    
    
    0.70
    
    
    
    0.74Net yield on interest-earning assets
    
    
    1.66
    
    
    
    1.91
    
    
    
    2.08
    
    
    
    2.22
    
    
    
    2.31Balance Sheet Data:Total assets
    
    $
    17,926,711
    
    
    $
    17,074,144
    
    
    $
    16,112,273
    
    
    $
    14,321,620
    
    
    $
    11,527,509Federal funds sold and resell agreements
    
    
    886,700
    
    
    
    950,573
    
    
    
    746,539
    
    
    
    1,017,303
    
    
    
    649,852Investments securities held to maturity,
securities available for sale and trading securities
    
    
    7,077,198
    
    
    
    7,028,120
    
    
    
    7,079,191
    
    
    
    6,929,260
    
    
    
    5,778,790Loans-net
    
    
    9,209,911
    
    
    
    8,554,177
    
    
    
    7,765,191
    
    
    
    5,917,352
    
    
    
    4,683,118Total liabilities
    
    
    16,930,475
    
    
    
    15,926,801
    
    
    
    14,958,386
    
    
    
    13,244,061
    
    
    
    10,703,131Total deposits
    
    
    10,496,501
    
    
    
    9,337,063
    
    
    
    8,375,609
    
    
    
    6,244,170
    
    
    
    5,397,676Federal funds purchased and repurchase agreements
    
    
    6,146,693
    
    
    
    6,320,481
    
    
    
    6,260,029
    
    
    
    6,683,527
    
    
    
    5,046,045Stockholders equity
    
    
    996,236
    
    
    
    1,147,343
    
    
    
    1,153,887
    
    
    
    1,077,559
    
    
    
    824,378Capital Ratios:Total capital to risk-weighted assets
    
    
    9.06
    %
    
    
    11.92
    %
    
    
    12.75
    %
    
    
    14.90
    %
    
    
    13.90
    %Tier I capital to risk-weighted assets
    
    
    7.79
    
    
    
    10.66
    
    
    
    11.95
    
    
    
    14.01
    
    
    
    13.06Tier I capital to average assets
    
    
    4.90
    
    
    
    6.76
    
    
    
    7.26
    
    
    
    7.69
    
    
    
    7.18Equity-to-asset ratio (5)
    
    
    6.12
    
    
    
    6.93
    
    
    
    7.33
    
    
    
    7.36
    
    
    
    7.13Asset Quality Ratios:Total non-performing loans and foreclosed real estate
held for sale as a percentage of total assets at end of period
    
    
    9.97
    %
    
    
    1.68
    %
    
    
    0.94
    %
    
    
    0.27
    %
    
    
    0.31
    %Total non-performing loans as a percentage of
loans at end of period
    
    
    18.60
    
    
    
    3.21
    
    
    
    1.87
    
    
    
    0.58
    
    
    
    0.66Net loans
charged-off to average total loans (6)
    
    
    1.54
    
    
    
    0.36
    
    
    
    0.27
    
    
    
    0.34
    
    
    
    0.29Allowance for loan losses to total loans at end of period
    
    
    3.55
    
    
    
    2.31
    
    
    
    1.79
    
    
    
    1.34
    
    
    
    1.30Allowance for loan losses to non-performing loans
    
    
    19.07
    
    
    
    71.87
    
    
    
    95.55
    
    
    
    233.64
    
    
    
    197.17
 
 (1)
    
    Adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008; the three-for-two stock split and 2% stock dividend declared in
December 2004 and distributed on January 10, 2005; and the three-for-two stock split and the
2% stock dividend declared in November 2003 and distributed on December 10, 2003.(2)
    
    See Note 25 to the consolidated financial statements for
information about the restatement, included herein in Part II,
Item 8.(3)
    
    Cash dividends amounts are rounded.(4)
    
    Common stockholders dividend declared divided by income
(loss) attributable to common stockholders. It is the Companys policy to
distribute in the form of dividends to stockholders on the basis of a
given percentage applicable to the average consolidated earnings for
the last two preceding years.(5)
    
    The return on assets is computed by dividing net income by average total assets for the
period. The return on common stockholders equity is computed by dividing net income less
preferred stock dividends by average common stockholders equity for the period. The
equity-to-asset ratio is computed by dividing average equity by average total assets. Average
balances have been computed using beginning and period-end balances.(6)
    
    Average balances were computed using beginning and period-end balances.(7)
    
    The consolidated statement of financial condition as  of December
31, 2005  has been restated and is presented herein on an unaudited
basis. 63




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##### Table of Contents



ORGANIZATION OF MD&A
   FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 OVERVIEW
   64




---



##### Table of Contents



RESULTS OF OPERATIONS
 NET INTEREST INCOME
   2007 VERSUS 2006.
  2006 VERSUS 2005.
 65




---



##### Table of Contents



66




---



##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageInterest
    
    

balance (1)
    
    
    yield / rate
    
    
    Interest
    
    

balance (1)
    
    
    yield / rate
    
    
    Interest
    
    

balance (1)
    
    
    yield / rate(Dollars in thousands)Normal Spread:Interest-earning assets:Loans, including loan fees (2)
    
    $
    723,765
    
    
    $
    8,898,688
    
    
    
    8.13
    %
    
    $
    661,095
    
    
    $
    8,116,951
    
    
    
    8.14
    %
    
    $
    476,918
    
    
    $
    6,916,243
    
    
    
    6.90
    %Investment securities (3)
    
    
    260,300
    
    
    
    6,458,955
    
    
    
    4.03
    
    
    
    261,971
    
    
    
    6,519,398
    
    
    
    4.02
    
    
    
    247,533
    
    
    
    6,267,159
    
    
    
    3.95Mortgage-backed securities (4)
    
    
    45,291
    
    
    
    935,269
    
    
    
    4.84
    
    
    
    28,489
    
    
    
    632,792
    
    
    
    4.50
    
    
    
    32,321
    
    
    
    752,839
    
    
    
    4.29Money market instruments
    
    
    40,833
    
    
    
    860,093
    
    
    
    4.75
    
    
    
    38,235
    
    
    
    845,375
    
    
    
    4.52
    
    
    
    36,433
    
    
    
    950,980
    
    
    
    3.83Total
    
    
    1,070,189
    
    
    
    17,153,005
    
    
    
    6.24
    
    
    
    989,790
    
    
    
    16,114,516
    
    
    
    6.14
    
    
    
    793,205
    
    
    
    14,887,221
    
    
    
    5.33Interest-bearing liabilities:Deposits
    
    
    463,298
    
    
    
    9,938,968
    
    
    
    4.66
    
    
    
    366,063
    
    
    
    8,771,531
    
    
    
    4.17
    
    
    
    241,268
    
    
    
    7,376,605
    
    
    
    3.27Federal funds purchased and
repurchase agreements
    
    
    315,030
    
    
    
    6,289,605
    
    
    
    5.01
    
    
    
    307,463
    
    
    
    6,290,818
    
    
    
    4.89
    
    
    
    234,791
    
    
    
    6,398,451
    
    
    
    3.67Advances from FHLB
    
    
    5,691
    
    
    
    102,684
    
    
    
    5.54
    
    
    
    7,893
    
    
    
    147,780
    
    
    
    5.34
    
    
    
    7,688
    
    
    
    184,153
    
    
    
    4.17Borrowings under line of credit
    
    
    1,107
    
    
    
    18,220
    
    
    
    6.08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    785,126
    
    
    
    16,349,477
    
    
    
    4.80
    
    
    
    681,419
    
    
    
    15,210,129
    
    
    
    4.48
    
    
    
    483,747
    
    
    
    13,959,209
    
    
    
    3.47Net interest income
    
    $
    285,063
    
    
    
    
    
    
    
    
    
    
    $
    308,371
    
    
    
    
    
    
    
    
    
    
    $
    309,458Interest rate spread
    
    
    
    
    
    
    
    
    
    
    1.44
    %
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.86
    %Net interest-earning assets
    
    
    
    
    
    $
    803,528
    
    
    
    
    
    
    
    
    
    
    $
    904,387
    
    
    
    
    
    
    
    
    
    
    $
    928,012Net yield on interest-earning
assets (5)
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.91
    %
    
    
    
    
    
    
    
    
    
    
    2.08
    %Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    104.91
    %
    
    
    
    
    
    
    
    
    
    
    105.95
    %
    
    
    
    
    
    
    
    
    
    
    106.65
    %Tax Equivalent Spread:Interest-earnings assets
    
    $
    1,070,189
    
    
    $
    17,153,005
    
    
    
    6.24
    %
    
    $
    989,790
    
    
    $
    16,114,516
    
    
    
    6.14
    %
    
    $
    793,205
    
    
    $
    14,887,221
    
    
    
    5.33
    %Tax equivalent adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,626
    
    
    
    
    
    
    
    0.21Interest-earning assets -
tax equivalent
    
    
    1,070,189
    
    
    
    17,153,005
    
    
    
    6.24
    
    
    
    989,790
    
    
    
    16,114,516
    
    
    
    6.14
    
    
    
    824,831
    
    
    
    14,887,221
    
    
    
    5.54Interest-bearing liabilities
    
    
    785,126
    
    
    $
    16,349,477
    
    
    
    4.80
    
    
    
    681,419
    
    
    $
    15,210,129
    
    
    
    4.48
    
    
    
    483,747
    
    
    $
    13,959,209
    
    
    
    3.47Net interest income
    
    $
    285,063
    
    
    
    
    
    
    
    
    
    
    $
    308,371
    
    
    
    
    
    
    
    
    
    
    $
    341,084Interest rate spread
    
    
    
    
    
    
    
    
    
    
    1.44
    %
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    2.07
    %Net yield on interest-
earning assets (5)
    
    
    
    
    
    
    
    
    
    
    1.66
    %
    
    
    
    
    
    
    
    
    
    
    1.91
    %
    
    
    
    
    
    
    
    
    
    
    2.29
    %
 
 (1)
    
    Average balance on interest-earning assets and
interest-bearing liabilities is computed using daily monthly average balances during the period.(2)
    
    Average loans exclude the average balance of non-performing loans amounting to $367.9 million,
$209.4 million and $40.9 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
Loans fees, net amounted to $17.1 million, $15.8 million and $16.3 million for the years ended
December 31, 2007, 2006 and 2005, respectively.(3)
    
    Includes available for sale securities.(4)
    
    Includes trading and available for sale securities.(5)
    
    Net interest income divided by average interest-earning assets. 67




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##### Table of Contents



Year ended December 31,2007 vs. 2006
    
    
    2006 vs. 2005Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(In thousands)Interest income:Loans
    
    $
    63,580
    
    
    $
    (910
    )
    
    $
    62,670
    
    
    $
    90,136
    
    
    $
    94,041
    
    
    $
    184,177Investment securities (1)
    
    
    (2,439
    )
    
    
    768
    
    
    
    (1,671
    )
    
    
    10,084
    
    
    
    4,354
    
    
    
    14,438Mortgage-backed securities (2)
    
    
    14,507
    
    
    
    2,295
    
    
    
    16,802
    
    
    
    (5,515
    )
    
    
    1,683
    
    
    
    (3,832
    )Money market instruments
    
    
    648
    
    
    
    1,950
    
    
    
    2,598
    
    
    
    (4,324
    )
    
    
    6,126
    
    
    
    1,802Total increase in interest income
    
    
    76,296
    
    
    
    4,103
    
    
    
    80,399
    
    
    
    90,381
    
    
    
    106,204
    
    
    
    196,585Interest expense:Deposits
    
    
    51,754
    
    
    
    45,481
    
    
    
    97,235
    
    
    
    50,744
    
    
    
    74,051
    
    
    
    124,795Federal funds purchased and
repurchase agreements
    
    
    (59
    )
    
    
    7,626
    
    
    
    7,567
    
    
    
    (3,880
    )
    
    
    76,552
    
    
    
    72,672Advances from FHLB
    
    
    (2,512
    )
    
    
    310
    
    
    
    (2,202
    )
    
    
    (495
    )
    
    
    700
    
    
    
    205Borrowings under line of credit
    
    
    1,107
    
    
    
    
    
    
    
    1,107
    
    
    
    
    
    
    
    
    
    
    
    Total increase in interest expense
    
    
    50,290
    
    
    
    53,417
    
    
    
    103,707
    
    
    
    46,369
    
    
    
    151,303
    
    
    
    197,672Increase (decrease) in
net interest income
    
    $
    26,006
    
    
    $
    (49,314
    )
    
    $
    (23,308
    )
    
    $
    44,012
    
    
    $
    (45,099
    )
    
    $
    (1,087
    )
 
 (1)
    
    Includes available for sale securities.(2)
    
    Includes trading and available for sale securities. PROVISION FOR LOAN LOSSES
   2007 VERSUS 2006.
  68




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2006 VERSUS 2005.
   70




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71




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NONINTEREST INCOME
   Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Service and other charges on loans
    
    $
    12,687
    
    
    $
    12,527
    
    
    $
    11,577Service charges on deposit accounts
    
    
    12,397
    
    
    
    9,976
    
    
    
    8,636Other fees and commissions
    
    
    20,313
    
    
    
    15,104
    
    
    
    13,182Net gain on derivative instruments
    
    
    1,308
    
    
    
    632
    
    
    
    1,878Gain on trading account securities
    
    
    92
    
    
    
    164
    
    
    
    154Net gain (loss) on sales of loans,
securities and others
    
    
    1,001
    
    
    
    (1,305
    )
    
    
    393Total noninterest income
    
    $
    47,798
    
    
    $
    37,098
    
    
    $
    35,820
 2007 VERSUS 2006.
 2006 VERSUS 2005.
 72




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NONINTEREST EXPENSES
  Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries and employees benefits
    
    $
    60,436
    
    
    $
    54,378
    
    
    $
    46,653Equipment
expenses
    
    
    13,244
    
    
    
    11,610
    
    
    
    9,554Deposits insurance premium and supervisory examination
    
    
    10,398
    
    
    
    3,770
    
    
    
    3,370Occupancy
    
    
    9,383
    
    
    
    8,482
    
    
    
    7,640Advertising
    
    
    8,641
    
    
    
    9,140
    
    
    
    9,160Printing, postage, stationery and supplies
    
    
    3,860
    
    
    
    3,654
    
    
    
    3,128Telephone
    
    
    2,068
    
    
    
    2,275
    
    
    
    1,853Net loss (gain) from operations of foreclosed real estate held for sale
    
    
    182
    
    
    
    (270
    )
    
    
    (402
    )Municipal taxes
    
    
    8,775
    
    
    
    6,218
    
    
    
    4,708Professional fees
    
    
    17,884
    
    
    
    3,819
    
    
    
    1,680Other
    
    
    28,538
    
    
    
    21,442
    
    
    
    20,886Total noninterest expenses
    
    $
    163,409
    
    
    $
    124,518
    
    
    $
    108,230
 2007 VERSUS 2006.
       73




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2006 VERSUS 2005.
       PROVISION FOR INCOME TAXES
    74




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2007 VERSUS 2006.
 Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes
    2006 VERSUS 2005.
 75




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NET INCOME (LOSS)
  FINANCIAL CONDITION
 LOANS
   At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Commercial real estate  mortgage (1)
    
    $
    5,556,789
    
    
    
    60.4
    %
    
    $
    4,963,117
    
    
    
    58.0
    %
    
    $
    4,268,251
    
    
    
    55.0
    %
    
    $
    3,154,679
    
    
    
    53.3
    %
    
    $
    2,261,465
    
    
    
    48.3
    %Residential real estate  mortgage (2)
    
    
    970,419
    
    
    
    10.5
    
    
    
    1,014,957
    
    
    
    11.9
    
    
    
    1,298,535
    
    
    
    16.7
    
    
    
    879,056
    
    
    
    14.9
    
    
    
    894,007
    
    
    
    19.1Construction  mortgage
    
    
    1,429,125
    
    
    
    15.5
    
    
    
    722,789
    
    
    
    8.4
    
    
    
    505,760
    
    
    
    6.5
    
    
    
    328,145
    
    
    
    5.5
    
    
    
    202,600
    
    
    
    4.3Commercial, industrial and agricultural (1)
    
    
    851,423
    
    
    
    9.3
    
    
    
    1,245,541
    
    
    
    14.6
    
    
    
    1,003,673
    
    
    
    12.9
    
    
    
    768,604
    
    
    
    13.0
    
    
    
    524,747
    
    
    
    11.2Consumer and others (3) (4)
    
    
    740,875
    
    
    
    8.0
    
    
    
    809,953
    
    
    
    9.5
    
    
    
    830,384
    
    
    
    10.7
    
    
    
    866,934
    
    
    
    14.6
    
    
    
    861,907
    
    
    
    18.4Total loans
    
    
    9,548,631
    
    
    
    103.7
    
    
    
    8,756,357
    
    
    
    102.4
    
    
    
    7,906,603
    
    
    
    101.8
    
    
    
    5,997,418
    
    
    
    101.3
    
    
    
    4,744,726
    
    
    
    101.3Allowance for loan losses
    
    
    (338,720
    )
    
    
    (3.7
    )
    
    
    (202,180
    )
    
    
    (2.4
    )
    
    
    (141,412
    )
    
    
    (1.8
    )
    
    
    (80,066
    )
    
    
    (1.3
    )
    
    
    (61,608
    )
    
    
    (1.3
    )Loans  net
    
    $
    9,209,911
    
    
    
    100.0
    %
    
    $
    8,554,177
    
    
    
    100.0
    %
    
    $
    7,765,191
    
    
    
    100.0
    %
    
    $
    5,917,352
    
    
    
    100.0
    %
    
    $
    4,683,118
    
    
    
    100.0
    %
 
 (1)
    
    Includes $998.0 million, $1.43 billion, $1.25 billion, $831.1 million and $641.1 million of the
outstanding loans of Westernbank Business Credit division
at December 31, 2007, 2006, 2005, 2004 and 2003, respectively.(2)
    
    Includes fixed and floating interest rate loans to two mortgage originators groups in Puerto
Rico mainly secured by mortgages on one-to-four
family residential properties as follows: $837.0 million, $940.0 million, $1.14 billion, $745.0
million and $750.6 million at December 31, 2007,
2006, 2005, 2004 and 2003, respectively.(3)
    
    Includes $112.3 million, $129.0 million, $135.0 million, $144.0 million and $155.6 million of
Expresso of Westernbank division outstanding loans at
December 31, 2007, 2006, 2005, 2004 and 2003, respectively.(4)
    
    Includes $471.9 million, $490.7million, $585.9 million, $585.2 million and $521.6 million
collateralized by first mortgages over real estates at December 31, 2007,
2006, 2005, 2004, 2003, respectively. () ()
  76




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MaturitiesAfter one year to five years
    
    
    After five yearsBalance
    
    
    One year or
    
    
    Fixed
    
    
    Variable
    
    
    Fixed

    
    
    Variableoutstanding
    
    
    less
    
    
    interest
    
    
    interest
    
    

interest
    
    
    interest(In thousands)Commercial real estate  mortgage
    
    $
    5,556,789
    
    
    $
    2,118,997
    
    
    $
    445,005
    
    
    $
    492,385
    
    
    $
    96,938
    
    
    $
    2,403,464Residential real estate  mortgage (1)
    
    
    970,419
    
    
    
    10,980
    
    
    
    67,764
    
    
    
    33,604
    
    
    
    857,961
    
    
    
    110Construction  mortgage
    
    
    1,429,125
    
    
    
    777,965
    
    
    
    16,706
    
    
    
    556,476
    
    
    
    3,525
    
    
    
    74,453Commercial, industrial and agricultural
    
    
    851,423
    
    
    
    572,183
    
    
    
    53,642
    
    
    
    170,291
    
    
    
    9,841
    
    
    
    45,466Consumer and others
    
    
    740,875
    
    
    
    130,413
    
    
    
    143,933
    
    
    
    10,961
    
    
    
    81,275
    
    
    
    374,293Total
    
    $
    9,548,631
    
    
    $
    3,610,538
    
    
    $
    727,050
    
    
    $
    1,263,717
    
    
    $
    1,049,540
    
    
    $
    2,897,786
 
 (1)
    
    Includes fixed and floating interest rate loans to two mortgage originator groups in Puerto
Rico mainly secured by mortgage on one-to-four familiy residential properties with an outstanding
principal balance of $837.0 million.        78




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TM TM
  NON-PERFORMING LOANS, TROUBLED DEBT RESTRUCTURINGS AND FORECLOSED REAL ESTATE HELD FOR SALE
     79




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December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Commercial real-estate mortgage loans:Asset-based lending division
    
    $
    340,261
    
    
    $
    77,646
    
    
    $
    14,391
    
    
    $
    
    
    
    $
    Other
    
    
    717,928
    
    
    
    42,881
    
    
    
    41,416
    
    
    
    24,988
    
    
    
    23,582Sub-total
    
    
    1,058,189
    
    
    
    120,527
    
    
    
    55,807
    
    
    
    24,988
    
    
    
    23,582Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    266,189
    
    
    
    147,805
    
    
    
    79,795
    
    
    
    
    
    
    
    Other
    
    
    8,564
    
    
    
    2,026
    
    
    
    3,986
    
    
    
    429
    
    
    
    560Sub-total
    
    
    274,753
    
    
    
    149,831
    
    
    
    83,781
    
    
    
    429
    
    
    
    560Construction  mortgage loans
    
    
    429,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate mortgage and construction loans
    
    
    3,071
    
    
    
    1,641
    
    
    
    2,125
    
    
    
    1,730
    
    
    
    2,259Consumer loans (1)
    
    
    10,653
    
    
    
    9,309
    
    
    
    6,288
    
    
    
    7,122
    
    
    
    4,845Total non-performing loans
    
    
    1,776,053
    
    
    
    281,308
    
    
    
    148,001
    
    
    
    34,269
    
    
    
    31,246Foreclosed real estate held for sale
    
    
    10,971
    
    
    
    5,917
    
    
    
    4,137
    
    
    
    3,811
    
    
    
    4,082Total non-performing loans and foreclosed
real estate held for sale
    
    $
    1,787,024
    
    
    $
    287,225
    
    
    $
    152,138
    
    
    $
    38,080
    
    
    $
    35,328Interest that would have been recorded if the loans had
not been classified as non-performing
    
    $
    48,974
    
    
    $
    20,009
    
    
    $
    5,525
    
    
    $
    3,557
    
    
    $
    2,500Interest recorded on non-performing loans
    
    $
    17,068
    
    
    $
    5,046
    
    
    $
    743
    
    
    $
    243
    
    
    $
    583Total non-performing loans as a percentage
of total loans at end of period
    
    
    18.60
    %
    
    
    3.21
    %
    
    
    1.87
    %
    
    
    0.58
    %
    
    
    0.66
    %Total non-performing loans and foreclosed real estate
held for sale as a percentage of total assets at end of period
    
    
    9.97
    %
    
    
    1.68
    %
    
    
    0.94
    %
    
    
    0.27
    %
    
    
    0.31
    %
 
 (1)
    
    Includes $6.7 million, $4.9 million, $4.2 million, $5.0 million and $3.5 million of loans collateralized with real estate at
December 31, 2007, 2006, 2005, 2004 and 2003, respectively.    80




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ALLOWANCE FOR LOAN LOSSES
    81




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Accounting by Creditors for Impairment of a Loan
     82




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Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Balance, beginning of year
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608
    
    
    $
    47,114Loans charged-off:Commercial real estate  mortgage loans:Asset-based lending division
    
    
    (10,200
    )
    
    
    (7,500
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (4,536
    )
    
    
    (4,049
    )
    
    
    (1,835
    )
    
    
    (3,958
    )
    
    
    (501
    )Sub-total
    
    
    (14,736
    )
    
    
    (11,549
    )
    
    
    (1,835
    )
    
    
    (3,958
    )
    
    
    (501
    )Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    (110,481
    )
    
    
    (8,255
    )
    
    
    (5,254
    )
    
    
    
    
    
    
    Other
    
    
    (1,441
    )
    
    
    (2,802
    )
    
    
    (1,144
    )
    
    
    (1,475
    )
    
    
    (1,978
    )Sub-total
    
    
    (111,922
    )
    
    
    (11,057
    )
    
    
    (6,398
    )
    
    
    (1,475
    )
    
    
    (1,978
    )Residential
real estate-mortgage loans
    
    
    (1,421
    )
    
    
    (94
    )
    
    
    (121
    )
    
    
    (297
    )
    
    
    (184
    )Consumer loans (1)
    
    
    (16,105
    )
    
    
    (12,576
    )
    
    
    (13,809
    )
    
    
    (16,473
    )
    
    
    (12,203
    )Total loans charged-off
    
    
    (144,184
    )
    
    
    (35,276
    )
    
    
    (22,163
    )
    
    
    (22,203
    )
    
    
    (14,866
    )Recoveries of loans previously
charged-off:Commercial real estate  mortgage loans:Asset-based lending division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    590
    
    
    
    2,685
    
    
    
    756
    
    
    
    746
    
    
    
    902Sub-total
    
    
    590
    
    
    
    2,685
    
    
    
    756
    
    
    
    746
    
    
    
    902Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355
    
    
    
    Other
    
    
    721
    
    
    
    161
    
    
    
    252
    
    
    
    743
    
    
    
    239Sub-total
    
    
    721
    
    
    
    161
    
    
    
    252
    
    
    
    1,098
    
    
    
    239Residential real estate-mortgage loans
    
    
    87
    
    
    
    66
    
    
    
    212
    
    
    
    206
    
    
    
    372Consumer loans (2)
    
    
    1,764
    
    
    
    2,252
    
    
    
    2,283
    
    
    
    1,920
    
    
    
    799Total recoveries of loans previously charged-off
    
    
    3,162
    
    
    
    5,164
    
    
    
    3,503
    
    
    
    3,970
    
    
    
    2,312Net loans charged-off
    
    
    (141,022
    )
    
    
    (30,112
    )
    
    
    (18,660
    )
    
    
    (18,233
    )
    
    
    (12,554
    )Provision for loan losses
    
    
    277,562
    
    
    
    90,880
    
    
    
    80,006
    
    
    
    36,691
    
    
    
    27,048Balance, end of year
    
    $
    338,720
    
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608Ratios:Allowance for loan losses to total loans at end of period
    
    
    3.55
    %
    
    
    2.31
    %
    
    
    1.79
    %
    
    
    1.34
    %
    
    
    1.30
    %Provision for loan losses to net loans charged-off
    
    
    196.82
    %
    
    
    301.81
    %
    
    
    428.76
    %
    
    
    201.23
    %
    
    
    215.45
    %Recoveries of loans to loans charged-off in previous period
    
    
    8.96
    %
    
    
    23.30
    %
    
    
    15.78
    %
    
    
    26.71
    %
    
    
    29.03
    %Net loans charged-off to average total loans (3)
    
    
    1.54
    %
    
    
    0.36
    %
    
    
    0.27
    %
    
    
    0.34
    %
    
    
    0.29
    %Allowance for loans losses to non-performing loans
    
    
    19.07
    %
    
    
    71.87
    %
    
    
    95.55
    %
    
    
    233.64
    %
    
    
    197.17
    %
 
 (1)
    
    Includes $11.0 million, $8.9 million, $9.8 million, $12.4 million and $7.9 million of
Expresso of Westernbank loan charge-offs, for the years ended December 31, 2007, 2006, 2005,
2004 and 2003, respectively.(2)
    
    Includes $1.1 million, $1.0 million, $1.1 million, $1.0 million and $17,000 of Expresso of
Westernbank loan recoveries, for the years ended December 31, 2007, 2006, 2005, 2004 and 2003,
respectively.(3)
    
    Average loans were computed using beginning and period-end balances.  83




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At December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Allowance for loan losses:Commercial real estate-mortgage loans:Asset-based lending division
    
    $
    17,473
    
    
    $
    20,672
    
    
    $
    13,492
    
    
    $
    3,309
    
    
    $
    2,644Other
    
    
    133,930
    
    
    
    26,326
    
    
    
    30,890
    
    
    
    32,997
    
    
    
    27,296Sub-total
    
    
    151,403
    
    
    
    46,998
    
    
    
    44,382
    
    
    
    36,306
    
    
    
    29,940Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    37,409
    
    
    
    129,064
    
    
    
    65,906
    
    
    
    9,627
    
    
    
    3,928Other
    
    
    13,619
    
    
    
    3,080
    
    
    
    7,382
    
    
    
    8,560
    
    
    
    5,349Sub-total
    
    
    51,028
    
    
    
    132,144
    
    
    
    73,288
    
    
    
    18,187
    
    
    
    9,277Construction mortgage
    
    
    117,281
    
    
    
    3,616
    
    
    
    4,059
    
    
    
    3,715
    
    
    
    2,183Residential real estate mortgage
    
    
    4,532
    
    
    
    4,654
    
    
    
    3,275
    
    
    
    407
    
    
    
    415Consumer and others (1)
    
    
    14,476
    
    
    
    12,029
    
    
    
    14,430
    
    
    
    19,425
    
    
    
    17,472Unallocated
    
    
    
    
    
    
    2,739
    
    
    
    1,978
    
    
    
    2,026
    
    
    
    2,321Total allowance for loan losses
    
    $
    338,720
    
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066
    
    
    $
    61,608Loan portfolio composition percentages:Commercial real estate-mortgage loans:Asset-based lending division
    
    
    5.78
    %
    
    
    7.10
    %
    
    
    8.18
    %
    
    
    7.32
    %
    
    
    6.93
    %Other
    
    
    52.41
    %
    
    
    49.59
    %
    
    
    45.80
    %
    
    
    45.28
    %
    
    
    40.73
    %Sub-total
    
    
    58.19
    %
    
    
    56.69
    %
    
    
    53.98
    %
    
    
    52.60
    %
    
    
    47.66
    %Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    4.67
    %
    
    
    9.22
    %
    
    
    7.63
    %
    
    
    6.54
    %
    
    
    6.59
    %Other
    
    
    4.25
    %
    
    
    5.00
    %
    
    
    5.07
    %
    
    
    6.28
    %
    
    
    4.47
    %Sub-total
    
    
    8.92
    %
    
    
    14.22
    %
    
    
    12.70
    %
    
    
    12.82
    %
    
    
    11.06
    %Construction mortgage
    
    
    14.97
    %
    
    
    8.25
    %
    
    
    6.40
    %
    
    
    5.47
    %
    
    
    4.27
    %Residential real estate mortgage
    
    
    10.16
    %
    
    
    11.59
    %
    
    
    16.42
    %
    
    
    14.66
    %
    
    
    18.84
    %Consumer and others
    
    
    7.76
    %
    
    
    9.25
    %
    
    
    10.50
    %
    
    
    14.45
    %
    
    
    18.17
    %Total loans
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %Allowance coverage ratio at
end of year applicable to:Commercial real estate-mortgage loans:Asset-based lending division
    
    
    3.16
    %
    
    
    3.33
    %
    
    
    2.09
    %
    
    
    0.75
    %
    
    
    0.80
    %Other
    
    
    2.68
    %
    
    
    0.61
    %
    
    
    0.85
    %
    
    
    4.93
    %
    
    
    1.36
    %Sub-total
    
    
    2.72
    %
    
    
    0.95
    %
    
    
    1.04
    %
    
    
    1.15
    %
    
    
    1.32
    %Commercial, industrial and agricultural loans:Asset-based lending division
    
    
    8.39
    %
    
    
    15.99
    %
    
    
    10.93
    %
    
    
    2.46
    %
    
    
    1.26
    %Other
    
    
    3.36
    %
    
    
    0.70
    %
    
    
    1.84
    %
    
    
    2.27
    %
    
    
    2.52
    %Sub-total
    
    
    5.99
    %
    
    
    10.61
    %
    
    
    7.30
    %
    
    
    2.37
    %
    
    
    1.77
    %Construction mortgage
    
    
    8.21
    %
    
    
    0.50
    %
    
    
    0.80
    %
    
    
    1.13
    %
    
    
    1.08
    %Residential real estate mortgage
    
    
    0.47
    %
    
    
    0.46
    %
    
    
    0.25
    %
    
    
    0.05
    %
    
    
    0.05
    %Consumer and others
    
    
    1.95
    %
    
    
    1.49
    %
    
    
    1.74
    %
    
    
    2.24
    %
    
    
    2.03
    %Unallocated (as a percentage of total loans)
    
    
    0.00
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.05
    %Total loans
    
    
    3.55
    %
    
    
    2.31
    %
    
    
    1.79
    %
    
    
    1.34
    %
    
    
    1.30
    %
 
 (1)
    
    Includes an allowance of $8.7 million, $7.8 million, $8.4 million, $13.8 million and $10.0
million for the Expresso of
Westernbank loans portfolio at December 31, 2007, 2006, 2005, 2004 and 2003, respectively. 86




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##### Table of Contents



Troubled Debt Restructurings
   Impaired Loans
    87




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##### Table of Contents



December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Investment in impaired loans:Covered by a valuation allowance:Asset-based lending division
    
    $
    129,159
    
    
    $
    215,035
    
    
    $
    107,406
    
    
    $
    23,908
    
    
    $
    14,314Construction  mortgage
    
    
    396,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    395,882
    
    
    
    22,267
    
    
    
    7,913
    
    
    
    6,067
    
    
    
    13,903Sub-total
    
    
    922,001
    
    
    
    237,302
    
    
    
    115,319
    
    
    
    29,975
    
    
    
    28,217Do not require a valuation allowance:Asset-based lending division
    
    
    469,339
    
    
    
    9,912
    
    
    
    10,887
    
    
    
    
    
    
    
    Construction  mortgage
    
    
    83,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    313,997
    
    
    
    21,513
    
    
    
    38,552
    
    
    
    24,200
    
    
    
    22,088Sub-total
    
    
    866,545
    
    
    
    31,425
    
    
    
    49,439
    
    
    
    24,200
    
    
    
    22,088Total
    
    $
    1,788,546
    
    
    $
    268,727
    
    
    $
    164,758
    
    
    $
    54,175
    
    
    $
    50,305Valuation allowance for impaired loans:Asset-based lending division
    
    $
    31,766
    
    
    $
    93,144
    
    
    $
    42,350
    
    
    $
    6,846
    
    
    $
    1,800Construction  mortgage
    
    
    66,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    76,292
    
    
    
    5,360
    
    
    
    2,187
    
    
    
    1,566
    
    
    
    2,846$
    175,046
    
    
    $
    98,504
    
    
    $
    44,537
    
    
    $
    8,412
    
    
    $
    4,646Percentage of valuation allowance
to imapired loans
    
    
    9.79
    %
    
    
    36.66
    %
    
    
    27.03
    %
    
    
    15.53
    %
    
    
    9.24
    %
 Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Average investment in impaired loans:Asset-based lending division
    
    $
    431,485
    
    
    $
    171,449
    
    
    $
    45,265
    
    
    $
    19,111
    
    
    $
    12,144Construction  mortgage
    
    
    132,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    221,932
    
    
    
    39,836
    
    
    
    32,665
    
    
    
    27,398
    
    
    
    34,532$
    786,100
    
    
    $
    211,285
    
    
    $
    77,930
    
    
    $
    46,509
    
    
    $
    46,676Interest collected and recognized as income
on non-performing and impaired loans:Asset-based lending division
    
    $
    14,335
    
    
    $
    2,920
    
    
    $
    
    
    
    $
    
    
    
    $
    Construction  mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    1,705
    
    
    
    2,124
    
    
    
    743
    
    
    
    243
    
    
    
    583$
    16,040
    
    
    $
    5,044
    
    
    $
    743
    
    
    $
    243
    
    
    $
    583
   88




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##### Table of Contents



89




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##### Table of Contents



INVESTMENTS
       90




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Held to maturity:US Government and agencies obligations
    
    $
    5,927,530
    
    
    $
    6,314,091
    
    
    $
    6,314,316Puerto Rico Government and agencies obligations (PRGOs)
    
    
    10,207
    
    
    
    11,663
    
    
    
    31,824Corporate notes
    
    
    21,436
    
    
    
    21,433
    
    
    
    26,429Mortgage-backed securities
    
    
    639,024
    
    
    
    660,392
    
    
    
    701,456Total
    
    
    6,598,197
    
    
    
    7,007,579
    
    
    
    7,074,025Available for sale:PRGOs
    
    
    15,305
    
    
    
    18,050
    
    
    
    Mortgage-backed securities
    
    
    461,790
    
    
    
    
    
    
    
    185Equity securities  common stock
    
    
    1,906
    
    
    
    2,491
    
    
    
    4,981Total
    
    
    479,001
    
    
    
    20,541
    
    
    
    5,166Total investments
    
    $
    7,077,198
    
    
    $
    7,028,120
    
    
    $
    7,079,191
  2007
    
    
    2006
    
    
    2005(In thousands)Available for sale:Collateralized mortgage obligations (CMOs) issued or guaranteed
by the Federal National Mortgage Association (FNMA)
    
    $
    445,478
    
    
    $
    
    
    
    $
    185CMOs issued or guaranteed by the Federal Home
Loan Mortgage Corporation (FHLMC)
    
    
    16,312
    
    
    
    
    
    
    
    Total available for sale
    
    
    461,790
    
    
    
    
    
    
    
    185Held to maturity:Government National Mortgage Association (GNMA) certificates
    
    
    6,254
    
    
    
    7,140
    
    
    
    8,082FHLMC certificates
    
    
    2,444
    
    
    
    3,055
    
    
    
    4,180FNMA certificates
    
    
    3,014
    
    
    
    3,358
    
    
    
    2,828CMOs certificates issued or guaranteed by FHLMC
    
    
    556,547
    
    
    
    573,735
    
    
    
    607,659CMOs certificates issued or guaranteed by FNMA
    
    
    70,765
    
    
    
    73,104
    
    
    
    78,707Total held to maturity
    
    
    639,024
    
    
    
    660,392
    
    
    
    701,456Total mortgage-backed securities
    
    $
    1,100,814
    
    
    $
    660,392
    
    
    $
    701,641
  91




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##### Table of Contents



Carrying
    
    
    Weightedamount
    
    
    average yield(Dollars in thousands)US Government and agencies obligations:Due within one year
    
    $
    1,246,025
    
    
    
    3.65
    %Due after one year through five years
    
    
    4,506,505
    
    
    
    4.00Due after five years through ten years
    
    
    175,000
    
    
    
    4.005,927,530
    
    
    
    3.93Puerto Rico Government and agencies obligations:Due within one year
    
    
    4,003
    
    
    
    5.05Due after one year through five years
    
    
    15,331
    
    
    
    4.00Due after five years through ten years
    
    
    6,178
    
    
    
    4.6625,512
    
    
    
    4.32Other:Due after ten years
    
    
    21,436
    
    
    
    8.33Total
    
    
    5,974,478
    
    
    
    3.95Mortgage-backed securities
    
    
    1,100,814
    
    
    
    4.72Equity securities
    
    
    1,906
    
    
    
    2.21Total
    
    $
    7,077,198
    
    
    
    4.07
    %
     92




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##### Table of Contents



DEPOSITS
     (In thousands)3 months or less
    
    $
    294,405over 3 months through 6 months
    
    
    95,248over 6 months through 12 months
    
    
    76,358over 12 months
    
    
    59,666Total
    
    $
    525,677
 93




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Average
    
    
    Averageamount
    
    
    rate
    
    
    amount
    
    
    rate
    
    
    amount
    
    
    rate(Dollars in thousands)Time deposits
    
    $
    8,543,989
    
    
    
    5.17
    %
    
    $
    7,305,932
    
    
    
    4.72
    %
    
    $
    6,004,119
    
    
    
    3.64
    %Savings deposits
    
    
    706,989
    
    
    
    2.11
    %
    
    
    755,800
    
    
    
    2.06
    %
    
    
    802,994
    
    
    
    2.09
    %Interest bearing demand
deposits
    
    
    279,992
    
    
    
    2.46
    %
    
    
    279,886
    
    
    
    2.08
    %
    
    
    200,804
    
    
    
    2.88
    %Noninterest bearing
demand
deposits
    
    
    407,998
    
    
    
    
    
    
    
    429,913
    
    
    
    
    
    
    
    368,688
    
    
    
    $
    9,938,968
    
    
    
    4.66
    %
    
    $
    8,771,531
    
    
    
    4.17
    %
    
    $
    7,376,605
    
    
    
    3.27
    %
 BORROWINGS
  December 31,2007
    
    
    2006
    
    
    2005(In thousands)Federal funds purchased and repurchase agreements (1)
    
    $
    6,146,693
    
    
    $
    6,320,481
    
    
    $
    6,260,029Advances from Federal Home Loan Bank (FHLB)
    
    
    102,000
    
    
    
    127,000
    
    
    
    172,000Mortgage note payable
    
    
    35,465
    
    
    
    35,968
    
    
    
    36,432$
    6,284,158
    
    
    $
    6,483,449
    
    
    $
    6,468,461
 
 (1)
    
    Federal funds purchased amounted to $100.0 million at December 31, 2007, at a
weighted average interest rate of 4.44%, and mature the next business day.
No such borrowings were outstanding at December 31, 2006 and 2005.     94




---



##### Table of Contents



2007
    
    2006
    
    2005(Dollars in thousands)Federal funds purchased:Balance at end of year
    
    $
    100,000
    
    
    $
    
    
    
    $
    Weighted-average interest rate at year end
    
    
    4.44
    %
    
    
    
    %
    
    
    
    %Monthly average outstanding balance
    
    $
    24,308
    
    
    $
    3,077
    
    
    $
    8,851Weighted-average interest rate for the year
    
    
    5.17
    %
    
    
    4.69
    %
    
    
    2.43
    %Maximum month-end balance
    
    $
    100,000
    
    
    $
    40,000
    
    
    $
    40,039Repurchase agreements:Balance at end of year
    
    $
    1,364,075
    
    
    $
    1,070,582
    
    
    $
    1,545,725Weighted-average interest rate at year end
    
    
    4.85
    %
    
    
    5.33
    %
    
    
    4.34
    %Monthly average outstanding balance
    
    $
    1,497,932
    
    
    $
    1,731,600
    
    
    $
    2,377,629Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %
    
    
    3.03
    %Maximum month-end balance
    
    $
    2,771,592
    
    
    $
    2,282,650
    
    
    $
    3,514,422Advances from FHLB:Balance at end of year
    
    $
    60,000
    
    
    $
    25,000
    
    
    $
    50,000Weighted-average interest rate at year end
    
    
    4.52
    %
    
    
    5.43
    %
    
    
    4.45
    %Monthly average outstanding balance
    
    $
    29,615
    
    
    $
    33,462
    
    
    $
    21,923Weighted-average interest rate for the year
    
    
    4.99
    %
    
    
    5.01
    %
    
    
    3.49
    %Maximum month-end balance
    
    $
    60,000
    
    
    $
    50,000
    
    
    $
    50,000Borrowings under line of credit:Balance at end of year
    
    $
    
    
    
    $
    
    
    
    $
    Weighted-average interest rate at year end
    
    
    
    %
    
    
    
    %
    
    
    
    %Monthly average outstanding balance
    
    $
    15,158
    
    
    $
    
    
    
    $
    Weighted-average interest rate for the year
    
    
    6.00
    %
    
    
    
    %
    
    
    
    %Maximum month-end balance
    
    $
    34,030
    
    
    $
    
    
    
    $
    Total short-term borrowings:Balance at end of year
    
    $
    1,524,075
    
    
    $
    1,095,582
    
    
    $
    1,595,725Weighted-average interest rate at year end
    
    
    4.81
    %
    
    
    5.33
    %
    
    
    4.34
    %Monthly average outstanding balance
    
    $
    1,567,013
    
    
    $
    1,768,139
    
    
    $
    2,408,403Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %
    
    
    3.03
    %Maximum month-end balance
    
    $
    2,865,622
    
    
    $
    2,322,650
    
    
    $
    3,579,461
 95




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##### Table of Contents



STOCKHOLDERS EQUITY
             96




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##### Table of Contents




    
    During the first and second quarters of 2008, Westernbank shifted the composition of
its investment portfolio from called agency securities with a risk-weight of 20% to GNMA
mortgage-backed securities and collateralized mortgage obligations with a risk-weight of
0%. As a result of the aforementioned reinvestment, Westernbanks total capital to
risk-weighted assets ratio improved by approximately 100 basis points.
    
