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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 0-17224
 DORAL FINANCIAL CORPORATION
  Puerto Rico
(State or other jurisdiction of
incorporation or organization)
    
    66-0312162
(I.R.S. employer
identification number)1451 F.D. Roosevelt Avenue,
San Juan, Puerto Rico
(Address of principal executive offices)
    
    00920-2717
(Zip Code)
   
  o þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
  o þ




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##### 



DORAL FINANCIAL CORPORATION
INDEX PAGE
 PAGEPART I  FINANCIAL INFORMATION
    
    
    3Item 1  Financial Statements
    
    
    3Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Income (Unaudited)  Quarters Ended March 31, 2005 and March 31, 2004 (As Restated)
    
    
    4Consolidated
Statements of Changes in Stockholders Equity (Unaudited)  Quarters Ended March 31, 2005 and March 31, 2004 (As Restated)
    
    
    5Consolidated
Statements of Comprehensive Income (Unaudited)  Quarters Ended March 31, 2005 and March 31, 2004 (As Restated)
    
    
    6Consolidated
Statements of Cash Flows (Unaudited)  Quarters Ended March 31, 2005 and March 31, 2004 (As Restated)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2
 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 3
 Quantitative and Qualitative Disclosures about Market Risk
    
    
    71Item 4
 Controls and Procedures
    
    
    72PART II  OTHER INFORMATION
    
    
    72Item 1
 Legal Proceedings
    
    
    72Item 1A
 Risk Factors
    
    
    73Item 2
 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    73Item 3

 Defaults Upon Senior Securities
    
    
    73Item 4

 Submission of Matters to a Vote of Security Holders
    
    
    73Item 5
 Other Information
    
    
    73Item 6
 Exhibits
    
    
    74SIGNATURES
    
    
    75EX-3.2 BYLAW OF DORAL FINANCIAL CORPORATIONEX-12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-12.2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDSEX-31.1 CEO CERTIFICATION PURSUANT TO SECTION 302EX-31.2 CFO CERTIFICATION PURSUANT TO SECTION 302EX-32.1 CEO CERTIFICATION PURSUANT TO SECTION 906EX-32.2 CFO CERTIFICATION PURSUANT TO SECTION 906
  i




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EXPLANATORY NOTE
    FORWARD LOOKING STATEMENTS
   
    
    Doral Financials ability to attract new clients and retain existing clients;
    
    Doral Financials ability to retain and attract key employees;
    
    Doral Financials ability to successfully implement new business strategies;
    
    risks associated with the effects of global, national and regional economic and
political conditions, including with respect to fluctuations in interest rates;
    
    potential adverse developments in connection with the ongoing Securities and
Exchange Commission (SEC) investigation or the request for information from the
U.S. Attorneys Office for the Southern District of New York;
    
    potential adverse developments from ongoing enforcement actions by bank
regulatory agencies;
    
    potential adverse developments in connection with ongoing shareholder litigation
against the Company;
    
    risks associated with the Companys inability to prepare and timely file financial statements;
    
    potential further downgrades in the credit ratings of the Companys securities;
    
    risks arising from material weaknesses in the Companys internal control over
financial reporting; and




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
    
    developments from changes in the regulatory and legal environment for financial
services companies in Puerto Rico and the United States.
   2




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
 (UNAUDITED)
 MARCH 31,
    
    
    DECEMBER 31,2005
    
    
    2004ASSETSCash and due from banks
    
    $
    76,287
    
    
    $
    64,940Money market investments:Money market investments with creditors right to repledge
    
    
    894,768
    
    
    
    806,849Other money market investments
    
    
    1,783,731
    
    
    
    1,663,937Total money market investments
    
    
    2,678,499
    
    
    
    2,470,786Pledged investment securities that can be repledged:Securities held for trading, at fair value (includes fair value of IOs of $12,233 in 2005;
$14,673 in 2004)
    
    
    261,525
    
    
    
    283,372Securities available for sale, at fair value
    
    
    5,020,861
    
    
    
    4,224,168Securities held to maturity, at amortized cost (market value of $2,103,362 in 2005; $2,062,312 in
2004)
    
    
    2,148,460
    
    
    
    2,100,303Total pledged investment securities that can be repledged
    
    
    7,430,846
    
    
    
    6,607,843Other investment securities:Securities held for trading, at fair value (includes fair value of IOs of $84,080 in 2005;
$112,688 in 2004)
    
    
    228,911
    
    
    
    205,698Securities available for sale, at fair value
    
    
    150,434
    
    
    
    758,340Securities held to maturity, at amortized cost (market value of $49,801 in 2005; $191,381 in 2004)
    
    
    51,488
    
    
    
    201,392Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    83,620
    
    
    
    86,120Total other investment securities
    
    
    514,453
    
    
    
    1,251,550Total investment securities
    
    
    7,945,299
    
    
    
    7,859,393Loans:Mortgage loans held for sale, at lower of cost or market, pledged with creditors right to repledge
    
    
    4,014,954
    
    
    
    3,282,152Other mortgage loans held for sale, at lower of cost or market
    
    
    1,500,228
    
    
    
    1,640,355Loans receivable, net of allowance for loan and lease losses (2005 - $24,255; 2004 - $20,881)
    
    
    1,794,028
    
    
    
    1,747,699Total loans
    
    
    7,309,210
    
    
    
    6,670,206Receivables and mortgage-servicing advances
    
    
    64,973
    
    
    
    99,727Accounts receivable from investment sales
    
    
    91,975
    
    
    
    40,052Accrued interest receivable
    
    
    64,125
    
    
    
    73,547Servicing assets, net
    
    
    129,696
    
    
    
    123,586Premises and equipment, net
    
    
    147,154
    
    
    
    146,551Real estate held for sale, net
    
    
    18,390
    
    
    
    20,072Deferred tax asset
    
    
    214,818
    
    
    
    217,024Other assets
    
    
    45,887
    
    
    
    49,778Total assets
    
    $
    18,786,313
    
    
    $
    17,835,662LIABILITIESDeposits:Non-interest-bearing deposits
    
    $
    498,122
    
    
    $
    459,360Interest-bearing deposits
    
    
    3,035,969
    
    
    
    3,183,720Securities sold under agreements to repurchase
    
    
    6,840,375
    
    
    
    6,305,163Advances from FHLB
    
    
    1,244,500
    
    
    
    1,294,500Loans payable
    
    
    4,569,174
    
    
    
    3,638,507Notes payable
    
    
    1,095,543
    
    
    
    1,095,977Accounts payable from investment purchases
    
    
    37,564
    
    
    
    325,740Accrued expenses and other liabilities
    
    
    221,499
    
    
    
    248,078Total liabilities
    
    
    17,542,746
    
    
    
    16,551,045Commitments and contingencies (Note w)STOCKHOLDERS EQUITYPreferred stock, $1 par value; 40,000,000 shares authorized; 9,015,000 shares issued and outstanding
in 2005 and 2004, at aggregate liquidation preference value:Perpetual noncumulative nonconvertible preferred stock (Series A, B and C)
    
    
    228,250
    
    
    
    228,250Perpetual cumulative convertible preferred stock
    
    
    345,000
    
    
    
    345,000Common stock, $1 par value; 500,000,000 shares authorized; 107,930,236 and 107,908,862 shares issued
and outstanding in 2005 and 2004, respectively
    
    
    107,930
    
    
    
    107,909Additional paid-in capital
    
    
    164,164
    
    
    
    161,639Legal surplus
    
    
    22,716
    
    
    
    22,716Retained earnings
    
    
    504,266
    
    
    
    492,786Accumulated other comprehensive loss, net of income tax benefit of $5,032 in 2005 and $4,591 in 2004
    
    
    (128,759
    )
    
    
    (73,683
    )Total stockholders equity
    
    
    1,243,567
    
    
    
    1,284,617Total liabilities and stockholders equity
    
    $
    18,786,313
    
    
    $
    17,835,662
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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF INCOME
 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
 (UNAUDITED)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Interest income:Loans
    
    $
    109,746
    
    
    $
    101,442Mortgage-backed securities
    
    
    52,568
    
    
    
    17,743Interest-only strips (IOs)
    
    
    3,300
    
    
    
    3,213Investment securities
    
    
    32,829
    
    
    
    33,109Other interest-earning assets
    
    
    16,099
    
    
    
    3,517Total interest income
    
    
    214,542
    
    
    
    159,024Interest expense:Deposits
    
    
    22,457
    
    
    
    18,982Securities sold under agreements to repurchase
    
    
    50,458
    
    
    
    22,672Advances from FHLB
    
    
    12,479
    
    
    
    11,786Loans payable
    
    
    42,187
    
    
    
    17,468Notes payable
    
    
    12,895
    
    
    
    11,443Total interest expense
    
    
    140,476
    
    
    
    82,351Net interest income
    
    
    74,066
    
    
    
    76,673Provision for loan and lease losses
    
    
    4,047
    
    
    
    1,769Net interest income after provision for loan and lease losses
    
    
    70,019
    
    
    
    74,904Non-interest income:Net gain on mortgage loan sales and fees
    
    
    7,940
    
    
    
    22,067Net gain (loss) on securities held for trading, including gains and losses on
the fair value of IOs
    
    
    6,636
    
    
    
    (27,676
    )Net gain on sale of investment securities
    
    
    4,844
    
    
    
    17,490Servicing income (loss), net of amortization and impairment/recovery
    
    
    8,815
    
    
    
    (16,579
    )Commissions, fees and other income
    
    
    7,766
    
    
    
    7,168Total non-interest income
    
    
    36,001
    
    
    
    2,470Non-interest expenses:Compensation and benefits
    
    
    25,589
    
    
    
    20,261Taxes, other than payroll and income taxes
    
    
    2,352
    
    
    
    2,210Advertising
    
    
    4,342
    
    
    
    3,190Professional services
    
    
    3,973
    
    
    
    2,422Communication and information systems
    
    
    4,824
    
    
    
    3,280Occupancy and other office expenses
    
    
    7,163
    
    
    
    5,799Depreciation and amortization
    
    
    4,953
    
    
    
    4,012Other
    
    
    3,211
    
    
    
    4,992Total non-interest expenses
    
    
    56,407
    
    
    
    46,166Income before income taxes
    
    
    49,613
    
    
    
    31,208Income tax (expense) benefit
    
    
    (10,384
    )
    
    
    3,745Net income
    
    $
    39,229
    
    
    $
    34,953Net income attributable to common shareholders
    
    $
    30,904
    
    
    $
    26,628Net income per common share:Basic
    
    $
    0.29
    
    
    $
    0.25Diluted
    
    $
    0.28
    
    
    $
    0.24Dividends per common share
    
    $
    0.18
    
    
    $
    0.12
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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (IN THOUSANDS)
 (UNAUDITED)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)PREFERRED STOCK
    
    $
    573,250
    
    
    $
    573,250COMMON STOCK:Balance at beginning of period
    
    
    107,909
    
    
    
    107,904Shares issued under stock option plan
    
    
    21
    
    
    
    4Balance at end of period
    
    
    107,930
    
    
    
    107,908ADDITIONAL PAID-IN CAPITAL:Balance at beginning of period
    
    
    161,639
    
    
    
    151,902Common shares issued under stock option plan
    
    
    98
    
    
    
    21Stock-based compensation recognized
    
    
    2,427
    
    
    
    2,427Balance at end of period
    
    
    164,164
    
    
    
    154,350LEGAL SURPLUS
    
    
    22,716
    
    
    
    14,155RETAINED EARNINGS:Balance at beginning of period
    
    
    492,786
    
    
    
    384,596Net income
    
    
    39,229
    
    
    
    34,953Cash dividends declared on common stock
    
    
    (19,424
    )
    
    
    (12,948
    )Cash dividends declared on preferred stock
    
    
    (8,325
    )
    
    
    (8,325
    )Balance at end of period
    
    
    504,266
    
    
    
    398,276ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME,
NET OF TAX:Balance at beginning of period
    
    
    (73,683
    )
    
    
    (49,445
    )Other comprehensive (loss) income, net of deferred tax
    
    
    (55,076
    )
    
    
    39,134Balance at end of period
    
    
    (128,759
    )
    
    
    (10,311
    )Total stockholders equity
    
    $
    1,243,567
    
    
    $
    1,237,628
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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (IN THOUSANDS)
 (UNAUDITED)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Net income
    
    $
    39,229
    
    
    $
    34,953Other comprehensive (loss) income, before tax:Unrealized (losses) gains on securities arising during the period
    
    
    (50,684
    )
    
    
    59,196Amortization of unrealized loss on securities reclassified to held to maturity
    
    
    11
    
    
    
    11Reclassification of realized gains included in net income
    
    
    (4,844
    )
    
    
    (17,490
    )Other comprehensive (loss) income, before tax
    
    
    (55,517
    )
    
    
    41,717Income tax benefit (expense) related to items of other comprehensive (loss) income
    
    
    441
    
    
    
    (2,583
    )Other comprehensive (loss) income
    
    
    (55,076
    )
    
    
    39,134Comprehensive (loss) income, net of tax
    
    $
    (15,847
    )
    
    $
    74,087
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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 (UNAUDITED)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Cash flows from operating activities:Net income
    
    $
    39,229
    
    
    $
    34,953Adjustments to reconcile net income to net cash (used in) provided by operating activities:Stock-based compensation recognized
    
    
    2,427
    
    
    
    2,427Depreciation and amortization
    
    
    4,953
    
    
    
    4,012Amortization and impairment of servicing assets
    
    
    1,520
    
    
    
    26,595Deferred tax provision (benefit)
    
    
    3,079
    
    
    
    (13,723
    )Provision for loan and lease losses
    
    
    4,047
    
    
    
    1,769Amortization of premium and accretion of discount on loans, investment securities and debt
    
    
    4,735
    
    
    
    1,648Origination and purchases of mortgage loans held for sale
    
    
    (1,593,846
    )
    
    
    (1,290,378
    )Principal repayment and sales of mortgage loans held for sale
    
    
    749,070
    
    
    
    786,570Unrealized loss (gain) on securities held for trading
    
    
    396
    
    
    
    (907
    )Purchases of securities held for trading
    
    
    (1,308,269
    )
    
    
    (1,414,323
    )Principal repayment and sales of trading securities
    
    
    1,179,006
    
    
    
    2,006,221Amortization
and gain or loss in the fair value of IOs
    
    
    36,371
    
    
    
    1,996Unrealized (gain) loss on derivative instruments
    
    
    (22,711
    )
    
    
    6,417(Increase) decrease in derivative instruments
    
    
    (20,429
    )
    
    
    3,510Purchases of servicing assets
    
    
    (1,080
    )
    
    
    (1,419
    )Decrease in receivables and mortgage servicing advances
    
    
    34,754
    
    
    
    3,248Decrease in accrued interest receivable
    
    
    9,422
    
    
    
    8,905Decrease in other assets
    
    
    3,459
    
    
    
    11,107Increase in accrued expenses and other liabilities
    
    
    5,777
    
    
    
    14,330Total adjustments
    
    
    (907,319
    )
    
    
    158,005Net cash (used in) provided by operating activities
    
    
    (868,090
    )
    
    
    192,958Cash flows from investing activities:Purchases of securities available for sale
    
    
    (1,006,305
    )
    
    
    (3,502,058
    )Principal repayment and sales of securities available for sale
    
    
    752,939
    
    
    
    3,870,637Purchases of securities held to maturity
    
    
    
    
    
    
    (32,981
    )Principal repayment and maturities of securities held to maturity
    
    
    106,472
    
    
    
    94,131Decrease (increase) in FHLB stock
    
    
    2,500
    
    
    
    (4,400
    )Origination of loans receivable
    
    
    (246,320
    )
    
    
    (250,144
    )Principal repayment of loans receivable
    
    
    192,765
    
    
    
    167,793Purchases of premises and equipment
    
    
    (5,556
    )
    
    
    (4,662
    )Proceeds from sales of real estate held for sale
    
    
    11,751
    
    
    
    5,284Net cash
(used in) provided by investing activities
    
    
    (191,754
    )
    
    
    343,600Cash flows from financing activities:(Decrease) increase in deposits
    
    
    (108,989
    )
    
    
    232,538Increase (decrease) in securities sold under agreements to repurchase
    
    
    535,212
    
    
    
    (127,813
    )Proceeds from advances from FHLB
    
    
    50,000
    
    
    
    100,000Repayment of advances from FHLB
    
    
    (100,000
    )
    
    
    (12,000
    )Increase in loans payable:Increase in warehousing lines and other credit facilities
    
    
    205,338
    
    
    
    105,591Proceeds from secured borrowings, pledged to creditors
    
    
    880,746
    
    
    
    385,034Repayment of secured borrowings, pledged to creditors
    
    
    (155,417
    )
    
    
    (131,831
    )Proceeds from issuance of notes payable
    
    
    
    
    
    
    Repayment of notes payable
    
    
    (356
    )
    
    
    (51
    )Issuance of common stock, net
    
    
    119
    
    
    
    25Dividends paid
    
    
    (27,749
    )
    
    
    (21,273
    )Net cash provided by financing activities
    
    
    1,278,904
    
    
    
    530,220Net increase in cash and cash equivalents
    
    $
    219,060
    
    
    $
    1,066,778Cash and cash equivalents at beginning of period
    
    
    2,535,726
    
    
    
    954,722Cash and cash equivalents at the end of period
    
    $
    2,754,786
    
    
    $
    2,021,500Cash and cash equivalents includes:Cash and due from banks
    
    $
    76,287
    
    
    $
    139,278Money market investments
    
    
    2,678,499
    
    
    
    1,882,222$
    2,754,786
    
    
    $
    2,021,500Supplemental schedule of non-cash activities:Loan securitizations
    
    $
    208,891
    
    
    $
    280,841Loans foreclosed
    
    $
    9,275
    
    
    $
    4,485Supplemental information for cash flows:Cash used to pay interest
    
    $
    140,859
    
    
    $
    88,529Cash used to pay income taxes
    
    $
    176
    
    
    $
    382
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DORAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 a.
    
