Doral Financial Corporation Reports Financial Results for the Second
Quarter and Six Months Ended June 30, 2010
9:46a ET July 30, 2010 (Market Wire)
Doral Financial Corporation (NYSE: DRL) ("Doral" or the "Company"),
the holding company of Doral Bank, a leading community bank based in
Puerto Rico, and Doral Bank FSB in New York City, reported a net loss
of $233.3 million for the quarter ended June 30, 2010, compared with
a net loss of $3.5 million for the quarter ended March 31, 2010 and
net income of $8.2 million for the quarter ended June 30, 2009. For
the six months ended June 30, 2010, the Company reported a net loss
of $236.8 million compared to a net loss of $38.1 million for the
same period in 2009.
In April 2010, Doral raised $171.0 million of new capital. The
capital raise enhanced Doral's capital ratios, which had, previous to
the raise, already exceeded the regulatory well capitalized
benchmarks.
With the new capital, Doral undertook actions aimed to improve the
asset quality of the Company. These actions significantly affected the
quarter
results:
 |
-- In April 2010, Doral sold $378 million of non-agency collateralized
mortgage obligations ("CMO") at a loss of $137 million. $130 million of
the loss had previously been reflected as a reduction of common equity
in other comprehensive income (loss), resulting in an incremental
charge to common equity from the CMO sale of $7 million.
-- In June 2010, Doral reclassified construction loans with unpaid
principal balances of $133 million from loans held for investment to
loans held for sale, resulting in a charge to income of $13 million.
Doral entered into an agreement to sell the construction loans and
similar real estate owned property to a third party on July 29, 2010 in
exchange for cash and a loan receivable from the purchaser. There was
no gain or loss incurred as a result of the July 2010 sale agreement as
the loans were marked to lower of cost or market when transferred to
held for sale in June 2010.
-- The Company reduced its estimate of proceeds to be received from the
real estate acquired through foreclosure by $17 million to facilitate
future sales of other real estate owned ("OREO"). This change in OREO
estimated proceeds caused an $8 million increase in the residential
mortgage provision for loan and lease losses.
-- Doral decreased the recorded amounts of its claim for losses against
Lehman Brothers, Inc. by $10.8 million to 25% of the total claim.
| |
The cumulative effect of the actions taken was to dispose of certain
assets, or position certain assets for future disposition, at a
cumulative charge to income of $186 million.
"Doral has taken prudent actions that allocate capital in a manner
that improves our asset quality to build a stronger company. We
experienced significant growth in our core business, as evidenced by a
$300.9 million, or 16%, increase in retail deposits this quarter,"
said Glen Wakeman, CEO and President of Doral Financial Corporation.
Doral will be hosting an earnings call for interested parties at
10:00 a.m. Monday, August 2, 2010.
Call-in information is:
U.S. Participant Dial-In Number: (800) 230-1092
International
Participant Dial-In Number: (612) 288-0329
FINANCIAL HIGHLIGHTS
|
-- Net loss for the quarter ended June 30, 2010 totaled $233.3 million,
compared to net loss of $3.5 million for the first quarter of 2010 and
net income of $8.2 million for the comparable 2009 period.
-- The Company reported net loss attributable to common shareholders and
basic loss per share of $235.7 million and $3.50, respectively, for the
second quarter of 2010 compared to net income attributable to common
shareholders and basic income per share of $21.2 million and $0.34,
respectively, for the first quarter of 2010, and net income
attributable to common shareholders and basic income per share of $14.5
million and $0.27, respectively for the second quarter of 2009. The
Company reported net loss attributable to common shareholders and basic
loss per share of $214.5 million and $3.30, respectively for the six
months ended June 30, 2010 compared to losses of $40.1 million and
$0.74, respectively for the six months ended June 30, 2009.
-- Net interest income for the second quarter of 2010 was $40.1 million, a
decrease of $3.7 million compared to the first quarter of 2010, and a
decrease of $2.0 million compared to the second quarter of 2009. Net
interest margin was 1.84% for the quarter ended June 30, 2010, down 3
basis points when compared to the first quarter of 2010 and an increase
of 6 basis points compared to the second quarter of 2009. Asset yields
are being adversely affected by the higher level of non-performing
loans and yield concessions on loan restructurings.
-- Provision for loan and lease losses for the second quarter of 2010 was
$44.6 million, an increase of $30.7 million over the first quarter 2010
provision, and an increase of $34.5 million over the provision recorded
for the second quarter of 2009. As previously noted, the provision
included a charge of $12.6 million to reduce certain construction loans
to lower of cost or market when transferred to loans held for sale and
an $8.0 million charge to the provision due to increased severities on
OREO resulting from management's strategic decision to accelerate OREO
dispositions.
-- Non-interest loss of $120.2 million for the second quarter of 2010
increased $156.8 million and $139.3 million compared to non-interest
income for the first quarter of 2010 and the second quarter of 2009,
respectively. Non-interest loss for the second quarter of 2010 was
driven by a loss on sale of securities of $137.2 million as the Company
sold $378.0 million of non-agency CMOs.
-- Non-interest expense of $104.1 million for the second quarter of 2010,
increased $36.7 million and $48.6 million from expenses for the
quarters ended March 31, 2010 and June 30, 2009, respectively. Higher
expenses in the second quarter of 2010 were due to recognition of an
additional reserve on the Lehman Brothers, Inc. ("LBI") claim
receivable of $10.8 million, payment of $3.3 million pursuant to the
Company's Retention Program, higher advertising expenses as a result
of campaigns to increase the Company's deposit and mortgage loan market
share after the bank consolidations on the Island, higher professional
services expenses incurred in the Company's capital raise, preferred
stock exchange, participation in bids for FDIC assisted transactions,
sale of non-performing assets and the defense of the Company's former
officers. In addition, there were increases in provisions and other
expenses for other real estate owned properties primarily related to
adjustments to market value in line with current economic trends and
management's strategic decision to accelerate OREO dispositions.
-- Second quarter 2010 reflected an income tax expense of $4.5 million
compared with a $2.5 million income tax expense in the first quarter of
2010 and an income tax benefit of $12.7 million for the second quarter
of 2009. Tax expense for the quarter is related to taxes on U.S. source
income. The second quarter of 2009 tax benefits was related to a
release of unrecognized tax benefits due to the expiration of the
statute of limitations net of the recognition of an accrual for
unrecognized tax benefits.
-- Doral Financial's loan production for the second quarter of 2010 was
$380.2 million, up from $289.1 million for the first quarter of 2010,
and $291.9 million for the second quarter of 2009. The increase in
loan production during the second quarter of 2010 was due to
approximately $139.2 million of loan production from the Company's
U.S. based middle market syndicated lending unit which is engaged in
purchasing senior credit facilities in the syndicated loan market.
-- Total assets as of June 30, 2010 amounted to $9.4 billion compared to
$9.7 billion as of March 31, 2010 and $10.2 billion as of December 31,
2009.
-- Total deposits of $4.9 billion increased $297.5 million, or 6.4%, over
deposits of $4.6 billion as of December 31, 2009. The year-to-date
deposit increase resulted from a $199.3 million, or 10.0%, increase in
retail deposits and a $98.2 million or 3.7% increase in brokered
deposits. For the quarter, retail deposits increased $300.9 million,
or 16%, and brokered deposits increased $53.5 million, or 2%.
-- Non-performing loans as of June 30, 2010 were $944.2 million, an
increase of $40.4 million from March 31, 2010 and an increase of $96.0
million from December 31, 2009. During the quarter, Doral repurchased
$60 million of non-performing loans guaranteed by the Federal Housing
Administration ("FHA"). These loans, while non-performing, retain their
FHA insurance and present little credit loss potential to Doral. The
ratio of the allowance for loan and lease losses to total loans
receivable as of June 30, 2010 was 2.44%, down 24 basis points from
2.68% as of March 31, 2010 and down 33 basis points from 2.77% as of
June 30, 2009. Doral reported net charge-offs of $57.2 million in the
quarter, and net charge-offs of $64.4 million since December 2009, or
104 basis points and 117 basis points of June 30, 2010 loans
receivable, respectively.