    The Company is analyzing all capital-raising initiatives, including selling the
Companys headquarters. Initial steps to preserve capital included the reduction of the
quarterly dividend by 74% and more recently the suspension of all dividends on the common
stock and all of the outstanding series of preferred stock.
    
    De-leverage of the Companys loan portfolio through normal attrition, and more
stringent loan approval policies and procedures for new and renewed credit relationships
due to the present economic situation of Puerto Rico. Since the middle of 2007, the
Company has stopped originating new construction and development loans to new customers.
    
    During the third quarter of 2008, the Company implemented a restructuring plan, which
included closing 7 branches and the elimination of approximately 125 positions. The
expected annual savings from this initiative is approximately $3.0 million.
    
    During the first quarter of 2008, Westernbank negotiated tax agreements with local and
federal authorities that yielded a benefit of $33.3 million.
    
    During 2008, Westernbank sold certain land lots originally held for future branch
development and recognized a gain on sale of $14.7 million.
  97




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##### Table of Contents



Minimum To BeMinimum
    
    
    Well Capitalized UnderCapital
    
    
    Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)As of December 31, 2007:Total Capital to Risk Weighted
Assets:Consolidated
    
    $
    1,028,775
    
    
    
    9.06
    %
    
    $
    908,293
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,008,782
    
    
    
    8.89
    
    
    
    907,287
    
    
    
    8
    
    
    $
    1,134,109
    
    
    
    10
    %Tier I Capital to Risk Weighted
Assets:Consolidated
    
    $
    884,424
    
    
    
    7.79
    %
    
    $
    454,146
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    864,605
    
    
    
    7.62
    
    
    
    453,585
    
    
    
    4
    
    
    $
    680,377
    
    
    
    6
    %Tier I Capital to Average Assets:Consolidated
    
    $
    884,424
    
    
    
    4.90
    %
    
    $
    721,576
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    864,605
    
    
    
    4.82
    
    
    
    718,115
    
    
    
    4
    
    
    $
    897,644
    
    
    
    5
    %As of December 31, 2006:Total Capital to Risk Weighted
Assets:Consolidated
    
    $
    1,279,015
    
    
    
    11.92
    %
    
    $
    858,515
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,201,722
    
    
    
    11.22
    
    
    
    857,085
    
    
    
    8
    
    
    $
    1,071,357
    
    
    
    10
    %Tier I Capital to Risk Weighted
Assets:Consolidated
    
    $
    1,144,033
    
    
    
    10.66
    %
    
    $
    429,257
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,066,960
    
    
    
    9.96
    
    
    
    428,543
    
    
    
    4
    
    
    $
    642,814
    
    
    
    6
    %Tier I Capital to Average Assets:Consolidated
    
    $
    1,144,033
    
    
    
    6.76
    %
    
    $
    676,966
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,066,960
    
    
    
    6.34
    
    
    
    673,630
    
    
    
    4
    
    
    $
    842,037
    
    
    
    5
    %
  BUSINESS SEGMENT REVIEW
       
    
    Segment total net interest income and noninterest income for the year ended December
31, 2007 was $20.7 million compared to $262.6 million and $248.1 million for the years
ended December 31, 2006 and 2005, respectively.
    
    Net interest income for the year ended December 31, 2007 was $233.3 million compared to
$237.8 million and $227.8 million for the years ended December 31, 2006 and 2005,
respectively. The decrease in net interest income for the year 2007 as compared to 2006
was primarily attributable to a reduction in the net yield earned on net interest-earning
assets, offset in part by an increase in the average balance on net interest-earning
assets. The increase for 2006 compared to 2005 was mainly driven by the increase in the
average volume of net interest-earning assets.
    
    The provision for loan losses for the year ended December 31, 2007 was $251.5 million
compared to $4.8 million and $8.3 million for the years ended December 31, 2006 and 2005,
respectively. The increase in the provision for loan losses for 2007 is mainly
attributable to higher non-performing and impaired loans and higher net loans charged-off
and specific reserves during the period in the Companys commercial and construction loan
portfolios due to the effects of the continuing downturn in the economy of Puerto Rico,
which has been in recession since 2006.
    
    Noninterest income for the year ended December 31, 2007 was $39.3 million compared to
$29.4 million and $28.3 million for the years ended December 31, 2006 and 2005,
respectively. The increase in noninterest income for 2007, as compared to 2006, was driven
an increase of $7.4 million in service fees and other fees and commissions due to higher
activity resulting from the Companys overall growing volume of business, and an increase
of $1.9 million on net gain on sales and valuation of loans, securities, and other assets.
The increase in 2006, compared to 2005, was mainly the result of an
increase of $3.3 million in service
fees and other fees and commissions due to higher activity resulting from the Companys
overall growing volume of business, offset in part by fluctuation in the Companys net
gain on derivative instruments and net gain (loss) on sales and valuation of loans held
for sale, securities and other assets.
     
    
    Segment total net interest income and noninterest income for the year ended December
31, 2007 was $12.0 million compared to a loss of
$21.1 million and an income of $12.8 million
for the years ended December 31, 2006 and 2005, respectively.
    
    Net interest income for the year ended December 31, 2007 was $15.1 million compared to
$19.4 million and $31.8 million for the years ended December 31, 2006 and 2005,
respectively. The decrease in net interest income for the years 2007 and 2006, when
compared to the previous year, was primarily attributable to a reduction in the net yield
earned on net interest-earning assets, offset in part by an increase in the average
balance on net interest-earning assets.
    
    The provision for loan losses for the year ended December 31, 2007 was $3.7 million
compared to $41.4 million and $19.4 million for the years ended December 31, 2006 and
2005, respectively. The decrease of $37.7 million in the provision for loan losses for
2007 was mainly the result of significant specific allowances taken on non-performing and
impaired loan relationships during 2006. During the year ended December 31, 2006, the
Company established valuation allowances for certain classified asset based loan
relationships. The increase during 2006 compared to 2005 is also attributable to the
aforementioned specific valuation allowance taken on certain impaired asset based
relationships during 2006.
    
    Noninterest income for the year ended December 31, 2007 was $0.6 million compared to
$0.9 million and $0.4 million for the years ended December 31, 2006 and 2005,
respectively. The fluctuations in noninterest income for the years 2007, 2006, and 2005
was mainly attributable to services and other charges on loans based on the level of loan
activity in the segment.
    
    
    Segment total net interest income and noninterest income for the year ended December
31, 2007 was $10.4 million compared to an income of $2.7 million and a loss of $4.1 million
for the years ended December 31, 2006 and 2005, respectively.
    
    Net interest income for the year ended December 31, 2007 was $30.2 million compared to
$44.9 million and $44.5 million for the years ended December 31, 2006 and 2005,
respectively. The decrease in net interest income for the year 2007 as compared to 2006
was primarily attributable to a reduction in the net yield earned on net interest-earning
assets coupled with a decrease in the average balance on net interest-earning assets. The
increase for 2006 compared to 2005 was mainly driven by the increase in the average volume
of net interest-earning assets, offset by a decrease in the net yield earned on net
interest-earnings assets.
    
    The provision for loan losses for the year ended December 31, 2007 was $22.4 million
compared to $44.8 million and $52.3 million for the years ended December 31, 2006 and
2005, respectively. The decrease in provision for loan losses for 2007 and 2006 was
mainly attributable to specific reserves taken on impaired relationships in the segment.
    
    Noninterest income for the year ended December 31, 2007, 2006, and 2005 was $2.6
million. $2.6 million, and $3.7 million, respectively.
  QUARTERLY
FINANCIAL INFORMATION
  98




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##### Table of Contents



2007 Quarterly Condensed Consolidated Statements of Operations (Unaudited)
 For the 2007 three months endedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(As PreviouslyReported)
    
    

(As
Restated) (2)(Dollars and shares in thousands, except per share amounts)INTEREST INCOME:Loans, including loan fees
    
    $
    183,818
    
    
    $
    180,568
    
    
    $
    183,090
    
    
    $
    182,327
    
    
    $
    177,780Investment securities
    
    
    66,522
    
    
    
    66,522
    
    
    
    66,570
    
    
    
    64,660
    
    
    
    62,548Mortgage-backed securities
    
    
    6,931
    
    
    
    6,931
    
    
    
    11,941
    
    
    
    13,574
    
    
    
    12,845Money market instruments
    
    
    10,120
    
    
    
    10,120
    
    
    
    9,846
    
    
    
    10,354
    
    
    
    10,513Total interest income
    
    
    267,391
    
    
    
    264,141
    
    
    
    271,447
    
    
    
    270,915
    
    
    
    263,686INTEREST EXPENSE:Deposits
    
    
    107,506
    
    
    
    107,506
    
    
    
    114,036
    
    
    
    118,802
    
    
    
    122,954Federal funds purchased and repurchase agreements
    
    
    76,224
    
    
    
    76,224
    
    
    
    80,927
    
    
    
    82,203
    
    
    
    75,676Advances from Federal Home Loan Bank
    
    
    1,455
    
    
    
    1,455
    
    
    
    1,432
    
    
    
    1,444
    
    
    
    1,360Borrowings under line of credit
    
    
    272
    
    
    
    272
    
    
    
    499
    
    
    
    336
    
    
    
    Total interest expense
    
    
    185,457
    
    
    
    185,457
    
    
    
    196,894
    
    
    
    202,785
    
    
    
    199,990NET INTEREST INCOME
    
    
    81,934
    
    
    
    78,684
    
    
    
    74,553
    
    
    
    68,130
    
    
    
    63,696PROVISION FOR LOAN LOSSES
    
    
    16,000
    
    
    
    34,481
    
    
    
    73,404
    
    
    
    21,703
    
    
    
    147,974NET INTEREST INCOME (LOSS)
AFTER PROVISION FOR LOAN LOSSES
    
    
    65,934
    
    
    
    44,203
    
    
    
    1,149
    
    
    
    46,427
    
    
    
    (84,278
    )NONINTEREST INCOME:Service and other charges on loans
    
    
    3,211
    
    
    
    3,211
    
    
    
    3,418
    
    
    
    2,768
    
    
    
    3,290Service charges on deposit accounts
    
    
    2,930
    
    
    
    2,930
    
    
    
    3,073
    
    
    
    3,262
    
    
    
    3,132Other fees and commissions
    
    
    3,962
    
    
    
    3,962
    
    
    
    4,774
    
    
    
    6,143
    
    
    
    5,434Net gain (loss) on derivative instruments
    
    
    640
    
    
    
    640
    
    
    
    (1,165
    )
    
    
    816
    
    
    
    1,017Net gain (loss) on sales and valuation of loans,
securities and other assets
    
    
    265
    
    
    
    265
    
    
    
    1,031
    
    
    
    273
    
    
    
    (476
    )Total noninterest income
    
    
    11,008
    
    
    
    11,008
    
    
    
    11,131
    
    
    
    13,262
    
    
    
    12,397NONINTEREST EXPENSES:Salaries and employees benefits
    
    
    15,418
    
    
    
    15,418
    
    
    
    14,861
    
    
    
    14,434
    
    
    
    15,723Equipment
    
    
    3,194
    
    
    
    3,194
    
    
    
    3,149
    
    
    
    3,385
    
    
    
    3,516Deposits insurance premium and supervisory examination
    
    
    1,985
    
    
    
    1,985
    
    
    
    3,138
    
    
    
    2,882
    
    
    
    2,393Occupancy
    
    
    2,199
    
    
    
    2,199
    
    
    
    2,297
    
    
    
    2,486
    
    
    
    2,401Advertising
    
    
    2,194
    
    
    
    2,194
    
    
    
    1,824
    
    
    
    1,850
    
    
    
    2,773Professional fees
    
    
    1,376
    
    
    
    1,376
    
    
    
    1,228
    
    
    
    8,502
    
    
    
    6,778Other
    
    
    8,647
    
    
    
    8,647
    
    
    
    9,311
    
    
    
    11,131
    
    
    
    14,334Total noninterest expenses
    
    
    35,013
    
    
    
    35,013
    
    
    
    35,808
    
    
    
    44,670
    
    
    
    47,918INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    
    
    41,929
    
    
    
    20,198
    
    
    
    (23,528
    )
    
    
    15,019
    
    
    
    (119,799
    )PROVISION FOR INCOME TAXES:Current
    
    
    15,074
    
    
    
    13,816
    
    
    
    13,202
    
    
    
    9,082
    
    
    
    (2,262
    )Deferred credit
    
    
    (1,865
    )
    
    
    (6,325
    )
    
    
    (16,677
    )
    
    
    (4,279
    )
    
    
    (46,329
    )Total provision (credit) for income taxes
    
    
    13,209
    
    
    
    7,491
    
    
    
    (3,475
    )
    
    
    4,803
    
    
    
    (48,591
    )NET INCOME (LOSS)
    
    $
    28,720
    
    
    $
    12,707
    
    
    $
    (20,053
    )
    
    $
    10,216
    
    
    $
    (71,208
    )PREFERRED STOCK DIVIDENDS
    
    $
    9,228
    
    
    $
    9,228
    
    
    $
    9,227
    
    
    $
    9,228
    
    
    $
    9,227INCOME
(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    19,492
    
    
    $
    3,479
    
    
    $
    (29,280
    )
    
    $
    988
    
    
    $
    (80,435
    )SHARE DATA:Basic earnings (loss) per common share (1)
    
    $
    5.92
    
    
    $
    1.06
    
    
    $
    (8.88
    )
    
    $
    0.30
    
    
    $
    (24.39
    )Diluted earnings (loss) per common share (1)
    
    $
    5.82
    
    
    $
    1.04
    
    
    $
    (8.88
    )
    
    $
    0.30
    
    
    $
    (24.39
    )Cash dividends declared per common share (1)
    
    $
    2.37
    
    
    $
    2.37
    
    
    $
    2.38
    
    
    $
    2.38
    
    
    $
    2.38Weighted average number of common
shares outstanding (1)
    
    
    3,294
    
    
    
    3,294
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298Weighted average number of common shares
outstanding on a fully diluted basis (1)
    
    
    3,351
    
    
    
    3,351
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298Dividend payout ratio
    
    
    40.15
    %
    
    
    224.98
    %
    
    
    (26.76
    )%
    
    
    934.01
    %
    
    
    (9.74
    )%
 
 (1)
    
    Adjusted to reflect a one-for-fifty reverse stock split declared on November 7, 2008 and
effective on December 1, 2008.(2)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements. 99




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##### Table of Contents



2006 Quarterly Condensed Consolidated Statements of Operations (Unaudited)
 For the 2006 three months endedMarch 31
    
    
    June 30(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (2)
    
    
    Reported)
    
    

(As
Restated) (2)(Dollars and shares in thousands, except per share amounts)INTEREST INCOME:Loans, including loan fees
    
    $
    149,819
    
    
    $
    147,593
    
    
    $
    160,358
    
    
    $
    157,993Investment securities
    
    
    64,896
    
    
    
    64,896
    
    
    
    65,721
    
    
    
    65,721Mortgage-backed securities
    
    
    7,278
    
    
    
    7,278
    
    
    
    7,180
    
    
    
    7,180Money market instruments
    
    
    8,936
    
    
    
    8,936
    
    
    
    9,698
    
    
    
    9,698Total interest income
    
    
    230,929
    
    
    
    228,703
    
    
    
    242,957
    
    
    
    240,592INTEREST EXPENSE:Deposits
    
    
    79,478
    
    
    
    79,478
    
    
    
    88,844
    
    
    
    88,844Federal funds purchased and repurchase agreements
    
    
    70,830
    
    
    
    70,830
    
    
    
    76,058
    
    
    
    76,058Advances from Federal Home Loan Bank
    
    
    2,061
    
    
    
    2,061
    
    
    
    2,147
    
    
    
    2,147Total interest expense
    
    
    152,369
    
    
    
    152,369
    
    
    
    167,049
    
    
    
    167,049NET INTEREST INCOME
    
    
    78,560
    
    
    
    76,334
    
    
    
    75,908
    
    
    
    73,543PROVISION FOR LOAN LOSSES
    
    
    7,000
    
    
    
    7,606
    
    
    
    18,250
    
    
    
    17,722NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    71,560
    
    
    
    68,728
    
    
    
    57,658
    
    
    
    55,821NONINTEREST INCOME:Service and other charges on loans
    
    
    2,954
    
    
    
    2,954
    
    
    
    3,182
    
    
    
    3,182Service charges on deposit accounts
    
    
    2,258
    
    
    
    2,258
    
    
    
    2,464
    
    
    
    2,464Other fees and commissions
    
    
    3,452
    
    
    
    3,452
    
    
    
    3,703
    
    
    
    3,703Net gain (loss) on derivative instruments
    
    
    353
    
    
    
    353
    
    
    
    (793
    )
    
    
    (793
    )Net gain (loss) on sales and valuation of loans,
securities and other assets
    
    
    167
    
    
    
    167
    
    
    
    (922
    )
    
    
    (922
    )Total noninterest income
    
    
    9,184
    
    
    
    9,184
    
    
    
    7,634
    
    
    
    7,634NONINTEREST EXPENSES:Salaries and employees benefits
    
    
    13,659
    
    
    
    13,659
    
    
    
    13,347
    
    
    
    13,347Equipment
    
    
    2,648
    
    
    
    2,648
    
    
    
    2,759
    
    
    
    2,759Deposits insurance premium and supervisory examination
    
    
    893
    
    
    
    893
    
    
    
    902
    
    
    
    902Occupancy
    
    
    1,974
    
    
    
    1,974
    
    
    
    2,055
    
    
    
    2,055Advertising
    
    
    2,798
    
    
    
    2,798
    
    
    
    2,485
    
    
    
    2,485Professional fees
    
    
    396
    
    
    
    396
    
    
    
    374
    
    
    
    374Other
    
    
    7,043
    
    
    
    7,043
    
    
    
    8,701
    
    
    
    8,701Total noninterest expenses
    
    
    29,411
    
    
    
    29,411
    
    
    
    30,623
    
    
    
    30,623INCOME BEFORE PROVISION FOR INCOME TAXES
    
    
    51,333
    
    
    
    48,501
    
    
    
    34,669
    
    
    
    32,832PROVISION FOR INCOME TAXES:Current
    
    
    17,223
    
    
    
    17,223
    
    
    
    17,387
    
    
    
    17,387Deferred credit
    
    
    (1,280
    )
    
    
    (281
    )
    
    
    (4,460
    )
    
    
    (1,742
    )Total provision for income taxes
    
    
    15,943
    
    
    
    16,942
    
    
    
    12,927
    
    
    
    15,645NET INCOME
    
    $
    35,390
    
    
    $
    31,559
    
    
    $
    21,742
    
    
    $
    17,187PREFERRED STOCK DIVIDENDS
    
    $
    9,229
    
    
    $
    9,229
    
    
    $
    9,228
    
    
    $
    9,228INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    26,161
    
    
    $
    22,330
    
    
    $
    12,514
    
    
    $
    7,959SHARE DATA:Basic earnings  per common share (1)
    
    $
    7.97
    
    
    $
    6.80
    
    
    $
    3.81
    
    
    $
    2.42Diluted earnings  per common share (1)
    
    $
    7.75
    
    
    $
    6.62
    
    
    $
    3.72
    
    
    $
    2.37Cash dividends declared per common share (1)
    
    $
    2.37
    
    
    $
    2.37
    
    
    $
    2.37
    
    
    $
    2.37Weighted average number of common
shares outstanding (1)
    
    
    3,283
    
    
    
    3,283
    
    
    
    3,288
    
    
    
    3,288Weighted average number of common shares
outstanding on a fully diluted basis (1)
    
    
    3,404
    
    
    
    3,404
    
    
    
    3,364
    
    
    
    3,364Dividend payout ratio
    
    
    29.81
    %
    
    
    34.93
    %
    
    
    62.40
    %
    
    
    98.10
    %
 
 (1)
    
    Adjusted to reflect a one-for-fifty reverse stock split declared on November 7, 2008 and
effective on December 1, 2008.(2)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements. 100




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##### Table of Contents



2006 Quarterly Condensed Consolidated Statements of Operations (Unaudited)
 For the 2006 three months endedSeptember 30
    
    
    December 31(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (2)
    
    
    Reported)
    
    

(As Restated) (2)(Dollars and shares in thousands, except per share amounts)INTEREST INCOME:Loans, including loan fees
    
    $
    175,042
    
    
    $
    172,366
    
    
    $
    186,311
    
    
    $
    183,143Investment securities
    
    
    65,562
    
    
    
    65,562
    
    
    
    65,792
    
    
    
    65,792Mortgage-backed securities
    
    
    7,036
    
    
    
    7,036
    
    
    
    6,995
    
    
    
    6,995Money market instruments
    
    
    10,409
    
    
    
    10,409
    
    
    
    9,192
    
    
    
    9,192Total interest income
    
    
    258,049
    
    
    
    255,373
    
    
    
    268,290
    
    
    
    265,122INTEREST EXPENSE:Deposits
    
    
    96,693
    
    
    
    96,693
    
    
    
    101,048
    
    
    
    101,048Federal funds purchased and repurchase agreements
    
    
    80,184
    
    
    
    80,184
    
    
    
    80,391
    
    
    
    80,391Advances from Federal Home Loan Bank
    
    
    2,169
    
    
    
    2,169
    
    
    
    1,516
    
    
    
    1,516Total interest expense
    
    
    179,046
    
    
    
    179,046
    
    
    
    182,955
    
    
    
    182,955NET INTEREST INCOME
    
    
    79,003
    
    
    
    76,327
    
    
    
    85,335
    
    
    
    82,167PROVISION FOR LOAN LOSSES
    
    
    11,300
    
    
    
    37,819
    
    
    
    28,000
    
    
    
    27,733NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    67,703
    
    
    
    38,508
    
    
    
    57,335
    
    
    
    54,434NONINTEREST INCOME:Service and other charges on loans
    
    
    3,015
    
    
    
    3,015
    
    
    
    3,376
    
    
    
    3,376Service charges on deposit accounts
    
    
    2,555
    
    
    
    2,555
    
    
    
    2,699
    
    
    
    2,699Other fees and commissions
    
    
    3,832
    
    
    
    3,832
    
    
    
    4,117
    
    
    
    4,117Net gain on derivative instruments
    
    
    585
    
    
    
    585
    
    
    
    487
    
    
    
    487Net gain (loss) on sales and valuation of loans,
securities and other assets
    
    
    204
    
    
    
    204
    
    
    
    (590
    )
    
    
    (590
    )Total noninterest income
    
    
    10,191
    
    
    
    10,191
    
    
    
    10,089
    
    
    
    10,089NONINTEREST EXPENSES:Salaries and employees benefits
    
    
    12,561
    
    
    
    12,561
    
    
    
    14,811
    
    
    
    14,811Equipment
    
    
    3,145
    
    
    
    3,145
    
    
    
    3,058
    
    
    
    3,058Deposits insurance premium and supervisory examination
    
    
    963
    
    
    
    963
    
    
    
    1,012
    
    
    
    1,012Occupancy
    
    
    2,213
    
    
    
    2,213
    
    
    
    2,240
    
    
    
    2,240Advertising
    
    
    1,732
    
    
    
    1,732
    
    
    
    2,125
    
    
    
    2,125Professional fees
    
    
    1,018
    
    
    
    1,018
    
    
    
    2,031
    
    
    
    2,031Other
    
    
    8,805
    
    
    
    8,805
    
    
    
    8,770
    
    
    
    8,770Total noninterest expenses
    
    
    30,437
    
    
    
    30,437
    
    
    
    34,047
    
    
    
    34,047INCOME BEFORE PROVISION FOR INCOME TAXES
    
    
    47,457
    
    
    
    18,262
    
    
    
    33,377
    
    
    
    30,476PROVISION FOR INCOME TAXES:Current
    
    
    23,554
    
    
    
    23,554
    
    
    
    18,435
    
    
    
    18,435Deferred
    
    
    (1,639
    )
    
    
    (5,234
    )
    
    
    (2,915
    )
    
    
    1,150Total provision for income taxes
    
    
    21,915
    
    
    
    18,320
    
    
    
    15,520
    
    
    
    19,585NET INCOME (LOSS)
    
    $
    25,542
    
    
    $
    (58
    )
    
    $
    17,857
    
    
    $
    10,891PREFERRED STOCK DIVIDENDS
    
    $
    9,228
    
    
    $
    9,228
    
    
    $
    9,226
    
    
    $
    9,226INCOME
(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    16,314
    
    
    $
    (9,286
    )
    
    $
    8,631
    
    
    $
    1,665SHARE DATA:Basic earnings (loss) per common share (1)
    
    $
    4.96
    
    
    $
    (2.82
    )
    
    $
    2.62
    
    
    $
    0.51Diluted earnings (loss) per common share (1)
    
    $
    4.87
    
    
    $
    (2.82
    )
    
    $
    2.57
    
    
    $
    0.50Cash dividends declared per common share (1)
    
    $
    2.37
    
    
    $
    2.37
    
    
    $
    2.38
    
    
    $
    2.38Weighted average number of common
shares outstanding (1)
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290Weighted average number of common shares
outstanding on a fully diluted basis (1)
    
    
    3,352
    
    
    
    3,290
    
    
    
    3,357
    
    
    
    3,357Dividend payout ratio
    
    
    47.89
    %
    
    
    (84.12
    )%
    
    
    90.54
    %
    
    
    469.87
    %
 
 (1)
    
    Adjusted to reflect a one-for-fifty reverse stock split declared on November 7, 2008 and
effective on December 1, 2008.(2)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements. 101




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##### Table of Contents



2005
Quarterly Condensed Consolidated Statements of Operations
(Unaudited)
 For the 2005 three months endedMarch 31
    
    June 30
    
    September 30
    
    December 31(As PreviouslyReported)
    

(As
Restated) (2)(Dollars and shares in thousands, except per share amounts)INTEREST INCOME:Loans, including loan fees
    
    $
    99,664
    
    
    $
    114,904
    
    
    $
    126,690
    
    
    $
    137,784
    
    
    $
    135,660Investment securities
    
    
    60,677
    
    
    
    61,314
    
    
    
    62,433
    
    
    
    63,109
    
    
    
    63,109Mortgage-backed securities
    
    
    8,773
    
    
    
    8,492
    
    
    
    7,741
    
    
    
    7,315
    
    
    
    7,315Money market instruments
    
    
    9,196
    
    
    
    9,690
    
    
    
    8,483
    
    
    
    9,064
    
    
    
    9,064Total interest income
    
    
    178,310
    
    
    
    194,400
    
    
    
    205,347
    
    
    
    217,272
    
    
    
    215,148INTEREST EXPENSE:Deposits
    
    
    47,270
    
    
    
    57,474
    
    
    
    64,272
    
    
    
    72,252
    
    
    
    72,252Federal funds purchased and repurchase agreements
    
    
    50,679
    
    
    
    55,998
    
    
    
    60,436
    
    
    
    67,678
    
    
    
    67,678Advances from Federal Home Loan Bank
    
    
    1,980
    
    
    
    1,841
    
    
    
    1,871
    
    
    
    1,996
    
    
    
    1,996Total interest expense
    
    
    99,929
    
    
    
    115,313
    
    
    
    126,579
    
    
    
    141,926
    
    
    
    141,926NET INTEREST INCOME
    
    
    78,381
    
    
    
    79,087
    
    
    
    78,768
    
    
    
    75,346
    
    
    
    73,222PROVISION FOR LOAN LOSSES
    
    
    6,000
    
    
    
    5,000
    
    
    
    6,000
    
    
    
    14,000
    
    
    
    63,006NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    72,381
    
    
    
    74,087
    
    
    
    72,768
    
    
    
    61,346
    
    
    
    10,216NONINTEREST INCOME:Service and other charges on loans
    
    
    2,326
    
    
    
    2,605
    
    
    
    2,916
    
    
    
    3,731
    
    
    
    3,731Service charges on deposit accounts
    
    
    1,975
    
    
    
    2,174
    
    
    
    2,153
    
    
    
    2,334
    
    
    
    2,334Other fees and commissions
    
    
    2,831
    
    
    
    3,138
    
    
    
    3,326
    
    
    
    3,886
    
    
    
    3,886Net gain (loss) on derivative instruments
    
    
    (1,564
    )
    
    
    13,075
    
    
    
    (6,357
    )
    
    
    (3,276
    )
    
    
    (3,276
    )Net gain (loss) on sales and valuation of loans,
securities and other assets
    
    
    143
    
    
    
    171
    
    
    
    100
    
    
    
    133
    
    
    
    133Total noninterest income
    
    
    5,711
    
    
    
    21,163
    
    
    
    2,138
    
    
    
    6,808
    
    
    
    6,808NONINTEREST EXPENSES:Salaries and employees benefits
    
    
    10,682
    
    
    
    11,497
    
    
    
    11,866
    
    
    
    12,608
    
    
    
    12,608Equipment
    
    
    2,233
    
    
    
    2,331
    
    
    
    2,488
    
    
    
    2,502
    
    
    
    2,502Deposits insurance premium and supervisory examination
    
    
    798
    
    
    
    827
    
    
    
    843
    
    
    
    902
    
    
    
    902Occupancy
    
    
    1,747
    
    
    
    1,887
    
    
    
    1,977
    
    
    
    2,029
    
    
    
    2,029Advertising
    
    
    1,724
    
    
    
    3,094
    
    
    
    1,925
    
    
    
    2,417
    
    
    
    2,417Other
    
    
    7,087
    
    
    
    7,889
    
    
    
    8,485
    
    
    
    8,392
    
    
    
    8,392Total noninterest expenses
    
    
    24,271
    
    
    
    27,525
    
    
    
    27,584
    
    
    
    28,850
    
    
    
    28,850INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    
    
    53,821
    
    
    
    67,725
    
    
    
    47,322
    
    
    
    39,304
    
    
    
    (11,826
    )PROVISION FOR INCOME TAXES:Current
    
    
    11,180
    
    
    
    12,118
    
    
    
    16,258
    
    
    
    12,982
    
    
    
    12,982Deferred credit
    
    
    (3,160
    )
    
    
    3,581
    
    
    
    (4,026
    )
    
    
    (3,847
    )
    
    
    (15,386
    )Total provision (credit) for income taxes
    
    
    8,020
    
    
    
    15,699
    
    
    
    12,232
    
    
    
    9,135
    
    
    
    (2,404
    )NET INCOME (LOSS)
    
    $
    45,801
    
    
    $
    52,026
    
    
    $
    35,090
    
    
    $
    30,169
    
    
    $
    (9,422
    )PREFERRED STOCK DIVIDENDS
    
    $
    9,319
    
    
    $
    9,205
    
    
    $
    9,231
    
    
    $
    9,230
    
    
    $
    9,230INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    36,482
    
    
    $
    42,821
    
    
    $
    25,859
    
    
    $
    20,939
    
    
    $
    (18,652
    )SHARE DATA:Basic earnings (loss) per common share (1)

    $
    11.13
    
    
    $
    13.05
    
    
    $
    7.88
    
    
    $
    6.38
    
    
    $
    (5.68
    )Diluted earnings (loss) per common share (1)

    $
    10.73
    
    
    $
    12.62
    
    
    $
    7.64
    
    
    $
    6.21
    
    
    $
    (5.68
    )Cash dividends declared per common share (1)

    $
    2.18
    
    
    $
    2.38
    
    
    $
    2.38
    
    
    $
    2.38
    
    
    $
    2.38Weighted average number of common
shares outstanding (1)

    
    3,279
    
    
    
    3,281
    
    
    
    3,281
    
    
    
    3,281
    
    
    
    3,281Weighted average number of common shares
outstanding on a fully diluted basis (1)
    
    
    3,420
    
    
    
    3,410
    
    
    
    3,414
    
    
    
    3,371
    
    
    
    3,281Dividend payout ratio
    
    
    19.62
    %
    
    
    18.20
    %
    
    
    30.14
    %
    
    
    37.22
    %
    
    
    (41.79)
    %
 
 (1)
    
    Adjusted to reflect a one-for-fifty reverse stock split declared on November 7, 2008 and
effective on December 1, 2008.(2)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements. 102




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##### Table of Contents



2007 Quarterly Condensed Consolidated
Statements of Financial Condition (Unaudited)
 As ofMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 312007
    
    
    2007
    
    
    2007
    
    
    2007(As PreviouslyReported)
    
    

(As
Restated) (1)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    107,847
    
    
    $
    107,847
    
    
    $
    99,334
    
    
    $
    94,492
    
    
    $
    153,473Money market instruments:Federal funds sold and resell agreements
    
    
    809,502
    
    
    
    809,502
    
    
    
    707,150
    
    
    
    817,220
    
    
    
    886,700Interest-bearing deposits in banks
    
    
    9,540
    
    
    
    9,540
    
    
    
    26,447
    
    
    
    84,771
    
    
    
    56,287Investment securities available for sale
    
    
    21,565
    
    
    
    21,565
    
    
    
    509,265
    
    
    
    490,894
    
    
    
    479,001Investment securities held to maturity
    
    
    7,273,193
    
    
    
    7,273,193
    
    
    
    7,081,467
    
    
    
    6,903,227
    
    
    
    6,598,197Federal Home Loan Bank stock, at cost
    
    
    33,482
    
    
    
    33,482
    
    
    
    32,682
    
    
    
    34,662
    
    
    
    49,453Residential mortgage loans held for sale
    
    
    4,135
    
    
    
    4,135
    
    
    
    5,490
    
    
    
    3,398
    
    
    
    6,500Loans, net
    
    
    8,932,413
    
    
    
    8,823,892
    
    
    
    8,960,055
    
    
    
    9,174,111
    
    
    
    9,209,911Accrued interest receivable
    
    
    114,998
    
    
    
    113,892
    
    
    
    118,384
    
    
    
    116,049
    
    
    
    105,377Foreclosed real estate held for sale, net
    
    
    6,223
    
    
    
    6,223
    
    
    
    8,465
    
    
    
    9,375
    
    
    
    10,971Premises and equipment, net
    
    
    125,866
    
    
    
    125,866
    
    
    
    127,111
    
    
    
    128,833
    
    
    
    129,591Deferred income taxes, net
    
    
    54,869
    
    
    
    66,681
    
    
    
    83,492
    
    
    
    87,842
    
    
    
    134,177Other assets
    
    
    55,661
    
    
    
    55,661
    
    
    
    69,853
    
    
    
    95,206
    
    
    
    107,073TOTAL
    
    $
    17,549,294
    
    
    $
    17,451,479
    
    
    $
    17,829,195
    
    
    $
    18,040,080
    
    
    $
    17,926,711LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    328,776
    
    
    $
    328,776
    
    
    $
    339,248
    
    
    $
    320,804
    
    
    $
    317,753Interest-bearing and related accrued interest payable
    
    
    9,631,248
    
    
    
    9,631,248
    
    
    
    9,601,619
    
    
    
    10,011,670
    
    
    
    10,178,748Total deposits
    
    
    9,960,024
    
    
    
    9,960,024
    
    
    
    9,940,867
    
    
    
    10,332,474
    
    
    
    10,496,501Federal funds purchased and repurchase agreements
    
    
    6,052,049
    
    
    
    6,052,049
    
    
    
    6,494,477
    
    
    
    6,329,474
    
    
    
    6,146,693Advances from Federal Home Loan Bank
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000Borrowings under line of credit
    
    
    32,500
    
    
    
    32,500
    
    
    
    34,030
    
    
    
    
    
    
    
    Mortgage note payable
    
    
    35,836
    
    
    
    35,836
    
    
    
    35,717
    
    
    
    35,596
    
    
    
    35,465Advances from borrowers for taxes and insurance
    
    
    8,236
    
    
    
    8,236
    
    
    
    10,455
    
    
    
    8,511
    
    
    
    11,539Accrued expenses and other liabilities
    
    
    127,758
    
    
    
    126,500
    
    
    
    118,065
    
    
    
    148,405
    
    
    
    138,277Total liabilities
    
    
    16,318,403
    
    
    
    16,317,145
    
    
    
    16,735,611
    
    
    
    16,956,460
    
    
    
    16,930,475COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock
(2)
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298Paid-in
capital (2)
    
    
    869,825
    
    
    
    869,825
    
    
    
    869,953
    
    
    
    870,031
    
    
    
    870,128Retained earnings:Reserve fund
    
    
    89,269
    
    
    
    79,613
    
    
    
    78,389
    
    
    
    78,395
    
    
    
    78,389Undivided profits
    
    
    249,288
    
    
    
    162,387
    
    
    
    126,496
    
    
    
    119,646
    
    
    
    31,383Accumulated other comprehensive income (loss), net
    
    
    1,054
    
    
    
    1,054
    
    
    
    (2,709
    )
    
    
    (5,907
    )
    
    
    (5,119
    )Total stockholders equity
    
    
    1,230,891
    
    
    
    1,134,334
    
    
    
    1,093,584
    
    
    
    1,083,620
    
    
    
    996,236TOTAL
    
    $
    17,549,294
    
    
    $
    17,451,479
    
    
    $
    17,829,195
    
    
    $
    18,040,080
    
    
    $
    17,926,711
 
 (1)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008. 103




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##### Table of Contents



2006 Quarterly Condensed Consolidated
Statements of Financial Condition (Unaudited)
 As ofMarch 31
    
    
    June 302006
    
    
    2006(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (1)
    
    
    Reported)
    
    

(As
Restated) (1)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    81,508
    
    
    $
    81,508
    
    
    $
    118,501
    
    
    $
    118,501Money market instruments:Federal funds sold and resell agreements
    
    
    776,415
    
    
    
    776,415
    
    
    
    931,497
    
    
    
    931,497Interest-bearing deposits in banks
    
    
    70,042
    
    
    
    70,042
    
    
    
    39,056
    
    
    
    39,056Trading securities
    
    
    1,613
    
    
    
    1,613
    
    
    
    1,608
    
    
    
    1,608Investment securities available for sale
    
    
    3,231
    
    
    
    3,231
    
    
    
    23,266
    
    
    
    23,266Investment securities held to maturity
    
    
    7,401,352
    
    
    
    7,401,352
    
    
    
    6,979,875
    
    
    
    6,979,875Federal Home Loan Bank stock, at cost
    
    
    42,968
    
    
    
    42,968
    
    
    
    43,562
    
    
    
    43,562Residential mortgage loans held for sale
    
    
    1,687
    
    
    
    1,687
    
    
    
    2,320
    
    
    
    2,320Loans, net
    
    
    8,023,162
    
    
    
    7,969,937
    
    
    
    8,179,525
    
    
    
    8,124,486Accrued interest receivable
    
    
    102,007
    
    
    
    101,269
    
    
    
    112,333
    
    
    
    111,572Foreclosed real estate held for sale, net
    
    
    4,003
    
    
    
    4,003
    
    
    
    4,725
    
    
    
    4,725Premises and equipment, net
    
    
    118,961
    
    
    
    118,961
    
    
    
    120,537
    
    
    
    120,537Deferred income taxes, net
    
    
    42,395
    
    
    
    52,936
    
    
    
    46,964
    
    
    
    54,787Other assets
    
    
    44,807
    
    
    
    44,807
    
    
    
    51,192
    
    
    
    51,192TOTAL
    
    $
    16,714,151
    
    
    $
    16,670,729
    
    
    $
    16,654,961
    
    
    $
    16,606,984LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    288,500
    
    
    $
    288,500
    
    
    
    305,992
    
    
    
    305,992Interest-bearing and related accrued interest payable
    
    
    8,639,353
    
    
    
    8,639,353
    
    
    
    8,515,168
    
    
    
    8,515,168Total deposits
    
    
    8,927,853
    
    
    
    8,927,853
    
    
    
    8,821,160
    
    
    
    8,821,160Federal funds purchased and repurchase agreements
    
    
    6,245,713
    
    
    
    6,245,713
    
    
    
    6,313,993
    
    
    
    6,313,993Advances from Federal Home Loan Bank
    
    
    162,000
    
    
    
    162,000
    
    
    
    157,000
    
    
    
    157,000Mortgage note payable
    
    
    36,310
    
    
    
    36,310
    
    
    
    36,201
    
    
    
    36,201Advances from borrowers for taxes and insurance
    
    
    6,314
    
    
    
    6,314
    
    
    
    8,450
    
    
    
    8,450Accrued expenses and other liabilities
    
    
    123,571
    
    
    
    123,571
    
    
    
    100,690
    
    
    
    100,690Total liabilities
    
    
    15,501,761
    
    
    
    15,501,761
    
    
    
    15,437,494
    
    
    
    15,437,494COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock
(2)
    
    
    3,285
    
    
    
    3,285
    
    
    
    3,290
    
    
    
    3,290Paid-in
capital (2)
    
    
    867,506
    
    
    
    867,506
    
    
    
    868,299
    
    
    
    868,299Retained earnings:Reserve fund
    
    
    79,946
    
    
    
    75,604
    
    
    
    83,019
    
    
    
    78,221Undivided profits
    
    
    243,506
    
    
    
    204,426
    
    
    
    245,140
    
    
    
    201,961Accumulated other comprehensive loss, net
    
    
    (10
    )
    
    
    (10
    )
    
    
    (438
    )
    
    
    (438
    )Total stockholders equity
    
    
    1,212,390
    
    
    
    1,168,968
    
    
    
    1,217,467
    
    
    
    1,169,490TOTAL
    
    $
    16,714,151
    
    
    $
    16,670,729
    
    
    $
    16,654,961
    
    
    $
    16,606,984
 
 (1)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008. 104




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##### Table of Contents



2006 Quarterly Condensed Consolidated
Statements of Financial Condition (Unaudited)
 As ofSeptember 30
    
    
    December 312006
    
    
    2006(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (1)
    
    
    Reported)
    
    

(As
Restated) (1)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    92,243
    
    
    $
    92,243
    
    
    $
    105,027
    
    
    $
    105,027Money market instruments:Federal funds sold and resell agreements
    
    
    841,716
    
    
    
    841,716
    
    
    
    950,573
    
    
    
    950,573Interest-bearing deposits in banks
    
    
    15,472
    
    
    
    15,472
    
    
    
    21,060
    
    
    
    21,060Investment securities available for sale
    
    
    20,998
    
    
    
    20,998
    
    
    
    20,541
    
    
    
    20,541Investment securities held to maturity
    
    
    7,011,611
    
    
    
    7,011,611
    
    
    
    7,007,579
    
    
    
    7,007,579Federal Home Loan Bank stock, at cost
    
    
    42,932
    
    
    
    42,932
    
    
    
    37,982
    
    
    
    37,982Residential mortgage loans held for sale
    
    
    7,298
    
    
    
    7,298
    
    
    
    11,379
    
    
    
    11,379Loans, net
    
    
    8,454,621
    
    
    
    8,370,536
    
    
    
    8,641,023
    
    
    
    8,554,177Accrued interest receivable
    
    
    111,737
    
    
    
    110,828
    
    
    
    121,360
    
    
    
    120,311Foreclosed real estate held for sale, net
    
    
    5,433
    
    
    