    The Consolidated Financial Statements (unaudited) include the accounts of Doral Financial
Corporation (Doral Financial or the Company), Doral Mortgage Corporation (Doral
Mortgage), SANA Mortgage Corporation (SANA), Centro Hipotecario de Puerto Rico, Inc., Doral
Securities, Inc. (Doral Securities), Doral Bank (Doral Bank PR), Doral Bank, FSB (Doral
Bank NY), Doral Money, Inc. (Doral Money), Doral International, Inc. (Doral
International), Doral Properties, Inc. (Doral Properties) and Doral Insurance Agency, Inc.
(Doral Agency). References herein to Doral Financial or the Company shall be deemed to
refer to the Company and its consolidated subsidiaries, unless otherwise provided. All
significant intercompany accounts and transactions have been eliminated in consolidation. The
Consolidated Financial Statements (unaudited) have been prepared in conformity with the
accounting policies stated in the Companys Annual Audited Financial Statements included in
the Companys amended Annual Report on Form 10-K for the year ended December 31, 2004. Certain
information and note disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles in the United States of America
(GAAP) have been condensed or omitted from these statements pursuant to the rules and
regulations of the SEC and, accordingly, these financial statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company for the year
ended December 31, 2004, included in the Companys amended 2004 Annual Report on Form 10-K.
All adjustments (consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the statement of financial position, results of operations and
cash flows for the interim periods have been reflected.b.
    
    The results of operations for the quarter ended March 31, 2005 are not necessarily indicative
of the results to be expected for the full year.c.
    
    As previously reported in the Companys amended Form 10-K for the year ended December 31,
2004 filed with the SEC on February 27, 2006, the Company restated its audited financial
statements for the years ended December 31, 2004, 2003 and 2002 and unaudited selected
quarterly financial data for each of the four quarters of 2004, 2003 and 2002 to correct
accounting errors and departures from GAAP. The following provides a brief description of the
principal accounting adjustments included in the restatement of the Companys consolidated
financial statements and the effect of the adjustments on the Companys Consolidated
Statements of Financial Condition as of March 31, 2004, its Consolidated Statements of Income
for the three-month period ended March 31, 2004 and its Consolidated Statements of Cash Flows
for the three-month period ended March 31, 2004. All financial information for the
three-month period ended March 31, 2004 included in any subsequent notes is presented on a
restated basis. A more detailed description of the accounting adjustments made in connection
with the restatement, as well as a background discussion of the restatement, is included in
Note 1 Restatement of Previously Issued Financial Statements  Summary of Accounting
Adjustments by Category to Doral Financial audited Consolidated Financial Statements,
included in the Companys amended 2004 Annual Report on Form 10-K.As part of the restatement process, the Companys management identified a number of material
weaknesses in the Companys internal control over financial reporting as of December 31,
2004, including a material weakness in the Companys control environment. These material
weaknesses resulted in the restatement of the Companys consolidated financial statements
for the years ended December 31, 2004, 2003 and 2002 and for each of the quarters of 2004
and 2003.The Company classified the accounting practices and related adjustments that were affected
by the restatement into six categories, as set forth below. The classification involves
subjective judgments by management, and particular accounting errors may fall within more
than one category.Recharacterization of mortgage loan sale transactions as secured borrowings.In prior
periods, the Company had inaccurately recorded as sales certain transfers of mortgage loans
to certain local financial institutions. Certain of the Companys mortgage loan transfers
included or likely included recourse provisions, which had not been captured by the
Companys financial reporting process. The Company determined that such transfers did not
qualify as sales under Statement of Financial Accounting Standard (SFAS) 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
 8




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Valuation of IOs.
 
    
    Use of implied forward LIBOR rates;
    
    Market-based prepayment and discount rate determination methodology; and
    
    Separate valuation of elements of the IO, including variable or fixed
spread, as well as caps and floors.
  Accounting for servicing assets
 Accounting for derivative instruments and investment securities
 Provision for loan and lease losses.
 Other accounting adjustments.
 Miscellaneous adjustments.
 9




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
   Quarter EndedMarch 31,2004Net income, as previously reported
    
    $
    103,577Pre-tax restatement adjustments:Recharacterization of mortgage loan sale transactions as
secured borrowings
    
    
    (74,380
    )Valuation of IOs
    
    
    4,360Accounting for servicing assets
    
    
    (23,201
    )Accounting for derivative instruments and investment securities
    
    
    (396
    )Provision for loan and lease losses
    
    
    (1,273
    )Other accounting adjustments
    
    
    (216
    )Total pre-tax restatement adjustments
    
    
    (95,106
    )Income tax impact of restatement adjustments
    
    
    26,482Total net restatement adjustments
    
    
    (68,624
    )Net income, as restated
    
    $
    34,953Basic earnings per common share, as previously reported
    
    $
    0.88Effect of adjustments
    
    
    (0.69
    )Basic earnings per common share, as restated
    
    $
    0.19Diluted earnings per common share, as previously reported
    
    $
    0.86Effect of adjustments
    
    
    (0.68
    )Diluted earnings per common share, as restated
    
    $
    0.18
  10




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED FIGURES
CONSOLIDATED STATEMENT OF INCOME
 Quarter Ended March 31, 2004Previously
    
    
    
    
    
    
    As(Dollars in Thousands, except per share information)
    
    Reported
    
    
    Adjustments
    
    
    RestatedInterest income:Loans
    
    $
    60,136
    
    
    $
    41,306
    
    
    $
    101,442Mortgage-backed securities
    
    
    17,470
    
    
    
    273
    
    
    
    17,743Interest-only strips (IOs)
    
    
    12,384
    
    
    
    (9,171
    )
    
    
    3,213Investment securities
    
    
    32,592
    
    
    
    517
    
    
    
    33,109Other interest-earning assets
    
    
    3,517
    
    
    
    
    
    
    
    3,517Total interest income
    
    
    126,099
    
    
    
    32,925
    
    
    
    159,024Interest Expense:Deposits
    
    
    18,982
    
    
    
    
    
    
    
    18,982Securities sold under agreements to repurchase
    
    
    22,672
    
    
    
    
    
    
    
    22,672Advances from FHLB
    
    
    11,786
    
    
    
    
    
    
    
    11,786Loans payable
    
    
    1,405
    
    
    
    16,063
    
    
    
    17,468Notes payable
    
    
    12,201
    
    
    
    (758
    )
    
    
    11,443Total interest expenses
    
    
    67,046
    
    
    
    15,305
    
    
    
    82,351Net interest income
    
    
    59,053
    
    
    
    17,620
    
    
    
    76,673Provision for loan and lease losses
    
    
    1,561
    
    
    
    208
    
    
    
    1,769Net interest income after provision for loan and lease
losses
    
    
    57,492
    
    
    
    17,412
    
    
    
    74,904Non-interest income:Net gain on mortgage loan sales and fees
    
    
    136,856
    
    
    
    (114,789
    )
    
    
    22,067Net loss on securities held for trading
    
    
    (48,614
    )
    
    
    20,938
    
    
    
    (27,676
    )Net gain on sale of investment securities
    
    
    16,150
    
    
    
    1,340
    
    
    
    17,490Servicing income (loss), net of amortization and impairment
    
    
    1,689
    
    
    
    (18,268
    )
    
    
    (16,579
    )Commissions, fees and other income
    
    
    8,681
    
    
    
    (1,513
    )
    
    
    7,168Total non-interest income
    
    
    114,762
    
    
    
    (112,292
    )
    
    
    2,470Non-interest expenses:Compensation and benefits
    
    
    19,757
    
    
    
    504
    
    
    
    20,261Taxes, other than payroll and income taxes
    
    
    2,210
    
    
    
    
    
    
    
    2,210Advertising
    
    
    3,190
    
    
    
    
    
    
    
    3,190Professional services
    
    
    2,422
    
    
    
    
    
    
    
    2,422Communication and information systems
    
    
    3,280
    
    
    
    
    
    
    
    3,280Occupancy and other office expenses
    
    
    5,689
    
    
    
    110
    
    
    
    5,799Depreciation and amortization
    
    
    4,272
    
    
    
    (260
    )
    
    
    4,012Other
    
    
    5,120
    
    
    
    (128
    )
    
    
    4,992Total non-interest expenses
    
    
    45,940
    
    
    
    226
    
    
    
    46,166Income before income taxes
    
    
    126,314
    
    
    
    (95,106
    )
    
    
    31,208Income tax (expense) benefit
    
    
    (22,737
    )
    
    
    26,482
    
    
    
    3,745Net Income
    
    $
    103,577
    
    
    $
    (68,624
    )
    
    $
    34,953Net income per common share:Basic
    
    $
    0.88
    
    
    $
    (0.63
    )
    
    $
    0.25Diluted
    
    $
    0.86
    
    
    $
    (0.62
    )
    
    $
    0.24
 11




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED FIGURES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
 March 31, 2004Previously
    
    
    
    
    
    
    As(Dollars in Thousands, except share information)
    
    Reported
    
    
    Adjustments
    
    
    RestatedAssetsCash and due from banks
    
    $
    139,278
    
    
    $
    
    
    
    $
    139,278Money market investments
    
    
    1,882,222
    
    
    
    
    
    
    
    1,882,222Investment securities:Securities held for trading, at fair value
    
    
    992,683
    
    
    
    (540,001
    )
    
    
    452,682Securities available for sale, at fair value
    
    
    2,633,010
    
    
    
    
    
    
    
    2,633,010Securities held to maturity, at amortized cost
    
    
    2,057,647
    
    
    
    926
    
    
    
    2,058,573Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    86,120
    
    
    
    
    
    
    
    86,120Total investment securities
    
    
    5,769,460
    
    
    
    (539,075
    )
    
    
    5,230,385Loans:Mortgage loans held for sale, at lower of cost or market
    
    
    1,882,128
    
    
    
    2,082,716
    
    
    
    3,964,844Loans receivable, net of allowance for loan and lease
losses
    
    
    1,497,008
    
    
    
    (3,855
    )
    
    
    1,493,153Total loans
    
    
    3,379,136
    
    
    
    2,078,861
    
    
    
    5,457,997Receivables and mortgage-servicing advances
    
    
    88,009
    
    
    
    (5,822
    )
    
    
    82,187Accounts receivable from investment sales
    
    
    335,285
    
    
    
    
    
    
    
    335,285Accrued interest receivable
    
    
    54,528
    
    
    
    2,806
    
    
    
    57,334Servicing assets, net
    
    
    176,401
    
    
    
    (66,519
    )
    
    
    109,882Premises and equipment, net
    
    
    136,427
    
    
    
    (87
    )
    
    
    136,340Real estate held for sale, net
    
    
    18,564
    
    
    
    868
    
    
    
    19,432Deferred tax asset
    
    
    
    
    
    
    71,516
    
    
    
    71,516Other assets
    
    
    33,277
    
    
    
    
    
    
    
    33,277Total assets
    
    $
    12,012,587
    
    
    $
    1,542,548
    
    
    $
    13,555,135LiabilitiesDeposits
    
    $
    3,203,810
    
    
    
    
    
    
    
    3,203,810Securities sold under agreements to repurchase
    
    
    3,475,129
    
    
    
    
    
    
    
    3,475,129Advances from FHLB
    
    
    1,294,500
    
    
    
    
    
    
    
    1,294,500Loans Payable
    
    
    283,925
    
    
    
    2,089,052
    
    
    
    2,372,977Notes payable
    
    
    599,760
    
    
    
    (38,332
    )
    
    
    561,428Accounts payable from investment purchases
    
    
    1,166,045
    
    
    
    
    
    
    
    1,166,045Accrued expenses and other liabilities
    
    
    271,385
    
    
    
    (27,767
    )
    
    
    243,618Total liabilities
    
    
    10,294,554
    
    
    
    2,022,953
    
    
    
    12,317,507Stockholders EquityPreferred stock, $1 par value; 10,000,000 shares
authorized; 9,015,000 shares issued and outstanding at
aggregate liquidation preference value:Perpetual noncumulative nonconvertible preferred stock
(Series A,B and C)
    
    
    228,250
    
    
    
    
    
    
    
    228,250Perpetual cumulative convertible preferred stock
    
    
    345,000
    
    
    
    
    
    
    
    345,000Common stock; $1 par value; 200,000,000 shares authorized;
107,907,512 shares issued and outstanding
    
    
    107,908
    
    
    
    
    
    
    
    107,908Additional paid-in capital
    
    
    154,350
    
    
    
    
    
    
    
    154,350Legal surplus
    
    
    13,806
    
    
    
    349
    
    
    
    14,155Retained earnings
    
    
    886,822
    
    
    
    (488,546
    )
    
    
    398,276Accumulated other comprehensive loss, net of income tax
    
    
    (18,103
    )
    
    
    7,792
    
    
    
    (10,311
    )Total stockholders equity
    
    
    1,718,033
    
    
    
    (480,405
    )
    
    
    1,237,628Total liabilities and stockholders equity
    
    $
    12,012,587
    
    
    $
    1,542,548
    
    
    $
    13,555,135
 12




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED FIGURES
SUMMARY OF CONSOLIDATED STATEMENTS OF CASH FLOWS
 Quarter Ended March 31, 2004Previously
    
    
    
    
    
    As(Dollars in thousands)
    
    Reported
    
    Adjustments
    
    RestatedNet cash provided by operating activities
    
    $
    8,104
    
    
    $
    184,854
    
    
    $
    192,958Net cash used in investing activities
    
    $
    784,427
    
    
    $
    (440,827
    )
    
    $
    343,600Net cash provided by financing activities
    
    $
    274,247
    
    
    $
    255,973
    
    
    $
    530,220
 d.
    
    At March 31, 2005, escrow funds and custodial accounts included approximately $193.0 million
deposited with Doral Bank PR. These funds are included in the Companys consolidated financial
statements. Escrow funds and custodial accounts also included approximately $70.3 million
deposited with other banks, which are excluded from the Companys assets and liabilities. The
Company had fidelity bond and errors and omissions coverage of $30.0 million and $15.0
million, respectively, as of March 31, 2005.
 13




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 e.
    
    The reconciliation of the numerator and denominator of the basic and diluted
earnings-per-share follows:
 Quarter EndedMarch 31,2004(Dollars in thousands, except per share amounts)
    
    2005
    
    
    (As Restated)Net Income:Net income
    
    $
    39,229
    
    
    $
    34,953Convertible preferred stock dividend
    
    
    (4,097
    )
    
    
    (4,097
    )Nonconvertible preferred stock dividend
    
    
    (4,228
    )
    
    
    (4,228
    )Net income attributable to common shareholders
    
    $
    30,904
    
    
    $
    26,628Weighted-Average Shares(1):Basic weighted-average number of common shares outstanding
    
    
    107,917,262
    
    
    
    107,906,276Incremental shares issuable upon exercise of stock options(2)
    
    
    3,283,658
    
    
    
    2,852,249Diluted weighted-average number of common shares outstanding
    
    
    111,200,920
    
    
    
    110,758,525Net Income per Common Share:Basic
    
    $
    0.29
    
    
    $
    0.25Diluted
    
    $
    0.28
    
    
    $
    0.24
 
 (1)
    
    For the quarters ended March 31, 2005 and 2004, there were 1,380,000
shares of the Companys 4.75% Perpetual cumulative convertible preferred stock
that were excluded from the computation of diluted earnings per share because
their effect would have been antidilutive. Each share of convertible preferred
stock is currently convertible into 6.2856 shares of common stock, subject to
adjustment under specific conditions. The option of the purchasers to convert
the convertible preferred stock into shares of the Companys common stock is
exercisable only (a) if during any fiscal quarter after September 30, 2003, the
closing sale price of the Companys common stock for at least 20 trading days in
a period of 30 consecutive trading days ending on the last trading day of the
preceding fiscal quarter exceeds 120% of the conversion price of the convertible
preferred stock (currently 120% of $39.77, or $47.72); (b) upon the occurrence of
certain corporate transactions; or (c) upon the delisting of the Companys common
stock. On or after September 30, 2008, the Company may, at its option, cause the
convertible preferred stock to be converted into the number of shares of common
stock that are issuable at the conversion price. The Company may only exercise
its conversion right if the closing sale price of the Companys common stock
exceeds 130% of the conversion price of the convertible preferred stock in effect
for 20 trading days within any period of 30 consecutive trading days ending on a
trading day not more than two trading days prior to the date the Company gives
notice of conversion.(2)
    
    For the quarter ended March 31, 2005, all stock options outstanding were
included in the computation of weighted-average outstanding shares. For the
quarter ended March 31, 2004, options to purchase 15,000 shares of common stock
were outstanding, but not included in the computation of diluted earnings per
share because they were antidilutive. 14




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 f.
    