-- The Company's capital ratios continue to exceed the published
well-capitalized standards established by the federal banking agencies
with an estimated Tier 1 Leverage Ratio of 8.52%, estimated Tier 1
Risk-based Capital Ratio of 13.99% and estimated Total Risk-based
Capital Ratio of 15.26%. The estimated Leverage, Tier 1 and Total
Risk-based Capital Ratios exceeded the well-capitalized standards
by $328.9 million, $454.5 million and $299.0 million, respectively.
| |
|
Doral Financial and Subsidiaries
Selected Financial Data
Quarters ended Six months ended
---------------------------------- ----------------------
(Dollars in
thousands,
except share
and per share
data) June 2010 March 2010 June 2009 June 2010 June 2009
---------- ---------- ---------- ---------- ----------
Selected Income
Statement data:
Interest
income $ 101,077 $ 109,228 $ 114,578 $ 210,305 $ 231,072
Interest
expense 61,012 65,467 72,488 126,479 152,912
---------- ---------- ---------- ---------- ----------
Net interest
income 40,065 43,761 42,090 83,826 78,160
Provision for
loan and
lease losses 44,617 13,921 10,133 58,538 33,758
---------- ---------- ---------- ---------- ----------
Net interest
(loss) income
after provision
for loan and
lease losses (4,552) 29,840 31,957 25,288 44,402
Non-interest
(loss) income (120,190) 36,584 19,131 (83,606) 20,714
Non-interest
expense 104,082 67,398 55,526 171,480 115,952
---------- ---------- ---------- ---------- ----------
(Loss) income
before taxes (228,824) (974) (4,438) (229,798) (50,836)
Income tax
expense
(benefit) 4,487 2,529 (12,654) 7,016 (12,762)
---------- ---------- ---------- ---------- ----------
Net (loss)
income $ (233,311) $ (3,503) $ 8,216 $ (236,814) $ (38,074)
========== ========== ========== ========== ==========
Net (loss)
income
attributable
to common
shareholders $ (235,726) $ 21,218 $ 14,524 $ (214,508) $ (40,091)
========== ========== ========== ========== ==========
Net (loss)
income per
share $ (3.50) $ 0.34 $ 0.27 $ (3.30) $ (0.74)
========== ========== ========== ========== ==========
Dividends
accrued on
preferred
stock $ 2,415 $ 1,864 $ 3,061 $ 4,279 $ 11,386
Preferred stock
exchange
inducement $ - $ (26,585) $ (9,369) $ (26,585) $ (9,369)
Preferred
shares
outstanding at
end of period 6,096,393 5,811,391 7,709,704 6,096,393 7,709,704
Book value per
common share 6.27 7.58 6.34 6.27 6.34
Weighted
average common
shares
outstanding 67,285,568 62,528,221 54,679,097 64,920,036 54,247,004
Common share
outstanding at
end of period 67,293,370 67,283,370 57,764,002 67,293,370 57,764,002
Selected
Balance Sheet
Data:
Total loans,
net $5,768,728 $5,693,774 $5,548,370 $5,768,728 $5,548,370
Allowance for
loan and
lease losses 134,913 147,481 146,769 134,913 146,769
Total
investment
securities 2,527,802 2,254,290 3,229,443 2,527,802 3,229,443
Servicing
assets, net 113,005 118,236 112,869 113,005 112,869
Total assets 9,396,892 9,712,888 9,754,438 9,396,892 9,754,438
Deposits 4,940,569 4,586,209 4,064,257 4,940,569 4,064,257
Borrowings 3,265,020 3,981,122 4,540,328 3,265,020 4,540,328
Total
liabilities 8,451,920 8,850,537 8,920,535 8,451,920 8,920,535
Preferred
equity 523,082 352,082 467,641 523,082 467,641
Common equity 421,890 510,269 366,262 421,890 366,262
Total
stockholders'
equity 944,972 862,351 833,903 944,972 833,903
Selected
Average
Balance Sheet
Data:
Total loans,
net 5,876,723 5,839,194 5,667,466 5,858,009 5,631,025
Total
investment
securities 2,284,672 2,925,437 3,382,582 2,603,284 3,540,250
Interest
earning
assets 8,747,284 9,503,734 9,495,336 9,123,226 9,524,608
Total assets 9,427,981 10,192,660 10,103,085 9,808,502 10,083,725
Deposits 4,644,841 4,652,602 4,093,605 4,648,579 4,124,041
Borrowings 3,449,652 4,309,017 4,658,017 3,876,960 4,665,261
Interest
bearing
liabilities 7,863,038 8,717,845 8,500,380 8,287,745 8,542,163
Preferred
equity 486,191 409,797 550,039 448,205 561,581
Common equity 468,198 467,237 282,552 468,161 301,409
Total
stockholders'
equity 954,389 877,034 832,591 916,366 862,990
Selected
Financial
Ratios:
Performance:
Net interest
margin 1.84% 1.87% 1.78% 1.85% 1.65%
Return on
average
assets -9.93% -0.14% 0.33% -4.87% -0.76%
Return on
average
common
equity* -201.94% -4.66% 7.32% -103.85% -33.09%
Efficiency
ratio 165.51% 97.07% 81.18% 129.89% 110.77%
Capital:
Leverage ratio 8.52% 8.43% 8.16% 8.52% 8.16%
Tier 1
risk-based
capital ratio 13.99% 13.83% 13.32% 13.99% 13.32%
Total
risk-based
capital ratio 15.26% 15.09% 15.19% 15.26% 15.19%
Asset quality:
Non-performing
loans 944,245 903,850 805,679 944,245 805,679
Non-performing
assets 1,050,116 1,004,341 889,788 1,050,116 889,788
Allowance for
loan and
lease losses to
period-end
loans
receivable 2.44% 2.68% 2.77% 2.44% 2.77%
Allowance for
loan and
lease losses to
non-performing
loans (excluding
NPLs held for
sale) 15.38% 16.39% 18.35% 15.38% 18.35%
Non-performing
loans to
total loans
(excluding
GNMA
defaulted
loans) 16.33% 15.92% 14.64% 16.33% 14.64%
Other Non-GAAP
Ratios:
Tier 1 common
equity to
risk-weighted
assets (1) 4.79% 8.16% 6.36% 4.79% 6.36%
Pro-Forma Tier
1 common
equity to
risk-weighted
assets (1) 7.80% na na 7.80% na
* Excluding the effect of the preferred stock exchange inducement
(1) Refer to section on Non-Gaap Financial Measures for further details on
this ratio.
| |
SECOND QUARTER PERFORMANCE DISCUSSION
Income Statement
Net Interest Income
Second Quarter 2010 vs. First Quarter 2010 -- Net interest margin was
down 3 basis points to 1.84%, compared to 1.87% for the first quarter
of 2010. Interest income on loans decreased, even though average
loans increased during the quarter, due to higher non-performing
loans and higher level of restructured loans at lower rates. The
decrease in interest income was partially offset by a decrease in
interest expense. Lower average borrowings at higher rates than the
first quarter were due to the use of excess liquidity to pay down
shorter term liabilities maturing in the quarter. Average interest
bearing deposits increased as a result of the Company's campaign to
increase its deposit base after the bank consolidations on the
Island. Deposits reflected an increase in average rates of 5 basis
points.
Second Quarter 2010 vs. Second Quarter 2009 -- Net interest margin
increased 6 basis points to 1.84% for the quarter ended June 30, 2010
from 1.78% for the quarter ended June 30, 2009. A decrease of $2.0
million in net interest income was due to a decrease in interest
income of $13.5 million partially offset by a decrease in interest
expense of $11.5 million. The decrease in interest income was driven
by lower average interest earning assets, primarily mortgage backed
securities and investment securities due to the sale of non agency
CMOs during the second quarter of 2010 as well as sales of
mortgage-backed securities and investment securities late in 2009.