    5,433
    
    
    
    5,917
    
    
    
    5,917Premises and equipment, net
    
    
    122,420
    
    
    
    122,420
    
    
    
    124,648
    
    
    
    124,648Deferred income taxes, net
    
    
    48,470
    
    
    
    59,887
    
    
    
    51,338
    
    
    
    58,689Other assets
    
    
    56,930
    
    
    
    56,930
    
    
    
    56,261
    
    
    
    56,261TOTAL
    
    $
    16,831,881
    
    
    $
    16,758,304
    
    
    $
    17,154,688
    
    
    $
    17,074,144LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    315,088
    
    
    $
    315,088
    
    
    $
    373,634
    
    
    $
    373,634Interest-bearing and related accrued interest payable
    
    
    8,698,018
    
    
    
    8,698,018
    
    
    
    8,963,429
    
    
    
    8,963,429Total deposits
    
    
    9,013,106
    
    
    
    9,013,106
    
    
    
    9,337,063
    
    
    
    9,337,063Federal funds purchased and repurchase agreements
    
    
    6,315,566
    
    
    
    6,315,566
    
    
    
    6,320,481
    
    
    
    6,320,481Advances from Federal Home Loan Bank
    
    
    137,000
    
    
    
    137,000
    
    
    
    127,000
    
    
    
    127,000Mortgage note payable
    
    
    36,090
    
    
    
    36,090
    
    
    
    35,968
    
    
    
    35,968Advances from borrowers for taxes and insurance
    
    
    7,284
    
    
    
    7,284
    
    
    
    9,862
    
    
    
    9,862Accrued expenses and other liabilities
    
    
    96,152
    
    
    
    96,152
    
    
    
    96,427
    
    
    
    96,427Total liabilities
    
    
    15,605,198
    
    
    
    15,605,198
    
    
    
    15,926,801
    
    
    
    15,926,801COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock
(2)
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290Paid-in
capital (2)
    
    
    868,478
    
    
    
    868,478
    
    
    
    868,680
    
    
    
    868,680Retained earnings:Reserve fund
    
    
    85,523
    
    
    
    78,165
    
    
    
    86,442
    
    
    
    78,389Undivided profits
    
    
    251,137
    
    
    
    184,918
    
    
    
    251,034
    
    
    
    178,543Accumulated other comprehensive income, net
    
    
    98
    
    
    
    98
    
    
    
    284
    
    
    
    284Total stockholders equity
    
    
    1,226,683
    
    
    
    1,153,106
    
    
    
    1,227,887
    
    
    
    1,147,343TOTAL
    
    $
    16,831,881
    
    
    $
    16,758,304
    
    
    $
    17,154,688
    
    
    $
    17,074,144
 
 (1)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1, 2008. 105




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##### Table of Contents



2005 Quarterly Condensed Consolidated
Statements of Financial Condition (Unaudited)
 As ofMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 312005
    
    
    2005
    
    
    2005
    
    
    2005(As PreviouslyReported)
    
    

(As
Restated) (1)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    100,856
    
    
    $
    105,692
    
    
    $
    95,583
    
    
    $
    97,612
    
    
    $
    97,612Money market instruments:Federal funds sold and resell agreements
    
    
    954,311
    
    
    
    757,580
    
    
    
    792,741
    
    
    
    746,539
    
    
    
    746,539Interest-bearing deposits in banks
    
    
    60,911
    
    
    
    54,816
    
    
    
    105,613
    
    
    
    57,116
    
    
    
    57,116Investment securities available for sale
    
    
    5,062
    
    
    
    2,192
    
    
    
    680
    
    
    
    5,166
    
    
    
    5,166Investment securities held to maturity
    
    
    6,948,043
    
    
    
    6,904,828
    
    
    
    6,987,013
    
    
    
    7,074,025
    
    
    
    7,074,025Federal Home Loan Bank stock, at cost
    
    
    46,473
    
    
    
    35,300
    
    
    
    35,300
    
    
    
    42,798
    
    
    
    42,798Residential mortgage loans held for sale
    
    
    899
    
    
    
    1,637
    
    
    
    1,483
    
    
    
    1,539
    
    
    
    1,539Loans, net
    
    
    6,611,829
    
    
    
    7,090,745
    
    
    
    7,391,555
    
    
    
    7,815,623
    
    
    
    7,765,191Accrued interest receivable
    
    
    90,069
    
    
    
    98,741
    
    
    
    96,264
    
    
    
    105,882
    
    
    
    105,184Foreclosed real estate held for sale, net
    
    
    3,849
    
    
    
    3,134
    
    
    
    4,096
    
    
    
    4,137
    
    
    
    4,137Premises and equipment, net
    
    
    110,125
    
    
    
    111,791
    
    
    
    114,656
    
    
    
    117,623
    
    
    
    117,623Deferred income taxes, net
    
    
    36,821
    
    
    
    33,241
    
    
    
    37,266
    
    
    
    41,111
    
    
    
    52,650Other assets
    
    
    39,107
    
    
    
    54,137
    
    
    
    46,676
    
    
    
    42,693
    
    
    
    42,693TOTAL
    
    $
    15,008,355
    
    
    $
    15,253,834
    
    
    $
    15,708,926
    
    
    $
    16,151,864
    
    
    $
    16,112,273LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    263,822
    
    
    $
    294,264
    
    
    $
    288,929
    
    
    $
    277,099
    
    
    $
    277,099Interest-bearing and related accrued interest
payable
    
    
    6,815,449
    
    
    
    7,215,089
    
    
    
    7,611,202
    
    
    
    8,098,510
    
    
    
    8,098,510Total deposits
    
    
    7,079,271
    
    
    
    7,509,353
    
    
    
    7,900,131
    
    
    
    8,375,609
    
    
    
    8,375,609Federal funds purchased and repurchase agreements
    
    
    6,476,172
    
    
    
    6,289,406
    
    
    
    6,316,767
    
    
    
    6,260,029
    
    
    
    6,260,029Advances from Federal Home Loan Bank
    
    
    207,000
    
    
    
    172,000
    
    
    
    172,000
    
    
    
    172,000
    
    
    
    172,000Mortgage note payable
    
    
    36,744
    
    
    
    36,645
    
    
    
    36,544
    
    
    
    36,432
    
    
    
    36,432Advances from borrowers for taxes and insurance
    
    
    5,225
    
    
    
    6,697
    
    
    
    5,667
    
    
    
    7,867
    
    
    
    7,867Accrued expenses and other liabilities
    
    
    77,375
    
    
    
    77,957
    
    
    
    97,772
    
    
    
    106,449
    
    
    
    106,449Total liabilities
    
    
    13,881,787
    
    
    
    14,092,058
    
    
    
    14,528,881
    
    
    
    14,958,386
    
    
    
    14,958,386COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock
    
    
    18,179
    
    
    
    18,168
    
    
    
    18,163
    
    
    
    18,160
    
    
    
    18,160Common stock
(2)
    
    
    3,280
    
    
    
    3,281
    
    
    
    3,281
    
    
    
    3,282
    
    
    
    3,282Paid-in
capital (2)
    
    
    866,433
    
    
    
    866,483
    
    
    
    866,669
    
    
    
    866,938
    
    
    
    866,938Retained earnings:Reserve fund
    
    
    64,732
    
    
    
    69,952
    
    
    
    73,440
    
    
    
    76,443
    
    
    
    72,484Undivided profits
    
    
    174,149
    
    
    
    203,928
    
    
    
    218,507
    
    
    
    228,648
    
    
    
    193,016Accumulated other comprehensive income (loss),
net
    
    
    (205
    )
    
    
    (36
    )
    
    
    (15
    )
    
    
    7
    
    
    
    7Total stockholders equity
    
    
    1,126,568
    
    
    
    1,161,776
    
    
    
    1,180,045
    
    
    
    1,193,478
    
    
    
    1,153,887TOTAL
    
    $
    15,008,355
    
    
    $
    15,253,834
    
    
    $
    15,708,926
    
    
    $
    16,151,864
    
    
    $
    16,112,273
 
 (1)
    
    See Note 25 to the consolidated financial statements included in this Annual Report on Form
10-K, Part II, Item 8 for further financial information regarding the restatement of the Companys
consolidated financial statements.(2)
    
    As adjusted to reflect the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008. 106




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##### Table of Contents



2007 VERSUS 2006
 FIRST QUARTER ENDED MARCH 31, 2007 VERSUS FIRST QUARTER ENDED MARCH 31, 2006
   
    
    Net income for the quarter ended March 31, 2007 was $12.7 million compared to $31.6
million for the quarter ended March 31, 2006. After the payment of preferred stock
dividends, net income attributable to common stockholders was of $3.5 million for the
quarter ended March 31, 2007 compared to $22.3 million for the same period in 2006.
    
    Diluted earnings per share for the quarter ended March 31, 2007 was $1.04 compared to
$6.62 for the quarter ended March 31, 2006.
    
    Net interest income for the quarter ended March 31, 2007 was $78.7 million compared to
$76.3 million for the same period in 2006, an increase of $2.4 million or 3.08%. The
slight increase in net interest income for the first quarter of 2007, compared to 2006, was
principally due to an increase in the Companys average interest-earning assets offset in
part by a decrease in net yield on interest-earning assets. The increase in average
interest-earning assets was primarily driven by a rise in the average loan portfolio,
particularly in the Commercial and C&I loan portfolios, offset in part by a decrease in the
Companys investment portfolio. The decrease in the net yield on interest earning assets
was principally due to an increase in average rate paid by the Company on its
interest-bearing liabilities offset in part by an increase in the average yield earned on
its interest-earning assets.
    
    The provision for loan losses for the quarter ended March 31, 2007 was $34.5 million
compared to $7.6 million for the first quarter of 2006. The increase in the provision for
loan losses for 2007 is mainly attributable to increasing trends in non-performing loans in
the Companys asset-based lending portfolios coupled with the growth of the Companys loan
portfolios. The increase in non-performing loans in 2007 compared to 2006 is mainly due to
the effects of the downturn in the economy of Puerto Rico.
    
    Noninterest income for the quarter ended March 31, 2007 was $11.0 million compared to
$9.2 million for the quarter ended March 31, 2006, an increase of $1.8 million or 19.86%.
The increase in noninterest income was mainly due to higher activity resulting from the
Companys overall growing volume of business.
    
    Noninterest expenses for the quarter ended March 31, 2007 were $35.0 million, an
increase of $5.6 million or 19.05% when compared to noninterest expenses of $29.4 million
for the quarter ended March 31, 2006. The increase in total noninterest expenses for 2007
was mainly due to: (1) increases in salaries and employees benefits related to the
Companys expansion in all of its business areas, and (2) increases in deposit insurance
premium and supervisory examination due to an increase in premiums assessed by the FDIC.
    
    The provision for income taxes for the quarter ended March 31, 2007 was $7.5 million
compared to $16.9 million for the same period in 2006, a decrease of $9.5 million or
55.78%. The decrease in the provision for income taxes was mainly due to lower taxable
income during 2007 coupled with an increase in deferred tax benefits and the expiration of
transitory income taxes enacted by the government of Puerto Rico that expired on December
31, 2006.
    
    Total assets at March 31, 2007 were $17.45 billion compared to $16.67 billion at March
31, 2006, an increase of $780.8 million or 4.68%. The increase in total assets was
primarily driven by an increase of $854.0 million in the Companys loan
portfolio due to the growth of the Companys business, offset in part by a decrease of $111.4
million in the Companys investment portfolio and a decrease of $27.4 million in the
Companys money market investments.
    
    Total liabilities at March 31, 2007 were $16.32 billion compared to $15.50 billion at
March 31, 2006, an increase of $815.4 million or 5.26%. The increase in total liabilities
was primarily driven by an increase of $1.03 billion in deposits, mainly brokered deposits,
offset in part by a decrease of $193.7 million in federal funds purchased and repurchase
agreements and a decrease of $60.0 million in advances from FHLB.
 107




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##### Table of Contents




    
    Total stockholders equity at March 31, 2007 was $1.13 billion compared to $1.17 billion
at March 31, 2006, a decrease of $34.6 million or 2.96%. The decrease in total
stockholders equity was primarily driven by net losses, dividends declared on the
Companys common and preferred shares and the cumulative effect of the adoption of FIN No.
48 which resulted in a charge to retained earnings of
$10.6 million at January 1, 2007.
 SECOND QUARTER ENDED JUNE 30, 2007 VERSUS SECOND QUARTER ENDED JUNE 30, 2006
   
    
    Net loss for the quarter ended June 30, 2007 was $20.1 million compared to a net income
of $17.2 million for the same quarter in 2006. After the payment of preferred stock
dividends, net loss attributable to common stockholders was of $29.3 million for the
quarter ended June 30, 2007 compared to a net income of $8.0 million for the same period in
2006.
    
    Diluted loss per share for the quarter ended June 30, 2007 was $8.88 compared to diluted
earnings per share of $2.37 for the quarter ended June 30, 2006.
    
    Net interest income for the quarter ended June 30, 2007 was $74.6 million compared to
$73.5 million for the same period in 2006, an increase of $1.0 million or 1.37%. The
slight increase in net interest income for the second quarter of 2007, compared to 2006,
was principally due to an increase in the Companys average interest-earning assets offset
in part by a decrease in net yield on interest-earning assets. The increase in average
interest-earning assets was primarily driven by a rise in the average loan portfolio,
particularly in the Commercial and C&I loan portfolios, coupled with an increase in the
Companys investment portfolio due to the Companys decision to lessen the repricing and
maturity mismatch of the Companys investment portfolio and its funding by investing in
long term securities. The decrease in the net yield on interest earning assets was
principally due to an increase in average rate paid by the Company on its interest-bearing
liabilities offset in part by an increase in the average yield earned on its
interest-earning assets.
    
    The provision for loan losses for the quarter ended June 30, 2007 was $73.4 million
compared to $17.7 million for the second quarter of 2006, an increase of $55.7 million or
314.20%. The increase in the provision for loan losses for 2007 is mainly attributable to
increasing trends in non-performing loans in the Companys construction loan and
asset-based lending portfolios coupled with the growth of the Companys loan portfolios.
The increase in non-performing loans in 2007 compared to 2006 is mainly due to the effects
of the downturn in the economy of Puerto Rico.
    
    Noninterest income for the quarter ended June 30, 2007 was $11.1 million compared to
$7.6 million for the quarter ended June 30, 2006, an increase of $3.5 million or 45.81%.
The increase in noninterest income is the result of an increase of $1.9 million on service
fees and other fees and commissions due to higher activity associated with the Companys
overall growing volume of business and a positive variance of $2.0 million in net gain
(loss) on sales and valuations of loans, securities, and other assets. For the quarter
ended June 30, 2006, management concluded that $21.6 million of its investments in Puerto
Rico Government Obligations were other-than-temporarily impaired and recorded a loss of $1.1
million. There were no such charges in 2007.
    
    Noninterest expenses for the quarter ended June 30, 2007 were $35.8 million, an increase
of $5.2 million or 16.93% when compared to noninterest expenses of $30.6 million for the
quarter ended June 30, 2006. The increase in total noninterest expenses for 2007 was
mainly due to: (1) an increase of $1.5 million in salaries and employees benefits related
to the Companys expansion in all of its business areas, (2) an increase of $2.2 million in
deposit insurance premium and supervisory examination due to an increase in premiums
assessed by the FDIC, and (3) an increase in $854,000 in professional fees due to legal,
accounting and consulting fees associated with the internal review conducted by the
Companys Audit Committee as a result of the restatement announcement and other related
legal and regulatory proceedings.
    
    The provision for income taxes for the quarter ended June 30, 2007 was a benefit of $3.5
million compared to an expense of $15.6 million for the same period in 2006. The positive
variance in 2007 was primarily due to an increase in deferred tax
 108




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benefits coupled with a
decrease in the current provision for income taxes. The increase in deferred tax benefits
for 2007 is mainly attributable to temporary differences related to the allowance for loan
losses. The decrease in the current provision for income taxes for 2007, when compared to
2006, is attributed to lower taxable income coupled with the expiration of transitory
income taxes enacted by the government of Puerto Rico that expired on December 31, 2006.
    
    Total assets at June 30, 2007 were $17.83 billion compared to $16.61 billion at June 30,
2006, an increase of $1.22 billion or 7.36%. The increase in total assets was primarily
driven by an increase of $835.6 million in the Companys loan portfolio due to the growth
of the Companys business coupled with an increase of $586.0 million in the Companys
investment portfolio, offset in part by a decrease of $237.0 million in the Companys money
market investments.
    
    Total liabilities at June 30, 2007 were $16.74 billion compared to $15.44 billion at
June 30, 2006, an increase of $1.30 billion or 8.41%. The increase in total liabilities
was primarily driven by an increase of $1.12 billion in deposits, mainly brokered deposits,
coupled with an increase of $180.5 million in federal funds purchased and repurchase
agreements, offset in part by a decrease of $55.0 million in advances from FHLB.
    
    Total stockholders equity at June 30, 2007 was $1.09 billion compared to $1.17 billion
at June 30, 2006, a decrease of $75.9 million or 6.49%. The decrease in total
stockholders equity was primarily driven by net losses, dividends declared on the
Companys common and preferred shares, and the cumulative effect of the adoption of FIN No.
48 which resulted in a charge to retained earnings of
$10.6 million at January 1, 2007.
 THIRD QUARTER ENDED SEPTEMBER 30, 2007 VERSUS THIRD QUARTER ENDED SEPTEMBER 30, 2006
   
    
    Net income for the quarter ended September 30, 2007 was $10.2 million compared to net
loss of $58,000 for the quarter ended September 30, 2006. After the payment of preferred
stock dividends, net loss income (loss) attributable to common stockholders was $988,000
for the quarter ended September 30, 2007 compared to $9.3 million for the same period in
2006.
    
    Diluted earnings per share for the quarter ended September 30, 2007 was $0.30 compared
to diluted loss per share of $2.82 for the quarter ended September 30, 2006.
    
    Net interest income for the quarter ended September 30, 2007 was $68.1 million compared
to $4.8 million for the same period in 2006, a decrease of $8.2 million or 10.74%. The
decrease in net interest income for the third quarter of 2007, compared to the same period
in 2006, was principally due to a significant decrease in the net yield on interest-earning
assets, offset in part by an increase in the Companys average interest-earning assets.
The decrease in net yield on interest-earning assets was principally due to the refunding
of the Companys interest-bearing liabilities at higher rates, in particular the Companys
brokered deposits, coupled with declining loan yields attributable to a higher balance of
loans in non-accrual status. The increase in average interest-earning assets was primarily
driven by a rise in the average loan portfolio, particularly in the Commercial and C&I loan
portfolios, coupled with an increase in the Companys investment portfolio.
    
    The provision for loan losses for the quarter ended September 30, 2007 was $21.7 million
compared to $37.8 million for the third quarter of 2006, a decrease of $16.1 million or
42.61%. The decrease in the provision for loan losses for 2007 is mainly attributable to a
specific reserve for an impaired relationship taken during the third quarter of 2006.
During the third quarter of 2006, the Companys provision for loan losses increased due to
an impairment of $17.1 million on a specific relationship in the Companys asset-based loan
portfolio. The decrease in the provision for loan losses in the third quarter of 2007 when
compared to other quarters in 2007 was mainly due to the impact of the Inyx loan which
mainly affect periods before the third quarter of 2007.
    
    Noninterest income for the quarter ended September 30, 2007 was $13.3 million compared
to $10.2 million for the quarter ended September 30, 2006, an increase of $3.1 million or
30.13%. The increase in noninterest income is the result of an increase of $2.8 million on
service fees and other fees and commissions due to higher activity associated with the
Companys
 109




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overall growing volume of business and an increase of $69,000 in net gain (loss)
on sales and valuations of loans, securities, and other assets.
    
    Noninterest expenses for the quarter ended September 30, 2007 was $44.7 million, an
increase of $14.2 million or 46.75% when compared to noninterest expenses of $30.4 million
for the quarter ended September 30, 2006. The increase in total noninterest expenses for
the third quarter of 2007 was mainly due to: (1) an increase in $7.5 million in
professional fees due to legal, accounting and consulting fees associated with the internal
review conducted by the Companys Audit Committee as a result of the restatement
announcement and other related legal and regulatory proceedings, (2) an increase of $1.9
million in salaries and employees benefits related to the Companys expansion in all of
its business areas, and (3) an increase of $1.9 million in deposit insurance premium and
supervisory examination due to an increase in premiums assessed by the FDIC.
    
    The provision for income taxes for the quarter ended September 30, 2007 was $4.8 million
compared to an expense of $18.3 million for the same period in 2006. The decrease in the
provision for income taxes in 2007 was primarily due to a decrease in the current provision
for income taxes, mainly due to lower taxable income coupled with the expiration of
transitory income taxes enacted by the government of Puerto Rico on December 31, 2006.
    
    Total assets at September 30, 2007 were $18.04 billion compared to $16.76 billion at
September 30, 2006, an increase of $1.28 billion or 7.65%. The increase in total assets
was primarily driven by an increase of $803.6 million in the Companys loan portfolio due
to the growth of the Companys business, an increase of $361.5 million in the Companys
investment portfolio, and an increase of $44.8 million in the Companys money market
investments.
    
    Total liabilities at September 30, 2007 were $16.96 billion compared to $15.61 billion
at September 30, 2006, an increase of $1.35 billion or 8.66%. The increase in total
liabilities was primarily driven by an increase of $1.32 billion in deposits, mainly
brokered deposits, offset in part by a decrease of $35.0 million in advances from FHLB.
    
    Total stockholders equity at September 30, 2007 was $1.08 billion compared to $1.15
billion at September 30, 2006, a decrease of $69.5 million or 6.03%. The decrease in total
stockholders equity was primarily driven by net losses, dividends declared on the
Companys common and preferred shares, a negative variance in the Companys accumulated
other comprehensive income associated with the valuation of the Corporations securities
available-for-sale portfolio, and the cumulative effect of the adoption of FIN No. 48 which
resulted in a charge to retained earnings of $10.6 million at
January 1, 2007.
 FOURTH QUARTER ENDED DECEMBER 31, 2007 VERSUS FOURTH QUARTER ENDED DECEMBER 31, 2006
   
    
    Net loss for the quarter ended December 31, 2007 was $71.2 million compared to a net
income of $10.9 million for the quarter ended December 30, 2006. After the payment of
preferred stock dividends, net loss attributable to common stockholders was of $80.4
million for the quarter ended December 31, 2007 compared to a net income of $1.7 million
for the same period in 2006.
    
    Diluted loss per share for the quarter ended December 31, 2007 was $24.39 compared to
diluted earnings per share of $0.50 for the quarter ended December 31, 2006.
    
    Net interest income for the quarter ended December 31, 2007 was $63.7 million compared
to $82.2 million for the same period in 2006, a decrease of $18.5 million or 22.48%. The
decrease in net interest income for the fourth quarter of 2007, compared to the same period
in 2006, was principally due to a significant decrease in the net yield on interest-earning
assets, offset in part by an increase in the Companys average interest-earning assets.
The decrease in net yield on interest-earning assets was principally due to the refunding
of the Companys interest-bearing liabilities at higher rates, in particular the Companys
brokered deposits, coupled with declining loan yields attributable to a higher balance of
loans in non-accrual
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status. The increase in average interest-earning assets was primarily
driven by a rise in the average loan portfolio, particularly in the Commercial and C&I loan
portfolios.
    
    The provision for loan losses for the quarter ended December 31, 2007 was $148.0 million
compared to $27.7 million for the fourth quarter of 2006, an increase of $120.2 million.
The increase in the provision loan losses was principally due to higher impaired and
non-performing loans, mainly attributed to the construction loan portfolio and the
asset-based lending portfolio of the Company.
    
    Noninterest income for the quarter ended December 31, 2007 was $12.4 million compared to
$10.1 million for the quarter ended December 30, 2006, an increase of $2.3 million or
22.88%. The increase in noninterest income is the result of an increase of $1.7 million on
service fees and other fees and commissions due to higher activity associated with the
Companys overall growing volume of business and a favorable variance of $114,000 in net
loss on sales and valuations of loans, securities, and other assets.
    
    Noninterest expenses for the quarter ended December 31, 2007 was $47.9 million, an
increase of $13.9 million or 40.74% when compared to noninterest expenses of $34.0 million
for the quarter ended December 31, 2006. The increase in total noninterest expenses for
the fourth quarter of 2007 was mainly due to: (1) an increase in $4.7 million in
professional fees due to legal, accounting and consulting fees associated with the internal
review conducted by the Companys Audit Committee as a result of the restatement
announcement and other related legal and regulatory proceedings, (2) an increase of $1.4
million in deposit insurance premium and supervisory examination due to an increase in
premiums assessed by the FDIC, and (3) an increase of $912,000 in salaries and employees
benefits related to the Companys expansion in all of its business areas.
    
    The provision for income taxes for the quarter ended December 31, 2007 was a benefit of
$48.6 million compared to an expense of $19.6 million for the same period in 2006. The
positive variance in the provision for income taxes in 2007 was primarily due to an
increase in deferred tax benefits coupled with positive variances in the Companys current
provision for income taxes. The increase in deferred tax benefits for 2007 is mainly
attributable to temporary differences related to the
allowance for loan losses, specifically the allowance for construction loans. The positive
variance in the current provision for income taxes, mainly due to lower taxable income
coupled with the expiration of transitory income taxes enacted by the government of Puerto
Rico on December 31, 2006.
    
    Total assets at December 31, 2007 were $17.93 billion compared to $17.07 billion at
December 31, 2006, an increase of $852.6 million or 4.99%. The increase in total assets
was primarily driven by an increase of $655.7 million in the Companys loan portfolio due
to the growth of the Companys business.
    
    Total liabilities at December 31, 2007 were $16.93 billion compared to $15.93 billion at
December 31, 2006, an increase of $1.00 billion or 6.30%. The increase in total
liabilities was primarily driven by an increase of $1.16 billion in deposits, mainly
brokered deposits, offset in part by a decrease of $173.8 million in federal funds
purchased and repurchased agreements, and a decrease of $25.0 million in advances from
FHLB.
    
    Total stockholders equity at December 31, 2007 was $996.2 million compared to $1.15 billion
at December 31, 2006, a decrease of $151.1 million or 13.17%. The decrease in total stockholders
equity was primarily driven by net losses incurred during 2007 due to increases in the provision
for loan losses, dividends declared on the Companys common and preferred shares, and a negative
variance in the Companys accumulated other comprehensive income associated with the valuation of
the Corporations securities available-for-sale portfolio.
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2006 VERSUS 2005
 FIRST QUARTER ENDED MARCH 31, 2006 VERSUS FIRST QUARTER ENDED MARCH 31, 2005
   
    
    Net income for the quarter ended March 31, 2006 was $31.6 million compared to $45.8
million for the quarter ended March 31, 2005. After the payment of preferred stock
dividends, net income attributable to common stockholders was of $22.3 million for the
quarter ended March 31, 2006 compared to $36.5 million for the same period in 2005.
    
    Diluted earnings per share for the quarter ended March 31, 2006 was $6.62 compared to
$10.73 for the quarter ended March 31, 2005.
    
    Net interest income for the quarter ended March 31, 2006 was $76.3 million compared to
$78.4 million for the same period in 2005, a decrease of $2.1 million or 2.61%. The slight
decrease in net interest income for the first quarter of 2006, compared to 2005, was
principally due to a significant decrease in net yield on interest-earning assets offset in
part by an increase in the
Companys average interest-earning assets. The decrease in net yield on interest-earning
assets during 2006 was mainly driven by the effects of increases in short-term rates coupled
with the mismatch between the re-pricing profile of the Companys assets and liabilities. For
2005 and 2006, the Company was liability sensitive since the Companys liabilities re-price
earlier than its assets. As a result, in periods of rising short-term rates, the Companys
average rate paid on its interest-bearing liabilities increases in higher proportion than the
increase in the average yield earned on its interest-earning assets. The increase in average
interest-earning assets was primarily driven by a rise in the Companys average loan
portfolio, particularly in the Commercial and C&I loan portfolios coupled with increases in
the Companys investment portfolio.
    
    The provision for loan losses for the quarter ended March 31, 2006 was $7.6 million
compared to $6.0 million for the first quarter of 2005. The increase in the provision for
loan losses for 2006 is mainly attributable to increases in the Companys loan portfolios,
particularly in the Commercial and C&I loan portfolios.
    
    Total noninterest income increased $3.5 million or 60.81% for the three month period
ended March 31, 2006, when compared to the same period in 2005. This increase was mainly
due to increases of $1.5 million on service and other charges on loans, deposits and other
fees, due to higher activity and fees resulting from the Companys overall growing volume
of business and other fees by the Company asset-based lending operation, in addition to a
positive variance of $1.9 million on net gain (loss) on derivative instruments. On January
3, 2006, the Company re-designated most of its interest rate swaps relating to certain
brokered certificates of deposit (brokered CDs) utilizing the long-haul method of SFAS
No. 133 and completed new contemporaneous hedging documentation. In cases in which the
hedging relationship is effective, the changes in the fair value of both the hedged items
(the brokered CDs) and the interest rate swaps are recorded through earnings.
    
    Total noninterest expenses increased $5.1 million or 21.18% for the three-month period
ended March 31, 2006, when compared to the corresponding period in 2005. Salaries and
employees benefits, the largest component of total noninterest expenses, increased $3.0
million or 27.87% for the first quarter of year 2006, compared to the same period in 2005.
Such an increase is attributed to the increase in personnel, normal salary increases and
related employees benefits, principally attributed to the Companys continued expansion in
the San Juan Metropolitan area and its entrance to the east coast of Puerto Rico. On March
16, 2005, the Company opened its first mega branch in the eastern region of Puerto Rico, in
the town of Humacao and on December 28, 2005, it opened its mega branch in the Condado area
in the city of San Juan. Also during the first quarter of year 2006, the Company
established Westernbank International Trade Services, a division of Westernbank Puerto Rico
that provides international trade products and services. At March 31, 2006, the Company had
1,356 full-time employees, including its executive officers, an increase of 153 employees
or 12.72% since March 31, 2005. Advertising expense increased by $1.1 million or 62.30%
for the three months ended March 31, 2006, when compared to the same period in 2005. The
increase was primarily due to the agreement by Westernbank to sponsor the Worlds Best 10K
Race, one of the most important and recognized sports activities in the world.
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
    
    The provision for income taxes increased $8.9 million or 111.25% for the three-month
period ended March 31, 2006, when compared to the same period in 2005. The current
provision for Puerto Rico income taxes for the first quarter of 2006 amounted to $17.2
million, a significant increase of $6.0 million or 54.05%, when compared to $11.2 million
for the same quarter in 2005. The increase in the current provision for income taxes is
attributed to two factors. First, the transitory additional surtax of 2.5% over net taxable
income, explained above, resulted in an additional current income tax provision of $944,000
during the quarter ended March 31, 2006. Second, the significant increase in the Companys
taxable income derived from increases in the loan portfolio, changing the proportion
between exempt and taxable income and therefore increasing the Companys effective tax
rate.
    
    Total assets at March 31, 2006 were $16.67 billion
compared to $15.01 billion at March
31, 2005, an increase of $1.71 billion or 11.37%. The increase in total assets was
primarily driven by an increase of $1.36 billion in the Companys loan portfolio due to the
Companys continued strategy of growing its loans portfolio through commercial real estate
collateralized, construction and land acquisition, asset-based and other commercial loans.
The investment portfolio, excluding money market instruments, stands at $7.41 billion at
March 31, 2006, an increase of $453.1 million or 6.52%, in comparison to balances at March
31, 2005. The increase in the Companys investment portfolio is mainly due to the Companys
strategy of growing the Companys tax exempt interest income.
    
    Total liabilities at March 31, 2006 were $15.50 billion compared to $13.88 billion at
March 31, 2005, an increase of $1.62 billion or 11.67%. The increase in total liabilities
was primarily driven by an increase of $1.85 billion in deposits, mainly brokered deposits,
offset in part by a decrease of $230.5 million in federal funds purchased and repurchase
agreements and a decrease of $45.0 million in advances from FHLB.
    
    Total stockholders equity at March 31, 2006 was $1.17 billion compared to $1.13 billion
at March 31, 2005, an increase of $42.4 million or 3.76%. The increase in total
stockholders equity was primarily driven by net income generated during the preceding 4
quarters offset in part by dividends declared on the Companys common and preferred shares.
 SECOND QUARTER ENDED JUNE 30, 2006 VERSUS SECOND QUARTER ENDED JUNE 30, 2005
   
    
    Net income for the quarter ended June 30, 2006 was $17.2 million compared to $52.0
million for the same quarter in 2006. After the payment of preferred stock dividends, net
income attributable to common stockholders was of $8.0 million for the quarter ended June
30, 2006 compared to $42.8 million for the same period in 2005.
    
    Diluted earnings per share for the quarter ended June 30, 2006 was $2.37 compared to
diluted earnings per share of $12.62 for the quarter ended June 30, 2005.
    
    Net interest income for the quarter ended June 30, 2006 was $73.5 million compared to
$79.1 million for the same period in 2005, a decrease of $5.5 million or 7.01%. The
decrease in net interest income for the second quarter of 2006, compared to 2005, was
principally due to a significant decrease in net yield on interest-earning assets offset in
part by an increase in the Companys average interest-earning assets. The decrease in net
yield on interest-earning assets during 2006 was mainly the result of a flat-to- inverted
yield curve and the fact that the upward repricing of the Companys interest-earning assets
continues to lag behind the increase in the cost of funds of the Companys interest-bearing
liabilities. The increase in average interest-earning assets was primarily driven by a
rise in the Companys average loan portfolio, particularly in the Commercial and C&I loan
portfolios.
    
    The provision for loan losses for the quarter ended June 30, 2006 was $17.7 million
compared to $5.0 million for the second quarter of 2005, an increase of $12.7 million or
254.44%. The increase in the provision for loan losses was attributable to the following
factors: first, the overall growth in the Companys loan portfolio, mainly those of its
Commercial and C&I loans;
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and second, to higher non-performing loans and net loans
charged-off during the period, principally in the loan portfolio of the Companys
asset-based lending division.
    
    Total noninterest income decreased $13.5 million or 63.93% for the three month period
ended June 30, 2006, when compared to the same period in 2005. This decrease was mainly due
to a negative variance of $13.9 million in net gain (loss) in derivative instruments, as a
result of the mark to market of such positions. On January 3, 2006, the Company
re-designated most of its interest rate swaps relating to its brokered certificates of
deposit (brokered CDs) utilizing the long-haul method of SFAS No. 133. In cases in
which the hedging relationship is effective, the changes in the fair value of both the
hedged items (the brokered CDs) and the interest rate swaps are recorded through earnings.
Also, during the quarter ended June 30, 2006, management concluded that $21.6 million of
its investments in Puerto Rico Government Obligations were other-than-temporarily impaired
and recorded a loss of $1.1 million. These securities were downgraded by one notch below
investment grade in May 2006. The decreases were partially offset by an increase of $1.4
million on service fees, and other
fees and commissions for the second quarter of 2006, when compared to $7.9 million for the
same period in 2005. Such increase was mainly due to higher activity associated with other
fees resulting from the Companys overall growing volume of business and fees generated by
the Companys asset-based lending operation.
    
    Total noninterest expenses increased $3.1 million or 11.26% for the three-month period
ended June 30, 2006 when compared to the same period in 2005. Salaries and employees
benefits, the largest component of total noninterest expenses, increased $1.9 million or
16.10% for the second quarter of year 2006 compared to the second quarter in 2005. The
increase in salaries and employees benefits is attributable to the increases in personnel,
normal salary increases and related employees benefits, principally related to the
Companys continued expansion in the San Juan Metropolitan area and its entrance to the
east coast of Puerto Rico. At June 30, 2006, the Company had 1,361 full-time employees,
including its executive officers, an increase of 159 employees or 13.23% since June 30,
2005. Noninterest expenses, other than salaries and employees benefits, increased by $1.2
million or 7.79% for the second quarter of 2006 compared to the same quarter in 2005. The
increase resulted primarily from the additional investment in technology and general
infrastructure to sustain and coordinate the Companys growth and expansion in all of its
business areas, mainly in the San Juan Metropolitan area and on the east coast of Puerto
Rico.
    
    The income taxes expenses for the quarter ended June 30, 2006 were $15.6 million
compared to $15.7 million for the same period in 2005. The slight positive variance in
2006 was primarily due to an increase in deferred tax benefits offset in part by an
increase in the current provision for income taxes. The increase in deferred tax benefits
for 2006 is mainly attributable to temporary differences related to the allowance for loan
losses. The increase in the current provision for income taxes is attributed to two
factors. First, on May 13, 2006, with an effective date of January 1, 2006, the Government
of Puerto Rico approved Law No. 89 which imposes an additional 2.0% income tax on all
companies covered by the Puerto Rico Banking Act, as amended, such as Westernbank. This
transitory income tax of 2% amounted to $1.4 million for the three months ended June 30,
2006. This transitory income tax will end on December 31, 2006. Second, the increase in the
Companys taxable income derived from increases in the loan portfolio, has changed the
proportion between exempt and taxable income and therefore increasing the Companys
effective tax rate.
    
    Total assets at June 30, 2006 were $16.61 billion
compared to $15.25 billion at June 30,
2005, an increase of $1.35 billion or 8.87%. The increase in total assets was primarily
driven by an increase of $1.03 billion in the Companys loan portfolio due to the Companys
continued strategy of growing its loans portfolio through commercial real estate
collateralized, construction and land acquisition, asset-based and other commercial loans,
coupled with an increase of $97.7 million and $158.2 million in the Companys investment
portfolio and money market instruments, respectively.
    
    Total liabilities at June 30, 2006 were
$15.44 billion compared to $14.09 billion at
June 30, 2005, an increase of $1.35 billion or 9.55%. The increase in total liabilities
was primarily driven by an increase of $1.31 billion in deposits, mainly brokered deposits,
coupled with an increase of $24.6 million in federal funds purchased and repurchase
agreements, offset in part by a decrease of $15.0 million in advances from FHLB.
    
    Total stockholders equity at June 30, 2006 was $1.17 billion compared to $1.16 billion
at June 30, 2005, an increase of $7.7 million. The increase in total stockholders equity
was primarily driven by net income generated during the preceding four quarters offset in
part by dividends declared on the Companys common and preferred shares.
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THIRD QUARTER ENDED SEPTEMBER 30, 2006 VERSUS THIRD QUARTER ENDED SEPTEMBER 30, 2005
   
    
    Net loss for the quarter ended September 30, 2006 amounted to $58,000 compared to net
income of $35.1 million for the quarter ended September 30, 2005. After the payment of
preferred stock dividends, net loss attributable to common stockholders was of $9.3 million
for the quarter ended September 30, 2006 compared to net income attributable to common
stockholders of $25.9 million for the same period in 2005.
    
    Diluted loss per share for the quarter ended September 30, 2006 was $2.82 compared to
diluted earnings per share of $7.64 for the quarter ended September 30, 2005.
    
    Net interest income for the quarter ended September 30, 2006 was $76.3 million compared
to $78.8 million for the same period in 2005, a decrease of $2.5 million or 3.10%. The
decrease in net interest income for the third quarter of 2006, compared to the same period
in 2005, was principally due to a significant decrease in the net yield on interest-earning
assets, offset in part by an increase in the Companys average interest-earning assets.
The decrease in net yield on interest-earning assets during 2006 was mainly driven by the
effects of increases in short-term rates coupled with the mismatch between the re-pricing
profile of the Companys assets and liabilities. For 2005 and 2006, the Company was
liability sensitive since the Companys liabilities re-priced earlier than its assets. As a
result, in periods of rising short-term rates, the Companys average rate paid on its
interest-bearing liabilities increases in higher proportion than the increase in the
average yield earned on its interest-earning assets. The increase in average
interest-earning assets was primarily driven by a rise in the Companys average loan
portfolio, particularly in the Commercial and C&I loan portfolios coupled with increases in
the Companys investment portfolio.
    
    The provision for loan losses for the quarter ended September 30, 2006 was $37.8 million
as compared to $6.0 million for the third quarter of 2005, an increase of $31.8 million.
The increase in the provision for loan losses for 2006 is mainly attributable to a specific
reserve for an impaired relationship taken during the third quarter of 2006. During the
third quarter of 2006, the Companys provision for loan losses increased due to an
impairment of $17.1 million on a specific relationship in the Companys asset-based loan
portfolio.
    
    Total noninterest income increased $8.1 million for the three month period ended
September 30, 2006, when compared to the same period in 2005. This increase was mainly due
to a positive variance of $6.9 million in net gain (loss) on derivative instruments, as a
result of the mark to market of such positions. On January 3, 2006, the Company
re-designated most of its interest rate swaps relating to its brokered certificates of
deposit (brokered CDs) utilizing the long-haul method of SFAS No. 133. In cases in
which the hedging relationship is effective, the changes in the fair value of both the
hedged items (the brokered CDs) and the interest rate swaps are recorded through earnings.
Service fees and other fees and commissions for the third quarter of 2006 increased by $1.0
million, when compared to $8.4 million for the same period in 2005. Such increase was
mainly due to higher activity associated with other fees resulting from the Companys
overall growing volume of business and other fees generated by the Companys asset-based
lending operation.
    
    Total noninterest expenses increased $2.9 million or 10.35% for the three-month period
ended September 30, 2006 when compared to the same period in 2005. The increase in total
noninterest expenses was principally due to increases in professional fees and salaries and
employees benefits. For the third quarter of 2006, professional fees increased by $1.0
million primarily due to consulting fees related to certain regulatory matters and the
Company review of its operation. Salaries and employees benefits, the largest component
of total noninterest expenses, increased $695,000 or 5.86% for the third quarter of year
2006 compared to the same period in 2005. Such increase is attributed to the increases in
personnel, normal salary increases and related employee benefits, principally attributed to
the Companys continued expansion in the
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San Juan Metropolitan area. At September 30, 2006,
the Company had 1,365 full-time employees, including its executive officers, an increase of
99 employees or 7.82% since September 30, 2005.
    
    The provision for income taxes for the quarter ended September 30, 2006 was $18.3
million compared to $12.2 million for the same period in 2005, an increase of $6.1 million
or 49.76%. The increase in the provision for income taxes in 2006 was
primarily due to an increase in the current provision for income taxes offset in part by an
increase in deferred tax benefits. The increase in the current provision for income taxes is
attributed to the enactment for 2006 of a transitory increase in the statutory income tax
rate for companies covered by the Puerto Rico Banking Act, as amended, such as Westernbank,
and by an increase in the Companys taxable income derived from increases in the Companys
loan portfolio. The increase in deferred tax benefit for 2006 is mainly attributable to
temporary differences related to the allowance for loan losses.
    
    Total assets at September 30, 2006 were $16.76 billion compared to $15.71 billion at
September 30, 2005, an increase of $1.05 billion or 6.68%. The increase in total assets was
primarily driven by an increase of $979.0 million in the Companys loan portfolio due to
the Companys growth strategy, coupled with an increase of $44.9 million in the Companys
investment portfolio. The increase in the Companys investment portfolio is mainly due to
the Companys strategy of growing its tax exempt interest income. Such increases were
offset in part by a decrease of $41.2 million in money market investments.
    
    Total liabilities at September 30, 2006 were $15.61 billion compared to $14.53 billion
at September 30, 2005, an increase of $1.08 billion or 7.41%. The increase in total
liabilities was primarily driven by an increase of $1.11 billion in deposits, mainly
brokered deposits, offset in part by a decrease of $35.0 million in advances from FHLB.
    
