Back to GetFilings.com
1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-17224
DORAL FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PUERTO RICO 66-0312162
(STATE OR OTHER JURISDICTION OF (I.R.S. employer
INCORPORATION OR ORGANIZATION) identification no.)
1159 Franklin D. Roosevelt Avenue
San Juan, Puerto Rico 00920
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code: (787) 749-7100.
-------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1 PAR VALUE
7% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to be
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
$339,788,000, approximately, based on the last sale price of $10 3/4 per
share on the NASDAQ National Market System on March 27, 2000. For the
purposes of the foregoing calculation only, all directors and executive
officers of the registrant and certain related parties of such persons have
been deemed affiliates.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock: 40,428,920 shares as of March 27, 2000. (continued)
===============================================================================
2
DOCUMENTS INCORPORATED BY REFERENCE
PART II
Item 5 Market for Registrant's Common Equity Information in respect to this Item is
and Related Stockholder Matters incorporated into this Annual Report on Form
10-K by reference to the section entitled
"Stock Prices and Dividend Policy" in the
Company's Annual Report to Shareholders
for the year ended December 31, 1999 (the
"Annual Report to Shareholders").
Item 6 Selected Financial Data. Information in response to this Item is
incorporated by reference to the section
entitled "Selected Financial Data" in the
Company's Annual Report to Shareholders.
Item 7 Management's Discussion and Analysis Information in response to this Item is
of Financial Condition and Results of incorporated by reference to the section
Operations. entitled "Management's Discussion and
Analysis of Financial Condition and Results
of Operations" in the Company's Annual
Report to Shareholders.
Item 7A Quantitative and Qualitative Disclosures Information in response to this Item is
About Market Risk. incorporated by reference to the section
entitled "Management's Discussion and
Analysis of Financial Condition and Results
of Operations - Interest Rate Management"
in the Company's Annual Report to
Shareholders.
Item 8 Financial Statements and Supplementary The financial statements and other
Data. information in response to this Item are
incorporated by reference to the Company's
consolidated financial statements included in
the Company's Annual Report to
Shareholders.
3
PART III
Item 10 Directors and Executive Officers of the Information in response to this Item is
Registrant. incorporated into this Annual Report on
Form 10-K by reference to the section
entitled "Election of Directors and Related
Matters" in the Company's definitive Proxy
Statement for use in connection with its 2000
Annual Meeting of stockholders (the "Proxy
Statement").
Item 11 Executive Compensation. Information in response to this Item is
incorporated into this Annual Report on
Form 10-K by reference to the section
entitled "Executive Compensation" in the
Company's Proxy Statement.
Item 12 Security Ownership of Certain Beneficial Information in response to this Item is
Owners and Management. incorporated into this Annual Report on
Form 10-K by reference to the section
entitled "Security Ownership of Management
and Principal Holders" in the Company's
Proxy Statement.
Item 13 Certain Relationships and Related Information in response to this Item is
Transactions. incorporated into this Annual Report on
Form 10-K by reference to the section
entitled "Election of Directors and Related
Matters-Certain Relationships and Related
Transactions" in the Company's Proxy
Statement.
4
DORAL FINANCIAL CORPORATION
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business..................................................................................................1
Item 2. Properties...............................................................................................20
Item 3. Legal Proceedings........................................................................................20
Item 4. Submission of Matters to a Vote of Security Holders......................................................20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................21
Item 6. Selected Financial Data..................................................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............................................21
Item 8. Financial Statements and Supplementary Data..............................................................21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....................22
PART III
Item 10. Directors and Executive Officers of the Registrant......................................................22
Item 11. Executive Compensation..................................................................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................................22
Item 13. Certain Relationships and Related Transactions..........................................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................22
5
PART I
ITEM 1. BUSINESS
GENERAL
Doral Financial Corporation ("Doral Financial" or the "Company"), is a
bank holding company which is engaged in a wide range of mortgage banking,
banking, investment and broker-dealer activities. Doral Financial was founded
in 1972 under the laws of the Commonwealth of Puerto Rico, and is the leading
mortgage banking institution in Puerto Rico in volume of origination of
mortgage loans on single-family residences and in the volume of mortgage loans
serviced. The total volume of loan production for the year ended December 31,
1999 for Doral Financial was $2.72 billion, while the Company had a total
servicing portfolio of approximately $7.6 billion as of the same date.
Doral Financial's mortgage banking business is principally conducted
through five operating units: Doral Mortgage Corporation ("Doral Mortgage"),
Centro Hipotecario de Puerto Rico, Inc. ("Centro"), both wholly-owned
subsidiaries of Doral Financial, SANA Investment Mortgage Bankers, Inc.
("SANA"), a wholly-owned subsidiary of Doral Mortgage, Doral Money, Inc.
("Doral Money"), a wholly-owned subsidiary of Doral Bank ("Doral Bank PR") and
HF Mortgage Bankers Division ("HF Division"), an operating division within
Doral Financial. Doral Financial is engaged in the banking business through
Doral Bank PR, a Puerto Rico commercial bank and through Doral Bank, FSB
("Doral Bank NY"), the Company's newly chartered federal savings bank which
opened for business on October 14, 1999. The Company is also involved in the
securities business through Doral Securities, Inc. ("Doral Securities").
During the second quarter of 1998, Doral Financial established Doral Money
as a vehicle for the Company's expansion into the mainland United States. Doral
Money operates a multi-family and commercial real estate lending unit in the
New York City metropolitan area. During the third quarter of 1999, the Company
phased-out the Chicago residential wholesale operation.
Doral Financial's principal strategy is to increase its volume of loan
originations and its servicing portfolio, maximize net interest income, and
further develop its banking operations. The Company seeks to increase its
volume of loan originations by emphasizing quality customer service and
maintaining the most extensive system of branch offices of any mortgage banking
institution in Puerto Rico. The Company strives to increase the size of its
servicing portfolio by relying primarily on internal loan originations and
supplementing such originations with purchases of loans and mortgage servicing
rights from third parties. The Company seeks to maximize net interest income by
holding mortgage-backed securities, primarily Puerto Rico tax-exempt GNMA
securities backed by Puerto Rico FHA/VA mortgages, for longer periods prior to
sale than most mortgage banking companies. This strategy has the effect of
reducing the Company's overall effective tax rate. The Company also seeks to
increase net interest income by funding, and holding for investment, loans and
investment securities, consisting primarily of residential mortgage loans,
mortgage-backed securities and United States government and agency obligations,
the interest on which is tax-exempt to the Company for Puerto Rico income tax
purposes.
The Company's strategy is to offer a wide range of financial products
within its mortgage banking, banking and securities units. The Company also
intends to pursue opportunities to expand geographically within the mainland
United States, particularly within the New York City metropolitan area and
other areas with large Hispanic populations, through acquisitions, the
establishment of new operations or a combination of both.
6
MORTGAGE BANKING BUSINESS
MORTGAGE LOAN ORIGINATION
Mortgage Loan Products. The Company is an approved seller/servicer for the
Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National
Mortgage Association ("FNMA"), an approved issuer for the Government National
Mortgage Association ("GNMA") and an approved servicer under the GNMA, FNMA and
FHLMC mortgage-backed securities programs. Doral Financial is also qualified to
originate mortgage loans insured by the Federal Housing Administration ("FHA")
or guaranteed by the Veterans Administration ("VA") or by the Rural Housing
Service ("RHS").
The Company makes available a wide variety of mortgage loan products that
are designed to meet consumer needs and competitive conditions. Doral Financial
has traditionally emphasized 15 to 30 year first mortgage loans secured by
single family residences. The Company generally classifies mortgage loans
between those that are guaranteed or insured by the FHA, VA or RHS and those
that are not. The latter type of loans are referred to as conventional loans.
Conventional loans that meet the underwriting requirements for sale or exchange
with FNMA or FHLMC are referred to as conforming loans, while those that do not
are referred to as non-conforming loans.
The Company's current mortgage loan products can be summarized as follows:
FHA and VA loans. These are 15 to 30 year first mortgage loans that
qualify for the insurance program of FHA or the guarantee programs of VA. As of
December 31, 1999, the maximum loan amount for a VA loan was $203,000 and for
FHA loans the maximum ranged from $121,296 to $154,850, depending on the
location of the mortgaged property.
RHS loans. These are 30 year first mortgage loans made to low income
individuals that qualify for the guarantee program of RHS. As of December 31,
1999, the maximum loan amount for an RHS loan was based on an income table
which is revised periodically.
Conforming conventional loans. These are loans that satisfy the
underwriting criteria for sale or exchange through FNMA or FHLMC. As of
December 31, 1999, the maximum loan amount for conforming conventional loans
was $252,700.
Non-conforming loans. These are conventional mortgage loans that do not
qualify for sale or exchange under the standard programs of FNMA or FHLMC. The
principal deviations that do not permit non-conforming loans to qualify for
such programs are relaxed requirements for income verification or credit
history, or a loan amount in excess of those permitted by FNMA or FHLMC. The
Company uses its own credit system to evaluate these loans and generally
requires lower loan-to-value ratios and higher borrower equity. The Company is
not actively involved in originating "sub-prime" mortgage loans to individuals
who are deemed to be a relatively high credit risk.
Second mortgage loans. Included within the Company's non-conforming loan
products are loans secured by second mortgage liens on single family
residences.
Home equity mortgage loans. These loans are generally up to $40,000 and
are secured by first or second mortgages on single family residences. They are
generally made for debt consolidation, home improvements or other individual
credit needs.
Other mortgage loans. The Company also originates construction loans for
owner occupied single family residences and real estate development projects,
as well as land loans and loans secured by income producing residential,
multi-family and commercial properties.
2
7
For additional information on the Company's mortgage loan originations,
refer to Table B included in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section incorporated by
reference in this report.
MORTGAGE ORIGINATION CHANNELS
Doral Financial's strategy is to increase the size of its mortgage serving
portfolio primarily by originations through its retail branch network. The
Company supplements retail originations with wholesale originations that
encompass purchases of loans from third parties and referrals from mortgage
brokers. In Puerto Rico, the Company maintains specialized units for the
origination of construction loans and loans to finance purchases of residences
in new housing developments. The Company's principal origination channels are
summarized below.
Retail branch network. The Company operates 44 mortgage banking offices on
the Island and one branch office each in Miami, Florida and New York City.
Customers are sought through aggressive advertising campaigns in local
newspapers, as well as direct mail and telemarketing campaigns. The Company
emphasizes quality customer service and offers extended operating hours to
accommodate the needs of customers.
Puerto Rico wholesale activities. Doral Financial purchases primarily FHA
loans and VA loans from other mortgage bankers for securitization and resale to
institutional investors in the form of GNMA securities, and, to a lesser
extent, purchases conventional mortgage loans for sale. The Company purchased
approximately $529 million and $354 million of mortgage loans during the years
ended December 31, 1999 and 1998, respectively. In addition, the Company also
originates mortgage loans referred to it by mortgage brokers. At the closing of
the loan, the borrower is required to pay the mortgage broker a fee for the
services it provided.
New housing unit. In Puerto Rico, the Company maintains a special unit
that works closely with residential housing developers and specializes in
originating mortgage loans to finance the acquisition of homes in newly
developed housing projects. The Company originated approximately $225 million
of mortgage loans to finance the purchase of homes within new housing projects
during the year ended December 31, 1999, compared to $190 million for the year
ended December 31, 1998.