Average loans increased $209.2 million quarter over quarter but
interest on loans decreased due to higher non-performing loans and
higher level of restructured loans with yield concessions. The
decrease in interest income was only partially offset by a decrease
in interest expense. Lower average borrowings at higher rates were
due to the use of excess liquidity to pay down shorter term
borrowings leaving the higher cost longer term liabilities. Average
interest bearing deposits increased $571.0 million and together with
a decrease of 71 basis points in the average cost of deposits
resulted in a decrease in interest on deposits of $3.3 million.
Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009 --
Net interest margin increased 20 basis points to 1.85% for the six
months ended June 30, 2010, from 1.65% for the six months ended June
30, 2009. An increase in net interest income of $5.7 million was
driven by a decrease in interest expense of $26.4 million, partially
offset by a decrease in interest income of $20.8 million. The
decrease in interest expense was driven by a decrease of 53 basis
points in the average rate of interest bearing liabilities and by a
$254.4 million, or 3.0% decrease in average interest bearing
liabilities. There was also a shift in the composition of average
interest bearing liabilities from higher cost borrowing to lower cost
deposits. The reduction in interest income was driven by lower
average interest earning assets, primarily mortgage backed securities
and investment securities due to the sale of non-agency CMOs during
the second quarter of 2010 as well as sales of mortgage-backed
securities and investment securities during the latter part of 2009.
These reductions were partially offset by higher average loans and
other interest earning assets.
Credit Quality and the Allowance for Loan and Lease Losses
Doral Financial is subject to credit risk with respect to its
portfolio investment securities and loans receivable. During the
quarter, the Company took certain actions to improve the quality of
its assets. In June 2010, Doral construction loans with unpaid
principal balances of $133.0 million were reclassified from loans
held for investment to loans held for sale, resulting in a charge to
the provision for loan and lease losses of $12.6 million and
charge-offs for the quarter totaling $35.9 million. Doral entered
into an agreement to sell the construction loans and similar real
estate owned property to a third party on July 29, 2010 in exchange
for cash and a loan receivable from the purchaser.
The following table summarizes key credit quality information for the
periods indicated:
|
Doral Financial and Subsidiaries
Loan Data (in thousands) As of June 30, 2010
-----------------------------------------------
ALLL
Loans ALLL as a as a %
Receivable % of Loan of
Balance(1) NPLs(2) ALLL Balance NPLs
---------- -------- -------- --------- ------
Residential mortgage loans $3,867,400 $511,869 $ 57,980 1.5% 11.3%
Construction loans 226,238 104,815 16,850 7.4% 16.1%
Commercial real estate
loans 727,403 168,761 29,086 4.0% 17.2%
Commercial and industrial 471,935 3,343 4,825 1.0% 144.3%
Land secured 155,654 87,127 18,599 11.9% 21.3%
Consumer 60,617 591 6,784 11.2% 1147.9%
Lease financing 8,792 471 789 9.0% 167.5%
Loans on savings deposits 3,215 - - 0.0% na
---------- -------- --------
Total $5,521,254 $876,977 $134,913 2.4% 15.4%
========== ======== ========
As of December 31, 2009
-----------------------------------------------
ALLL
Loans ALLL as a as a %
Receivable % of Loan of
Balance NPLs(2) ALLL Balance NPLs
---------- -------- -------- --------- ------
Residential mortgage loans $3,827,269 $403,070 $ 51,814 1.4% 12.9%
Construction loans 451,540 273,581 44,626 9.9% 16.3%
Commercial real estate
loans 738,838 130,156 21,883 3.0% 16.8%
Commercial and industrial 311,258 933 4,281 1.4% 458.8%
Land secured 100,371 33,373 9,832 9.8% 29.5%
Consumer 70,580 519 6,955 9.9% 1340.1%
Lease financing 12,702 1,091 1,383 10.9% 126.8%
Loans on savings deposits 3,250 - - 0.0% na
---------- -------- --------
Total $5,515,808 $842,723 $140,774 2.6% 16.7%
========== ======== ========
(1) Reflects partial charge-offs on loans in the residential mortgage,
construction and commercial real estate of $11,010, $1,818 and $430,
respectively.
(2)Excludes non-performing loans classified as held for sale.
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The following table summarizes the changes in the allowance for loan
and lease losses for the periods indicated:
|
Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses
Quarters ended Six months ended
---------------------------- ------------------
June March June June June
(in thousands) 2010 2010 2009 2010 2009
-------- -------- -------- -------- --------
Balance at beginning of
period $147,481 $140,774 $143,900 $140,774 $132,020
Provision for loan and
lease losses 44,617 13,921 10,133 58,538 33,758
Total loans charged
off (57,500) (7,650) (7,447) (65,150) (19,417)
Total recoveries of
loans previously
charged off 315 436 183 751 408
-------- -------- -------- -------- --------
Net charge-offs (57,185) (7,214) (7,264) (64,399) (19,009)
-------- -------- -------- -------- --------
Balance at end of period $134,913 $147,481 $146,769 $134,913 $146,769
======== ======== ======== ======== ========
Allowance for loan and
lease losses to
period-end loans
receivable 2.44% 2.68% 2.77% 2.44% 2.77%
Recoveries to charge-offs 2.20% 23.11% 9.86% 2.32% 4.24%
Net charge-offs to
average loans 1.03% 0.13% 0.14% 2.34% 0.73%
Provision to Net Charge
offs 78.02% 192.97% 139.50% 90.90% 177.59%
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The increase in the residential mortgage loan portfolio and
non-performing loans was primarily due to Doral's decision to
repurchase a total of $65.0 million of FHA insured loans from GNMA
securitizations as the non-performance of Doral originated loans
exceeded certain GNMA standards. These loans were delinquent, which
increased NPLs by approximately $60 million. In addition, December
repurchases which rolled into NPLs during 2010 were approximately
$48.1 million. These loans, while non-performing, retain their FHA
insurance and present little credit loss potential to Doral. The ALLL
decreased during 2010, as a result of partial charge-offs of $19.2
million. In 2010, charge-offs of residential mortgage loans were
driven by the implementation of the Company's real estate valuation
policy under which the Company obtains assessments of collateral value
for residential mortgage loans that are over 180 days past due and any
outstanding balance in excess of the value of the property, less cost
to sell, is classified as loss and written down by charging the
allowance for loan and lease losses. For 2010, partial charge-offs of
approximately $11.0 million were related to loans 180 days past due
with collateral value below the loans' unpaid principal balance, and
approximately $8.2 million were charges related to loans foreclosed
during the period.
The decrease in construction loans for the quarter and six months
ended June 30, 2010, was due to the reclassification of approximately
$133.0 million of construction loans from loans held for investment to
loans held for sale as management changed its expectation from
holding certain loans, to selling certain loans and similar real
estate owned property. There was also a reclassification of certain
loans to the land secured portfolio, and charge-offs of $26.9 million
(excluding approximately $12.6 million LOCOM adjustment on the
portfolio reclassified to held for sale). Construction NPLs decreased
as a result of the reclassification of loans to available for sale
and to the land loan categories. The ALLL decreased due to
charge-offs of previously reserved loans driven by confirmed losses
in certain projects, as well as the impact of the transfer of loans to
held for sale, and reclassification of loans to the land loan
portfolio.
Commercial and industrial loans increased primarily due to
participation in syndicated loans in the U.S. mainland.
As of June 30, 2010, the Company's allowance for loan and lease
losses was $134.9 million, down $12.6 million from $147.5 million as
of March 31, 2010 and $11.9 million from June 30, 2009. The reduction
in the allowance during the second quarter was the result of net
charge-offs totaling $57.2 million driven primarily by charge-offs of
$35.9 million related to construction loans reclassified to held for
sale, $14.5 million of residential mortgage charge-offs due to loans
180 days past due with collateral value below the loans' unpaid
principal balance that were previously reserved, as well as
charge-offs of certain loans transferred to OREO as a result of
foreclosures and charge-offs of previously reserved items where
losses were confirmed during the period. The allowance for loan and
lease losses was 2.44% of period-end loans receivable at June 30,
2010, compared with 2.68% as of March 31, 2010 and 2.77% at June 30,
2009.
During 2010, the Company's total non-performing loans receivable
(excluding loans held for sale) increased $34.3 million and the
allowance for loan and lease losses decreased $13.9 million. The
increase in non-performing loans was primarily in the residential
mortgage loan portfolio and in the commercial real estate portfolio.