    Total stockholders equity at September 30, 2006
was $1.15 billion compared to $1.18
billion at September 30, 2005, a decrease of $26.9 million
or 2.28%. The decrease in total
stockholders equity was primarily driven by dividends declared on the Companys common and
preferred shares offset in part by net income generated during the preceding four quarters.
 FOURTH QUARTER ENDED DECEMBER 31, 2006 VERSUS FOURTH QUARTER ENDED DECEMBER 31, 2005
   
    
    Net income for the quarter ended December 31, 2006 was $10.9 million compared to a net
loss of $9.4 million for the quarter ended December 30, 2005. After the payment of
preferred stock dividends, net income attributable to common stockholders was $1.7 million
for the quarter ended December 31, 2006 compared to a net loss of $18.7 million for the
same period in 2005.
    
    Diluted earnings per share for the quarter ended December 31, 2006 was $0.50 compared to
diluted loss per share of $5.68 for the quarter ended December 31, 2005.
    
    Net interest income for the quarter ended December 31, 2006 was $82.2 million compared
to $73.2 million for the same period in 2005, an increase of $8.9 million or 12.22%. The
increase in net interest income for the fourth quarter of 2006, compared to the same period
in 2005, was principally due to an increase in the Companys average interest earning
assets offset in part by a decrease in the net yield on interest-earning assets. The
decrease in net yield on interest-earning assets during 2006 was mainly the result of a
flat-to- inverted yield curve and the fact that the upward repricing of the Companys
interest-earning assets continued to lag behind the increase in the cost of funds of the
Companys interest-bearing liabilities. The increase in average interest-earning assets
was primarily driven by a rise in the Companys average loan portfolio, particularly in the
Commercial and C&I loan portfolios.
    
    The provision for loan losses for the quarter ended December 31, 2006 was $27.7 million
as compared to $63.0 million for the fourth quarter of 2005, a decrease of $35.3 million.
The decrease in the provision for loan losses for 2006 is mainly
attributable to a specific reserve for an impaired relationship taken during the fourth
quarter of 2005. During the fourth
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quarter of 2005, the Companys provision for loan losses
increased mainly due to an impairment of $30.8 million on a specific relationship in the
Companys asset-based loan portfolio.
    
    Total noninterest income for the quarter ended December 31, 2006 was $10.1 million
compared to $6.8 million for the quarter ended December 30, 2005, an increase of $3.3
million or 48.19%. The increase in noninterest income is mainly the result of a positive
variance of $3.8 million in net gain (loss) on derivative instruments, as a result of the
mark to market of such positions. On January 3, 2006, the Company re-designated most of its
interest rate swaps relating to its brokered certificates of deposit (brokered CDs)
utilizing the long-haul method of SFAS No. 133. In cases in which the hedging
relationship is effective, the changes in the fair value of both the hedged items (the
brokered CDs) and the interest rate swaps are recorded through earnings. Service fees and
other fees and commissions for the third quarter of 2006 increased by $0.2 million, when
compared to $10.0 million for the same period in 2005. Such increase was mainly due to
higher activity associated with other fees resulting from the Companys overall growing
volume of business and other fees generated by the Companys asset-based lending operation.
    
    Total noninterest expenses for the quarter ended December 31, 2006 was $34.0 million, an
increase of $5.2 million or 18.01% when compared to total noninterest expenses of $28.9
million for the quarter ended December 31, 2005. The increase in total noninterest
expenses for the fourth quarter of 2006 was mainly due to: (1) an increase of $2.2 million
in salaries and employees benefits related to the Companys expansion in all of its
business areas, (2) an increase of $2.0 million in professional fees primarily due to
consulting fees related to certain regulatory matters and the Company review of its
operation, (3) an increase of $556,000 in equipment expenses mainly due to the continued
growth of the Companys branch network, and (4) an increase of $557,000 in municipal taxes
due to higher gross revenues earned.
    
    The provision for income taxes for the quarter ended December 31, 2006 was an expense of
$19.6 million as compared to a benefit of $2.4 million for the same period in 2005. The
negative variance in the provision for income taxes in 2006 was primarily due to variance
in deferred tax benefits coupled with an increase in the Companys current provision for
income taxes. The deferred tax provision for the fourth quarter of 2006 amounted to an
expense of $1.2 million compared to a benefit of $15.4 million for the same period in 2005.
The variances in deferred tax benefits for 2006 is mainly attributable to temporary
differences related to the allowance for loan losses, specifically due to the increase in
the allowance for loan losses during the fourth quarter of 2005 due a specific relationship
in the Companys asset based loan portfolio. The increase in the current provision for
income taxes was mainly due to higher taxable income coupled with the transitory income
taxes enacted by the government of Puerto Rico for the year 2006.
    
    Total assets at December 31, 2006 were $17.07 billion compared to $16.11 billion at
December 31, 2005, an increase of $961.9 million or 5.97%. The increase in total assets
was primarily driven by an increase of $789.0 million in the Companys loan portfolio due
to the Companys growth strategy coupled with an increase of $168.0 million in money market
instruments, offset in part by a decrease of $51.1 million in the Companys investment
portfolio.
    
    Total liabilities at December 31, 2006 were $15.93 billion compared to $14.96 billion at
December 31, 2005, an increase of $968.4 million or 6.47%. The increase in total
liabilities was primarily driven by an increase of $961.5 million in deposits, mainly
brokered deposits, coupled with an increase of $60.5 million in federal funds purchased and
repurchased agreements. Such increases were offset in part by a decrease of $45.0 million
in advances from FHLB.
    
    Total stockholders equity at December 31, 2006 was $1.147 billion compared to $1.154 billion at
December 31, 2005, a decrease of $6.5 million. The decrease in total stockholders equity for 2006
was primarily driven by dividends declared on the Companys common and preferred shares offset in
part by net income generated during the year.
 117




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##### Table of Contents



RISK MANAGEMENT
 General
   Risks Definition
        Audit Committee
  Risk Management Program
   118




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##### Table of Contents




    
    Asset & Liability Committee  oversees interest rate and market risk, liquidity
management and other related matters.
    
    Steering Committee  is responsible for the oversight of and counsel on matters related
to information technology including the development of information management policies and
procedures throughout the Company.
    
    Compliance and Risk Management Committee  is responsible for the oversight of federal
and local regulatory compliance.
    
    Delinquency Committee  is responsible for the periodic reviews of (1) past due loans,
(2) overdrafts, (3) non-accrual loans and (4) adversely classified loans.
 Executive Officers
  
    
    Chief Executive Officer (the CEO)  in combination with the Companys Chief Operating
Officer is responsible for the overall risk management structure.
    
    Chief Operating Officer  responsible for the day-to-day operations and in combination
with the CEO is responsible for the overall risk management structure.
    
    Chief Risk Officer  responsible for the oversight of the risk management organization
as well as risk management program processes.
    
    Chief Credit Risk Officer  manages the Companys credit risk program.
    
    Chief Financial Officer  in combination with the Companys Treasurer, manages the
Companys interest, market and liquidity risks programs and in combination with the Chief
Accounting Officer is responsible for the implementation of accounting policies and
practices in accordance with accounting principles generally accepted in the Unites States
of America and applicable regulatory requirements.
    
    Chief Accounting Officer  responsible for the development and implementation of the
Companys accounting policies and practices and the review and monitoring of critical
accounts and transactions to ensure that they are managed in accordance with accounting
principles generally accepted in the United States of America and applicable regulatory
requirements.
 Credit Risk Management
   119




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Managements Discussion and Analysis of Financial Condition and Results of
Operations Section
  Managements Discussion and Analysis of Financial Condition and Results of Operations Section
 Market Risk & Interest Rate Risk
   120




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Change in Interest Rate
    
    Expected NII (1)
    
    Amount Change
    
    % Change(Dollars in thousands)+200 Basis Points
    
    $
    141,542
    
    
    $
    21,587
    
    
    
    18.00
    %Base Scenario
    
    
    119,955
    
    
    
    
    
    
    
    -200 Basis Points
    
    
    93,039
    
    
    
    (26,916
    )
    
    
    (22.44
    )%
  Change in Interest Rate
    
    Expected NII (1)
    
    Amount Change
    
    % Change(Dollars in thousands)+200 Basis Points
    
    $
    249,696
    
    
    $
    (37,988
    )
    
    
    (13.20
    )%Base Scenario
    
    
    287,684
    
    
    
    
    
    
    
    -200 Basis Points
    
    
    286,108
    
    
    
    (1,576
    )
    
    
    (0.55
    )%
 
 (1)
    
    The NII (net interest income) figures exclude the effect of the amortization of loan fees.  121




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Liquidity Risk
     122




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##### Table of Contents



(In thousands)3 months or less
    
    $
    294,405over 3 months through 6 months
    
    
    95,248over 6 months through 12 months
    
    
    76,358over 12 months
    
    
    59,666Total
    
    $
    525,677
  Due after one
    
    
    Due after threeDue within one
    
    
    year through
    
    
    years through
    
    
    Due after fiveyear
    
    
    three years
    
    
    five years
    
    
    years
    
    
    Total(In thousands)Short-term borrowings
    
    $
    1,524,075
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,524,075Long-term borrowings
    
    
    1,224,420
    
    
    
    2,877,965
    
    
    
    224,500
    
    
    
    433,198
    
    
    
    4,760,083Operating lease obligations
    
    
    2,193
    
    
    
    3,222
    
    
    
    2,111
    
    
    
    2,620
    
    
    
    10,146Total contractual obligations
    
    $
    2,750,688
    
    
    $
    2,881,187
    
    
    $
    226,611
    
    
    $
    435,818
    
    
    $
    6,294,304
  123




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Less than oneyear
    
    
    2-5 years
    
    
    Total(In thousands)Unused lines of credit
    
    $
    175,265
    
    
    $
    190,618
    
    
    $
    365,883Standby letters of credit
    
    
    38,385
    
    
    
    
    
    
    
    38,385Commercial letters of credit
    
    
    6,047
    
    
    
    
    
    
    
    6,047Commitments to extend credit
    
    
    99,160
    
    
    
    528,891
    
    
    
    628,051Total
    
    $
    318,857
    
    
    $
    719,509
    
    
    $
    1,038,366
   Operational Risk
    Legal Risk
  124




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Reputational Risk
  Concentration Risk
    Impact of Inflation and Changing Prices
   CRITICAL ACCOUNTING POLICIES
  125




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
    
    Allowance for loan losses The allowance for loan losses is a critical accounting
policy that requires the most significant judgments and estimates used in the preparation
of the Companys consolidated financial statements.
       
    
    Other-than-temporary impairments The Company reviews its investment securities for
impairment on a quarterly basis or earlier if other factors indicative of potential
impairment exist. An impairment charge in the consolidated statements of income is
recognized when the decline in the fair value of the securities below their cost basis is
judged to be other-than-temporary.
   
    
    Financial instruments Certain financial instruments including derivatives, investment securities
available for sale and mortgage loans held for sale are recorded at fair value and unrealized gains
and losses are recorded in other comprehensive income (loss) or noninterest income as appropriate.
  126




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##### Table of Contents



   Investment
Securities  Available for sale The fair value of investment securities
available for sale are obtained from quotations received from pricing service firms and/or
securities dealers. If a quoted market is not available, fair value is estimated using
quoted market prices for similar securities.   Residential
Mortgage Loans Held for Sale  Fair value is based on the contract price
at which the mortgage loans are expected to be sold.   Derivative
Assets and Derivative Liabilities The fair values of option contracts are
obtained from non-binding dealer quotes. In the case of interest rate swaps, the fair
values are obtained using an independent valuation model and periodically compared to
dealer quotes. The fair values produced by this proprietary valuation model are in part
theoretical and therefore can vary between derivative dealers and are not necessarily
reflective of the actual price at which the contract could be traded. Small changes in
assumptions can result in significant changes in valuation. The risks inherent in the
determination of the fair value of a derivative may result in income statement volatility.
 
    
    Certain liabilities and contingencies In the ordinary course of business, the
Companys management is required to make certain estimates and assumptions that affect the
reported amounts of liabilities and disclosures of contingent liabilities at the date of
the consolidated financial statements and therefore the reported amounts of revenues and
expenses during the reporting period. Such estimates are subjective in nature and involve
uncertainties and matters of significant judgment regarding past and expected gains or
losses, current economic conditions, and risk characteristics, among other factors. The
following is a description of the most significant methods and assumptions used by the
Company in estimating the amounts reported in connection with certain liabilities and
contingencies as disclosed in the financial statements:   Income taxes The Company is required to compute income taxes in connection with
its preparation of the consolidated financial statements. This computation involves estimates
and assumptions made by the Companys management based on its interpretation of current and
enacted tax laws and regulations that affect the reported amounts of current and deferred
income tax provisions. The carrying value of the Companys net deferred tax asset assumes
that the Company will be able to generate sufficient taxable income in the future to realize
most of the tax benefit. If expectations about future taxable income are not materialized,
the Company may be required to record a valuation allowance to reduce the recorded amount of
its deferred tax asset resulting in an increase of income tax expense in the consolidated
statements of operations.
  127




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   Other Contingencies The Company is a defendant in legal actions arising in the
normal course of business. Evaluation of these contingencies requires management of the
Company, after consultation with its legal counsel, to assume certain positions based on its
interpretation of current laws and regulations. Such interpretations are subjective in nature
and involve uncertainties and matters of significant judgment and, therefore, actual results
could differ from management position and estimates.
  128




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##### Table of Contents



ACCOUNTING
PRONOUNCEMENTS RECENTLY ADOPTED
 Accounting for Certain
Loans and Debt Securities Acquired in a Transfer
 The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities,
and cost method investments Effective Date of Paragraphs 10-20 of EITF 03-01 The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments Recognition of Other-Than-Temporary Impairment upon
the Planned Sale of a Security Whose Cost Exceeds Fair Value
 Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29 Accounting for Nonmonetary Transactions
 Share-Based Payment
 Accounting for Conditional Asset
Retirement Obligations  an interpretation of FASB Statement No. 143
 129




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##### Table of Contents



Accounting Changes and Error Corrections  a
Replacement of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial
Statements
 Issuers Accounting
under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that
Are Redeemable
 Accounting for Certain Hybrid Financial
Instruments, an amendment of SFAS No. 140 and SFAS No. 133
 Accounting for Servicing of Financial Assets, an
amendment to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities Accounting for Certain Investments in Debt and Equity Securities
 Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN No. 48)
 130




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##### Table of Contents



Financial Statements  Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
 ACCOUNTING
PRONOUNCEMENTS TO BE ADOPTED
 Fair Value Measurements Effective Date of FASB Statement No. 157 Determining the Fair Value of a Financial Asset When the Market for That Asset Is
Not Active
 The Fair Value Option for Financial Assets and
Financial Liabilities- Including an Amendment of FASB Statement No. 115
 Amendment of FASB Interpretation
No. 39
 131




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##### Table of Contents



Written Loan Commitments Recorded at Fair Value
through Earnings Application of Accounting Principles to Loan
Commitments
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statementsan Amendment to ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133.
 The Hierarchy of Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings per Share
 OFF-BALANCE SHEET ARRANGEMENTS
  132




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MANAGEMENT CERTIFICATIONS
 
  
   
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Accounting for Uncertainty in Income
Taxes  an interpretation of Statement of Financial Accounting Standards No. 109 .
   Internal ControlIntegrated Framework
 
 
 133




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##### Table of Contents



W HOLDING COMPANY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, 2007 AND 2006
 (As Restated -See Note 25)2007
    
    
    2006ASSETSCash and due from banks
    
    $
    153,473
    
    
    $
    105,027Money market instruments:Federal funds sold and resell agreements
    
    
    886,700
    
    
    
    950,573Interest-bearing deposits in banks
    
    
    56,287
    
    
    
    21,060Investment securities available for sale, at fair value with an amortized
cost of $484,066 in 2007 and $20,186 in 2006
    
    
    479,001
    
    
    
    20,541Investment securities held to maturity, at amortized cost with a
fair value of $6,532,930 in 2007 and $6,794,259 in 2006
    
    
    6,598,197
    
    
    
    7,007,579Federal Home Loan Bank stock, at cost
    
    
    49,453
    
    
    
    37,982Residential mortgage loans held for sale, at lower of cost or fair value
    
    
    6,500
    
    
    
    11,379Loans, net of allowance for loan losses of $338,720 in 2007
and $202,180 in 2006
    
    
    9,209,911
    
    
    
    8,554,177Accrued interest receivable
    
    
    105,377
    
    
    
    120,311Foreclosed real estate held for sale, net of valuation allowance of
$1,022 in 2007 and $449 in 2006
    
    
    10,971
    
    
    
    5,917Premises and equipment, net
    
    
    129,591
    
    
    
    124,648Deferred income taxes, net
    
    
    134,177
    
    
    
    58,689Other assets
    
    
    107,073
    
    
    
    56,261TOTAL
    
    $
    17,926,711
    
    
    $
    17,074,144LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    317,753
    
    
    $
    373,634Interest-bearing and related accrued interest payable
    
    
    10,178,748
    
    
    
    8,963,429Total deposits
    
    
    10,496,501
    
    
    
    9,337,063Federal funds purchased and repurchase agreements
    
    
    6,146,693
    
    
    
    6,320,481Advances from Federal Home Loan Bank
    
    
    102,000
    
    
    
    127,000Mortgage note payable
    
    
    35,465
    
    
    
    35,968Advances from borrowers for taxes and insurance
    
    
    11,539
    
    
    
    9,862Accrued expenses and other liabilities
    
    
    138,277
    
    
    
    96,427Total liabilities
    
    
    16,930,475
    
    
    
    15,926,801COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock  $1.00 par value per share (liquidation preference -
$530,838
in 2007 and 2006); authorized 50,000,000 shares; issued and outstanding
18,156,709 shares in 2007 and 2006
    
    
    18,157
    
    
    
    18,157Common stock  $1.00 par value per share; authorized 500,000,000 shares;
issued
and outstanding 3,298,138 shares in 2007 and 3,289,734 shares in 2006
    
    
    3,298
    
    
    
    3,290Paid-in capital
    
    
    870,128
    
    
    
    868,680Retained earnings:Reserve fund
    
    
    78,389
    
    
    
    78,389Undivided profits
    
    
    31,383
    
    
    
    178,543Accumulated other comprehensive (loss) income, net of income tax
    
    
    (5,119
    )
    
    
    284Total stockholders equity
    
    
    996,236
    
    
    
    1,147,343TOTAL
    
    $
    17,926,711
    
    
    $
    17,074,144
  134




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W HOLDING COMPANY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 (As Restated -
    
    
    (As Restated -See Note 25)
    
    
    See Note 25)2007
    
    
    2006
    
    
    2005INTEREST INCOME:Loans, including loan fees
    
    $
    723,765
    
    
    $
    661,095
    
    
    $
    476,918Investment securities
    
    
    260,300
    
    
    
    261,971
    
    
    
    247,533Mortgage-backed securities
    
    
    45,287
    
    
    
    28,445
    
    
    
    32,315Money market instruments
    
    
    40,833
    
    
    
    38,235
    
    
    
    36,433Trading securities
    
    
    4
    
    
    
    44
    
    
    
    6Total interest income
    
    
    1,070,189
    
    
    
    989,790
    
    
    
    793,205INTEREST EXPENSE:Deposits
    
    
    463,298
    
    
    
    366,063
    
    
    
    241,268Federal funds purchased and repurchase agreements
    
    
    315,030
    
    
    
    307,463
    
    
    
    234,791Advances from Federal Home Loan Bank
    
    
    5,691
    
    
    
    7,893
    
    
    
    7,688Borrowings under line of credit
    
    
    1,107
    
    
    
    
    
    
    
    Total interest expense
    
    
    785,126
    
    
    
    681,419
    
    
    
    483,747NET INTEREST INCOME
    
    
    285,063
    
    
    
    308,371
    
    
    
    309,458PROVISION FOR LOAN LOSSES
    
    
    277,562
    
    
    
    90,880
    
    
    
    80,006NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    7,501
    
    
    
    217,491
    
    
    
    229,452NONINTEREST INCOME:Service and other charges on loans
    
    
    12,687
    
    
    
    12,527
    
    
    
    11,577Service charges on deposit accounts
    
    
    12,397
    
    
    
    9,976
    
    
    
    8,636Other fees and commissions
    
    
    20,313
    
    
    
    15,104
    
    
    
    13,182Net gain on derivative instruments
    
    
    1,308
    
    
    
    632
    
    
    
    1,878Net gain (loss) on sales and valuation of loans held for sale,
securities,
and other assets
    
    
    1,093
    
    
    
    (1,141
    )
    
    
    547Total noninterest income
    
    
    47,798
    
    
    
    37,098
    
    
    
    35,820NONINTEREST EXPENSES:Salaries and employees benefits
    
    
    60,436
    
    
    
    54,378
    
    
    
    46,653Equipment
expenses
    
    
    13,244
    
    
    
    11,610
    
    
    
    9,554Deposits insurance premium and supervisory examination
    
    
    10,398
    
    
    
    3,770
    
    
    
    3,370Occupancy
    
    
    9,383
    
    
    
    8,482
    
    
    
    7,640Advertising
    
    
    8,641
    
    
    
    9,140
    
    
    
    9,160Printing, postage, stationery and supplies
    
    
    3,860
    
    
    
    3,654
    
    
    
    3,128Telephone
    
    
    2,068
    
    
    
    2,275
    
    
    
    1,853Net loss (gain) from operations of foreclosed real estate held for sale
    
    
    182
    
    
    
    (270
    )
    
    
    (402
    )Municipal taxes
    
    
    8,775
    
    
    
    6,218
    
    
    
    4,708Professional fees
    
    
    17,884
    
    
    
    3,819
    
    
    
    1,680Other
    
    
    28,538
    
    
    
    21,442
    
    
    
    20,886Total noninterest expenses
    
    
    163,409
    
    
    
    124,518
    
    
    
    108,230INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES
    
    
    (108,110
    )
    
    
    130,071
    
    
    
    157,042PROVISION (CREDIT) FOR INCOME TAXES
    
    
    (39,772
    )
    
    
    70,492
    
    
    
    33,547NET INCOME (LOSS)
    
    
    (68,338
    )
    
    
    59,579
    
    
    
    123,495LESS DIVIDENDS TO PREFERRED STOCKHOLDERS
    
    
    36,910
    
    
    
    36,911
    
    
    
    36,985INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
    
    $
    (105,248
    )
    
    $
    22,668
    
    
    $
    86,510BASIC EARNINGS (LOSS) PER COMMON SHARE
    
    $
    (31.92
    )
    
    $
    6.89
    
    
    $
    26.37DILUTED EARNINGS (LOSS) PER COMMON SHARE
    
    $
    (31.92
    )
    
    $
    6.74
    
    
    $
    25.61
  135




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W HOLDING COMPANY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 (As Restated -
    
    
    (As Restated -See Note 25)
    
    
    See Note 25)2007
    
    
    2006
    
    
    2005CHANGES IN STOCKHOLDERS EQUITY:Preferred stock:Balance at beginning of year
    
    $
    18,157
    
    
    $
    18,160
    
    
    $
    17,794Issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    401Conversion of preferred stock
    
    
    
    
    
    
    (3
    )
    
    
    (35
    )Balance at end of year
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,160Common stock:Balance at beginning of year
    
    
    3,290
    
    
    
    3,282
    
    
    
    3,278Issuance of common stock upon conversion of preferred stock
    
    
    
    
    
    
    
    
    
    
    3Issuance of common stock upon exercise of stock options
    
    
    8
    
    
    
    8
    
    
    
    1Balance at end of year
    
    
    3,298
    
    
    
    3,290
    
    
    
    3,282Paid-in capital:Balance at beginning of year
    
    
    868,680
    
    
    
    866,938
    
    
    
    847,134Stock options exercised
    
    
    1,241
    
    
    
    1,064
    
    
    
    159Stock-based compensation expense
    
    
    207
    
    
    
    675
    
    
    
    564Issuance of common stock upon conversion of preferred stock
    
    
    
    
    
    
    3
    
    
    
    32Issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    19,049Balance at end of year
    
    
    870,128
    
    
    
    868,680
    
    
    
    866,938Reserve fund:Balance at beginning of year
    
    
    78,389
    
    
    
    72,484
    
    
    
    60,260Transfer from undivided profits
    
    
    
    
    
    
    5,905
    
    
    
    12,224Balance at end of year
    
    
    78,389
    
    
    
    78,389
    
    
    
    72,484Undivided profits:Balance at beginning of year
    
    
    178,543Cummulative impact of changes in accounting for
uncertainties in income taxes (FIN No. 48 - See Note 1)
    
    
    (10,585
    )Balance at beginning of year  as  adjusted
    
    
    167,958
    
    
    
    193,016
    
    
    
    149,305Net income (loss)
    
    
    (68,338
    )
    
    
    59,579
    
    
    
    123,495Cash dividends on common stock
    
    
    (31,327
    )
    
    
    (31,236
    )
    
    
    (30,575
    )Cash dividends on preferred stock
    
    
    (36,910
    )
    
    
    (36,911
    )
    
    
    (36,985
    )Transfer to reserve fund
    
    
    
    
    
    
    (5,905
    )
    
    
    (12,224
    )Balance at end of year
    
    
    31,383
    
    
    
    178,543
    
    
    
    193,016Accumulated other comprehensive income (loss), net of income
tax:Balance at beginning of year
    
    
    284
    
    
    
    7
    
    
    
    (212
    )Other comprehensive income (loss)
    
    
    (5,403
    )
    
    
    277
    
    
    
    219Balance at end of year
    
    
    (5,119
    )
    
    
    284
    
    
    
    7TOTAL STOCKHOLDERS EQUITY
    
    $
    996,236
    
    
    $
    1,147,343
    
    
    $
    1,153,887COMPREHENSIVE INCOME (LOSS):Net income (loss)
    
    $
    (68,338
    )
    
    $
    59,579
    
    
    $
    123,495Other comprehensive income (loss):Unrealized net gains (losses) on securities available for sale:Unrealized gains (losses) arising during the period
    
    
    (6,105
    )
    
    
    (201
    )
    
    
    222Reclassification adjustment for losses (gains) included in net
income (loss)
    
    
    585
    
    
    
    546
    
    
    
    (5,520
    )
    
    
    345
    
    
    
    222Income tax effect
    
    
    117
    
    
    
    (68
    )
    
    
    (3
    )Other comprehensive income (loss)
    
    
    (5,403
    )
    
    
    277
    
    
    
    219TOTAL COMPREHENSIVE INCOME (LOSS)
    
    $
    (73,741
    )
    
    $
    59,856
    
    
    $
    123,714
  136




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W HOLDING COMPANY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 (As Restated -
    
    
    (As Restated -See Note 25)
    
    
    See Note 25)2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (68,338
    )
    
    $
    59,579
    
    
    $
    123,495Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Provision (credit) for:Loan losses
    
    
    277,562
    
    
    
    90,880
    
    
    
    80,006Unfunded loan commitments
    
    
    1,146
    
    
    
    
    
    
    
    Deferred income tax
    
    
    (73,610
    )
    
    
    (6,107
    )
    
    
    (18,991
    )Foreclosed real estate held for sale
    
    
    573
    
    
    
    222
    
    
    
    (59
    )Depreciation and amortization of:Premises and equipment
    
    
    9,549
    
    
    
    8,696
    
    
    
    7,093Mortgage servicing rights
    
    
    296
    
    
    
    329
    
    
    
    488Stock-based compensation expense
    
    
    207
    
    
    
    675
    
    
    
    564Amortization of premium (discount)-net, on:Investment securities available for sale
    
    
    (250
    )
    
    
    (142
    )
    
    
    68Investment securities held to maturity
    
    
    (20,081
    )
    
    
    (18,484
    )
    
    
    (4,900
    )Mortgage-backed securities held to maturity
    
    
    175
    
    
    
    261
    
    
    
    846Loans
    
    
    47
    
    
    
    860
    
    
    
    1,181Amortization of discount on deposits
    
    
    774
    
    
    
    1,460
    
    
    
    4,337Amortization of net deferred loan origination fees
    
    
    (17,095
    )
    
    
    (15,795
    )
    
    
    (16,255
    )Net loss (gain) on sale and in valuation of:Investment securities available for sale
    
    
    
    
    
    
    (204
    )
    
    
    Available-for-sale securities other-than-temporarily impaired
    
    
    585
    
    
    
    750
    
    
    
    Held-to-maturity securities other-than-temporarily impaired
    
    
    
    
    
    
    1,063
    
    
    
    Mortgage loans held for sale
    
    
    (531
    )
    
    
    (291
    )
    
    
    (334
    )Derivative instruments
    
    
    (1,428
    )
    
    
    (1,525
    )
    
    
    4,008Foreclosed real estate held for sale
    
    
    (601
    )
    
    
    (634
    )
    
    
    (476
    )Loans
    
    
    (250
    )
    
    
    
    
    
    
    Premises and equipment
    
    
    (857
    )
    
    
    
    
    
    
    Capitalization of servicing rights
    
    
    (303
    )
    
    
    (285
    )
    
    
    (257
    )Originations of mortgage loans held for sale
    
    
    (27,242
    )
    
    
    (33,530
    )
    
    
    (19,955
    )Proceeds from sales of mortgage loans held for sale
    
    
    19,875
    
    
    
    16,562
    
    
    
    15,742Decrease (increase) in:Trading securities
    
    
    3,723
    
    
    
    5,814
    
    
    
    4,700Accrued interest receivable
    
    
    14,934
    
    
    
    (14,429
    )
    
    
    (16,899
    )Other assets
    
    
    (40,631
    )
    
    
    (3,601
    )
    
    
    521Increase (decrease) in:Accrued interest on deposits and borrowings
    
    
    19,386
    
    
    
    46,917
    
    
    
    54,497Other liabilities
    
    
    35,674
    
    
    
    (10,190
    )
    
    
    26,385Net cash provided by operating activities
    
    
    133,289
    
    
    
    128,851
    
    
    
    245,805CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease (increase) in interest-bearing deposits in banks
    
    
    (35,227
    )
    
    
    36,056
    
    
    
    (7,640
    )Net decrease (increase) in federal funds sold and resell agreements
    
    
    63,873
    
    
    
    (204,034
    )
    
    
    270,764Investment securities available for sale:Maturities, prepayments and calls
    
    
    35,788
    
    
    
    4,794
    
    
    
    7,834Proceeds from sales
    
    
    
    
    
    
    1,928
    
    
    
    Purchases
    
    
    (500,003
    )
    
    
    
    
    
    
    (4,965
    )Investment securities held to maturity:Maturities, prepayments and calls
    
    
    63,082,335
    
    
    
    49,887,013
    
    
    
    17,111,348Purchases
    
    
    (62,674,241
    )
    
    
    (49,864,760
    )
    
    
    (17,387,928
    )Mortgage-backed securities held to maturity:Maturities, prepayments and calls
    
    
    21,193
    
    
    
    41,991
    
    
    
    177,885Purchases
    
    
    
    
    
    
    
    
    
    
    (49,897
    )Loans:Sales
    
    
    157,146
    
    
    
    
    
    
    
    Loan originations, net of principal collections
    
    
    (1,071,632
    )
    
    
    (869,915
    )
    
    
    (1,914,209
    )Purchases of derivative options
    
    
    (2,016
    )
    
    
    (1,296
    )
    
    
    (2,905
    )Proceeds from derivative options
    
    
    3,483
    
    
    
    33
    
    
    
    Cash paid on terminated swaps
    
    
    
    
    
    
    (164
    )
    
    
    (252
    )Proceeds from sales of foreclosed real estate held for sale
    
    
    2,513
    
    
    
    1,567
    
    
    
    1,869Additions to premises and equipment
    
    
    (14,724
    )
    
    
    (16,486
    )
    
    
    (13,971
    )Proceeds from sale of premises and equipment
    
    
    1,118
    
    
    
    
    
    
    
    Purchases of Federal Home Loan Bank stock
    
    
    (16,772
    )
    
    
    (3,160
    )
    
    
    (7,510
    )Redemptions of Federal Home Loan Bank stock
    
    
    5,301
    
    
    
    7,975
    
    
    
    16,907Net cash used in investing activities
    
    
    (941,865
    )
    
    
    (978,458
    )
    
    
    (1,802,670
    )Forward
    
    $
    (808,576
    )
    
    $
    (849,607
    )
    
    $
    (1,556,865
    )
 See notes to consolidated financial statements.
    

    (continued)
 137




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W HOLDING COMPANY, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 (As Restated -
    
    
    (As Restated -See Note 25)
    
    
    See Note 25)2007
    
    
    2006
    
    
    2005Forward
    
    $
    (808,576
    )
    
    $
    (849,607
    )
    
    $
    (1,556,865
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    1,124,911
    
    
    
    907,140
    
    
    
    2,085,606Net increase (decrease) in federal funds purchased
and repurchase agreements
    
    
    2,040,825
    
    
    
    (475,143
    )
    
    
    (1,150,707
    )Repurchase agreements with original maturities over three months:Proceeds
    
    
    250,000
    
    
    
    2,066,295
    
    
    
    5,188,072Payments
    
    
    (2,464,613
    )
    
    
    (1,530,700
    )
    
    
    (4,460,863
    )Net increase (decrease) in advances from Federal Home Loan Bank
    
    
    35,000
    
    
    
    (25,000
    )
    
    
    Payments of advances from Federal Home Loan Bank with
original maturities over three months
    
    
    (60,000
    )
    
    
    (20,000
    )
    
    
    (39,000
    )Borrowings under line of credit:Proceeds
    
    
    34,030
    
    
    
    
    
    
    
    Payments
    
    
    (34,030
    )
    
    
    
    
    
    
    Repayments of mortgage note payable
    
    
    (503
    )
    
    
    (464
    )
    
    
    (426
    )Cash paid on matured embedded derivatives
    
    
    (3,293
    )
    
    
    (33
    )
    
    
    Net increase in advances from borrowers for taxes
and insurance
    
    
    1,677
    
    
    
    1,995
    
    
    
    1,354Dividends paid
    
    
    (68,231
    )
    
    
    (68,140
    )
    
    
    (66,724
    )Proceeds from stock options exercised
    
    
    1,249
    
    
    
    1,072
    
    
    
    160Issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    19,253Net cash provided by financing activities
    
    
    857,022
    
    
    
    857,022
    
    
    
    1,576,725NET INCREASE IN CASH AND DUE FROM BANKS
    
    
    48,446
    
    
    
    7,415
    
    
    
    19,860CASH AND DUE FROM BANKS, BEGINNING OF YEAR
    
    
    105,027
    
    
    
    97,612
    
    
    
    77,752CASH AND DUE FROM BANKS, END OF YEAR
    
    $
    153,473
    
    
    $
    105,027
    
    
    $
    97,612SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:Cash paid during the year for:Interest on deposits and other borrowings
    
    $
    747,389
    
    
    $
    617,153
    
    
    $
    412,671Income taxes
    
    
    49,235
    
    
    
    82,190
    
    
    
    32,379Noncash activities:Accrued dividends payable
    
    
    4,149
    
    
    
    4,142
    
    
    
    4,136Net change in other comprehensive income (loss)
    
    
    (5,403
    )
    
    
    277
    
    
    
    219Mortgage loans securitized and transferred to:Trading securities
    
    
    3,723
    
    
    
    7,419
    
    
    
    4,700Mortgage-backed securities held to maturity
    
    
    
    
    
    
    1,189
    
    
    
    Transfer from:Trading securities to available for sale securities
    
    
    
    
    
    
    1,605
    
    
    
    Investment securities held to maturity to available for sale
securities
    
    
    
    
    
    
    20,552
    
    
    
    Mortgage loans held for sale to loans
    
    
    9,055
    
    
    
    
    
    
    
    Loans to foreclosed real estate held for sale
    
    
    8,211
    
    
    
    4,826
    
    
    
    4,172Undivided profits to reserve fund
    
    
    
    
    
    
    5,905
    
    
    
    12,224Mortgage loans originated to finance the sale of foreclosed
real estate held for sale
    
    
    668
    
    
    
    1,728
    
    
    
    2,734Unpaid additions to premises and equipment
    
    
    591
    
    
    
    562
    
    
    
    1,328Effect of derivative transactions:Decrease (increase) in other assets
    
    
    (12,065
    )
    
    
    (7,424
    )
    
    
    1,412Increase in deposits
    
    
    13,308
    
    
    
    8,197
    
    
    
    4,490Increase (decrease) in other liabilities
    
    
    (1,123
    )
    
    
    (838
    )
    
    
    3,613Conversion of preferred stock into common stock:Common stock
    
    
    
    
    
    
    13
    
    
    
    123Paid-in capital
    
    
    
    
    
    
    (10
    )
    
    
    (88
    )Preferred stock
    
    
    
    
    
    
    (3
    )
    
    
    (35
    )
 See notes to consolidated financial statements.
    

    (concluded)
 138




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##### Table of Contents



W HOLDING COMPANY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
      139




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##### Table of Contents



Principles of Consolidation
 Use of Estimates
 Significant Group Concentrations of Credit Risk
 Revenue Recognition 
 
    
    Lending,
 
    
    Securities portfolio,
 
    
    Trust Services,
 
    
    Trade services, including standby letters of credit,
 
    
    Customers deposits,
 
    
    Loan servicing,
 
    
    Sales of loans and securities,
 
    
    Securities and derivative activities,
 
    
    Selling of various insurance products,
        Cash and Cash Equivalents
 Interest-Bearing Deposits in Banks and Federal Funds Sold
 Securities
 140




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##### Table of Contents



Residential Mortgage Loans Held for Sale
 Loans
  Allowance for Loan Losses
   Accounting by Creditors for Impairment of a Loan
   141




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##### Table of Contents



Allowance for Losses on Unfunded Commitments
 Foreclosed Real Estate Held for Sale
 Premises and Equipment
  Impairment of Long-Lived Assets
 Transfers of Financial Assets 
 Mortgage Servicing Rights
  Stock Option Plans
 Income Taxes
 142




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##### Table of Contents



Financial Instruments:
 Derivative Financial Instruments
 Accounting for Derivative
Instruments and Hedging Activities,
     Off-Balance Sheet Credit Related Financial Instruments
 Earnings (Loss) per Share Earnings Per Share,
 143




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(Amounts in thousands, except per share data)Basic and diluted earnings (loss) per common share:Net income (loss)
    
    $
    (68,338
    )
    
    $
    59,579
    
    
    $
    123,495Less preferred stock dividends
    
    
    (36,910
    )
    
    
    (36,911
    )
    
    
    (36,985
    )Income (loss) attributable to common stockholders  basic
    
    
    (105,248
    )
    
    
    22,668
    
    
    
    86,510Plus convertible preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    887Income (loss) attributable to common stockholders  diluted
    
    $
    (105,248
    )
    
    $
    22,668
    
    
    $
    87,397Weighted average number of common
shares outstanding for the year (1)
    
    
    3,297
    
    
    
    3,288
    
    
    
    3,280Dilutive potential common shares  stock options (1)
    
    
    
    
    
    
    73
    
    
    
    98Assumed
conversion of preferred stock(1)
    
    
    
    
    
    
    
    
    
    
    34Total
    
    
    3,297
    
    
    
    3,361
    
    
    
    3,412Basic earnings (loss) per common share (1)
    
    $
    (31.92
    )
    
    $
    6.89
    
    
    $
    26.37Diluted earnings (loss) per common share (1)
    
    $
    (31.92
    )
    
    $
    6.74
    
    
    $
    25.61
 
 (1)
    
    As adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008,
and effective on December 1, 2008. See 
Note 26. Comprehensive Income (Loss) 
 Accounting
Pronouncements Recently Adopted
 Accounting for Conditional Asset Retirement Obligations  an interpretation of FASB Statement No.
143
 144




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##### Table of Contents



Accounting Changes and Error Corrections  a
Replacement of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial
Statements
 Issuers Accounting
under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that
Are Redeemable
 Accounting for Certain Hybrid Financial
Instruments, an amendment of SFAS No. 140 and SFAS No. 133
 Accounting for Servicing of Financial Assets, an
amendment to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities Accounting for Certain Investments in Debt and Equity Securities
 Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN No. 48)
 145




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##### Table of Contents



Financial Statements  Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements
 Accounting
Pronouncements To Be Adopted
 Fair Value Measurements Effective Date of FASB Statement No. 157 Determining the Fair Value of a Financial Asset When the Market for That Asset Is
Not Active
 The Fair Value Option for Financial Assets and
Financial Liabilities- Including an Amendment of FASB Statement No. 115
 Amendment of FASB Interpretation
No. 39
 Written Loan Commitments Recorded at Fair Value
through Earnings Application of Accounting Principles to Loan
Commitments
 146




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##### Table of Contents



Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statementsan Amendment to ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133.
 The Hierarchy of Generally Accepted
Accounting Principles. The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles.
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings per Share
 2. FEDERAL FUNDS SOLD AND RESELL AGREEMENTS:
  147




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##### Table of Contents



2007
    
    
    2006(In thousands)Federal funds sold:Citibank N.A.  Puerto Rico
    
    $
    214,700
    
    
    $
    340,200Economic Development Bank for Puerto Rico
    
    
    22,000
    
    
    
    20,000BNP Paribas S.A.
    