    Employee costs and other expenses are shown in the Consolidated Statements of Income net of
direct loan origination costs which, pursuant to SFAS No. 91, Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases (SFAS 91), are capitalized as part of the carrying cost of mortgage loans and are
offset against net gains on mortgage loan sales and fees when the loans are sold or amortized
as yield adjustment in the case of loans receivable.Set forth below is a reconciliation of the application of SFAS 91 to employee costs and
other expenses:
 Quarter EndedMarch 31,2004(In thousands)
    
    2005
    
    
    (As Restated)Employee costs, gross
    
    $
    35,533
    
    
    $
    30,050Deferred costs pursuant to SFAS 91
    
    
    (9,944
    )
    
    
    (9,789
    )Employee cost, net
    
    $
    25,589
    
    
    $
    20,261Other expenses, gross
    
    $
    5,289
    
    
    $
    6,577Deferred costs pursuant to SFAS 91
    
    
    (2,078
    )
    
    
    (1,585
    )Other expenses, net
    
    $
    3,211
    
    
    $
    4,992
 As of March 31, 2005, the Company had a net deferred origination fee on mortgage loans held
for sale and loans receivable amounting to approximately $29.6 million ($27.0 million as of
December 31, 2004) and $13.2 million ($14.3 million as of December 31, 2004), respectively.g.
    
    Segment informationThe Company operates in four reportable segments identified by line of business: mortgage
banking and risk management activities, banking (including thrift operations), institutional
securities operations and insurance agency activities. Management made this determination
based on operating decisions particular to each business line and because each one targets
different customers and requires different strategies. The majority of the Companys
operations are conducted in Puerto Rico. The Company also operates in the mainland United
States, principally in the New York City metropolitan area.The results of the mortgage banking and risk management segment for the quarter ended March
31, 2004 include the results of Doral Overseas, an international banking entity organized as
a division at the parent company level. In connection with local legislation passed on
January 8, 2004, designed to encourage international banking entities to operate as separate
legal entities rather than operating divisions, effective March 31, 2004, Doral Financial
phased out the operations of Doral Overseas. Concurrently, the Company increased the
investment activities of Doral International, another international banking entity and a
wholly-owned subsidiary of Doral Bank PR. The operations of Doral International are
included within the banking segment.For the quarter ended March 31, 2004, the operations of Doral Overseas contributed
approximately $755,000 of the total net interest income, $804,000 of total non-interest
income and $1.2 million of total net income of the mortgage banking and risk management
segment.The following tables present net interest income, non-interest income, net income and
identifiable assets for each of the Companys reportable segments for the periods presented,
as well as for the Companys Puerto Rico and mainland U.S. operations for the periods
presented.
 15




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MortgageBanking andRisk
    
    
    
    
    
    Institutional
    
    Insurance
    
    Intersegment(In thousands)
    
    Management
    
    Banking
    
    Securities
    
    Agency
    
    Eliminations*
    
    TotalsQUARTER ENDED MARCH 31, 2005Net interest income
    
    $
    21,257
    
    
    
    50,314
    
    
    
    723
    
    
    
    1,230
    
    
    
    542
    
    
    $
    74,066Non-interest income
    
    $
    10,738
    
    
    
    27,298
    
    
    
    868
    
    
    
    2,742
    
    
    
    (5,645
    )
    
    $
    36,001Net (loss) income
    
    $
    (163
    )
    
    
    40,473
    
    
    
    844
    
    
    
    2,675
    
    
    
    (4,600
    )
    
    $
    39,229Identifiable assets
    
    $
    6,857,223
    
    
    
    12,255,505
    
    
    
    221,916
    
    
    
    88,919
    
    
    
    (637,250
    )
    
    $
    18,786,313
 QUARTER ENDED MARCH 31, 2004(As Restated)Net interest income
    
    $
    35,464
    
    
    
    34,372
    
    
    
    950
    
    
    
    981
    
    
    
    4,906
    
    
    $
    76,673Non-interest
(loss) income
    
    $
    (55,462
    )
    
    
    55,431
    
    
    
    1,472
    
    
    
    2,877
    
    
    
    (1,848
    )
    
    $
    2,470Net (loss) income
    
    $
    (30,652
    )
    
    
    59,021
    
    
    
    1,376
    
    
    
    2,624
    
    
    
    2,584
    
    
    $
    34,953Identifiable assets
    
    $
    4,933,996
    
    
    
    8,487,134
    
    
    
    357,627
    
    
    
    115,509
    
    
    
    (339,131
    )
    
    $
    13,555,135
 
 *
    
    The intersegment eliminations in the above table, include direct intersegment loan
origination costs amortized as yield adjustment (mainly related with origination costs paid
by the banking segment to the mortgage banking segment) and other income derived from
intercompany transactions, related principally to fees and commissions paid to the
Companys institutional securities subsidiary and rental income paid to Doral Properties,
the Companys subsidiary that owns the corporate headquarters facilities. During the
quarter ended March 31, 2004, the intersegment eliminations for net income also include
realized losses recognized by the mortgage banking segment on sale of investment securities
to the banking segment. Assets include internal funding and investment in subsidiaries
accounted for at cost. 16




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (In thousands)
    
    Puerto Rico
    
    Mainland US
    
    Eliminations
    
    TotalsQUARTER ENDED MARCH 31, 2005Net interest income
    
    $
    70,154
    
    
    
    3,847
    
    
    
    65
    
    
    $
    74,066Non-interest income
    
    $
    35,235
    
    
    
    1,393
    
    
    
    (627
    )
    
    $
    36,001Net income
    
    $
    38,805
    
    
    
    914
    
    
    
    (490
    )
    
    $
    39,229Identifiable assets
    
    $
    18,211,101
    
    
    
    650,103
    
    
    
    (74,891
    )
    
    $
    18,786,313QUARTER ENDED MARCH 31, 2004(As Restated)Net interest income
    
    $
    73,971
    
    
    
    2,688
    
    
    
    14
    
    
    $
    76,673Non-interest income
    
    $
    1,756
    
    
    
    876
    
    
    
    (162
    )
    
    $
    2,470Net income
    
    $
    34,747
    
    
    
    287
    
    
    
    (81
    )
    
    $
    34,953Identifiable assets
    
    $
    13,124,014
    
    
    
    532,829
    
    
    
    (101,708
    )
    
    $
    13,555,135
  MortgageBankingand RiskManagement
    
    
    BankingQUARTER ENDED(In thousands)
    
    MARCH 31, 2005Net (loss) gain on mortgage loan sales and fees
    
    $
    (13,604
    )
    
    $
    19,582Investment activities gain
    
    
    8,304
    
    
    
    3,075Servicing income
    
    
    9,493
    
    
    
    4Commissions, fees and other income
    
    
    6,545
    
    
    
    4,637Total non-interest income
    
    $
    10,738
    
    
    $
    27,298
 QUARTER ENDEDMARCH 31, 2004(As Restated)Net (loss) gain on mortgage loan sales and fees
    
    $
    (7,039
    )
    
    $
    31,287Investment activities (loss) gain
    
    
    (31,907
    )
    
    
    20,599Servicing (loss) income
    
    
    (17,178
    )
    
    
    1Commissions, fees and other income
    
    
    662
    
    
    
    3,544Total non-interest (loss) income
    
    $
    (55,462
    )
    
    $
    55,431
 17




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 h.
    
    The fair value of the Companys securities held for trading and the fair value and carrying
value of its securities classified as available for sale and held to maturity are shown below
by category.
 1.
    
    The following table summarizes Doral Financials holdings of securities held
for trading as of March 31, 2005 and December 31, 2004.
 SECURITIES HELD FOR TRADING
    
    MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2005
    
    
    2004Mortgage-backed securities:GNMA exempt
    
    $
    253,694
    
    
    $
    266,380GNMA taxable
    
    
    45,574
    
    
    
    50,974CMO certificates
    
    
    1,849
    
    
    
    2,513FHLMC and FNMA
    
    
    17,374
    
    
    
    17,720Variable interest-only strips
    
    
    94,485
    
    
    
    125,216Fixed interest-only strips
    
    
    1,828
    
    
    
    2,145FHLB Notes
    
    
    21,304
    
    
    
    5,025Puerto Rico government and agency securities
    
    
    5,493
    
    
    
    5,444Derivatives(1)
    
    
    48,812
    
    
    
    13,630Other
    
    
    23
    
    
    
    23Total
    
    $
    490,436
    
    
    $
    489,070
 
 (1)
    
    Doral Financial uses derivatives to manage its exposure to interest rate
risk caused by changes in interest rates. Derivatives include interest rate
swaps, interest rate caps and collars, futures, forwards and options. Doral
Financials general policy is to account for derivatives on a marked-to market
basis with gains or losses charged to operations as they occur. The fair value
of derivatives is generally reported net by counterparty, provided that a legally
enforceable master netting agreement exists. Derivatives in a net asset position
are recorded as securities held for trading and derivatives in a net liability
position as liabilities. The gross notional amount of derivatives totaled $21.9
billion as of March 31, 2005 and $72.3 billion as of December 31, 2004. Notional
amounts indicate the volume of derivatives activity, but do not represent Doral
Financials exposure to market or credit risk. 2.
    
    The following tables summarize the amortized cost, gross unrealized gains and
losses, approximate market value, weighted-average yield and contractual maturities of
securities available for sale as of March 31, 2005 and December 31, 2004.The weighted average yield is computed based on amortized cost and, therefore, does
not give effect to changes in fair value. Expected maturities of mortgage-backed
securities and certain debt securities might differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.Under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, the Company may designate a derivative as a hedge of the fair value of a
recognized fixed rate asset or liability (fair value hedge). Some hedging
activities related to certain available for sale securities were accounted for as a
fair value hedge, beginning on the second quarter of 2004. In a qualifying fair
value hedge, both the changes in fair value of the hedged item (in this case
available-for-sale securities) and changes in fair value of the derivative are
included in net gain (loss) on securities held for trading in the Consolidated
Statements of Income. As a result, any ineffectiveness of the derivative in hedging
the fair value of the hedged item is reflected immediately in earnings. Derivatives
hedging the fair value of certain available-for-sale securities expired during the
third quarter of 2004 and the Company decided to discontinue the fair value hedge
for such securities. As a result of this decision, the favorable cumulative
mark-to-market valuation from the inception date of the fair value hedge to its
discontinuation date of approximately $27.2 million ($25.6 million as of March 31,
2005) is being amortized as a yield adjustment over the remaining term of the
securities.
 18




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 SECURITIES AVAILABLE FOR SALE
AS OF MARCH 31, 2005
(Dollars in thousands)
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGECOST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMORTGAGE-BACKED SECURITIES
GNMADue over ten years
    
    $
    3,042,703
    
    
    $
    179
    
    
    $
    41,361
    
    
    $
    3,001,521
    
    
    
    5.35
    %FHLMC and FNMADue over ten years
    
    
    859,833
    
    
    
    1,104
    
    
    
    15,025
    
    
    
    845,912
    
    
    
    5.06
    %DEBT SECURITIES
FHLB NOTESDue over ten years
    
    
    111,953
    
    
    
    536
    
    
    
    
    
    
    
    112,489
    
    
    
    5.51
    %US TREASURYDue within a year
    
    
    399,434
    
    
    
    
    
    
    
    7,342
    
    
    
    392,092
    
    
    
    1.59
    %Due from one to five years
    
    
    100,516
    
    
    
    
    
    
    
    3,250
    
    
    
    97,266
    
    
    
    1.97
    %Due from five to ten years
    
    
    763,693
    
    
    
    
    
    
    
    41,678
    
    
    
    722,015
    
    
    
    3.65
    %$
    5,278,132
    
    
    $
    1,819
    
    
    $
    108,656
    
    
    $
    5,171,295
    
    
    
    4.72
    %
 SECURITIES AVAILABLE FOR SALE
AS OF DECEMBER 31, 2004
(Dollars in thousands)
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGECOST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMORTGAGE-BACKED SECURITIES
GNMADue over ten years
    
    $
    2,946,222
    
    
    $
    985
    
    
    $
    11,297
    
    
    $
    2,935,910
    
    
    
    5.62
    %FHLMC and FNMADue over ten years
    
    
    398,662
    
    
    
    98
    
    
    
    9,403
    
    
    
    389,357
    
    
    
    5.18
    %DEBT SECURITIES
FHLB NOTESDue over ten years
    
    
    111,951
    
    
    
    2,255
    
    
    
    
    
    
    
    114,206
    
    
    
    5.51
    %US TREASURYDue from one to five years
    
    
    500,147
    
    
    
    
    
    
    
    8,561
    
    
    
    491,586
    
    
    
    1.66
    %Due from five to ten years
    
    
    863,239
    
    
    
    
    
    
    
    27,946
    
    
    
    835,293
    
    
    
    3.71
    %Due over ten years
    
    
    219,863
    
    
    
    
    
    
    
    3,707
    
    
    
    216,156
    
    
    
    4.71
    %$
    5,040,084
    
    
    $
    3,338
    
    
    $
    60,914
    
    
    $
    4,982,508
    
    
    
    4.83
    %
 19




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 SECURITIES HELD TO MATURITY
AS OF MARCH 31, 2005
(Dollars in thousands)
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGECOST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMORTGAGE-BACKED SECURITIES
GNMADue from one to five years
    
    $
    632
    
    
    $
    24
    
    
    $
    
    
    
    $
    656
    
    
    
    5.82
    %Due from five to ten years
    
    
    409
    
    
    
    18
    
    
    
    
    
    
    
    427
    
    
    
    6.39
    %Due over ten years
    
    
    5,007
    
    
    
    278
    
    
    
    
    
    
    
    5,285
    
    
    
    6.85
    %FHLMC and FNMADue over ten years
    
    
    405,533
    
    
    
    9,151
    
    
    
    575
    
    
    
    414,109
    
    
    
    5.18
    %CMO CERTIFICATESDue over ten years
    
    
    13,864
    
    
    
    6
    
    
    
    219
    
    
    
    13,651
    
    
    
    5.76
    %DEBT SECURITIES
FHLB NOTESDue from one to five years
    
    
    100,000
    
    
    
    
    
    
    
    1,945
    
    
    
    98,055
    
    
    
    2.89
    %Due from five to ten years
    
    
    50,000
    
    
    
    250
    
    
    
    
    
    
    
    50,250
    
    
    
    4.13
    %Due over ten years
    
    
    373,591
    
    
    
    
    
    
    
    9,606
    
    
    
    363,985
    
    
    
    5.34
    %FHLB ZERO COUPONDue over ten years
    
    
    114,799
    
    
    
    801
    
    
    
    
    
    
    
    115,600
    
    
    
    6.51
    %FHLMC ZERO COUPONDue over ten years
    
    
    287,082
    
    
    
    915
    
    
    
    2,408
    
    
    
    285,589
    
    
    
    5.90
    %FHLMC and FNMA NOTESDue over ten years
    
    
    149,988
    
    
    
    
    
    
    
    1,762
    
    
    
    148,226
    
    
    
    5.63
    %P.R. HOUSING AUTHORITYDue from one to five years
    
    
    5,000
    
    
    
    232
    
    
    
    
    
    
    
    5,232
    
    
    
    6.00
    %Due over ten years
    
    
    2,235
    
    
    
    17
    
    
    
    
    
    
    
    2,252
    
    
    
    6.20
    %U.S. TREASURYDue from five to ten years
    
    
    201,482
    
    
    
    
    
    
    
    11,513
    
    
    
    189,969
    
    
    
    3.52
    %Due over ten years
    
    
    475,006
    
    
    
    1,262
    
    
    
    31,816
    
    
    
    444,452
    
    
    
    4.33
    %OTHERDue from one to five years
    
    
    7,950
    
    
    
    66
    
    
    
    39
    
    
    
    7,977
    
    
    
    4.32
    %Due from five to ten years
    
    
    370
    
    
    
    13
    
    
    
    
    
    
    
    383
    
    
    
    6.75
    %Due over ten years
    
    
    7,000
    
    
    
    65
    
    
    
    
    
    
    
    7,065
    
    
    
    5.93
    %$
    2,199,948
    
    
    $
    13,098
    
    
    $
    59,883
    
    
    $
    2,153,163
    
    
    
