SOURCE: Doral Financial Corporation

February 02, 2010 18:19 ET

Doral Financial Corporation Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2009

Reports Net Income of $3.7 Million for the Quarter Ended December 31, 2009, the Third Consecutive Quarter of Net Income; Capital Exceeds Well Capitalized Benchmarks

SAN JUAN, PR--(Marketwire - February 2, 2010) - Doral Financial Corporation (NYSE: DRL) ("Doral" or the "Company"), the holding company of Doral Bank, a leading community bank based in Puerto Rico, and Doral Bank FSB in New York City, reported net income of $3.7 million for the quarter ended December 31, 2009, compared with net income of $13.2 million for the quarter ended September 30, 2009 and a net loss of $315.8 million for the quarter ended December 31, 2008. For the year ended December 31, 2009, the Company reported a net loss of $21.1 million compared to a net loss of $318.3 million for the same period in 2008.

The Company reported net loss attributable to common shareholders and diluted loss per share of $16.9 million and $0.29, respectively, for the fourth quarter of 2009 compared to net income attributable to common shareholders and diluted income per share of $10.0 million and $0.17, respectively, for the third quarter of 2009, and net loss attributable to common shareholders and diluted loss per share of $324.2 million and $6.02, respectively for the fourth quarter of 2008. The conversion of preferred stock to common stock in the fourth quarter of 2009 reduced income attributable to common shareholders by $18.0 million, but increased common equity by $52.2 million and had no effect on total equity. The Company reported net loss attributable to common shareholders and diluted loss per share of $45.6 million and $0.81, respectively for the year ended December 31, 2009 compared to $351.6 million and $6.53, respectively for the year ended December 31, 2008.

"After reporting three consecutive positive quarters, we have demonstrated a more stable performance in a difficult economic environment. As we expect the economic challenges to continue, we will remain focused on improving operating fundamentals, providing solutions to our customers and improving the quality of life in our communities," said Glen Wakeman, CEO and President of Doral Financial Corporation.

--  The fourth quarter 2009 net income of $3.7 million was the result
    of the following:

    --  Net interest income of $45.9 million.
    --  Provision for loan losses of $15.0 million.
    --  Gain on sale of securities of $29.1 million.
    --  Other-than-temporary impairment ("OTTI") of $13.5 million.
    --  Other non-interest income, excluding securities gains and OTTI, of
        $24.0 million.
    --  Operating expenses of $68.6 million.
    --  Income tax benefit of $1.9 million.

--  Other notable matters include:

    --  Preferred stock exchange settled during the fourth quarter of 2009
        resulting in an increase in common equity of $52.2 million for the
        quarter and an increase in book value per share of $0.84. Combined
        with the preferred stock exchange that settled in the second
        quarter of 2009, common equity increased $152.8 million and book
        value increased $2.47 per share, resulting from a decrease in
        preferred stock of $157.8 million and a cash payment of $5.0
        million.

    --  Retail deposits increased $240.1 million over December 2008 to
        $2.0 billion.

    --  Net loans receivable increased $255.3 million over December 2008
        to $5.4 billion primarily as a result of approximately $204.2
        million originated by the middle market syndicated lending unit
        organized during the third quarter of the year. This U.S.
        mainland based unit participates in senior credit facilities in
        the syndicated leverage loan market.

FINANCIAL HIGHLIGHTS

--  Net income for the quarter ended December 31, 2009 totaled $3.7
    million, compared to net income of $13.2 million for the third quarter
    of 2009 and a net loss of $315.8 million for the comparable 2008
    period.

--  Net loss/income attributable to common shareholders and diluted loss/
    income per share were as follows for the periods indicated:

    --  Fourth quarter 2009 - Net loss to common shareholders of $16.9
        million, diluted loss per share of $0.29
    --  Third quarter 2009 -  Net income to common shareholders of $10.0
        million, diluted earnings per share of $0.17
    --  Fourth quarter 2008 - Net loss to common shareholders of $324.2
        million, diluted loss per share of $6.02
    --  Full year 2009 - Net loss to common shareholders of $45.6 million,
        diluted loss per share of $0.81
    --  Full year 2008 - Net loss to common shareholders $351.6 million,
        diluted loss per share of $6.53

--  The fourth quarter 2009 net loss attributable to common shareholders of
    $16.9 million was affected by a non-cash charge of $18.0 million to
    retained earnings pursuant to the accounting for the $52.2 million
    preferred to common conversion, which increased paid in capital by
    $18.0 million, and the accrual for cumulative preferred dividends of
    $2.6 million. For the year ended December 31, 2009, the net loss
    attributable to common shareholders resulted from the preferred stock
    exchanges settled during the year which generated a non-cash charge of
    $8.6 million to retained earnings, and increased paid in capital by
    $8.6 million, and the accrual for preferred stock dividends of
    $15.8 million.

--  Net interest income for the fourth quarter of 2009 was $45.9 million,
    an increase of $2.2 million compared to the third quarter of 2009,
    and an increase of $3.3 million compared to the fourth quarter of 2008.
    Net interest margin was at 1.87% for the quarter ended December 31,
    2009, flat when compared to the third quarter of 2009 and an increase
    of 12 basis points compared to the fourth quarter of 2008.

--  Provision for loan and lease losses for the fourth quarter of 2009 was
    $15.0 million, an increase of $10.1 million over the third quarter 2009
    provision, and a decrease of $11.2 million over the provision recorded
    for the fourth quarter of 2008.

--  Non-interest income of $39.6 million for the fourth quarter of 2009
    increased $12.7 million and $14.3 million compared to non-interest
    ncome for the third quarter of 2009 and the fourth quarter of 2008,
    respectively. Non-interest income for the fourth quarter of 2009 was
    driven by a gain on sale of securities of $29.1 million as a result
    of the sale of $620.1 million of investment securities during the
    fourth quarter, and was partially offset by an OTTI charge of $13.5
    million.