U.S. wholesale operation. During the third quarter of 1999, the Company
made a strategic decision to phase-out the wholesale operation conducted
through Doral Money's Chicago unit. This decision was made because management
felt that realized and anticipated returns from this operation did not justify
the investment of additional managerial and financial resources. This wholesale
operation originated mortgage loans through a network of approximately 50
independent mortgage brokers approved by the Company. Most of these mortgage
loans were principally originated in the states of Illinois, Indiana, Ohio,
Kansas, Michigan, Kentucky and Missouri. The mortgage loans originated by the
wholesale unit generally consisted of single family mortgage loans for sale
under the guarantee programs of FNMA or FHLMC. However, to a lesser extent,
this unit also originated adjustable rate non-conforming mortgage loans. During
the years ended December 31, 1999 and 1998, this wholesale unit originated
approximately $172 million and $143 million, respectively, in mortgage loans,
of which approximately 75% and 80%, respectively, were mortgage loans that
qualified for the sale or exchange programs of FNMA or FHLMC.
New York multi-family and commercial real estate lending unit. The
Company's lending operation established in the New York City metropolitan area
during 1998, specializes in originating mortgage loans secured by income
producing multi-family residential and commercial properties. During the years
ended December 31, 1999 and 1998, this unit originated approximately $133
million and $106 million, respectively.
Construction Loans. Construction loans on residential housing
developments are originated by a specialized unit within the Company.
For more information on the Company's loan origination channels, refer to
Table C in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section incorporated by reference in this report.
3
8
LOAN UNDERWRITING
All loan originations, regardless of whether originated through the retail
network, obtained through mortgage brokers or purchased from third parties,
must be underwritten in accordance with the Company's underwriting criteria,
including loan-to-value ratios, borrower income qualifications, debt ratios and
credit history, investor requirements, and title insurance and property
appraisal requirements. Doral Financial's underwriting standards also comply
with the relevant guidelines set forth by HUD, VA, FNMA, FHLMC, federal and
Puerto Rico banking regulatory authorities, private mortgage investment
conduits and private mortgage insurers, as applicable. The Company's
underwriting personnel, while operating within the Company's loan offices, make
underwriting decisions independent of the Company's mortgage loan origination
personnel. Under the Company's quality control plan, Doral Financial reverifies
a portion of the mortgage loans funded each month, to provide reasonable
assurance that the Company's underwriting standards have been satisfied. The
selection of mortgage loans for reverification is done on a sampling basis to
provide quality control coverage for all mortgage loan programs and appraisers.
In addition, Doral Financial reconfirms employment status, the source of down
payment and other key items.
Conventional mortgage loans generally (i) do not exceed 80% (85% for
certain qualifying home purchase transactions through Doral Bank PR) of the
appraised value of the mortgaged property or (ii) are insured by private
mortgage insurance. The maximum loan-to-value ratio on second mortgages
generally does not exceed 80% (including the amount of any first mortgage).
Non-conforming loans, other than jumbo loans to finance home purchases,
generally have a loan-to-value ratio below 70%.
LOAN SERVICING
When the Company sells originated or purchased mortgage loans, it
generally retains the right to service such loans and to receive the related
servicing fees. Doral Financial's principal source of servicing rights has
traditionally been its mortgage loan production. The Company also seeks to
purchase servicing rights in bulk when it can identify attractive
opportunities.
Servicing rights represent a contractual right and not a beneficial
ownership interest in the underlying mortgage loans. Failure to service the
loans in accordance with contract requirements may lead to a termination of the
servicing rights and the loss of future servicing fees. In general, the
Company's servicing agreements are terminable by the investors for cause. There
has been no termination of servicing rights by any mortgage loan owners because
of the failure by the Company to service loans in accordance with its
contractual obligations.
Doral Financial's mortgage loan servicing portfolio is subject to
reduction by reason of normal amortization, prepayments and foreclosure of
outstanding mortgage loans. Additionally, the Company may sell mortgage loan
servicing rights from time to time to other institutions if market conditions
are favorable. Refer to Table D in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section incorporated by
reference in this report for detailed information on the composition and
movement of the Company's mortgage servicing portfolio.
The degree of risk associated with a mortgage loan servicing portfolio is
largely dependent on the extent to which the servicing portfolio is
non-recourse or recourse. In non-recourse servicing, the principal credit risk
to the servicer is the cost of temporary advances of funds. In recourse
servicing, the servicer agrees to share credit risk with the owner of the
mortgage loans such as FNMA or FHLMC or with a private investor, insurer or
guarantor. Losses on recourse servicing occur primarily when foreclosure sale
proceeds of the property underlying a defaulted mortgage loan are less than the
outstanding principal balance and accrued interest of such mortgage loan and
the cost of holding and disposing of the underlying property. The Company often
sells non-conforming loans on a recourse or partial recourse basis. For
additional information regarding recourse obligations, see "--Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Credit Risks Related to Loan Activities."
In the ordinary course of business, Doral Financial makes certain
representations and warranties to purchasers and insurers of mortgage loans and
to the purchasers of servicing rights. In connection with any purchases of
certain
4
9
servicing rights, the Company may have a liability exposure as a guarantor to
the representations and warranties of third party originators. If a loan
defaults and there has been a breach of representations and warranties, the
Company may become liable for the unpaid principal and interest on defaulted
loans. In such a case, the Company may be required to repurchase the mortgage
loan and bear any subsequent loss related to the loan. To date, the impact in
earnings of loans repurchased as a result of borrower misrepresentations has
not been material.
The Company's servicing rights provide a significant continuing source of
income. There is a market in Puerto Rico for servicing rights, which are
generally valued in relation to the present value of the expected cash income
stream generated by the servicing rights. Among the factors which influence the
value of a servicing portfolio are servicing fee rates, loan balances, loan
types, loan interest rates, expected average life of underlying loans (which
may be reduced through foreclosure or prepayment), the value of escrow
balances, delinquency and foreclosure experience, servicing costs, servicing
termination rights of permanent investors, and any recourse provisions.
The market value of, and earnings from, Doral Financial's mortgage loan
servicing portfolio may be adversely affected if mortgage interest rates
decline and mortgage loan prepayments increase. In a period of declining
interest rates and accelerated prepayments, servicing income generated from the
Company's mortgage loan servicing portfolio may also decline through increased
amortization and the recognition of impairment of servicing rights. Conversely,
as mortgage interest rates increase, the market value of the Company's mortgage
loan servicing portfolio may be positively affected. Increases in the rate of
delinquencies and foreclosures on mortgage loans tend to increase the costs
associated with administering mortgage loans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Interest Rate
Management."
HRU, Inc., an entity in which Doral Financial owns a 33% equity interest,
provides electronic data processing and mailing services for the Company's
mortgage servicing operations and earns fees from the Company based on the
volume of mortgage loans serviced. Such fees are determined at fair market
value and amounted to approximately $1,319,000, $946,000 and $1,012,000, for
the years ended December 31, 1999, 1998 and 1997, respectively.
SALE OF LOANS AND SECURITIZATION ACTIVITIES
Residential Mortgage Loans. Doral Financial customarily sells or
securitizes most of the loans that it originates, except for certain loans
originated primarily by the banking subsidiaries and other specialized units of
the Company, which are usually held-to-maturity and classified as loans
receivable. As described below, the Company utilizes various channels to sell
its mortgage products. The Company issues GNMA-guaranteed mortgage-backed
securities, which involve the packaging of FHA loans, RHS loans or VA loans
into pools of $1 million or more ($2.5 million to $5 million for serial notes)
for sale primarily to broker-dealers and other institutional investors. During
the years ended December 31, 1999, 1998 and 1997, the Company issued
approximately $697 million, $543 million and $497 million, respectively, in
GNMA-guaranteed mortgage-backed securities.
Certain GNMA-guaranteed mortgage-backed securities sold by the Company are
in the form of GNMA serial notes. Such pools are composed solely of FHA loans,
RHS loans or VA loans secured by properties located in Puerto Rico. GNMA
securities issued under the serial note program are structured into packages
consisting of notes of different yields and estimated maturities, which range
from 1 to 30 years and have a weighted-average maturity of approximately 12
years, taking into account historical experience with prepayments of the
underlying mortgages. The rates on the serial notes or GNMA pools must be 1/2
of 1% less than the rates on the mortgages comprising the pool. Upon completion
of the necessary processing, the GNMA-guaranteed mortgage-backed securities are
offered for sale to the public through broker-dealers. During years ended
December 31, 1999, 1998 and 1997, Doral Financial issued GNMA serial notes
totaling approximately $186 million, $143 million and $269 million,
respectively.
Conforming conventional loans are generally either sold directly to FNMA,
FHLMC or private investors for cash, or are grouped into pools of $1 million or
more in aggregate principal balance and exchanged for FNMA or FHLMC-issued
mortgage-backed securities, which the Company sells to broker-dealers. In
connection with such
5
10
exchanges, Doral Financial pays guarantee fees to FNMA and FHLMC. The issuance
of mortgage-backed securities provides the Company with flexibility in selling
the mortgage loans that it originates or purchases and also provides income by
increasing the value and marketability of such loans. For the year ended
December 31, 1999, Doral Financial securitized approximately $628 million of
loans into FNMA and FHLMC mortgage-backed securities.
Mortgage loans that do not conform to GNMA, FNMA or FHLMC requirements
(non-conforming loans) are sold in bulk to financial institutions or other
private investors, or are securitized into "private label" mortgage-backed
securities through grantor trusts or REMICs that either are organized by the
Company or third parties and sold through broker-dealers. Most bulk sales of
non-conforming loans are made to local financial institutions. Doral
Financial's bulk sales generally operate very similar to securitization
transactions because when the Company sells the loans it retains the servicing
rights and agrees to pay the purchaser a specified pass-through rate for the
entire pool being purchased. Any amounts received on the mortgages above the
pass-through rate are retained by the Company. The present value of the future
cash flow retained by the Company above standard servicing fees for FNMA or
FHLMC are recognized on the Company's Financial Statements as interest only
strips ("IOs") and recognized currently as income. See "Management's Discussion
Analysis of Financial Condition and Results of Operations Amortization of IOs
and Servicing Assets."
The securitization of non-conforming loans involves the creation of a
grantor trust or REMIC which issues mortgage-backed securities to investors.
These mortgage-backed securities normally consist of several classes of senior,
subordinate and residual certificates. The residual certificates evidence a
right to receive payments on the mortgage loans after payment of all required
amounts on the senior and subordinate certificates are made. To date, credit
enhancement, in the form of an insurance policy and subordination, has
generally been used to improve the credit rating of the senior certificates and
thereby increase their marketability. The Company did not engage in
securitizations on non-conforming loans during the years ended December 31,
1999, 1998 and 1997, because it has been able to obtain greater revenues
through the creation of IOs by bulk sales of whole loans to local financial
institutions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations for the Three Years Ended
December 31, 1999, 1998 and 1997 - Amortization of IOs and Servicing Assets."
Subject to market conditions, the Company may enter into similar securitization
transactions in the future.
