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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, 2000
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.
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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
8.35% NONCUMULATIVE MONTHLY INCOME PREFERRED STOCK, SERIES B
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.
$987,549,529 , approximately, based on the last sale price of $29.38
per share on the NASDAQ National Market System on March 6, 2001. 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: 42,582,734 shares as of March 6, 2001. (continued)
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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, 2000 (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.
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
2001 Annual Meeting of stockholders (the
"Proxy Statement").
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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.
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DORAL FINANCIAL CORPORATION
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.............................................................................................. 1
Item 2. Properties............................................................................................ 18
Item 3. Legal Proceedings..................................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders................................................... 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................. 19
Item 6. Selected Financial Data............................................................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................... 20
Item 8. Financial Statements and Supplementary Data........................................................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant................................................... 20
Item 11. Executive Compensation............................................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 20
Item 13. Certain Relationships and Related Transactions....................................................... 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................... 20
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to
the adequacy of the allowance for loan losses, Doral Financial's market risk,
anticipated expansion plans and the effect of legal proceedings on Doral
Financial's financial condition and results of operations. These forward-looking
statements involve certain risks, uncertainties, estimates and assumptions by
management.
Various factors could cause actual results to differ from those
contemplated by such forward-looking statements. With respect to the adequacy of
the allowance for loan losses and market risk, these factors include, among
others: the rate of growth in the economy, the relative strength and weakness in
the mortgage and commercial credit sectors and in the real estate markets, the
performance of the stock and bond markets and the magnitude of interest rate
changes. Moreover, the outcome of litigation, as discussed in "Part I, Item 3.
Legal Proceedings", is inherently uncertain and depends on judicial
interpretations of law and the findings of judges and juries.
GENERAL
Doral Financial Corporation ("Doral Financial" or the "Company"), is a
bank holding company that has elected to operate as a financial holding company
and is engaged in a wide range of mortgage banking, banking, investment,
broker-dealer and insurance agency 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, 2000 for
Doral Financial was $3.2 billion, while the Company had a total servicing
portfolio of approximately $8.8 billion as of the same date.
Doral Financial's main lines of business are described below:
- Mortgage banking -- Doral Financial conducts this business in
Puerto Rico primarily through a division of Doral Financial,
HF Mortgage Bankers, and its subsidiaries, Doral Mortgage
Corporation, Centro Hipotecario de Puerto Rico, Inc., and Sana
Investment Mortgage Bankers, Inc. Doral Financial also
conducts mortgage banking activities in the mainland United
States through Doral Mortgage and its indirect subsidiary,
Doral Money, Inc.
- Banking services -- Doral Financial conducts this business in
Puerto Rico through its commercial banking subsidiary, Doral
Bank ("Doral Bank PR"), and in the New York City metropolitan
area through its federal savings bank subsidiary, Doral Bank,
F.S.B. ("Doral Bank NY").
- Securities services -- Doral Financial conducts this business
in Puerto Rico through its broker-dealer subsidiary, Doral
Securities, Inc.
- Insurance agency -- Doral Financial conducts this business in
Puerto Rico through Doral Insurance Agency, Inc.
Doral Financial's principal strategy is to increase its volume of loan
originations and its servicing portfolio, maximize net interest income, and
further develop other financial services such as banking and insurance agency
services. Doral Financial 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. Doral
Financial 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. Doral
Financial 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 Doral's overall
effective tax rate. Doral Financial 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 Doral Financial for Puerto Rico income tax purposes.
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The Company's strategy is to offer a wide range of financial products
within its mortgage banking, banking, securities and insurance agency 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.
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, 2000, the maximum loan amount for a VA loan was $203,000 and for
FHA loans the maximum ranged from $132,000 to $166,363, for a one-family
dwelling and, depending on the location of the mortgaged property, could go as
high as $262,678 for a four-family dwelling.
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,
2000, 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, 2000, the maximum loan amount for conforming conventional loans was
$275,000.
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.
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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 principal origination channels of the Company's
mortgage banking units are summarized below.
Retail branch network. The Company operates 43 mortgage banking offices
on the Island and two branch offices in the United States. 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.
Wholesale activities. Doral Financial purchases mortgage loans from
other mortgage bankers in Puerto Rico consisting primarily of FHA loans and VA
loans for securitization and resale to institutional investors in the form of
GNMA securities. To a lesser extent, Doral Financial also purchases mortgage
loans on a wholesale basis from U.S. mortgage banking firms. For the years ended
December 31, 2000 and 1999 total loan purchases amounted to approximately $1.1
billion and $529 million, respectively. In addition to purchasing loans form
third parties, 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.