--  Non-interest expense of $68.6 million for the fourth quarter of 2009,
    increased $9.3 million and decreased $9.2 million from expenses for
    the quarters ended September 30, 2009 and December 31, 2008,
    respectively. Higher expenses in the fourth quarter of 2009 were due
    to higher provisions for losses on OREO properties and higher charges
    for professional services. The decrease in expense compared to the
    fourth quarter of 2008 was driven by a provision of $21.6 million
    established in 2008 for a claim receivable related to the termination
    of certain agreements with Lehman Brothers partially offset by
    increases during the fourth quarter of 2009 in FDIC insurance expense,
    charges for losses on OREO properties and professional services.

--  Fourth quarter 2009 reflected an income tax benefit of $1.9 million
    compared with a $6.9 million income tax benefit in the third quarter of
    2009 and an income tax expense of $279.8 million for the fourth quarter
    of 2008. The third quarter of 2009 tax benefits were driven by the
    reversal of a valuation allowance on the deferred tax asset pursuant to
    an agreement with the Puerto Rico Treasury Department, and the
    resolution of the tax treatment of certain intercompany transactions.
    In 2008 the tax expense resulted largely from establishing a valuation
    allowance on the Company's deferred tax assets.

--  Doral Financial's loan production for the fourth quarter of 2009 was
    $364.9 million, up from $248.5 million for the third quarter of 2009,
    and $253.9 million for the fourth quarter of 2008.  The increase in
    loan production during the fourth quarter of 2009 was partially due
    to approximately $162.7 million of loan production from the Company's
    new middle market syndicated lending unit which was organized during
    the third quarter of 2009 and is engaged in purchasing senior credit
    facilities in the syndicated leverage loan market. These loans are
    originated by Doral Bank's U.S. affiliate.

--  Total assets as of December 31, 2009 amounted to $10.2 billion
    compared to $10.0 billion as of September 30, 2009 and $10.1 billion
    as of December 31, 2008.

--  Total deposits of $4.6 billion increased $240.2 million, or 5.5%,
    over deposits of $4.4 billion as of December 31, 2008. The deposit
    increase resulted from a $240.1 million, or 13.7%, increase in
    retail deposits.

--  Non-performing loans as of December 31, 2009 were $848.3 million,
    an increase of $31.6 million from September 30, 2009 and an increase
    of $130.6 million from December 31, 2008. $20 million of the increase
    during the fourth quarter of 2009 resulted from a single construction
    loan in New York City. The ratio of the allowance for loan and lease
    losses to total loans receivable as of December 31, 2009 was 2.55%,
    down 13 basis points from 2.68% as of September 30, 2009 and up 4 basis
    points from 2.51% as of December 31, 2008.

--  The Company's capital ratios continue to exceed the published well-
    capitalized standards established by the federal banking agencies with
    an estimated Tier 1 Leverage of 8.43%, estimated Tier 1 Risk-based
    Capital Ratio of 13.82% and estimated Total Risk-based Capital Ratio of
    15.08%. The estimated Leverage, Tier 1 and Total Risk-based Capital
    Ratios exceeded the well-capitalized standards by $350.8 million,
    $488.0 million and $317.2 million, respectively.

FOURTH QUARTER PERFORMANCE DISCUSSION

Income Statement

Net Interest Income

The following table presents, for the periods indicated, Doral Financial's summarized average balance sheet, the total dollar amount of interest income from its average interest-earning assets and the related yields, as well as the interest expense on its average interest-bearing liabilities, expressed in both dollars and rates, and the net interest margin and spread. These tables do not reflect any effect of income taxes. Average balances are based on average daily balances.

Doral Financial and Subsidiaries
Selected Financial Data

                          Quarters ended                  Year ended
                ----------------------------------  ----------------------
(Dollars in
 thousands,
 except share
 and per share
 data)          Dec. 2009   Sept. 2009  Dec. 2008   Dec. 2009   Dec. 2008
                ----------  ----------  ----------  ----------  ----------
Selected Income
 Statement
 data:
  Interest
   income       $  113,790  $  113,403  $  128,104  $  458,265  $  524,674
  Interest
   expense          67,932      69,794      85,562     290,638     347,193
                ----------  ----------  ----------  ----------  ----------
  Net interest
   income           45,858      43,609      42,542     167,627     177,481
  Provision for
   loan and
   lease losses     15,026       4,879      26,178      53,663      48,856
                ----------  ----------  ----------  ----------  ----------
  Net interest
   income after
   provision
   for loan and
   lease losses     30,832      38,730      16,364     113,964     128,625
  Non-interest
   income           39,599      26,888      25,334      87,201      79,529
  Non-interest
   expense          68,570      59,264      77,775     243,786     240,412
                ----------  ----------  ----------  ----------  ----------
  Income (loss)
   before taxes      1,861       6,354     (36,077)    (42,621)    (32,258)
  Income tax
   (benefit)
   expense          (1,860)     (6,855)    279,770     (21,477)    286,001
                ----------  ----------  ----------  ----------  ----------
  Net income
   (loss)       $    3,721  $   13,209  $ (315,847) $  (21,144) $ (318,259)
                ==========  ==========  ==========  ==========  ==========
  Net (loss)
   income
   attributable
   to common
   shareholders $  (16,865) $   10,000  $ (324,172) $  (45,613) $ (351,558)
                ==========  ==========  ==========  ==========  ==========
  Net (loss)
   income per
   share        $    (0.29) $     0.17  $    (6.02) $    (0.81) $    (6.53)
                ==========  ==========  ==========  ==========  ==========

Dividends
 accrued on
 preferred
 stock          $    2,589  $    3,209  $    8,325  $   15,841  $   33,299
Preferred stock
 exchange
 inducement     $   17,997  $        -  $        -  $    8,628  $        -
Preferred
 shares
 outstanding at
 end of period   7,500,850   7,709,704   9,015,000   7,500,850   9,015,000
Book value per
 common share         7.41        7.14        6.17        7.41        6.17
Weighted
 average common
 shares
 outstanding    58,605,366  57,764,002  53,810,110  56,232,026  53,810,110
Common share
 outstanding at
 end of period  62,064,303  57,764,002  53,810,110  62,064,303  53,810,110