    
    50,000
    
    
    
    Bank of America
    
    
    50,000
    
    
    
    Subtotal
    
    
    336,700
    
    
    
    360,200Resell agreements:Credit Suisse First Boston
    
    
    500,000
    
    
    
    500,000Citibank N.A.  Puerto Rico
    
    
    50,000
    
    
    
    50,000UBS Financial Services Incorporated of Puerto Rico
    
    
    
    
    
    
    40,373Subtotal
    
    
    550,000
    
    
    
    590,373Total
    
    $
    886,700
    
    
    $
    950,573
  2007
    
    
    2006Fair
    
    
    
    
    
    
    FairValue of
    
    
    
    
    
    
    Value ofReceivable
    
    
    Underlying
    
    
    Receivable
    
    
    UnderlyingUnderlying Collateral
    
    Balance
    
    
    Collateral
    
    
    Balance
    
    
    Collateral(In thousands)Investment securities:U.S.
Government and agencies obligations
    
    $
    494,824
    
    
    $
    529,514
    
    
    $
    470,757
    
    
    $
    510,314U.S. municipal bonds
    
    
    
    
    
    
    
    
    
    
    40,373
    
    
    
    42,446Mortgage-backed securities:Federal Home
Loan Mortgage Corporation (FHLMC) certificates
    
    
    52,324
    
    
    
    53,945
    
    
    
    57,502
    
    
    
    55,807Federal
National Mortgage Association (FNMA) certificates
    
    
    2,852
    
    
    
    3,176
    
    
    
    21,741
    
    
    
    25,076Total 
excluding accrued interest receivable
    
    $
    550,000
    
    
    $
    586,635
    
    
    $
    590,373
    
    
    $
    633,643Accrued
interest receivable on resell agreements
    
    $
    2,890
    
    
    
    
    
    
    $
    3,936
 148




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##### Table of Contents



2007
    
    
    2006Collateral Sold
    
    
    
    
    
    
    Collateral SoldCollateral
    
    
    under Repurchase
    
    
    Collateral
    
    
    under RepurchaseReceived
    
    
    Agreements
    
    
    Received
    
    
    Agreements(In thousands)Investment securities:U.S. Government and
agencies obligations
    
    $
    529,514
    
    
    $
    529,514
    
    
    $
    510,314
    
    
    $
    510,314Mortgage-backed securities:FNMA certificates
    
    
    3,176
    
    
    
    3,176
    
    
    
    25,076
    
    
    
    25,076FHLMC certificates
    
    
    53,945
    
    
    
    53,945
    
    
    
    55,807
    
    
    
    55,807Subtotal
    
    
    57,121
    
    
    
    57,121
    
    
    
    80,883
    
    
    
    80,883Total
    
    $
    586,635
    
    
    $
    586,635
    
    
    $
    591,197
    
    
    $
    591,197
  149




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3. INVESTMENT SECURITIES:
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Available for sale:Puerto Rico Government and agencies obligations (PRGOs)
    
    $
    14,946
    
    
    $
    359
    
    
    $
    
    
    
    $
    15,305Collateralized mortgage obligations (CMOs) issued
or guaranteed by FNMA
    
    
    450,736
    
    
    
    
    
    
    
    5,258
    
    
    
    445,478CMOs issued or guaranteed by FHLMC
    
    
    16,478
    
    
    
    
    
    
    
    166
    
    
    
    16,312Equity securities  common stock
    
    
    1,906
    
    
    
    
    
    
    
    
    
    
    
    1,906Total
    
    $
    484,066
    
    
    $
    359
    
    
    $
    5,424
    
    
    $
    479,001Held to maturity:U.S. Government and agencies obligations
    
    $
    5,927,530
    
    
    $
    925
    
    
    $
    10,057
    
    
    $
    5,918,398PRGOs
    
    
    10,207
    
    
    
    
    
    
    
    280
    
    
    
    9,927Corporate notes
    
    
    21,436
    
    
    
    316
    
    
    
    201
    
    
    
    21,551Subtotal
    
    
    5,959,173
    
    
    
    1,241
    
    
    
    10,538
    
    
    
    5,949,876Mortgage-backed securities:Government National Mortgage Association
(GNMA) certificates
    
    
    6,254
    
    
    
    163
    
    
    
    
    
    
    
    6,417FHLMC certificates
    
    
    2,444
    
    
    
    96
    
    
    
    
    
    
    
    2,540FNMA certificates
    
    
    3,014
    
    
    
    97
    
    
    
    1
    
    
    
    3,110CMOs issued or guaranteed by FHLMC
    
    
    556,547
    
    
    
    288
    
    
    
    53,351
    
    
    
    503,484CMOs issued or guaranteed by FNMA
    
    
    70,765
    
    
    
    
    
    
    
    3,262
    
    
    
    67,503Subtotal
    
    
    639,024
    
    
    
    644
    
    
    
    56,614
    
    
    
    583,054Total
    
    $
    6,598,197
    
    
    $
    1,885
    
    
    $
    67,152
    
    
    $
    6,532,930
 150




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value(In thousands)Available for sale:PRGOs
    
    $
    17,695
    
    
    $
    355
    
    
    $
    
    
    
    $
    18,050Equity securities  common stock
    
    
    2,491
    
    
    
    
    
    
    
    
    
    
    
    2,491Total
    
    $
    20,186
    
    
    $
    355
    
    
    $
    
    
    
    $
    20,541Held to maturity:U.S. Government and agencies obligations
    
    $
    6,314,091
    
    
    $
    63
    
    
    $
    148,070
    
    
    $
    6,166,084PRGOs
    
    
    11,663
    
    
    
    
    
    
    
    416
    
    
    
    11,247Corporate notes
    
    
    21,433
    
    
    
    546
    
    
    
    26
    
    
    
    21,953Subtotal
    
    
    6,347,187
    
    
    
    609
    
    
    
    148,512
    
    
    
    6,199,284Mortgage-backed securities:GNMA certificates
    
    
    7,140
    
    
    
    163
    
    
    
    2
    
    
    
    7,301FHLMC certificates
    
    
    3,055
    
    
    
    75
    
    
    
    
    
    
    
    3,130FNMA certificates
    
    
    3,358
    
    
    
    72
    
    
    
    12
    
    
    
    3,418CMOs issued or guaranteed by FHLMC
    
    
    573,735
    
    
    
    42
    
    
    
    61,457
    
    
    
    512,320CMOs issued or guaranteed by FNMA
    
    
    73,104
    
    
    
    
    
    
    
    4,298
    
    
    
    68,806Subtotal
    
    
    660,392
    
    
    
    352
    
    
    
    65,769
    
    
    
    594,975Total
    
    $
    7,007,579
    
    
    $
    961
    
    
    $
    214,281
    
    
    $
    6,794,259
  Available for sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In thousands)Due within one year
    
    $
    3,976
    
    
    $
    4,003
    
    
    $
    1,246,025
    
    
    $
    1,242,980Due after one year through five years
    
    
    6,291
    
    
    
    6,464
    
    
    
    4,515,372
    
    
    
    4,509,373Due after five years through ten years
    
    
    4,679
    
    
    
    4,838
    
    
    
    176,340
    
    
    
    175,972Due after ten years
    
    
    
    
    
    
    
    
    
    
    21,436
    
    
    
    21,551Subtotal
    
    
    14,946
    
    
    
    15,305
    
    
    
    5,959,173
    
    
    
    5,949,876Mortgage-backed securities
    
    
    467,214
    
    
    
    461,790
    
    
    
    639,024
    
    
    
    583,054Equity securities
    
    
    1,906
    
    
    
    1,906
    
    
    
    
    
    
    
    Total
    
    $
    484,066
    
    
    $
    479,001
    
    
    $
    6,598,197
    
    
    $
    6,532,930
 151




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##### Table of Contents



Less than 12 months
    
    
    12 months or more
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    Number ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    InvestmentDecember 31, 2007
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions(In thousands)Available for sale:CMOs issued or
guaranteed by FNMA
    
    $
    445,478
    
    
    $
    5,258
    
    
    $
    
    
    
    $
    
    
    
    $
    445,478
    
    
    $
    5,258
    
    
    
    11CMOs issued or
guaranteed by FHLMC
    
    
    16,312
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    16,312
    
    
    
    166
    
    
    
    1Total
    
    $
    461,790
    
    
    $
    5,424
    
    
    $
    
    
    
    $
    
    
    
    $
    461,790
    
    
    $
    5,424
    
    
    
    12Held to maturity:U.S. Government and
agencies obligations
    
    $
    
    
    
    $
    
    
    
    $
    3,273,053
    
    
    $
    10,057
    
    
    $
    3,273,053
    
    
    $
    10,057
    
    
    
    33PRGOs
    
    
    
    
    
    
    
    
    
    
    9,927
    
    
    
    280
    
    
    
    9,927
    
    
    
    280
    
    
    
    10Corporate notes
    
    
    10,024
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    10,024
    
    
    
    201
    
    
    
    1Subtotal
    
    
    10,024
    
    
    
    201
    
    
    
    3,282,980
    
    
    
    10,337
    
    
    
    3,293,004
    
    
    
    10,538
    
    
    
    44Mortgage-backed securities:FNMA certificates
    
    
    1,035
    
    
    
    1
    
    
    
    72
    
    
    
    
    
    
    
    1,107
    
    
    
    1
    
    
    
    2CMOs issued or
guaranteed by FHLMC
    
    
    
    
    
    
    
    
    
    
    487,599
    
    
    
    53,351
    
    
    
    487,599
    
    
    
    53,351
    
    
    
    10CMOs issued or
guaranteed by FNMA
    
    
    
    
    
    
    
    
    
    
    67,503
    
    
    
    3,262
    
    
    
    67,503
    
    
    
    3,262
    
    
    
    6Subtotal
    
    
    1,035
    
    
    
    1
    
    
    
    555,174
    
    
    
    56,613
    
    
    
    556,209
    
    
    
    56,614
    
    
    
    18Total
    
    $
    11,059
    
    
    $
    202
    
    
    $
    3,838,154
    
    
    $
    66,950
    
    
    $
    3,849,213
    
    
    $
    67,152
    
    
    
    62
 152




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Less than 12 months
    
    
    12 months or more
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    Number ofFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    InvestmentDecember 31, 2006
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Positions(In thousands)Held to maturity:U.S. Government and
agencies obligations
    
    $
    
    
    
    $
    
    
    
    $
    5,886,419
    
    
    $
    148,070
    
    
    $
    5,886,419
    
    
    $
    148,070
    
    
    
    84PRGOs
    
    
    2,769
    
    
    
    31
    
    
    
    8,478
    
    
    
    385
    
    
    
    11,247
    
    
    
    416
    
    
    
    11Corporate notes
    
    
    10,211
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    10,211
    
    
    
    26
    
    
    
    1Subtotal
    
    
    12,980
    
    
    
    57
    
    
    
    5,894,897
    
    
    
    148,455
    
    
    
    5,907,877
    
    
    
    148,512
    
    
    
    96Mortgage-backed securities:GNMA certificates
    
    
    
    
    
    
    
    
    
    
    777
    
    
    
    2
    
    
    
    777
    
    
    
    2
    
    
    
    9FNMA certificates
    
    
    1,037
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    1,037
    
    
    
    12
    
    
    
    1CMOs issued or
guaranteed by FHLMC
    
    
    
    
    
    
    
    
    
    
    498,313
    
    
    
    61,457
    
    
    
    498,313
    
    
    
    61,457
    
    
    
    11CMOs issued or
guaranteed by FNMA
    
    
    
    
    
    
    
    
    
    
    68,806
    
    
    
    4,298
    
    
    
    68,806
    
    
    
    4,298
    
    
    
    6Subtotal
    
    
    1,037
    
    
    
    12
    
    
    
    567,896
    
    
    
    65,757
    
    
    
    568,933
    
    
    
    65,769
    
    
    
    27Total
    
    $
    14,017
    
    
    $
    69
    
    
    $
    6,462,793
    
    
    $
    214,212
    
    
    $
    6,476,810
    
    
    $
    214,281
    
    
    
    123
    153




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##### Table of Contents



2007
    
    2006
    
    2005(In thousands)Proceeds from sales
    
    $
    
    
    
    $
    1,928
    
    
    $
    Gross realized gains
    
    
    
    
    
    
    204
    
    
    
    Gross realized losses
    
    
    
    
    
    
    
    
    
    
    
   4. LOANS:
  2007
    
    
    2006(In thousands)REAL ESTATE LOANS SECURED BY MORTGAGES ON:Commercial real estate
    
    $
    5,563,189
    
    
    $
    4,972,418Residential real estate, mainly one-to-four family residences
    
    
    992,993
    
    
    
    1,040,522Construction and land acquisition
    
    
    1,437,054
    
    
    
    730,863Subtotal
    
    
    7,993,236
    
    
    
    6,743,803Plus (less):Undisbursed portion of loans in process
    
    
    (2,802
    )
    
    
    (2,707
    )Premium on loans purchased
    
    
    72
    
    
    
    106Deferred loan fees  net
    
    
    (33,883
    )
    
    
    (40,339
    )Subtotal
    
    
    (36,613
    )
    
    
    (42,940
    )Real estate loans  net
    
    
    7,956,623
    
    
    
    6,700,863OTHER LOANS:Commercial loans
    
    
    860,137
    
    
    
    1,255,503Consumer loans:Loans on deposits
    
    
    35,648
    
    
    
    36,580Credit cards
    
    
    48,138
    
    
    
    48,708Installment
    
    
    656,690
    
    
    
    724,245Less deferred loan fees  net
    
    
    (8,605
    )
    
    
    (9,542
    )Other loans  net
    
    
    1,592,008
    
    
    
    2,055,494TOTAL LOANS
    
    
    9,548,631
    
    
    
    8,756,357ALLOWANCE FOR LOAN LOSSES
    
    
    (338,720
    )
    
    
    (202,180
    )LOANS  NET
    
    $
    9,209,911
    
    
    $
    8,554,177
 154




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Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
     155




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2007
    
    
    2006
    
    
    2005(In thousands)Outstanding principal balance
at end of year
    
    $
    1,776,053
    
    
    $
    281,308
    
    
    $
    148,001Interest that would have been recorded if the loans
had not been classified as non-performing
    
    $
    48,974
    
    
    $
    20,009
    
    
    $
    5,525
      2007
    
    
    2006
    
    
    2005(In thousands)Balance  at January 1
    
    $
    202,180
    
    
    $
    141,412
    
    
    $
    80,066Provision charged to income
    
    
    277,562
    
    
    
    90,880
    
    
    
    80,006Recoveries of loans previously charged-off
    
    
    3,162
    
    
    
    5,164
    
    
    
    3,503Charge-off of uncollectible accounts
    
    
    (144,184
    )
    
    
    (35,276
    )
    
    
    (22,163
    )Balance  at December 31
    
    $
    338,720
    
    
    $
    202,180
    
    
    $
    141,412
 156




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##### Table of Contents



December 31,2007
    
    
    2006(Dollars in thousands)Investment in impaired loans:Covered by a valuation allowance
    
    $
    922,001
    
    
    $
    237,302Do not require a valuation allowance
    
    
    866,545
    
    
    
    31,425Total
    
    $
    1,788,546
    
    
    $
    268,727Impaired non-performing loans
    
    $
    1,736,107
    
    
    $
    268,727Valuation allowance for impaired loans
    
    $
    175,046
    
    
    $
    98,504
 Years Ended December 31,2007
    
    
    2006
    
    
    2005Average investment in impaired loans
    
    $
    786,100
    
    
    $
    211,285
    
    
    $
    77,930Interest collected and recognized as
income on non-performing and impaired loans
    
    $
    16,040
    
    
    $
    5,044
    
    
    $
    743
   5. FORECLOSED REAL ESTATE HELD FOR SALE:
  2007
    
    
    2006(In thousands)Balance, foreclosed real estate held for sale:Residential (1 - 4 units)
    
    $
    5,118
    
    
    $
    2,341Commercial
    
    
    6,875
    
    
    
    4,025Total
    
    
    11,993
    
    
    
    6,366Less valuation allowance
    
    
    1,022
    
    
    
    449Foreclosed real estate held for sale  net
    
    $
    10,971
    
    
    $
    5,917
 157




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Balance  at January 1
    
    $
    449
    
    
    $
    227
    
    
    $
    306Provision (credit)
    
    
    573
    
    
    
    222
    
    
    
    (59
    )Write-offs
    
    
    
    
    
    
    
    
    
    
    (20
    )Balance  at December 31
    
    $
    1,022
    
    
    $
    449
    
    
    $
    227
 6. PREMISES AND EQUIPMENT:
  2007
    
    
    2006(In thousands)Land and improvements
    
    $
    30,887
    
    
    $
    31,106Buildings and improvements
    
    
    76,095
    
    
    
    69,043Furniture and equipment
    
    
    38,670
    
    
    
    31,792Leasehold improvements
    
    
    18,661
    
    
    
    15,394Construction in progress
    
    
    4,581
    
    
    
    7,274Total
    
    
    168,894
    
    
    
    154,609Less accumulated depreciation and amortization
    
    
    39,303
    
    
    
    29,961Total
    
    $
    129,591
    
    
    $
    124,648
  7. DEPOSITS AND INTEREST EXPENSE:
  2007
    
    
    2006(In thousands)Noninterest bearing accounts
    
    $
    317,753
    
    
    $
    373,634Passbook accounts
    
    
    825,447
    
    
    
    728,879NOW accounts
    
    
    314,820
    
    
    
    249,591Super NOW accounts
    
    
    26,573
    
    
    
    24,958Money market accounts
    
    
    43
    
    
    
    53Certificates of deposit
    
    
    8,869,237
    
    
    
    7,842,606Total
    
    
    10,353,873
    
    
    
    9,219,721Accrued interest payable
    
    
    142,628
    
    
    
    117,342Total
    
    $
    10,496,501
    
    
    $
    9,337,063
  158




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Year Ending
    
    AmountDecember 31,
    
    (In thousands)2008
    
    $
    4,841,8142009
    
    
    2,259,6382010
    
    
    1,040,0292011
    
    
    84,3062012
    
    
    205,673Thereafter
    
    
    437,777Total
    
    $
    8,869,237
   2007
    
    
    2006
    
    
    2005(In thousands)Passbook accounts
    
    $
    17,108
    
    
    $
    15,583
    
    
    $
    16,793NOW, Super
NOW and Money Market accounts
    
    
    6,883
    
    
    
    5,829
    
    
    
    5,788Certificates of deposit
    
    
    439,307
    
    
    
    344,651
    
    
    
    218,687Total
    
    $
    463,298
    
    
    $
    366,063
    
    
    $
    241,268
 8. FEDERAL FUNDS PURCHASED AND REPURCHASE AGREEMENTS:
  2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageAmount
    
    
    Interest Rate
    
    
    Amount
    
    
    Interest Rate(Dollars in thousands)Federal funds purchased
    
    $
    100,000
    
    
    
    4.44
    %
    
    $
    
    
    
    
    
    %Repurchase agreements:Fixed rate
    
    
    4,194,195
    
    
    
    
    
    
    
    4,506,397Variable rate
    
    
    1,852,498
    
    
    
    
    
    
    
    1,814,084Total repurchase agreements
    
    
    6,046,693
    
    
    
    4.79
    %
    
    
    6,320,481
    
    
    
    4.96
    %Total
    
    $
    6,146,693
    
    
    
    
    
    
    $
    6,320,481
  159




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##### Table of Contents



2007
    
    
    2006Fair Value
    
    
    
    
    
    
    Fair ValueBorrowing
    
    
    of Underlying
    
    
    Borrowing
    
    
    of UnderlyingBalance
    
    
    Collateral
    
    
    Balance
    
    
    Collateral(In thousands)Credit Suisse First Boston LLC
    
    $
    1,208,000
    
    
    $
    1,299,819
    
    
    $
    1,107,250
    
    
    $
    1,190,537Merrill Lynch Government
Securities Inc. and affiliates
    
    
    580,125
    
    
    
    596,358
    
    
    
    1,024,555
    
    
    
    1,069,001Salomon Smith Barney Inc. and affiliates
    
    
    1,023,320
    
    
    
    1,084,950
    
    
    
    928,463
    
    
    
    961,039UBS Financial Services Incorporated
of Puerto Rico
    
    
    328,000
    
    
    
    349,969
    
    
    
    845,015
    
    
    
    882,520J.P. Morgan Securities, Inc.
    
    
    741,100
    
    
    
    794,718
    
    
    
    647,500
    
    
    
    678,488Morgan Stanley Dean Witter
    
    
    497,400
    
    
    
    513,601
    
    
    
    561,500
    
    
    
    574,462Federal Home Loan Bank of New York
    
    
    743,700
    
    
    
    756,315
    
    
    
    448,000
    
    
    
    448,607Lehman
Brothers Inc. and affiliates (See Note 26)
    
    
    433,198
    
    
    
    516,452
    
    
    
    433,198
    
    
    
    505,948Barclays Capital, Inc.
    
    
    441,850
    
    
    
    470,738
    
    
    
    325,000
    
    
    
    346,436BNP Paribas
    
    
    50,000
    
    
    
    53,008
    
    
    
    
    
    
    
    Total
    
    $
    6,046,693
    
    
    $
    6,435,928
    
    
    $
    6,320,481
    
    
    $
    6,657,038
 160




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##### Table of Contents



2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairSecurities Underlying
    
    Value of
    
    
    Value of
    
    
    Value of
    
    
    Value ofRepurchase
    
    Underlying
    
    
    Underlying
    
    
    Underlying
    
    
    UnderlyingAgreements
    
    Collateral
    
    
    Collateral
    
    
    Collateral
    
    
    Collateral(In thousands)U.S. Government and agencies
obligations  held to maturity
    
    $
    4,946,590
    
    
    $
    4,954,333
    
    
    $
    5,782,172
    
    
    $
    5,629,413U.S. Government and agencies
obligations purchased under
agreements to resell
    
    
    494,174
    
    
    
    529,514
    
    
    
    493,274
    
    
    
    510,314Mortgage-backed securities  held
to maturity
    
    
    522,837
    
    
    
    449,482
    
    
    
    486,449
    
    
    
    436,428Mortgage-backed securities
purchased
under agreements to resell
    
    
    59,076
    
    
    
    57,121
    
    
    
    84,632
    
    
    
    80,883Mortgage-backed securities -
available for sale
    
    
    450,736
    
    
    
    445,478
    
    
    
    
    
    
    
    Total
    
    
    6,473,413
    
    
    $
    6,435,928
    
    
    
    6,846,527
    
    
    $
    6,657,038Accrued interest receivable
of underlying securities
    
    
    58,030
    
    
    
    
    
    
    
    59,186Total
    
    $
    6,531,443
    
    
    
    
    
    
    $
    6,905,713
 161




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##### Table of Contents



2007
    
    2006(Dollars in thousands)Federal funds purchased:Balance at end of year
    
    $
    100,000
    
    
    $
    Weighted-average interest rate at year end
    
    
    4.44
    
    
    
    Monthly average outstanding balance
    
    $
    24,308
    
    
    $
    3,077Weighted-average interest rate for the year
    
    
    5.17
    %
    
    
    4.69
    %Maximum month-end balance
    
    $
    100,000
    
    
    $
    40,000Repurchase agreements:Balance at end of year
    
    $
    1,364,075
    
    
    $
    1,070,582Weighted-average interest rate at year end
    
    
    4.85
    %
    
    
    5.33
    %Monthly average outstanding balance
    
    $
    1,497,932
    
    
    $
    1,731,600Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %Maximum month-end balance
    
    $
    2,771,592
    
    
    $
    2,282,650Advances from FHLB:Balance at end of year
    
    $
    60,000
    
    
    $
    25,000Weighted-average interest rate at year end
    
    
    4.52
    %
    
    
    5.43
    %Monthly average outstanding balance
    
    $
    29,615
    
    
    $
    33,462Weighted-average interest rate for the year
    
    
    4.99
    %
    
    
    5.01
    %Maximum month-end balance
    
    $
    60,000
    
    
    $
    50,000Borrowings under line of credit:Balance at end of year
    
    $
    
    
    
    $
    Weighted-average interest rate at year end
    
    
    
    %
    
    
    
    %Monthly average outstanding balance
    
    $
    15,158
    
    
    $
    Weighted-average interest rate for the year
    
    
    6.00
    %
    
    
    
    %Maximum month-end balance
    
    $
    34,030
    
    
    $
    Total short-term borrowings:Balance at end of year
    
    $
    1,524,075
    
    
    $
    1,095,582Weighted-average interest rate at year end
    
    
    4.81
    %
    
    
    5.33
    %Monthly average outstanding balance
    
    $
    1,567,013
    
    
    $
    1,768,139Weighted-average interest rate for the year
    
    
    5.19
    %
    
    
    4.97
    %Maximum month-end balance
    
    $
    2,865,622
    
    
    $
    2,322,650
 9. LINES OF CREDIT:
  162




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10. ADVANCES FROM FEDERAL HOME LOAN BANK AND MORTGAGE NOTE PAYABLE:
  2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageAmount
    
    
    Interest Rate
    
    
    Amount
    
    
    Interest Rate(Dollars in thousands)ADVANCES FROM FHLB:Fixed rate convertible advances
(4.47% to 5.93%)
    
    $
    102,000
    
    
    
    
    
    
    $
    67,000Variable rate convertible advances
(100% of the three-month LIBOR rate)
    
    
    
    
    
    
    
    
    
    
    60,000Total advances from FHLB
    
    $
    102,000
    
    
    
    5.08
    %
    
    $
    127,000
    
    
    
    5.54
    %MORTGAGE NOTE PAYABLE
    
    $
    35,465
    
    
    
    8.05
    %
    
    $
    35,968
    
    
    
    8.05
    %
    Year Ending
    
    Advances
    
    
    MortgageDecember 31,
    
    from FHLB
    
    
    Note Payable(In thousands)2008
    
    $
    60,000
    
    
    $
    5262009
    
    
    
    
    
    
    5792010
    
    
    42,000
    
    
    
    6282011
    
    
    
    
    
    
    6812012
    
    
    
    
    
    
    731Thereafter
    
    
    
    
    
    
    32,320Total
    
    $
    102,000
    
    
    $
    35,465
 163




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11. INCOME TAXES:
        164




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(In thousands)Current:Puerto Rico
    
    $
    23,371
    
    
    $
    66,366
    
    
    $
    51,871U.S.
    
    
    10,467
    
    
    
    10,233
    
    
    
    66733,838
    
    
    
    76,599
    
    
    
    52,538Deferred credit
    
    
    (73,610
    )
    
    
    (6,107
    )
    
    
    (18,991
    )Total provision (credit)
    
    $
    (39,772
    )
    
    $
    70,492
    
    
    $
    33,547
  Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes
  December 31, 2007
    
    
    January 1, 2007(In thousands)U.S. withholdings
    
    $
    17,350
    
    
    $
    21,160Expense deductions
    
    
    26,637
    
    
    
    2,185Total
    
    $
    43,987
    
    
    $
    23,345
  (In thousands)Balance at December 31, 2006
    
    $
    10,900Effect of adoption of FIN No. 48 at January 1, 2007
    
    
    12,445Balance at January 1, 2007
    
    
    23,345Gross amount of increase in unrecognized tax benefits as a result of
tax positions taken during a prior period
    
    
    1,659Gross amount of decrease in unrecognized tax benefits as a result of
tax positions taken during a prior period
    
    
    (1,207
    )Gross amount of increase in unrecognized tax benefits as a result of
tax positions taken during the current period
    
    
    30,166Amount of decrease in the unrecognized tax benefits relating to settlements
with taxing authorities
    
    
    (9,394
    )Reduction to unrecognized tax benefits as a result of a lapse of the applicable
statute of limitations
    
    
    (582
    )Balance at December 31, 2007
    
    $
    43,987
    165




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2007
    
    
    2006
    
    
    2005% of Pre-
    
    
    
    
    
    
    % of Pre-
    
    
    
    
    
    
    % of Pre-tax
    
    
    
    
    
    
    tax
    
    
    
    
    
    
    taxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    Income(Dollars in thousands)Tax provision (credit) computed
at Puerto Rico statutory rate
    
    $
    (42,163
    )
    
    
    ( 39.0
    )%
    
    $
    56,581
    
    
    
    43.5
    %
    
    $
    65,172
    
    
    
    41.5
    %Effect on provision of:Exempt income net of related
expenses
    
    
    (2,606
    )
    
    
    (2.4
    )
    
    
    (598
    )
    
    
    (0.5
    )
    
    
    (31,418
    )
    
    
    (20.0
    )Income taxes
related to unrecognized tax benefits or income tax contingencies,
include
U.S. income tax
    
    
    5,238
    
    
    
    4.8
    
    
    
    10,233
    
    
    
    7.9
    
    
    
    667
    
    
    
    0.4Nondeductible expenses
    
    
    60
    
    
    
    0.1
    
    
    
    81
    
    
    
    0.1
    
    
    
    53
    
    
    
    Other
    
    
    (301
    )
    
    
    (0.3
    )
    
    
    4,195
    
    
    
    3.2
    
    
    
    (927
    )
    
    
    (0.5
    )Provision (credit) for income tax
as reported
    
    $
    (39,772
    )
    
    
    ( 36.8
    )%
    
    $
    70,492
    
    
    
    54.2
    %
    
    $
    33,547
    
    
    
    21.4
    %Income (loss) before provision
for income taxes
    
    $
    (108,110
    )
    
    
    
    
    
    $
    130,071
    
    
    
    
    
    
    $
    157,042
  2007
    
    
    2006(In thousands)Deferred tax assets:Allowance for loan losses
    
    $
    130,414
    
    
    $
    54,064Capital losses on sale of investment securities, expire in 2008
    
    
    2,715
    
    
    
    3,961Net operating loss carryforwards
    
    
    
    
    
    
    211Unrealized loss in valuation of derivative instruments
    
    
    3,228
    
    
    
    4,408Allowance for losses on unfunded commitments
    
    
    447
    
    
    
    Other
    
    
    422
    
    
    
    188Total deferred tax assets
    
    
    137,226
    
    
    
    62,832Less valuation allowance
    
    
    2,495
    
    
    
    3,536Subtotal
    
    
    134,731
    
    
    
    59,296Less deferred tax liabilities:Deferred loan origination costs
    
    
    220
    
    
    
    236Unrealized gains on available for sale securities
    
    
    54
    
    
    
    71Other
    
    
    280
    
    
    
    300Subtotal
    
    
    554
    
    
    
    607Deferred income tax asset, net
    
    $
    134,177
    
    
    $
    58,689
 166




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2007
    
    
    2006
    
    
    2005(In thousands)Balance  at January 1
    
    $
    3,536
    
    
    $
    3,521
    
    
    $
    5,032Increase (decrease) in valuation allowance
    
    
    (1,041
    )
    
    
    15
    
    
    
    (1,511
    )Balance  at December 31
    
    $
    2,495
    
    
    $
    3,536
    
    
    $
    3,521
  12.
    
    NET GAIN (LOSS) ON SALES AND VALUATION OF LOANS HELD FOR SALE, SECURITIES AND OTHER ASSETS:
  2007
    
    
    2006
    
    
    2005(In thousands)Trading account securities, mainly related
to loans securitized
    
    $
    92
    
    
    $
    164
    
    
    $
    154Investment securities available for sale (see Note 3)
    
    
    
    
    
    
    204
    
    
    
    Other-than-temporary impairment of investment securities
available for sale (see Note 3)
    
    
    (585
    )
    
    
    (750
    )
    
    
    Other-than-temporary impairment of investment securities
held to maturity (see Note 3)
    
    
    
    
    
    
    (1,063
    )
    
    
    Mortgage loans held for sale
    
    
    735
    
    
    
    291
    
    
    
    334Other
    
    
    851
    
    
    
    13
    
    
    
    59Total
    
    $
    1,093
    
    
    $
    (1,141
    )
    
    $
    547
 13.
    
    COMMITMENTS AND CONTINGENCIES:
   
    
    Shareholder Securities Class Action.In September and October 2007, three separate
complaints, entitled Hildenbrand v. W Holding Company, Inc., et al., C.A.No. 07-1886 FAB
(D.P.R.), Webb v. W Holding Company, Inc., et al., C.A.No. 07-1915 FAB (D.P.R.), and
Saavedra v. W Holding Company, Inc., et al., C.A.No. 07-1931 FAB (D.P.R), were filed in
the United States District Court for the District of Puerto Rico as putative class actions
against the Company and certain of its current or
former officers and directors. Thereafter, all three cases were consolidated into the
Hildenbrandaction. Following the filing of motions mandated by statute, the federal court
appointed Felix Rivera, Jose A. Nicolao, Fundacion Rios Pasarell, Inc. and Efren E. Moreno as
lead plaintiffs. Pursuant to an agreed scheduling order, the lead plaintiffs Consolidated
Amended Complaint was filed on April 28, 2008. Their complaint alleges that certain of the
Companys current or former officers and
 167




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directors engaged the Company in a fraudulent
lending scheme and issued misleading information to the market, principally in connection
with the timing and reporting of impairments to loans to Inyx that are described below.
Plaintiffs allege that these actions artificially inflated the trading prices of the
Companys securities. The plaintiffs brought the action on behalf of all those who purchased
the Companys securities during the period between April 24, 2006 and June 26, 2007, claiming
violation of Section 10(b) of the Exchange Act (and Rule 10b-5 promulgated thereunder) by the
Company and the individual defendants and violation of Section 20(a) of the Exchange Act by
the individual defendants. Plaintiffs are seeking unspecified damages for their alleged
economic losses from investing in the Companys securities. The Company and individual
defendants filed motions to dismiss, arguing that the Consolidated Amended Complaint lacked
particularized factual allegations required to state claims for securities fraud under
Sections 10(b) and 20(a) of the Exchange Act. Briefing on the motions was completed on
September 10, 2008. The Company intends to vigorously defend
this action.
    
    Shareholder Derivative Action.On January 11, 2008, Hunter Wylie, who claims to be a
Company shareholder, filed a shareholder derivative complaint (the Complaint), entitled
Wylie v. Stipes, et al., and W Holding Company, Inc., C.A.No. 08-1036 GAG (D.P.R.), in the
United States District Court for the District of Puerto Rico, purportedly on behalf of the
Company against certain of the Companys current and former officers and directors, and
named the Company as a nominal defendant. Plaintiff contends that since April 2006 the
individual named defendants caused the Company to overstate the value of its loan
portfolio, principally in connection with the timing and reporting of impairments to loans
to Inyx that are described below, and thereby allegedly caused monetary and reputational
losses to the Company. After the Company and individual defendants moved to dismiss on
April 7, 2008, the plaintiff filed an Amended Complaint on June 9, 2008, alleging breach
of fiduciary duty, waste of corporate assets, unjust enrichment, violation of Title 14,
Section 2727 of the laws of Puerto Rico, and a claim for reimbursement under Section 304
of the Sarbanes-Oxley Act. The Amended Complaint seeks unspecified monetary damages for
the Companys benefit from the individual defendants and a court order that the Company
alter its governance policies. The Company and individual defendants moved to dismiss the
Amended Complaint, arguing principally that the plaintiff failed to make a pre-suit demand
on the Company Board of Directors, and thus lacks derivative standing to proceed with the
action, that the plaintiff otherwise failed to allege facts sufficient to state claims for
relief, and that there is no private right of action under Section 304 of the
Sarbanes-Oxley Act. Briefing on the motions was completed on
December 16, 2008.
On February 2, 2009, the Court entered an Opinion and Order granting the motions to dismiss
in part and denying them in part. The Court dismissed Count I of the Amended
Complaint (claiming reimbursement under Section 304 of the Sarbanes-Oxley Act) in its
entirety, dismissed Count IV (alleging unjust enrichment) as to certain defendants, and
denied the motions to dismiss as to the other counts challenged therein. On February 12, 2009,
the Court entered an order extending the date to answer the Amended Complaint to March 27, 2009.
The Company intends to vigorously defend this action.
    
    Litigation Relating to the Inyx Loan:Westernbank Puerto Rico v. Kachkar, et al., 07-civ.-1606 (ADC) (D.P.R.): Westernbank
filed an initial complaint against Inyx, Inc., Jack Kachkar, Inyxs Chief Executive Officer,
and certain other officers on July 5, 2007, and amended it on August 23, 2007 in the United
States District Court for the District of Puerto Rico. In its amended filing, Westernbank
alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and
other fraud based claims, as well as claims related to alleged breaches of certain loan
agreements and guarantees. Westernbank, among other things: (a) seeks damages of over $142
million against the defendants under, among others, the RICO Act; (b) requests payment of
over $142 million from the defendants on amounts due and payable under certain loan
agreements; and (c) requests that the Court order foreclosure on Westernbanks collateral. On
September 20, 2007, Westernbank moved to freeze certain defendants assets. The motion is
pending, although a Report and Recommendation was issued by the Magistrate Judge in favor of
Westernbanks motion to freeze assets. The defendants filed objections to the Report and
Recommendation, and these objections are currently pending before the District Court Judge.All defendants moved to dismiss and certain defendants moved alternatively to stay or transfer the
case to the United States District Court for the Southern District of Florida. On April 17, 2008,
several of the transfer motions were denied. The motions to dismiss and remaining motions to
transfer are pending. However, on September 5, 2008, the Magistrate Judge issued another Report and
Recommendation by which it recommended that all of the defendants motions to dismiss be denied. On
September 22, 2008, the defendants, except for Inyx, filed their respective objections to the
Magistrate Judges Report and Recommendation concerning the motions to dismiss. On October 9, 2008,
Westernbank filed its response to the defendants objections to this Report and Recommendation. On
September 8, 2008, Westernbank filed a Motion for Partial Summary Judgment on the breach of
contract claims. On March 3, 2009, the Magistrate Judge issued a third Report and Recommendation,
this time recommending that Westernbanks Motion for Partial Summary Judgment on the breach of
contract claims be granted. Among other things, the Magistrate Judge recommended that defendants
Kachkar and Benkovitch be personally liable under certain personal guarantees for $100.1 million.
Defendants have until March 20, 2009 to file their objections to this third Report and
Recommendation on Westernbanks Motion for Partial Summary Judgment. After defendants file their
objections, Westernbank will file its corresponding response.Finally, on October 3, 2008, all of the defendants filed their respective answers to Westernbanks
Amended Complaint. Some of the defendants (Kachkar, Benkovitch, Inyx, and Green) also filed
counterclaims. On December 2, 2008, Westernbank filed a motion to dismiss the original
counterclaims filed by the defendants Kachkar, Benkovitch, Green and Inyx pursuant to Fed.R.Civ.P.
12(b)(6). On January, 14, 2009, defendants Kachkar, Benkovitch, Inyx and Green filed amended
answers to Westernbanks First Amended Complaint and Kachkar, Benkovitch and Inyx filed amended
counterclaims. Defendant Green withdrew his counterclaim against Westernbank for alleged
defamation. The Amended Counterclaims can be categorized into five distinct groups. The primary set
of counterclaims, raised by Inyx, Kachkar, and Benkovitch, seeks enforcement of an alleged oral
forbearance and workout agreement between Westernbank, Inyx, Kachkar, and Benkovitch related to
approximately $142 million in loans that Westenbank had made to Inyx and its subsidiaries under
various written loan agreements. The second subject of the counterclaims is the claim brought by
Inyx alleging that Westernbank breached the agreements and otherwise breached an implied covenant
of good faith and fair dealing by not giving Inyx ten days to pay the amounts then outstanding
(approximately $140 million), and by abruptly placing Inyx into administration in the United
Kingdom. The third set of counterclaims involves allegations that Westernbank either breached a
confidentiality agreement relating to Kachkars supposed business relationship with Mr. Saadi
Gadhafi, or tortiously interfered with that relationship. A fourth set of counterclaims revolves
around the allegation that Westernbank breached an unwritten escrow agreement allegedly entered
into on or about the 20thof June, 2007. The fifth and final set of counterclaims is
composed of Kachkar and Benkovitchs claims relating to their real estate in Florida, with respect
to which they raise claims of conversion, rescission of instruments, slander of title, and
violations of Floridas Deceptive and Unfair Trade Practices Act. On February, 18, 2009,
Westernbank filed another motion to dismiss the amended counterclaims pursuant to Fed.R.Civ.P.
12(b)(6). Discovery in the case is currently ongoing. The Company intends to vigorously defend the
counterclaims.Inyx, Inc., et al. v. Westernbank Puerto Rico, et al, Case No. 07-22140-Civ-Cooke:
Westernbank is also currently defending two lawsuits filed by
Inyx. (Inyx) and persons associated
with Inyx, which have been consolidated into one lawsuit before the United States District
Court for the Southern District of Florida. Both lawsuits were originally filed in the
Circuit Court for the 11th Judicial Circuit in and for Miami-Dade County, Florida and were
then removed to federal court by Westernbank. Plaintiffs Jack Kachkar and Victoria
Benkovitch filed their complaint against Westernbank on July 23, 2007. They contend
 168




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that they should not have to perform under, and should be excused from, personal guarantees,
security agreements and asset pledges they provided to Westernbank because Westernbank
allegedly did not perform an oral agreement which allegedly modified the aforementioned
written agreements. Plaintiff Inyx, Inc. filed its complaint against Westernbank,
the Company, and certain current and former officers of Westernbank on August 17, 2007. Inyx
alleges that a promissory note and mortgage that Inyx provided to Westernbank should be
rescinded, and that Inyx should be awarded damages, because Westernbank allegedly did not
perform an oral agreement to refrain from collecting on loans made to Inyx and its
subsidiaries and also to provide Inyx with additional financing. On or about August 24,
2007, Westernbank, the Company and the individual defendants moved to dismiss or transfer the
Kachkar and Benkovitch suit to the United States District Court for the District of Puerto
Rico (the District Court of Puerto Rico).
On December 23, 2008, the Court granted the motions to transfer and transferred both Florida
lawsuits to the District Court of Puerto Rico where they are currently pending.
      169




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##### Table of Contents



Year Ending
    
    MinimumDecember 31,
    
    Rent(In thousands)2008
    
    $
    2,1932009
    
    
    1,7562010
    
    
    1,4662011
    
    
    1,2902012
    
    
    821Thereafter
    
    
    2,620Total
    
    $
    10,146
 14.
    
    RETIREMENT BENEFIT PLANS:
   15.
    