    4.95
    %
 20




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 SECURITIES HELD TO MATURITY
AS OF DECEMBER 31, 2004
(Dollars in thousands)
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGECOST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMORTGAGE-BACKED SECURITIES
GNMADue from one to five years
    
    $
    493
    
    
    $
    25
    
    
    $
    
    
    
    $
    518
    
    
    
    6.50
    %Due from five to ten years
    
    
    618
    
    
    
    33
    
    
    
    
    
    
    
    651
    
    
    
    7.00
    %Due over ten years
    
    
    5,754
    
    
    
    336
    
    
    
    
    
    
    
    6,090
    
    
    
    7.00
    %FHLMC and FNMADue over ten years
    
    
    420,670
    
    
    
    14,339
    
    
    
    
    
    
    
    435,009
    
    
    
    5.22
    %CMO CERTIFICATESDue from one to five years
    
    
    614
    
    
    
    
    
    
    
    3
    
    
    
    611
    
    
    
    6.10
    %Due over ten years
    
    
    25,264
    
    
    
    11
    
    
    
    440
    
    
    
    24,835
    
    
    
    6.58
    %DEBT SECURITIES
FHLB NOTESDue from one to five years
    
    
    100,000
    
    
    
    
    
    
    
    941
    
    
    
    99,059
    
    
    
    2.89
    %Due from five to ten years
    
    
    50,000
    
    
    
    250
    
    
    
    
    
    
    
    50,250
    
    
    
    4.13
    %Due over ten years
    
    
    398,587
    
    
    
    1,102
    
    
    
    5,040
    
    
    
    394,649
    
    
    
    5.38
    %FHLB ZERO COUPONDue over ten years
    
    
    167,361
    
    
    
    
    
    
    
    5,942
    
    
    
    161,419
    
    
    
    6.51
    %FHLMC ZERO COUPONDue over ten years
    
    
    282,947
    
    
    
    
    
    
    
    7,971
    
    
    
    274,976
    
    
    
    5.90
    %FHLMC and FNMA NOTESDue over ten years
    
    
    149,988
    
    
    
    46
    
    
    
    1,285
    
    
    
    148,749
    
    
    
    5.63
    %P.R. HOUSING AUTHORITYDue from one to five years
    
    
    5,000
    
    
    
    50
    
    
    
    
    
    
    
    5,050
    
    
    
    6.00
    %Due over ten years
    
    
    2,235
    
    
    
    28
    
    
    
    
    
    
    
    2,263
    
    
    
    6.20
    %U.S. TREASURYDue from five to ten years
    
    
    201,521
    
    
    
    
    
    
    
    7,802
    
    
    
    193,719
    
    
    
    3.52
    %Due over ten years
    
    
    475,323
    
    
    
    1,008
    
    
    
    35,871
    
    
    
    440,460
    
    
    
    4.33
    %OTHERDue from one to five years
    
    
    7,950
    
    
    
    17
    
    
    
    
    
    
    
    7,967
    
    
    
    4.32
    %Due from five to ten years
    
    
    370
    
    
    
    8
    
    
    
    
    
    
    
    378
    
    
    
    6.75
    %Due over ten years
    
    
    7,000
    
    
    
    40
    
    
    
    
    
    
    
    7,040
    
    
    
    5.93
    %$
    2,301,695
    
    
    $
    17,293
    
    
    $
    65,295
    
    
    $
    2,253,693
    
    
    
    5.02
    %
 21




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 i.
    
    The following tables show Doral Financials gross unrealized losses and fair value for
available-for-sale and held-to-maturity investments, aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position,
at March 31, 2005 and December 31, 2004.
 SECURITIES
AVAILABLE FOR SALE
(As of March 31, 2005)
 LESS THAN 12 MONTHS
    
    
    12 MONTHS OR MORE
    
    
    TOTALFAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED(Dollars in thousands)
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSESMortgage-Backed SecuritiesGNMA
    
    $
    2,700,688
    
    
    $
    34,630
    
    
    $
    266,252
    
    
    $
    6,731
    
    
    $
    2,966,940
    
    
    $
    41,361FHLMC and FNMA
    
    
    487,409
    
    
    
    6,857
    
    
    
    270,611
    
    
    
    8,168
    
    
    
    758,020
    
    
    
    15,025Debt SecuritiesU.S. Treasury
    
    
    538,623
    
    
    
    11,205
    
    
    
    672,750
    
    
    
    41,065
    
    
    
    1,211,373
    
    
    
    52,270$
    3,726,720
    
    
    $
    52,692
    
    
    $
    1,209,613
    
    
    $
    55,964
    
    
    $
    4,936,333
    
    
    $
    108,656
 SECURITIES
AVAILABLE FOR SALE
(As of December 31, 2004)
 LESS THAN 12 MONTHS
    
    
    12 MONTHS OR MORE
    
    
    TOTALFAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED(Dollars in thousands)
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSESMortgage-Backed SecuritiesGNMA
    
    $
    2,262,950
    
    
    $
    8,869
    
    
    $
    158,223
    
    
    $
    2,428
    
    
    $
    2,421,173
    
    
    $
    11,297FHLMC and FNMA
    
    
    35,340
    
    
    
    201
    
    
    
    345,679
    
    
    
    9,202
    
    
    
    381,019
    
    
    
    9,403Debt SecuritiesU.S. Treasury
    
    
    1,300,887
    
    
    
    24,419
    
    
    
    242,148
    
    
    
    15,795
    
    
    
    1,543,035
    
    
    
    40,214$
    3,599,177
    
    
    $
    33,489
    
    
    $
    746,050
    
    
    $
    27,425
    
    
    $
    4,345,227
    
    
    $
    60,914
 22




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 SECURITIES
HELD TO MATURITY
(As of March 31, 2005)
 LESS THAN 12 MONTHS
    
    
    12 MONTHS OR MORE
    
    
    TOTALFAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED(Dollars in thousands)
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSESMortgage-Backed SecuritiesFHLMC and FNMA
    
    $
    46,156
    
    
    $
    575
    
    
    $
    
    
    
    $
    
    
    
    $
    46,156
    
    
    $
    575CMO Certificates
    
    
    
    
    
    
    
    
    
    
    8,067
    
    
    
    219
    
    
    
    8,067
    
    
    
    219Debt SecuritiesFHLB Notes
    
    
    462,040
    
    
    
    11,551
    
    
    
    
    
    
    
    
    
    
    
    462,040
    
    
    
    11,551FHLMC and FNMA Notes
    
    
    148,226
    
    
    
    1,762
    
    
    
    
    
    
    
    
    
    
    
    148,226
    
    
    
    1,762FHLMC Zero Coupon
    
    
    
    
    
    
    
    
    
    
    170,067
    
    
    
    2,408
    
    
    
    170,067
    
    
    
    2,408U.S. Treasury
    
    
    
    
    
    
    
    
    
    
    571,961
    
    
    
    43,329
    
    
    
    571,961
    
    
    
    43,329Other
    
    
    3,861
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    3,861
    
    
    
    39$
    660,283
    
    
    $
    13,927
    
    
    $
    750,095
    
    
    $
    45,956
    
    
    $
    1,410,378
    
    
    $
    59,883
 SECURITIES
HELD TO MATURITY
(As of December 31, 2004)
 LESS THAN 12 MONTHS
    
    
    12 MONTHS OR MORE
    
    
    TOTALFAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED
    
    
    FAIR
    
    
    UNREALIZED(Dollars in thousands)
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSES
    
    
    VALUE
    
    
    LOSSESMortgage-Backed SecuritiesCMO Certificates
    
    $
    7,069
    
    
    $
    167
    
    
    $
    9,161
    
    
    $
    276
    
    
    $
    16,230
    
    
    $
    443Debt SecuritiesFHLB Notes
    
    
    367,606
    
    
    
    5,981
    
    
    
    
    
    
    
    
    
    
    
    367,606
    
    
    
    5,981FHLB Zero Coupon
    
    
    53,725
    
    
    
    658
    
    
    
    107,694
    
    
    
    5,284
    
    
    
    161,419
    
    
    
    5,942FHLMC Zero Coupon
    
    
    242,758
    
    
    
    3,779
    
    
    
    32,218
    
    
    
    4,192
    
    
    
    274,976
    
    
    
    7,971FHLMC and FNMA Notes
    
    
    98,715
    
    
    
    1,285
    
    
    
    
    
    
    
    
    
    
    
    98,715
    
    
    
    1,285U.S. Treasury
    
    
    
    
    
    
    
    
    
    
    571,992
    
    
    
    43,673
    
    
    
    571,992
    
    
    
    43,673$
    769,873
    
    
    $
    11,870
    
    
    $
    721,065
    
    
    $
    53,425
    
    
    $
    1,490,938
    
    
    $
    65,295
  j.
    
    The following table sets forth certain information regarding Doral Financials mortgage loans
held for sale as of the dates indicated:
 MORTGAGE LOANS HELD FOR SALE
(In thousands)
 MARCH 31, 2005
    
    
    DECEMBER 31, 2004Conventional single family residential loans
    
    $
    4,744,793
    
    
    $
    4,226,712FHA/VA loans
    
    
    224,371
    
    
    
    171,882Mortgage loans on residential multifamily
    
    
    37,718
    
    
    
    42,824Construction and commercial real estate loans
    
    
    508,300
    
    
    
    481,089$
    5,515,182
    
    
    $
    4,922,507
 23




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    k.
    
    The following table sets forth certain information regarding Doral Financials loans
receivable as of the dates indicated:
 LOANS RECEIVABLE, NET
(Dollars in thousands)
 MARCH 31, 2005
    
    
    DECEMBER 31, 2004AMOUNT
    
    
    PERCENT
    
    
    AMOUNT
    
    
    PERCENTConstruction loans(1)
    
    $
    642,735
    
    
    
    35
    %
    
    $
    629,913
    
    
    
    35
    %Residential mortgage loans(2)
    
    
    116,207
    
    
    
    5
    %
    
    
    409,005
    
    
    
    23
    %Commercial  secured by real estate
    
    
    864,062
    
    
    
    47
    %
    
    
    568,842
    
    
    
    32
    %Consumer  secured by real estate
    
    
    
    
    
    
    0
    %
    
    
    320
    
    
    
    0
    %Consumer  other:Personal loans
    
    
    29,497
    
    
    
    2
    %
    
    
    28,865
    
    
    
    2
    %Auto loans
    
    
    1,017
    
    
    
    0
    %
    
    
    1,175
    
    
    
    0
    %Credit cards
    
    
    15,124
    
    
    
    1
    %
    
    
    13,401
    
    
    
    1
    %Overdrawn checking accounts
    
    
    414
    
    
    
    0
    %
    
    
    524
    
    
    
    0
    %Revolving lines of credit
    
    
    30,039
    
    
    
    2
    %
    
    
    26,614
    
    
    
    1
    %Lease financing receivables
    
    
    18,983
    
    
    
    1
    %
    
    
    7,488
    
    
    
    0
    %Commercial non-real estate
    
    
    56,812
    
    
    
    3
    %
    
    
    36,848
    
    
    
    2
    %Loans on savings deposits
    
    
    12,959
    
    
    
    1
    %
    
    
    9,354
    
    
    
    1
    %Land secured
    
    
    46,800
    
    
    
    3
    %
    
    
    51,853
    
    
    
    3
    %Loans receivable, gross
    
    
    1,834,649
    
    
    
    100
    %
    
    
    1,784,202
    
    
    
    100
    %Less:Unearned interest and deferred
loan fees, net
    
    
    (16,366
    )
    
    
    
    
    
    
    (15,622
    )Allowance for loan and lease losses
    
    
    (24,255
    )
    
    
    
    
    
    
    (20,881
    )(40,621
    )
    
    
    
    
    
    
    (36,503
    )Loans receivable, net
    
    $
    1,794,028
    
    
    
    
    
    
    $
    1,747,699
 
 (1)
    
    Includes $519.5 million and $556.0 million of construction loans for residential
housing projects as of March 31, 2005 and December 31, 2004, respectively. Also includes $123.2
million and $73.9 million of construction loans for commercial, condominiums and multifamily projects
as of March 31, 2005 and December 31, 2004, respectively.(2)
    
    The reduction in residential mortgage loans from December 31, 2004 to March 31, 2005,
reflects the impact of the intercompany sale during the first quarter
of 2005 of approximately $330.0 million in mortgage loans
previously classified as loans receivable by Doral Bank PR to the
holding company. These loans are now classified as held for sale and
are pledged to a local financial institution to secure a borrowing. A significant portion of the loans pledged were
originated by Doral Bank PR and previously classified as loans receivable. 24




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ALLOWANCE
FOR LOAN AND LEASE LOSSES
 (DOLLARS IN THOUSANDS)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Balance at beginning of period
    
    $
    20,881
    
    
    $
    14,919Provision for loan and lease losses
    
    
    4,047
    
    
    
    1,769Charge-offs
    
    
    (735
    )
    
    
    (666
    )Recoveries
    
    
    62
    
    
    
    108Other
    
    
    
    
    
    
    (73
    )Balance at end of period
    
    $
    24,255
    
    
    $
    16,057
 l.
    
    Doral Financial is the guarantor of various unregistered serial and term bonds issued by
Doral Properties, a wholly-owned subsidiary, through the Puerto Rico Industrial, Tourist,
Educational, Medical and Environmental Control Facilities Financing Authority (AFICA). The
bonds were issued to finance the construction and development of the Doral Financial Plaza
building, the headquarters facility of Doral Financial. As of March 31, 2005, the outstanding
principal balance of the bonds was $51.1 million with fixed interest rates, ranging from 6.20%
to 6.90%, and maturities ranging from June 2005 to December 2029. Certain series of the bonds
are secured by a mortgage on the building and underlying real property.
 m.
    
    The Company routinely originates, securitizes and sells mortgage loans into the secondary
market. As a result of this process, the Company typically retains the servicing rights and
may retain interest-only strips. The Companys retained interests are subject to
prepayment and interest rate risks. The following tables show the changes in the Companys
mortgage servicing assets and interest-only strips for each of the periods shown:
 MORTGAGE
SERVICING ASSETS ACTIVITY
 (In thousands)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Balance at beginning of period
    
    $
    136,024
    
    
    $
    133,237Capitalization of servicing assets
    
    
    6,550
    
    
    
    6,138Rights purchased
    
    
    1,080
    
    
    
    1,419Amortization
    
    
    (5,738
    )
    
    
    (8,706
    )Balance before valuation allowance at end
of period
    
    
    137,916
    
    
    
    132,088Valuation allowance for temporary impairment
    
    
    (8,220
    )
    
    
    (22,206
    )Balance at end of period
    
    $
    129,696
    
    
    $
    109,882
  25




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  (In thousands)
 QUARTER ENDEDMARCH 31,20042005
    
    
    (As Restated)Balance at beginning of period
    
    $
    12,438
    
    
    $
    4,317Temporary impairment charges
    
    
    273
    
    
    
    17,936Recoveries
    
    
    (4,491
    )
    
    
    (47
    )Balance at end of period
    
    $
    8,220
    
    
    $
    22,206
  INTEREST-ONLY STRIPS ACTIVITY
(In thousands)
 QUARTER ENDED MARCH 31,20042005
    
    
    (As Restated)Balance at beginning of period
    
    $
    127,361
    
    
    $
    128,566Capitalization of IOs from loan sales
    
    
    5,323
    
    
    
    13,959Amortization
    
    
    (13,425
    )
    
    
    (11,101
    )(Losses) gains on the IO value
    
    
    (22,946
    )
    
    
    9,105Balance at end of period
    
    $
    96,313
    
    
    $
    140,529
  26




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 (Dollars in thousands)
 Servicing
    
    Interest-onlyAssets
    
    stripsCarrying amount of retained interest
    
    $
    129,696
    
    
    $
    96,313Weighted-average expected life (in years)
    
    
    5.9
    
    
    
    5.1Constant prepayment rate
(weighted-average annual rate)
    
    
    12.46
    %
    
    
    15.72
    %Decrease in fair value due to 10%
adverse change
    
    $
    (5,825
    )
    
    $
    (3,515
    )Decrease in fair value due to 20%
adverse change
    
    $
    (11,178
    )
    
    $
    (6,798
    )Residual cash flow discount rate
(weighted-average annual rate)
    
    
    9.99
    %
    
    
    11.80
    %Decrease in fair value due to 10%
adverse change
    
    $
    (4,850
    )
    
    $
    (1,981
    )Decrease in fair value due to 20%
adverse change
    
    $
    (9,373
    )
    
    $
    (3,869
    )
   (Dollars in thousands)
    
    Constant
    
    Weighted-average
    
    Change in FairChange in yield curve (basis points)
    
    prepayment rate
    
    expected life
    
    Value of IOs
    
    % Change+200
    
    
    
    
    12.36
    %
    
    
    6.0
    
    
    
    (116,049
    )
    
    
    (120.5
    )%+100
    
    
    
    
    13.26
    %
    
    
    5.8
    
    
    
    (58,215
    )
    
    
    (60.4
    )%+50
    
    
    
    
    14.10
    %
    
    
    5.5
    
    
    
    (28,778
    )
    
    
    (29.9
    )%Base
    
    
    
    
    15.72
    %
    
    
    5.1
    
    
    
    0
    
    
    
    0.0
    %-50
    
    
    
    
    18.24
    %
    
    
    4.5
    
    
    
    26,855
    
    
    
    27.9
    %-100
    
    
    
    
    22.32
    %
    
    
    3.8
    
    
    
    47,151
    
    
    
    49.0
    %-200
    
    
    
    
    28.32
    %
    
    
    3.1
    
    
    
    83,873
    
    
    
    87.1
    %
 n.
    