Selected
 Balance Sheet
 Data:
  Total loans,
   net          $5,695,964  $5,565,902  $5,506,303  $5,695,964  $5,506,303
  Allowance for
   loan and
   lease losses    140,774     142,089     132,020     140,774     132,020
  Total
   investment
   securities    2,963,188   3,550,760   3,798,966   2,963,188   3,798,966
  Servicing
   assets, net     118,493     116,958     114,396     118,493     114,396
  Total assets  10,231,952  10,023,676  10,138,867  10,231,952  10,138,867
  Deposits       4,643,021   4,215,314   4,402,772   4,643,021   4,402,772
  Borrowings     4,470,056   4,590,265   4,526,091   4,470,056   4,526,091
  Total
   liabilities   9,356,908   9,143,556   9,233,696   9,356,908   9,233,696
  Preferred
   equity          415,428     467,641     573,250     415,428     573,250
  Common equity    459,616     412,479     331,921     459,616     331,921
  Total
   stockholders'
   equity          875,044     880,120     905,171     875,044     905,171
Selected
 Average
 Balance Sheet
 Data:
  Total loans,
   net           5,786,747   5,671,294   5,629,135   5,680,428   5,566,644
  Total
   investment
   securities    3,239,532   3,210,929   3,634,568   3,381,446   3,325,813
  Interest
   earning
   assets        9,745,969   9,260,630   9,654,886   9,515,945   9,422,614
  Total assets  10,279,057   9,816,670  10,556,246  10,066,305  10,263,563
  Deposits       4,393,247   4,180,804   4,479,627   4,206,210   4,257,897
  Borrowings     4,604,515   4,379,885   4,428,938   4,578,019   4,342,235
  Interest
   bearing
   liabilities   8,746,786   8,325,996   8,651,050   8,539,622   8,345,566
  Preferred
   equity          457,426     467,641     573,250     511,650     573,250
  Common equity    435,791     377,211     598,908     355,014     668,224
  Total
   stockholders'
   equity          893,217     844,852   1,172,158     866,664   1,241,474
Selected
 Financial
 Ratios:
Performance:
  Net interest
   margin             1.87%       1.87%       1.75%       1.76%       1.88%
  Return on
   average
   assets             0.14%       0.53%     -11.90%      -0.21%      -3.10%
  Return on
   average
   common
   equilty          -15.35%      10.52%    -215.33%     -12.85%     -52.61%
  Efficiency
   ratio             98.19%      79.30%      77.78%      97.61%      83.93%
Capital:
  Leverage
   ratio              8.43%       8.46%       7.59%       8.43%       7.59%
  Tier 1
   risk-based
   capital
   ratio             13.82%      13.53%      13.80%      13.82%      13.80%
  Total
   risk-based
   capital
   ratio             15.08%      15.34%      17.07%      15.08%      17.07%
Asset quality:
  Non-performing
   loans           848,279     816,684     717,674     848,279     717,674
  Non-performing
   assets          942,599     909,933     779,205     942,599     779,205
  Allowance for
   loan and
   lease losses
   to
   period-end
   loans
   receivable         2.55%       2.68%       2.51%       2.55%       2.51%
  Allowance for
   loan and
   lease losses
   to
   non-performing
   loans
   (excluding
   NPLs held
   for sale)         16.70%      17.49%      18.55%      16.70%      18.55%
  Non-performing
   loans to
   total loans
   (excluding
   GNMA
   defaulted
   loans)            14.86%      14.87%      13.11%      14.86%      13.11%
Other Non-GAAP
 Ratios:
  Tier 1 common
   equity to
   risk-weighted
   assets (1)         7.16%       6.45%       6.00%       7.16%       6.00%

(1) Refer to section on Non-Gaap Financial Measures for further details on
this ratio.







Doral Financial and Subsidiaries
Quarter to Date Average Balance Sheet and Summary of Net Interest Income

                                               December 31, 2009
                                     --------------------------------------
                                       Average                   Average
(Dollars in thousands)                 Balance      Interest      Rate*
                                     ------------ ------------ -----------

Loans(1)                             $  5,786,747 $     79,898        5.48%
Mortgage-backed securities              3,076,831       29,369        3.79%
Other investment securities               162,701        2,574        6.28%
Other interest-earning assets             719,690        1,949        1.07%
                                     ------------ ------------
  Total interest-earning
   assets/interest income               9,745,969      113,790        4.63%
Non-interest earning assets               533,088
                                     ------------
      Total Assets                   $ 10,279,057
                                     ============

Deposits                             $  4,142,271 $     27,439        2.63%
Repurchase agreements                   2,142,817       18,229        3.38%
Advances from FHLB                      1,620,024       15,168        3.71%
Other short-term borrowings               227,554          143        0.25%
Loans payable                             342,181        1,808        2.10%
Notes payable                             271,939        5,145        7.51%
                                     ------------ ------------
  Total interest-bearing
   liabilities/interest expense         8,746,786       67,932        3.08%
Non-interest bearing liabilities          639,054
                                     ------------
Total liabilities                       9,385,840
Stockholders' equity                      893,217
                                     ------------
    Total liabilities and
     stockholders' equity            $ 10,279,057
                                     ============
Net interest income                               $     45,858
                                                  ============
Interest rate spread                                                  1.55%
Interest rate margin                                                  1.87%
Net interest-earning assets ratio                                   111.42%



                                               September 30, 2009
                                     --------------------------------------
                                       Average                   Average
(Dollars in thousands)                 Balance      Interest      Rate*
                                     ------------ ------------ -----------

Loans(1)                             $  5,671,294 $     78,653        5.50%
Mortgage-backed securities              2,963,276       30,026        4.02%
Other investment securities               247,653        2,927        4.69%
Other interest-earning assets             378,407        1,797        1.88%
                                     ------------ ------------
  Total interest-earning
   assets/interest income               9,260,630      113,403        4.86%
Non-interest earning assets               556,040
                                     ------------
      Total Assets                   $  9,816,670
                                     ============