The increase in non-performing residential mortgage loans resulted
from Doral's decision to repurchase a total of $65.0 million of FHA
insured loans from GNMA securitizations as the non-performance of
Doral originated loans exceeded certain GNMA standards.
Approximately $60 million of this repurchase were non-performing at
June 30, 2010 and $23.6 million from a December repurchase became
non-performing during the second quarter of 2010. These loans, while
non-performing, retain their FHA insurance and present little credit
loss potential to Doral. Excluding GNMA repurchases, residential
mortgage loan delinquencies remained relatively flat. The commercial
real estate portfolio continues to reflect deterioration driven by the
adverse macro-economic trends affecting borrowers in Puerto Rico and
the allowance for loan and lease losses on this portfolio also
increased. The increase in non-performing land loans is due to the
reclassification of approximately $55.3 million of remnant land from
the construction portfolio to the land loan portfolio.
The consumer and lease financing portfolios continued to decrease
consistent with the Company's exit strategy for these business lines.
Non-performing loans are stable and the allowance has decreased in
the consumer portfolio as non-performing loan balances are charged
off.
Provision and Allowance for Loan and Lease Losses
The following tables summarize the effect of provisions and
recoveries on the allowance for loan and lease losses by portfolio
for the periods
indicated:
|
Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses
For the quarters ended
-------------------------------------------
(in thousands) June 30, 2010
-------------------------------------------
Net
Beginning Charge- Ending
Balance Provisions offs Balance
---------- ---------- --------- ----------
Residential mortgage loans $ 53,708 $ 18,769 $ (14,497) $ 57,980
Construction loans 39,854 16,485 (39,489) 16,850
Commercial real estate loans 24,745 4,771 (430) 29,086
Commercial and industrial 4,032 1,728 (935) 4,825
Land secured 17,379 1,220 - 18,599
Consumer 6,918 1,581 (1,715) 6,784
Lease financing 845 63 (119) 789
---------- ---------- --------- ----------
Total $ 147,481 $ 44,617 $ (57,185) $ 134,913
========== ========== ========= ==========
For the quarters ended
-------------------------------------------
(in thousands) March 31, 2010
-------------------------------------------
Net
Beginning Charge- Ending
Balance Provisions offs Balance
---------- --------- --------- ----------
Residential mortgage loans $ 51,814 $ 6,609 $ (4,715) $ 53,708
Construction loans 44,626 (4,862) 90 39,854
Commercial real estate loans 21,883 3,068 (206) 24,745
Commercial and industrial 4,281 (74) (175) 4,032
Land secured 9,832 7,547 - 17,379
Consumer 6,955 1,887 (1,924) 6,918
Lease financing 1,383 (254) (284) 845
---------- --------- --------- ----------
Total $ 140,774 $ 13,921 $ (7,214) $ 147,481
========== ========= ========= ==========
For the quarters ended
-------------------------------------------
(in thousands) June 30, 2009
-------------------------------------------
Net
Beginning Charge- Ending
Balance Provisions offs Balance
---------- --------- --------- ----------
Residential mortgage loans $ 36,389 $ 7,523 $ (1,184) $ 42,728
Construction loans 49,568 2,697 (1,608) 50,657
Commercial real estate loans 31,148 (3,156) 8 28,000
Commercial and industrial 3,745 1,540 (2,124) 3,161
Land secured 13,880 (690) - 13,190
Consumer 7,776 2,167 (2,384) 7,559
Lease financing 1,394 52 28 1,474
---------- --------- --------- ----------
Total $ 143,900 $ 10,133 $ (7,264) $ 146,769
========== ========= ========= ==========
Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses
For the six months ended
-------------------------------------------
(in thousands) June 30, 2010
-------------------------------------------
Net
Beginning Charge- Ending
Balance Provisions offs Balance
---------- --------- --------- ----------
Residential mortgage loans $ 51,814 $ 25,378 $ (19,212) $ 57,980
Construction loans 44,626 11,623 (39,399) 16,850
Commercial real estate loans 21,883 7,839 (636) 29,086
Commercial and industrial 4,281 1,654 (1,110) 4,825
Land secured 9,832 8,767 - 18,599
Consumer 6,955 3,468 (3,639) 6,784
Lease financing 1,383 (191) (403) 789
---------- --------- --------- ----------
Total $ 140,774 $ 58,538 $ (64,399) $ 134,913
========== ========= ========= ==========
For the six months ended
-------------------------------------------
(in thousands) June 30, 2009
-------------------------------------------
Net
Beginning Charge- Ending
Balance Provisions offs Balance
---------- --------- --------- ----------
Residential mortgage loans $ 33,026 $ 11,920 $ (2,217) $ 42,729
Construction loans 45,159 11,052 (5,554) 50,657
Commercial real estate loans 27,076 2,933 (2,009) 28,000
Commercial and industrial 4,290 2,825 (3,954) 3,161
Land secured 13,193 (4) - 13,189
Consumer 7,964 4,631 (5,036) 7,559
Lease financing 1,312 401 (239) 1,474
---------- --------- --------- ----------
Total $ 132,020 $ 33,758 $ (19,009) $ 146,769
========== ========= ========= ==========
| |
Doral Financial's second quarter 2010 provision for loan and lease
losses of $44.6 million was up $30.7 million from March 2010 due to
the following:
|
-- An increase in the construction loan provision of $21.3 million due to
a $12.6 million provision related to the transfer of loans to held for
sale, adverse developments in a large loan which drove an increase in
the individual impairment measurements and increases in stale appraisal
reserves.
-- An increase in the residential mortgage loan provision of $12.2 million
was mainly driven by the effect of approximately $6.5 million in
charge-offs related to loans that were foreclosed during the quarter;
loss mitigation volume, which drove approximately $2.7 million in
additional provisions; a $1.1 million adjustment driven by changes in
portfolio behavior; and an $8.0 million provision due to increased
severities resulting from management's strategic decision to accelerate
OREO dispositions. There were also decreases related to non-guaranteed
non-performing mortgage loans.
-- Increases in commercial real estate and commercial and industrial
estate loan provisions of $1.7 million and $1.8 million, respectively,
were driven by increases in delinquencies of small commercial loans and
stale appraisal reserves.
-- A decrease in the land loan provision of $6.3 million was due to a
one-time reclassification of remnant land, from construction to land,
during the first quarter of 2010, together with the reclassification of
the related provision (second quarter reclassifications of remnant land
were lower than in the first quarter).
| |
The provision for loan and lease losses for the second quarter of
2010, reflected an increase of $34.5 million compared to the second
quarter of 2009, primarily in the residential mortgage, construction
and commercial real estate portfolios. As explained above, the higher
provision in 2010 for residential mortgage loans were driven by the
impact of charge-offs related to foreclosed loans, higher loss
mitigation volume and an increase in severities due to a strategic
decision to accelerate OREO dispositions. The higher provision for
construction loans was related to the reclassification of certain
construction loans to the held for sale portfolio and for commercial
loans to the deterioration in the commercial loan portfolios.
For the six months ended June 30, 2010, the provision for loan and
lease losses increased $24.8 million to $58.5 million compared to
$33.8 million for the six months ended June 30, 2009. In 2010, the
provision for residential mortgage, commercial real estate and land
loans increased. The higher level of the provision in 2010 was
largely driven by higher delinquencies during the period and
continued deterioration in the Puerto Rico economy.
The provision for loan and lease losses was offset by net charge-offs
of $64.4 million, which included $35.9 million related to the
reclassification of certain construction loans to the held for sale
portfolio as well as charge-offs of previously reserved balances. The
net of the provision and net charge-offs resulted in a decrease in
the allowance for loan and lease losses of $19.9 million for the six
months ended June 30, 2010 when compared to the corresponding 2009
period.