    At March 31, 2005 and December 31, 2004, money market investments included $894.8 million
and $806.8 million, respectively, of pledged money market investments. Such money market
investments secured short-term borrowings generally due within 90 days. At March 31, 2005 and
December 31, 2004, the carrying value of securities purchased under resell agreements included
in money market investments was $51.5 million and $49.2 million, respectively. The underlying
securities were held on behalf of the Company by the dealers that arranged the transactions.
 27




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 o.
    
    The Company expenses the fair value of stock options granted to employees using the modified
prospective method. Under this method, the Company expenses the fair value of all employee
stock options granted after January 1, 2003, as well as the unvested portions of previously
granted options. The before-tax expense associated with expensing stock options for the first
quarter of 2005 and 2004 was approximately $2.4 million
in each of the periods.p.
    
    The following table summarizes deposit balances:
 (In thousands)
    
    MARCH 31, 2005
    
    
    DECEMBER 31, 2004Certificates of deposit
    
    $
    1,799,903
    
    
    $
    1,983,271Regular savings
    
    
    502,022
    
    
    
    474,271NOW accounts
    
    
    734,044
    
    
    
    726,178Non interest-bearing deposits
    
    
    498,122
    
    
    
    459,360$
    3,534,091
    
    
    $
    3,643,080
 q.
    
    The Company routinely enters into financing agreements to sell securities under agreements to
repurchase. The Company retains control over such securities according to the provisions of
SFAS 140. Accordingly, the amounts received under these agreements represent borrowings, and
the securities underlying the agreements remain in the asset accounts. These transactions are
carried at the amounts at which transactions will be settled. The counterparties to the
contracts generally have the right to repledge the securities received as collateral. Those
securities are presented in the Consolidated Statements of Financial Condition as part of
pledged investment securities. Securities sold under agreements to repurchase amounted to $6.8
billion and $6.3 billion as of March 31, 2005 and December 31, 2004, respectively.r.
    
    Advances from the FHLB consisted of the following:
 
 MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2005
    
    
    2004Non-callable advances with
maturities ranging from July 2005 to
March 2010 (from July 2005 to March
2008, at December 31, 2004), at
various fixed rates averaging 3.46%
and 3.12% at March 31, 2005 and
December 31, 2004, respectively.
    
    $
    272,000
    
    
    $
    222,000Non-callable advances due on January
29, 2005, tied to 3-month LIBOR
adjustable quarterly, 2.83% at
December 31, 2004.
    
    
    
    
    
    
    100,000Non-callable advances due on
September 14, 2007, tied to 1-month
LIBOR adjustable monthly (2.81% and
2.41% at March 31, 2005 and December
31, 2004, respectively).
    
    
    100,000
    
    
    
    100,000Callable advances with maturities
ranging from August 2005 to November
2012, at various fixed rates
averaging 4.50%, callable at various
dates beginning on April 2, 2005.
    
    
    872,500
    
    
    
    872,500$
    1,244,500
    
    
    $
    1,294,500
  28




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 s.
    
    At March 31, 2005 and December 31, 2004, loans payable consisted of financing agreements with
local financial institutions secured by mortgage loans and also include warehousing lines of
credit and gestation or presale facilities. Advances under these facilities are also secured
by mortgage loans.Outstanding loans payable consisted of the following:
 MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2005
    
    
    2004Secured borrowings with local financial
institutions, collateralized by real estate
mortgage loans at variable interest rates
tied to 3-month LIBOR averaging 4.19% and
3.60% at March 31, 2005 and December 31,
2004, respectively.
    
    $
    3,991,746
    
    
    $
    3,258,459Secured borrowings with local financial
institutions, collateralized by real estate
mortgage loans at fixed interest rates
averaging 7.70% and 7.41% at March 31, 2005
and December 31, 2004, respectively.
    
    
    49,708
    
    
    
    57,566Secured borrowings with a local financial
institution, collateralized by IOs at a fixed
interest rate of 7.75%.
    
    
    42,822
    
    
    
    42,922Loans payable resulting from the use of
warehousing lines of credit and gestation or
presale facilities due in 2005, at various
variable rates averaging 3.70% and 3.17% at
March 31, 2005 and December 31, 2004,
respectively, and other financing
arrangements.
    
    
    484,898
    
    
    
    279,560$
    4,569,174
    
    
    $
    3,638,507
  29




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 t.
    
    Notes payable consisted of the following:
 MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2005
    
    
    2004$625 million floating rate senior notes tied to 3-month LIBOR (3.50%
and 2.91% at March 31, 2005 and December 31, 2004, respectively), due
on July 20, 2007, paying interest quarterly
    
    $
    625,496
    
    
    $
    625,330$115 million floating rate senior notes tied to 3-month LIBOR (3.58%
and 3.07% at March 31, 2005 and December 31, 2004, respectively), due
on December 7, 2005, paying interest quarterly
    
    
    115,000
    
    
    
    115,000$100 million notes, net of discount, bearing interest at 7.65%, due on
March 26, 2016, paying interest monthly
    
    
    98,203
    
    
    
    98,3727.84% senior notes due on October 10, 2006, paying interest
semiannually on April 10 and October 10
    
    
    75,000
    
    
    
    75,000$30 million notes, net of discount, bearing interest at 7.00%, due on
April 26, 2012, paying interest monthly
    
    
    29,532
    
    
    
    29,560$40 million notes, net of discount, bearing interest at 7.10%, due on
April 26, 2017, paying interest monthly
    
    
    39,295
    
    
    
    39,339$30 million notes, net of discount, bearing interest at 7.15%, due on
April 26, 2022, paying interest monthly
    
    
    29,439
    
    
    
    29,476Senior term notes at fixed rates ranging from 8.45% to 8.55% with
maturities ranging from August 2005 to August 2007, paying interest
semiannually on February 28 and August 31
    
    
    24,000
    
    
    
    24,000Bonds payable secured by mortgage on building at fixed rates ranging
from 6.20% to 6.90%, with maturities ranging from June 2005 to December
2029, paying interest monthly
    
    
    51,065
    
    
    
    51,065Notes payable to bank, collateralized by CMO certificates at variable
interest rates tied to 1-month LIBOR (4.24% and 3.96% at March 31, 2005
and December 31, 2004, respectively), due on June 30, 2005, paying
interest monthly
    
    
    6,089
    
    
    
    6,089Zero coupon senior notes (effective rate of 6.50%) due on April 30, 2007
    
    
    2,224
    
    
    
    2,191Notes payable at fixed rates, 6.00% at March 31, 2005 (7.00% at
December 31, 2004), due on February 2005 (at various maturities from
February to March 2005 at December 31, 2004), paying interest monthly
    
    
    200
    
    
    
    555$
    1,095,543
    
    
    $
    1,095,977
 u.
    
    Income Taxes
  30




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
        31




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  v.
    
    GuaranteesIn November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 45, (FIN 45) Guarantors Accounting and Disclosure Requirements for Guarantees.
This interpretation requires a guarantor of certain types of guarantees to recognize, at the
inception of the guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. As of March 31, 2005, the Company had outstanding $4.1million in
commercial and financial standby letters of credit. The fair value on these commitments is
not significant.Certain of the Companys loan sale activities involve mortgage loans subject to recourse
arrangements that generally obligate Doral Financial to repurchase or substitute the loans
if the loans are 90 days or more past due or otherwise in default. Recourse is generally
limited to a period of time (from four to seven years) or to a percentage of the loans sold
(from 10% to 15%). As of March 31, 2005, the outstanding principal balance of loans sold
subject to full or partial recourse was $2.0 billion. As of such date, the maximum
contractual exposure in principal amount of loans that Doral Financial would have been
required to repurchase if all loans subject to recourse defaulted was $1.2 billion. Doral
Financials contingent obligation with respect to such recourse provision is not reflected
on the Companys Consolidated Financial Statements, except for a liability of $14.6 million,
as of March 31, 2005, for estimated losses from such recourse agreements, which is included
in Accrued expenses and other liabilities.w.
    
    Commitments and ContingenciesThe Company enters into financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments
may include commitments to extend credit and sell mortgage-backed securities and loans. At
March 31, 2005, commitments to extend credit amounted to approximately $603.7million and
commitments to sell mortgage-backed securities and loans amounted to approximately $2.7
billion. Commitments to extend credit are agreements to lend to a customer as long as the
conditions established in the contract are met. Commitments generally have fixed expiration
dates or other termination clauses. Generally, the Company does not enter into interest
rate lock agreements with borrowers. Out of the $2.7 billion in commitments to sell
mortgage-backed securities existing as of March 31, 2005, $2.2 billion relate to commitments
to sell mortgage loans that would give rise to IOs, which were
terminated after March 31, 2005. Similarly, outstanding commitments to purchase up to $506.3 million in mortgage
loans from third parties were also terminated.As of March 31, 2005, Doral Financial and its subsidiaries were defendants in various
lawsuits arising in the ordinary course of business. In the opinion of Doral Financials
management, except as described below, the pending and threatened legal proceedings of which
management is aware will not have a material adverse effect on the financial condition and
results of operations of Doral Financial.During 2005, Doral Financial became subject to various legal proceedings, including
regulatory and judicial investigations and civil litigation, arising as a result of the
restatement.Class Action Lawsuits.Following the announcement of the restatement, Doral Financial and
certain of its officers and directors and former officers and directors, were named as
defendants in eighteen purported class action
 32




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 lawsuits filed between April 20, 2005 and June 14, 2005, alleging violations of federal
securities laws. Sixteen of these actions were filed in the U.S. District Court for the
Southern District of New York and two were filed in the U.S. District Court for the District
of Puerto Rico. These lawsuits, brought on behalf of shareholders who purchased Doral
Financial securities as early as May 15, 2000 and as late as May 26, 2005, allege primarily
that the defendants engaged in securities fraud by disseminating materially false and
misleading statements during the class period, failing to disclose material information
concerning the valuation of the Companys IOs, and misleading investors as to Dorals
vulnerability to interest rate increases. The two actions not initially filed in the U.S.
District Court for the Southern District of New York have been transferred there by the
Judicial Panel on Multi-District Litigation for coordinated or consolidated pretrial
proceedings with the actions previously filed there before Judge Richard Owen. On February
8, 2006, Judge Owen entered an order appointing the West Virginia Investment Management
Board as lead plaintiff and approving the selection of Lerach Coughlin Stoia Geller Rudman &
Robbins LLP as lead plaintiffs counsel. These lawsuits are in very early stages and seek
unspecified compensatory damages, costs and expenses.Shareholder Derivative Lawsuits.Certain officers and directors and former officers and
directors of the Company were also named as defendants in four shareholder derivative
actions filed in the U.S. District Court for the Southern District of New York between June
2, 2005 and June 13, 2005. These derivative actions purport to bring claims on behalf of the
Company based principally on allegations that Doral Financials officers and directors
allowed Doral Financial to use inadequate procedures and financial controls in connection
with the Companys financial statements and made misstatements to the public concerning the
Companys financial controls and financial performance. These four derivative actions, which
are in very early stages, are pending before Judge Owen and have been consolidated with the
class actions during pretrial proceedings. The relief sought in these derivative actions
includes contribution in respect of the securities actions, unspecified compensatory damages
on behalf of Doral Financial, disgorgement of defendants profits and compensation,
equitable and/or injunctive relief, costs and other expenses.Other Lawsuits.On June 21, 2005, a lawsuit was filed against Doral Financial and certain of
its officers and directors and former officers and directors in the U.S. District Court for
the District of Puerto Rico. The suit as amended concerns a divorce settlement entered by the
former Chairman and chief executive officer of Doral Financial and also alleges, among other
things, violations of federal securities laws, Racketeer Influenced Corrupt Organizations
(RICO) Act violations, as well as fraud and breach of contract under Puerto Rico law, some
of which are stated in the alternative as derivative claims on behalf of Doral Financial.
Plaintiff seeks an award of damages, costs, and expenses. All defendants have moved to
dismiss the complaint as amended, and such motions have not been decided.In addition, on October 14, 2005, the Company, a director and certain former officers and
directors of the Company were named as defendants in an action brought by an individual
plaintiff filed in the U.S. District Court for the Southern District of New York, alleging
violations of federal securities laws and various Kentucky state laws similar to those
alleged in the class action lawsuits. Plaintiff seeks compensatory damages in the amount of
$292,000 for losses the plaintiff allegedly incurred in connection with Doral Financial
securities purchased between January 19, 2005 and March 18, 2005, as well as unspecified
punitive damages, interest, costs and other expenses. This action is at a very early stage,
is pending before Judge Owen and has been consolidated with the class and derivative actions
for pretrial proceedings.Doral Financial cannot predict the outcome of the matters described above and is unable to
ascertain the ultimate aggregate amount of monetary liability or financial impact to Doral
Financial of these matters. Accordingly, no reserve is being established in Doral
Financials financial statements at this time. Doral Financial cannot determine whether
these actions, suits, claims and proceedings will, individually or collectively, have a
material adverse effect on the business, results of operations, financial condition and
liquidity of Doral Financial.Other Legal Matters.On April 19, 2005, the SEC informed Doral Financial that it is
conducting an inquiry into Doral Financials accounting and disclosure practices related to
the April 19, 2005 announcement that it would restate its financial results, and the
underlying issues related to the restatement. Subsequently, the SEC issued a formal order of
investigation in connection with the previously announced informal inquiry into the
Companys
 33




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 restatement of its consolidated financial statements. The Company is cooperating with the
SEC in connection with this investigation.On August 24, 2005, the U.S. Attorneys Office for the Southern District of New York served
Doral Financial with a grand jury subpoena seeking the production of certain documents
relating to issues arising from the restatement, including financial statements and
corporate, auditing and accounting records prepared during the period January 1, 2000 to the
date of the subpoena. Doral Financial is cooperating with the U.S. Attorneys Office in this
matter, including by producing documents and other information in response to the subpoena.On March 17, 2006, subsequent the filing of Doral Financials amended 2004 Annual Report on
Form 10-K, the Company and its principal Puerto Rico banking subsidiary, Doral Bank PR,
entered into consent orders with the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation (FDIC) and the Commissioner of Financial
Institutions of Puerto Rico. The mutually agreed upon orders require Doral Financial and
Doral Bank PR to conduct reviews of their mortgage portfolios, and to submit plans regarding
the maintenance of capital adequacy and liquidity. No fines or monetary penalties were
assessed against Doral Financial or Doral Bank under the orders.Under the terms of the consent order with the FDIC and the Commissioner, Doral Bank PR may
not pay a dividend or extend credit to, or enter into certain asset purchase and sale
transactions with Doral Financial or its subsidiaries, without the prior consent of the FDIC
and the Commissioner.The consent order with the Federal Reserve contains similar restrictions on Doral Financial
from obtaining extensions of credit from, or entering into certain asset purchase and sale
transactions with, Doral Bank PR, without the prior approval of the Federal Reserve. The
consent order also restricts Doral Financial from paying dividends on its capital stock
without the prior written approval of the Federal Reserve. Doral Financial is required to
request permission for the payment of dividends on its common stock and preferred stock not
less than 30 days (five days in the case of the first request following the effective date
of the order) prior to a proposed dividend declaration date.x.
    