During the third quarter of 1999, the Company closed its Chicago-based
wholesale operations that originated mortgage loans through a network of
independent brokers. This wholesale operation originated approximately $172
million in mortgage loans during 1999 prior to being phased out.
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 $367 million of
mortgage loans to finance the purchase of homes within new housing projects
during the year ended December 31, 2000, compared to $225 million for the year
ended December 31, 1999.
New York multi-family and commercial real estate lending unit. During
1998, Doral Financial established a lending unit in the New York City
metropolitan area, Doral Money, that specializes in originating mortgage loans
secured by income producing multi-family residential and commercial properties.
During the years ended December 31, 2000 and 1999, this unit originated
approximately $26 million and $133 million, respectively, of this type of
mortgage product. With the establishment of Doral Bank NY in October 1999, the
originations of this unit decreased because Doral Bank NY also began to
originate this product.
Construction Loans. Construction loans on residential housing
developments are originated by a specialized unit within the Company's HF
Division and Doral Bank PR.
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.
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
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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 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.
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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" which is incorporated by reference in this report.
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 $1,404,000, $1,319,000 and $946,000, for the
years ended December 31, 2000, 1999 and 1998, 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 its 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, 2000, 1999 and 1998, the Company issued approximately
$651 million, $697 million and $543 million, respectively, in GNMA-guaranteed
mortgage-backed securities.
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 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 years ended December 31, 2000 and 1999,
Doral Financial securitized approximately $457 million and $628 million,
respectively, 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. Since the value of the IOs is based on the
present value of expected future distributions on the underlying mortgage loans
it is subject to substantial fluctuation as a result of changes in prevailing
interest rate. See "Management's Discussion Analysis of Financial Condition and
Results of Operations - Amortization of IOs and Servicing Assets" incorporated
herein by reference. Currently, a liquid secondary market for IOs does not exist
in Puerto Rico. Doral Financial, however, in the past has been able to sell IOs
to financial institutions in private transactions on a regular basis.
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
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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 and 2000
most non-conforming loans were sold on a partial rather than full recourse
basis. As of December 31, 2000, Doral Financial was servicing mortgage loans
with an aggregate principal amount of $1.5 billion on a full or partial recourse
basis. As of December 31, 2000, 1999 and 1998, the Company's maximum aggregate
recourse obligation relating to its mortgage servicing portfolio was
approximately $593.4 million, $608.9 million and $489.1 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. 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, 2000 and 1999, the Company had outstanding,
$43.5 million and $53.6 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, 2000 and 1999, no loans or
mortgage-backed securities were sold with put options by the Company.
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 Doral Financial 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
Doral Financial is engaged in commercial banking activities in Puerto
Rico through its subsidiary, Doral Bank PR. As of December 31, 2000, Doral Bank
PR operated through 22 branches in Puerto Rico. Doral Bank PR offers a variety
of mortgage products similar to those offered by Doral Financial's mortgage
banking units. Like 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, 2000, Doral Bank PR had a
portfolio of mortgage loans held-for-sale of approximately $848 million, which
includes mortgage loans held-for-sale by Doral Bank PR's wholly-owned
subsidiaries, Doral Money and Doral International.
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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 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.
On October 14, 1999, Doral Financial entered the retail banking
business in the New York City metropolitan area through a newly-chartered
federal savings bank 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. Doral Bank NY expects to open
four additional branches in the New York City metropolitan area during 2001.
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.
In addition to originating residential mortgage loans held-for-sale,
Doral Bank PR and Doral Bank NY also originate residential mortgage loans,
construction loans and commercial loans for investment which are classified as
loans receivable. To a lesser extent, they also originate consumer loans. 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.
Doral Bank PR and Doral Bank NY complement their lending activities by
earning fee income, collecting service charges for deposit accounts and other
traditional banking services.
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, 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, 2000, Doral Securities had
more than 2,700 customer accounts with assets of approximately $295 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, 2000,
Doral Securities had $496 million in outstanding reverse repurchase agreements,
of which approximately $487 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.
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.
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Refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Investment Securities" and to Notes 5, 6 and 7 to
Doral Financial's Consolidated Financial Statements for more detailed
information on Doral Financial's investment activities.
INSURANCE AGENCY ACTIVITIES
Taking advantage of the opportunities provided by financial
modernization legislation, Doral Financial entered the insurance agency business
in Puerto Rico commencing on December 1, 2000. Doral Insurance Agency currently
earns commissions by acting as a general agent or agent in connection with the
issuance of insurance policies by unaffiliated insurance companies. Doral
Insurance Agency anticipates continued growth as it expands the products and
services it provides and continues to cross market its services to Doral
Financial's existing customer base.