Financial Security Assurance, Inc. ("FSA") has insured senior certificates
issued in connection with non-conforming loans securitization transactions. As
part of its arrangement with FSA, Doral Financial has agreed to retain and
pledge to FSA the residual certificates issued by the respective trusts. The
Company also generally retains the subordinate certificates issued in such
transactions. As of December 31, 1999 and 1998, the Company held approximately
$18.0 million and $18.4 million, respectively, in subordinate certificates and
$7.9 million and $2.8 million, respectively, in residual certificates issued in
securitization transactions involving the Company. Currently, a liquid
secondary market for subordinate or residual certificates does not exist in
Puerto Rico. The value of residual certificates represents the present value of
expected future distributions on such certificates over the life of the trusts
and is subject to substantial fluctuations as a result of changes in prevailing
interest rates.
The decision whether to sell non-conforming loans in bulk to local
financial institutions or to securitize such loans through mortgage conduits
depends on market conditions and the relative pricing and other terms of such
alternative sales channels. Similarly, the relative emphasis on the origination
of FHLMC and FNMA conforming loans versus FHA, RHS and VA loans and
non-conforming loans depends on market conditions, including the needs of
borrowers, the relative pricing and return on origination of the different
types of mortgage loans and the maximum loans amounts for the various types of
loans.
While Doral Financial generally sells loans on a non-recourse basis, the
Company at times also engages in the sale or exchange of mortgage loans on a
recourse basis. The sale of non-conforming loans to local financial
institutions are often made on a full or partial recourse basis. Prior to 1997,
recourse obligations had decreased, in part, due to the securitization of
non-conforming loans into private label mortgage-backed securities that were
sold on a non-recourse basis. Since the Company has shifted from selling
non-conforming loans through securitizations to bulk sales of whole loans to
local financial institutions, recourse obligations have increased. However,
during 1999 most non-conforming loans were sold on a partial rather than full
recourse basis. As of December 31, 1999, Doral Financial was servicing mortgage
loans with an aggregate principal amount of $1.0 billion on a full or partial
recourse basis. As of
6
11
December 31, 1999, 1998 and 1997, the Company's maximum aggregate recourse
obligation relating to its mortgage servicing portfolio was approximately
$608.9 million, $489.1 million and $265.5 million, respectively.
From time to time, Doral Financial sells mortgage-backed securities and
mortgage loans subject to put arrangements. Pursuant to these arrangements, the
Company grants the purchaser of the mortgage-backed securities or loans a put
option that grants the buyer the right to sell, and obligates the Company to
buy, the securities or loans at a future date at a negotiated price. Pursuant
to SFAS No. 125, sales of securities or loans with puts are accounted for as
sales or borrowings based on a financial components approach that focuses on
whether control of the asset has been surrendered. As of December 31, 1999 and
1998, the Company had outstanding $53.6 million and $91.5 million,
respectively, in mortgage-backed securities and mortgage loans sold subject to
put arrangements, which expire in varying amounts during 2002. During the years
ended December 31, 1999 and 1998, no loans or mortgage-backed securities were
sold with put options by the Company.
Multi-family Residential and Commercial Loans. The multi-family
residential and commercial mortgage loans originated by the Company's New York
City operation are generally originated with the intent of selling them to
other financial institutions. To date, most sales have been on a partial
recourse basis (up to 10% of the principal amount of the loan sold), with the
recourse provision being eliminated in its entirety 18 to 24 months after sale.
PUERTO RICO SECONDARY MORTGAGE MARKET AND FAVORABLE TAX TREATMENT
In general, the Puerto Rico market for mortgage-backed securities is an
extension of the United States market with respect to pricing, rating of
investment instruments, and other matters. However, Doral Financial has
benefitted historically from certain tax incentives provided to Puerto Rico
residents to invest in FHA and VA loans and GNMA securities backed by such
loans.
Prior to August 1, 1997, the interest received on FHA and VA loans secured
by real property located in Puerto Rico and on GNMA mortgage-backed securities
backed by these loans was exempt from Puerto Rico income taxes. This favorable
tax treatment has historically permitted the Company to sell tax-exempt Puerto
Rico GNMA mortgage-backed securities to local investors at higher prices than
those at which comparable instruments trade in the mainland United States, and
also to reduce its effective tax rate through the receipt of tax-exempt
interest.
On July 22, 1997, the Puerto Rico Internal Revenue Code was amended to
modify the tax-exempt treatment of FHA and VA loans secured by real property in
Puerto Rico and GNMA mortgage-backed securities backed by such loans. Under the
terms of the amendment, effective August 1, 1997, only FHA and VA loans used to
finance the original acquisition of newly constructed housing in Puerto Rico
and mortgage-backed securities backed by such loans qualify for tax-exempt
treatment. The amendment, however, provides a preferential tax rate of 17% for
individuals to be withheld at source with respect to interest received on FHA
and VA loans not qualifying for tax exemption. In addition, the amendment
grandfathered the tax-exempt status of FHA and VA loans originated on or prior
to July 31, 1997 and mortgage-backed securities backed by such loans.
BANKING ACTIVITIES
As of December 31, 1999, Doral Financial's commercial banking subsidiary,
Doral Bank PR, operated through 16 branches in Puerto Rico. Similar to the
Company's mortgage banking units, Doral Bank PR's lending activities are
concentrated primarily on the origination of residential mortgage loans. Most
of such loans are classified as held- for-sale because Doral Bank PR originates
these loans with the intent of selling them in the near future. Mortgage loans
originated by Doral Bank PR are usually sold through the Company's mortgage
banking units. As of December 31, 1999, Doral Bank PR had a portfolio of
mortgage loans held-for-sale of approximately $552.4 million, which includes
mortgage loans held-for-sale by Doral Bank PR's wholly-owned subsidiary, Doral
Money.
Doral Bank PR is a party to a Master Loan Production Agreement with the
Company's mortgage banking units whereby these units are obligated to help
Doral Bank PR meet its stated mortgage loan production goals by, among
7
12
other things, (i) advertising, promoting and marketing to the general public;
(ii) interviewing prospective borrowers and conducting the initial processing
of loan applications, consistent with Doral Bank PR's underwriting guidelines;
and (iii) providing personnel and facilities with respect to the execution of
loan agreements. In the future, Doral Bank PR may determine to engage in direct
mortgage loan originations through its branch network.
Doral Bank PR is also a party to a Master Servicing and Collection
Agreement (the "Master Servicing Agreement") with the Company's mortgage
banking units, whereby these units have agreed to service all of Doral Bank
PR's loans originated after the date of the Master Servicing Agreement. Under
the Master Servicing Agreement, Doral Financial does not, however, purchase the
intangible right to service these loans. The Company is entitled to receive a
servicing fee ranging from 25 to 50 basis points of the outstanding principal
amount of the loans being serviced. Doral Bank PR retains the right to
terminate the Company's servicing rights, without cause, upon notice to the
Company.
In addition to residential mortgage loans held-for-sale, Doral Bank PR
also originates residential mortgage loans, construction loans and commercial
loans for investment which are classified as loans receivable. To a lesser
extent, Doral Bank PR also originates consumer loans. Most commercial and
consumer loans are originated directly by Doral Bank PR. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Loans - Receivable" - for detailed information regarding the Company's portfolio
of loans receivable.
In addition to its lending activities, Doral Bank PR also earns fee income
by collecting service charges for deposit accounts and other traditional
banking services.
On October 14, 1999, Doral Financial entered the retail banking business
in the New York city metropolitan area through a newly-chartered subsidiary,
Doral Bank NY. Doral Bank NY offers retail banking services and products and
currently operates out of a single branch location in the New York City
metropolitan area, and is exploring the possibility of opening other branch
offices in the area.
Doral Bank NY is a party to Master Loan Production and Master Servicing
and Collection Agreements with Doral Financial's mortgage banking units similar
to those in effect for Doral Bank PR.
BROKER-DEALER ACTIVITIES
Doral Financial is involved in the securities business through Doral
Securities, a broker-dealer firm registered with the Securities and Exchange
Commission (the "SEC") and a member of the National Association of Securities
Dealers, Inc. (the "NASD"). Doral Securities provides retail and institutional
brokerage, financial advisory and investment banking services.
Doral Securities' business is generally organized into two units:
institutional and retail. The institutional unit handles the institutional
trading and investment banking activities of the firm. The retail unit, which
employed 24 registered representatives as of December 31, 1999, is responsible
for handling the needs of individual retail clients. Doral Securities is an
introducing broker-dealer for retail transactions with all transactions cleared
through the Pershing Division of Donaldson, Lufkin and Jenrette Securities
Corporation. As of December 31, 1999, Doral Securities had more than 2,000
customer accounts with assets of approximately $226.8 million in such accounts.
Doral Securities also earns interest revenues by acting as an intermediary
between borrowers, including the Company, and lenders of funds utilizing
repurchase and reverse repurchase agreements. As of December 31, 1999, Doral
Securities had $478.8 million in outstanding reverse repurchase agreements, of
which approximately $457.5 million consisted of funds loaned to the Company and
its subsidiaries and which are eliminated in the preparation of Doral
Financial's Consolidated Financial Statements.
Under Regulation K of the Federal Reserve, Doral Securities may only
conduct securities activities "outside the United States." For purposes of
Regulation K, Puerto Rico is considered to be outside the United States. In
addition, under Regulation K, Doral Securities may not engage in underwriting
or dealing in equity securities without the prior approval of the Federal
Reserve, which Doral Securities intends to seek.
8
13
OTHER INVESTMENT ACTIVITIES
As a result of Doral Financial's mortgage securitization activities, the
Company maintains a substantial portfolio of mortgage-backed securities
held-for-trading. As a way of earning interest income, the Company also invests
in investment securities that are classified either as available-for-sale or
held-to-maturity.
Refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Investment Activities" and to Notes 6, 7 and 8 to the
Company's Consolidated Financial Statements for more detailed information on
the Company's investment activities.
PUERTO RICO INCOME TAXES
Doral Financial is subject to a maximum marginal statutory corporation
income tax rate of 39% pursuant to the Puerto Rico Internal Revenue Code of
1994 (the "PR Code").
The Company is also subject to an alternative minimum tax of 22% on its
alternative minimum taxable income. In computing the Company's alternative
minimum taxable income, its interest expense deduction will be reduced in the
same proportion that its exempt obligations (including FHA and VA loans and
GNMA securities) bear to its total assets. Therefore, to the extent that the
Company holds FHA loans or VA loans and other exempt obligations, it may be
subject to the payment of the 22% alternative minimum tax.
Under the PR Code, corporations are not permitted to file consolidated
returns with their subsidiaries and affiliates. Effective for taxable year
commencing after June 30, 1995, the Company is entitled to a 100% dividend
received deduction on dividends received from Doral Bank PR, Doral Mortgage or
any other Puerto Rico subsidiary subject to tax under the PR Code. Effective
July 1, 1995, the PR Code also provided for the elimination of the existing 29%
withholding tax applicable on interest paid to non-resident corporations and
individuals as well as a reduction of the withholding tax applicable to
dividends payable to non-resident corporations and individuals from 25% to 10%.