Deposits                             $  3,946,111 $     28,615        2.88%
Repurchase agreements                   1,840,621       17,770        3.83%
Advances from FHLB                      1,557,503       15,778        4.02%
Other short-term borrowings               358,348          227        0.25%
Loans payable                             350,012        2,226        2.52%
Notes payable                             273,401        5,178        7.51%
                                     ------------ ------------
  Total interest-bearing
   liabilities/interest expense         8,325,996       69,794        3.33%
Non-interest bearing liabilities          645,822
                                     ------------
Total liabilities                       8,971,818
Stockholders' equity                      844,852
                                     ------------
    Total liabilities and
     stockholders' equity            $  9,816,670
                                     ============
Net interest income                               $     43,609
                                                  ============
Interest rate spread                                                  1.53%
Interest rate margin                                                  1.87%
Net interest-earning assets ratio                                   111.23%



                                               December 31, 2008
                                     --------------------------------------
                                       Average                   Average
(Dollars in thousands)                 Balance      Interest      Rate*
                                     ------------ ------------ -----------

Loans(1)                             $  5,629,135 $     84,284        5.96%
Mortgage-backed securities              3,044,941       34,566        4.52%
Other investment securities               589,627        7,958        5.37%
Other interest-earning assets             391,183        1,296        1.32%
                                     ------------ ------------
  Total interest-earning
   assets/interest income               9,654,886      128,104        5.28%
Non-interest earning assets               901,360
                                     ------------
      Total Assets                   $ 10,556,246
                                     ============

Deposits                             $  4,222,112 $     40,617        3.83%
Repurchase agreements                   1,951,171       18,026        3.68%
Advances from FHLB                      1,679,378       16,902        4.00%
Other short-term borrowings               149,789          233        0.62%
Loans payable                             370,710        4,525        4.86%
Notes payable                             277,890        5,259        7.53%
                                     ------------ ------------
  Total interest-bearing
   liabilities/interest expense         8,651,050       85,562        3.93%
Non-interest bearing liabilities          733,038
                                     ------------
Total liabilities                       9,384,088
Stockholders' equity                    1,172,158
                                     ------------
    Total liabilities and
     stockholders' equity            $ 10,556,246
                                     ============
Net interest income                               $     42,542
                                                  ============
Interest rate spread                                                  1.35%
Interest rate margin                                                  1.75%
Net interest-earning assets ratio                                   111.60%

*Annualized
(1) Includes the average balance of non-accruing loans and GNMA defaulted
loans for which the Company has an unconditional buy-back option.

Fourth Quarter 2009 vs. Third Quarter 2009

Net interest margin was flat at 1.87% compared to the third quarter of 2009. A decrease in the average yield on interest earning assets of 23 basis points was offset by a similar decrease in average cost of interest bearing liabilities of 25 basis points. Net interest income was $45.9 million for the fourth quarter of 2009, an increase of $2.2 million, or 5.2%, over the $43.6 million reported for the third quarter of 2009.

Interest income was $0.4 million higher in the fourth quarter of 2009 compared to the third quarter due to an increase in interest on loans of $1.2 million as a result of an increase in average loans of $115.5 million. The increase in average loans resulted from increases in mortgage loans and in commercial loans. This increase was partially offset by a decrease in interest income from investments of $1.0 million, down as a result of sales of investments during the quarter, and an increase in interest income from other interest earning assets of $0.2 million.

During the fourth quarter of 2009 the Company sold approximately $620.1 million from its securities portfolio as part of its strategy to reduce interest rate risk (both duration and extension risk). As a result of this, interest on investments (excluding interest on IOs which increased $0.2 million) was $1.3 million lower than the third quarter.

Interest expense decreased $1.9 million, or 2.7%, from $69.8 million for the third quarter of 2009 to $67.9 million for the fourth quarter of 2009. A decrease of $1.2 million in interest on deposits was driven by lower pricing on the different products, the rollover of maturing deposits at lower current market rates, and a shift in the composition of the deposit portfolio. In addition, there was a decrease of $0.6 million in interest on advances from the FHLB due to a reduction in interest rates only partially offset by an increase in the average balance of advances outstanding. Interest expense on loans payable also decreased $0.4 million driven primarily by a reduction in rates.

Average interest-earning assets increased $485.3 million from $9.3 billion for the third quarter of 2009 to $9.7 billion for the fourth quarter of 2009, and average interest-bearing liabilities increased $420.8 million to $8.7 billion for the quarter ended December 31, 2009 compared to the third quarter of 2009. The close match in balance sheet management quarter over quarter resulted in the relatively flat net interest margin.

Fourth Quarter 2009 vs. Fourth Quarter 2008

Net interest margin increased 12 basis points to 1.87% for the quarter ended December 31, 2009 from 1.75% for the quarter ended December 31, 2008. Net interest income for the quarter ended December 31, 2009 totaled $45.9 million, compared to $42.5 million for the corresponding 2008 period, an increase of $3.3 million, or 7.8%. The increase in net interest income for fourth quarter of 2009, compared to the corresponding period in 2008, resulted from a reduction in interest expense of $17.6 million partially offset by a decrease in interest income of $14.3 million. A decrease of 85 basis points in the in average cost of interest bearing liabilities was partially offset by a decrease in the average yield on interest earning assets of 65 basis points.

The decrease in interest expense was due to a decrease in interest on deposits of $13.2 million, or 32.4%, driven by lower pricing on the different products, strict adherence to the pricing grids, and a shift in the composition of the portfolio. In addition, there was a decrease of $2.7 million on interest on loans payable primarily tied to floating rate loans, and a decrease of $1.7 million in interest on FHLB advances also due to a decrease in rates.

The decrease in interest income was due to a decrease of $10.6 million in interest on investments due to a reduction in average other investment securities of $426.9 million and in interest income thereon of $5.4 million due to sales, calls and the settlement of the position with Lehman during 2008, the full impact of which was reflected in 2009. Interest on mortgage-backed securities decreased $5.2 million due to the sale of approximately $620.1 million of securities during the fourth quarter of 2009, as well as the sale of approximately $1.4 billion during the second and third quarters of 2009 partially offset by purchases of securities during the year. In addition, there was a decrease of $4.4 million in interest on loans due to the lower rate environment and higher non-performing loans which was partially offset by an increase in average loans of $157.6 million compared to the fourth quarter of 2008.