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. 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.
EMPLOYEES
At March 1, 2001, Doral Financial employed 1,543 persons. Of these,
1,060 were employed in the mortgage banking units with 564 involved in loan
production activities and 205 involved in loan servicing activities. As of such
date, the Company's banking, broker-dealer and insurance operations employed
438, 41, and 4 employees, respectively. None of Doral Financial's employees are
represented by a labor union and Doral Financial considers its employee
relations to be good.
SEGMENT DISCLOSURE
The information contained in Note 32 to the Company's Consolidated
Financial Statements "Segment Information" is incorporated herein by reference.
Puerto Rico is the principal market for Doral Financial. Doral
Financial's Puerto Rico based operations accounted for 87% of the Company's
total assets as of December 31, 2000 and 94% of the Company's total
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revenues for the year then ended. Approximately, 97% of total loan originations
were made in Puerto Rico. The following table sets forth the geographic
composition of the Company's loan originations:
DECEMBER 31,
--------------------------------------
2000 1999 1998
Puerto Rico:
Metropolitan Area .................................................... 59% 50% 47%
Outside the Metropolitan Area ........................................ 38% 39% 42%
United States:
Illinois and adjoining states ........................................ -- 6% 6%
New York/New Jersey .................................................. 3% 5% 5%
Florida .............................................................. (1) (1) (1)
- ---------------
(1) Less than one percent.
MARKET AREA AND COMPETITION
Puerto Rico is Doral Financial's primary service area. The competition
in Puerto Rico for the origination of mortgages loans is substantial.
Competition comes not only from other mortgage bankers but also from major
commercial banks, 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 $30.4 billion ($30.0 billion in 1996
prices) for fiscal 1996 to $41.4 billion ($34.8 billion in 1996 prices) for
fiscal 2000. Since fiscal 1985, personal income per capita has increased
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consistently each fiscal year. In fiscal 2000, personal income per capita was
$9,870. Average employment increased from 1,092,000 in fiscal 1996 to 1,159,000
in fiscal 2000. Average unemployment decreased from 13.8% in fiscal 1996 to
11.0% in fiscal 1999.
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.
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 a change of control, the Office of the
Commissioner is obligated to make such inquiries as it deems necessary
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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.
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 System (the "Federal
Reserve") under the Bank Holding Company Act of 1956 (the "BHC Act"), as 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.
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. Doral Financial's 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 subsidiary 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 with the organization of Doral Bank NY in 1999,
Doral Financial entered into a commitment with the FDIC to
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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 March 11, 2000, Doral Financial became a financial holding company
as permitted by the Gramm-Leach-Bliley Act. 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.
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.
The Gramm-Leach-Bliley Act also modified other laws, including laws
related to financial privacy and community reinvestment. The new financial
privacy provisions generally prohibit financial institutions, including Doral
Financial's mortgage banking and banking subsidiaries from disclosing non-public
personal financial information to third parties unless customers have the
opportunity to "opt out" of the disclosure.
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 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
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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, 2000, based on existing Federal Reserve, OTS and
FDIC guidelines.
THE COMPANY DORAL BANK PR DORAL BANK NY
----------- ------------- -------------
Tier 1 capital ratio (tier 1 capital to risk weighted assets) 18.0% 14.3% 42.2%
Total capital ratio (total capital to risk weighted assets) 18.3% 14.7% 45.4%
Leverage ratio (Tier 1 capital to average assets) 9.2% 7.5% 17.5%
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.
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
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"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, 2000, 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.
Interstate Banking Legislation
Effective June 1, 1997, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") amended the FDIA and
certain other statutes to permit state and national banks with different home
states to merge across state lines, with the approval of the appropriate federal
banking agency, unless the 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
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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 either 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 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.
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.
The Deposit Insurance Funds Act of 1996 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. The current FICO annual assessment rate is 1.96 cents per $1.00
of deposits. As of December 31, 2000, Doral Bank PR and Doral Bank NY had a
deposit base of approximately $1.2 billion and $102 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
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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, 2000 and 1999, Doral Bank PR and Doral Bank NY had a
total of approximately $324.4 million and $295.4 million, respectively, of
brokered deposits. Doral Bank PR and Doral Bank NY use brokered deposits as a
source of long-term funding. Doral Financial does not believe that the FDIC's
brokered deposit regulations has had and will have a material adverse effect on
the funding or liquidity of its banking subsidiaries.