UNITED STATES INCOME TAXES
Doral Financial and its subsidiaries (other than Doral Bank NY and Doral
Money) are corporations organized under the laws of Puerto Rico. Accordingly,
the Company and its subsidiaries are subject generally to United States income
tax only on their income, if any, from sources within the United States
(excluding Puerto Rico). Prior to 1992, the Company did not earn any income
that was subject to United States income tax. Doral Mortgage operates a branch
in the State of Florida and, accordingly, is subject to both Florida income and
franchise taxes and federal income tax on income effectively connected with the
conduct of the trade or business of this branch. In addition, the United States
may impose a branch profits tax of 30% in the event that profits from the
Florida branch are repatriated to Puerto Rico. Both the federal tax as well as
the branch profit tax may be claimed as a tax credit in Puerto Rico, subject to
certain limitations. Doral Bank NY and Doral Money are subject to both federal
and state income taxes on the income derived from their operations.
Prior to October 1, 1997, Doral Bank PR, as a federal savings association,
was also subject to United States income taxes. It was entitled to a foreign
tax credit for a portion of income taxes paid to the Puerto Rico Treasury
Department. Doral Bank PR had elected to qualify for the benefits provided
under Section 936 of the Internal Revenue Code which allows an income tax
credit for a portion of the United States income taxes attributable to the
earnings derived from sources within Puerto Rico. Following the conversion of
Doral Bank PR to a Puerto Rico commercial bank on October 1, 1997, it became
subject to taxation in substantially the same manner as Doral Financial and the
other Puerto Rico subsidiaries of Doral Financial.
EMPLOYEES
At December 31, 1999, Doral Financial employed 1,444 persons. Of these,
1,094 were employed in the mortgage banking units with 510 involved in loan
production activities and 227 involved in loan servicing activities.
9
14
As of such date, the Company's banking and broker-dealer operations employed
305 and 45 employees, respectively. None of Doral Financial's employees are
represented by a labor union and Doral Financial considers its employee
relations to be good.
REGULATION--MORTGAGE BANKING BUSINESS
The Company's mortgage banking business is subject to the rules and
regulations of FHA, VA, RHS, FNMA, FHLMC, HUD and GNMA with respect to
originating, processing, selling and servicing mortgage loans and the issuance
and sale of mortgage-backed securities. Those rules and regulations, among
other things, prohibit discrimination and establish underwriting guidelines
which include provisions for inspections and appraisals, require credit reports
on prospective borrowers and fix maximum loan amounts, and with respect to VA
loans, fix maximum interest rates. Moreover, lenders such as Doral Financial
are required annually to submit to FHA, VA, RHS, FNMA, FHLMC, GNMA and HUD
audited financial statements, and each regulatory entity has its own financial
requirements. The Company's affairs are also subject to supervision and
examination by FHA, VA, RHS, FNMA, FHLMC, GNMA and HUD at all times to assure
compliance with the applicable regulations, policies and procedures. Mortgage
origination activities are subject to, among others, the Equal Credit
Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement
Procedures Act and the regulations promulgated thereunder which, among other
things, prohibit discrimination and require the disclosure of certain basic
information to mortgagors concerning credit terms and settlement costs. The
Company is also subject to regulation by the Office of the Commissioner of
Financial Institutions of Puerto Rico (the "Office of the Commissioner"), with
respect to, among other things, licensing requirements and establishment of
maximum origination fees on certain types of mortgage loan products. Although
Doral Financial believes that it is in compliance in all material respects with
applicable Federal and Puerto Rico laws, rules and regulations, there can be no
assurance that more restrictive laws or rules will not be adopted in the
future, which could make compliance more difficult or expensive, restrict the
Company's ability to originate or sell mortgage loans or sell mortgage-backed
securities, further limit or restrict the amount of interest and other fees
earned from the origination of loans, or otherwise adversely affect the
business or prospects of the Company.
Each of the Company's mortgage banking subsidiaries that operate in Puerto
Rico is licensed by the Office of the Commissioner as a mortgage banking
institution. Such authorization to act as a mortgage banking institution must
be renewed as of January 1 of each year. In the past, the Company has not had
any difficulty in renewing its authorization to act as a mortgage banking
institution and management is unaware of any existing practices, conditions or
violations which would result in the Company being unable to receive such
authorization in the future. The Company's operations in the mainland United
States are subject to regulation by various state regulators in those states in
which it conducts business.
Section 5 of the Puerto Rico Mortgage Banking Institutions Law (the
"Mortgage Banking Law") requires the prior approval of the Office of the
Commissioner for the acquisition of control of any mortgage banking institution
licensed under the Mortgage Banking Law. For purposes of the Mortgage Banking
Law, the term "control" means the power to direct or influence decisively,
directly or indirectly, the management or policies of a mortgage banking
institution. The Mortgage Banking Law provides that a transaction that results
in the holding of less than 10% of the outstanding voting securities of a
mortgage banking institution shall not be considered a change of control.
Pursuant to Section 5 of the Mortgage Banking Law, upon receipt of notice of a
proposed transaction that may result in change of control, the Office of the
Commissioner is obligated to make such inquiries as it deems necessary to
review the transaction. Under the Mortgage Banking Law, the determination of
the Office of the Commissioner whether or not to authorize a proposed change of
control is final and non-appealable.
10
15
REGULATION-BANKING OPERATIONS
FEDERAL REGULATION
General
Doral Financial is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve (the "Federal
Reserve") under the Bank Holding Company Act of 1956 (the "BHC Act"), as
recently amended by the Gramm-Leach-Bliley Act of 1999 (the "Gramm-Leach-Bliley
Act"). As a bank holding company that has elected to be treated as a financial
holding company under the Gramm-Leach-Bliley Act, Doral Financial's activities
and those of its banking and nonbanking subsidiaries are limited to activities
that are financial in nature. See "Financial Modernization Legislation" for a
description of recent legislation expanding the powers of financial holding
companies. Under the BHC Act, Doral Financial may not, directly or indirectly,
acquire the ownership or control of more than 5% of any class of voting shares
of a bank or another bank holding company, without the prior approval of the
Federal Reserve. In addition, bank holding companies are generally prohibited
under the BHC Act from engaging in nonbanking activities, subject to certain
exceptions.
Doral Bank PR is subject to supervision and examination by applicable
federal and state banking agencies, including the FDIC and the Office of the
Commissioner. Doral Bank NY is subject to supervision and examination by the
Office of Thrift Supervision ("OTS") and the FDIC. The banking subsidiaries are
subject to requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of other investments that may be made and
the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Company's banking subsidiaries.
In addition to the impact of regulation, commercial and savings banks are
affected significantly by the actions of the Federal Reserve as it attempts to
control the money supply and credit availability in order to influence the
economy.
As a creditor and financial institution, Doral Financial's banking
subsidiaries are subject to certain regulations promulgated by the Federal
Reserve Board including, without limitations, Regulation B (Equal Credit
Opportunity Act), Regulation DD (The Truth in Savings Act), Regulation E
(Electronic Funds Transfer Act), Regulation F (Limits on Exposure to Other
Banks), Regulation Z (Truth in Lending Act), Regulation CC (Expedited Funds
Availability Act), Regulation X (Real Estate Settlement Procedures Act),
Regulation BB (Community Reinvestment Act) and Regulation C (Home Mortgage
Disclosure Act).
Holding Company Structure
Doral Bank PR, Doral Bank NY and any other insured depository institution
subsidiaries organized by Doral Financial in the future, are subject to
restrictions under Federal law that govern certain transactions between the
Company or other nonbanking subsidiaries of the Company, whether in the form of
loans, other extensions of credit, investments or asset purchases and sales.
Such transactions by any depository institution subsidiary to the Company, or
to any one nonbanking subsidiary of the Company, are limited in amount to 10%
of the depository institution's capital stock and surplus and, with respect to
all of its nonbanking subsidiaries, to an aggregate of 20% of the transferring
institution's capital stock and surplus. Furthermore, such loans and extensions
of credit by the depository institution subsidiary are required to be secured
in specified amounts and must be at market rates and on terms and conditions
that are consistent with safe and sound banking practices. All other
transactions between the Company or any of its nonbanking subsidiaries and any
of the depository institution subsidiaries, while not subject to quantitative
or collateral requirements, are subject to the requirement that they be on
terms and conditions no less favorable to the banking subsidiary than would be
available to unaffiliated third parties.
Under Federal Reserve policy, a bank holding company such as Doral
Financial is expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such subsidiary bank.
This support may be required at times when, absent such policy, the bank
holding company might not otherwise provide such support. In addition, any
capital loans by a bank holding company to any of its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness
of such subsidiary bank. In connection
11
16
with the organization of Doral Bank NY, Doral Financial entered into a
commitment with the FDIC to maintain Doral Bank NY's ratio of Tier 1 capital to
total assets at a level of not less than 8% throughout its first three years of
operation. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a Federal bank regulatory agency to maintain the
capital of a subsidiary depository institution will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Because the Company is a bank holding company, its right to participate in
the assets of any subsidiary upon the latter's liquidation or reorganization
will be subject to the prior claims of the subsidiary's creditors (including
depositors in the case of depository institution subsidiaries) except to the
extent that the Company may itself be a creditor with recognized claims against
the subsidiary.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution (which term includes both commercial banks and savings banks), the
deposits of which are insured by the FDIC, can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or a
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance. In some circumstances (depending upon the amount of
the loss or anticipated loss suffered by the FDIC), cross-guarantee liability
may result in the ultimate failure or insolvency of one or more insured
depository institutions in a holding company structure. Any obligation or
liability owned by a subsidiary depository institution to its parent company is
subordinated to the subsidiary bank's cross-guarantee liability with respect to
commonly controlled insured depository institutions.
Financial Modernization Legislation
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act, which became effective in most significant respects on
March 11, 2000. Under the Act, bank holding companies, such as Doral Financial,
all of whose depository institutions are "well capitalized" and "well managed",
as defined in the BHC Act, and which obtain satisfactory Community Reinvestment
Act ratings, may elect to be treated as financial holding companies ("FHCs").
FHCs are permitted to engage in a broader spectrum of activities than those
previously permitted to bank holding companies. FHCs can engage in any
activities that are "financial" in nature, including insurance underwriting and
brokerage, and underwriting and dealing in securities without a revenue limit
or a limit on underwriting and dealing in equity securities applicable to
foreign securities affiliates (which include Puerto Rico securities affiliates
for these purposes).
Subject to certain limitations, under new merchant banking rules, FHCs are
also permitted to make investments in companies that engage in activities that
are not financial in nature without regard to the existing 5% limit for
domestic investments and 20% limit for overseas (including Puerto Rico)
investments applicable to bank holding companies that are not FHCs.
On February 18, 2000, Doral Financial filed an election with the Board of
Governors of the Federal Reserve System (the "Board") to become an FHC, which
became effective on March 11, 2000.
Under the Gramm-Leach-Bliley Act, if Doral Financial fails to meet the
requirements for being an FHC and is unable to correct such deficiencies within
certain prescribed time periods, the Board could require Doral Financial to
divest control of its depository institution subsidiaries or alternatively to
cease conducting activities that are not permissible to bank holding companies
that are not FHCs.
Capital Adequacy
Under the Federal Reserve's risk-based capital guidelines for bank holding
companies, the minimum guidelines for the ratio of qualifying total capital
("Total Capital") to risk-weighted assets (including certain off-balance sheet
items, such as standby letters of credit) is 8%. At least half of the Total
Capital is to be comprised of common
12
17
equity, retained earnings, minority interests in unconsolidated subsidiaries,
noncumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, in the case of a bank holding company, less goodwill
and certain other intangible assets discussed below ("Tier 1 Capital"). The
remainder may consist of a limited amount of subordinated debt, other preferred
stock, certain other instruments and a limited amount of loan and lease loss
reserves ("Tier 2 Capital").
