SOURCE: Doral Financial Corporation

August 06, 2009 17:56 ET

Doral Financial Corporation Reports Earnings for the Second Quarter Ended June 30, 2009

Reports Net Income of $8.2 Million; Continues to Exceed Well Capitalized Levels With Tier 1 Leverage Capital Ratio of 8.2%

SAN JUAN, PR--(Marketwire - August 6, 2009) - Doral Financial Corporation (NYSE: DRL) ("Doral" or the "Company"), the holding company of Doral Bank, a leading community bank based in Puerto Rico, today announced the filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 reporting net income of $8.2 million, compared to a net income of $1.6 million for the comparable 2008 period.

Doral also announced that having successfully completed its preferred stock conversion, the Company further strengthened its capital position by increasing tangible common equity by $100.6 million. It also continues to exceed well capitalized levels with an 8.2% Tier 1 Leverage Capital Ratio.

"As we report earnings, we are seeing the results of the prudent decisions we've made during the past two years. Doral is stronger today because we addressed the weaknesses in the housing market, reduced the exposure in construction, and continued to lower our operating costs," said Glen R. Wakeman, President and CEO of Doral Financial Corporation.

"Even though we are operating in a deteriorating economic environment, we have made solid progress in our key fundamentals as we opened thousands of new accounts, improved compliance and controllership and continue to assist homeowners through our loss mitigation programs while improving the quality of life in our communities."

Doral experienced significant improvements in key fundamentals:

--  Opened more than 58,000 new retail deposit accounts since the
    beginning of the year.
    
--  Sustained cost-cutting initiatives, which allowed the Company to
    absorb an increase of $4.2 million related to the FDIC special assessment
    expense during the quarter without increasing its non-interest expense.
    
--  Decreased non-performing loans $6.1 million from the March 31, 2009
    non-performing loan balance of $811.8 million.
    
--  Assisted more than 15,000 families to stay in their homes through
    Doral's loss mitigation and restructuring programs.
    
--  Eliminated the last remaining enforcement action between the FDIC and
    Doral Bank with the June 30, 2009 termination by the FDIC of the September
    15, 2008 Memorandum of Understanding relating to Bank Secrecy Compliance.
    

FINANCIAL HIGHLIGHTS

--  Net income for the quarter ended June 30, 2009 amounted to $8.2
    million, compared to a net income of $1.6 million for the comparable 2008
    period. Doral Financial's performance for the second quarter of 2009,
    compared to the corresponding 2008 quarter, resulted from (1) a $6.8
    million decrease in net interest income due to the compression of net
    interest margin and increasing non-performing loans in a declining interest
    rate and credit environment and slightly lower interest earning assets; (2)
    a $5.8 million decrease in non-interest income due principally to other-
    than-temporary impairment ("OTTI") charges related to the investment
    portfolio; offset by (3) a decrease in normal non-interest expenses of $4.3
    million offset by the one-time FDIC deposit insurance special assessment of
    $4.2 million; and (4) the recognition of an income tax benefit of $12.7
    million, compared to an income tax expense of $5.8 million for the
    corresponding 2008 period.
    
--  On May 7, 2009, the Company announced the commencement of an offer to
    exchange a stated amount of its shares of common stock and a cash payment
    in exchange for a limited number of its shares of outstanding preferred
    stock. The transaction was settled on June 11, 2009 and resulted in the
    retirement of $105.6 million in preferred stock and an increase in common
    equity of $100.6 million.
    
--  Net income attributable to common shareholders for the second quarter
    of 2009 of $14.5 million, resulted in a diluted earnings per share of
    $0.27, compared to a net loss attributable to common shareholders for the
    corresponding 2008 period of $6.7 million, or a diluted loss per share of
    $0.12. The $0.39 improvement in earnings per share was due to net income
    attributable to common shareholders of $5.2 million, before the effect of
    the preferred stock conversion, which resulted in  $0.10 per share for the
    quarter, and to the results of the preferred stock conversion effected in
    June of 2009 of $0.17 per share.
    
--  Net interest income for the second quarter of 2009 was $42.1 million,
    compared to $48.9 million for the comparable period in 2008. The decrease
    of $6.8 million in net interest income for 2009, compared to 2008, resulted
    from a reduction in interest income of $21.1 million, partially offset by a
    reduction in interest expense of $14.3 million. The reduction in net
    interest income resulted from (a) a 0.70% reduction in yield on assets
    reflecting the lower market interest rate environment, and (b) the $367
    million decrease in average interest earning assets, particularly $1.2
    billion floating rate securities sold in May 2009, offset by growth in
    loans, mortgage backed securities, and other investment securities.  The
    decrease in interest expense resulted from a 0.62% decrease in yield on
    liabilities primarily reflected in lower costs of deposits and certain
    loans payable combined with slightly lower average interest-bearing
    liabilities. Average interest-earning assets decreased from $9.7 billion
    for the second quarter of 2008 to $9.4 billion for the corresponding 2009
    period, while the average interest-bearing liabilities decreased from $8.6
    billion to $8.5 billion, respectively. The reduction in leverage, combined
    with a decline in interest expense, resulted in a contraction of net
    interest margin from 2.02% in the second quarter of 2008 to 1.80% in the
    corresponding 2009 period.
    