Non-Performing Assets
|
Doral Financial and Subsidiaries
Non-performing assets
Quarters ended
------------------------------------------------------
(Dollars in
thousands) June 2010 March 2010 Dec. 2009 Sep. 2009 June 2009
---------- ---------- ---------- ---------- ----------
Non-performing
consumer
Residential
mortgage $ 402,976 $ 407,256 $ 397,698 $ 376,041 $ 373,672
FHA/VA guaranteed
residential
mortgage 112,523 31,682 10,273 9,122 8,434
Personal 553 481 483 519 478
Revolving lines of
credit 15 5 13 28 20
Lease financing
receivable 471 637 1,091 1,198 1,066
Other consumer 23 25 23 41 20
---------- ---------- ---------- ---------- ----------
Total
non-performing
consumer 516,561 440,086 409,581 386,949 383,690
Non-performing
commercial
Commercial real
estate loans 169,243 157,443 130,811 131,624 117,603
Construction loans 167,971 230,351 273,581 257,728 264,643
Land loans 87,127 74,062 33,373 38,321 37,891
Commercial and
industrial 3,343 1,908 933 2,062 1,852
---------- ---------- ---------- ---------- ----------
Total non-performing
commercial 427,684 463,764 438,698 429,735 421,989
Total non-performing
loans 944,245 903,850 848,279 816,684 805,679
OREO 103,177 100,345 94,219 93,145 83,964
Other non-performing
assets 2,628 - - - -
Repossessed assets 66 146 101 104 145
---------- ---------- ---------- ---------- ----------
Total non-performing
assets $1,050,116 $1,004,341 $ 942,599 $ 909,933 $ 889,788
========== ========== ========== ========== ==========
Loans past due 90
days or more and
still accruing
Consumer loans $ 2,655 $ 2,461 $ 2,137 $ 2,713 $ 3,129
Commercial and
industrial 1,234 806 1,245 1,091 1,196
Residential
mortgages 1,811 - - - -
Government
guaranteed
Residential
mortgage loans 55,819 76,443 105,520 na na
---------- ---------- ---------- ---------- ----------
Total loans past due
90 days or more and
still accruing $ 61,519 $ 79,710 $ 108,902 $ 3,804 $ 4,325
========== ========== ========== ========== ==========
| |
Non-performing assets increased $45.8 million to $1.1 billion, or
4.6%, in the second quarter of 2010, compared to March 31, 2010.
Non-performing residential mortgage loans decreased $4.3 million, or
1.1%, while FHA/VA guaranteed non-performing residential mortgage
loans increased $80.8 million during the period. Non-performing
FHA/VA guaranteed loans maintain their insurance and present little
credit loss potential to Doral. Total non-performing commercial loans
decreased $36.1 million, or 7.8%, primarily as a result of the
reduction in non-performing construction loans.
The increase in non-performing residential mortgage loans resulted
from Doral's decision to repurchase a total of $65.0 million of FHA
insured loans from GNMA securitizations as the non-performance of
Doral originated loans exceeded certain GNMA standards. Approximately
$60 million of this repurchase were non-performing at June 30, 2010
and $23.6 million from a December repurchase became non-performing
during the second quarter of 2010. These loans, while non-performing,
retain their FHA insurance and present little credit loss potential
to Doral. Excluding GNMA repurchases, residential mortgage loan
delinquencies decreased $4.3 million. The $36.1 million decrease in
total commercial NPLs compared to March 31, 2010, resulted from a
$62.4 million decrease in non-performing construction loans due to a
$24.2 million charge-off on the transfer of construction loans to
held for sale, a $15.3 million charge-off on the transfer to OREO of
foreclosed properties (which included $11.8 million of properties
expected to be sold), and a $13.1 million transfer of residual land
from construction loans to land loans. The decrease in non-performing
construction loans was offset in part by a $11.8 million increase in
commercial real estate loans due to deterioration in the performance
of small commercial loans, and a $13.1 million increase in
non-performing land loans due to the transfer of residual land on
construction projects to land loans.
Non-performing assets, including non-performing loans previously
discussed, increased by $107.5 million, or 11.4%, as of June 30, 2010
compared to December 31, 2009. The growth in non-performing assets
was mainly driven by increases in the non-performing residential
mortgage loan portfolio and in other real estate owned partially
offset by a decrease in commercial non-performing lending activities.
Non-performing residential mortgage loans increased by $5.3 million,
or 1.3%, while guaranteed non-performing residential mortgages
increased $102.3 million at June 30, 2010 when compared to December
31, 2009. The increase was the result of Doral's decision to
repurchase FHA insured loans from GNMA securitizations in June 2010
and December 2009. These loans, while non-performing, retain their
FHA insurance and present little credit loss potential to Doral.
During the six month period ended June 30, 2010, Doral repurchased
approximately $5.0 million of delinquent loans pursuant to its
repurchase obligations.
The $11.0 million decrease in non-performing commercial loans at June
30, 2010 when compared to December 31, 2009, resulted from a $105.6
million decrease in non-performing construction loans due to a $24.2
million charge-off on the transfer of construction loans to held for
sale, a $15.3 million charge-off on the transfer to OREO of
foreclosed properties (which included $11.7 million of properties
expected to be sold), and a $53.8 million transfer of residual land
from construction loans to land loans. The decrease in non-performing
construction loans was offset in part by a $38.4 million increase in
commercial real estate loans due to deterioration in the performance
of small commercial real estate loans, and a $53.8 million increase
in non-performing land loans due to the transfer of residual land on
construction projects to land loans.
The $9.0 million increase in OREO resulted from a $4.8 million
increase in residential OREOs as the accelerated foreclosure rate
from operating efficiencies generated in the foreclosure cycle
outpaces Doral's sales of OREO properties, and $4.5 million and $9.2
million increases in construction and land OREOs, respectively, as
the Company foreclosed on a significant residential development in
the second quarter of 2010. These increases were partially offset by
a $17.0 provision due to losses in property values as Doral undertook
efforts in the second quarter to ensure it is properly positioned to
sell the residential OREOs and is looking at alternatives to
accelerate its OREO dispositions.
Non-Interest Income
|
Doral Financial and Subsidiaries
Non-Interest (Loss) Income
Quarters ended Six months ended
------------------------------- --------------------
(in thousands) June 2010 March 2010 June 2009 June 2010 June 2009
--------- --------- --------- --------- ---------
Net other-than-
temporary
impairment losses $ - $ (13,259) $ (6,795) $ (13,259) $ (6,795)
Net gain on mortgage
loan sales and fees 1,811 2,566 3,298 4,377 5,017
Net gain loss on
securities held
for trading 1,794 785 104 2,579 1,783
Gain on IO
valuation 3,857 659 569 4,516 7
Gain (loss) on MSR
economic hedge 4,656 1,828 (6,895) 6,484 (14,196)
(Loss) gain on
derivatives (1,411) (1,498) 426 (2,909) (718)
--------- --------- --------- --------- ---------
Net gain (loss) on
securities held for
trading 8,896 1,774 (5,796) 10,670 (13,124)
Net (loss) gain on
investment
securities (137,204) 26,414 4,810 (110,790) 4,797
Net loss on early
repayment of debt (2,545) (476) - (3,021) -
Servicing income 5,120 8,748 7,405 13,868 15,983
Mark-to market
adjustment of MSR (6,474) (2,004) 6,555 (8,478) (4,798)
--------- --------- --------- --------- ---------
Total servicing
(loss) income (1,354) 6,744 13,960 5,390 11,185
Retail banking fees 7,199 7,143 7,127 14,342 14,209
Insurance agency
commissions 2,436 2,342 2,463 4,778 4,887
Other income 571 3,336 64 3,907 538
--------- --------- --------- --------- ---------
Total commissions,
fees and other
income 10,206 12,821 9,654 23,027 19,634
--------- --------- --------- --------- ---------
Total non-interest
income $(120,190) $ 36,584 $ 19,131 $ (83,606) $ 20,714
========= ========= ========= ========= =========
| |
Second Quarter 2010 vs. First Quarter 2010 and Second Quarter 2009 --
Non-interest loss of $120.2 million for the second quarter of 2010
was driven by a loss $136.7 million on the sale of certain non-agency
CMOs with an amortized cost basis of $378.0 net of OTTI recognized in
previous periods totaling $39.6 million. Other variances were as
follows:
|
-- A net gain on securities held for trading of $8.9 million compared to
$1.8 million for the first quarter of 2010 and a loss of $5.8 million
for the second quarter of 2009 was driven by:
-- A gain on the IO valuation of $3.9 million compared to $0.7 million
for the first quarter of 2010 and $0.6 million for the second
quarter of 2009, was driven by decreases in the LIBOR-Swap forward
curve.
