The accounting issues that have plagued Puerto Rican banking companies since last year may soon claim their sixth victim.
Oriental Financial Corp. of San Juan said late Wednesday that it may have a problem with its accounting of mortgage purchases made on the island.
W Holding Co. Inc., which had already disclosed its accounting problems, restated several years of results on Thursday and reported its fourth-quarter and full-year earnings.
At the moment, five of the eight banking companies headquartered in Puerto Rico have restated earnings or announced plans to do so.
Oriental gave few details about its problem, and it did not disclose the kind of transactions it is reviewing.
However, analysts said they believe its problem is related to one that has plagued the island's banks since last spring, when the two largest mortgage lenders there, Doral Financial Corp. and R&G Financial Corp., notified investors that they had to change the way they valued their interest-only strips. The San Juan companies' announcements had a domino effect, as banking companies that bought mortgages from Doral and R&G had to change their accounting.
First BanCorp. was the third San Juan company to report accounting issues last year, followed by W Holding. This month Santander Bancorp, a San Juan company majority owned by Banco Santander Central Hispano SA of Madrid, surprised Wall Street with a restatement of its own when it reported fourth-quarter earnings.
The other two banking companies based in Puerto Rico, Popular Inc. and EuroBancshares Inc., have not announced accounting issues.
On Wednesday, Oriental said that it would be unable to file its annual earnings report with the Securities and Exchange Commission by Thursday's deadline, because its review of certain transactions may result in restatements for the first and second quarter 2005.
W Holding, of Mayaguez, said Thursday that its accounting change would shave $8.2 million off its noncash earnings - $5.6 million for 2001 through the third quarter of last year, and $2.6 million for the fourth quarter.
The market now awaits full-year earnings reports from Doral, R&G, and First BanCorp. Doral has restated results for 2000 through 2004, while R&G and First BanCorp have yet to restate.
Puerto Rican bank stocks, which have been volatile since the issues began, have recovered some balance since the restatements started trickling out. On Thursday, shares of Oriental fell 0.3%, while W Holding rose 2.3%.
On Thursday, W Holding also reported that fourth-quarter profits fell 32.7%, to $30.2 million. It blamed the drop on the flat yield curve, though it also more than doubled its loan-loss provision, to $14 million.
The $16.2 billion-asset company said it is taking market share in commercial lending from others on the island. The commercial real estate loan book rose 10.2% from the third quarter and 35.1% from a year earlier, to $4.3 billion. Such loans made up more than half of the company's loan portfolio. Total loans rose 35.5% from a year earlier, to $7.8 billion.
Deposits rose 34.1%, to $8.4 billion, 96% of which were interest-bearing.
Loan losses almost tripled from a year earlier, to $8.2 million, because W Holding charged off $5.3 million of an asset-based loan it acquired in 2001. Nonperforming loans rose 86.6%, to $64 million.
However, W Holding said, "asset quality continues to be strong." Last year it charged off only 0.27% of loans and reported 0.81% of loans as nonperforming.
Eric Rothmann, an analyst at Brean Murray, Carret & Co. LLC, said W Holding's credit quality appears reasonable. But others said the increase in losses and nonperformers confirms a trend they had spotted recently in several companies' call reports with the Federal Deposit Insurance Corp.: a broad deterioration of credit quality.
EuroBancshares, of San Juan, reported rising losses and nonperformers when it reported earnings Feb. 23.
"It is fair to say that there will be more deterioration in credit quality," said Thomas J. Monaco of Sterne, Agee & Leach Group Inc., who covered W Holding and several other Puerto Rican banking companies for Moors & Cabot Inc. until he left the company two weeks ago. (See story page 2.)
W Holding's operating earnings of 14 cents a share fell 2 cents short of the average estimate of analysts, according to Thomson First Call. Revenue fell 11.5% from a year earlier, to $68.2 million, because of a fall in noninterest income and severe compression of the company's net interest margin.