Average interest-earning assets increased from $9.6 billion for the fourth quarter of 2008 to $9.7 billion for the corresponding 2009 period, while the average interest-bearing liabilities remained relatively flat at $8.7 billion. The increase in leverage, combined with an increase in net interest income, resulted in the improvement of 12 basis points in net interest margin from 1.75% for the fourth quarter of 2008 to 1.87% in the corresponding 2009 period.

Full Year 2009 vs. Full Year 2008

The following table presents, for the periods indicated, Doral Financial's summarized average balance sheet, the total dollar amount of interest income from its average interest-earning assets and the related yields, as well as the interest expense on its average interest-bearing liabilities, expressed in both dollars and rates, and the net interest margin and spread. These tables do not reflect any effect of income taxes. Average balances are based on average daily balances.

Doral Financial and Subsidiaries
Year to Date Average Balance Sheet and Summary of Net Interest Income

                      December 31, 2009             December 31, 2008
                ----------------------------- -----------------------------
                                   Annualized                    Annualized
(Dollars in       Average            Average    Average            Average
 thousands)       Balance   Interest   Rate     Balance   Interest   Rate
                ----------- --------- ------  ----------- --------- ------

Loans (1)       $ 5,680,428 $ 321,384   5.66% $ 5,566,644 $ 342,631   6.16%
Mortgage-backed
 securities       3,035,780   114,032   3.76%   2,267,801   111,940   4.94%
Other
 investment
 securities         345,666    16,376   4.74%   1,058,012    54,764   5.18%
Other
 interest-
 earning assets     454,071     6,473   1.43%     530,157    15,339   2.89%
                ----------- ---------         ----------- ---------
  Total
   interest-
   earning
   assets/
   interest
   income         9,515,945   458,265   4.82%   9,422,614   524,674   5.57%
Non-interest
 earning assets     550,360                       840,949
                -----------                   -----------
      Total
       Assets   $10,066,305                   $10,263,563
                ===========                   ===========

Deposits        $ 3,961,603 $ 125,133   3.16% $ 4,003,331 $ 156,730   3.91%
Repurchase
 agreements       1,894,329    70,712   3.73%   1,974,732    80,527   4.08%
Advances from
 FHLB             1,596,087    62,948   3.94%   1,669,975    69,643   4.17%
Other
 short-term
 borrowings         459,887     1,212   0.26%      37,652       233   0.62%
Loans payable       353,556     9,881   2.79%     380,772    18,865   4.95%
Notes payable       274,160    20,752   7.57%     279,104    21,195   7.59%
                ----------- ---------         ----------- ---------
  Total
   interest-
   bearing
   liabilities/
   interest
   expense        8,539,622   290,638   3.40%   8,345,566   347,193   4.16%
Non-interest
 bearing
 liabilities        660,019                       676,523
                -----------                   -----------
Total
 liabilities      9,199,641                     9,022,089
Stockholders'
 equity             866,664                     1,241,474
                -----------                   -----------
    Total
     liabilities
     and
     stockholders'
     equity     $10,066,305                   $10,263,563
                ===========                   ===========
Net interest
 income                     $ 167,627                     $ 177,481
                            =========                     =========
Interest rate
 spread                                 1.42%                         1.41%
Interest rate
 margin                                 1.76%                         1.88%
Net
 interest-
 earning assets
 ratio                                111.43%                       112.91%

(1) Includes the average balance of non-accruing loans and GNMA defaulted
loans for which the Company has an unconditional buy-back option.

The decrease of $9.9 million, or 5.6%, in net interest income for the year ended December 31, 2009 compared to the same period in 2008 resulted from a reduction in interest income of $66.4 million, partially offset by a reduction in interest expense of $56.6 million. A decrease of 75 basis points in the average yield on interest earning assets was offset by a decrease of 76 basis points in the average cost of interest bearing liabilities. An increase in average interest bearing liabilities of $194.1 million was partially offset by an increase in average interest earning assets of $93.3 million. As a result, net interest margin decreased 12 basis points from 1.88% for the year ended December 31, 2008 to 1.76% for the year ended December 31, 2009.

The reduction in interest income was principally related to:

--  A reduction of $38.4 million in interest income on other investment
    securities was primarily due to a reduction in the average balance of
    other investment securities of $712.3 million as a result of sales,
    calls and the settlement of the position with Lehman during 2008 the
    full impact of which was reflected in 2009. Interest on mortgage-backed
    securities increased $2.1 million and was impacted by the sale of
    approximately $2.0 billion of investment securities during the year
    for the purpose of increasing interest margins in the first six months
    and reducing the Company's interest rate exposure in the latter part
    of the year. These transactions resulted in an increase in the average
    balance of mortgage-backed securities of $768.0 million.
--  A decrease in interest on loans of $21.2 million compared to December
    2008 primarily related to the lower interest rate environment and an
    increase in non-performing loans in the Company's loan portfolio.
    The average interest rate on loans decreased 50 basis points for the
    year ended December 31, 2009 compared to the same period in 2008,
    while non-performing loans increased by $130.6 million during 2009.
--  A decrease of $8.9 million on interest income on other interest earning
    assets was due to a net decrease of $76.1 million in the average
    balance of other interest-earning assets.