The Federal Reserve has adopted regulations that require most intangibles,
including core deposit intangibles, to be deducted from Tier l Capital. The
regulations, however, permit the inclusion of a limited amount of intangibles
related to readily marketable mortgage servicing rights and purchased credit
card relationships and include a "grandfather" provision permitting the
continued inclusion of certain existing intangibles.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to total assets, less goodwill and certain other
intangible assets discussed below (the "Leverage Ratio") of 3% for bank holding
companies that meet certain specified criteria, including that they meet the
highest regulatory rating. All other bank holding companies will be required to
maintain a Leverage Ratio of 3% plus an additional cushion of at least 100 to
200 basis points. The guidelines also provide that banking organizations
experiencing significant internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve will continue to
consider a "tangible Tier 1 Leverage Ratio" and other indicia of capital
strength in evaluating proposals for expansion or new activities. The tangible
Tier 1 leverage ratio is the ratio of a banking organization's Tier 1 Capital,
less all intangibles, to average total assets, less all intangibles.
In 1996, the Federal Reserve and other U.S. Federal bank regulatory
agencies jointly issued a final rule that amended the risk-based capital
guidelines to incorporate a measure for market risk (the "market risk
amendment"). Although compliance is mandatory in 1998 for banking organizations
with extensive trading activities, the market risk amendment permits the bank
regulatory agencies to exclude institutions from the application of the
amendment if certain criteria are met. Doral Financial has requested the
Federal Reserve to be excluded from the application of the market risk
amendment on the basis that the Company's trading activities are primarily
related to its mortgage securitization activities and that they are not the
type of activities contemplated by the market risk amendment. To date, the
Federal Reserve had not acted on the Company's request.
The FDIC and the OTS have established regulatory capital requirements for
state non-member insured banks and savings banks, such as Doral Bank PR and
Doral Bank NY, that are substantially similar to those adopted by the Federal
Reserve for bank holding companies. In addition to the regulatory capital
requirements set forth in the table below, as condition for insurance of
accounts, the FDIC required that Doral Bank NY's Tier 1 capital ratio be
maintained at not less than 8% throughout the first three years of operations
and that it be initially capitalized with $25 million. As Doral Bank NY
continues to increase its assets, its capital ratios can be expected to
decline.
Set forth below are the Company's, Doral Bank PR's and Doral Bank NY's
capital ratios at December 31, 1999, based on existing Federal Reserve, OTS and
FDIC guidelines.
THE COMPANY DORAL BANK PR DORAL BANK NY
----------- ------------- -------------
Tier 1 capital ratio 18.1% 16.3% 155.3%
Total capital ratio 18.4% 16.7% 155.3%
Leverage ratio 8.8% 9.6% 79.5%
Failure to meet capital guidelines could subject a bank holding company or
an insured bank to a variety of enforcement remedies, including, with respect
to an insured bank or savings bank, the termination of deposit insurance by the
FDIC, and to certain restrictions on its business. See "FDICIA" below.
13
18
Bank regulators have in the past indicated their desire to raise capital
requirements applicable to banking organizations beyond current levels.
However, management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels or on what schedule.
FDICIA
Under FDICIA, federal banking regulators must take prompt corrective
action with respect to depository institutions that do not meet minimum capital
requirements. FDICIA and regulations thereunder, establish five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." A
depository institution is deemed to be well capitalized if it maintains a
Leverage Ratio of at least 5%, a risk-based Tier 1 capital ratio of at least 6%
and a risk-based Total Capital ratio of at least 10%, and is not subject to any
written agreement or regulatory directive to meet a specific capital level. A
depository institution is deemed to be adequately capitalized if it is not well
capitalized but maintains a Leverage Ratio of at least 4% (or at least 3% if
given the highest regulatory rating and not experiencing or anticipating
significant growth), a risk based Tier l capital ratio of at least 4% and a
risk-based Total Capital ratio of at least 8%. A depository institution is
deemed to be undercapitalized if it fails to meet the standards for adequately
capitalized institutions (unless it is deemed to be significantly or critically
undercapitalized). An institution is deemed to be significantly
undercapitalized if it has a Leverage Ratio of less than 3%, a risk-based Tier
1 capital ratio of less than 3% or a risk-based Total Capital ratio of less
than 6%. An institution is deemed to be critically undercapitalized if it has
tangible equity equal to 2% or less of total assets. A depository institution
may be deemed to be in a capitalization category that is lower than is
indicated by its actual capital position if it receives a less than
satisfactory examination rating in any one of four categories.
At December 31, 1999, the Company's banking subsidiaries were both well
capitalized. An institution's capital category, as determined by applying the
prompt corrective action provisions of law, may not constitute an accurate
representation of the overall financial condition or prospects of the Company,
Doral Bank PR or Doral Bank NY, and should be considered in conjunction with
other available information regarding the institution's financial condition and
results of operations.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The Federal banking agencies may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
The capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions such as
Doral Bank PR and Doral Bank NY, but they are not directly applicable to bank
holding companies, such as the Company, which control such institutions.
However, Federal banking agencies have indicated that, in regulating holding
companies, they may take appropriate action at the holding company level based
on their assessment of the effectiveness of supervisory actions imposed upon
subsidiary insured depository institutions pursuant to such provisions and
regulations.
14
19
Interstate Banking Legislation
Effective June 1, 1997, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle- Neat Act") amended the FDIA and certain
other statutes to permit state and national banks with different home state of
a participating bank had passed legislation prior to May 31, 1997, expressly
prohibiting interstate mergers. Under the Riegle-Neal Act amendments, once a
state or national bank has established branches in a state, that bank may
establish and acquire additional branches at any location in the state at which
any bank involved in the interstate merger transaction could have established
or acquired branches under applicable Federal or state law. If a state opts out
of interstate branching within the specified time period, no bank in any other
state may establish a branch in the state which has opted out, whether through
an acquisition or de novo.
For purposes of the Riegle-Neal Act's amendments to the FDIA, Doral Bank
PR is treated as a state bank and is subject to the same restrictions on
interstate branching as other state banks. However, for purposes of the
International Banking Act, Doral Bank PR is considered to be a foreign bank and
may branch interstate by merger or de novo to the same extent as a domestic
bank in Doral Bank PR's home state. Because Doral Bank PR does not currently
operate in the mainland United States, it has not designated a "home state" for
purposes of the IBA. It is not yet possible to determine how these statutes
will be harmonized, with respect to which federal agency will approve
interstate transactions or with respect to which "home state" determination
rules will apply.
As a Federal savings bank, Doral NY is subject to the branching
regulations promulgated by the OTS. Such regulations allow Doral Bank NY to
branch on an interstate basis without geographic limitations.
Federal Legislative Proposals
Various other legislation affecting depository institutions and bank
holding companies is from time to time introduced in Congress. Doral Financial
cannot determine the ultimate effect that such potential legislation, if
enacted, or implementing regulations, would have upon the Company's financial
condition or results of operations.
Dividend Restrictions
The payment of dividends by the banking subsidiaries to Doral Financial
may be affected by regulatory requirements and policies, such as the
maintenance of adequate capital. If, in the opinion of the applicable
regulatory authority, a depository institution under its jurisdiction is
engaged in, or is about to engage in, an unsafe or unsound practice (that,
depending on the financial condition of the depository institution, could
include the payment of dividends), such authority may require, after notice and
hearing, that such depository institution cease and desist from such practice.
The Federal Reserve has issued a policy statement that provides that insured
banks and bank holding companies should generally pay dividends only out of
current operating earnings. In addition, all insured depository institutions
are subject to the capital-based limitations required by FDICIA. See "-FDICIA."
See "-Regulation-Banking Operations-Puerto Rico Regulation" for a
description of certain restrictions on Doral Bank PR's ability to pay dividends
under Puerto Rico law. See - "Regulation - Banking Operations - Savings Bank
Regulation", for a description on Doral Bank NY's ability to pay dividends
under OTS regulations.
FDIC Insurance Assessments
The deposits of Doral Bank PR and Doral Bank NY are insured by the Savings
Association Insurance Fund ("SAIF") administered by the FDIC and, accordingly,
the banking subsidiaries are subject to FDIC deposit insurance assessments.
Pursuant to FDICIA, the FDIC has adopted a risk-based assessment system,
under which the assessment rate for an insured depository institution varies
according to the level of risk incurred in its activities. An institution's
risk category is based partly upon whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. Each insured
depository institution is also assigned to one of the following "supervisory
subgroups": "A", "B" or "C". Group "A" institutions are financially sound
institutions with only a few minor
15
20
weaknesses; group "B" institutions are those that demonstrate weaknesses that,
if not corrected, could result in significant deterioration; and group "C"
institutions are those for which there is a substantial probability that the
FDIC will suffer a loss in connection with the institution, unless effective
action is taken to correct the areas of weakness.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("DIFA")
was enacted and signed into law. DIFA repealed the statutory minimum premium,
and currently premiums related to deposits assessed by both the Bank Insurance
Fund ("BIF") and the SAIF are to be assessed at a rate of between 0 cents and
27 cents per $100.00 of deposits.
DIFA also separated, effective January 1, 1997, the Financing Corporation
("FICO") assessment to service the interest on its bond obligations from the
BIF and SAIF assessments. The amount assessed on individual institutions by the
FICO is in addition to the amount, if any, paid for deposit insurance according
to the FDIC's risk-related assessment rate schedules. FICO assessment rates for
1999 were set at basis points annually for BIF-assessable deposits and basis
points annually for SAIF-assessable deposits. These rates may be adjusted
quarterly to reflect changes in assessment bases for the BIF and the SAIF. By
law, the FICO rate on BIF-assessable deposits must be one-fifth the rate on
SAIF-assessable deposits until the insurance funds are merged or until January
1, 2000, whichever occurs first. As of December 31, 1999, Doral Bank PR and
Doral Bank NY had a deposit base of approximately $829.2 million and $17.8
million, respectively, (consisting entirely of SAIF assessment deposits).
Brokered Deposits
FDIC regulations adopted under FDICIA govern the receipt of brokered
deposits. Under these regulations, a bank cannot accept, roll over or renew
brokered deposits (which term is defined also to include any deposit with an
interest rate more than 75 basis points above prevailing rates) unless (i) it
is well capitalized or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank that is adequately capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing
market rates specified by regulation. There are no such restrictions on a bank
that is well capitalized. Doral Financial does not believe the brokered
deposits regulation has had or will have a material effect on the funding or
liquidity of its banking subsidiaries, which are currently well capitalized
institutions.
As of December 31, 1999 and 1998, Doral Bank PR had approximately $295.4
million and $96.8 million, respectively, of brokered deposits. As of December
31, 1999, Doral Bank NY had no brokered deposits. Doral Bank PR uses brokered
deposits as a source of long-term funding.
PUERTO RICO REGULATION
General
As a commercial bank organized under the laws of the Commonwealth of
Puerto Rico, Doral Bank PR is subject to supervision, examination and
regulation by the Office of the Commissioner, pursuant to the Puerto Rico
Banking Act of 1933, as amended (the "Banking Law").