--  Doral Financial's provision for loan and lease losses for the quarter
    ended June 30, 2009 amounted to $10.1 million, compared to $10.7 million
    for the corresponding 2008 period. Second quarter results were impacted by
    the effects of continuing deterioration of the Puerto Rico economy on the
    residential real estate market, causing lower home absorption rates on new
    construction, increased defaults on existing mortgages and weakening
    economic situation of existing borrowers. An increase in the provision for
    the residential mortgage portfolio of $3.1 million was offset by decreases
    of $1.6 million and $2.3 million in the provision for loan and lease losses
    of the commercial and construction portfolios, respectively.
    
--  Non-interest income for the second quarter of 2009 was $19.1 million,
    compared to $24.9 million for the corresponding period in 2008. The
    decrease in non-interest income of $5.8 million for the second quarter of
    2009, compared to the same period in 2008, resulted from $6.8 million other-
    than-temporary impairment realized on investment securities in the 2009
    second quarter and a $5.2 million gain recognized in the second quarter of
    2008 from the redemption of shares of VISA, Inc., pursuant to their global
    restructuring agreement partially offset by a gain on investment securities
    of $4.8 million related to the sale of approximately $1.2 billion of its
    floating rate securities and lower losses on trading activities of $2.1
    million.
    
--  Non-interest expense for the second quarter of 2009 was $55.5 million,
    compared to $55.6 million for the corresponding period in 2008. Although
    total non-interest expenses for the second quarter of 2009 remained flat
    compared to 2008 the results were impacted by decreases in operating
    expenses for compensation and benefits, advertising, occupancy and
    depreciation and amortization expenses, largely offset by: (i) an increase
    of $4.2 million related to the FDIC special assessment expense during the
    quarter; and (ii) an increase of $1.1 million in EDP expenses.
    
--  An income tax benefit of $12.7 million for the second quarter of 2009
    was related to a net release of unrecognized tax benefits of $15.5 million.
    The release of unrecognized tax benefits was due to the expiration of the
    statute of limitations and was net of an accrual for unrecognized tax
    benefits of $3.6 million.
    
--  The Company reported other comprehensive losses of approximately $4.2
    million for the second quarter of 2009 compared to $42.7 million for the
    corresponding 2008 period. The Company's other comprehensive loss for the
    second quarter of 2009 resulted principally from the reduction in value of
    securities in its available for sale investment portfolio. As of June 30,
    2009, the Company's accumulated other comprehensive loss (net of income tax
    benefit) totaled $140.2 million, compared to $123.2 million as of December
    31, 2008.
    
--  Doral Financial's loan production for the second quarter of 2009 was
    $291.9 million, compared to $383.3 million for the comparable 2008 period,
    a decrease of approximately 24%. The decrease in Doral Financial's loan
    production for the second quarter of 2009 reflects the reduction in Puerto
    Rico real estate purchase and mortgage lending activity caused by the end
    of the Puerto Rico government tax incentive program for the purchase of new
    homes, changes in laws and regulations and to the general economic
    conditions in Puerto Rico.
    
--  Total assets as of June 30, 2009 amounted to $9.8 billion compared to
    $10.1 billion as of December 31, 2008. A decrease of $569.5 million in the
    Company's securities portfolio was partially offset by increases in cash
    and due from banks of $81.1 million and money market investments of $46.0
    million. Total liabilities were $8.9 billion at June 30, 2009, compared to
    $9.2 billion at December 31, 2008. Total liabilities declined due to a
    decrease of $338.5 million in deposits, which was driven by a decrease of
    $448.0 million in brokered deposits offset by an increase in money markets
    of $141.6 million, and a decrease of $131.3 million in securities sold
    under agreements to repurchase that was partially offset by an increase of
    $205.4 million in other short-term borrowings.
    
--  Non-performing assets as of June 30, 2009 were $889.8 million, an
    increase of $110.6 million since December 31, 2008. Non-performing loans
    (which are included in non-performing assets) as of June 30, 2009 were
    $805.7 million, an increase of $88.0 million since December 31, 2008.
    However, non-performing assets have increased only $7.6 million from the
    March 31, 2009 non-performing asset balance of $882.2 million, and non-
    performing loans decreased $6.1 million from the March 31, 2009 non-
    performing loan balance of $811.8 million.
    