The reduction in interest expense was related to:

--  A decrease of $31.6 million in interest on deposits driven by the
    rollover of maturing brokered CDs at lower current market rates even
    though the Company lengthened maturities, as well as shifts in the
    composition of the Company's retail deposits and the general decline
    in interest rates. A reduction of $41.7 million in the average
    balance of deposits during 2009, combined with the decrease in the
    interest expense thereon resulted in a decrease in the average cost
    of deposits during 2009 of 75 basis points compared to the
    corresponding 2008 period.
--  A decrease of $9.8 million in the interest on securities sold under
    agreements to repurchase was mainly driven by the general decline in
    interest rates that resulted in a reduction of 35 basis points in the
    average interest cost during 2009.
--  A reduction of $6.7 million in the interest on advances from FHLB
    resulted primarily from the general decline in interest rates that
    allowed the Company to maintain its balance of advances at lower fixed
    rates. While the average balance of advances from the FHLB decreased
    $73.9 million during 2009, the average interest rate decreased by 23
    basis points for the year ended December 31, 2009.
--  An increase of $1.0 million in interest on short-term borrowings is
    directly related to the increase of $0.4 billion in the average
    balance of short-term borrowings during 2009 compared to the previous
    year.
--  A decrease of $9.0 million in interest on loans payable due to a
    reduction in the average balance of loans payable of $27.2 million as a
    result of repayment of loans and a decrease of 216 basis points in the
    average cost of loans payable since most of these loans are floating
    rate notes indexed to the 3-month LIBOR.

Credit Quality and the Allowance for Loan and Lease Losses

Doral Financial has experienced worsening delinquencies in a number of its loan categories as a result of a Puerto Rico economy that has been in recession over the reporting periods. The Company has reflected the credit quality deterioration in its loan loss provisions, considering the increased levels of delinquencies and severity of loss on disposition of collateral and increased risk of future delinquencies.

The following table summarizes key credit quality information for the periods indicated:

Doral Financial and Subsidiaries
Loan Data

                                    For the years ended
                -----------------------------------------------------------
(in thousands)                       December 31, 2009
                -----------------------------------------------------------

                   Loans                            ALLL as a
                Receivable                          % of Loan    ALLL as a
                  Balance      NPLs*       ALLL      Balance     % of NPLs
                ----------- ----------- ----------- ----------  ----------

Residential
 mortgage loans $ 3,827,269 $   403,070 $    51,814        1.4%       12.9%
Construction
 loans(1)           451,540     273,581      44,626        9.9%       16.3%
Commercial real
 estate loans(1)    738,838     130,156      21,883        3.0%       16.8%
Commercial
 non-real
 estate             311,258         933       4,281        1.4%      458.8%
Land secured(1)     100,371      33,373       9,832        9.8%       29.5%
Consumer             70,580         519       6,955        9.9%     1340.1%
Lease financing      12,702       1,091       1,383       10.9%      126.8%
Loans on
 savings
 deposits             3,250           -           -        0.0%         na

                ----------- ----------- -----------
Total           $ 5,515,808 $   842,723 $   140,774        2.6%       16.7%
                =========== =========== ===========



                                    For the years ended
                -----------------------------------------------------------
(in thousands)                       December 31, 2008
                -----------------------------------------------------------

                   Loans                            ALLL as a
                Receivable                          % of Loan    ALLL as a
                  Balance      NPLs*       ALLL      Balance     % of NPLs
                ----------- ----------- ----------- ----------  ----------

Residential
 mortgage loans $ 3,620,250 $   346,579 $    33,026        0.9%        9.5%
Construction
 loans(1)           504,771     215,080      45,159        8.9%       21.0%
Commercial real
 estate loans(1)    755,430     116,841      27,076        3.6%       23.2%
Commercial
 non-real
 estate             136,241       1,751       4,290        3.1%      245.0%
Land secured(1)     118,774      29,613      13,193       11.1%       44.6%
Consumer             90,068         685       7,964        8.8%     1162.6%
Lease financing      20,939       1,053       1,312        6.3%      124.6%
Loans on
 savings
 deposits             5,240           -           -        0.0%         na

                ----------- ----------- -----------
Total           $ 5,251,713 $   711,602 $   132,020        2.5%       18.6%
                =========== =========== ===========

(1) As of December 31, 2009 the cumulative charge-offs on construction,
land and commercial real estate loans still in portfolio was $27.5 million,
$4.9 million and $6.5 million, respectively.
*Excludes non-performing loans classified as held for sale.

The following table summarizes the changes in the allowance for loan and lease losses for the periods indicated:

Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses

                          Quarters ended                  Years ended
                ----------------------------------  ----------------------
(in thousands)  Dec. 2009   Sept. 2009  Dec. 2008   Dec. 2009   Dec. 2008
                ----------  ----------  ----------  ----------  ----------

Balance at
 beginning of
 period         $  142,089  $  146,769  $  123,143  $  132,020  $  124,733
  Provision for
   loan and
   lease losses     15,026       4,879      26,178      53,663      48,856
    Total loans
     charged
     off           (17,726)    (10,388)    (17,415)    (47,531)    (42,580)
    Total
     recoveries
     of loans
     previously
     charged
     off             1,385         829         114       2,622       1,011
                ----------  ----------  ----------  ----------  ----------
  Net
   charge-offs     (16,341)     (9,559)    (17,301)    (44,909)    (41,569)
                ----------  ----------  ----------  ----------  ----------
Balance at end
 of period      $  140,774  $  142,089  $  132,020  $  140,774  $  132,020
                ==========  ==========  ==========  ==========  ==========

Allowance for
 loan and lease
 losses to
 period-end
 loans
 receivable           2.55%       2.68%       2.51%       2.55%       2.51%
Recoveries to
 charge-offs          7.81%       7.98%       0.65%       5.52%       2.37%
Net charge-offs
 to average
 loans (quarter
 ratios
 annualized)          1.21%       0.72%       1.31%       0.85%       0.80%
Provision to
 Net Charge
 offs                91.95%      51.04%     151.31%     119.49%     117.53%

As of December 31, 2009 the Company's allowance for loan and lease losses was $140.8 million, down $1.3 million from $142.1 million as of September 30, 2009 and up $8.8 million from December 31, 2008. The reduction in the allowance during the fourth quarter was driven by charge-offs totaling $12.8 million related to two large construction loans for which provisions had been recorded in previous periods. The allowance for loan and lease losses was 2.55% of period-end loans receivable at December 31, 2009, compared with 2.68% as of September 30, 2009 and 2.51% at December 31, 2008.

During 2009, the Company's total non-performing loans and total allowance for loan and lease losses increased by $130.6 million and $8.8 million, respectively. Mortgage lending is the Company's principal line of business and has historically reflected significant recoveries and low levels of losses. The mortgage loan portfolio increased by $207.0 million during 2009. Nevertheless, due to current economic conditions in Puerto Rico, and increases in non-performing loans and loss severities in this portfolio, the Company has increased its allowance during 2009.