    Recent Accounting PronouncementsAccounting for Certain Loans or Debt Securities Acquired in a Transfer.In November 2003,
the Accounting Standards Executive Committee issued the Statement of Position (SOP) No.
03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This
statement addresses accounting for differences between contractual cash flows and cash flows
expected to be collected from an investor s initial investment in loans or debt securities
(loans) acquired in a transfer if those differences are attributable, at least in part, to
credit quality. This SOP does not apply to loans originated by the entity. This SOP
prohibits carrying over or creation of valuation allowances in the initial accounting of
all loans acquired in a transfer that are within the scope of this SOP. The prohibition of
the valuation allowance carryover applies to the purchase of an individual loan, a pool of
loans, a group of loans, and loans acquired in a purchase business combination. This SOP is
effective for loans acquired in fiscal years beginning after December 15, 2004. The
adoption of this statement did not have a material effect on Doral Financials Consolidated
Financial Statements.The Meaning of Other Than Temporary Impairment and Its Application to Certain Investments.
In March 2004, the Emerging Issue Task Force (EITF) reached a consensus on Issue 03-1,
Meaning of Other Than Temporary Impairment and Its Application to Certain Investments
(Issue 03-1). Issue 03-1 provides recognition and measurement guidance regarding when
impairments of equity and debt securities are considered other-than-temporary requiring a
charge to earnings, and also requires additional annual disclosures for investments in
unrealized loss positions. The additional annual disclosure requirements were implemented by
the Company during the year ended December 31, 2003. In September 2004, the FASB issued FASB
Staff Position (FSP) EITF Issue 03-1-a, to address the application of Issue 03-1 to debt
securities that are impaired solely because of interest rates and/or sector spread increases
and that are analyzed for impairment under paragraph 16 of Issue 03-1. EITF Issue 03-1-1
expanded the scope of the deferral to include all securities covered by Issue 03-1. Both
delayed the recognition and measurement provisions of Issue 03-1 pending the issuance of
further implementation guidance. In June 2005, the FASB decided to not
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 provide additional guidance on the meaning of other-than-temporary impairment, but directed
the staff to issue proposed FSP EITF 031-a, Implementation Guidance for the Application of
Paragraph 16 of EITF Issue No. 03-1, as final. The final FSP supersede EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
and EITF Topic No. D-44, Recognition of Other-Than-Temporary Impairment upon the Planned
Sale of a Security Whose Cost Exceeds Fair Value. The final FSP (retitled FSP FAS 115-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments)
replace the guidance set forth in paragraphs 10-18 of Issue 03-1 with references to existing
other than temporary impairment guidance, such as SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities, SEC Staff Accounting Bulletin 59, Accounting
for Noncurrent Marketable Equity Securities, and Accounting Principles Board (APB)
Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. FSP FAS
115-1 codify the guidance set forth in EITF Topic D-44 and clarify that an investor should
recognize an impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell has not been made, and is effective for
other-than-temporary impairment analyses conducted in periods beginning after September 15,
2005. The Company believes that the adoption of this statement will not have a material
effect on Doral Financials Consolidated Financial Statements.Share-Based Payments. In December 2004, the FASB issued SFAS 123R, Share-Based Payments.
This statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and
it also supersedes APB No. 25, Accounting for Stock Issued to Employees, and its related
implementation guidance. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions. SFAS 123R
eliminates the alternative to use APB 25s intrinsic value method of accounting that was
provided in SFAS 123, as originally issued. This statement is effective for fiscal years
that begin after June 15, 2005. Management does not expect that the adoption of this
statement will have a material effect on the Consolidated Financial Statements of the
Company since in 2003, Doral Financial started to expense the fair value of stock options
granted to employees using the modified prospective method under SFAS 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123. Under this method, the Company expenses the fair value of all employee stock options
granted after January 1, 2003, as well as the unvested portions of previously granted
options.Exchanges of Nonmonetary Assets.In December 2004, the FASB issued SFAS No. 153, Exchanges
of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. This statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The entitys future cash flows are
expected to significantly change if either of the following criteria is met: a) The
configuration (risk, timing, and amount) of the future cash flows of the asset(s) received
differs significantly from the configuration of the future cash flows of the asset(s)
transferred; b) The entity-specific value of the asset(s) received differs from the
entity-specific value of the asset(s) transferred, and the difference is significant in
relation to the fair values of the assets exchanged. A qualitative assessment will, in some
cases, be conclusive in determining that the estimated cash flows of the entity are expected
to significantly change as a result of the exchange. This statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.
Management believes that the adoption of this statement will not have a material effect on
Doral Financials Consolidated Financial Statements.Accounting Changes and Error Corrections.In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Errors Corrections. This Statement replaces APB Opinion No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting for and reporting of a change
in accounting principle. This statement requires retrospective application to prior periods
financial statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the change. This
statement also requires that a change in depreciation, amortization, or depletion method for
long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected
by a change in accounting principle. Opinion 20
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 previously required that such changes in accounting principle be reported as a change in
accounting principle by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No. 154 is effective for
accounting changes and corrections made in fiscal years beginning after December 15, 2005.
Early adoption is permitted for accounting changes and corrections of errors made in fiscal
years beginning after June 1, 2005. This statement does not change the transition
provisions of any existing accounting pronouncements, including those that are in a
transition phase as of the effective date of this Statement.Accounting for Conditional Asset Retirement Obligations.In March 2005, the FASB issued
financial interpretation (FIN) No. 47, Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement No. 143, Accounting for Asset Retirement
Obligation. This Interpretation clarifies the term conditional asset retirement obligation
as used in FASB No. 143 and requires a liability to be recorded if the fair value of the
obligation can be reasonably estimated. The types of asset retirement obligations that are
covered by this Interpretation are those for which an entity has a legal obligation to
perform an asset retirement activity, however the timing and (or) method of settling the
obligation are conditional on a future event that may or may not be within the control of
the entity. FIN No. 47 also clarifies when an entity would have sufficient information to
reasonably estimate the fair value of an asset retirement obligation. This Interpretation is
effective no later than December 31, 2005. The adoption of this statement is not expected to
have a material impact on the Corporations financial condition, results of operations, or
cash flows.Accounting for Certain Hybrid Financial Instruments.On February 16, 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140 (SFAS 155), which resolves issues addressed in Statement 133
Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets (DIG Issue D1). SFAS 155 amends SFAS 133 to simplify the
accounting for certain derivatives embedded in other financial instruments (a hybrid
financial instrument) by permitting fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise required bifurcation,
provided that the entire hybrid financial instrument is accounted for on a fair value basis.
SFAS 155 also establishes the requirement to evaluate interests in securitized financial
assets to identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, which replaces the
interim guidance in DIG Issue D1. SFAS 155 amends SFAS 140 to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains to beneficial
interests other than another derivative financial instrument. SFAS 155 is effective for all
financial instruments acquired or issued after the beginning of the first fiscal year that
begins after September 15, 2006, with earlier adoption allowed. The Company is currently
evaluating the effect, if any, that the adoption of SFAS 155 will have on its financial
statements.Terms of Loan Products that may Give Rise to a Concentration of Credit Risk. In December
2005, the FASB issued FASB Staff Position No. SOP 94-6-1, Terms of Loan Products That May
Give Rise to a Concentration of Credit Risk (FSP SOP 94-6-1). FSP SOP 94-6-1 addresses
disclosure requirements for entities that originate, hold, guarantee, service, or invest in
loan products whose terms may give rise to a concentration of credit risk. The effective
date of FSP SOP 94-6-1 is for interim and annual periods ending after December 19, 2005.
The Company is currently evaluating the effect, if any, that the adoption of FSP SOP 94-6-1
will have on its financial statements.Accounting for Servicing of Financial Assets.In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets (SFAS 156). This statement amends SFAS 140
with respect to the accounting for separately recognized servicing assets and liabilities.
This statement: (1) requires an entity to recognize a servicing asset or liability each time
it undertakes and obligation to service a financial asset by entering into a servicing
contract, (2) requires all separately recognized servicing assets and servicing liabilities
to be initially measured at fair value, if practicable, (3) permits en entity to choose
between an amortization method or a fair value measure for subsequent recognition for each
class of separately recognized servicing assets and servicing liabilities, (4) at its
initial adoption, permits a one-time reclassification of available-for-sale securities to
trading securities by entities with recognized servicing rights, (5) requires separate
presentation of servicing assets and servicing liabilities subsequently measured at fair
value in the statement of financial position, and additional disclosures. SFAS 156 is
effective as of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 beginning of the Companys first fiscal year that begins
after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entitys fiscal year, provided the entity
has not yet issued financial statements, including interim financial statements, for any period
of that fiscal year. The Company is currently evaluating the possible impact of the
adoption of SFAS 156 on its financial statements.
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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  
    
    Recharacterization of mortgage loan sale transactions as secured borrowings;
    
    Valuation of IOs;
    
    Accounting for servicing assets;
    
    Accounting for derivative instruments and investment securities;
    
    Provision for loan and lease losses; and
    
    Other accounting adjustments, including with respect to the lower of cost
or market valuation allowance, obligations for loans sold with recourse, the accounting
for certain defaulted loans, the accounting for the deferral and recognition of loan
origination fees and costs and the accounting for rent expense under operating leases.
  INTERNAL CONTROL OVER FINANCIAL REPORTING
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##### Table of Contents



SUBSEQUENT EVENTS
         OVERVIEW OF RESULTS OF OPERATIONS
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
    
    Net income for the first quarter of 2005 increased by 12% when compared to
the same period in 2004, from $35.0 million to $39.2 million and increased by 17% on a
diluted earnings per share basis from $0.24 to $0.28.
    
    Results for the first quarter of 2005 as compared to the first quarter of
2004 were principally impacted by an increase of non-interest income driven by higher
trading profits and servicing income offset in part by higher non-interest expenses and
an increase in income tax expense.
    
    Net interest income for the first quarter of 2005 was $74.1 million,
compared to $76.7 million for the same period in 2004. The slight decrease in net
interest income resulted from a significant decrease in interest rate margin from 2.79%
in 2004 to 1.79% in 2005, which was partially offset by a significant growth in average
interest-earning assets from $11.0 billion in 2004 to $17.0 billion in 2005,
principally loans and mortgage backed securities (see Tables A and B below for
information regarding the Companys net interest income). The reduction in net
interest margin resulted from the flattening of the yield curve: on average, the
Companys liabilities, principally wholesale funding and loans payable, re-priced at
higher rates while the Companys assets re-priced at lower rates, resulting in a lower
interest rate margin.
    
    The provision for loan and lease losses increased for the first quarter of
2005 to $4.0 million, from $1.8 million for the same period in 2004. The increase in
the provision reflects an increase in non-performing loans and the growth in the
non-residential portfolio, specifically construction and commercial loans.
    
    Non-interest income for the first quarter of 2005 was $36.0 million,
compared to $2.5 million for the same period in 2004. The increase in non-interest
income was driven by higher gains on securities held for trading, higher servicing
income and higher fees from banking and insurance agency activities, which were
partially offset by lower gain on sales of mortgage loan sales and investment
securities. Gains on trading activities for the first quarter of 2005 were principally
due to realized and unrealized gains with respect to derivative instruments undertaken
for risk management purposes, which were in turn mainly attributable to an increase in
long-term interest and swap rates.
    
    Non-interest expenses for the first quarter of 2005 were $56.4 million
compared to $46.2 million for the same period in 2004. The increase in non-interest
expenses was driven by increases in compensation, professional fees, depreciation and
amortization, occupancy and other expenses resulting from the expansion of Doral
Financials mortgage banking and banking operations and expenses related to increased
lending activities and servicing.
 CRITICAL ACCOUNTING POLICIES
   40




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RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2005 AND 2004 (As Restated)
   NET INCOME
   NET INTEREST INCOME
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TABLE A
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
 QUARTER ENDED MARCH 31,20042005
    
    
    (As Restated)AVERAGE
    
    
    
    
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEBALANCE
    
    
    INTEREST
    
    
    YIELD/RATE
    
    
    BALANCE
    
    
    INTEREST
    
    
    YIELD/RATEASSETS:Interest-earning assets:Total loans(1)(2)
    
    $
    6,540,381
    
    
    $
    109,746
    
    
    
    6.81
    %
    
    $
    5,145,909
    
    
    $
    101,442
    
    
    
    7.93
    %Mortgage-backed securities
    
    
    4,424,304
    
    
    
    52,568
    
    
    
    4.82
    %
    
    
    1,375,370
    
    
    
    17,743
    
    
    
    5.19
    %Interest-only strips
    
    
    113,418
    
    
    
    3,300
    
    
    
    11.80
    %
    
    
    135,309
    
    
    
    3,213
    
    
    
    9.55
    %Investment securities
    
    
    3,273,313
    
    
    
    32,829
    
    
    
    4.07
    %
    
    
    2,941,430
    
    
    
    33,109
    
    
    
    4.53
    %Other interest-earning assets
    
    
    2,666,837
    
    
    
    16,099
    
    
    
    2.45
    %
    
    
    1,449,341
    
    
    
    3,517
    
    
    
    0.98
    %Total interest-earning assets/interest income
    
    
    17,018,253
    
    
    $
    214,542
    
    
    
    5.11
    %
    
    
    11,047,359
    
    
    $
    159,024
    
    
    
    5.79
    %Total non-interest-earning assets
    
    
    843,152
    
    
    
    
    
    
    
    
    
    
    
    614,343Total assets
    
    $
    17,861,405
    
    
    
    
    
    
    
    
    
    
    $
    11,661,702LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits
    
    $
    3,567,126
    
    
    $
    22,457
    
    
    
    2.55
    %
    
    $
    3,071,007
    
    
    $
    18,982
    
    
    
    2.49
    %Repurchase agreements
    
    
    6,739,615
    
    
    
    50,458
    
    
    
    3.04
    %
    
    
    3,303,767
    
    
    
    22,672
    
    
    
    2.76
    %Advances from the FHLB
    
    
    1,232,833
    
    
    
    12,479
    
    
    
    4.11
    %
    
    
    1,202,148
    
    
    
    11,786
    
    
    
    3.94
    %Loans payable
    
    
    3,611,872
    
    
    
    42,187
    
    
    
    4.74
    %
    
    
    2,069,429
    
    
    
    17,468
    
    
    
    3.39
    %Notes payable
    
    
    1,095,743
    
    
    
    12,895
    
    
    
    4.77
    %
    
    
    560,402
    
    
    
    11,443
    
    
    
    8.21
    %Total interest-bearing liabilities/interest expense
    
    
    16,247,189
    
    
    $
    140,476
    
    
    
    3.51
    %
    
    
    10,206,753
    
    
    $
    82,351
    
    
    
    3.25
    %Total non-interest-bearing liabilities
    
    
    333,654
    
    
    
    
    
    
    
    
    
    
    
    248,983Total liabilities
    
    
    16,580,843
    
    
    
    
    
    
    
    
    
    
    
    10,445,736Stockholders equity
    
    
    1,280,562
    
    
    
    
    
    
    
    
    
    
    
    1,205,966Total liabilities and stockholders equity
    
    $
    17,861,405
    
    
    
    
    
    
    
    
    
    
    $
    11,661,702Net interest-earning assets
    
    $
    771,064
    
    
    
    
    
    
    
    
    
    
    $
    840,606Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    74,066
    
    
    
    
    
    
    
    
    
    
    $
    76,673Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    1.60
    %
    
    
    
    
    
    
    
    
    
    
    2.54
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    1.77
    %
    
    
    
    
    
    
    
    
    
    
    2.79
    %Net interest-earning assets ratio
    
    
    
    
    
    
    
    
    
    
    104.75
    %
    
    
    
    
    
    
    
    
    
    
    108.24
    %
 
 (1)
    
    Average loan balances include the average balance of non-accruing loans, on which interest income is recognized when collected. Also includes the average balance of GNMA defaulted loans for
which the Company has an unconditional buy-back option.(2)
    
    For the first quarter of 2004 interest income on loans includes a yield adjustment of $8.3 million related to deferred fees on construction loans repaid prior to maturity.(3)
    
    Interest rate spread represents the difference between Doral Financials weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.(4)
    
    Interest rate margin represents net interest income on an annualized basis as a percentage of average interest-earning assets. 43




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TABLE B
NET INTEREST INCOME VARIANCE ANALYSIS
(IN THOUSANDS)
 QUARTER ENDEDMARCH 31,2005 COMPARED TO 2004 (As Restated)INCREASE (DECREASE) DUE TO:VOLUME
    
    
    RATE
    
    
    TOTALINTEREST INCOME VARIANCETotal loans
    
    $
    27,645
    
    
    $
    (19,341
    )
    
    $
    8,304Mortgage-backed securities
    
    
    39,560
    
    
    
    (4,735
    )
    
    
    34,825Interest-only strips
    
    
    (523
    )
    
    
    610
    
    
    
    87Investment securities
    
    
    3,759
    
    
    
    (4,039
    )
    
    
    (280
    )Other interest-earning assets
    
    
    2,983
    
    
    
    9,599
    
    
    
    12,582TOTAL INTEREST INCOME VARIANCE
    
    
    73,424
    
    
    
    (17,906
    )
    
    
    55,518INTEREST EXPENSE VARIANCEDeposits
    
    
    3,088
    
    
    
    387
    
    
    
    3,475Repurchase agreements
    
    
    23,707
    
    
    
    4,079
    
    
    
    27,786Advances from the FHLB
    
    
    302
    
    
    
    391
    
    
    
    693Loans payable
    
    
    13,072
    
    
    
    11,647
    
    
    
    24,719Notes payable
    
    
    10,988
    
    
    
    (9,536
    )
    
    
    1,452TOTAL INTEREST EXPENSE VARIANCE
    
    
    51,157
    
    
    
    6,968
    
    
    
    58,125NET INTEREST INCOME VARIANCE
    
    $
    22,267
    
    
    $
    (24,874
    )
    