    MINIMUM REGULATORY CAPITAL REQUIREMENTS:
    170




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Minimum To BeMinimum
    
    Well Capitalized UnderCapital
    
    Prompt CorrectiveActual
    
    Requirement
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)As of December 31, 2007:Total Capital to Risk Weighted Assets:Consolidated
    
    $
    1,028,775
    
    
    
    9.06
    %
    
    $
    908,293
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,008,782
    
    
    
    8.89
    
    
    
    907,287
    
    
    
    8
    
    
    $
    1,134,109
    
    
    
    10
    %Tier I Capital to Risk Weighted Assets:Consolidated
    
    $
    884,424
    
    
    
    7.79
    %
    
    $
    454,146
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    864,605
    
    
    
    7.62
    
    
    
    453,585
    
    
    
    4
    
    
    $
    680,377
    
    
    
    6
    %Tier I Capital to Average Assets:Consolidated
    
    $
    884,424
    
    
    
    4.90
    %
    
    $
    721,576
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    864,605
    
    
    
    4.82
    
    
    
    718,115
    
    
    
    4
    
    
    $
    897,644
    
    
    
    5
    %As of December 31, 2006:Total Capital to Risk Weighted Assets:Consolidated
    
    $
    1,279,015
    
    
    
    11.92
    %
    
    $
    858,515
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,201,722
    
    
    
    11.22
    
    
    
    857,085
    
    
    
    8
    
    
    $
    1,071,357
    
    
    
    10
    %Tier I Capital to Risk Weighted Assets:Consolidated
    
    $
    1,144,033
    
    
    
    10.66
    %
    
    $
    429,257
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,066,960
    
    
    
    9.96
    
    
    
    428,543
    
    
    
    4
    
    
    $
    642,814
    
    
    
    6
    %Tier I Capital to Average Assets:Consolidated
    
    $
    1,144,033
    
    
    
    6.76
    %
    
    $
    676,966
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/AWesternbank
    
    
    1,066,960
    
    
    
    6.34
    
    
    
    673,630
    
    
    
    4
    
    
    $
    842,037
    
    
    
    5
    %
     171




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##### Table of Contents



16. COMMON AND PREFERRED STOCK TRANSACTIONS:
    IssuancePrice andLiquidation
    
    
    
    
    
    Proceeds FromIssuance
    
    
    
    Dividend
    
    Preference
    
    Shares
    
    Issuance, Net of
    
    IssuanceYear
    

Type
of Preferred Stock
    
    Rate
    
    Per Share
    
    Issued
    
    Issuance Costs
    
    Costs1998
    
    
    Convertible, 1998 Series A
    
    
    7.125
    %
    
    $
    25
    
    
    
    1,219,000
    
    
    
    $  29,143,000
    
    
    
    $  1,332,0001999
    
    
    Non-convertible, 1999 Series B
    
    
    7.250
    
    
    
    25
    
    
    
    2,001,000
    
    
    
    48,273,000
    
    
    
    1,752,0002001
    
    
    Non-convertible, 2001 Series C
    
    
    7.600
    
    
    
    25
    
    
    
    2,208,000
    
    
    
    53,103,000
    
    
    
    2,097,0002001
    
    
    Non-convertible, 2001 Series D
    
    
    7.400
    
    
    
    25
    
    
    
    1,791,999
    
    
    
    43,238,000
    
    
    
    1,562,0002002
    
    
    Non-convertible, 2002 Series E
    
    
    6.875
    
    
    
    25
    
    
    
    1,725,000
    
    
    
    41,463,000
    
    
    
    1,662,0002003
    
    
    Non-convertible, 2003 Series F
    
    
    6.700
    
    
    
    25
    
    
    
    4,232,000
    
    
    
    102,192,000
    
    
    
    3,608,0002003
    
    
    Non-convertible, 2003 Series G
    
    
    6.900
    
    
    
    25
    
    
    
    2,640,000
    
    
    
    63,671,000
    
    
    
    2,329,0002004
    
    
    Non-convertible, 2004 Series H
    
    
    6.700
    
    
    
    50
    
    
    
    2,675,500
    
    
    
    129,311,000
    
    
    
    4,464,0002005
    
    
    Non-convertible, 2004 Series H
    
    
    6.700
    
    
    
    50
    
    
    
    401,300
    
    
    
    19,450,000
    
    
    
    615,000Total
    
    
    
    
    
    
    
    
    
    
    18,893,799
    
    
    
    $529,844,000
    
    
    
    $19,421,000
 th
  172




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##### Table of Contents



Redemption Price per ShareDecember 31,
    
    Series A
    
    Series B
    
    Series C
    
    Series D
    
    Series E
    
    Series F
    
    Series G
    
    Series H2008
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.00
    
    
    $
    25.25
    
    
    $
    25.50
    
    
    $
    25.50
    
    
    $
    2009
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.25
    
    
    
    25.25
    
    
    
    51.002010
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    50.502011 and thereafter
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    25.00
    
    
    
    50.00
 17. STOCK COMPENSATION PLANS:
  
 2007
    
    
    2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
Options
    
    
    PriceBeginning of year
    
    
    154,174
    
    
    $
    192.00
    
    
    
    156,906
    
    
    $
    189.50
    
    
    
    142,228
    
    
    $
    151.00Options granted
    
    
    9,800
    
    
    
    164.01
    
    
    
    9,700
    
    
    
    298.00
    
    
    
    15,800
    
    
    
    532.50Options excercised
    
    
    (8,404
    )
    
    
    148.64
    
    
    
    (7,521
    )
    
    
    142.50
    
    
    
    (1,122
    )
    
    
    142.50Options forfeited
    
    
    (16,350
    )
    
    
    403.07
    
    
    
    (4,911
    )
    
    
    392.00
    
    
    
    
    
    
    
    End of year
    
    
    139,220
    
    
    $
    169.12
    
    
    
    154,174
    
    
    $
    192.00
    
    
    
    156,906
    
    
    $
    189.50
 173




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##### Table of Contents



WeightedAverageNumber of Options
    
    
    RemainingVested or
    
    
    ContractualExercise Prices
    
    Outstanding
    
    
    Expected to Vest
    
    
    Exercisable
    
    
    Life (Years)$142.50(1) (2)
    
    
    117,690
    
    
    
    117,690
    
    
    
    117,690
    
    
    
    2.09$167.50(1) (2)
    
    
    1,756
    
    
    
    1,756
    
    
    
    1,756
    
    
    
    3.38$338.50(1) (2)
    
    
    2,224
    
    
    
    2,224
    
    
    
    2,224
    
    
    
    4.55$150.00 (1)
    
    
    8,900
    
    
    
    8,900
    
    
    
    
    
    
    
    9.68$302.50 (1)
    
    
    900
    
    
    
    900
    
    
    
    
    
    
    
    9.09$312.50 (1)
    
    
    700
    
    
    
    140
    
    
    
    140
    
    
    
    8.92$450.00 (1)
    
    
    250
    
    
    
    250
    
    
    
    100
    
    
    
    7.95$535.50 (1)
    
    
    6,800
    
    
    
    6,620
    
    
    
    2,720
    
    
    
    7.56Total
    
    
    139,220
    
    
    
    138,480
    
    
    
    124,630
    
    
    
    3.00Aggregate Intrinsic Value
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    As adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008. See Note 26.(2)
    
    Adjusted to reflect the three-for-two stock split and 2% stock dividend declared in December
2004 and distributed on January 10, 2005, the three-for-two stock split and 2% stock dividend
declared in November 2003 and distributed on December 10, 2003, and the three-for-two stock split
declared on June 17, 2002 and distributed on July 10, 2002.   174




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##### Table of Contents



Year Ending
    
    
    AmountDecember 31,
    
    
    (In thousands)2008
    
    
    $
    3482009
    
    
    
    3482010
    
    
    
    2282011
    
    
    
    652012
    
    
    
    25Total
    
    $
    1,014
 18. OFF-BALANCE SHEET ACTIVITIES:
  Commitments to Extend Credit and Letters of Credit
     175




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2007
    
    
    2006(In thousands)Commitments to extend credit:Fixed rates
    
    $
    8,424
    
    
    $
    11,551Variable rates
    
    
    619,627
    
    
    
    591,862Unused lines of credit:Commercial
    
    
    244,153
    
    
    
    267,581Credit cards and other
    
    
    121,730
    
    
    
    131,047Standby letters of credit
    
    
    38,385
    
    
    
    28,896Commercial letters of credit
    
    
    6,047
    
    
    
    8,337Total
    
    $
    1,038,366
    
    
    $
    1,039,274
  19. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
      176




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177




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##### Table of Contents



Notional Amount2007
    
    
    2006(In thousands)Fair value hedge:CD swaps
    
    $
    470,176
    
    
    $
    516,020Derivatives not designated as hedge:CD swaps
    
    $
    52,719
    
    
    $
    26,747Interest rate swaps (unmatched portion)
    
    
    38,880
    
    
    
    26,508Interest rate swaps with commercial loan borrower
    
    
    172,630
    
    
    
    Interest rate swaps used to offset exposure of
interest rate swap with commercial loan borrower
    
    
    172,630
    
    
    
    Interest rate cap with commercial loan borrower
    
    
    43,350
    
    
    
    Interest rate cap used to offset exposure of
interest rate cap with commercial loan borrower
    
    
    43,350
    
    
    
    Embedded options on stock indexed deposits
    
    
    78,819
    
    
    
    96,783Purchased options used to manage exposure
to the stock market on stock indexed deposits
    
    
    82,347
    
    
    
    100,271Total
    
    $
    684,725
    
    
    $
    250,309
     178




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##### Table of Contents



2007
    
    2006(Dollars in thousands)Pay floating/receive fixed:Notional amount
    
    $
    734,405
    
    
    $
    569,275Weighted average receive rate at period end
    
    
    5.04
    %
    
    
    4.90
    %Weighted average pay rate at period end
(100% floating rate over three month LIBOR, plus
a spread ranging from minus .40% to plus .03%)
    
    
    5.00
    %
    
    
    5.34
    %Pay fixed/receive floating:Notional amount
    
    $
    172,630
    
    
    $
    Weighted average receive rate at period end
(100% floating rate over one or three month LIBOR)
    
    
    5.09
    %
    
    
    Weighted average pay rate at period end
    
    
    5.30
    %
    
    
    
  2007
    
    
    2006(In thousands)Beginning balance
    
    $
    569,275
    
    
    $
    652,529New swaps
    
    
    345,260
    
    
    
    Called and matured swaps
    
    
    (7,500
    )
    
    
    (83,254
    )End balance
    
    $
    907,035
    
    
    $
    569,275
  Year Ending
    
    
    
    
    
    Interest Rate
    
    
    Embedded
    
    
    PurchasedDecember 31,
    
    Swaps
    
    
    Caps
    
    
    Options
    
    
    Options(In thousands)2008
    
    $
    
    
    
    $
    
    
    
    $
    20,046
    
    
    $
    21,5712009
    
    
    80,371
    
    
    
    
    
    
    
    26,674
    
    
    
    27,8682010
    
    
    222,983
    
    
    
    
    
    
    
    16,015
    
    
    
    16,4692011
    
    
    30,000
    
    
    
    
    
    
    
    8,027
    
    
    
    8,2052012
    
    
    94,406
    
    
    
    86,700
    
    
    
    8,057
    
    
    
    8,234Thereafter
    
    
    479,275
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    907,035
    
    
    $
    86,700
    
    
    $
    78,819
    
    
    $
    82,347
   179




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##### Table of Contents



20. FAIR VALUE OF FINANCIAL INSTRUMENTS:
    Short-term Financial Assets and Liabilities 
  Investment Securities Available for Sale, Held to Maturity and Trading Securities
  Federal Home Loan Bank (FHLB) Stock
  Residential Mortgage Loans Held for Sale
  Loans
    Mortgage Servicing Rights
  Deposits
  Resell Agreements, Repurchase Agreements, Advances from FHLB and Mortgage Note Payable
 180




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##### Table of Contents



 Derivative Assets and Derivative Liabilities
  Commitments to Extend Credit and Letters of Credit
  2007
    
    2006Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In thousands)Financial Assets:Cash and due from banks
    
    $
    153,473
    
    
    $
    153,473
    
    
    $
    105,027
    
    
    $
    105,027Federal funds sold and resell agreements
    
    
    886,700
    
    
    
    886,079
    
    
    
    950,573
    
    
    
    935,206Interest-bearing deposits in banks
    
    
    56,287
    
    
    
    56,287
    
    
    
    21,060
    
    
    
    21,060Investment securities available for sale
    
    
    479,001
    
    
    
    479,001
    
    
    
    20,541
    
    
    
    20,541Investment securities held to maturity
    
    
    6,598,197
    
    
    
    6,532,930
    
    
    
    7,007,579
    
    
    
    6,794,259FHLB stock
    
    
    49,453
    
    
    
    49,453
    
    
    
    37,982
    
    
    
    37,982Residential mortgage loans held for sale
    
    
    6,500
    
    
    
    6,500
    
    
    
    11,379
    
    
    
    11,379Loans (excluding allowance for loan losses)
    
    
    9,548,631
    
    
    
    9,552,287
    
    
    
    8,756,357
    
    
    
    8,730,668Accrued interest receivable
    
    
    105,377
    
    
    
    105,377
    
    
    
    120,311
    
    
    
    120,311Mortgage servicing rights
    
    
    3,033
    
    
    
    3,033
    
    
    
    3,026
    
    
    
    3,026Derivatives, included in assets
    
    
    29,482
    
    
    
    29,482
    
    
    
    18,655
    
    
    
    18,655Other
    
    
    671
    
    
    
    671
    
    
    
    1,324
    
    
    
    1,324Financial Liabilities:Deposits:Non-interest bearing
    
    
    317,753
    
    
    
    317,753
    
    
    
    373,634
    
    
    
    373,634Interest bearing
    
    
    10,011,456
    
    
    
    10,164,807
    
    
    
    8,821,064
    
    
    
    8,808,894Embedded options on deposits
    
    
    24,664
    
    
    
    24,664
    
    
    
    25,023
    
    
    
    25,023Federal funds purchased and repurchase agreements
    
    
    6,146,693
    
    
    
    6,163,790
    
    
    
    6,320,481
    
    
    
    6,317,333Advances from FHLB
    
    
    102,000
    
    
    
    104,074
    
    
    
    127,000
    
    
    
    128,450Mortgage note payable
    
    
    35,465
    
    
    
    36,190
    
    
    
    35,968
    
    
    
    37,578Accrued interest payable
    
    
    172,916
    
    
    
    172,916
    
    
    
    153,387
    
    
    
    153,387Derivatives, included in liabilities
    
    
    10,362
    
    
    
    10,362
    
    
    
    11,255
    
    
    
    11,255Other
    
    
    12,210
    
    
    
    12,210
    
    
    
    11,254
    
    
    
    11,254Off-Balance Sheet Credit Related
Financial Instruments:Liabilities:Commitments to extend credit
    
    
    
    
    
    
    5,168
    
    
    
    
    
    
    
    5,402Unused lines of credit:Commercial
    
    
    680
    
    
    
    680
    
    
    
    792
    
    
    
    792Credit cards and other
    
    
    164
    
    
    
    164
    
    
    
    186
    
    
    
    186Commercial letters of credit
    
    
    370
    
    
    
    370
    
    
    
    106
    
    
    
    106
 21. RESERVE FUND:
  181




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##### Table of Contents



22. QUARTERLY FINANCIAL DATA (UNAUDITED):
  (As PreviouslyReported)
    
    

(As
Restated) (2)2007
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Total interest income
    
    $
    267,391
    
    
    $
    264,141
    
    
    $
    271,447
    
    
    $
    270,915
    
    
    $
    263,686Total interest expense
    
    
    185,457
    
    
    
    185,457
    
    
    
    196,894
    
    
    
    202,785
    
    
    
    199,990Net interest income
    
    
    81,934
    
    
    
    78,684
    
    
    
    74,553
    
    
    
    68,130
    
    
    
    63,696Provision for loan losses
    
    
    16,000
    
    
    
    34,481
    
    
    
    73,404
    
    
    
    21,703
    
    
    
    147,974Net interest income (loss)
after
provision for loan losses
    
    
    65,934
    
    
    
    44,203
    
    
    
    1,149
    
    
    
    46,427
    
    
    
    (84,278
    )Total noninterest income
    
    
    11,008
    
    
    
    11,008
    
    
    
    11,131
    
    
    
    13,262
    
    
    
    12,397Total noninterest expenses
    
    
    (35,013
    )
    
    
    (35,013
    )
    
    
    (35,808
    )
    
    
    (44,670
    )
    
    
    (47,918
    )Income (loss) before
income taxes
    
    
    41,929
    
    
    
    20,198
    
    
    
    (23,528
    )
    
    
    15,019
    
    
    
    (119,799
    )Provision (credit) for
income taxes
    
    
    13,209
    
    
    
    7,491
    
    
    
    (3,475
    )
    
    
    4,803
    
    
    
    (48,591
    )Net income (loss)
    
    $
    28,720
    
    
    $
    12,707
    
    
    $
    (20,053
    )
    
    $
    10,216
    
    
    $
    (71,208
    )Earnings (loss) per common
share:Basic(1)
    
    $
    5.92
    
    
    $
    1.06
    
    
    $
    (8.88
    )
    
    $
    0.30
    
    
    $
    (24.39
    )Diluted (1)
    
    $
    5.82
    
    
    $
    1.04
    
    
    $
    (8.88
    )
    
    $
    0.30
    
    
    $
    (24.39
    )
 (As
    
    
    
    
    
    
    (As
    
    
    
    
    
    
    (As
    
    
    
    
    
    
    (AsPreviously
    
    
(As
    
    
    Previously
    
    
(As
    
    
    Previously
    
    
(As
    
    
    Previously
    
    
(AsReported)
    
    

Restated) (2)
    
    
    Reported)
    
    

Restated) (2)
    
    
    Reported)
    
    

Restated) (2)
    
    
    Reported)
    
    
Restated) (2)2006
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Total interest income
    
    $
    230,929
    
    
    $
    228,703
    
    
    $
    242,957
    
    
    $
    240,592
    
    
    $
    258,049
    
    
    $
    255,373
    
    
    $
    268,290
    
    
    $
    265,122Total interest expense
    
    
    152,369
    
    
    
    152,369
    
    
    
    167,049
    
    
    
    167,049
    
    
    
    179,046
    
    
    
    179,046
    
    
    
    182,955
    
    
    
    182,955Net interest income
    
    
    78,560
    
    
    
    76,334
    
    
    
    75,908
    
    
    
    73,543
    
    
    
    79,003
    
    
    
    76,327
    
    
    
    85,335
    
    
    
    82,167Provision for loan losses
    
    
    7,000
    
    
    
    7,606
    
    
    
    18,250
    
    
    
    17,722
    
    
    
    11,300
    
    
    
    37,819
    
    
    
    28,000
    
    
    
    27,733Net interest income after
provision for loan losses
    
    
    71,560
    
    
    
    68,728
    
    
    
    57,658
    
    
    
    55,821
    
    
    
    67,703
    
    
    
    38,508
    
    
    
    57,335
    
    
    
    54,434Total noninterest income
    
    
    9,184
    
    
    
    9,184
    
    
    
    7,634
    
    
    
    7,634
    
    
    
    10,191
    
    
    
    10,191
    
    
    
    10,089
    
    
    
    10,089Total noninterest expenses
    
    
    (29,411
    )
    
    
    (29,411
    )
    
    
    (30,623
    )
    
    
    (30,623
    )
    
    
    (30,437
    )
    
    
    (30,437
    )
    
    
    (34,047
    )
    
    
    (34,047
    )Income before income taxes
    
    
    51,333
    
    
    
    48,501
    
    
    
    34,669
    
    
    
    32,832
    
    
    
    47,457
    
    
    
    18,262
    
    
    
    33,377
    
    
    
    30,476Provision for income taxes
    
    
    15,943
    
    
    
    16,942
    
    
    
    12,927
    
    
    
    15,645
    
    
    
    21,915
    
    
    
    18,320
    
    
    
    15,520
    
    
    
    19,585Net income (loss)
    
    $
    35,390
    
    
    $
    31,559
    
    
    $
    21,742
    
    
    $
    17,187
    
    
    $
    25,542
    
    
    $
    (58
    )
    
    $
    17,857
    
    
    $
    10,891Earnings (loss) per
common share:Basic(1)
    
    $
    7.97
    
    
    $
    6.80
    
    
    $
    3.81
    
    
    $
    2.42
    
    
    $
    4.96
    
    
    $
    (2.82
    )
    
    $
    2.62
    
    
    $
    0.51Diluted (1)
    
    $
    7.75
    
    
    $
    6.62
    
    
    $
    3.72
    
    
    $
    2.37
    
    
    $
    4.87
    
    
    $
    (2.82
    )
    
    $
    2.57
    
    
    $
    0.50
 (As PreviouslyReported)
    
    
    (As Restated)2005
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Total interest income
    
    $
    178,310
    
    
    $
    194,400
    
    
    $
    205,347
    
    
    $
    217,272
    
    
    $
    215,148Total interest expense
    
    
    99,929
    
    
    
    115,313
    
    
    
    126,579
    
    
    
    141,926
    
    
    
    141,926Net interest income
    
    
    78,381
    
    
    
    79,087
    
    
    
    78,768
    
    
    
    75,346
    
    
    
    73,222Provision for loan losses
    
    
    6,000
    
    
    
    5,000
    
    
    
    6,000
    
    
    
    14,000
    
    
    
    63,006Net interest income after
provision for loan losses
    
    
    72,381
    
    
    
    74,087
    
    
    
    72,768
    
    
    
    61,346
    
    
    
    10,216Total noninterest income
    
    
    5,711
    
    
    
    21,163
    
    
    
    2,138
    
    
    
    6,808
    
    
    
    6,808Total noninterest expenses
    
    
    (24,271
    )
    
    
    (27,525
    )
    
    
    (27,584
    )
    
    
    (28,850
    )
    
    
    (28,850
    )Income (loss) before
income taxes
    
    
    53,821
    
    
    
    67,725
    
    
    
    47,322
    
    
    
    39,304
    
    
    
    (11,826
    )Provision (credit) for
income taxes
    
    
    8,020
    
    
    
    15,699
    
    
    
    12,232
    
    
    
    9,135
    
    
    
    (2,404
    )Net income (loss)
    
    $
    45,801
    
    
    $
    52,026
    
    
    $
    35,090
    
    
    $
    30,169
    
    
    $
    (9,422
    )Earnings (loss) per common
share:Basic(1)
    
    $
    11.13
    
    
    $
    13.05
    
    
    $
    7.88
    
    
    $
    6.38
    
    
    $
    (5.68
    )Diluted (1)
    
    $
    10.73
    
    
    $
    12.62
    
    
    $
    7.64
    
    
    $
    6.21
    
    
    $
    (5.68
    )
 
 (1)
    
    As adjusted for the one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008.(2)
    
    See  Note 25.    182




---



##### Table of Contents



2007 Quarterly Condensed Consolidated
Statements of Financial Condition
 As ofMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 312007
    
    
    2007
    
    
    2007
    
    
    2007(As PreviouslyReported)
    
    
    (As Restated) (2)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    107,847
    
    
    $
    107,847
    
    
    $
    99,334
    
    
    $
    94,492
    
    
    $
    153,473Money market instruments:Federal funds sold and resell agreements
    
    
    809,502
    
    
    
    809,502
    
    
    
    707,150
    
    
    
    817,220
    
    
    
    886,700Interest-bearing deposits in banks
    
    
    9,540
    
    
    
    9,540
    
    
    
    26,447
    
    
    
    84,771
    
    
    
    56,287Investment securities available for sale
    
    
    21,565
    
    
    
    21,565
    
    
    
    509,265
    
    
    
    490,894
    
    
    
    479,001Investment securities held to maturity
    
    
    7,273,193
    
    
    
    7,273,193
    
    
    
    7,081,467
    
    
    
    6,903,227
    
    
    
    6,598,197Federal Home Loan Bank stock, at cost
    
    
    33,482
    
    
    
    33,482
    
    
    
    32,682
    
    
    
    34,662
    
    
    
    49,453Residential mortgage loans held for sale
    
    
    4,135
    
    
    
    4,135
    
    
    
    5,490
    
    
    
    3,398
    
    
    
    6,500Loans, net
    
    
    8,932,413
    
    
    
    8,823,892
    
    
    
    8,960,055
    
    
    
    9,174,111
    
    
    
    9,209,911Accrued interest receivable
    
    
    114,998
    
    
    
    113,892
    
    
    
    118,384
    
    
    
    116,049
    
    
    
    105,377Foreclosed real estate held for sale, net
    
    
    6,223
    
    
    
    6,223
    
    
    
    8,465
    
    
    
    9,375
    
    
    
    10,971Premises and equipment, net
    
    
    125,866
    
    
    
    125,866
    
    
    
    127,111
    
    
    
    128,833
    
    
    
    129,591Deferred income taxes, net
    
    
    54,869
    
    
    
    66,681
    
    
    
    83,492
    
    
    
    87,842
    
    
    
    134,177Other assets
    
    
    55,661
    
    
    
    55,661
    
    
    
    69,853
    
    
    
    95,206
    
    
    
    107,073TOTAL
    
    $
    17,549,294
    
    
    $
    17,451,479
    
    
    $
    17,829,195
    
    
    $
    18,040,080
    
    
    $
    17,926,711LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    328,776
    
    
    $
    328,776
    
    
    $
    339,248
    
    
    $
    320,804
    
    
    $
    317,753Interest-bearing and related accrued interest payable
    
    
    9,631,248
    
    
    
    9,631,248
    
    
    
    9,601,619
    
    
    
    10,011,670
    
    
    
    10,178,748Total deposits
    
    
    9,960,024
    
    
    
    9,960,024
    
    
    
    9,940,867
    
    
    
    10,332,474
    
    
    
    10,496,501Federal funds purchased and repurchase agreements
    
    
    6,052,049
    
    
    
    6,052,049
    
    
    
    6,494,477
    
    
    
    6,329,474
    
    
    
    6,146,693Advances from Federal Home Loan Bank
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000
    
    
    
    102,000Borrowings under line of credit
    
    
    32,500
    
    
    
    32,500
    
    
    
    34,030
    
    
    
    
    
    
    
    Mortgage note payable
    
    
    35,836
    
    
    
    35,836
    
    
    
    35,717
    
    
    
    35,596
    
    
    
    35,465Advances from borrowers for taxes and insurance
    
    
    8,236
    
    
    
    8,236
    
    
    
    10,455
    
    
    
    8,511
    
    
    
    11,539Accrued expenses and other liabilities
    
    
    127,758
    
    
    
    126,500
    
    
    
    118,065
    
    
    
    148,405
    
    
    
    138,277Total liabilities
    
    
    16,318,403
    
    
    
    16,317,145
    
    
    
    16,735,611
    
    
    
    16,956,460
    
    
    
    16,930,475COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock
(1)
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298
    
    
    
    3,298Paid-in
capital (1)
    
    
    869,825
    
    
    
    869,825
    
    
    
    869,953
    
    
    
    870,031
    
    
    
    870,128Retained earnings:Reserve fund
    
    
    89,269
    
    
    
    79,613
    
    
    
    78,389
    
    
    
    78,395
    
    
    
    78,389Undivided profits
    
    
    249,288
    
    
    
    162,387
    
    
    
    126,496
    
    
    
    119,646
    
    
    
    31,383Accumulated other comprehensive income (loss), net
    
    
    1,054
    
    
    
    1,054
    
    
    
    (2,709
    )
    
    
    (5,907
    )
    
    
    (5,119
    )Total stockholders equity
    
    
    1,230,891
    
    
    
    1,134,334
    
    
    
    1,093,584
    
    
    
    1,083,620
    
    
    
    996,236TOTAL
    
    $
    17,549,294
    
    
    $
    17,451,479
    
    
    $
    17,829,195
    
    
    $
    18,040,080
    
    
    $
    17,926,711
 
 (1)
    
    As adjusted for the one-for-fifty reverse stock split
approved on November 7, 2009 and effective on December 1,
2008.(2)
    
    See  Note 25. 183




---



##### Table of Contents



2006 Quarterly Condensed Consolidated
Statements of Financial Condition
 As ofMarch 31
    
    
    June 302006
    
    
    2006(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (2)
    
    
    Reported)
    
    

(As
Restated) (2)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    81,508
    
    
    $
    81,508
    
    
    $
    118,501
    
    
    $
    118,501Money market instruments:Federal funds sold and resell agreements
    
    
    776,415
    
    
    
    776,415
    
    
    
    931,497
    
    
    
    931,497Interest-bearing deposits in banks
    
    
    70,042
    
    
    
    70,042
    
    
    
    39,056
    
    
    
    39,056Trading securities
    
    
    1,613
    
    
    
    1,613
    
    
    
    1,608
    
    
    
    1,608Investment securities available for sale
    
    
    3,231
    
    
    
    3,231
    
    
    
    23,266
    
    
    
    23,266Investment securities held to maturity
    
    
    7,401,352
    
    
    
    7,401,352
    
    
    
    6,979,875
    
    
    
    6,979,875Federal Home Loan Bank stock, at cost
    
    
    42,968
    
    
    
    42,968
    
    
    
    43,562
    
    
    
    43,562Residential mortgage loans held for sale
    
    
    1,687
    
    
    
    1,687
    
    
    
    2,320
    
    
    
    2,320Loans, net
    
    
    8,023,162
    
    
    
    7,969,937
    
    
    
    8,179,525
    
    
    
    8,124,486Accrued interest receivable
    
    
    102,007
    
    
    
    101,269
    
    
    
    112,333
    
    
    
    111,572Foreclosed real estate held for sale, net
    
    
    4,003
    
    
    
    4,003
    
    
    
    4,725
    
    
    
    4,725Premises and equipment, net
    
    
    118,961
    
    
    
    118,961
    
    
    
    120,537
    
    
    
    120,537Deferred income taxes, net
    
    
    42,395
    
    
    
    52,936
    
    
    
    46,964
    
    
    
    54,787Other assets
    
    
    44,807
    
    
    
    44,807
    
    
    
    51,192
    
    
    
    51,192TOTAL
    
    $
    16,714,151
    
    
    $
    16,670,729
    
    
    $
    16,654,961
    
    
    $
    16,606,984LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    288,500
    
    
    $
    288,500
    
    
    $
    305,992
    
    
    $
    305,992Interest-bearing and related accrued interest payable
    
    
    8,639,353
    
    
    
    8,639,353
    
    
    
    8,515,168
    
    
    
    8,515,168Total deposits
    
    
    8,927,853
    
    
    
    8,927,853
    
    
    
    8,821,160
    
    
    
    8,821,160Federal funds purchased and repurchase agreements
    
    
    6,245,713
    
    
    
    6,245,713
    
    
    
    6,313,993
    
    
    
    6,313,993Advances from Federal Home Loan Bank
    
    
    162,000
    
    
    
    162,000
    
    
    
    157,000
    
    
    
    157,000Mortgage note payable
    
    
    36,310
    
    
    
    36,310
    
    
    
    36,201
    
    
    
    36,201Advances from borrowers for taxes and insurance
    
    
    6,314
    
    
    
    6,314
    
    
    
    8,450
    
    
    
    8,450Accrued expenses and other liabilities
    
    
    123,571
    
    
    
    123,571
    
    
    
    100,690
    
    
    
    100,690Total liabilities
    
    
    15,501,761
    
    
    
    15,501,761
    
    
    
    15,437,494
    
    
    
    15,437,494COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock (1)
    
    
    3,285
    
    
    
    3,285
    
    
    
    3,290
    
    
    
    3,290Paid-in
capital (1)
    
    
    867,506
    
    
    
    867,506
    
    
    
    868,299
    
    
    
    868,299Retained earnings:Reserve fund
    
    
    79,946
    
    
    
    75,604
    
    
    
    83,019
    
    
    
    78,221Undivided profits
    
    
    243,506
    
    
    
    204,426
    
    
    
    245,140
    
    
    
    201,961Accumulated other comprehensive loss, net
    
    
    (10
    )
    
    
    (10
    )
    
    
    (438
    )
    
    
    (438
    )Total stockholders equity
    
    
    1,212,390
    
    
    
    1,168,968
    
    
    
    1,217,467
    
    
    
    1,169,490TOTAL
    
    $
    16,714,151
    
    
    $
    16,670,729
    
    
    $
    16,654,961
    
    
    $
    16,606,984
 
 (1)
    
    As adjusted for the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008.(2)
    
    See Note 25. 184




---



##### Table of Contents



2006 Quarterly Condensed Consolidated
Statements of Financial Condition
 As ofSeptember 30
    
    
    December 312006
    
    
    2006(As Previously
    
    
    
    
    
    
    (As PreviouslyReported)
    
    

(As
Restated) (2)
    
    
    Reported)
    
    

(As
Restated) (2)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    92,243
    
    
    $
    92,243
    
    
    $
    105,027
    
    
    $
    105,027Money market instruments:Federal funds sold and resell agreements
    
    
    841,716
    
    
    
    841,716
    
    
    
    950,573
    
    
    
    950,573Interest-bearing deposits in banks
    
    
    15,472
    
    
    
    15,472
    
    
    
    21,060
    
    
    
    21,060Investment securities available for sale
    
    
    20,998
    
    
    
    20,998
    
    
    
    20,541
    
    
    
    20,541Investment securities held to maturity
    
    
    7,011,611
    
    
    
    7,011,611
    
    
    
    7,007,579
    
    
    
    7,007,579Federal Home Loan Bank stock, at cost
    
    
    42,932
    
    
    
    42,932
    
    
    
    37,982
    
    
    
    37,982Residential mortgage loans held for sale
    
    
    7,298
    
    
    
    7,298
    
    
    
    11,379
    
    
    
    11,379Loans, net
    
    
    8,454,621
    
    
    
    8,370,536
    
    
    
    8,641,023
    
    
    
    8,554,177Accrued interest receivable
    
    
    111,737
    
    
    
    110,828
    
    
    
    121,360
    
    
    
    120,311Foreclosed real estate held for sale, net
    
    
    5,433
    
    
    
    5,433
    
    
    
    5,917
    
    
    
    5,917Premises and equipment, net
    
    
    122,420
    
    
    
    122,420
    
    
    
    124,648
    
    
    
    124,648Deferred income taxes, net
    
    
    48,470
    
    
    
    59,887
    
    
    
    51,338
    
    
    
    58,689Other assets
    
    
    56,930
    
    
    
    56,930
    
    
    
    56,261
    
    
    
    56,261TOTAL
    
    $
    16,831,881
    
    
    $
    16,758,304
    
    
    $
    17,154,688
    
    
    $
    17,074,144LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    315,088
    
    
    $
    315,088
    
    
    $
    373,634
    
    
    $
    373,634Interest-bearing and related accrued interest payable
    
    
    8,698,018
    
    
    
    8,698,018
    
    
    
    8,963,429
    
    
    
    8,963,429Total deposits
    
    
    9,013,106
    
    
    
    9,013,106
    
    
    
    9,337,063
    
    
    
    9,337,063Federal funds purchased and repurchase agreements
    
    
    6,315,566
    
    
    
    6,315,566
    
    
    
    6,320,481
    
    
    
    6,320,481Advances from Federal Home Loan Bank
    
    
    137,000
    
    
    
    137,000
    
    
    
    127,000
    
    
    
    127,000Mortgage note payable
    
    
    36,090
    
    
    
    36,090
    
    
    
    35,968
    
    
    
    35,968Advances from borrowers for taxes and insurance
    
    
    7,284
    
    
    
    7,284
    
    
    
    9,862
    
    
    
    9,862Accrued expenses and other liabilities
    
    
    96,152
    
    
    
    96,152
    
    
    
    96,427
    
    
    
    96,427Total liabilities
    
    
    15,605,198
    
    
    
    15,605,198
    
    
    
    15,926,801
    
    
    
    15,926,801COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:Preferred stock
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157
    
    
    
    18,157Common stock (1)
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290
    
    
    
    3,290Paid-in
capital (1)
    
    
    868,478
    
    
    
    868,478
    
    
    
    868,680
    
    
    
    868,680Retained earnings:Reserve fund
    
    
    85,523
    
    
    
    78,165
    
    
    
    86,442
    
    
    
    78,389Undivided profits
    
    
    251,137
    
    
    
    184,918
    
    
    
    251,034
    
    
    
    178,543Accumulated other comprehensive income, net
    
    
    98
    
    
    
    98
    
    
    
    284
    
    
    
    284Total stockholders equity
    
    
    1,226,683
    
    
    
    1,153,106
    
    
    
    1,227,887
    
    
    
    1,147,343TOTAL
    
    $
    16,831,881
    
    
    $
    16,758,304
    
    
    $
    17,154,688
    
    
    $
    17,074,144
 
 (1)
    
    As adjusted for the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008.(2)
    
    See  Note 25. 185




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##### Table of Contents



2005 Quarterly Condensed Consolidated
Statements of Financial Condition
 As ofMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 312005
    
    
    2005
    
    
    2005
    
    
    2005(As PreviouslyReported)
    
    

(As
Restated) (2)(Dollars in thousands)ASSETSCash and due from banks
    
    $
    100,856
    
    
    $
    105,692
    
    
    $
    95,583
    
    
    $
    97,612
    
    
    $
    97,612Money market instruments:Federal funds sold and resell agreements
    
    
    954,311
    
    
    
    757,580
    
    
    
    792,741
    
    
    
    746,539
    
    
    
    746,539Interest-bearing deposits in banks
    
    
    60,911
    
    
    
    54,816
    
    
    
    105,613
    
    
    
    57,116
    
    
    
    57,116Investment securities available for sale
    
    
    5,062
    
    
    
    2,192
    
    
    
    680
    
    
    
    5,166
    
    
    
    5,166Investment securities held to maturity
    
    
    6,948,043
    
    
    
    6,904,828
    
    
    
    6,987,013
    
    
    
    7,074,025
    
    
    
    7,074,025Federal Home Loan Bank stock, at cost
    
    
    46,473
    
    
    
    35,300
    
    
    
    35,300
    
    
    
    42,798
    
    
    
    42,798Residential mortgage loans held for sale
    
    
    899
    
    
    
    1,637
    
    
    
    1,483
    
    
    
    1,539
    
    
    
    1,539Loans, net
    
    
    6,611,829
    
    
    
    7,090,745
    
    
    
    7,391,555
    
    
    
    7,815,623
    
    
    
    7,765,191Accrued interest receivable
    
    
    90,069
    
    
    
    98,741
    
    
    
    96,264
    
    
    
    105,882
    
    
    
    105,184Foreclosed real estate held for sale, net
    
    
    3,849
    
    
    
    3,134
    
    
    
    4,096
    
    
    
    4,137
    
    
    
    4,137Premises and equipment, net
    
    
    110,125
    
    
    
    111,791
    
    
    
    114,656
    
    
    
    117,623
    
    
    
    117,623Deferred income taxes, net
    
    
    36,821
    
    
    
    33,241
    
    
    
    37,266
    
    
    
    41,111
    
    
    
    52,650Other assets
    
    
    39,107
    
    
    
    54,137
    
    
    
    46,676
    
    
    
    42,693
    
    
    
    42,693TOTAL
    
    $
    15,008,355
    
    
    $
    15,253,834
    
    
    $
    15,708,926
    
    
    $
    16,151,864
    
    
    $
    16,112,273LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-bearing
    
    $
    263,822
    
    
    $
    294,264
    
    
    $
    288,929
    
    
    $
    277,099
    
    
    $
    277,099Interest-bearing and related accrued
interest payable
    
    
    6,815,449
    
    
    
    7,215,089
    
    
    
    7,611,202
    
    
    
    8,098,510
    
    
    
    8,098,510Total deposits
    
    
    7,079,271
    
    
    
    7,509,353
    
    
    
    7,900,131
    
    
    
    8,375,609
    
    
    
    8,375,609Federal funds purchased and repurchase
agreements
    
    
    6,476,172
    
    
    
    6,289,406
    
    
    
    6,316,767
    
    
    
    6,260,029
    
    
    
    6,260,029Advances from Federal Home Loan Bank
    
    
    207,000
    
    
    
    172,000
    
    
    
    172,000
    
    
    
    172,000
    
    
    
    172,000Mortgage note payable
    
    
    36,744
    
    
    
    36,645
    
    
    
    36,544
    
    
    
    36,432
    
    
    
    36,432Advances from borrowers for taxes and
insurance
    
    
    5,225
    
    
    
    6,697
    
    
    
    5,667
    
    
    
    7,867
    
    
    
    7,867Accrued expenses and other liabilities
    
    
    77,375
    
    
    
    77,957
    
    
    
    97,772
    
    
    
    106,449
    
    
    
    106,449Total liabilities
    
    
    13,881,787
    
    
    
    14,092,058
    
    
    
    14,528,881
    
    
    
    14,958,386
    
    
    
    14,958,386COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:Preferred stock
    
    
    18,179
    
    
    
    18,168
    
    
    
    18,163
    
    
    
    18,160
    
    
    
    18,160Common stock (1)
    
    
    3,280
    
    
    
    3,281
    
    
    
    3,281
    
    
    
    3,282
    
    
    
    3,282Paid-in
capital (1)
    
    
    866,433
    
    
    
    866,483
    
    
    
    866,669
    
    
    
    866,938
    
    
    
    866,938Retained earnings:Reserve fund
    
    
    64,732
    
    
    
    69,952
    
    
    
    73,440
    
    
    
    76,443
    
    
    
    72,484Undivided profits
    
    
    174,149
    
    
    
    203,928
    
    
    
    218,507
    
    
    
    228,648
    
    
    
    193,016Accumulated other comprehensive income
(loss), net
    
    
    (205
    )
    
    
    (36
    )
    
    
    (15
    )
    
    
    7
    
    
    
    7Total stockholders equity
    
    
    1,126,568
    
    
    
    1,161,776
    
    
    
    1,180,045
    
    
    
    1,193,478
    
    
    
    1,153,887TOTAL
    
    $
    15,008,355
    
    
    $
    15,253,834
    
    
    $
    15,708,926
    
    
    $
    16,151,864
    
    
    $
    16,112,273
 
 (1)
    
    As adjusted for the one-for-fifty reverse stock split
approved on November 7, 2008 and effective on December 1,
2008.(2)
    
    See  Note 25. 186




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##### Table of Contents



23. SEGMENT INFORMATION:
     187




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##### Table of Contents



As of and for the year endedDecember 31, 2007Westernbank
    
    
    Westernbank
    
    
    Westernbank
    
    
    Total major
    
    
    OtherPuerto Rico
    
    
    International
    
    
    Business Credit
    
    
    segments
    
    
    Segments
    
    
    Eliminations
    
    
    Total(In thousands)Interest income:Consumer loans
    
    $
    78,664
    
    
    $
    
    
    
    $
    
    
    
    $
    78,664
    
    
    $
    
    
    
    $
    
    
    
    $
    78,664Commercial loans
    
    
    457,429
    
    
    
    13,378
    
    
    
    92,760
    
    
    
    563,567
    
    
    
    
    
    
    
    
    
    
    
    563,567Mortgage loans
    
    
    81,534
    
    
    
    
    
    
    
    
    
    
    
    81,534
    
    
    
    
    
    
    
    
    
    
    
    81,534Treasury and investment activities
    
    
    219,631
    
    
    
    123,398
    
    
    
    
    
    
    
    343,029
    
    
    
    6,590
    
    
    
    (3,195
    )
    
    
    346,424Total interest income
    
    
    837,258
    
    
    
    136,776
    
    
    
    92,760
    
    
    
    1,066,794
    
    
    
    6,590
    
    
    
    (3,195
    )
    
    
    1,070,189Interest expense
    
    
    604,000
    
    
    
    121,710
    
    
    
    62,605
    
    
    
    788,315
    
    
    
    6
    
    
    
    (3,195
    )
    
    
    785,126Net interest income
    
    
    233,258
    
    
    
    15,066
    
    
    
    30,155
    
    
    
    278,479
    
    
    
    6,584
    
    
    
    
    
    
    
    285,063Provision for loan losses
    
    
    (251,484
    )
    
    
    (3,684
    )
    
    
    (22,394
    )
    
    
    (277,562
    )
    
    
    
    
    
    
    
    
    
    
    (277,562
    )Noninterest income, net:Service and other charges on loans
    
    
    9,868
    
    
    
    427
    
    
    
    2,392
    
    
    
    12,687
    
    
    
    
    
    
    
    
    
    
    
    12,687Service charges on deposit accounts
    
    
    12,397
    
    
    
    
    
    
    
    
    
    
    
    12,397
    
    
    
    
    
    
    
    
    
    
    
    12,397Other fees and commissions
    
    
    14,274
    
    
    
    165
    
    
    
    
    
    
    
    14,439
    
    
    
    2,225
    
    
    
    (248
    )
    
    
    16,416Trust account fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,107
    
    
    
    (124
    )
    
    
    1,983Insurance commission fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,935
    
    
    
    (21
    )
    
    
    1,914Net gain on derivative instruments
    
    
    1,308
    
    
    
    
    
    
    
    
    
    
    
    1,308
    
    
    
    
    
    
    
    
    
    
    
    1,308Net gain (loss) on
sales and valuation of loans held for sale, securities and other assets
    
    
    1,429
    
    
    
    
    
    
    
    250
    
    
    
    1,679
    
    
    
    (586
    )
    
    
    
    
    
    
    1,093Total noninterest income
    
    
    39,276
    
    
    
    592
    
    
    
    2,642
    
    
    
    42,510
    
    
    
    5,681
    
    
    
    (393
    )
    
    
    47,798Equity in loss of subsidiaries
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    (68,881
    )
    
    
    69,183
    
    
    
    Total net interest income and
noninterest income (loss)
    
    $
    20,748
    
    
    $
    11,974
    
    
    $
    10,403
    
    
    $
    43,125
    
    
    $
    (56,616
    )
    
    $
    68,790
    
    
    $
    55,299Total assets
    
    $
    15,414,539
    
    
    $
    3,179,254
    
    
    $
    942,479
    
    
    $
    19,536,272
    
    
    $
    1,722,225
    
    
    $
    (3,331,786
    )
    
    $
    17,926,711
 188




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##### Table of Contents



As of and for the year endedDecember 31, 2006Westernbank
    
    
    Westernbank
    
    
    Westernbank
    
    
    Total major
    
    
    OtherPuerto Rico
    
    
    International
    
    
    Business Credit
    
    
    segments
    
    
    Segments
    
    
    Eliminations
    
    
    Total(In thousands)Interest income:Consumer loans
    
    $
    79,240
    
    
    $
    
    
    
    $
    
    
    
    $
    79,240
    
    
    $
    
    
    
    $
    
    
    
    $
    79,240Commercial loans
    
    
    374,353
    
    
    
    23,128
    
    
    
    98,977
    
    
    
    496,458
    
    
    
    
    
    
    
    
    
    
    
    496,458Mortgage loans
    
    
    85,397
    
    
    
    
    
    
    
    
    
    
    
    85,397
    
    
    
    
    
    
    
    
    
    
    