The construction loan portfolio continued to decrease, consistent with the Company's strategy to exit the construction business in 2006. Construction non-performing loans increased $58.5 million during 2009, driven by deterioration in Puerto Rico economic trends. $20 million of the fourth quarter 2009 increase in non-performing loans resulted from one large loan related to the Company's mainland portfolio. During 2009, the Company recorded loan loss provisions of $17.2 million to reflect the loan quality deterioration, partially related to loans determined to be impaired during 2009. The allowance on this portfolio decreased $0.5 million during 2009 due to the decrease in the balance of loans outstanding and to the charge-off of the portion of loans determined to be uncollectible and for which provisions of $17.8 million had been recorded.

The commercial real estate loan portfolio decreased during 2009 since the Company is not actively lending in this line of business. Non-performing loans increased $12.8 million in 2009 as a result of the deterioration in economic conditions in Puerto Rico. The allowance for loan losses decreased $5.2 million for this portfolio during 2009 due to net charge-offs of $4.6 million and the recovery of provision expenses resulting from a refinement of estimates that management believes better reflect the incurred losses of the portfolio, partially offset by increased provisions partially related to loans determined to be impaired in 2009. The commercial non-real estate portfolio increased primarily as a result of the launch of the middle market syndicated lending unit in the second half of 2009.

The consumer and lease financing portfolios continued to decrease consistent with the Company's exit strategy for these business lines. Non-performing loans are stable and the allowance has decreased in the consumer portfolio as non-performing loan balances are charged off.

In total for the year, the balance of non-performing loans outstanding increased $130.6 million, and the Company provided $53.7 million for loan losses. In addition, the Company charged-off loan balances of $44.9 million, resulting in a net increase in the allowance for loan and lease losses of $8.8 million. The allowance for loan and lease losses for the construction loans and commercial real estate portfolios decreased by $0.5 million and $5.2 million, respectively, as the rate of identified portfolio deterioration reflected in the provision, partially related to loans determined to be impaired in 2009, was less than the losses confirmed and recognized or charged-off during the year.

Provision and Allowance for Loan and Lease Losses

The following table summarizes the effect of provisions and recoveries on the allowance for loan and lease losses by portfolio for the quarters indicated:

Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses

                                      For the quarters ended
                        ---------------------------------------------------
(in thousands)                          December 31, 2009
                        ---------------------------------------------------

                          Beginning               Net Charge-     Ending
                           Balance    Provisions     offs         Balance
                        ------------ -----------  -----------  ------------

Residential mortgage
 loans                  $     49,150 $     4,090  $    (1,426) $     51,814
Construction loans            47,631       7,337      (10,342)       44,626
Commercial real estate
 loans                        20,728         704          451        21,883
Commercial non-real
 estate                        3,014       2,485       (1,218)        4,281
Land secured                  12,762      (1,025)      (1,905)        9,832
Consumer                       7,469       1,237       (1,751)        6,955
Lease financing                1,335         198         (150)        1,383

                        ------------ -----------  -----------  ------------
Total                   $    142,089 $    15,026  $   (16,341) $    140,774
                        ============ ===========  ===========  ============



                                      For the quarters ended
                        ---------------------------------------------------
(in thousands)                          September 30,2009
                        ---------------------------------------------------

                          Beginning               Net Charge-     Ending
                           Balance    Provisions     offs         Balance
                        ------------ -----------  -----------  ------------

Residential mortgage
 loans                  $     42,728 $     7,232  $      (810) $     49,150
Construction loans            50,657      (1,168)      (1,858)       47,631
Commercial real estate
 loans                        27,999      (4,196)      (3,075)       20,728
Commercial non-real
 estate                        3,162         656         (804)        3,014
Land secured                  13,190        (428)           -        12,762
Consumer                       7,559       2,605       (2,695)        7,469
Lease financing                1,474         178         (317)        1,335

                        ------------ -----------  -----------  ------------
Total                   $    146,769 $     4,879  $    (9,559) $    142,089
                        ============ ===========  ===========  ============



                                      For the quarters ended
                        ---------------------------------------------------
(in thousands)                          December 31, 2008
                        ---------------------------------------------------

                          Beginning               Net Charge-     Ending
                           Balance    Provisions     offs         Balance
                        ------------ ------------ -----------  ------------

Residential mortgage
 loans                  $     30,620 $      2,996 $      (590) $     33,026
Construction loans            46,514        8,156      (9,511)       45,159
Commercial real estate
 loans                        21,547       10,286      (4,757)       27,076
Commercial non-real
 estate                        2,779        1,667        (156)        4,290
Land secured                  13,088          105           -        13,193
Consumer                       7,524        2,563      (2,123)        7,964
Lease financing                1,071          405        (164)        1,312

                        ------------ ------------ -----------  ------------
Total                   $    123,143 $     26,178 $   (17,301) $    132,020
                        ============ ============ ===========  ============

The following table summarizes the effect of provisions and recoveries on the allowance for loan and leases losses by portfolio for the years indicated:

Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses

                                        For the years ended
                        ---------------------------------------------------
(in thousands)                           December 31, 2009
                        ---------------------------------------------------

                          Beginning               Net Charge-     Ending
                           Balance    Provisions     offs         Balance
                        ------------ -----------  -----------  ------------

Residential mortgage
 loans                  $     33,026 $    23,241  $    (4,453) $     51,814
Construction loans            45,159      17,221      (17,754)       44,626
Commercial real estate
 loans                        27,076        (560)      (4,633)       21,883
Commercial non-real
 estate                        4,290       5,967       (5,976)        4,281
Land secured                  13,193      (1,456)      (1,905)        9,832
Consumer                       7,964       8,473       (9,482)        6,955
Lease financing                1,312         777         (706)        1,383

                        ------------ -----------  -----------  ------------
Total                   $    132,020 $    53,663  $   (44,909) $    140,774
                        ============ ===========  ===========  ============