-- A gain on the MSR economic hedge of $4.7 million compared to $1.8
million for the first quarter of 2009 and a loss of $6.9 million
for the second quarter of 2009. There was a change in hedging
strategy in the second quarter of 2009 from the use of U.S.
Treasuries to forward contracts, which impacted subsequent
reporting periods.
-- A servicing loss of $1.4 million compared to servicing income of $6.7
million during the first quarter of 2010 and $14.0 for the second
quarter of 2009. The servicing loss was due to:
-- A $4.2 million decrease in servicing income due to interest lost on
servicing advances during the period, related to the repurchase of
certain GNMA defaulted loans during the second quarter of 2010.
-- A reduction in the value of the mortgage servicing asset due to
higher prepayment speeds and a reduction in loan balances. For the
second quarter of 2009 there was a gain of $6.6 million in the
value of the MSR due primarily to a decrease in prepayment speeds
caused by higher interest rates during the second quarter of 2009.
-- Other income decreased $2.8 million due to the recognition of a $2.9
million gain on redemption of shares of VISA, Inc. in the first quarter
of 2010.
| |
Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009 --
Non-interest loss of $83.6 million reflected a decrease of $104.3
million compared to non-interest income of $20.7 million for the six
months ended June 30, 2009. Significant variances in non-interest
income for the six months ended June 30, 2010 compared to the same
period in 2009 were as
follows:
|
-- A net loss on investment securities of $110.8 million was driven by a
loss of $136.7 million during the second quarter of 2010, from the sale
of certain non-agency CMOs with an amortized cost basis of $378.0 net
of OTTI recognized in previous periods totaling $39.6 million, offset
in part by the sale of certain agency securities in the first quarter
of 2010 that generated net gains of $26.4 million.
-- An OTTI loss of $13.3 million was recognized on six of the Company's
non-agency CMOs. The U.S. non-agency CMOs were sold in April 2010.
-- The improvement in the net gain on trading activities was driven
principally by an improvement in the MSR economic hedge of $20.7
million when compared to 2009, primarily due to a change in the hedging
strategy. There was also a gain of $4.5 million on the IO valuation
driven by decreases in the LIBOR-Swap forward curve.
-- The $5.8 million reduction in servicing income compared to $11.2
million servicing income for the six months ended June 30, 2009 was due
to:
-- A $4.2 million decrease in servicing income due to interest lost on
servicing advances during the period, related to the repurchase of
certain GNMA defaulted loans during the second quarter of 2010.
-- A reduction in the value of the mortgage servicing asset due to
higher prepayment speeds and a reduction in loan balances.
-- An increase in other income of $3.4 million was driven by a gain on
redemption of shares of VISA, Inc. during the first quarter of 2010 of
$2.9 million.
| |
Non-Interest Expense
|
Doral Financial and Subsidiaries
Non-interest Expense
Quarters ended Six months ended
-------------------------- -----------------
June March June June June
(in thousands) 2010 2010 2009 2010 2009
-------- -------- -------- -------- --------
Compensation and benefits $ 20,315 $ 16,435 $ 15,823 $ 36,750 $ 38,651
OREO losses and other related
expenses 23,414 4,597 1,262 28,011 2,450
Professional services 15,420 13,792 7,391 29,212 13,518
Reserve on claim receivable
from LBI 10,819 - - 10,819 -
FDIC insurance expense 5,574 5,191 6,144 10,765 8,081
Other 5,134 5,923 5,422 11,057 11,826
Occupancy expenses 4,322 3,981 2,914 8,303 6,915
Advertising 4,073 1,498 1,424 5,571 2,872
Communication expenses 4,056 3,944 4,005 8,000 8,413
Depreciation and amortization 3,110 3,147 3,217 6,257 6,670
EDP expenses 2,878 3,779 3,167 6,657 6,783
Taxes, other than payroll and
income taxes 2,591 2,564 2,423 5,155 4,911
Corporate insurance 1,264 1,262 1,131 2,526 2,193
Office expenses 1,112 1,285 1,203 2,397 2,669
-------- -------- -------- -------- --------
$104,082 $ 67,398 $ 55,526 $171,480 $115,952
======== ======== ======== ======== ========
| |
Second Quarter 2010 vs. First Quarter 2010 and Second Quarter 2009 --
Non-interest expense of $104.1 million was up $36.7 million and $48.6
million compared to the first quarter of 2010 and the second quarter
of 2009, respectively. Significant variances in non-interest expense
for the quarter ended June 30, 2010 compared to the quarters ended
March 31, 2010 and June 30, 2009 were as follows:
|
-- An increase of $3.9 million and $4.5 million in compensation and
benefits compared to March 31, 2010 and June 30, 2009, respectively was
primarily due to a $3.3 million retention award granted to certain
officers of the Company pursuant to its Retention Program.
-- An increase of $18.8 million and $22.2 million in OREO losses and other
related expenses compared to the first quarter of 2010 and the second
quarter of 2009, respectively, as a result of adjustments driven by a
devaluation of Doral's OREO properties, higher levels of repossessed
units and higher expenses to maintain the properties in saleable
condition. During the second quarter of 2010 the Company established an
additional provision for OREO losses of $17.0 million due to losses in
property values in Puerto Rico as a result of certain efforts to
prepare the properties for sale.
-- Professional services of $15.4 million reflected an increase of $1.6
million and $8.0 million compared to March 31, 2010 and June 30, 2009,
respectively primarily related to:
-- An increase in defense litigation costs of former company officers
-- $0.8 million compared to March 31, 2010 and $2.3 million
compared to June 30, 2009.
-- Advisory services of $0.5 million related to the dissolution of
Doral Holdings and Doral Holdings LP, our parent company, pursuant
to the Cooperation Agreement dated April 19, 2010, between Doral
Financial and Doral Holdings, Doral Holdings L.P. and Doral GP Ltd.
-- Services related to the possible sale of certain construction loans
during the third quarter of 2010 of $2.7 million.
-- Increase in advisory services related to the construction loan
portfolio of $1.5 million compared to June 30, 2009.
-- An increase of $2.7 million during the second quarter of 2010 for
advisory services related to the possible sale of certain
construction loans was offset by $2.7 million incurred during the
first quarter of 2010 for advisory services related to the
Company's preparation to participate in bidding for FDIC assisted
transactions.
-- An additional $10.8 million reserve for the Company's claim on Lehman
Brothers Inc. was established during the second quarter of 2010.
-- Increase in advertising expense of $2.6 million compared to both the
first quarter of 2010 and the second quarter of 2009. The increase in
advertising expense was related to campaigns to gain market share in
deposits and mortgage originations subsequent to the local market bank
failures and asset acquisitions in April 2010.
| |
Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009 --
Non-interest expense of $171.5 million was up $55.5 million, or
47.9%, over the previous year. Significant variances in non-interest
expense for the six months ended June 30, 2010 compared to the six
months ended June 30, 2009 were as follows:
|
-- A decrease of $1.9 million in compensation and employee benefits was
driven by a one-time severance expense related to a reduction in
workforce during 2009 and partially offset by a retention bonus of
$3.3 million incurred in 2010.
-- An increase of $25.6 million in OREO losses and other related expenses
as a result of appraisal adjustments driven by a devaluation of OREO
properties in Puerto Rico, higher levels of repossessed units and
higher expenses to maintain the properties in saleable condition.
During the second quarter of 2010 the Company established an additional
provision for OREO losses of $17.0 million due to losses in property
values in Puerto Rico as a result of certain efforts to prepare the
properties for sale.
-- Professional services of $29.2 million reflected an increase of $15.7
million to June 30, 2009, primarily due to:
-- An increase of $3.9 million in defense litigation costs of former
company officers.