Section 27 of the Banking Law requires that at least 10% of the yearly net
income of Doral Bank PR be credited annually to a reserve fund until such fund
equals 100% of total paid-in capital (preferred and common). As of December 31,
1999, Doral Bank PR had an adequate reserve fund established.
Section 27 of the Banking Law also provides that when a bank suffers a
loss, it must first be charged against retained earnings, and the balance, if
any, must be charged against the reserve fund. If the balance of the reserve
fund is not sufficient to cover the loss, the difference shall be charged
against the capital account of the bank and no dividend may be declared until
the capital has been restored to its original amount and the reserve fund to
20% of the original capital of the institution.
16
21
Section 16 of the Banking Law requires every bank to maintain a legal
reserve which shall not be less than 20% of its demand liabilities, other than
government deposits (federal, state and municipal) secured by actual
collateral. The Office of the Commissioner can, by regulation, increase the
reserve requirement to 30% of demand deposits.
Section 17 of the Banking Law generally permits Doral Bank PR to make
loans on an unsecured basis to any one person, firm, partnership or
corporation, up to an aggregate amount of 15% of the paid-in capital and
reserve fund of the bank and of such other components as the Office of
Commissioner may permit from time to time. As of December 31, 1999, the legal
lending limit for Doral Bank PR under this provision based solely on its
paid-in capital and reserve fund was approximately $15.4 million. If such loans
are secured by collateral worth at least 25% more than the amount of the loan,
the aggregate maximum amount may reach one third of the paid-in capital of the
bank, plus its reserve fund and such other components as the Office of
Commissioner may permit from time to time. As of December 31, 1999, the lending
limit for loans secured by collateral worth at least 25% more than the amount
of the loan was $19.2 million. There are no restrictions under Section 17 on
the amount of loans that are wholly secured by bonds, securities and other
evidences of indebtedness of the Government of the United States or the
Commonwealth, or by current debt bonds, not in default, of municipalities or
instrumentalities of the Commonwealth.
Section 14 of the Banking Law authorizes Doral Bank PR to conduct certain
financial and related activities directly or through subsidiaries, including
finance leasing of personal property, making and servicing mortgage loans and
operating a small-loan company. Doral Bank PR currently operates one
subsidiary, Doral Money, Inc., which engages in mortgage banking activities in
the mainland United States.
The Finance Board, which is a part of the Office of the Commissioner, but
also includes as its members the Secretary of the Treasury, the Secretary of
Commerce, the Secretary of Consumer Affairs, the President of the Planning
Board, and the President of the Government Development Bank for Puerto Rico,
has the authority to regulate the maximum interest rates and finance charges
that may be charged on loans to individuals and unincorporated businesses in
the Commonwealth. The current regulations of the Finance Board provide that the
applicable interest rate on loans to individuals and unincorporated businesses
is to be determined by free competition. The Finance Board also has authority
to regulate the maximum finance charges on retail installment sales contracts,
which are currently set at 21%, and for credit card purchases, which are
currently set at 26%. There is no maximum rate set for installment sales
contracts involving motor vehicles, commercial, agricultural and industrial
equipment, commercial electric appliances and insurance premiums.
SAVINGS BANK REGULATION
As a Federal savings bank, Doral Bank NY's investments, borrowings,
lending, issuance of securities, establishment of branch offices and all other
aspects of its operation are subject to the jurisdiction of the OTS.
Doral Bank NY's payment of dividends is subject to the limitations of the
capital distribution regulation promulgated by the OTS. The OTS' regulation
determines a savings bank's ability to pay dividends, make stock repurchases,
or make other types of capital distributions, according to the institution's
capital position. The rule establishes "safe-harbor" amounts of capital
distributions that institutions can make after providing notice to the OTS,
without constituting an unsafe or unsound practice. Institutions that do not
meet their capital requirements can make distributions with the prior approval
of the OTS.
For savings banks such as Doral Bank NY that meet all applicable capital
requirements, the safe-harbor amount is the greater of (a) 75% of net income
for the prior four quarters, or (b) the sum of (i) the current year's net
income and (ii) the amount that causes the excess of any component of the
association's total capital to be less than only one-half of such excess at the
beginning of the year; so long as the association continues to satisfy
applicable capital requirements after the distribution.
OTS regulations generally permit Doral Bank NY to make total loans and
extensions of credit to one borrower up to 15% of its unimpaired capital and
surplus. As of December 31, 1999, the legal lending limit for Doral Bank NY
under this regulation was approximately $3.7 million. Doral Bank NY's legal
lending limit may be increased
17
22
by an additional 10% of its unimpaired capital and surplus if such additional
extension of credit is fully secured by readily marketable collateral having a
market value as determined by reliable and continuously available price
quotations. Doral Bank NY's expanded aggregate legal lending limit under this
provision was approximately $6.2 million as of December 31, 1999.
CERTAIN REGULATORY RESTRICTIONS ON INVESTMENTS IN COMPANY COMMON STOCK
Because of Doral Financial's status as a bank holding company, owners of
the Company's Common Stock are subject to certain restrictions and disclosure
obligations under various federal laws, including the BHC Act. Regulations
pursuant to the BHC Act generally require prior Federal Reserve approval for an
acquisition of control of an insured institution (as defined) or holding
company thereof by any person (or persons acting in concert). Control is deemed
to exist if, among other things, a person (or persons acting in concert)
acquires more than 25% of any class of voting stock of an insured institution
or holding company thereof. Control is presumed to exist subject to rebuttal,
if a person (or persons acting in concert) acquires more than 10% of any class
of voting stock and either (i) the Company has registered securities under
Section 12 of the Securities Exchange Act of 1934, or (ii) no person will own,
control or hold the power to vote a greater percentage of that class of voting
securities immediately after the transaction. The concept of acting in concert
is very broad and also is subject to certain rebuttable presumptions, including
among others, that relatives, business partners, management officials,
affiliates and others are presumed to be acting in concert with each other and
their businesses.
Section 12 of the Puerto Rico Banking Act requires the prior approval of
the Office of the Commissioner with respect to a transfer of voting stock of a
bank that results in a change of control of the bank. Under Section 12, a
change of control is presumed to occur if a person or group of persons acting
in concert, directly or indirectly, acquire more than 5% of the outstanding
voting capital stock of the bank. The Office of the Commissioner has
interpreted the restrictions of Section 12 as applying to acquisitions of
voting securities of entities controlling a bank, such as a bank holding
company. Under the Puerto Rico Banking Act, the determination of the Office of
the Commissioner whether to approve a change of control filing is final and
non-appealable.
The provisions of the Mortgage Banking Law also only require regulatory
approval for the acquisition of more than 10% of the Company's outstanding
voting securities. See "--Regulation--Mortgage Banking Business."
The above regulatory restrictions relating to investment in the Company
may have the effect of discouraging takeover attempts against the Company and
may limit the ability of persons, other than Company directors duly authorized
by the Company's board of directors, to solicit or exercise proxies, or
otherwise exercise voting rights, in connection with matters submitted to a
vote of the Company's stockholders.
REGULATION-BROKER-DEALER OPERATIONS
Doral Securities is registered as a broker-dealer with the SEC and the
Office of the Commissioner, and is also a member of the NASD. As a registered
broker-dealer, it is subject to regulation by the SEC, the NASD and the Office
of the Commissioner in matters relating to the conduct of its securities
business, including record keeping and reporting requirements, supervision and
licensing of employees and obligations to customers. In particular, Doral
Securities is subject to the SEC's net capital rules, which specify minimum net
capital requirements for registered broker-dealers and are designed to ensure
that broker-dealers maintain adequate regulatory capital in relation to their
liabilities and the size of their customer business.
MARKET AREA AND COMPETITION
Prior to March 1992, Puerto Rico was Doral Financial's exclusive service
area. Although Doral Financial has opened offices in Miami, Florida and New
York, Puerto Rico remains Doral Financial's predominant service area.
The following table sets forth the Company's loan origination composition:
18
23
DECEMBER 31,
-----------------------------------------------
1999 1998 1997
Puerto Rico:
Metropolitan Area................................................. 50% 47% 52%
Outside the Metropolitan Area..................................... 39% 42% 47%
United States:
Illinois and adjoining states..................................... 6% 6% ---
New York/New Jersey............................................... 5% 5% ---
Florida........................................................... (1) (1) 1%
- --------------------------
(1) Less than one percent.
The competition in Puerto Rico for the origination of mortgages is
substantial. Competition comes not only from other mortgage bankers but also
from major commercial banks. There are approximately 55 mortgage banks and 19
commercial banks operating in Puerto Rico, including affiliates of banks
headquartered in the United States, Canada and Spain. Doral Financial competes
principally by offering loans with competitive features, by emphasizing the
quality of its service and pricing its range of products at competitive rates.
THE COMMONWEALTH OF PUERTO RICO, USA
General. Puerto Rico, the fourth largest and most economically developed
of the Caribbean islands, is located approximately 1,600 miles southeast of New
York, New York and 1,000 miles southeast of Miami, Florida. The average flying
time from New York City is approximately 3 1/2 hours and from Miami, Florida 2
1/2 hours. Puerto Rico is approximately 100 miles long and 35 miles wide.
According to estimates of the Puerto Rico Planning Board, the population of
Puerto Rico is approximately to 3.8 million. The Puerto Rico Planning Board
estimates that the San Juan metropolitan area has a population in excess of 1.0
million. The Caribbean region has a population of over 30 million located in
more than 25 principal islands.
Relationship of Puerto Rico with the United States. Puerto Rico has been
under the jurisdiction of the United States since 1898. The United States and
Puerto Rico share a common defense, market and currency. As a U.S.
commonwealth, Puerto Rico exercises virtually the same control over its
internal affairs as a state government does. There is a federal district court
in Puerto Rico and most federal laws are applicable to Puerto Rico. The U.S.
mail system operates in Puerto Rico in the same manner as in the mainland
United States. The people of Puerto Rico are citizens of the United States, but
do not vote in national elections and are represented in Congress by a Resident
Commissioner who has a voice in the House of Representatives but only limited
voting rights. Most federal taxes, except those such as social security taxes
which are imposed by mutual consent, are not levied in Puerto Rico. No federal
income tax is collected from Puerto Rico residents on ordinary income earned
from sources within Puerto Rico, except for federal employees who are subject
to taxes on their salaries.
The Economy. The economy of Puerto Rico is closely integrated with that of
the mainland United States. During the fiscal year ended June 30, 1999,
approximately 87% of Puerto Rico's exports went to the United States mainland,
which was also the source of approximately 60% of Puerto Rico's imports. For
the fiscal year ended June 30, 1999, Puerto Rico experienced a positive
merchandise trade balance of $9.6 billion.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high technology industries
such as pharmaceuticals and electronics. The service sector also plays a major
role in the economy. It ranks second only to manufacturing in contribution to
the gross domestic product and leads all sectors in providing employment. In
recent years, the service sector has experienced significant growth.
