Doral migrating assets to U.S. to reduce local exposure
Upon wrapping up what company officials called “a difficult year,” Doral Financial Corp. is looking to reduce its exposure to Puerto Rico’s economic problems by migrating its assets to its U.S. mainland business, company CEO Glen Wakeman said during a Monday afternoon earnings conference call.
“2013 was a difficult year, as we posted a total year loss of $88 million. The costs of credit and compliance in our Puerto Rico market overwhelmed our progress on several fronts,” said Wakeman.
“In spite of the loss, we maintained compliance with our regulatory consent order and capital requirements, but at a high cost. Although our asset quality and coverage ratios showed improvements, the shrinking economy is driving up carrying costs,” the executive noted.
“The U.S. operations were a bright spot as they continued their strong and profitable growth, contributing $55 million to earnings,” he added.
Although he recognized the government of Puerto Rico had “successfully executed its funding plan,” Doral continues to plan for a prolonged economic recession.
“Strategies are customized to the needs of each borrower and concentrated on maximizing the recovery of our principal. We have had some foresight about the prospects in the island’s economy,” Wakeman said.
“That is why several years ago we discontinued construction and commercial lending in Puerto Rico. Instead we choose to rebuild our U.S. mainline business and reposition our portfolio. Our profile is changing as we continue to reduce our exposure to the island and migrate our assets to the U.S.,” he said.
At present, more than 40 percent of Doral’s loans and almost half of its retail deposits are now based stateside. The U.S. operation’s assets now exceed $2.8 billion, with retail deposits reaching $1.7 billion, he said.
“[We] expect to continue to see solid growth during 2014. The U.S. operations are now essentially funding independently,” Wakeman said.
The bank’s focus on its U.S. mainland business is part of a “good bank/bad bank” strategy rolled out in early 2013, which separates the assets and operations in Puerto Rico from Doral’s mortgage bank.
“Separating the operations has enabled us to develop unique strategies and plans for each unit. Our mortgage bank continues to build on its historical strengths. It is a profitable enterprise that can be further simplified and improved,” Wakeman explained.
For the better part of the last year, Doral has been analyzing borrower needs on a loan-by-loan basis, “seeing the most immediate benefit of those actions in our commercial portfolio where our non-performing assets fell by another $20 million this quarter,” Wakeman said.
Meanwhile, non-performing residential loans were down $3.5 million, he said.
“In Puerto Rico, our mortgage franchise is also contributing for our good bank. We continue to see softness in the mortgage market and our production during the year reflected this environment,” he said. “We are making progress building a good bank that can offset the cost of a bad bank.”
Doral released its earnings for the quarter and year ended Dec. 31, revealing a net loss of $50.9 million for the quarter, compared to a net gain of $28.3 million for the same year-ago three-month period. For the year, Doral reported a net loss of $88.3 million compared to a net loss of $3.3 million for the year ended Dec. 31, 2012.
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