CAPITAL RATIOS

As of June 30, 2009, Doral Bank PR and Doral Bank NY were in compliance with the regulatory defined well capitalized floors applicable to a state non-member bank and federal savings bank, respectively (i.e., total capital and Tier 1 capital to risk weighted assets of at least 10% and 6%, respectively, and Tier 1 capital to average assets of at least 5%).


 REGULATORY CAPITAL RATIOS                    AS OF JUNE 30, 2009
                                     -------------------------------------
                                       DORAL         DORAL        DORAL
                                     FINANCIAL(2)   BANK PR      BANK NY
                                     -----------  -----------  -----------

Total Capital Ratio (Total capital
 to risk-weighted assets)                   15.2%        13.7%        15.9%
Tier 1 Capital Ratio (Tier 1 capital
 to risk-weighted assets)                   13.3%        12.4%        15.4%
Leverage Ratio(1)                            8.2%         6.4%        10.8%

(1) Tier 1 capital to average assets in the case of Doral Financial and
    Doral Bank PR and Tier 1 capital to adjusted total assets in the case
    of Doral Bank NY.
(2) Doral Financial was not subject to regulatory capital requirements
    as of June 30, 2009. Ratios were prepared as if the company were
    subject to the requirement for comparability purposes.


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") 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. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain important factors that could cause actual results to differ materially from those contained in any forward-looking statement:

--  the continued recessionary conditions of the Puerto Rico and the
    United States economies and the continued weakness in the performance of
    the United States capital markets leading to, among other things, (i) a
    deterioration in the credit quality of our loans and other assets, (ii)
    decreased demand for our products and services and lower revenue and
    earnings, (iii) reduction in our interest margins, and (iv) decreased
    availability and increased pricing of our funding sources, including
    brokered certificates of deposits;
    
--  the strength or weakness of the real estate markets and of the
    consumer and commercial credit sectors and its impact in the credit quality
    of our loans and other assets which may lead to, among other things, an
    increase in our non-performing loans, charge-offs and loan loss provisions;
    
--  a decline in the market value and estimated cash flows of our mortgage-
    backed securities and other assets may result in the recognition of other-
    than-temporary impairment of such assets under generally accepted
    accounting principles in the United States of America ("GAAP");
    
--  our ability to derive sufficient income to realize the benefit of the
    deferred tax assets;
    
--  uncertainty about the legislative and other measures adopted by the
    Puerto Rico government in response to its fiscal situation and the impact
    of such measures on several sectors of the Puerto Rico economy;
    
--  uncertainty about the effectiveness of the various actions undertaken
    to stimulate the United States economy and stabilize the United States
    financial markets, and the impact of such actions on our business,
    financial condition and results of operations;
    
--  changes in interest rates, which may result from changes in the fiscal
    and monetary policy of the federal government, and the potential impact of
    such changes in interest rates on our net interest income and the value of
    our loans and investments;
    
--  the commercial soundness of our various counterparties of financing
    and other securities transactions, which could lead to possible losses when
    the collateral held by us to secure the obligations of the counterparty is
    not sufficient or to possible delays or losses in recovering any excess
    collateral belonging to us held by the counterparty;
    
--  our ability to collect payment of a receivable from Lehman Brothers,
    Inc. ("LBI"), which results from the excess of the value of securities
    owned by Doral Financial that were held by LBI above the amounts owed by
    Doral Financial under certain terminated repurchase agreements and forward
    agreement;
    
--  higher credit losses because of federal or state legislation or
    regulatory action that either (i) reduces the amount that our borrowers are
    required to pay us, or (ii) limits our ability to foreclose on properties
    or collateral or makes foreclosures less economically feasible;
    
--  developments in the regulatory and legal environment for financial
    services companies in Puerto Rico and the United States as a result of,
    among other things, recent legislative and regulatory proposals made by the
    federal government;
    
--  changes in our accounting policies or in accounting standards, and
    changes in how accounting standards are interpreted or applied;
    
--  general competitive factors and industry consolidation;
    
--  potential adverse outcome in the legal or regulatory actions or
    proceedings described in Part I, Item 3 "Legal Proceedings" in the
    Company's 2008 Annual Report on Form 10-K, as updated from time to time in
    the Company's future reports with the SEC; and
    
--  the other risks and uncertainties detailed in Part I, Item 1A "Risk
    Factors" in the Company's 2008 Annual Report on Form 10-K, as updated from
    time to time in the Company's future reports filed with the SEC.
    

Contact Information

  • Contacts:
    Investor Relations:
    Roberto Reyna
    SVP Investor Relations
    Email Contact
    787-474-5498

    Media:
    Lucienne Gigante
    VP Public Relations
    Email Contact
    787-474-6298