    85,397Treasury and investment activities
    
    
    220,226
    
    
    
    105,229
    
    
    
    
    
    
    
    325,455
    
    
    
    6,233
    
    
    
    (2,993
    )
    
    
    328,695Total interest income
    
    
    759,216
    
    
    
    128,357
    
    
    
    98,977
    
    
    
    986,550
    
    
    
    6,233
    
    
    
    (2,993
    )
    
    
    989,790Interest expense
    
    
    521,372
    
    
    
    108,917
    
    
    
    54,123
    
    
    
    684,412
    
    
    
    
    
    
    
    (2,993
    )
    
    
    681,419Net interest income
    
    
    237,844
    
    
    
    19,440
    
    
    
    44,854
    
    
    
    302,138
    
    
    
    6,233
    
    
    
    
    
    
    
    308,371Provision for loan losses
    
    
    (4,799
    )
    
    
    (41,366
    )
    
    
    (44,715
    )
    
    
    (90,880
    )
    
    
    
    
    
    
    
    
    
    
    (90,880
    )Noninterest income, net:Service and other charges on loans
    
    
    9,259
    
    
    
    681
    
    
    
    2,587
    
    
    
    12,527
    
    
    
    
    
    
    
    
    
    
    
    12,527Service charges on deposit accounts
    
    
    9,976
    
    
    
    
    
    
    
    
    
    
    
    9,976
    
    
    
    
    
    
    
    
    
    
    
    9,976Other fees and commissions
    
    
    9,943
    
    
    
    177
    
    
    
    
    
    
    
    10,120
    
    
    
    1,386
    
    
    
    (238
    )
    
    
    11,268Trust account fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,049
    
    
    
    (109
    )
    
    
    1,940Insurance commission fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,917
    
    
    
    (21
    )
    
    
    1,896Net gain on derivative instruments
    
    
    632
    
    
    
    
    
    
    
    
    
    
    
    632
    
    
    
    
    
    
    
    
    
    
    
    632Net loss on
sales and valuation of loans held for sale, securities and other assets
    
    
    (454
    )
    
    
    
    
    
    
    
    
    
    
    (454
    )
    
    
    (687
    )
    
    
    
    
    
    
    (1,141
    )Total noninterest income
    
    
    29,356
    
    
    
    858
    
    
    
    2,587
    
    
    
    32,801
    
    
    
    4,665
    
    
    
    (368
    )
    
    
    37,098Equity in income of subsidiaries
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    60,037
    
    
    
    (60,230
    )
    
    
    Total net interest income and
noninterest income (loss)
    
    $
    262,594
    
    
    $
    (21,068
    )
    
    $
    2,726
    
    
    $
    244,252
    
    
    $
    70,935
    
    
    $
    (60,598
    )
    
    $
    254,589Total assets
    
    $
    14,733,972
    
    
    $
    2,860,166
    
    
    $
    1,022,826
    
    
    $
    18,616,964
    
    
    $
    1,761,824
    
    
    $
    (3,304,644
    )
    
    $
    17,074,144
 As of and for the year endedDecember 31, 2005Westernbank
    
    
    Westernbank
    
    
    Westernbank
    
    
    Total majorPuerto Rico
    
    
    International
    
    
    Business Credit
    
    
    segments
    
    
    Other Segments
    
    
    Eliminations
    
    
    Total(In thousands)Interest income:Consumer loans
    
    $
    78,268
    
    
    $
    
    
    
    $
    
    
    
    $
    78,268
    
    
    $
    
    
    
    $
    
    
    
    $
    78,268Commercial loans
    
    
    238,482
    
    
    
    12,305
    
    
    
    79,230
    
    
    
    330,017
    
    
    
    
    
    
    
    
    
    
    
    330,017Mortgage loans
    
    
    68,633
    
    
    
    
    
    
    
    
    
    
    
    68,633
    
    
    
    
    
    
    
    
    
    
    
    68,633Treasury and investment activities
    
    
    204,917
    
    
    
    108,624
    
    
    
    
    
    
    
    313,541
    
    
    
    5,250
    
    
    
    (2,504
    )
    
    
    316,287Total interest income
    
    
    590,300
    
    
    
    120,929
    
    
    
    79,230
    
    
    
    790,459
    
    
    
    5,250
    
    
    
    (2,504
    )
    
    
    793,205Interest expense
    
    
    362,472
    
    
    
    89,089
    
    
    
    34,690
    
    
    
    486,251
    
    
    
    
    
    
    
    (2,504
    )
    
    
    483,747Net interest income
    
    
    227,828
    
    
    
    31,840
    
    
    
    44,540
    
    
    
    304,208
    
    
    
    5,250
    
    
    
    
    
    
    
    309,458Provision for loan losses
    
    
    (8,259
    )
    
    
    (19,419
    )
    
    
    (52,328
    )
    
    
    (80,006
    )
    
    
    
    
    
    
    
    
    
    
    (80,006
    )Noninterest income, net:Service and other charges on loans
    
    
    8,314
    
    
    
    274
    
    
    
    2,989
    
    
    
    11,577
    
    
    
    
    
    
    
    
    
    
    
    11,577Service charges on deposit accounts
    
    
    8,636
    
    
    
    
    
    
    
    
    
    
    
    8,636
    
    
    
    
    
    
    
    
    
    
    
    8,636Other fees and commisions
    
    
    8,876
    
    
    
    105
    
    
    
    735
    
    
    
    9,716
    
    
    
    226
    
    
    
    (226
    )
    
    
    9,716Trust account fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,537
    
    
    
    (50
    )
    
    
    1,487Insurance commission fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,991
    
    
    
    (12
    )
    
    
    1,979Net gain on derivative instruments
    
    
    1,878
    
    
    
    
    
    
    
    
    
    
    
    1,878
    
    
    
    
    
    
    
    
    
    
    
    1,878Net gain on sales and valuation of loans
held for sale, securities and other assets
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    547
    
    
    
    
    
    
    
    
    
    
    
    547Total noninterest income
    
    
    28,251
    
    
    
    379
    
    
    
    3,724
    
    
    
    32,354
    
    
    
    3,754
    
    
    
    (288
    )
    
    
    35,820Equity in income of subsidiaries
    
    
    293
    
    
    
    
    
    
    
    
    
    
    
    293
    
    
    
    123,202
    
    
    
    (123,495
    )
    
    
    Total net interest income and
noninterest income (loss)
    
    $
    248,113
    
    
    $
    12,800
    
    
    $
    (4,064
    )
    
    $
    256,849
    
    
    $
    132,206
    
    
    $
    (123,783
    )
    
    $
    265,272Total assets
    
    $
    13,815,935
    
    
    $
    2,850,338
    
    
    $
    954,705
    
    
    $
    17,620,978
    
    
    $
    1,709,210
    
    
    $
    (3,217,915
    )
    
    $
    16,112,273
 189




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##### Table of Contents



24. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY:
  CONDENSED STATEMENTS OF FINANCIAL CONDITION INFORMATION
(PARENT COMPANY ONLY)
 December 31,2007
    
    2006
    
    2005(In thousands)ASSETSCash
    
    $
    2,020
    
    
    $
    1,267
    
    
    $
    1,831Money market
instruments
    
    
    3,700
    
    
    
    15,100
    
    
    
    11,000Dividends and other accounts receivable
from bank subsidiary
    
    
    3,863
    
    
    
    3,821
    
    
    
    3,148Investment securities available for sale
    
    
    1,906
    
    
    
    2,491
    
    
    
    4,981Investment securities held to maturity
    
    
    55,477
    
    
    
    55,474
    
    
    
    55,470Investment in bank subsidiary
    
    
    976,416
    
    
    
    1,070,270
    
    
    
    1,079,084Investment in nonbank subsidiary
    
    
    2,595
    
    
    
    2,522
    
    
    
    2,328Accrued interest receivable
    
    
    261
    
    
    
    271
    
    
    
    264Deferred income taxes, net
    
    
    
    
    
    
    211
    
    
    
    465Other assets
    
    
    30
    
    
    
    137
    
    
    
    62TOTAL ASSETS
    
    $
    1,046,268
    
    
    $
    1,151,564
    
    
    $
    1,158,633LIABILITIES AND
STOCKHOLDERS EQUITY
Liabilities:Repurchase agreements
    
    $
    45,000
    
    
    $
    
    
    
    $
    Dividends payable
    
    
    4,149
    
    
    
    4,142
    
    
    
    4,136Other liabilities
    
    
    883
    
    
    
    79
    
    
    
    610Total liabilities
    
    
    50,032
    
    
    
    4,221
    
    
    
    4,746Stockholders equity
    
    
    996,236
    
    
    
    1,147,343
    
    
    
    1,153,887TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
    
    $
    1,046,268
    
    
    $
    1,151,564
    
    
    $
    1,158,633
 190




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CONDENSED
STATEMENTS OF OPERATIONS INFORMATION
(PARENT COMPANY ONLY)
 Year Ended December 31,2007
    
    2006
    
    2005(In thousands)Dividends from subsidiaries:Bank subsidiary
    
    $
    
    
    
    $
    59,043
    
    
    $
    77,560Nonbank subsidiary
    
    
    1,000
    
    
    
    800
    
    
    
    850Subtotal
    
    
    1,000
    
    
    
    59,843
    
    
    
    78,410Interest income on investment securities
    
    
    3,394
    
    
    
    3,241
    
    
    
    2,746Total income
    
    
    4,394
    
    
    
    63,084
    
    
    
    81,156Less:Interest expense on repurchase agreements
    
    
    7
    
    
    
    
    
    
    
    Net loss on sale and valuation of securities
    
    
    585
    
    
    
    688
    
    
    
    Operating expenses
    
    
    2,150
    
    
    
    2,744
    
    
    
    2,975Income before income taxes and increase
in undistributed earnings of subsidiaries
    
    
    1,652
    
    
    
    59,652
    
    
    
    78,181Provision (credit) for income taxes
    
    
    435
    
    
    
    268
    
    
    
    (521
    )Income before increase in undistributed
earnings (losses) of subsidiaries
    
    
    1,217
    
    
    
    59,384
    
    
    
    78,702Increase in undistributed earnings (losses) from:Bank subsidiary
    
    
    (69,628
    )
    
    
    
    
    
    
    44,679Nonbank subsidiary
    
    
    73
    
    
    
    195
    
    
    
    114Net income (loss)
    
    $
    (68,338
    )
    
    $
    59,579
    
    
    $
    123,495
 191




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CONDENSED STATEMENTS OF CASH FLOWS INFORMATION
(PARENT COMPANY ONLY)
 Year Ended December 31,2007
    
    2006
    
    2005(In thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (68,338
    )
    
    $
    59,579
    
    
    $
    123,495Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Undistributed losses (earnings) of subsidiaries
    
    
    69,555
    
    
    
    (195
    )
    
    
    (44,793
    )Dividends received from subsidiaries prior years earnings
    
    
    68,238
    
    
    
    9,103
    
    
    
    Deferred income tax provision (credit)
    
    
    211
    
    
    
    258
    
    
    
    (469
    )Effect of stock options granted to employees
    
    
    207
    
    
    
    675
    
    
    
    564Amortization of discount on
investment securities held to maturity
    
    
    (4
    )
    
    
    (3
    )
    
    
    (3
    )Net gain on sale of investment securities
available for sale
    
    
    
    
    
    
    (62
    )
    
    
    Other-than-temporary impairment of
available for sale securities
    
    
    585
    
    
    
    750
    
    
    
    Decrease (increase) in dividends and other accounts
receivable from bank subsidiary
    
    
    (41
    )
    
    
    71
    
    
    
    (874
    )Decrease (increase) in accrued interest receivable
    
    
    10
    
    
    
    (7
    )
    
    
    (187
    )Decrease (increase) in other assets
    
    
    107
    
    
    
    (77
    )
    
    
    (56
    )Increase (decrease) in other liabilities
    
    
    805
    
    
    
    (531
    )
    
    
    228Net cash provided by operating activities
    
    
    71,335
    
    
    
    69,561
    
    
    
    77,905Cash flows from investing activities:Net decrease (increase) in money market instruments
    
    
    11,400
    
    
    
    (4,100
    )
    
    
    118,000Proceeds from sales of investment securities
available for sale
    
    
    
    
    
    
    1,786
    
    
    
    Purchases of investment securities available for sale
    
    
    
    
    
    
    
    
    
    
    (4,965
    )Purchases of investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    (49,897
    )Capital contributions to subsidiaries
    
    
    (60,000
    )
    
    
    
    
    
    
    (95,000
    )Net cash used in investing activities
    
    
    (48,600
    )
    
    
    (2,314
    )
    
    
    (31,862
    )Cash flows from financing activities:Net increase in repurchase agreements
    
    
    45,000
    
    
    
    
    
    
    
    Advances from bank subsidiary
    
    
    
    
    
    
    
    
    
    
    743Repayment of advances from bank subsidiary
    
    
    
    
    
    
    (743
    )
    
    
    Issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    19,253Proceeds from stock options exercised
    
    
    1,249
    
    
    
    1,072
    
    
    
    160Dividends paid
    
    
    (68,231
    )
    
    
    (68,140
    )
    
    
    (66,724
    )Net cash used in financing activities
    
    
    (21,982
    )
    
    
    (67,811
    )
    
    
    (46,568
    )Net change in cash
    
    
    753
    
    
    
    (564
    )
    
    
    (525
    )Cash at beginning of year
    
    
    1,267
    
    
    
    1,831
    
    
    
    2,356Cash at end of year
    
    $
    2,020
    
    
    $
    1,267
    
    
    $
    1,831
 192




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25. RESTATEMENT
 Accounting by Creditors for Impairment of
a Loan, an amendment of FASB Statement No. 5 and 15
   Consolidated Statement of Financial Condition
As of December 31, 2006
(In thousands)
 As PreviouslyReported
    
    As RestatedASSETS:Loans, net
    
    $
    8,641,023
    
    
    $
    8,554,177Allowance for loan losses
    
    
    126,844
    
    
    
    202,180Accrued interest receivable
    
    
    121,360
    
    
    
    120,311Deferred income taxes, net
    
    
    51,338
    
    
    
    58,689Total
    
    
    17,154,688
    
    
    
    17,074,144LIABILITIES AND STOCKHOLDERS EQUITY:STOCKHOLDERS EQUITY:Retained earnings:Reserve fund
    
    
    86,442
    
    
    
    78,389Undivided profits
    
    
    251,034
    
    
    
    178,543Total stockholders equity
    
    
    1,227,887
    
    
    
    1,147,343Total
    
    
    17,154,688
    
    
    
    17,074,144
 193




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Consolidated Statements of Income
For the years ended December 31, 2006 and 2005
(Dollars in thousands except per share data)
 2006
    
    2005As Previously
    
    As
    
    As Previously
    
    AsReported
    
    Restated
    
    Reported
    
    RestatedINTEREST INCOME:Loans, including loan fees
    
    $
    671,530
    
    
    $
    661,095
    
    
    $
    479,042
    
    
    $
    476,918Total interest income
    
    
    1,000,225
    
    
    
    989,790
    
    
    
    795,329
    
    
    
    793,205NET INTEREST INCOME
    
    
    318,806
    
    
    
    308,371
    
    
    
    311,582
    
    
    
    309,458PROVISION FOR LOAN LOSSES
    
    
    64,550
    
    
    
    90,880
    
    
    
    31,000
    
    
    
    80,006NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
    
    
    254,256
    
    
    
    217,491
    
    
    
    280,582
    
    
    
    229,452TOTAL NET INTEREST INCOME AND
NONINTEREST INCOME
    
    
    291,354
    
    
    
    254,589
    
    
    
    316,402
    
    
    
    265,272INCOME BEFORE PROVISION FOR
INCOME TAXES
    
    
    166,836
    
    
    
    130,071
    
    
    
    208,172
    
    
    
    157,042PROVISION FOR INCOME TAXES
    
    
    66,305
    
    
    
    70,492
    
    
    
    45,086
    
    
    
    33,547NET INCOME
    
    
    100,531
    
    
    
    59,579
    
    
    
    163,086
    
    
    
    123,495INCOME
AVAILABLE
TO COMMON STOCKHOLDERS
    
    
    63,620
    
    
    
    22,668
    
    
    
    126,101
    
    
    
    86,510BASIC EARNINGS PER COMMON SHARE
    
    
    19.35
    
    
    
    6.89
    
    
    
    38.44
    
    
    
    26.37DILUTED EARNINGS PER COMMON SHARE
    
    
    18.93
    
    
    
    6.74
    
    
    
    37.21
    
    
    
    25.61
 Consolidated Statements of Changes in Stockholders Equity and
     Consolidated Statements of Comprehensive Income
For the years ended December 31, 2006 and 2005
(Dollars in thousands)
 2006
    
    2005As Previously
    
    
    
    
    
    As PreviouslyReported
    
    As Restated
    
    Reported
    
    As RestatedChanges in Stockholders Equity:Reserve fund:Transfer from undivided profits
    
    $
    9,999
    
    
    $
    5,904
    
    
    $
    16,183
    
    
    $
    12,224Balance at end of period
    
    
    86,442
    
    
    
    78,389
    
    
    
    76,443
    
    
    
    72,484Undivided profits:Net income
    
    
    100,531
    
    
    
    59,579
    
    
    
    163,086
    
    
    
    123,494Transfer to reserve fund
    
    
    (9,999
    )
    
    
    (5,904
    )
    
    
    (16,183
    )
    
    
    (12,224
    )Balance at end of period
    
    
    251,034
    
    
    
    178,543
    
    
    
    228,648
    
    
    
    193,016Total Stockholders Equity
    
    
    1,227,887
    
    
    
    1,147,343
    
    
    
    1,193,478
    
    
    
    1,153,887Comprehensive Income:Net income
    
    
    100,531
    
    
    
    59,579
    
    
    
    163,086
    
    
    
    123,494Total Comprehensive Income
    
    
    100,808
    
    
    
    59,856
    
    
    
    163,305
    
    
    
    123,714
 194




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Consolidated Statements of Cash Flows
For the year ended December 31, 2006 and 2005
(Dollars in thousands)
 2006
    
    2005As Previously
    
    
    
    
    
    As PreviouslyReported
    

As Restated
    
    Reported
    

As RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    100,531
    
    
    $
    59,579
    
    
    $
    163,086
    
    
    $
    123,495Provision for loan losses
    
    
    64,550
    
    
    
    90,880
    
    
    
    31,000
    
    
    
    80,006Credit for deferred income tax
    
    
    (10,294
    )
    
    
    (6,107
    )
    
    
    (7,452
    )
    
    
    (18,991
    )Amortization of net deferred loan origination fees
    
    
    (16,253
    )
    
    
    (15,795
    )
    
    
    (16,303
    )
    
    
    (16,255
    )Increase in accrued interest receivable
    
    
    (15,478
    )
    
    
    (14,429
    )
    
    
    (17,597
    )
    
    
    (16,899
    )Net cash provided by operating activities
    
    
    137,779
    
    
    
    128,851
    
    
    
    247,183
    
    
    
    245,805CASH FLOWS FROM INVESTING ACTIVITIES:Loans originations, net of principal collections
    
    
    (878,843
    )
    
    
    (869,915
    )
    
    
    (1,915,587
    )
    
    
    (1,914,209
    )Net cash used in investing activities
    
    
    (987,386
    )
    
    
    (978,458
    )
    
    
    (1,804,048
    )
    
    
    (1,802,670
    )SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Noncash activities:Transfer from undivided profits to reserve fund
    
    
    9,999
    
    
    
    5,905
    
    
    
    16,183
    
    
    
    12,224
 26. SUBSEQUENT EVENTS:
 Regulatory Matters
    
    
    Reduced Westernbanks risk-weighted assets by shifting the composition of its
investment portfolio from called agency securities with a risk-weight of 20% to GNMA
mortgage-backed securities and collateralized mortgage obligations with a risk-weight of
0%.
    
    Reduced by 74% the payment of cash dividends on common stock in 2008.
    
    Increased Westernbanks borrowing capacity with the FHLB  At December 31, 2008, the
Companys borrowing capacity with the FHLB increased to $510.0 million from $39.0 million
at December 31, 2007.
    
    Sold unused real estate owned  During 2008, Westernbank sold certain land lots
originally held for future branch development and recognized a gain on sale of $14.7
million.
    
    Negotiated tax settlements  During the first quarter of 2008, Westernbank negotiated
tax agreements with local and federal authorities that yielded a benefit of $33.3 million.
    
    Transferred the Companys insurance agency to Westernbank in 2008, resulting in a
capital infusion to Westernbank of $2.9 million.
 Other
    195




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196




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Background to Restatement
  Evaluation of Disclosure Controls and Procedures
    Managements Annual Report on Internal Control Over Financial Reporting
 Internal Control Integrated Framework
 197




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##### Table of Contents



Lending Practices
  Credit Quality Review
  Appraisal Report Review
  Financial Closing and Reporting
    198




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Plan for Remediation of Material Weaknesses that Existed as of December 31, 2007
  Lending Practices
  Credit Quality Review
     Appraisal Report Review
  199




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##### Table of Contents



Financial Closing and Reporting
   Changes in Internal Control over Financial Reporting
  Remediation Actions:
 Control Environment
    Internal Anti-Fraud Program
   200




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##### Table of Contents




    
    Management meetings  The Company performed and will continue performing
management meetings (at least quarterly) in which the Companys Chief Executive
Officer or any other executive officer has reminded every officer of the Company
the availability of the whistleblower hotline, the Companys zero-tolerance
policy, and the expectations that every Company employee, including executive
officers, will adhere to the highest ethical and corporate governance standards,
and will be held accountable for his or her actions and decisions;
    
    Departmental meetings  During 2007, and going forward on a quarterly basis,
the Company, represented by a designated executive officer or by the head of the
department, held meetings at each one of the Companys operational departments.
At such meetings, each head of the department or the designated executive
officer, explained and reemphasized to all the employees the importance and
availability of the whistleblower hotline, the Companys zero-tolerance policy
and the expectation that every Company employee, including executive officers,
will adhere to the highest ethical and corporate governance standards, and will
be held accountable for his or her actions and decisions;
    
    Written communications  The Company, primarily through its Human Resources
Department, has sent and will continue sending several internal memoranda (at
least one every two months) to every Company employee, reemphasizing the
importance and availability of the whistleblower hotline, including the related
phone numbers; and
    
    Internal electronic homepage  The Company has made the whistleblower hotline
an integral part of its internal electronic home page (Intranet). Each time an
employee accesses the Companys internal electronic home page it will see a message
regarding the whistleblower hotline, as well as the related phone numbers.
  Prevention of Customer Fraud
   
    
    The collateral analysis section of the asset-based lending division is required
to periodically confirm a sample of the total pledged accounts receivable balance
of each of the creditors customers and maintain a record of data related to such
confirmations. A log is maintained to record the borrower accounts confirmed and
the percentage of accounts receivable confirmed with respect to each borrower.
    
    Collateral verification audits are performed as scheduled by specialized
asset-based lending auditors who report deficiencies directly to the Companys
Internal Audit Department.
 201




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##### Table of Contents




    
    An audit status report is generated monthly by one of the specialized
asset-based lending auditors and presented to the Audit Committee. The audit
status report is reviewed and discussed by the Audit Committee on a monthly basis.
 Asset-Based Lending Division
 
    
    Circumvention of Policies and Procedures The Company did not establish and
maintain an adequate segregation of duties and authority among members of the
management in the asset-based lending division. Specifically, the design and
operation of these controls was inadequate to prevent or detect the circumvention of
certain controls by former members of division management. Management has changed
the overall decision-making and reporting structure of the asset-based lending
division. Now it is composed of credit officers of the commercial lending division of
the Bank. In addition, other changes include:
 1.
    
    Senior and Junior Credit Committees at the division are
responsible for approving loan-related decisions and must have at least two
members who are not employed at the asset-based lending division.2.
    
    The Audit Committee reviews monthly the audit status
report prepared by the head of the specialized asset-based lending audit
team.3.
    
    An assistant vice president in the Companys Accounting
Department, who is independent of the asset-based lending divisions
management, reviews a report prepared monthly by a collateral analyst to
determine if the collateral reports have been received from borrowers and
whether the information from such reports has been entered into the
collateral monitoring system. Any deviations noted are presented immediately
to members of an executive committee, composed of Bank officers independent
of the asset-based lending division management.
 
    
    Collateral Reporting- The Company lacked effective controls because of both the
design and operation of the collateral monitoring system in place in the asset-based
lending division. Specifically, in some cases, the information in the collateral
monitoring system was not updated. This material weakness contributed to the
Companys failure to properly identify the deterioration of the credit quality of the
Inyx loan in a timely manner and delayed the performance of a loan impairment
analysis. Management made changes to the decision-making and reporting structure of
the asset-based lending division. The credit-monitoring function, which includes
collateral analysts, now reports to an assistant vice president of the Companys
Accounting Department. In addition, Management has established and implemented a
control by which a collateral analyst reviews and determines whether collateral
reports have been received from borrowers and whether the information from such
reports has been entered into the collateral monitoring system. On a monthly basis,
the collateral analyst prepares a report detailing findings with respect to such
review. The collateral analysts report is then reviewed by the assistant vice
president of the Companys Accounting Department.
    
    Collateral Audits The Company lacked effective controls because of both the
design and operation of collateral verification audits at the asset-based lending
division. Specifically, in the case of the Inyx loan, the actions of former members
of management at the division prevented the results of collateral verification audits
from being reported to the Asset-based Lending Divisions Senior Credit Committee of
the Banks Board of Directors (the Division Senior Credit Committee) and postponed
the performance of collateral verification audits. This material weakness
contributed to the Companys failure to properly identify the issues as to the Inyx
loan on a timely basis and delayed the performance of a loan impairment analysis.
Additional members of management of the Bank, independent of and senior to those in
the asset-based lending division, are now involved in the collateral audit reporting
process. Collateral verification audits are now performed as scheduled, or
 202




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more frequently if considered necessary, by specialized asset-based lending auditors
who report directly to the Companys Internal Audit Department. An audit schedule has
been implemented with respect to borrowers of the asset-based lending division. To
ensure that audits are not postponed, an audit status report is generated monthly by
one of the specialized auditors and delivered for review and discussion to the Audit
Committee.
    
    Unsupported Advances The Company lacked effective controls to detect and prevent
the entry of unsupported in-transit collateral into the system used to track and
calculate the credit availability of borrowers of the asset-based lending division
and, in turn, to prevent advances based on such unsupported in-transit collateral.
This material weakness in both design and operation led directly to an increase in
the unsecured portion of the Inyx loan and increased the credit risk and magnitude of
potential loss. The following are additional controls with respect to the
advancement of funds on in-transit collateral:
 1.
    
    Review by qualified individuals independent of the credit
function of pre-transaction documentation to support the in-transit
collateral from the borrower at the date requested.2.
    
    If original post-transaction supporting documentation is
not received within a two-day period following the date of the advance, the
in-transit posting must be reversed, thereby reducing the available credit
amount. Under no circumstances will the advance granted over the in-transit
collateral exceed the approved credit limit.
 
    
    Advances in Excess of Credit Limits The Company lacked controls that operated
effectively to prevent and detect advances in excess of approved credit limits in the
asset-based lending divisions loans. Specifically, the design and operation of
these controls were inadequate inasmuch as in the case of the Inyx loan, for example,
total advances exceeded the approved credit limit in part because of a concentration
of decision-making authority in a few senior managers at the asset-based lending
division. Adequate segregation between the credit origination and credit-monitoring
functions was lacking. The asset-based lending divisions credit-monitoring function
now reports to the assistant vice president of the Companys Accounting Department.
The Company reemphasized the divisions credit-monitoring function that any increase
to the credit limits must be approved in advance by the Division Senior Credit
Committee. The Company has implemented new procedures whereby the divisions
credit-monitoring function reports amounts outstanding under all asset-based line of
credit accounts on a daily basis and such report is reviewed by the assistant vice
president of the Companys Accounting Department and verified by one of the credit
officers of the asset-based lending division or the division manager to determine the
loan borrowing availability and ascertain that no amounts in excess of the approved
credit limit is granted without the required approval. A summary management report is
then presented and discussed by the Division Senior Credit Committee on a monthly
basis.
    
    Decision-making and Reporting The Company did not maintain effective internal
controls designed to ensure appropriate monitoring of credit risk. Among other,
individuals responsible for financial reporting, including those who monitor the
adequacy of the Companys Allowance for Loan Losses, and the Audit Committee, did not
receive timely and adequate information to perform their duties. In the case of the
Inyx loan, individuals responsible for financial reporting did not receive
information regarding the potential uncollectibility of accounts receivable pledged
as collateral on a timely basis. Management has changed the overall decision-making
and reporting structure of the asset-based lending division to involve additional
members of the Banks management team. Major changes include:
 1.
    
    The asset-based lending divisions credit-monitoring
function and the collateral audit function report to individuals independent
of the asset-based lending division.
 203




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The credit-monitoring function, which includes the collateral analysts, now
reports to an assistant vice president of the Companys Accounting
Department, while the collateral audit function now reports to the Companys
Internal Audit Department.2.
    
    The Companys General Auditor and the Banks Vice
President of Internal Loan Review receive and review all collateral
verification audit reports.3.
    
    The Banks Internal Loan Review Group reviews the
collateral information reports and prepares loan review and impairment
analyses for all the asset-based lending division loans at least on a
quarterly basis, or more frequently if deemed necessary. The results of
these reviews are discussed and reported to the Companys Accounting
Department and to the full Board of Directors which includes all members of
the Audit Committee on a quarterly basis, or more frequently if deemed
necessary.4.
    
    An Executive Committee of the Bank, composed of Bank
officers independent of, and senior to, the asset-based lending division
management, reviews and ratifies all advances made from asset-based credit
lines.
  1.
    
    During the month of May 2007, the asset-based lending
division was placed under the direct management and supervision of a
specially appointed executive committee composed of officers outside of the
asset-based lending division. This committee took supervisory control of the
division and performed an overall credit and operational review. The
committee also made comprehensive changes to the operations of the division.2.
    
    The Company ceased originating loans to new customers in
the asset-based lending division and anticipates that this loan portfolio
will continue to shrink as loans are repaid or liquidated. The outstanding
principal balance of loans of the asset-based lending division which are
secured by accounts receivable and inventories has decreased significantly
during 2008.3.
    
    The Company has effected personnel changes in the
asset-based lending division. Consequently, all the employees involved in
the lending, collateral audit and credit-monitoring functions which
exacerbated the deterioration of the Inyx loan and contributed to the
failure to identify the Inyx loan impairment on a timely basis, including
all of the senior managers, have resigned or were terminated.
 204




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control 
Integrated Framework
     a)
    
    Lending Practices The Company lacked effective controls to prevent or detect
loan-underwriting decisions that did not comply with the Companys underwriting criteria and
that placed heavy reliance on favorable collateral appraisals and undue reliance on optimistic
assumptions for prospective borrowers. Specifically, the design and operation of controls in
this area were inadequate and resulted in certain loans being approved or extended prior to
receiving final appraisal reports, or based upon collateral valuations which may significantly
exceed ultimate liquidation values, or on the basis of a poorly supported analysis of the
repayment capacity of the borrower. In addition, the Company made significant use of interest reserves advances to
cover interest payments on delinquent loans or on loans to borrowers with financial
difficulties. This material weakness contributed to the Companys failure to take steps on a
timely basis to avoid or to mitigate potential credit losses.b)
    
    Credit Quality Review The Company lacked controls that were appropriately designed and
operated effectively to ensure that certain loan relationships are reviewed at least annually
by the Companys Internal Loan Review Department. Specifically, the design and operation of
the loan review controls were inadequate to identify impaired loans, designate loans to
non-accrual status, and obtain updated appraisal reports for classified loans. This material
weakness contributed to the Companys failure to properly identify the deterioration of the
credit quality of the Inyx loan, and delayed the performance of a loan impairment analysis.c)
    
    Appraisal Report Review The Company lacked controls that were appropriately designed and
operated effectively to ensure that appraisal reports for real estate collateral are reviewed
on a timely basis by a qualified officer independent of the credit function. This material
weakness contributed to the Companys failure to take steps to avoid or mitigate potential
credit losses and to recognize losses on impaired loans on a timely basis.d)
    
    Financial Closing and Reporting The Companys financial closing and reporting controls did
not operate effectively as to ensure an effective, timely and accurate financial reporting
process. Specifically, (i) processes and controls were not operating effectively resulting in
adjustments being required to present the financial statements in accordance with GAAP, and
(ii) the Company did not file periodic reports on a timely basis as required by the rules of
the SEC and the NYSE.
  Internal Control  Integrated Framework
 Accounting for Uncertainty in Income
Taxes  an interpretation of Statement of Financial Accounting Standard No. 109
 
 
 205




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##### Table of Contents



Directors of the Company
  Positions Held with theDirector
    
    Age
    
    Company and/or WesternbankFrank C. Stipes, Esq
    
    
    52
    
    
    Chairman of the Board,
Chief Executive Officer
and President of the
Company and Westernbank
(1)Freddy Maldonado
    
    
    57
    
    
    Director of the Company,
Senior Executive Vice
President and Chief
Financial Officer of the
Company and Westernbank
(2)Cornelius Tamboer
    
    
    64
    
    
    DirectorHéctor L. Del Río
    
    
    55
    
    
    DirectorPedro R. Domínguez
    
    
    63
    
    
    Director and First Vice
President  Southern
Region of WesternbankJuan C. Frontera
    
    
    41
    
    
    Director and Secretary of the
BoardEnrique González, CPA
    
    
    64
    
    
    Director (3)César A. Ruiz
    
    
    73
    
    
    Director (4)
 
 (1)
    
    Effective August 8, 2008, Mr. Stipes assumed the position of President of the Company.(2)
    
    Effective August 8, 2008, Mr. Maldonado assumed the position of Senior Executive Vice
President and Chief Financial Officer of the Company and relinquished the duties of
President and Chief Investment Officer of the Company. On January 30,
2009, Mr. Maldonado advised the Company that he intends to resign to
his positions as a Director of the Company and Senior Executive Vice
President and Chief Financial Officer for both the Company and the
Bank, upon filing of the Companys Annual Report on Form 10-K
for the year ended December 31, 2007.(3)
    
    Effective February 25, 2008, the Board of Directors of the Company appointed Mr.
González as a director of the Company for a three-year term ending in 2011.(4)
    
    Mr. Ruiz  resigned from the
Board of Directors effective December 31, 2008. Biographical Information
  Frank C. Stipes, Esq.
 206




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##### Table of Contents



Freddy Maldonado
 Cornelius Tamboer
 Héctor L. Del Río
 Pedro R. Domínguez
 Juan C. Frontera
 Enrique González, CPA
 César A. Ruiz
  207




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##### Table of Contents



Executive Officers of the Company
  Officer of theAge as of
    
    Company and/orDecember 31,
    
    Westernbank
    
    Positions Held with theName
    
    2007
    
    Since
    
    Company and/or WesternbankFrank C. Stipes, Esq
    
    
    52
    
    
    
    1988
    
    
    Chairman of the Board , Chief
Executive Officer and President of
the Company and Westernbank (1)Freddy Maldonado
    
    
    57
    
    
    
    1992
    
    
    Director, Senior Executive Vice
President and Chief Financial
Officer of the Company (2)Pedro R. Domínguez
    
    
    63
    
    
    
    1989
    
    
    Director and First Vice
President  Southern Region of
WesternbankJosé Armando Ramírez
    
    
    51
    
    
    
    2007
    
    
    Former Chief Financial Officer and
former Chief Operating Officer of
the Company (3)Carlos Dávila
    
    
    44
    
    
    
    2007
    
    
    Chief Operating Officer of the
Company, Executive Vice President
and Chief Retail Officer of
Westernbank (4)Norberto Rivera, CPA
    
    
    45
    
    
    
    2004
    
    
    Vice President Corporate Comptroller
and Chief Accounting OfficerAlfredo Archilla
    
    
    51
    
    
    
    2001
    
    
    Chief Administration OfficerAndrés Morgado, CPA
    
    
    49
    
    
    
    2000
    
    
    President, Westernbank Trust DivisionWilliam Vidal, Esq
    
    
    54
    
    
    
    2000
    
    
    First Vice President for Commercial
Credit, Chief Lending Officer
Northeastern RegionMigdalia Rivera
    
    
    57
    
    
    
    2002
    
    
    President, Expresso of Westernbank
(5)
 
 (1)
    
    Effective August 8, 2008, Mr. Stipes assumed the positions of President of the Company.(2)
    
    Effective August 8, 2008, Mr. Maldonado assumed the position of Senior Executive Vice
President and Chief Financial Officer of the Company and relinquished the duties of
President and Chief investment Officer of the Company. On January 30, 2009, Mr. Maldonado advised the Company that he intends to resign to his positions
as a Director of the Company and Senior Executive Vice President and Chief Financial Officer for
both the Company and the Bank, upon filing of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007.(3)
    
    Mr. Ramírez served as Chief Financial Officer and Chief Operating Officer of the
Company from September 3, 2007 to August 8, 2008.(4)
    
    Effective October 1, 2007, Mr. Dávila was retained as Executive Vice President and
Chief Retail Officer of Westernbank and on October 6, 2008 Mr. Dávila was also appointed
Chief Operating Officer of the Company.(5)
    
    Mrs. Rivera served as President, Expresso of Westernbank until January 10, 2009. Biographical Information
  José Armando Ramírez 
 Carlos Dávila 
 Norberto Rivera, CPA
 208




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##### Table of Contents



Alfredo Archilla 
 Andrés Morgado, CPA 
 William Vidal, Esq. 
 Migdalia Rivera 
 Corporate Governance Matters
    209




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Nominating and Corporate Governance Committee
    210




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Executive Committee
  Compensation Committee
  Audit Committee
    211




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Investment Committee
  Senior Credit Committee
  212




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##### Table of Contents



Compliance and Risk Management Committee
  Stockholders Communication with Directors
  
  SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
  Section
16(a)
 Name
    
    Late Reports
    
    TransactionsAndres Morgado
    
    
    1
    
    
    
    1Carlos Dávila
    
    
    1
    
    
    
    1
 213




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##### Table of Contents



COMPENSATION DISCUSSION AND ANALYSIS
  
    
    the Companys Chief Executive Officer (CEO), Mr. Frank C. Stipes, Esq.;
    
    each person who served as the principal financial officer of the Company during
fiscal 2007, or Mr. Norberto Rivera, CPA (from January 1, 2007 to September 3, 2007),
and Mr. Jose Armando Ramirez (from September 3, 2007 to August 8, 2008);
    
    and the three highest paid executive officers of the Company who were serving as
executive officers as of December 31, 2007, or Messrs. William Vidal, Esq.,
Westernbanks First Vice President and Chief Lending Officer for the Northeastern
Region, Ruben Aponte, and Norberto Rivera, CPA, the Companys Chief Accounting Officer
and Vice President Corporate Comptroller (collectively referred to as the NEOs).
 Objectives of the Companys Compensation Program
  Compensation should reward performance
  Compensation should reflect the value of the job in the marketplace
  The Companys employees should think like the Companys stockholders
  Incentive compensation should be a greater part of total compensation for more senior
positions
  214




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##### Table of Contents



Determination of Compensation During Fiscal 2007
  
    
    Assessment of Company Performance.The Compensation Committee utilized Company
performance measures in establishing total compensation ranges for the NEOs. The
Committee considered certain measures of progress of the Company including asset
quality, stability and soundness of operations, regulatory classification, overall loan
portfolio growth, performance, quality, capital and efficiency ratios as compared to
peer groups, net earnings and the Companys overall results and management effectiveness
in light of existing market conditions.The Companys Chief Executive Officer recommends to the Compensation Committee the levels
of achievement for the annual performance bonus compensation awards
and the Compensation
Committee reviews the recommended levels carefully before approving them. This is to
ensure that the goals are set accurately to provide the Companys executive officers with
goals that are at a reasonably high level, but also are attainable.
    
    Assessment of Individual Performance and CEO Review. Each NEOs individual
performance also had a strong impact on the compensation paid to the officer, as it does
for all of the Companys employees generally. With respect to the CEO performance, the
independent directors, under the direction of the presiding director, met with the CEO
in executive session at the beginning of the year to agree upon the CEO performance
objectives (both individual and company objectives) for the year. At the end of the
year, the independent directors met in executive session under the direction of the
presiding director to conduct a performance review of the CEO based on these objectives.
The results of this review for fiscal 2007 are discussed below under Components of
Executive Compensation for 2007.For the other NEOs, the Compensation Committee receives a performance assessment and
compensation recommendation from the CEO and also exercises its discretion and judgment
based on the Committees interactions with each such executive officer. The Committees
individual performance evaluation of these executives is based generally on his
contribution to the Companys performance, as well as other leadership accomplishments.
The results of the reviews for the other NEOs for fiscal 2007 are also discussed below
under Components of Executive Compensation for 2007.
    
    Peer Data Review.Each year, the Compensation Committee reviews the Companys
compensation program as compared to a peer group of financial holding companies based in
Puerto Rico. During fiscal 2007, the Company used the following Puerto Rican-based peer
financial holding companies for benchmarking purposes: Popular, Inc., First BanCorp.,
Santander BanCorp, Doral Financial Corporation and R&G Financial Corporation.The Compensation Committee compares the peer group companies executive compensation
programs as a whole, and also compares the pay of individual executives if the jobs are
sufficiently similar to make the comparison meaningful. The Committee uses the peer group
data primarily to ensure that the executive compensation program as a whole is
competitive, meaning generally within the range of comparative pay of the peer group
companies when the Company achieves its targeted performance levels. The Compensation
Committee also reviews total executive compensation, with and without special
performance bonus, in order to determine, in its discretion, what amount of a particular
bonus is based strictly on performance and what, if any, is granted to the executive as
part of his base salary in line with the salaries paid to other executives in equivalent
peer groups positions, as mentioned before. The Committee does not specifically target or
establish to pay total compensation to the NEOs at a specified percentile or range within
the peer group.
    
    Total Compensation Review.The Compensation Committee reviews each executives base
pay, bonus, and stock option incentives every 18 months, with the exception of the
Companys and Westernbanks CEO, which is reviewed annually. In addition to these
primary compensation elements, the committee reviews the deferred compensation program,
perquisites and other compensation, and payments that would be required under various
severance and change-in-control scenarios. Following the 2007 review, the Compensation
Committee determined that these elements of compensation were reasonable in the
aggregate.
 