Gross product increased from $28.5 billion ($26.0 billion in 1992 prices)
for fiscal 1995 to $38.2 billion ($29.8 billion in 1992 prices) for fiscal
1999, an increase of 34.4% (14.8% in real terms). Since fiscal 1985, personal
19
24
income per capita has increased consistently each fiscal year. In fiscal 1999,
personal income per capita was $9,674 ($8,571 in 1992 prices). Average
employment increased from 1,051,000 in fiscal 1995 to 1,147,000 in fiscal 1999.
Average unemployment decreased from 13.8% in fiscal 1995 to 12.5% in fiscal
1999. The seasonally adjusted unemployment rate for January 2000 was 11.9%.
Future growth in the Puerto Rico economy will depend on several factors
including the condition of the United States economy, the relative stability in
the price of oil imports, the exchange value of the U.S. dollars and the level
of interest rates and changes to existing tax incentive legislation as
discussed below.
The Small Business Job Protection Act, which was signed into law on August
20, 1996, provided for the repeal of Section 936 of the Internal Revenue Code
over a ten year phase-out period for corporations with operations in Puerto
Rico as of August 1995. Section 936 has traditionally provided tax incentives
for U.S. corporations to invest in Puerto Rico. In addition, the Act eliminated
the tax credit for corporations that established operations in Puerto Rico
after October 1995. The elimination of the benefits of Section 936, without the
substitution of another fiscal incentive to attract investment to Puerto Rico,
could have an adverse effect on the future growth of the Puerto Rico economy.
At this point, the Company cannot predict the long-term impact of the repeal of
Section 936 on the economy of Puerto Rico.
ITEM 2. PROPERTIES
The executive and administrative offices of Doral Financial are located
at 1159 Franklin D. Roosevelt Avenue, Puerto Nuevo, San Juan, Puerto Rico and
consist of approximately 11,136 square feet of office space. Doral Mortgage's
executive and administrative offices are located at 650 Munoz Rivera Avenue,
San Juan, Puerto Rico and consist of approximately 33,000 square feet of
office space. Both of these facilities are leased. The Company also leases
additional office space of approximately 170,500 square feet throughout
Puerto Rico. In the mainland United States, the Company leases approximately
9,200 square feet of office space as follows: Florida 1,000 square feet and
New York 8,200 square feet. The Company's leases are for various terms
expiring through 2005 and thereafter. Annual aggregate rental payments made
during the years ended December 31, 1999, 1998 and 1997 were $4,467,000,
$3,273,000 and $2,518,000, respectively. Doral Financial owns a two-acre
parcel of land located in the San Juan metropolitan area on which the Company
is currently constructing a new headquarters building. Adjacent to this
property, Doral Financial also owns two parcels of land with 3,143 square
feet on which two buildings are located. Doral Financial purchased these
parcels and buildings for $2,223,284 in 1999. Doral Financial also owns a
2,000 square foot building and underlying real property where a bank branch
is located. Except for the properties previously described, Doral Financial
does not own any real property other than OREO acquired in the ordinary
course of business. The site for the new headquarters building was purchased
for $3.0 million. Construction costs are estimated at approximately $40.0
million, including the $3.0 million cost of the land.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of Doral Financial's management, the pending and threatened
legal proceedings of which management is aware will not have a material adverse
effect on the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
20
25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is included under the caption "Stock
Prices and Dividend Policy" in Doral Financial's Annual Report to Shareholders
for the year ended December 31, 1999 (the "Annual Report to Shareholders") and
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
information included in Table A commencing on page 20 of the Management's
Discussion and Analysis of Financial Condition and Results of Operations
section of the Company's Annual Report to Shareholders.
The Company's ratios of earnings to fixed charges and earnings to fixed
charges and preferred stock dividends on a consolidated basis for each of the
last five years is as follows:
YEAR ENDED DEC. 31,
----------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Ratio of Earnings to Combined Fixed Charges
Including Interest on Deposits........................................ 1.46x 1.51x 1.61x 1.66x 1.50x
Excluding Interest on Deposits........................................ 1.59 1.61 1.72 1.75 1.54
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Including Interest on Deposits........................................ 1.41x 1.50x 1.60x 1.66x 1.49x
Excluding Interest on Deposits........................................ 1.52 1.59 1.72 1.75 1.53
For purposes of computing these consolidated ratios, earnings consist of
pre-tax income from continuing operations plus fixed charges and amortization
of capitalized interest, less interest capitalized. Fixed charges consist of
interest expenses and capitalized, amortization of debt issuance costs, and the
Company's estimate of the interest component of rental expense. Ratios are
presented both including and excluding interest on deposits. The term
"preferred stock dividends" is the amount of pre-tax earnings that is required
to pay dividends on the Company's outstanding preferred stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
information included in the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of the Company's Annual Report to
Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is incorporated by reference to the
information included under the subcaption "Interest Rate Management" in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations section of the Company's Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Doral Financial, together with
the report thereon of the Company's independent auditors PricewaterhouseCoopers
LLP dated February 25, 2000, included as part of the Annual Report to
Shareholders are incorporated herein by reference.
21
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference
to the section entitled "Election of Directors and Related Matters" contained
in Company's definitive Proxy Statement for its 2000 Annual Meeting of
stockholders (the "Proxy Statement") filed with the Securities and Exchange
Commission on March 16, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference
to the section entitled "Executive Compensation" in the Company's Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Principal
Holders" of the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference
to the section entitled "Election of Directors and Related Matters -- Certain
Relationships and Related Transactions" of the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
(1) Financial Statements.
The consolidated financial statements of Doral Financial and its
subsidiaries, together with the report thereon of the Company's
independent auditors PricewaterhouseCoopers dated February 25, 2000,
appearing in the Annual Report to Shareholders, are incorporated
herein by reference.
(2) Financial Statement Schedules.
All financial schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
(3) Exhibits.
22
27
EXHIBIT
NUMBER Description
- ------- ------------
1.1 Distribution Agreement, dated May 14, 1999, among Doral Financial
Corporation, Merrill Lynch & Co. and Bear, Stearns & Co., Inc.
(Incorporated by reference to the same exhibit number of the
Company's Current Report on Form 8-K dated May 14, 1999.)
1.2 Terms Agreement, dated July 1, 1999, among Doral Financial,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Bear, Stearns & Co. Inc., relating to the offer
and sale of Doral Financial's Medium-Term Senior Notes, Series A
due July 8, 2004. (Incorporated by reference to exhibit number
1.1 of the Company's Current Report on Form 8-K dated July 7,
1999.)
3.1(b) Certificate of Designation creating the 8% Convertible Cumulative
Preferred Stock (Liquidation Preference $1,000 per Share.)
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.)
3.1(c) Second Restated Certificate of Incorporation of Doral Financial.
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.)
3.1(d) Certificate of Designation creating the 7% Noncumulative Monthly
Income Preferred Stock, Series A (Incorporated herein by
reference to exhibit number 3.4 of the Company's Registration
Statement on Form 8-A filed with the Commission on February 17,
1999.)
3.1(e) Certificate of Incorporation of Doral Financial as currently in
effect. (Filed herewith.)
3.1(f) Certificate of Amendment, dated May 13, 1999, to Restated
Certificate of Incorporation. (Incorporated herein by reference
to the same exhibit number of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.)
3.2 By-laws of Doral Financial, as amended as of October 19, 1998.
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.)
4.1 Common Stock Certificate. (Incorporated herein by reference to
the same exhibit number of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.)
4.2 1997 Employee Stock Option Plan (Incorporated herein by reference
to the same exhibit number of the Company's Registration
Statement on Form S-8 (No. 333-31283) filed with the Commission
on July 15, 1997.)
4.3 Loan and Guaranty Agreement among Puerto Rico Industrial,
Tourist, Educational, Medical and Environmental Control
Facilities Financing Authority ("AFICA"), Doral Properties, Inc.
and Doral Financial. (Incorporated herein by reference to exhibit
number 4.1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.)
4.4 Trust Agreement between AFICA and Citibank, N.A. (Incorporated
herein by reference to exhibit number 4.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.)
4.5 Form of Serial and Term Bond (included in Exhibit 4.4 hereof).
4.6 Deed of Constitution of First Mortgage. (Incorporated herein by
reference to exhibit number 4.4 of the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999.)
4.7 Mortgage Note (included in Exhibit 4.6 hereof).
4.8 Pledge and Security Agreement. (Incorporated herein by reference
to exhibit number 4.6 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.)
4.9 Indenture, dated May 14, 1999, between Doral Financial and
Bankers Trust Company, as trustee, pertaining to senior debt
securities. (Incorporated by reference to exhibit 4.1 of the
Company's Current Report on Form 8-K dated May 14, 1999.)
23
28
EXHIBIT
NUMBER Description
- ------- ------------
4.10 Indenture, dated May 14, 1999, between Doral Financial and
Bankers Trust Company, as trustee, pertaining to subordinated
debt securities (Incorporated by reference to exhibit number 4.3
of the Company's Current Report on Form 8-K dated May 14, 1999.)
4.11 Form of Note for Doral Financial's 8.5% Medium-Term Senior Notes,
Series A due July 8, 2004. (Incorporated by reference to exhibit
number 4.1 of the Company's Current Report on Form 8-K dated July
7, 1999.)
10.14 Doral Restricted Stock Plan. (Incorporated herein by reference to
the same exhibit number of the Company's Form 10 filed with the
Commission on October 7, 1988, as amended by Form 8 amendments
thereto.)
10.30 Loan Agreement between Doral and Puerto Rico Island Rental
Limited Dividend Partnership S.E., dated December 27, 1990.
(Incorporated herein by reference to the same exhibit number of
the Company's Registration Statement on Form S-1 (No. 33-39651)
filed with the Commission on March 29, 1991.)
10.32 Warehousing Loan Agreement dated September 8, 1995 between Doral
and Banco Santander Puerto Rico. (Incorporated herein by
reference to the same exhibit number of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.)
10.33 Loan Agreement dated November 25, 1987 between Doral and
Scotiabank de Puerto Rico. (Incorporated herein by reference to
the same exhibit number of the Company's Registration Statement
on Form S-1 (No. 33-39651) filed with the Commission on March 29,
1991.)
10.37 Third Amendment to Loan Agreement dated June 5, 1991 between
Doral and Scotiabank de Puerto Rico. (Incorporated herein by
reference to the same exhibit number of the Company's Annual
Report on From 10-K for the year ended December 31, 1991 (File
No. 0-17224).)
10.40 Insurance and Indemnity Agreement dated as of May 28, 1992,
between Doral and Financial Security Assurance Inc. (Incorporated
herein by reference to the same exhibit number of the Company's
Registration Statement on Form S-2 (No. 33-52292) filed with the
Commission on September 23, 1992.)
10.41 Letter Agreement dated August 20, 1992 between Scotiabank de
Puerto Rico and Doral confirming the renewal of the Loan
Agreement dated November 25, 1987. (Incorporated herein by
reference to the same exhibit number of the Company's
Registration Statement on Form S-2 (No. 33-52292) filed with the
Commission on September 23, 1992.)
10.42 Financing Agreement dated May 14, 1992, between Doral and Banco
Popular de Puerto Rico. (Incorporated herein by reference to the
same exhibit number of the Company's Registration Statement on
Form S-2 (No. 33-52292) filed with the Commission on September
23, 1992.)