-- Advisory services of $0.5 million related to the dissolution of
Doral Holdings and Doral Holdings LP, our parent company, pursuant
to the Cooperation Agreement dated April 19, 2010, between Doral
Financial and Doral Holdings, Doral Holdings L.P. and Doral GP Ltd.
-- Services related to the possible sale of certain construction loans
during the third quarter of 2010 of $2.7 million.
-- Increase in advisory services related to the construction loan
portfolio of $2.6 million compared to June 30, 2009.
-- $5.3 million in advisory services related to the Company's
preparation to participate in bidding for FDIC assisted
transactions.
-- $2.0 million increase in legal expenses to support corporate
litigation and collections efforts.
-- An additional $10.8 million reserve for the Company's claim on Lehman
Brothers Inc. was established during the second quarter of 2010.
-- An increase of $2.7 million in FDIC insurance expense related to
increases in rates and assessment bases during the second half of 2009.
-- Increase in advertising expense of $2.7 million related to campaigns to
gain market share in deposits and mortgage origination subsequent to
the local market bank failures and asset acquisitions in April
2010.
| |
Income Tax Expense
Second quarter 2010 reflected an income tax expense of $4.5 million
compared with a $2.5 million income tax expense in the first quarter
of 2010 and an income tax benefit of $12.7 million for the second
quarter of 2009. Tax expense for the second quarter of 2010 is
related to taxes on U.S. source income. The second quarter of 2009
tax benefits was related to a release of unrecognized tax benefits
due to the expiration of the statute of limitations net of the
recognition of an accrual for unrecognized tax benefits.
Balance Sheet
Doral Financial's assets totaled $9.4 billion at June 30, 2010,
compared to $10.2 billion at December 31, 2009. Total assets at June
30, 2010, when compared to December 31, 2009 were affected by a
decrease of $435.4 million in the Company's investment securities
portfolio that resulted from a combination of the sale of $378.0
million of non-agency CMOs and purchases primarily of shorter
duration mortgage-backed securities as part of interest rate risk
management strategies. There was also a decrease of $458.5 million in
cash and interest-earning assets, partially offset by an increase of
$80.8 million in net loans.
Total liabilities were $8.5 billion at June 30, 2010, compared to
$9.4 billion at December 31, 2009. Total liabilities as of June 30,
2010 were principally affected by a decrease in borrowings of $1.2
billion partially offset by an increase in deposits of $297.5 million
Loan Portfolio
|
Doral Financial and Subsidiaries
Loan Portfolio including loans held for sale at period-end
(in thousands) June 2010 March 2010 Dec. 2009
---------- ---------- ----------
Consumer
Residential mortgage $3,636,993 $3,640,962 $3,658,701
FHA/VA guaranteed residential mortgage 230,407 $ 165,766 $ 168,569
Personal 20,378 22,200 25,164
Revolving lines of credit 19,748 21,387 22,062
Credit cards 19,625 21,595 22,725
Lease financing receivable 8,792 10,470 12,702
Loans on savings deposits 3,215 3,059 3,249
Other consumer 866 660 629
---------- ---------- ----------
Total consumer 3,940,024 3,886,099 3,913,801
Commercial
Commercial real estate 727,403 728,372 738,838
Commercial and industrial 471,935 345,791 311,258
Construction 226,238 404,935 451,540
Land Secured 155,654 140,297 100,371
---------- ---------- ----------
Total commercial 1,581,230 1,619,395 1,602,007
---------- ---------- ----------
Loans receivable, gross 5,521,254 5,505,494 5,515,808
Allowance for loan and lease losses (134,913) (147,481) (140,774)
---------- ---------- ----------
Loans receivable, net 5,386,341 5,358,013 5,375,034
Loans held for sale
Conventional single family residential 119,276 123,505 137,134
FHA/VA guarantteed residential 137,759 180,972 151,187
Construction 95,648 - -
Commercial loans to financial
institutions 15,608 16,312 17,059
Commercial real estate 14,096 14,972 15,550
---------- ---------- ----------
Loans held for sale 382,387 335,761 320,930
---------- ---------- ----------
Total loan portfolio, net $5,768,728 $5,693,774 $5,695,964
========== ========== ==========
| |
Doral Financial's loan portfolio consists primarily of residential
mortgage loans and approximately 93% of the total net loan portfolio
is secured by real estate. The total net loan portfolio increased
$75.0 million compared to March 31, 2010 and $72.8 million compared
to December 31, 2009 mostly in commercial and industrial loans which
increased $126.1 million and $160.7 million compared to March 31,
2010 and December 31, 2009, respectively. These increases were
related mostly to participation in syndicated loans in the U.S.
mainland. The increase in the FHA/VA guaranteed residential mortgage
loan portfolio was due primarily to the repurchase of approximately
$65 million of GNMA defaulted loans during the second quarter of 2010
(previously recorded in the loans held for sale portfolio). The
decrease in construction loans was due to the reclassification of
approximately $133.0 million of construction loans from loans held
for investment to loans held for sale of approximately $95.6 million
during the second quarter of 2010, (with approximately $24.4 million
charged off during the quarter). In July 2010, Doral entered into an
agreement to sell the construction loans and similar real estate
owned property to a third party.
Consumer and lease financings also reflected decreases due to the
Company's decision to discontinue actively lending in these product
lines.
Capital
Doral Financial's equity totaled $969.9 million at June 30, 2010,
compared to $875.0 million at December 31, 2009. The Company reported
accumulated other comprehensive income (net of tax) ("OCI") of $28.5
million as of June 30, 2010, compared to accumulated other
comprehensive loss (net of tax) of $111.5 million as of December 31,
2009. This improvement in OCI was due to the sale of the non-agency
securities as the loss was recognized in the period of the sale, and
the remaining portfolio of securities reflects unrealized gains.
On April 19, 2010, the Company announced that it had entered into a
definitive Stock Purchase Agreement with various purchasers,
including certain direct and indirect investors in Doral Holdings
Delaware LLC ("Doral Holdings"), the Company's parent company,
pursuant to a private placement of Mandatorily Convertible
Non-Cumulative Non-Voting Preferred Stock, $1.00 par value and $1,000
liquidation preference per share. In the aggregate, as part of the
private placement, the Company raised $180.0 million of new equity
capital and issued 285,002 shares of Mandatorily Convertible
Non-Cumulative Non-Voting Preferred Stock for an effective sale price
of $3.00 per common share equivalent. The Mandatorily Convertible
Non-Cumulative Non-Voting Preferred Stock is convertible into up to
60,000,421 shares of common stock. The incremental capital enabled
the Company to reduce balance sheet risk while still exceeding its
regulatory well capitalized benchmarks.
The Company's regulatory prescribed capital ratios exceed the
published well capitalized standards established in banking
regulation. As of June 30, 2010 the Tier 1 Leverage, Tier 1
Risk-based Capital and Total Risk-based Capital ratios were estimated
at 8.52%, 13.99% and 15.26%, respectively which represents
approximately $328.9 million, $454.5 million and $299.0 million of
estimated Tier 1 Leverage, Tier 1 Risk-based Capital and Total
Risk-based Capital in excess of the published well-capitalized
standards of 5%, 6% and 10%, respectively.
|
Doral Financial and Subsidiaries
Capital Ratios
June 2010 March 2010 June 2009
----------- ----------- -----------
Tier 1 leverage 8.52% 8.43% 8.16%
Tier 1 risk-based capital 13.99% 13.83% 13.32%
Total risk-based capital 15.26% 15.09% 15.19%
Tier 1 common equity * 4.79% 8.16% 6.36%
Pro-forma Tier 1 common equity* 7.80% na na
* Refer to section on Non-GAAP Financial Measures for further information.
| |
The following table provides a reconciliation of stockholders' equity
(GAAP) to Tier 1 common equity (non-GAAP):
|
Doral Financial and Subsidiaries
Tier 1 Common Equity Reconciliation
(in thousands) June 2010 March 2010 June 2009
----------- ----------- -----------
Stockholders' equity $ 944,972 $ 862,351 $ 833,903
(Less) plus: net unrealized (gains)
losses on available for sale
securities, net of tax (28,467) 118,824 140,155
Less: preferred stock (523,082) (352,082) (467,641)
Less: disallowed intangible assets (16,456) (17,055) (16,743)
Less: disallowed deferred tax assets (104,381) (105,127) (96,191)
----------- ----------- -----------
Total Tier 1 common equity $ 272,586 $ 506,911 $ 393,483
Plus: mandatorily convertible
preferred stock 171,000 - -
----------- ----------- -----------
Pro-forma Tier 1 common equity $ 443,586 $ 506,911 $ 393,483
=========== =========== ===========
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The preferred stock includes $171 million of the mandatorily
convertible preferred stock that is to be converted to common shares
and become a component of common equity.