    $
    (2,607
    )
 INTEREST INCOME
    44




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Quarter Ended March 31,2004(In thousands)
    
    2005
    
    
    (As Restated)Total cash flows received on IO portfolio
    
    $
    16,725
    
    
    $
    14,314Amortization of IOs, as offset to cash flows
    
    
    (13,425
    )
    
    
    (11,101
    )Net cash flows recognized as interest income
    
    $
    3,300
    
    
    $
    3,213
   INTEREST EXPENSE
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PROVISION FOR LOAN AND LEASE LOSSES
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NON-INTEREST INCOME
  Net Gain on Mortgage Loan Sales and Fees.
 FOR THEFOR THE
    
    QUARTERQUARTER
    
    ENDEDENDED
    
    MARCH 31,MARCH 31,
    
    2004(In thousands)
    
    2005
    
    (As Restated)Total loan sales and securitizations
    
    $
    821,865
    
    
    $
    582,570Total loans sales resulting in the recording of IOs
    
    $
    539,712
    
    
    $
    172,948IOs capitalized
    
    $
    5,323
    
    
    $
    13,959MSRs capitalized
    
    $
    6,550
    
    
    $
    6,138
 Net Servicing Income.
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TABLE C
NET SERVICING INCOME (LOSS)
 QUARTER ENDEDMARCH 31,2004(In thousands)
    
    2005
    
    
    (As Restated)Servicing fees (net of guarantee fees)
    
    $
    7,578
    
    
    $
    7,269Late charges
    
    
    2,257
    
    
    
    1,832Prepayment penalties
    
    
    1,359
    
    
    
    1,345Interest loss
    
    
    (958
    )
    
    
    (602
    )Other servicing fees
    
    
    99
    
    
    
    172Servicing income, gross
    
    
    10,335
    
    
    
    10,016Amortization and impairment of servicing assets
    
    
    (1,520
    )
    
    
    (26,595
    )Total net servicing income (loss)
    
    $
    8,815
    
    
    $
    (16,579
    )
 Trading Activities.
 TABLE D
COMPONENTS OF TRADING ACTIVITIES
 QUARTER ENDEDMARCH 31,2004(In thousands)
    
    2005
    
    
    (As Restated)Net realized (losses) gains on sales of trading securities
    
    $
    (2,192
    )
    
    $
    22,778(Losses) gains on the IO valuation
    
    
    (22,946
    )
    
    
    9,105Net unrealized (losses) gains on trading securities, excluding IOs
    
    
    (396
    )
    
    
    907Net realized and unrealized gains (losses) on derivative instruments
    
    
    32,170
    
    
    
    (60,466
    )Total
    
    $
    6,636
    
    
    $
    (27,676
    )
 Net Gain on Sale of Investment Securities.
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Commissions, Fees and Other Income.
 TABLE E
COMMISSIONS, FEES AND OTHER INCOME
 QUARTERENDED MARCH 31,2004(In Thousands)
    
    2005
    
    
    (As Restated)Retail banking fees
    
    $
    3,978
    
    
    $
    3,107Securities brokerage and asset management fees
and commissions
    
    
    333
    
    
    
    734Insurance agency commissions
    
    
    2,947
    
    
    
    2,899Other income
    
    
    508
    
    
    
    428Total
    
    $
    7,766
    
    
    $
    7,168
  NON-INTEREST EXPENSE S
 TABLE F
NON INTEREST EXPENSES
 QUARTERENDED MARCH 31,(In Thousands)
    
    2005
    
    
    2004Compensation and benefits
    
    $
    25,589
    
    
    $
    20,261Taxes, other than payroll and income taxes
    
    
    2,352
    
    
    
    2,210Advertising
    
    
    4,342
    
    
    
    3,190Professional services
    
    
    3,973
    
    
    
    2,422Communication and information systems
    
    
    4,824
    
    
    
    3,280Occupancy and other office expenses
    
    
    7,163
    
    
    
    5,799Depreciation and amortization
    
    
    4,953
    
    
    
    4,012Other
    
    
    3,211
    
    
    
    4,992Total non-interest expenses
    
    $
    56,407
    
    
    $
    46,166
  49




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INCOME TAXES
       50




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BALANCE SHEET AND OPERATING DATA ANALYSIS
 LOAN PRODUCTION
  TABLE G
LOAN PRODUCTION
 QUARTER ENDED MARCH 31,2004(Dollars in Thousands, Except for
Average Initial Loan Balance)
    
    2005
    
    (As Restated)FHA/VA mortgage loansNumber of loans
    
    
    1,333
    
    
    
    1,184Volume of loans
    
    $
    110,192
    
    
    $
    105,604Percent of total volume
    
    
    9
    %
    
    
    8
    %Average initial loan balance
    
    $
    82,665
    
    
    $
    89,193Conventional conforming mortgage loansNumber of loans
    
    
    1,558
    
    
    
    2,870Volume of loans
    
    $
    183,861
    
    
    $
    341,175Percent of total volume
    
    
    14
    %
    
    
    25
    %Average initial loan balance
    
    $
    118,011
    
    
    $
    118,876Conventional non  conforming mortgage loans(1)Number of loans
    
    
    6,396
    
    
    
    5,395Volume of loans
    
    $
    706,134
    
    
    $
    597,482Percent of total volume
    
    
    54
    %
    
    
    44
    %Average initial loan balance
    
    $
    110,402
    
    
    $
    110,747Other(2)
 51




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QUARTER ENDED MARCH 31,2004(Dollars in Thousands, Except for
Average Initial Loan Balance)
    
    2005
    
    (As Restated)Number of loans
    
    
    4,061
    
    
    
    2,399Volume of loans
    
    $
    301,496
    
    
    $
    313,631Percent of total volume
    
    
    23
    %
    
    
    23
    %Total loansNumber of loans
    
    
    13,348
    
    
    
    11,848Volume of loans
    
    $
    1,301,683
    
    
    $
    1,357,892
 
 (1)
    
    Includes $44.4 million and $39.3 million in second mortgages for the quarters ended March 31, 2005 and 2004, respectively.(2)
    
    Consists of construction loans on residential projects, mortgage loans secured by multi-family and commercial properties as well as other commercial, land and
consumer loans. 52




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TABLE H
LOAN ORIGINATION SOURCES
 THREE MONTH PERIOD ENDED MARCH 31,20042005
    
    (As Restated)Puerto Rico
    
    US
    
    Total
    
    Puerto Rico
    
    US
    
    TotalRetail
    
    
    72
    %
    
    
    1
    %
    
    
    73
    %
    
    
    69
    %
    
    
    
    
    
    
    69
    %Wholesale(1).
    
    
    8
    %
    
    
    
    
    
    
    8
    %
    
    
    10
    %
    
    
    
    
    
    
    10
    %New Housing Developments
    
    
    9
    %
    
    
    2
    %
    
    
    11
    %
    
    
    12
    %
    
    
    1
    %
    
    
    13
    %Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other(2)
    
    
    6
    %
    
    
    2
    %
    
    
    8
    %
    
    
    6
    %
    
    
    2
    %
    
    
    8
    %
 
 (1)
    
    Refers to purchases of mortgage loans from other financial institutions and mortgage lenders.(2)
    
    Refers to commercial, consumer and land loans originated through the banking subsidiaries and other specialized units. MORTGAGE LOAN SERVICING
  53




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TABLE I
MORTGAGE LOAN SERVICING
(Dollars in Thousands, Except for Average Size of Loans)
 AS OF MARCH 31,20042005
    
    
    (As Restated)COMPOSITION OF SERVICING PORTFOLIO AT PERIOD END:GNMA
    
    $
    2,360,720
    
    
    $
    2,665,266FHLMC/FNMA
    
    
    3,639,212
    
    
    
    3,599,908Doral Financial grantor trusts
    
    
    
    
    
    
    34,156Other conventional mortgage loans(1)(2)
    
    
    8,550,765
    
    
    
    6,796,729Total servicing portfolio
    
    $
    14,550,697
    
    
    $
    13,096,059SELECTED DATA REGARDING MORTGAGE LOANS SERVICED:Number of loans
    
    
    165,336
    
    
    
    153,440Weighted- average interest rate
    
    
    6.72
    %
    
    
    6.94
    %Weighted- average remaining maturity (months)
    
    
    255
    
    
    
    258Weighted- average gross servicing fee rate
    
    
    0.3963
    %
    
    
    0.3860
    %Average servicing portfolio
    
    $
    14,407,532
    
    
    $
    12,959,343Principal prepayments
    
    $
    549,301
    
    
    $
    561,688Constant prepayment rate
    
    
    13
    %
    
    
    15
    %Average size of loans
    
    $
    88,007
    
    
    $
    85,350Servicing assets, net
    
    $
    129,696
    
    
    $
    109,882DELINQUENT MORTGAGE LOANS AND PENDING
FORECLOSURES AT PERIOD END:60-89 days past due
    
    
    1.32
    %
    
    
    1.08
    %90 days or more past due
    
    
    1.71
    %
    
    
    1.85
    %Total delinquencies excluding foreclosures
    
    
    3.03
    %
    
    
    2.93
    %Foreclosures pending
    
    
    1.54
    %
    
    
    1.70
    %SERVICING PORTFOLIO ACTIVITY:Beginning servicing portfolio
    
    $
    14,264,367
    
    
    $
    12,690,244Add:Loans funded and purchased(3)
    
    
    955,281
    
    
    
    1,032,837Bulk servicing acquired
    
    
    55,619
    
    
    
    79,391Less:Servicing sales
    
    
    2,537
    
    
    
    982Run-off(4)
    
    
    722,033
    
    
    
    705,431Ending servicing portfolio
    
    $
    14,550,697
    
    
    $
    13,096,059
 
 (1)
    
    Includes $5.4 billion and $4.4 billion of loans owned by Doral Financial at March 31, 2005 and 2004, respectively,
which represented 37% and 34% of the total servicing portfolio as of such dates for which no servicing rights has been recognized.(2)
    
    Includes portfolios of $303.5 million and $255.8 million at March 31, 2005 and 2004, respectively, of delinquent FHA/VA
and conventional mortgage loans sold to third parties.(3)
    
    Excludes approximately $346.4 million and $325.1 million of commercial, consumer, construction and other non-mortgage
loans originated by Doral Financial but not part of the mortgage servicing-portfolio as of March 31, 2005 and 2004, respectively.(4)
    
    Run-off refers to regular amortization of loans, prepayments and foreclosures.  54




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LIQUIDITY AND CAPITAL RESOURCES
      55




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TABLE J
SOURCES OF BORROWINGS
(DOLLARS IN THOUSANDS)
 AS OF MARCH 31, 2005
    
    AS OF DECEMBER 31, 2004AMOUNT
    
    AVERAGE
    
    AMOUNT
    
    AVERAGEOUTSTANDING
    
    RATE
    
    OUTSTANDING
    
    RATEDeposits
    
    $
    3,534,091
    
    
    
    2.49
    %
    
    $
    3,643,080
    
    
    
    2.47
    %Repurchase Agreements
    
    
    6,840,375
    
    
    
    3.21
    %
    
    
    6,305,163
    
    
    
    2.73
    %Advances from FHLB
    
    
    1,244,500
    
    
    
    4.14
    %
    
    
    1,294,500
    
    
    
    3.98
    %Loans Payable
    
    
    4,569,174
    
    
    
    4.21
    %
    
    
    3,638,507
    
    
    
    3.68
    %Notes Payable
    
    
    1,095,543
    
    
    
    4.77
    %
    
    
    1,095,977
    
    
    
    4.38
    %
     56




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TABLE K
AVERAGE DEPOSIT BALANCE
(DOLLARS IN THOUSANDS)
 QUARTER ENDED
    
    
    YEAR ENDEDMARCH 31, 2005
    
    
    DECEMBER 31, 2004AVERAGE
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    AVERAGEBALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATECertificates of deposit
    
    $
    1,914,621
    
    
    
    3.34
    %
    
    $
    1,829,370
    
    
    
    3.15
    %Regular passbook savings
    
    
    486,896
    
    
    
    2.29
    %
    
    
    416,928
    
    
    
    2.27
    %NOW accounts
    
    
    734,321
    
    
    
    2.19
    %
    
    
    634,486
    
    
    
    2.15
    %Non-interest bearing
    
    
    431,288
    
    
    
    
    
    
    
    359,212
    
    
    
    Total deposits
    
    $
    3,567,126
    
    
    
    2.55
    %
    
    $
    3,239,996
    
    
    
    2.49
    %
  TABLE L
CERTIFICATES OF DEPOSIT MATURITIES
(IN THOUSANDS)
 AMOUNTCertificates of deposit maturing:Three months or less
    
    $
    103,009Over three through six months
    
    
    81,132Over six through twelve months
    
    
    363,746Over twelve months
    
    
    978,414Total
    
    $
    1,526,301
  REGULATORY CAPITAL RATIOS
  57




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TABLE M
REGULATORY CAPITAL RATIOS
 DORAL
    
    DORAL
    
    DORALFINANCIAL
    
    BANK PR
    
    BANK NYTotal Capital (Total capital to risk-weighted assets)
    
    
    14.1
    %
    
    
    20.3
    %
    
    
    22.9
    %Tier 1 Capital Ratio (Tier 1 capital to risk-weighted assets)
    
    
    13.8
    %
    
    
    19.7
    %
    
    
    22.5
    %Leverage Ratio(1)
    
    
    6.5
    %
    
    
    5.6
    %
    
    
    9.4
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR
and Tier 1 capital to adjusted total assets in the case of Doral Bank NY.       ASSETS AND LIABILITIES
  58




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OFF-BALANCE SHEET ACTIVITIES
   TABLE N
LOANS SUBJECT TO RECOURSE BY LOAN TYPE
 Loans Past Due
Outstanding
    
    
    Weighted-average
    
    
    Over 90 Days without
Insurance,(In thousands)
    
    Balance
    
    
    Loan to Value
    
    

and Loan-To-Value Over 80%Loan Type:FHA/VA loan
    
    $
    4,408
    
    
    
    85.8%
    
    
    $
    Conventional loans
    
    
    1,884,153
    
    
    
    73.9%
    
    
    
    5,658Commercial
    
    
    83,469
    
    
    
    79.2%
    
    
    
    Total
    
    $
    1,972,030
    
    
    
    74.2%
    
    
    $
    5,658
    59




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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
  TABLE O
CONTRACTUAL OBLIGATIONS
(IN THOUSANDS)
 PAYMENT DUE BY PERIODLESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTERCONTRACTUAL OBLIGATIONS(1)
    
    TOTAL
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSDeposits
    
    $
    3,534,091
    
    
    $
    2,461,257
    
    
    $
    732,253
    
    
    $
    325,619
    
    
    $
    14,962Repurchase agreements(2)
    
    
    6,840,375
    
    
    
    4,175,575
    
    
    
    2,664,800
    
    
    
    
    
    
    
    Advances from the FHLB(2)
    
    
    1,244,500
    
    
    
    547,500
    
    
    
    647,000
    
    
    
    50,000
    
    
    
    Loans payable(3)
    
    
    4,569,174
    
    
    
    484,898
    
    
    
    
    
    
    
    
    
    
    
    4,084,276Notes payable
    
    
    1,095,543
    
    
    
    129,998
    
    
    
    720,285
    
    
    
    1,770
    
    
    
    243,490Other liabilities
    
    
    264,637
    
    
    
    260,434
    
    
    
    2,203
    
    
    
    2,000
    
    
    
    Non-cancelable operating leases
    
    
    63,858
    
    
    
    7,017
    
    
    
    13,104
    
    
    
    11,604
    
    
    
    32,133Total Contractual Cash Obligations
    
    $
    17,612,178
    
    
    $
    8,066,679
    
    
    $
    4,779,645
    
    
    $
    390,993
    
    
    $
    4,374,861
 
 (1)
    
    Amounts included in the table above do not include interest.(2)
    
    Includes $3.6 billion of repurchase agreements with an average rate of 3.73% and $872.5 million in advances from the
FHLB-NY with an average rate of 4.50%, which the lenders have the right to call before their contractual maturities. The majority of
such repurchase agreements and advances from the FHLB-NY are included in the less than one year category in the above table but have
actual contractual maturities ranging from April 2005 to March, 2015.They are included on the first call date basis because increases
in interest rates over the average rate of the Companys callable borrowings may induce the lenders to exercise their call right.(3)
    
    Includes $4.0 billion of secured borrowings with local financial institutions, collateralized by real estate mortgage
loans at variable interest rates tied to 3-month LIBOR. These loans are not subject to scheduled payments, but are expected to be
repaid according to the regular amortization and prepayments of the underlying mortgage loans, generally estimated to range between 10%
and 20% on an annual basis. 60




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TABLE P
OTHER COMMERCIAL COMMITMENTS(1)
(IN THOUSANDS)
 AMOUNT OF COMMITMENT EXPIRATION PER PERIODTOTALAMOUNT
    
    
    LESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTEROTHER COMMERCIAL COMMITMENTS
    