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, 2000, Doral Bank PR had an adequate reserve fund established.
Section 27 of the Banking Law also provides that when a bank suffers a
loss, the loss 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.
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, 2000, the legal lending limit for Doral Bank PR
under this provision based solely on its paid-in capital and reserve fund was
approximately $20.6 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, 2000, the lending limit for loans secured by collateral
worth at least 25% more than the amount of the loan was $45.7 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 two
subsidiaries, Doral Money, Inc., which engages in mortgage banking activities in
the mainland United States, and Doral International, Inc., which is licensed as
an international banking entity under the International Banking Center
Regulatory Act of Puerto Rico (the "IBC Act").
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
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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, 2000, 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 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, 2000.
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."
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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.
REGULATION - INSURANCE OPERATIONS
Doral Insurance Agency, Inc. is registered as a corporate agent and
general agency with the office of the Commissioner of Insurance of Puerto Rico
(the "Commissioner of Insurance"). Doral Insurance Agency is subject to
regulation by the Commissioner of Insurance relating to, among other things,
licencing of employees, sales practices, charging of commissions and obligations
to customers.
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 200,000 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, 2000, 1999 and 1998 were $6,163,000, $4,467,000 and $3,273,000,
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 which is expected to be completed by the fourth quarter of
2001. 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.
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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, 2000 (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 22 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 are as follows:
YEAR ENDED DEC. 31,
---------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Ratio of Earnings to Combined Fixed Charges
Including Interest on Deposits........................................ 1.33x 1.46x 1.51x 1.61x 1.66x
Excluding Interest on Deposits........................................ 1.41 1.59 1.61 1.72 1.75
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Including Interest on Deposits........................................ 1.29x 1.41x 1.50x 1.60x 1.66x
Excluding Interest on Deposits........................................ 1.37 1.52 1.59 1.72 1.75
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.
The principal balance of Doral Financial's long-term obligations
(excluding deposits) and the aggregate liquidation preference of its outstanding
preferred stock on a consolidated basis as of December 31 of each of the last
five years is set forth below.
YEAR ENDED DEC. 31,
------------------------------------------------------------------------------
(In thousands) 2000 1999 1998 1997 1996
------------ ------------ ---------- ---------- ----------
Long-term obligations ....................... $ 1,465,175 $ 1,061,304 $ 189,685 $ 155,100 $ 209,024
Cumulative preferred stock .................. -- $ 8,460 $ 8,460 $ 8,460 --
Non-Cumulative preferred stock .............. $ 124,750 $ 74,750 -- -- --
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.
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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 16, 2001, included as part of the Annual Report to
Shareholders are incorporated herein by reference.
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 2001 Annual Meeting of
stockholders (the "Proxy Statement") filed with the Securities and Exchange
Commission on March 15, 2001.
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 following consolidated financial statements of
Doral Financial and its subsidiaries, together with the report
thereon of the Company's independent auditors
PricewaterhouseCoopers dated February 16, 2001, appearing in
the Annual Report to Shareholders, are incorporated herein by
reference:
Report of Independent Accountants
Consolidated Statements of Financial Condition as of
December 31, 2000 and 1999
Consolidated Statements of Income for each of the
years in the three-year period ended December 31, 2000
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Consolidated Statements of Changes in Stockholders' Equity for
each of the years in the three-year period ended December 31,
2000
Consolidated Statements of Comprehensive Income for each of
the years in the three-year period ended December 31, 2000
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 2000
Notes to Consolidated Financial Statements
(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.
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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.)
1.3 Underwriting Agreement, dated August 29, 2000, among Doral Financial and PaineWebber Incorporated
of Puerto Rico, Popular Securities, Inc., Doral Securities, Inc., Santander Securities Corporation of
Puerto Rico and Salomon Smith Barney, Inc. relating to the sale of the Company's 8.35% Non-
Cumulative Monthly Income Preferred Stock, Series B. (Incorporated herein by reference to exhibit
number 1.1 to the Company's Current Report on Form 8-K dated August 31, 2000.)
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 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.)
3.1(f) Certificate of Designation creating the 8.35% Noncumulative Monthly Income Preferred Stock, Series B,
(Incorporated herein by reference to exhibit number 3.3 of the Company's Registration Statement on
Form 8-A filed with the Commission on August 29, 2000.)
3.1(g) Certificate of Incorporation of Doral Financial, as currently in effect. (Filed herewith.)
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.)
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.)
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.)
