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Major Bank Failure In Puerto Rico, Including Mainland - Deposit Insurance Fund Hit Of $748.9 Million

The 26 branches of Doral Bank, San Juan, Puerto Rico, were closed with Banco Popular de Puerto Rico, Hato Rey, Puerto Rico, to acquire the banking operations, including all the deposits, of Doral Bank. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $748.9 million. Eight of the branches are in the United States mainland, five being acquired by Centennial Bank, Conway, Arkansas, and three by Banco Popular North America, NY, NY.

Here is list of Branch Locations and Acquiring Banks
https://www.fdic.gov/bank/individual/failed/doral.html

The FDIC entered into two separate agreements to sell $1.3 billion of Doral Bank's assets to other parties. Those sales are expected to close in 30 days. The FDIC will retain the remaining assets for later disposition.

Established October 16, 1981, Doral Bank had 1,086 full time employees at its 26 offices as of December 31, 2014. At this December 31, 2014 date, its Tier 1 risk-based capital ratio was a low 2.72%.

While the downfall actually occurred on Wednesday when the Puerto Rick Appeals Court ruled the local government does not owe Doral Bank $229 million in overpaid taxes, it really began in 2007. Eight consecutive years of losses, high charge offs (mostly real estate and loans to individuals-autos, credit cards, personal loans), and heavy non-current loans, meaning payments quite a bit in arrears. Note the yearly losses, non-current loans, and high charge offs below:

(in millions, unless otherwise)

Profit







 

2006 $19.5
2007 -$196.8
2008 -$132.1
2009 -$36.2
2010 -$260.7
2011 -$11.9
2012 -$90.9
2013 -$80.9
2014 -$336.2

Non-Current Loans

2006 $169.0
2007 $432.0
2008 $657.3
2009 $883.7
2010 $776.6
2011 $644.5
2012 $880.0
2013 $797.0
2014 $674.0

Charge Offs

2006 $6.9 ($4.3 loans to Individuals, $1.2 commercial/industrial, $951,000 nonfarm/nonind., $426,000 construction/land development.
2007 $19.3 ($6.2 loans to individuals, $6.0 construction/land, $2.3 nonfarm/nonres., $1,210 other loans, $921,000 lease financing receivables, $91,000 1-4 family homes
2008 $39.0 ($19.8 construction/land, $8.5 nonfarm/nonres., $7.3 individuals, $1.4 1-4 family residential, $1.0 commercial industrial, $797,000 lease receivables, $134,000 other loans
2009 $41.3 ($17.2 construction/land, $8.7 loans to individuals, $5.9 commercial/industrial, $4.6 nonfarm/nonresidential, $3.3 1-4 family, $757,000 other loans, $706,000 lease financing receivables)
2010 $111.5 ($55.4 construction/land, $26.7 1-4 family, $17,000 nonfarm/nonres.,$7.2 loans to individuals, $$3.2 commercial/industrial, $1.1 lease financing, $651,000 other loans)
2011 $79.3 ($26.4 1-4 family, $26.2 construction/land, $21.3 nonfarm/nonres, $4.5 loans to individuals, $615,000 commercial/industrial, $$603,000 other loans, -$312,000 lease financing)
2012 $118.5 ($58.6 1-4 family residential, $32.3 construction/land, $21.2 nonfarm/nonres.,
$3.1 commercial/industrial, $3.1 individuals, $359,000 other loans, $1,000 lease, -$6 auto loans)
2013 $69.6 ($37.8 1-4 family residential, $17.5 nonfarm/nonres.,$8.8 construction/land, $4.4 commercial industrial, $1.5 loans to individuals, $54,000 other loans, -$450,000 multifamily,
-$26,000 lease financing receivable
2014 $209.8 ($173.1 1-4 family residential property, $19.3 construction/land, $14.7 nonfarm/nonres.,
$1.8 loans to individuals, $488,000 commercial/industrial, $114,000 multifamily, $21,000 other loans, $1,000 lease financing receivables.

Construction and Land, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans (non-owner occupied).

Net Equity

2006 $613.3
2007 $544.1
2008 $507.3
2009 $603.0
2010 $651.7
2011 $648.1
2012 $654.2
2013 $699.9
2014 $427.2

Doral went from 634 full time employees at the end of 2006 to 1,484 full time employees year-end 2007 with the influx of investors.

The New York Times reports, "Hoping to improve its fortunes, the bank recruited Glen R. Wakeman, the head of General Electric's finance unit in Latin America, to become chief executive. It also received an infusion of capital from a group of Wall Street investors - including Goldman Sachs and the hedge funds Perry Capital and Marathon Asset Management.

"But Doral suffered a big blow in June 2011, when one of its top new bankers, Maurice Spagnoletti, an experienced community and regional banker from the mainland, was gunned down on a San Juan highway in what police say was a well-planned execution.

"Doral becomes the fourth United States bank to fail this year. It is the most costly failure since Western Bank, which was also based in Puerto Rico and collapsed in 2010 at a cost of $3.8 billion.

"It is not clear what will happen to Mr. Wakeman, Doral's chief executive, who was one of the highest-paid executives of a Puerto Rico bank, though he had relocated his offices to Miami from San Juan."
http://www.nytimes.com/2015/02/28/business/dealbook/regulators-shut-down-puerto-rico-bank.html

There were several cases of Fraud, a current one discovered in February, regarding $2.3 million, paying $27,288.27 a week to the Doral Bank Vice-President of the Property and Facilities Department.
http://www.fbi.gov/sanjuan/press-releases/2015/former-doral-employee-and-contractor-indicted-for-bank-fraud

problembanklist.com reports, "Puerto Rico has become a black hole for banking. Doral Bank is the fourth large banking failure in Puerto Rico since April 2010 when the Westernbank, Puerto Rico, Premier Bank of Puerto Rico, and Eurobank En Espanol all failed. The four failed banks had total assets of $26.3 billion and resulted in total estimated losses to the FDIC of $6.0 billion.

"More banking failures may be on the way in Puerto Rico as the island's economy continues to contract and the government teeters on the brink of insolvency under a crushing debt load. There is ongoing speculation about a US bailout of Puerto Rico and a subcommittee of the US House of Representatives held a hearing on allowing Puerto Rico public corporations to file for Chapter 9 bankruptcy as reported on by Cumberland Advisors."
http://problembanklist.com/doral-bank-collapses-after-years-of-financial-losses-largest-bank-failure-since-0690/

Banco Popular will operate eight of Doral Bank's 26 former branches. It entered into separate agreements with three banks to acquire 18 of the remaining locations. FirstBank Puerto Rico, Santurce, Puerto Rico, will operate and assume the deposits of Doral Bank's 10 other branches in Puerto Rico; Banco Popular's affiliated bank, Banco Popular North America, will operate all three locations in New York City; and Centennial Bank, Conway, Ark., will operate and assume the deposits of Doral Bank's five branches in the panhandle area of Florida. All depositors were fully protected.

As of December 31, 2014, Doral Bank had approximately $5.9 billion in total assets and $4.1 billion in total deposits. As part of the transaction with the FDIC, Banco Popular will purchase $3.25 billion of Doral Bank's assets. Banco Popular agreed to pay the FDIC a premium of 1.59 percent for the right to assume Doral Bank's deposits.

FDIC Press Release:
https://www.fdic.gov/news/news/press/2015/pr15024.html

List of Bank Failures:
http://www.fdic.gov/bank/individual/failed/banklist.html
Leasing News Bank Beat:
http://www.leasingnews.org/Conscious-Top%20Stories/Bank_Beat.htm

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.