Doral Bank deemed ‘critically undercapitalized’ in examination report

By Caroline Salls

Pittsburgh, Feb. 25 – Doral Financial Corp. principal operating subsidiary Doral Bank received a joint report of examination from the Federal Deposit Insurance Corp. and the Puerto Rico Office of the Commissioner of Financial Institutions and a prompt corrective action letter from the FDIC under which the bank has been deemed “critically undercapitalized” as of Sept. 30.

According to an 8-K filed with the Securities and Exchange Commission, the report covers the period ended Sept. 30.

Operating restrictions

In being deemed to be “critically undercapitalized,” Doral said the bank is subject to operating restrictions.

• Under those restrictions, the bank is prohibited from the following:

• Entering into any transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets or other similar action in which the depository institution is required to provide notice to the appropriate federal banking agency;

• Extending credit for any highly leveraged transaction;

• Amending the institution’s charter or by-laws, except to the extent necessary to carry out any other requirement of any law, regulation or order;

• Making any significant change in accounting methods;

• Engaging in any covered transaction of the Federal Reserve Act, 12 U.S.C. Section 371c(b);

• Paying excessive compensation or bonuses;

• Paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in its normal market areas; and

• Making any principal or interest payment on subordinated debt beginning 60 days after becoming critically undercapitalized.

Compliance directive

Doral said the corrective action letter further directs the bank to develop policies and procedures to ensure compliance with the restrictions set in the Federal Deposit Insurance Act and FDIC Rules and Regulations that apply to “critically undercapitalized” institutions.

In addition, the bank may not accept, renew or roll over brokered deposits; it may not pay a rate of interest on any type of deposit that exceeds the national average for that type of deposit by more than 75 basis points unless it requested and received a high-rate determination from the appropriate FDIC regional office; the bank continues to be deemed to be in “troubled condition” and subject to applicable restrictions; and the bank continues to be subject to a supervisory prompt corrective action directive issued on Jan. 26.

Doral is a holding company based in San Juan, Puerto Rico.

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