4.12 Form of Stock Certificate for 7% Noncumulative Monthly Income Preferred Stock, Series A.
(Incorporated herein by reference to exhibit number 4.1 of the Company's Registration Statement on
Form 8-A filed with the Commission on February 17, 1999.)
4.13 Form of Stock Certificate for 8.35% Noncumulative Monthly Income Preferred Stock, Series B.
(Incorporated herein by reference to exhibit number 4.1 of the Company's Registration Statement on
Form 8-A filed with the Commission on August 29, 2000.)
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.)
10.32 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.)
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).)
23
28
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.)
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.)
24
29
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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. (Incorporated
herein by reference to same exhibit number of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.)
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. (Incorporated
herein by reference to same exhibit number of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.)
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. (Incorporated herein
by reference to same exhibit number of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.)
10.99 Master Loan and Security Agreement, dated as of December 30, 1999, between Doral Financial and
Morgan Stanley Mortgage Capital Inc. (Incorporated herein by reference to same exhibit number of
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.)
10.100 Employment Agreement, dated March 7, 2000, between Doral Mortgage Corporation and Edison Velez.
(Incorporated herein by reference from same exhibit number of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.)
10.101 Second Amendment, dated as of June 23, 2000, to Amended and Restated Credit Agreement (Warehouse
Facility), dated as of June 25, 1999, between Doral Financial, Doral Mortgage Corporation, the lenders
party thereto and Bankers Trust Company, as agent and lender. (Incorporated herein by reference from
the same exhibit number of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.)
10.102 Second Amendment, dated as of June 23, 2000, to Amended and Restated Credit Agreement (Servicing
Facility), dated as of June 25, 1999, between Doral Financial, 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,
2000.)
25
30
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.103 Amended and Restated Master Repurchase Agreement, dated as of June 1, 2000, between Bear Stearns
Mortgage Capital Corporation and Doral Financial Corporation (Incorporated herein by reference to
the same exhibit number to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.)
10.104 Amendment No. 2, dated as of November 6, 2000, to Master Loan and Security Agreement, dated as of
December 30, 1999, between Doral Financial and Morgan Stanley Dean Witter Mortgage Capital Inc.
(Formerly Morgan Stanley Mortgage Capital Inc.) (Filed herewith.)
10.105 Amendment No. 3, dated as of December 22, 2000, to Master Loan and Security Agreement, dated as
of December 30, 1999, between Doral Financial and Morgan Stanley Dean Witter Mortgage Capital Inc.
(Formerly Morgan Stanley Mortgage Capital Inc.) (Filed herewith.)
10.106 Administrative Procedures governing Fixed and Floating Rate Medium-Term Notes, Series A, dated as
of May 14, 1999. (Incorporated by reference to exhibit number 99 of the Company's Current Report
on Form 8-K dated May 14, 1999.)
10.107 Amendment No. 1, dated as of August 5, 2000, to Master Repurchase Agreement, dated as of January 12,
1995, between Merrill Lynch Mortgage Capital Inc., Doral Financial and Doral Mortgage Corporation.
(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, 2000. (Filed herewith.)
21 List of Doral's subsidiaries. (Filed herewith.)
23 Consents of PricewaterhouseCoopers LLP. (Filed herewith.)
The Company has not filed as exhibits certain instruments defining the
rights of holders of debt of the Company not exceeding 10% of the total assets
of the Company and its consolidated subsidiaries. The Company will furnish any
such instruments to the Securities and Exchange Committee upon request.
(b) Reports on Form 8-K.
(1) None.
26
31
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 23, 2001
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:
Chairman of the Board and
/s/ Salomon Levis Chief Executive Officer March 23, 2001
- -------------------------------------------------
Salomon Levis
/s/ Richard F. Bonini Director and March 23, 2001
- ------------------------------------------------- Chief Financial Officer
Richard F. Bonini
/s/ Edgar M. Cullman, Jr. Director March 23, 2001
- -------------------------------------------------
Edgar M. Cullman, Jr.
/s/ John L. Ernst Director March 23, 2001
- -------------------------------------------------
John L. Ernst
/s/ Efraim Kier Director March 23, 2001
- -------------------------------------------------
Efraim Kier
/s/ Zoila Levis Director March 23, 2001
- -------------------------------------------------
Zoila Levis
/s/ A. Brean Murray Director March 23, 2001
- -------------------------------------------------
A. Brean Murray
/s/ Harold D. Vicente Director March 23, 2001
- -------------------------------------------------
Harold D. Vicente
/s/ Ricardo Melendez Vice President and March 23, 2001
- ------------------------------------------------- Principal Accounting Officer
Ricardo Melendez
27