 215




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Components of Executive Compensation for 2007
  Base Salary
           216




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##### Table of Contents



Christmas Bonus
  Special Performance Bonus
        217




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##### Table of Contents



Stock Options
     Nonqualified Deferred Compensation Plan
  All Other Compensation
  218




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##### Table of Contents



Qualified Deferred Profit-Sharing Plan
  Qualified Defined Contribution Plan
  Car Allowances
  Business and Entertainment Expenses
  Life, Accidental Death and Dismemberment Insurance
  Severance Benefits
   219




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##### Table of Contents



(i)
    
    25% or more of ownership control, power to vote, or beneficial ownership of any class
of voting securities of the Company is acquired by any person, either directly or
indirectly or acting through one or more other persons;(ii)
    
    any person (other than any person named as a proxy in connection with any solicitation
on behalf of the Board) holds revocable or irrevocable proxies, as to election or removal
of three or more directors of the Company, for 25% or more of the total number of voting
 shares of the Company;(iii)
    
    any person has received all applicable regulatory approvals to acquire control of the
Company;(iv)
    
    any person has commenced a cash tender or exchange offer, or entered into an agreement
or received an option, to acquire beneficial ownership of 25% or more of the total number
of voting shares of the Company, whether or not any requisite regulatory approval for such
acquisition has been received, provided that a change in control will not be deemed to have
occurred under this clause unless the Board has made a determination that such action
constitutes or will constitute a change in control; or(v)
    
    as a result of, or in connection with, any cash tender or exchange offer, merger, or
any other business combination, sale of assets or contested election, or any combination of
the foregoing transactions, (a) the persons who were Directors of the Company before such
transaction shall cease to constitute at least a majority of the Board or its successor or
(b) the persons who were stockholders of the Company immediately before such transaction do
not own more than 50% of the outstanding voting stock of the Company or its successor
immediately after such transaction.
   220




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##### Table of Contents



Compensation Committee Report
  
 221




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##### Table of Contents



SUMMARY COMPENSATION TABLE
  Change in PensionValue andNonqualifiedStock
    
Option
    
    Non-Equity
    
    Deferred
    
    All OtherBonus (2)
    
    Awards ($)
    
    Awards (4)
    
    Incentive Plan
    
    Compensation
    
    Compensation (5)Name & Principal Position
    
    Year
    
    Salary (1) ($)
    
    ($)
    
    (3)
    
    ($)
    
    Compensation (3)
    
    Earnings ($) (3)
    
    ($)
    
    Total ($)CurrentFrank C. Stipes, Esq
    
    
    2007
    
    
    $
    331,827
    
    
    $
    24,792
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    70,955
    
    
    $
    427,574Chairman of the
    
    
    2006
    
    
    
    308,942
    
    
    
    29,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,741
    
    
    
    407,850Board, Chief ExecutiveOfficer and PresidentFreddy Maldonado (6)
    
    
    2007
    
    
    
    284,423
    
    
    
    21,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,781
    
    
    
    377,454Chief Financial Officer
    
    
    2006
    
    
    
    255,000
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,572
    
    
    
    350,572William Vidal, Esq. (7)
    
    
    2007
    
    
    
    287,596
    
    
    
    277,812
    
    
    
    
    
    
    
    25,122
    
    
    
    
    
    
    
    
    
    
    
    59,826
    
    
    
    650,356First Vice President for
    
    
    2006
    
    
    
    233,750
    
    
    
    272,917
    
    
    
    
    
    
    
    25,122
    
    
    
    
    
    
    
    
    
    
    
    56,987
    
    
    
    588,776Commercial Credit andChief Lending OfficerNortheastern RegionRubén Aponte
    
    
    2007
    
    
    
    222,600
    
    
    
    241,028
    
    
    
    
    
    
    
    4,106
    
    
    
    
    
    
    
    
    
    
    
    21,557
    
    
    
    489,291Senior Vice President
    
    
    2006
    
    
    
    222,600
    
    
    
    118,500
    
    
    
    
    
    
    
    4,106
    
    
    
    
    
    
    
    
    
    
    
    19,444
    
    
    
    364,650Norberto Rivera, CPA
    
    
    2007
    
    
    
    246,635
    
    
    
    193,750
    
    
    
    
    
    
    
    16,748
    
    
    
    
    
    
    
    
    
    
    
    48,851
    
    
    
    505,984Chief Accounting Officer
    
    
    2006
    
    
    
    165,750
    
    
    
    166,250
    
    
    
    
    
    
    
    16,748
    
    
    
    
    
    
    
    
    
    
    
    36,376
    
    
    
    385,124and Vice PresidentCorporate ControllerFormerJosé Armando Ramírez (8)
    
    
    2007
    
    
    
    153,846
    
    
    
    113,889
    
    
    
    
    
    
    
    5,980
    
    
    
    
    
    
    
    
    
    
    
    63,811
    
    
    
    337,526Former Chief Financial Officer
    
    
    2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and Chief Operating Officer
 
 (1)
    
    Includes (i) amounts deferred by the individual pursuant to the Companys 1165(e) Plan,
and (ii) cash payments in respect of accrued and unused vacation time. See the Compensation
Discussion and Analysis above and the footnotes below for more information on the 1165(e)
plan.(2)
    
    Amounts for each NEO, other than Messrs. Stipes and Maldonado, represent the special
performance bonus granted at year end and the Christmas bonus that is granted under Puerto
Rico law. The Company has normally granted one month of salary as Christmas bonus. Messrs.
Stipes and Maldonado voluntarily requested not to be paid a special performance bonus in
fiscal 2007, see the Compensation Discussion and Analysis above.(3)
    
    Not applicable.(4)
    
    Amounts represent, for each respective year, the dollar amount recognized by the
Company for financial statement reporting purposes with respect to each NEO during the
year, determined in accordance with SFAS 123(R), disregarding the estimates relating to
service-based vesting conditions. A discussion of the assumptions used in calculating these
values may be found in Note 17 Stock Compensation Plans to the Companys consolidated
financial statements included in Part II, Item 8 of the Companys Annual Report on Form
10-K for the year ended December 31, 2007.(5)
    
    The table below shows the components of this column for 2007, which include perquisites
and other personal benefits, including the Companys Deferred Profit Sharing Plan
contribution for each NEO, the Companys match for each NEO 1165(e) plan contributions,
business and entertainment expenses, car allowance, and other employee benefits which in
the aggregate do not exceed $10,000. Amounts represent the actual amounts paid by the
Company for each item of compensation. Under the provisions of the 1165(e) plan, the
Company contributes 50% of the first 6% of base compensation that a participant contributes
to the plan. The Companys contributions plus actual earnings thereon are 100% vested after
three years of credited service. In case of death or disability, a participant or his/her
beneficiary will be 100% vested regardless of the number of years of credited service. The
Companys contributions under the 1165(e) plan during fiscal 2007 222




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##### Table of Contents



totaled $565,000. The
Company contributed $4,000 with respect to each of the NEOs under the plan in fiscal 2007,
except for Mr. Ramirez who did not participate in the plan during the year. Under the
terms of the non-contributory deferred profit-sharing plan, the Company contributes each
fiscal year to the plan, out of its current or accumulated after-tax net profit, an amount
as determined by the Board of Directors. The Companys contribution for any fiscal year
may not exceed the maximum amount allowable as a deduction to the Company under the
provisions of Section 23(p)-2 of the Puerto Rico Income Tax Act of 1954, as amended from
time to time. All contributions by the Company are to be made in cash or in such property
as is acceptable to the trustees under the plan (Messrs. Stipes, Maldonado and Dominquez).
As of each anniversary of a participants employment with the Company, the Companys
contribution, and any previously unallocated forfeitures of Company contributions, are
allocated to the account of each participant in the same ratio that such participants
credited points for the calendar year bear to the total credited points of all such
participants for such year. The credited points for each participant are determined on the
basis of the schedule set forth below. The Company contributed an aggregate of $250,000 to
the profit-sharing plan in 2007. For Each Full andFractional$100 of TotalFor Each
    
    CompensationComplete
    
    Paid to theYears of
    
    Year of
    
    Participant in theService
    
    Service
    
    Calendar Year0-5
    
    
    2
    
    
    
    16 or more
    
    
    3
    
    
    
    1
 Allowance forProfit Sharing
    
    
    
    
    
    Business and
    
    Use ofPlan
    
    1165(e) Plan
    
    Entertainment
    
    CompanyName
    
    Year
    
    Contribution
    
    Contribution
    
    Expenses
    
    Car
    
    Other
    
    TotalCurrentFrank C. Stipes, Esq.
    
    
    2007
    
    
    $
    2,256
    
    
    $
    4,000
    
    
    $
    56,875
    
    
    $
    6,568
    
    
    $
    1,256
    
    
    $
    70,9552006
    
    
    
    2,271
    
    
    
    4,000
    
    
    
    52,500
    
    
    
    9,053
    
    
    
    1,917
    
    
    
    69,741Freddy Maldonado
    
    
    2007
    
    
    
    1,956
    
    
    
    4,000
    
    
    
    48,750
    
    
    
    12,780
    
    
    
    4,295
    
    
    
    71,7812006
    
    
    
    1,939
    
    
    
    4,000
    
    
    
    45,000
    
    
    
    14,910
    
    
    
    4,723
    
    
    
    70,572William Vidal, Esq.
    
    
    2007
    
    
    
    3,669
    
    
    
    4,000
    
    
    
    44,688
    
    
    
    6,213
    
    
    
    1,256
    
    
    
    59,8262006
    
    
    
    2,848
    
    
    
    4,000
    
    
    
    41,250
    
    
    
    7,633
    
    
    
    1,256
    
    
    
    56,987Rubén Aponte
    
    
    2007
    
    
    
    2,945
    
    
    
    4,000
    
    
    
    7,200
    
    
    
    5,064
    
    
    
    2,348
    
    
    
    21,5572006
    
    
    
    1,560
    
    
    
    4,000
    
    
    
    7,200
    
    
    
    3,444
    
    
    
    3,240
    
    
    
    19,444Norberto Rivera, CPA
    
    
    2007
    
    
    
    2,739
    
    
    
    4,000
    
    
    
    31,687
    
    
    
    9,651
    
    
    
    774
    
    
    
    48,8512006
    
    
    
    2,147
    
    
    
    4,000
    
    
    
    29,250
    
    
    
    
    
    
    
    979
    
    
    
    36,376FormerJosé Armando Ramírez (8)
    
    
    2007
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    5,661
    
    
    
    57,856
    (9)
    
    
    63,8112006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (6)
    
    Effective August 8, 2008, Mr. Freddy Maldonado assumed the position of Senior Executive
Vice President and Chief Financial Officer of the Company and relinquished the duties of
President and Chief Investment Officer of the Company. He held the positions of President
and Chief Investment Officer of the Company from July 2005 to August 2008.
On January 30, 2009, Mr. Maldonado advised the Company that he intends to resign to his positions
as a Director of the Company and Senior Executive Vice President and Chief Financial Officer for
both the Company and the Bank, upon filing of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007.(7)
    
    On June 29, 2007, the Board approved an increase in annual salary for Mr. Vidal from
$233,750 to $333,750, effective on June 11, 2007.(8)
    
    Mr. José Armando Ramírez served as Chief Financial Officer and Chief Operating Officer
of the Company from September 3, 2007 until his resignation on August 8, 2008.(9)
    
    Represents relocation expenses.  223




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##### Table of Contents



GRANTS OF PLAN-BASED AWARDS DURING 2007
 All Other
    
    All OtherEstimated Future Payouts Under Non-
    
    Estimated Future Payments Under-
    
    Stock Awards
    
    OptionName
    
    Grant Date
    
    Equity Incentive Plan Awards (1)
    
    Equity Incentive Plan Awards (1)
    
    (1):
    
    awards:Number of
    
    Exercise orNumber of
    
    Securities
    
    Base Price of
    
    Grant Date FairShares of
    
    Underlying
    
    Option
    
    Value ofThreshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Stock or
    
    Options ($)(2)
    
    Awards ($/Sh)
    
    Options awards($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    Units (#)
    
    (3)
    
    (3)
    
    ($) (3)CurrentFrank C. Stipes, Esq.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Freddy Maldonado
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William Vidal, Esq.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rubén Aponte
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norberto Rivera, CPA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FormerJosé Armando Ramírez
    
    
    9/3/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500
    (4)
    
    $
    150
    (5)
    
    $
    91,215
 
 (1)
    
    Not Applicable.(2)
    
    Stock options were granted pursuant to the Companys 1999 Qualified Option Plan, as defined
in the Compensation Discussion and Analysis above. Stock options were granted at an exercise
price of 100% or higher than the market value on the date of the grant. The options will vest
20% per year and will be 100% vested at the end of the five-year period, based on the NEOs
continued employment with the Company. The Company does not pay dividend equivalents on stock
options.(3)
    
    Adjusted to reflect a one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008.(4)
    
    Upon his resignation (effective August 8, 2008), all stock options granted to Mr. Ramírez
were forfeited.(5)
    
    Estimated on the grant date using the Black-Scholes option pricing model with the following
weighted average assumptions: (a) the dividend yield was 8.12%; (b) the expected life was
7 years; (c) the expected volatility was 44.27%; and (d) the risk-free interest rate was
4.36%. The weighted market price of the underlying common stock on the grant date was $117.00. NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED
AWARDS TABLE
   224




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
 Option Awards
    
    Stock Awards (1)Equity Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity Incentive
    
    Equity IncentivePlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    Plan Awards:Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    Market or PayoutSecurities
    
    securities
    
    
    
    
    
    
    
    
    
    Number of
    
    Market Value of
    
    Unearned
    
    Value ofNumber of Securities
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Shares or Units
    
    Shares or Units
    
    Shares, Units or
    
    Unearned Shares,Underlying
    
    Unexercised Options
    
    Unexercised
    
    Option
    
    Option
    
    of Stock That
    
    of Stock That
    
    Other Rights
    
    Units or OtherUnexercised options
    
    (#) Unexercisable
    
    Unearned
    
    Exercise Price
    
    Expiration
    
    Have Not
    
    Have Not
    
    That Have Not
    
    Rights That HaveName
    

(#) Exercisable (2) (3)
    
    (2) (3)
    
    Options ($)
    
    ($) (3)
    
    Date
    
    Vested (#)
    
    Vested ($)
    
    Vested (#)
    
    Not Vested ($)CurrentFrank C. Stipes,
Esq.
    
    
    88,486
    
    
    
    
    
    
    $
    
    
    
    $
    142.50
    
    
    
    1/28/2010
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Freddy Maldonado
    
    
    20,834
    
    
    
    
    
    
    
    
    
    
    
    142.50
    
    
    
    1/28/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William Vidal, Esq.
    
    
    240
    
    
    
    600
    
    
    
    
    
    
    
    535.50
    
    
    
    7/15/2015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rubén Aponte
    
    
    80
    
    
    
    200
    
    
    
    
    
    
    
    535.50
    
    
    
    10/28/2015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norberto Rivera, CPA
    
    
    160
    
    
    
    400
    
    
    
    
    
    
    
    535.50
    
    
    
    7/15/2015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FormerJosé Armando Ramírez
    
    
    
    
    
    
    4,500
    
    
    
    
    
    
    
    150.00
    
    
    
    9/3/2017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Not applicable.(2)
    
    Unvested stock options held by Messrs. Norberto Rivera and William Vidal, Esq. vest 20% on
each of the following anniversaries of the grant date: July 15, 2009 and July 15, 2010.
Unvested stock options held by Mr. Rubén Aponte vest 20% on each of the following
anniversaries of the grant date: October 28, 2009 and October 28, 2010. Stock options granted
to Mr. José Armando Ramírez, were forfeited on August 8, 2008 in connection with his
resignation.(3)
    
    Adjusted to reflect the (i) one-for-fifty reverse stock split approved on November 7, 2008
and effective on December 1, 2008; (ii) the three-for-two stock split and a 2% stock dividend
on the Companys common stock declared on December 6, 2004 and December 13, 2004,
respectively, distributed on January 10, 2005; (iii) the three-for-two stock split and a 2%
stock dividend declared on November 4, 2003 and November 11, 2003, respectively, distributed
on December 10, 2003; and (iv) the three-for-two stock split declared on June 17, 2002 and
distributed on July 10, 2002. 225




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##### Table of Contents



OPTIONS EXERCISED BY AND STOCK VESTED IN 2007
 Option Awards
    
    Stock Awards (1)Number of
    
    Value
    
    Number of Shares
    
    Value RealizedShares Acquired
    
    Realized on
    
    Acquired on
    
    VestingName
    
    on Exercise (#) (2)
    
    Exercise ($) (2) (3)
    
    Vesting (#)
    
    ($)CurrentFrank C. Stipes, Esq.
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Freddy Maldonado
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William Vidal, Esq.
    
    
    3,511
    
    
    
    534,093
    
    
    
    
    
    
    
    Rubén Aponte
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Norberto Rivera
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FormerJosé Armando Ramírez (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Not applicable.(2)
    
    Adjusted to reflect the (i) one-for-fifty reverse stock split approved on November 7, 2008
and effective on December 1, 2008; (ii) the three-for-two stock split and a 2% stock dividend
on the Companys common stock declared on December 6, 2004 and December 13, 2004,
respectively, distributed on January 10, 2005; (iii) the three-for-two stock split and a 2%
stock dividend declared on November 4, 2003 and November 11, 2003, respectively, distributed
on December 10, 2003; (iv) and the three-for-two stock split declared on June 17, 2002 and
distributed on July 10, 2002.(3)
    
    Value realized on exercise reflects the excess of the market price of the Companys common
stock at the time of exercise over the exercise price of the option.(4)
    
    Mr. José Armando Ramírez resigned from his positions as Chief Financial Officer and Chief
Operating Officer of the Company on August 8, 2008. Upon resignation, 4,500 stock options
granted to Mr. Ramírez were forfeited.  Number of securities to be
    
    
    
    
    
    Number of securities remaining available forissued upon exercise of
    
    Weighted-average exercise
    

    future issuance under equity compensationoutstanding options (1) (2)
    
    price of outstanding options (1)

    
    plans (excluding securities reflected in column (a)) (1)(a)
    
    (b)
    

    (c)124,630
    
    $
    166.17
    
    
    
    108,706
 
 (1)
    
    Adjusted to reflect a one-for-fifty reverse stock split declared on November 7, 2008
and effective on December 1, 2008; the three-for-two stock split and a 2% stock dividend on
the Companys common stock declared on December 6, 2004 and December 13, 2004,
respectively,
distributed on January 10, 2005; the three-for-two stock split and a 2% stock dividend
declared on November 4, 2003 and November 11, 2003, respectively, distributed on December 10,
2003; and the three-for-two stock split declared on June 17, 2002 and distributed on July 10,
2002.(2)
    
    Excludes 47,028 shares issued upon exercise of stock options through December 31, 2007. 226




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##### Table of Contents



Nonqualified Deferred Compensation
    Retirement Benefits Plans
 Qualified Deferred Profit-Sharing Plan
      For Each Full andFractional$100 of TotalFor Each
    
    CompensationComplete
    
    Paid to the ParticipantYears of Service
    
    Year of Service
    
    in the Calendar Year0-5
    
    
    2
    
    
    
    16 or more
    
    
    3
    
    
    
    1
 227




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##### Table of Contents



Qualified Defined Contribution Plan
  Potential Payments Upon Termination or Change in Control
  Change in Control Agreements
    (i)
    
    25% or more of ownership control, power to vote, or beneficial ownership of any class
of voting securities of the Company is acquired by any person, either directly or
indirectly or acting through one or more other persons;(ii)
    
    any person (other than any person named as a proxy in connection with any solicitation
on behalf of the Board) holds revocable or irrevocable proxies, as to election or removal
of three or more directors of the Company, for 25% or more of the total number of voting
shares of the Company;(iii)
    
    any person has received all applicable regulatory approvals to acquire control of the
Company;
 228




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##### Table of Contents



(iv)
    
    any person has commenced a cash tender or exchange offer, or entered into an agreement
or received an option, to acquire beneficial ownership of 25% or more of the total number
of voting shares of the Company, whether or not any requisite regulatory approval for such
acquisition has been received, provided that a change in control will not be deemed to have
occurred under this clause unless the Board has made a determination that such action
constitutes or will constitute a change in control; or(v)
    
    as a result of, or in connection with, any cash tender or exchange offer, merger, or
any other business combination, sale of assets or contested election, or any combination of
the foregoing transactions, (a) the persons who were Directors of the Company before such
transaction shall cease to constitute at least a majority of the Board or its successor or
(b) the persons who were stockholders of the Company immediately before such transaction do
not own more than 50% of the outstanding voting stock of the Company or its successor
immediately after such transaction.
 Estimated Payments
   Change in ControlName
    
    PaymentCurrentFrank C. Stipes, Esq.
    
    $
    Freddy Maldonado
    
    
    975,000William Vidal, Esq.
    
    
    1,500,000Rubén Aponte
    
    
    1,000,000Norberto Rivera, CPA
    
    
    FormerJosé Armando Ramírez
    
    
    1,500,000
 Separation Agreement with Mr. Ramirez
   Compensation Committee Interlocks and Insider Participation
  229




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##### Table of Contents



STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
  Amount and Nature of
    
    Percent ofName of Beneficial Owner
    
    Beneficial Ownership(1) (2)
    
    Class (13)Fredeswinda G. Frontera
Honorary Directress
    
    
    301,801
    
    
    
    9.15
    %Illeana García Ramírez de Arellano
Honorary Directress
    
    
    285,784
    
    
    
    8.67
    %Cornelius Tamboer
Director
    
    
    157,870
    (3)
    
    
    4.79
    %Frank C. Stipes, Esq.
Chairman of the Board, Chief Executive Officer and President
    
    
    294,469
    (4)
    
    
    8.93
    %Freddy Maldonado
Director and Chief Financial Officer
    
    
    93,031
    (5)
    
    
    2.82
    %Héctor L. Del Río
Director
    
    
    22,071
    (6)
    
    
    *Juan C. Frontera
Director and Secretary of the Board of Directors
    
    
    31,693
    
    
    
    *Pedro Domínguez 
Director and First Vice President  Southern Region of
Westernbank Puerto Rico
    
    
    26,066
    (7)
    
    
    *César A. Ruiz
Director (resigned effective December 31, 2008)
    
    
    2,506
    
    
    
    *Enrique González
Director
    
    
    421
    
    
    
    *Jose Armando
Ramirez
Former Chief Financial Officer
    
    
    
    
    
    
    Lidio Soriano
Senior Financial Officer
    
    
    1,045
    
    
    
    *FMR LLC
    
    
    208,050
    (8)
    
    
    6.31
    %Thomas W. Smith
    
    
    200,435
    (9)
    
    
    6.08
    %Scott Vassalluzzo
    
    
    178,020
    (9)
    
    
    5.40
    %William Vidal, Esq. 
First Vice President for Commercial Credit, Chief Lending
Officer
 Northeastern Region of Westernbank Puerto Rico
    
    
    3,880
    (10)
    
    
    *Rubén Aponte
Senior Vice President
    
    
    90
    (11)
    
    
    *Norberto Rivera, CPA
Chief Accounting Officer and Vice PresidentCorporate Comptroller
    
    
    680
    (12)
    
    
    *All Directors and Executive Officers as a Group (20 persons)
    
    
    1,233,218
    
    
    
    37.36
    %
 230




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##### Table of Contents



*
    
    Represents less than 1% of the outstanding common stock.(1)
    
    Based upon information provided by the respective beneficial owners and filings with the
Securities and Exchange Commission made pursuant to the Securities Exchange Act of 1934, as
amended. Beneficial ownership is direct except as otherwise indicated by footnote. In
accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be the beneficial owner
of a security if he or she has or shares voting power or investment power with respect to such
security or has the right to acquire such ownership within 60 days. The address of each
director and executive officer of the Company is c/o W Holding Company, Inc., 19 West McKinley
Street, Mayaguez, Puerto Rico 00681.(2)
    
    Adjusted to reflect a one-for-fifty reverse stock split approved on November 7, 2008 and
effective on December 1, 2008.(3)
    
    Includes 49,684 shares of common stock owned by Prota Construction, S.E. of which Mr. Tamboer
is the holder of 100% interest and has full voting power, and 1,874 shares of common stock
owned by Tamrio, Inc., of which Mr. Tamboer is the holder of 50% interest and has shared
voting power. Also includes 19,900 shares of Common Stock issuable upon the conversion of
20,000 shares of the Companys Series A Preferred Stock owned by Mr. Tamboer. Additionally,
includes 19,900 shares of Common Stock issuable upon the conversion of 20,000 shares of the
Companys Series A Preferred Stock owned by Tamrio, Inc.(4)
    
    Includes 825 shares of common stock owned by Mr. Stipes daughter and 88,486 vested stock
options. Also includes 59,700 shares of Common Stock issuable upon the conversion of 60,000
shares of the Companys Series A Preferred Stock owned by Mr. Stipes.(5)
    
    Includes 2,009 shares of common stock owned by Mr. Maldonados daughters and 20,834 vested
stock options. Also includes 34,825 and 3,930 shares of the Companys Common Stock issuable
upon conversion of 35,000 and 3,950 shares of the Companys Series A Preferred Stock owned by
Mr. Maldonado and his daughters, respectively.
On January 30, 2009, Mr. Maldonado advised the Company that he intends to resign to his positions
as a Director of the Company and Senior Executive Vice President and Chief Financial Officer for
both the Company and the Bank, upon filing of the Companys Annual Report on Form 10-K for the year
ended December 31, 2007.(6)
    
    Includes 1,874 shares of common stock owned by Tamrio, Inc., of which Mr. Del Rio is the
holder of 50% interest and has shared voting power. Also includes 19,900 shares of the
Companys Common Stock issuable upon conversion of 20,000 shares of the Companys Series A
Preferred Stock owned by Tamrio, Inc.(7)
    
    Includes 7,168 vested stock options.(8)
    
    The Company is relying on the Schedule 13G, filed on
February 17, 2009, by FMR LLC. FMR LLCs
address is 82 Devonshire Street, Boston, Massachusetts 02109. The reporting person represents
that it has sole dispositive power with respect to all 208,050 shares.(9)
    
    The Company is relying on the Schedule 13G, filed on
February 17, 2009, by Messrs. Smith and
Vassalluzzo and Steven Fischer, whose address is 323 Railroad Avenue Greenwich, Connecticut
06830. The reporting persons represent that (i) Mr. Smith
has the sole power to vote  or to
direct the vote of 50,800 shares of common stock and the sole power to dispose or to direct the
disposition of 52,872 shares of common stock,
(ii) Mr. Vassalluzzo has the sole power to vote or
to direct the vote of 11,700 shares of common stock and the sole power to dispose or to direct
the disposition of 30,457 shares of common stock. Each of Messrs. Smith and Vassalluzzo has
the shared power to vote or dispose or to direct the disposition of
147,563 shares. Voting and
investment authority over investment accounts established for the benefit of certain family
members and friends of Messrs. Smith and Vassalluzzo is subject to each beneficiarys right to
terminate or otherwise direct the disposition of the investment account.(10)
    
    Includes 360 vested stock options.(11)
    
    Includes 80 vested stock options.(12)
    
    Includes 240 vested stock options.(13)
    
    Shares of common stock subject to options and convertible preferred stock currently
exercisable or convertible, or exercisable or convertible within
60 days of February 28, 2009,
are deemed outstanding for purposes of computing the percentage beneficially owned by the
person holding such securities but are not deemed outstanding for purposes of computing the
percentage beneficially owned by any other person or entity. Percentage ownership based on
3,297,815 shares of the Companys Common Stock issued and outstanding. 231




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##### Table of Contents



Equity Compensation Plans Approved by Shareholders:
 Number of securities remaining availablefor future issuance under equityNumber of securities to be issued upon
    
    Weighted-average exercise
    
    
    compensation plans (excluding securitiesexercise of outstanding options (1) (2)
    
    price of outstanding options (1)
    
    
    reflected in column (a)) (1)(a)
    
    (b)
    
    
    (c)124,630
    
    $
    166.17
    
    
    
    108,706
 
 (1)
    
    Adjusted to reflect the one-for-fifty reverse stock split approved on November 7, 2008
and effective on December 1, 2008, a three-for-two stock split and a 2% stock dividend on
the Companys common stock declared on December 6, 2004 and December 13, 2004,
respectively, distributed on January 10, 2005, the three-for-two stock split and a 2%
stock dividend declared on November 4, 2003 and November 11, 2003, respectively,
distributed on December 10, 2003; and the three-for-two stock split declared on June 17,
2002 and distributed on July 10, 2002.(2)
    
    Excludes 47,028 shares (as adjusted for the one-for-fifty reverse stock split approved
on November 7, 2008 and effective on December 1, 2008) issued upon exercise of stock
options through December 31, 2007.  
  Certain Relationships and Related Transactions
   Loan Policy
  232




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##### Table of Contents



Directors Independence
   
   Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
   Pre-Approval Policy
   233




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##### Table of Contents



1.
    
    The service is not an audit, review or other attest service;2.
    
    The aggregate amount of all such services provided under this provision does not exceed
the amount of $20,000 in a given fiscal year;3.
    
    Such services were not recognized at the time of the engagement to be non-audit
services;4.
    
    Such services are promptly brought to the attention of the Audit Committee and approved
prior to the completion of the audit by the Audit Committee or its designee; and5.
    
    The service and fee are specifically disclosed in the Proxy Statement as meeting the de
minimis requirements.
 REPORT OF THE AUDIT COMMITTEE
   he Auditors Communication with Those Charged with Governance . Communication with
Audit Committees Concerning Independence
  
 234




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##### Table of Contents



(1)
    
    Index to financial statements.
  
    
    Report of Independent Registered Public
Accounting Firm
    
    Consolidated Statements of Financial
Condition as of December 31, 2007 and 2006 (Restated)
    
    Consolidated Statements of Operations for
each of the three years in the period ended December 31, 2007
    
    Consolidated Statements of Changes in
Stockholders Equity and Consolidated Statements of Comprehensive
Income (Losses) for each of the three years in the period ended
December 31, 2007
    
    Consolidated Statements of Cash Flows for
each of the three years in the period ended December 31, 2007
    
    Notes to Consolidated Financial Statements
 (2)
    
    Financial Statement Schedules.The schedules for the Company and its subsidiaries are omitted because of the
absence of conditions under which they are required, or because the
information is set forth in the consolidated financial statements or the notes
thereto.
 235




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##### Table of Contents



(3)
    
    The following exhibits are filed as part of this Form 10-K, and this list includes the
Exhibit Index.
 NO.
    
    EXHIBIT3.1
    
    Certificate of Incorporation (incorporated by reference herein to
Exhibit 3.1 to the Companys Form 10-K for the year ended December 31, 2005,
filed on April 24, 2006).3.2
    
    Amended and Restated Certificate of Incorporation of W
Holding Company, Inc.3.3
    
    Bylaws, as amended (incorporated by reference herein to Exhibit 3.1
to the Companys Current Report on Form 8-K, filed on October 3, 2007).4.1
    
    Certificate of Resolution establishing the rights of the Series B
Preferred Stock (incorporated by reference to Exhibit 3.1.1 to Amendment No. 3 to
the Companys Registration Statement on Form S-4, Reg. No. 333-76975, filed on
June 30, 1999).4.2
    
    Certificate of Resolution establishing the rights of the Series C
Preferred Stock (incorporated by reference to Exhibit 4.2 to the Companys
Current Report on Form 8-K as filed on March 30, 2001).4.3
    
    Certificate of Resolution establishing the rights of the Series D
Preferred Stock (incorporated by reference to Exhibit 4.2 to the Companys
Current Report on Form 8-K as filed on August 1, 2001).4.4
    
    Certificate of Resolution establishing the rights of the Series E
Preferred Stock (incorporated herein by reference as Exhibit 4.2 to the Companys
Current Report on Form 8-K, as filed on October 31, 2002).4.5
    
    Certificate of Corporate Resolution establishing the rights of the
Series F Preferred Stock (incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, as filed on May 29, 2003).4.6
    
    Certificate of Corporate Resolution establishing the rights of the
Series G Preferred Stock (incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, as filed on August 28, 2003).4.7
    
    Certificate of Corporate Resolution designating the terms of W
Holdings Series H Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K, as filed on December 17, 2004).10.1
    
    Form of 1999 Qualified Stock Option Plan (incorporated by reference
herein to Exhibit 10.1 to the Companys Registration Statement on Form S-4, File
No. 333-76975, filed on April 23, 1999).10.2
    
    Form of 1999 Nonqualified Stock Option Plan (incorporated by
reference herein to Exhibit 10.2 to the Companys Registration Statement on Form
S-4, File No. 333-76975, filed on April 23, 1999).10.3*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Alfredo Archilla (incorporated by reference
herein to Exhibit 10.4 to the Companys Form 10-K for the year ended December 31,
2001, filed on March 29, 2002).10.4*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Mike Vázquez (incorporated by reference herein to
Exhibit 10.3 to the Companys Form 10-K for the year ended December 31, 2001,
filed on March 29, 2002).10.5*
    
    Employment Agreement between Westernbank Puerto Rico and
Mrs. Migdalia Rivera (incorporated by reference herein to Exhibit 10.3 to the
Companys Form 10-K for the year ended December 31, 2002, filed on March 31,
2003).10.6*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Andrés Morgado (incorporated by reference herein
to Exhibit 10.6 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).
 236




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##### Table of Contents



NO.
    
    EXHIBIT10.7*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. William Vidal (incorporated by reference herein
to Exhibit 10.7 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).10.8*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Pedro Domínguez (incorporated by reference herein
to Exhibit 10.9 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).10.9*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Freddy Maldonado (incorporated by reference
herein to Exhibit 10.10 to the Companys Form 10-K for the year ended
December 31, 2002, filed on March 31, 2003).10.10*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. José M. Biaggi (incorporated by reference herein to Exhibit
10.11 to the Companys Current Report on Form 8-K, as filed on July 15, 2005).10.11*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Ricardo Cortina (incorporated by reference herein to Exhibit
10.12 to the Companys Form 10-K for the year ended December 31, 2005, filed on
April 24, 2006).10.12*
    
    Description of Arrangement for Director Fees10.13*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Rubén Aponte (incorporated by reference herein to Exhibit
10.15 to the Companys Form 10-Q for the quarter ended September 30, 2006, filed
on November 9, 2006).10.14*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mrs. Yolanda S. Vicens Martínez (incorporated by reference herein
to Exhibit 10.16 to the Companys Form 10-Q for the quarter ended September 30,
2006, filed on November 9, 2006).10.15*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mrs. Rosemarie Santiago Salcedo (incorporated by reference herein
to Exhibit 10.17 to the Companys Form 10-Q for the quarter ended September 30,
2006, filed on November 9, 2006).10.16*
    
    Payment Agreement in the Event of a Change in Control between W Holding
Company, Inc. and Westernbank Puerto Rico, with Mr. Aurelio Emanuelli
(incorporated by reference herein to Exhibit 10.19 to the Companys Form 10-Q for
the quarter ended September 30, 2006, filed on November 9, 2006).10.17*
    
    Payment Agreement in the Event of a Change in Control between W Holding
Company, Inc. and Westernbank Puerto Rico, with Mr. Peter Lectora Soto
(incorporated by reference herein to Exhibit 10.20 to the Companys Form 10-K for
the year ended December 31, 2006, filed on February 27, 2007).10.18*
    
    Release Agreement between Westernbank Puerto Rico and Mr. José M. Biaggi
Landrón (incorporated by reference herein to Exhibit 10.1 to the Companys
Current Report on Form 8-K, as filed on April 11, 2007).10.19*
    
    Employment Agreement between Westernbank Puerto Rico, W Holding Company, Inc.
and Mr. José Armando Ramírez (incorporated by reference herein to Exhibit 10.1 to
the Companys Current Report on Form 8-K, as filed on September 4, 2007).10.20*
    
    Employment Agreement between Westernbank Puerto Rico, W Holding Company, Inc.
and Mr. Carlos Dávila (incorporated by reference herein to Exhibit 99.1 to the
Companys Current Report on Form 8-K, as filed on October 3, 2007).10.21*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Carlos Dávila (incorporated by reference herein to Exhibit
99.2 to the Companys Current Report on Form 8-K, as filed on October 3, 2007).
 237




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##### Table of Contents



NO.
    
    EXHIBIT10.22*
    
    Separation Agreement and General Release between W Holding Company, Inc. and
Mr. José Armando Ramírez (incorporated by reference herein to Exhibit 10.1 to the
Companys Current Report on Form 8-K, as filed on December 2, 2008).10.23*
    
    Employment Agreement between
Westernbank Puerto Rico and Mr. Lidio Soriano.10.24*
    
    Payment Agreement in the Event of a
Change in Control between Westernbank Puerto Rico and Mr. Lidio
Soriano.21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to the Sarbanes-Oxley Act of 2002.32.2
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates a management contract or any compensatory plan, contract or arrangement.(b)
    
    See (a) (3) above for all exhibits filed herewith and the Exhibit Index.(c)
    
    Not applicable. 238




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##### Table of Contents



By:
    
    /s/ FRANK C. STIPES
    
    Date: March 16, 2009Frank C. Stipes, Chairman of the
Board, Chief Executive Officer and President
  /s/ FRANK C. STIPESFrank C. Stipes,
Chairman of the Board,
Chief Executive Officer and President
    
    Date: March 16, 2009/s/ PEDRO R. DOMINGUEZPedro R. Domínguez,
Director
    
    Date: March 16, 2009/s/ CORNELIUS TAMBOERCornelius Tamboer,
Director
    
    Date: March 16, 2009/s/ HECTOR L. DEL RIOHéctor L. del Río,
Director
    
    Date: March 16, 2009/s/ JUAN C. FRONTERAJuan C. Frontera,
Director
    
    Date: March 16, 2009/s/ ENRIQUE GONZALEZ, CPAEnrique Gonzalez,
Director
    
    Date: March 16, 2009/s/ FREDDY MALDONADOFreddy Maldonado
Director and Chief Financial Officer
    
    Date: March 16, 2009
 239




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##### Table of Contents



3.1
    
    Certificate of Incorporation (incorporated by reference herein to
Exhibit 3.1 to the Companys Form 10-K for the year ended December 31, 2005,
filed on April 24, 2006).3.2
    
    Amended and Restated Certificate of Incorporation of W
Holding Company, Inc.3.3
    
    Bylaws, as amended (incorporated by reference herein to Exhibit 3.1
to the Companys Current Report on Form 8-K, filed on October 3, 2007).4.1
    
    Certificate of Resolution establishing the rights of the Series B
Preferred Stock (incorporated by reference to Exhibit 3.1.1 to Amendment No. 3 to
the Companys Registration Statement on Form S-4, Reg. No. 333-76975, filed on
June 30, 1999).4.2
    
    Certificate of Resolution establishing the rights of the Series C
Preferred Stock (incorporated by reference to Exhibit 4.2 to the Companys
Current Report on Form 8-K as filed on March 30, 2001).4.3
    
    Certificate of Resolution establishing the rights of the Series D
Preferred Stock (incorporated by reference to Exhibit 4.2 to the Companys
Current Report on Form 8-K as filed on August 1, 2001).4.4
    
    Certificate of Resolution establishing the rights of the Series E
Preferred Stock (incorporated herein by reference as Exhibit 4.2 to the Companys
Current Report on Form 8-K, as filed on October 31, 2002).4.5
    
    Certificate of Corporate Resolution establishing the rights of the
Series F Preferred Stock (incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, as filed on May 29, 2003).4.6
    
    Certificate of Corporate Resolution establishing the rights of the
Series G Preferred Stock (incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, as filed on August 28, 2003).4.7
    
    Certificate of Corporate Resolution designating the terms of W
Holdings Series H Preferred Stock (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K, as filed on December 17, 2004).10.1
    
    Form of 1999 Qualified Stock Option Plan (incorporated by reference
herein to Exhibit 10.1 to the Companys Registration Statement on Form S-4, File
No. 333-76975, filed on April 23, 1999).10.2
    
    Form of 1999 Nonqualified Stock Option Plan (incorporated by
reference herein to Exhibit 10.2 to the Companys Registration Statement on Form
S-4, File No. 333-76975, filed on April 23, 1999).10.3*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Alfredo Archilla (incorporated by reference
herein to Exhibit 10.4 to the Companys Form 10-K for the year ended December 31,
2001, filed on March 29, 2002).10.4*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Mike Vázquez (incorporated by reference herein to
Exhibit 10.3 to the Companys Form 10-K for the year ended December 31, 2001,
filed on March 29, 2002).10.5*
    
    Employment  Agreement between Westernbank Puerto Rico and Mrs.
Migdalia Rivera (incorporated by reference herein to Exhibit 10.3 to the
Companys Form 10-K for the year ended December 31, 2002, filed on March 31,
2003).10.6*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Andrés Morgado (incorporated by reference herein
to Exhibit 10.6 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).
 240




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##### Table of Contents



10.7*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. William Vidal (incorporated by reference herein
to Exhibit 10.7 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).10.8*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Pedro Domínguez (incorporated by reference herein
to Exhibit 10.9 to the Companys Form 10-K for the year ended December 31, 2002,
filed on March 31, 2003).10.9*
    
    Payment Agreement in the Event of a Change in Control between
Westernbank Puerto Rico and Mr. Freddy Maldonado (incorporated by reference
herein to Exhibit 10.10 to the Companys Form 10-K for the year ended December
31, 2002, filed on March 31, 2003).10.10*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. José M. Biaggi (incorporated by reference herein to Exhibit
10.11 to the Companys Current Report on Form 8-K, as filed on July 15, 2005).10.11*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Ricardo Cortina (incorporated by reference herein to Exhibit
10.12 to the Companys Form 10-K for the year ended December 31, 2005, filed on
April 24, 2006).10.12*
    
    Description of Arrangement for Director Fees10.13*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Rubén Aponte (incorporated by reference herein to Exhibit
10.15 to the Companys Form 10-Q for the quarter ended September 30, 2006, filed
on November 9, 2006).10.14*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mrs. Yolanda S. Vicens Martínez (incorporated by reference herein
to Exhibit 10.16 to the Companys Form 10-Q for the quarter ended September 30,
2006, filed on November 9, 2006).10.15*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mrs. Rosemarie Santiago Salcedo (incorporated by reference herein
to Exhibit 10.17 to the Companys Form 10-Q for the quarter ended September 30,
2006, filed on November 9, 2006).10.16*
    
    Payment Agreement in the Event of a Change in Control between W Holding
Company, Inc. and Westernbank Puerto Rico, with Mr. Aurelio Emanuelli
(incorporated by reference herein to Exhibit 10.19 to the Companys Form 10-Q for
the quarter ended September 30, 2006, filed on November 9, 2006).10.17*
    
    Payment Agreement in the Event of a Change in Control between W Holding
Company, Inc. and Westernbank Puerto Rico, with Mr. Peter Lectora Soto
(incorporated by reference herein to Exhibit 10.20 to the Companys Form 10-K for
the year ended December 31, 2006, filed on February 27, 2007).10.18*
    
    Release Agreement between Westernbank Puerto Rico and Mr. José M. Biaggi
Landrón (incorporated by reference herein to Exhibit 10.1 to the Companys
Current Report on Form 8-K, as filed on April 11, 2007).10.19*
    
    Employment Agreement between Westernbank Puerto Rico, W Holding Company, Inc.
and Mr. José Armando Ramírez (incorporated by reference herein to Exhibit 10.1 to
the Companys Current Report on Form 8-K, as filed on September 4, 2007).10.20*
    
    Employment Agreement between Westernbank Puerto Rico, W Holding Company, Inc.
and Mr. Carlos Dávila (incorporated by reference herein to Exhibit 99.1 to the
Companys Current Report on Form 8-K, as filed on October 3, 2007).10.21*
    
    Payment Agreement in the Event of a Change in Control between Westernbank
Puerto Rico and Mr. Carlos Dávila (incorporated by reference herein to Exhibit
99.2 to the Companys Current Report on Form 8-K, as filed on October 3, 2007).10.22*
    
    Separation Agreement and General Release between W Holding Company, Inc. and
Mr. José Armando Ramírez (incorporated by reference herein to Exhibit 10.1 to the
Companys Current Report on Form 8-K, as filed on December 2, 2008).
 241




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##### Table of Contents



10.23*
    
    Employment Agreement between
Westernbank Puerto Rico and Mr. Lidio Soriano.10.24*
    
    Payment Agreement in the Event of a
Change in Control between Westernbank Puerto Rico and Mr. Lidio
Soriano.21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to the Sarbanes-Oxley Act of 2002.32.2
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates a management contract or any compensatory plan, contract
or arrangement. 242