    COMMITTED
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSCommitments to extend credit
    
    $
    603,711
    
    
    $
    318,640
    
    
    $
    284,937
    
    
    $
    59
    
    
    $
    75Commitments to sell mortgage-backed
securities and loans
    
    
    2,699,264
    
    
    
    1,499,264
    
    
    
    1,200,000
    
    
    
    
    
    
    
    Commitments to purchase loans
    
    
    506,293
    
    
    
    506,293
    
    
    
    
    
    
    
    
    
    
    
    Commercial and financial standby letters of credit
    
    
    4,056
    
    
    
    4,056
    
    
    
    
    
    
    
    
    
    
    
    Standby repurchase (recourse) obligations
    
    
    1,158,145
    
    
    
    71,529
    
    
    
    387,943
    
    
    
    256,946
    
    
    
    441,727Total
    
    $
    4,971,469
    
    
    $
    2,399,782
    
    
    $
    1,872,880
    
    
    $
    257,005
    
    
    $
    441,802
 
 (1)
    
    Refer to Off-Balance Sheet Activities for additional information regarding other commercial commitments of the Company. 61




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##### Table of Contents



RISK MANAGEMENT
  Interest Rate and Market Risk Management
  Doral Financials Risk Profile
  Market Value
    
    Net InterestAs of March 31, 2005
    
    of Equity Risk
    
    Income Risk+ 100 BPS
    
    
    (10.5
    )%
    
    
    (12.9
    )%- 100 BPS
    
    
    15.6
    %
    
    
    10.0
    %
 Market Value
    
    Net InterestAs of December 31, 2004
    
    of Equity Risk
    
    Income Risk+ 100 BPS
    
    
    (22.3
    )%
    
    
    (13.0
    )%- 100 BPS
    
    
    7.1
    %
    
    
    10.5
    %
 Derivatives.
  62




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TABLE Q
INTEREST RATE COLLARS
(DOLLARS IN THOUSANDS)
 MATURITY
    
    ENTITLED PAYMENT
    
    PREMIUM
    
    FAIRNOTIONAL AMOUNT
    
    DATE
    
    CONDITIONS
    
    PAID
    
    VALUE$200,000
    
    June, 2006
    
    Excess 3-month
LIBOR and 5.0%
    
    $
    4,865
    
    
    $
    55$400,000
    
    March, 2007
    
    Excess 3-month
LIBOR and 5.5%
provided that
3-month LIBOR is
less than 8.5%
    
    $
    5,760
    
    
    $
    712$600,000
    
    September, 2007
    
    Excess 3-month
LIBOR and 5.5%
provided that
3-month LIBOR is
less than 8.5%
    
    $
    5,570
    
    
    $
    1,803$100,000
    
    February, 2008
    
    Excess 3-month
LIBOR and 5.5%
provided that
3-month LIBOR is
less than 8.0%
    
    $
    955
    
    
    $
    513$100,000
    
    April, 2008
    
    Excess 3-month
LIBOR and 5.0%
provided that
3-month LIBOR is
less than 8.0%
    
    $
    1,000
    
    
    $
    554$200,000
    
    April, 2008
    
    Excess 3-month
LIBOR and 8.0%
provided that
3-month LIBOR is
less than 10.0%
    
    $
    353
    
    
    $
    86$300,000
    
    July, 2008
    
    Excess 3-month
LIBOR and 5.0%
provided that
3-month LIBOR is
less than 8.0%
    
    $
    2,715
    
    
    $
    2,047$200,000
    
    December, 2009
    
    Excess 3-month
LIBOR and 3.95%
    
    $
    5,970
    
    
    $
    8,385
  63




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TABLE R
INTEREST RATE SWAPS
(DOLLARS IN THOUSANDS)
 INTEREST
    
    INTERESTNOTIONAL
    
    MATURITY
    
    
    
    RATE
    
    RATE
    
    FAIRAMOUNT
    
    DATE
    
    PURPOSE
    
    RECEIVED
    
    PAID
    
    VALUE$
    100,000
    
    
    September, 2007
    
    To fix the cost of
short-term funding
sources in a rising
interest rate
environment
    
    
    2.980
    %
    
    
    3.688
    %
    
    $
    1,421$
    100,000
    
    
    September, 2007
    
    To fix the cost of
short-term funding
sources in a rising
interest rate
environment
    
    
    3.000
    %
    
    
    3.655
    %
    
    $
    1,502$
    1,000,000
    
    
    March, 2008
    
    To protect the
spread of the
variable IOs
    
    
    3.060
    %
    
    
    4.325
    %
    
    $
    1,900$
    1,000,000
    
    
    March, 2008
    
    To protect the
spread of the
variable IOs
    
    
    3.090
    %
    
    
    4.474
    %
    
    $
    (2,144
    )$
    200,000
    
    
    November, 2009
    
    To protect the
spread of the
variable IOs
    
    
    2.770
    %
    
    
    3.773
    %
    
    $
    6,740$
    300,000
    
    
    November, 2009
    
    To protect the
spread of the
variable IOs
    
    
    2.820
    %
    
    
    3.975
    %
    
    $
    7,638$
    100,000
    
    
    February, 2010
    
    To protect the
spread of the
variable IOs
    
    
    2.873
    %
    
    
    4.221
    %
    
    $
    1,708$
    100,000
    
    
    March, 2010
    
    To fix the cost of
short-term funding
sources in a rising
rate environment
    
    
    2.980
    %
    
    
    4.510
    %
    
    $
    448$
    800,000
    
    
    March, 2010
    
    To protect the
spread of the
variable IOs
    
    
    3.090
    %
    
    
    4.712
    %
    
    $
    (3,338
    )$
    100,000
    
    
    February, 2015
    
    To protect the
spread of the
variable IOs
    
    
    2.873
    %
    
    
    4.618
    %
    
    $
    2,542$
    100,000
    
    
    March, 2015
    
    To fix the cost of
short-term funding
sources in a rising
rate environment
    
    
    2.980
    %
    
    
    4.880
    %
    
    $
    487
  64




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TABLE S
FAIR VALUE RECONCILIATION
 Quarter ended(In thousands)
    
    March 31, 2005Fair value of contracts outstanding at the beginning of the period
    
    $
    5,672Contracts realized or otherwise settled during the period
    
    
    7,169Fair value of new contracts entered into during the period
    
    
    13,260Changes in fair values during the period
    
    
    22,711Fair value of contracts outstanding at the end of the period
    
    $
    48,812
 TABLE T
SOURCE OF FAIR VALUE
 (In thousands)
    
    Payment Due by PeriodMaturity
    
    
    
    
    
    
    
    
    
    
    Maturityless than
    
    
    Maturity
    
    
    Maturity
    
    
    in excess
    
    
    Total FairAs of March 31, 2005
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    of 5 Years
    
    
    ValueSource of Fair ValuePrices actively quoted
    
    $
    10,866
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,866Prices provided by
other external
sources
    
    
    4,887
    
    
    
    5,762
    
    
    
    24,268
    
    
    
    3,029
    
    
    
    37,946$
    15,773
    
    
    $
    5,762
    
    
    $
    24,268
    
    
    $
    3,029
    
    
    $
    48,812
   65




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TABLE U
DERIVATIVE COUNTERPARTY CREDIT EXPOSURE  (Dollars in thousands)
 March 31, 2005Weighted AverageNumber of
    
    
    
    
    
    
    Total Exposure
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    At Fair Value(3)
    
    
    Values
    
    
    Total Fair Value(4)
    
    
    (in years)AA-
    
    
    1
    
    
    $
    700,000
    
    
    $
    8,868
    
    
    $
    
    
    
    $
    8,868
    
    
    
    2.22A+
    
    
    2
    
    
    
    4,300,000
    
    
    
    19,196
    
    
    
    (1,492
    )
    
    
    17,704
    
    
    
    3.24A
    
    
    4
    
    
    
    5,400,000
    
    
    
    16,014
    
    
    
    (2,918
    )
    
    
    13,097
    
    
    
    1.48Subtotal
    
    
    7
    
    
    
    10,400,000
    
    
    $
    44,078
    
    
    $
    (4,410
    )
    
    $
    39,669
    
    
    
    2.26Other derivatives(5):Treasury futures
    
    
    
    
    
    
    100,000Treasury future options
    
    
    
    
    
    
    5,782,500Eurodollar futures
    
    
    
    
    
    
    Eurodollar future options
    
    
    
    
    
    
    5,600,000Total Derivatives
    
    
    
    
    
    $
    21,882,500
 
 (1)
    
    Based on the S&P Long Term Issuer Credit Ratings.(2)
    
    Based on legal entities. Affiliated legal entities are reported separately.(3)
    
    For each counterparty, this amount includes derivatives with a positive fair value including the related accrued interest receivable/payable (net).(4)
    
    These values are based on an internal risk model used to measure the sensitivity of the Companys Market Value of Equity to changes in interest rates, and not on the fair values recorded in the
Companys books for the related instruments.(5)
    
    Consists of exchange-traded contracts. Exchange trade derivatives do not measurably increase our exposure to counterparty credit risk because changes in value of open exchange-traded contracts are
settled daily through a financial clearinghouse established by each exchange. (Dollars in thousands)
 December 31, 2004Weighted AverageNumber of
    
    
    
    
    
    
    Total Exposure
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    At Fair Value(3)
    
    
    Values
    
    
    Total Fair Value(4)
    
    
    (in years)AA-
    
    
    1
    
    
    $
    414,234
    
    
    $
    1,998
    
    
    $
    
    
    
    $
    1,988
    
    
    
    4.70A+
    
    
    2
    
    
    
    1,500,000
    
    
    
    3,038
    
    
    
    (2,881
    )
    
    
    157
    
    
    
    2.17A
    
    
    4
    
    
    
    3,344,873
    
    
    
    11,702
    
    
    
    (1,441
    )
    
    
    10,261
    
    
    
    1.30Subtotal
    
    
    7
    
    
    
    5,259,107
    
    
    $
    16,738
    
    
    $
    (4,322
    )
    
    $
    12,406
    
    
    
    1.82Other derivatives(5):Treasury futures
    
    
    
    
    
    
    320,000Treasury future options
    
    
    
    
    
    
    4,340,000Eurodollar futures
    
    
    
    
    
    
    7,120,000Eurodollar future options
    
    
    
    
    
    
    55,300,000Total Derivatives
    
    
    
    
    
    $
    72,339,107
 
 (1)
    
    Based on the S&P Long Term Issuer Credit Ratings.(2)
    
    Based on legal entities. Affiliated legal entities are reported separately.(3)
    
    For each counterparty, this amount includes derivatives with a positive fair value including the related accrued interest receivable/payable (net).(4)
    
    These values are based on an internal risk model used to measure the sensitivity of the Companys Market Value of Equity to changes in interest rates, and not on the fair values recorded in the
Companys books for the related instruments.(5)
    
    Consists of exchange-traded contracts. Exchange trade derivatives do not measurably increase our exposure to counterparty credit risk because changes in value of open exchange-traded contracts
are settled daily through a financial clearinghouse established by each exchange. Credit Risk
  66




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Non-performing assets and allowance for loan and lease losses
   67




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TABLE V
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
 AS OF
    
    
    AS OFMARCH 31, 2005
    
    
    DECEMBER 31, 2004Mortgage banking business:Non-accrual loans:Construction loans
    
    $
    1,549
    
    
    $
    1,865Residential mortgage loans(1)
    
    
    117,415
    
    
    
    10,076Construction loans past due 90 days and still accruing
    
    
    128
    
    
    
    128Loans held-for-sale past due 90 days and still accruing(1)(2)
    
    
    
    
    
    
    85,075OREO
    
    
    16,950
    
    
    
    18,028Total NPAs of mortgage banking business
    
    
    136,042
    
    
    
    115,172Other lending activities through banking subsidiaries:Non-accrual loans:Construction loans
    
    
    20,246
    
    
    
    14,774Residential mortgage loans
    
    
    11,383
    
    
    
    8,105Commercial real estate loans
    
    
    8,340
    
    
    
    8,535Consumer loans
    
    
    1,453
    
    
    
    1,457Commercial non-real estate loans
    
    
    894
    
    
    
    512Total non-accrual loans
    
    
    42,316
    
    
    
    33,383OREO
    
    
    1,440
    
    
    
    2,044Total NPAs of banking subsidiaries
    
    
    43,756
    
    
    
    35,427Total NPAs of Doral Financial (consolidated)
    
    $
    179,798
    
    
    $
    150,599Total NPAs of banking subsidiaries as a percentage
of their loans portfolio, net, and OREO
    
    
    1.51
    %
    
    
    1.23
    %Total NPAs of Doral Financial as a percentage of
consolidated total assets
    
    
    0.96
    %
    
    
    0.84
    %Total non-performing loans to total loans
    
    
    2.20
    %
    
    
    1.95
    %Ratio of allowance for loan and lease losses to total
non-performing loans (excluding non-performing loans held for
sale) at end of period
    
    
    55.13
    %
    
    
    59.03
    %
 
 (1)
    
    During the first quarter of 2005, the Company changed its estimates for non-accrual loans as a
result of conforming the non-accrual policies of its mortgage banking units to that of its banking subsidiaries,
pursuant to which mortgage loans held for sale are placed on a non-accrual basis after they are delinquent for more
than 90 days. Prior to 2005, mortgage loans held for sale by Doral Financials mortgage banking units were placed on a
non-accrual status if they had been delinquent for more than 180 days to the extent that the loan-to-value ratio
raised concerns as to ultimate collectibility of the loan.(2)
    
    Does not include approximately $46.8 million and $71.2 million of GNMA defaulted loans (for which the
Company has the option but not the obligation to buy-back from the pools serviced), included as part of the mortgage loans held for sale
portfolio as of March 31, 2005 and December 31, 2004, respectively. Also excludes $10.2 million of 90 days past due
FHA/VA loans as of December 31, 2004, which were not considered non-performing assets by Doral Financial as of such
date because the principal balance of these loans is insured or guaranteed under applicable FHA and VA programs and
interest is, in most cases, fully recovered in foreclosure
proceedings. Under the new estimates, which were modified during the
first quarter of 2005, all FHA/VA loans
90 days past due are placed in non-accrual and therefore considered non-performing assets. 68




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TABLE W
ALLOWANCE FOR LOAN AND LEASE LOSSES
 QUARTER ENDEDMARCH 31,2004(DOLLARS IN THOUSANDS)
    
    2005
    
    
    (As Restated)Allowance for Loan and Lease Losses:Balance at beginning of period
    
    $
    20,881
    
    
    $
    14,919Provision for loan and lease losses
    
    
    4,047
    
    
    
    1,769Charge  offs:Construction loans
    
    
    
    
    
    
    Residential mortgage loans
    
    
    
    
    
    
    (20
    )Commercial real estate loans
    
    
    (29
    )
    
    
    Consumer loans
    
    
    (529
    )
    
    
    (619
    )Commercial non-real estate loans
    
    
    (177
    )
    
    
    (27
    )Other
    
    
    
    
    
    
    Total charge-offs
    
    
    (735
    )
    
    
    (666
    )Recoveries:Construction loans
    
    
    
    
    
    
    Residential mortgage loans
    
    
    
    
    
    
    Commercial real estate loans
    
    
    
    
    
    
    Consumer loans
    
    
    56
    
    
    
    69Commercial non-real estate loans
    
    
    6
    
    
    
    39Other
    
    
    
    
    
    
    Total recoveries
    
    
    62
    
    
    
    108Net charge-offs
    
    
    (673
    )
    
    
    (558
    )Other
    
    
    
    
    
    
    (73
    )Balance at end of period
    
    $
    24,255
    
    
    $
    16,057Allowance for loan losses as a percentage of
loans receivable outstanding at the end of period
    
    
    1.33
    %
    
    
    1.06
    %Net
charge-offs to average loans receivable outstanding on an annualized
basis
    
    
    0.15
    %
    
    
    0.15
    %
 69




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##### Table of Contents



Operational Risk
  Overview of Operational Risk Management
  Liquidity Risk
  General Business, Economic and Political Conditions
    70




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##### Table of Contents



FUTURE OPERATIONS
     
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  71




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Control and Procedures
     Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  72




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##### Table of Contents



ITEM 1A. RISK FACTORS
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  73




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ITEM 6. EXHIBITS
    74




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##### Table of Contents



SIGNATURES
  DORAL FINANCIAL CORPORATION
(Registrant)Date: May 2, 2006
    
    /s/ John A. WardJohn A. Ward
Chairman of the Board
and Chief Executive OfficerDate: May 2, 2006
    
    /s/ Lidio SorianoLidio Soriano
Executive Vice President and
Chief Financial Officer
 75




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    
    
    Description3.2
    
    -
    
    By-laws of Doral Financial
Corporation, as amended as of March 27, 2006.12.1
    
    -
    
    Computation of Ratio of Earnings to Fixed Charges.12.2
    
    -
    
    Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.31.1
    
    -
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    -
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    -
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 76