10.44 Addendum to Warehousing Loan Agreement dated August 1, 1991,
between Doral and Banco Santander Puerto Rico. (Incorporated
herein by reference to the same exhibit number of the Company's
Registration Statement on Form S-2 (No. 33-52292) filed with the
Commission on September 23, 1992.)
10.45 Addendum to Warehousing Loan Agreement dated May 29, 1992,
between Doral and Banco Santander Puerto Rico. (Incorporated
herein by reference to the same exhibit number of the Company's
Registration Statement on Form S-2 (No. 33-52292) filed with the
Commission on September 23, 1992.)
10.46 Letter Agreement dated November 28, 1988 amending the Loan
Agreement between Doral and Scotiabank de Puerto Rico dated
November 25, 1987. (Incorporated herein by reference to the same
exhibit number of the Company's Registration Statement on Form
S-2 (No. 33-52292) filed with the Commission on September 23,
1992.)
10.47 Amendment dated June 29, 1989 to the Loan Agreement between Doral
and Scotiabank de Puerto Rico dated November 25, 1987.
(Incorporated herein by reference to the same exhibit number of
the Company's Registration Statement on Form S-2 (No. 33-52292)
filed with the Commission on September 23, 1992.)
24
29
EXHIBIT
NUMBER Description
- ------- ------------
10.51 Master Repurchase Agreement, dated March 24, 1993, between Doral
and Bear Sterns Mortgage Capital Corporation. (ncorporated by
reference to exhibit number 19.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993 (File
No. 0-17224).)
10.52 Amended and Restated Master Production Agreement, dated as of
October 1, 1995, between Doral, Doral Mortgage and Doral Bank,
Master Production Agreement, dated as of October 1, 1995, between
Doral, Doral Mortgage and Doral Bank. (Incorporated by reference
to exhibit number 19.3 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 (File No.
0-17224).)
10.53 Master Purchase, Servicing and Collection Agreement, dated as of
September 15, 1993, between Doral and Doral Bank. (Incorporated
by reference to exhibit number 19.4 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993
(File No. 0-17224).)
10.57 Master Repurchase Agreement among Merrill Lynch Mortgage Capital,
Inc., Doral and Doral Mortgage together with Supplemental Terms
to Master Repurchase Agreement, each dated as of January 12,
1995. (Incorporated herein by reference to the same exhibit
number of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.)
10.59 Demand Note dated December 9, 1994. (Incorporated herein by
reference to the same exhibit number of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.)
10.60 Form of Medium Term Note, 1994 Series Puerto Rico-A.
(Incorporated herein by reference to the same exhibit number of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
10.62 Exchange Agreement dated July 9, 1997, between Doral and Popular,
Inc. (Incorporated herein by reference to the same exhibit
number of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997.)
10.63 Financing Agreement dated October 10, 1995, between Doral and
Banco Santander together with related Assignment and Pledge
Agreements. (Incorporated herein by reference to the same exhibit
number of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995.)
10.64 Master Servicing and Collection Agreement dated October 1, 1995,
between Doral and Doral Bank. (Incorporated herein by reference
to the same exhibit number of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.)
10.65 Employment Agreement, dated as of February 25, 1998, between
Doral and Frederick C. Teed. (Incorporated herein by reference to
the same exhibit number of the Company's Annual Report on Form
10-K for the year ended December 31, 1998.)
10.66 First Amendment to Master Servicing and Collection Agreement,
dated as of March 1, 1996, between Doral and Doral Bank.
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.)
10.67 First Amendment to Amended and Restated Master Production
Agreement, dated as of March 1, 1996, between Doral, Doral
Mortgage Corporation and Doral Bank, respectively. (Incorporated
herein by reference to the same exhibit number of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.)
10.69 Indenture, dated as of October 10, 1996, between the Company and
Bankers Trust Company, as trustee, including form of Senior Note.
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report For 8-K, dated October 10, 1996.)
10.72 Employment Agreement, dated May 1, 1997 between Doral Bank and
Jose G. Vigoreaux. (Incorporated herein by reference to the same
exhibit number of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997.)
10.73 Credit Agreement dated November 5, 1997, between Doral, Doral
Mortgage, the lender party thereto and Bankers Trust Company as
Agent. (Incorporated herein by reference to the same exhibit
number of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.)
25
30
EXHIBIT
NUMBER Description
- ------- ------------
10.78 Form of Stock Option Agreement for use under 1997 Employee Stock
Option Plan. (Incorporated herein by reference to the same
exhibit number of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.)
10.79 First Supplemental Indenture, dated as of October 19, 1998,
between the Company and Bankers Trust Company. (Incorporated
herein by reference to the same exhibit number of the Company's
Current Report on Form 8-K dated October 19, 1998.)
10.83 Employment Agreement with Francisco Rivero dated June 29, 1998.
(Incorporated by reference to the same exhibit number of the
Company's Annual Report on Form 10-K for the year ended December
31, 1998.)
10.85(a) Credit Agreement, dated as of April 9, 1999, between FirstBank
Puerto Rico and the Company. (Incorporated herein by reference to
the same exhibit number of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.)
10.85(b) First Amendment, dated as of May 13, 1999, to Credit Agreement,
dated as of April 9, 1999, between FirstBank Puerto Rico and the
Company. (Incorporated herein by reference to the same exhibit
number of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.)
10.86 Warehousing Loan Agreement, dated as of April 29, 1999, among
Doral Financial, Doral Mortgage Corporation and Citibank, N.A.
(Incorporated herein by reference to the same exhibit number of
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.)
10.87 Purchase Contract, dated as of August 3, 1999, among Doral
Mortgage Corporation, Nancy Hernandez and Salomon Levis.
(Incorporated by reference to the same exhibit number of the
Company's Current Report on Form 8-K dated August 3, 1999.)
10.88 Amended and Restated Credit Agreement (Warehouse Facility), dated
as of June 25, 1999, between Doral Financial Corporation, Doral
Mortgage Corporation, the lenders party thereto and Bankers Trust
Company, as agent and lender. (Incorporated herein by reference
to the same exhibit number of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.)
10.89 Amended and Restated Credit Agreement (Servicing Facility), dated
as of June 25, 1999, between Doral Financial Corporation, Doral
Mortgage Corporation, the lenders party thereto and Bankers Trust
Company, as agent and lender. (Incorporated herein by reference
to the same exhibit number of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999.)
10.90 Employment Agreement, dated as of December 22, 1999, between the
Company and Salomon Levis. (Incorporated by reference to the same
exhibit number of the Company's Current Report on Form 8-K dated
December 22, 1999.)
10.91 Employment Agreement, dated as of December 22, 1999, between the
Company and Zoila Levis. (Incorporated by reference to the same
exhibit number of the Company's Current Report on Form 8-K dated
December 22, 1999.)
10.92 Employment Agreement, dated as of December 22, 1999, between the
Company and Richard F. Bonini. (Incorporated by reference to the
same exhibit number of the Company's Current Report on Form 8-K
dated December 22, 1999.)
10.93 Employment Agreement, dated as of December 22, 1999, between the
Company and Mario S. Levis. (Incorporated by reference to the
same exhibit number of the Company's Current Report on Form 8-K
dated December 22, 1999.)
10.94 Note Purchase Agreement, dated September 17, 1999 (including form
of Senior Note). (Incorporated by reference to exhibit number
10.88 of the Company's Current Report on Form 8-K dated October
7, 1999.)
10.95 Master Repurchase Agreement, dated as of June 4, 1999, between
Doral Financial and Bear Stearns Mortgage Capital Corporation.
(Incorporated by reference to exhibit number 10.89 of the
Company's Current Report on Form 8-K dated October 7, 1999.)
10.96 First Amendment, dated as of November 30, 1999, to Amended and
Restated Credit Agreement (Warehouse Facility), dated as of June
25, 1999, between Doral Financial Corporation, Doral Mortgage
Corporation, the lenders party thereto and Bankers Trust Company,
as agent and lender. (Filed herewith.)
26
31
EXHIBIT
NUMBER Description
- ------- ------------
10.97 First Amendment, dated as of November 30, 1999, to Amended and
Restated Credit Agreement (Servicing Facility), dated as of June
25, 1999, between Doral Financial Corporation, Doral Mortgage
Corporation, the lenders party thereto and Bankers Trust Company,
as agent and lender. (Filed herewith.)
10.98 First Amendment, dated as of December 23, 1999, to Warehousing
Loan Agreement, dated as of April 29, 1999, among Doral
Financial, Doral Mortgage Corporation and Citibank, N.A. (Filed
herewith.)
10.99 Master Loan and Security Agreement, dated as of December 30,
1999, between Doral Financial and Morgan Stanley Mortgage Capital
Inc. (Filed herewith.)
12(a) Computation of Ratio of Earnings to Fixed Charges. (Filed
herewith.)
12(b) Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends. (Filed herewith.)
13 Annual Report to Shareholders for the year ended December 31,
1999. (Filed herewith.)
21 List of Doral's subsidiaries. (Filed herewith.)
23 Consent of PricewaterhouseCoopers LLP. (Filed herewith.)
27 Financial Data Schedule (Edgar version only). (Filed herewith.)
99 Administrative Procedures governing Fixed and Floating Rate
Medium-Term Notes, Series A, dated as of May 14, 1999.
(Incorporated by reference to the same exhibit number of the
Company's Current Report on Form 8-K dated May 14, 1999.)
(b) Reports on Form 8-K.
(1) Current Report on Form 8-K ("Form 8-K"), dated October 7, 1999,
reporting under Item 5 "Other Events" the Company's unaudited results for the
quarter and nine months ended September 30, 1999 and the issuance on September
19, 1999 of $29 million of the Company's unsecured senior notes.
(2) Form 8K, dated December 22, 1999, reporting under Item 5 - "Other
Events" the execution of new employment agreements with Salomon Levis, the
Chairman of the Board and Chief Executive Officer of the Company, as well as
with Zoila Levis, its President, Richard F. Bonini, its Senior Executive Vice
President and Chief Financial Officer, and Mario S. Levis, its Executive Vice
President and Treasurer.
27
32
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Doral Financial Corporation has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
DORAL FINANCIAL CORPORATION
By: /s/ SALOMON LEVIS
-------------------------------
Salomon Levis
Chairman of the Board and
Chief Executive Officer
Date: March 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ SALOMON LEVIS Chairman of the Board and
- -------------------------------------------- Chief Executive Officer March 27, 2000
Salomon Levis
/s/ RICHARD F. BONINI Director and
- -------------------------------------------- Chief Financial Officer March 27, 2000
Richard F. Bonini
/s/ EDGAR M. CULLMAN, JR.
- -------------------------------------------- Director March 27, 2000
Edgar M. Cullman, Jr.
/s/ JOHN L. ERNST
- -------------------------------------------- Director March 27, 2000
John L. Ernst
/s/ EFRAIM KIER
- -------------------------------------------- Director March 27, 2000
Efraim Kier
/s/ ZOILA LEVIS
- -------------------------------------------- Director March 27, 2000
Zoila Levis
/s/ A. BREAN MURRAY
- -------------------------------------------- Director March 27, 2000
A. Brean Murray
/s/ HAROLD D. VICENTE
- -------------------------------------------- Director March 27, 2000
Harold D. Vicente
/s/ RICARDO MELENDEZ Vice President and
- -------------------------------------------- Principal Accounting Officer March 27, 2000
Ricardo Melendez
28