Non-GAAP Financial Measures
This earnings press release contains GAAP financial measures and
non-GAAP financial measures. Non-GAAP financial measures are set
forth when management believes they will be helpful to an
understanding of the Corporation's results of operations or financial
position. Where non-GAAP financial measures are used, the comparable
GAAP financial measure, as well as the reconciliation to the
comparable GAAP financial measure, can be found in the text or in the
attached tables of this earnings release.
Tier 1 and pro-forma tier 1 common equity to risk-weighted assets
ratio
Tier 1 common equity and pro-forma tier 1 common equity are non-GAAP
measures.
Ratios calculated based upon Tier 1 common equity have become a focus
of regulators and investors, and management believes ratios based on
Tier 1 common equity assist investors in analyzing Doral's capital
position. This ratio is calculated by dividing Tier 1 capital less
non-common equity items by risk weighted assets, which assets are
calculated in accordance with applicable bank regulatory
requirements.
The pro-forma tier 1 common equity ratio gives effect to the
conversion of $171 million mandatorily convertible preferred stock to
common stock as if they had been converted as of the reporting period
and dividing the pro-forma Tier 1 capital less non-common equity
items by risk weighted assets, which assets are calculated in
accordance with applicable bank regulatory requirements.
The Federal Reserve began supplementing its assessment of the capital
adequacy of bank holding companies based on a variation of Tier 1
capital known as Tier 1 common equity in connection with the
Supervisory Capital Assessment Program. Tier 1 common equity is
considered to be a non-GAAP financial measure since it is not
formally defined by GAAP and, unlike Tier 1 capital, is not a federal
banking regulatory requirement.
FORWARD-LOOKING STATEMENTS
This Press Release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. In
addition, Doral Financial Corporation (the "Company" or "Doral
Financial" or "Doral") may make forward-looking statements in its
other press releases, its other filings with the Securities and
Exchange Commission ("SEC") or in other public or shareholder
communications and its senior management may make forward-looking
statements orally to analysts, investors, the media and others.
These forward-looking statements may relate to the Company's
financial condition, results of operations, plans, objectives, future
performance and business, including, but not limited to, statements
with respect to the adequacy of the allowance for loan and lease
losses, market risk and the impact of interest rate changes, capital
markets conditions, capital adequacy and liquidity, and the effect of
legal proceedings and new accounting standards on the Company's
financial condition and results of operations. Forward-looking
statements can be identified by the fact that they do not relate
strictly to historical or current facts, and are generally identified
by the use of words or phrases such as "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," "believe,"
"expect," "may" or similar expressions.
Doral Financial cautions readers not to place undue reliance on any
of these forward-looking statements since they speak only as of the
date made and represent Doral Financial's expectations of future
conditions or results and are not guarantees of future performance.
The Company does not undertake and specifically disclaims any
obligations to update any forward-looking statements to reflect
occurrences or unanticipated events or circumstances after the date
of those statements.
Forward-looking statements are, by their nature, subject to risks and
uncertainties. Risk factors and uncertainties that could cause the
Company's actual results to differ materially from those described in
forward-looking statements can be found in the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010 and its
Annual Report on Form 10-K for the year ended December 31, 2009, each
of which is available in the Company's website at
www.doralfinancial.com.
Institutional Background
Doral Financial Corporation ("Doral," "Doral Financial" or the
"Company") is a bank holding company engaged in banking (including
thrift operations), mortgage banking and insurance agency activities
through its wholly-owned subsidiaries Doral Bank ("Doral Bank PR"),
Doral Bank, FSB ("Doral Bank NY"), Doral Insurance Agency, Inc.
("Doral Insurance Agency"), and Doral Properties, Inc. ("Doral
Properties"). Doral Bank PR in turn operates three wholly-owned
subsidiaries Doral Mortgage LLC ("Doral Mortgage"), Doral Money, Inc.
("Doral Money"), engaged in commercial lending in the New York
metropolitan area, and CB, LLC, an entity formed to dispose of a real
estate project of which Doral Bank PR took possession during 2005.
Doral Financial Corporation's common shares trade on the New York
Stock Exchange under the symbol DRL. Additional information about
Doral Financial Corporation may be found on the Company's website
at
www.doralfinancial.com.
|
Doral Financial and Subsidiaries
Consolidated Statements of Financial
Condition (Unaudited)
(in thousands) June 2010 March 2010 Dec. 2009
----------- ----------- -----------
Assets
Cash and due from banks $ 318,949 $ 312,190 $ 725,277
Interest-earning assets 42,791 48,772 95,000
Investment securities:
Trading securities, at fair value 48,561 44,600 47,726
Available for sale securities, at
fair value 2,379,712 2,099,336 2,789,177
Federal Home Loan Bank of NY
(FHLB) stock, at cost 99,529 110,354 126,285
----------- ----------- -----------
Total investment securities 2,527,802 2,254,290 2,963,188
----------- ----------- -----------
Loans held for sale, at lower of
cost or market 382,387 335,761 320,930
Loans held for investment 5,521,254 5,505,494 5,515,808
Allowance for loan and lease
losses (134,913) (147,481) (140,774)
----------- ----------- -----------
Total loans, net of allowance
for loan and lease losses 5,768,728 5,693,774 5,695,964
----------- ----------- -----------
Accounts Receivable 43,626 123,929 60,478
Mortgage-servicing advances 41,609 30,361 19,592
Accrued interest receivable 40,984 41,603 41,866
Servicing assets, net 113,005 118,236 118,493
Premises and equipment, net 99,883 99,768 101,437
Real estate held for sale, net 103,177 100,345 94,219
Deferred tax asset 105,393 131,477 131,201
Receivables from brokers/dealers 15,057 587,493 -
Other assets 175,888 170,650 185,237
----------- ----------- -----------
Total Assets $ 9,396,892 $ 9,712,888 $10,231,952
=========== =========== ===========
Liabilities
Deposits:
Non-interest-bearing
deposits $ 307,930 $ 225,270 $ 353,516
Interest-bearing deposits 1,881,990 1,663,764 1,637,096
Brokered deposits 2,750,649 2,697,175 2,652,409
----------- ----------- -----------
Total deposits 4,940,569 4,586,209 4,643,021
----------- ----------- -----------
Securities sold under agreements
to repurchase 1,460,800 1,909,000 2,145,262
Advances from FHLB 1,217,920 1,472,920 1,606,920
Other short-term borrowings - - 110,000
Loans payable 318,652 329,706 337,036
Notes payable 267,648 269,496 270,838
Accrued expenses and other
liabilities 246,331 283,206 243,831
----------- ----------- -----------
Total liabilities 8,451,920 8,850,537 9,356,908
----------- ----------- -----------
Stockholders' equity
Preferred stock 523,082 352,082 415,428
Common stock 673 673 621
Additional paid-in capital 1,047,443 1,047,387 1,010,661
Legal surplus 23,596 23,596 23,596
Accumulated deficit (678,289) (442,563) (463,781)
Accumulated other comprehensive
income (loss), net of tax 28,467 (118,824) (111,481)
----------- ----------- -----------
Total stockholders' equity 944,972 862,351 875,044
----------- ----------- -----------
Total liabilities and
stockholders' equity $ 9,396,892 $ 9,712,888 $10,231,952
=========== =========== ===========
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For more information contact:
Investor Relations:
Christopher Poulton
EVP
Email Contact
212-329-3794
Media:
Lucienne Gigante
VP Public Relations
Email Contact
787-474-6298
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SOURCE: Doral Financial Corporation
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