                                        For the years ended
                        ---------------------------------------------------
(in thousands)                           December 31, 2008
                        ---------------------------------------------------

                          Beginning               Net Charge-     Ending
                           Balance    Provisions     offs         Balance
                        ------------ ------------ -----------  ------------

Residential mortgage
 loans                  $     21,064 $     13,968 $    (2,006) $     33,026
Construction loans            56,766       10,142     (21,749)       45,159
Commercial real estate
 loans                        23,399       12,235      (8,558)       27,076
Commercial non-real
 estate                        3,068        2,383      (1,161)        4,290
Land secured                  11,772        1,421           -        13,193
Consumer                       7,161        8,101      (7,298)        7,964
Lease financing                1,503          606        (797)        1,312

                        ------------ ------------ -----------  ------------
Total                   $    124,733 $     48,856 $   (41,569) $    132,020
                        ============ ============ ===========  ============

Doral Financial's fourth quarter 2009 provision for loan and lease losses of $15.0 million was up $10.1 million from September 2009 due to the following:

--  An increase in the construction loan provision of $8.5 million due to
    adverse developments in several large loans which drove an increase
    in the individual impairment measurements.
--  An increase in the commercial real estate loan provision of $4.9
    million due to impairment of a large commercial loan, revision of roll
    rates and higher charge-offs.
--  An increase in the commercial non-real estate loan provision of $1.8
    million related primarily to additional reserves established on the
    new syndicated loan portfolio.
--  A decrease in the residential mortgage loan provision of $3.1 million
    due to updated roll rates that resulted in higher provision during the
    third quarter that did not recur in the fourth quarter. During the
    third quarter of 2009 there was deterioration in delinquency and
    probabilities of default. In the fourth quarter, early stage
    delinquency (loans 31 to 89 days past due) decreased $22.5 million and
    was only partially offset by an increase in late stage delinquencies of
    $22.8 million. In addition, the Company launched a payment reducing
    loss mitigation tool during the second quarter of the year (Special
    Repayment Plan or "SRP") which resulted in an impairment charge of
    $1.0 million in the fourth quarter of the year compared to $2.2 million
    in the third quarter, due to the lower volume of restructurings under
    this plan.
--  A decrease in the consumer loan provision of $1.4 million due to lower
    delinquencies as the portfolio continues to pay-down.

The provision for loan and lease losses reflected a decrease of $11.2 million compared to the fourth quarter of 2008 due to the high level of provisions established in the fourth quarter of 2008 reflecting the credit quality deterioration experienced in that period.

For the year ended December 31, 2009, the provision for loan and lease losses increased $4.8 million to $53.7 million from $48.9 million for the year ended December 31, 2008. For 2009, the provision of all portfolios increased except for the provision for the commercial real estate loan portfolio which is the portfolio where a higher provision was established at the end of 2008. The level of the provision in 2009 was largely driven by higher delinquencies (primarily in the construction, residential mortgage and commercial loan portfolios) during the period and continued deterioration in the Puerto Rico economy.

Perhaps the sector of the economy most affecting Doral Financial, directly and indirectly, is the sale of new home construction in Puerto Rico. For the year ended December 31, 2009, the market absorption of new construction homes decreased significantly, principally due to the termination of the tax incentive provided by Law 197 late in the fourth quarter of 2008. This circumstance required modifications in absorption estimates, resulting in higher loan loss provisions. Furthermore, the slowdown in new construction has resulted in lost jobs, which has further increased mortgage and commercial loan delinquencies as the overall level of economic activity declines. The Company expects that absorption will continue to be at low levels due to the current economic environment.

In optimizing its recovery of non-performing construction loans, as of December 31, 2009, management has determined to foreclose approximately 20 non-performing residential development properties with an outstanding balance of approximately $125.8 million in order to accelerate sales of the individual units. Most of these projects are in a mature stage of the development with approximately 85% complete or close to completion. Accordingly, impairment of these loans and determination of required loan loss reserves was measured based on the fair value of the collateral. Management continues to evaluate the best course of action to optimize loan recoveries on all non-performing properties, and will regularly assess all projects in choosing its course of action.

The provisions for loan and lease losses were partially offset by net charge-offs of $44.9 million, the net of which resulted in an increase in the allowance for loan and lease losses of $8.8 million for the year ended December 31, 2009.

Non-Performing Assets

Doral Financial and Subsidiaries
Non-performing assets
                                                Quarters ended
                                    ---------------------------------------
(Dollars in thousands)              Dec. 2009 Sep. 2009 June 2009 Dec. 2008
                                    --------- --------- --------- ---------

Non-performing loans:
  Residential mortgage loans -
   held for sale                    $   4,901 $   4,088 $   4,929 $   4,942
  Residential mortgage loans -
   held for investment                403,070   381,075   377,177   346,579
                                    --------- --------- --------- ---------
Total non-performing residential
 mortgage loans                       407,971   385,163   382,106   351,521

Other lending activities:
  Construction loans                  273,581   257,728   264,643   215,080
  Commercial real estate loans        130,156   131,561   116,490   116,841
  Commercial real estate loans -
   held for sale                          655        63     1,113     1,130
  Commercial non-real estate loans        933     2,062     1,852     1,751
  Land loans                           33,373    38,321    37,891    29,613
  Consumer loans                          519       588       518       685
  Lease financing receivable            1,091     1,198     1,066     1,053
                                    --------- --------- --------- ---------
Total non-performing other lending
 activities                           440,308   431,521   423,573   366,153

Total non-performing loans            848,279   816,684   805,679   717,674

OREO                                   94,219    93,145    83,964    61,340
Repossessed assets                        101       104       145       191
                                    --------- --------- --------- ---------
Total non-performing assets         $ 942,599 $ 909,933 $ 889,788 $ 779,205
                                    ========= ========= ========= =========

Loans past due 90 days or more and
 still accruing
  Consumer loans                    $   2,137 $   2,713 $   3,129 $   2,603
  Commercial non-real estate loans      1,245     1,091     1,196     1,428
  Construction loans                        -         -         -         -
  Government guaranteed Residential
   mortgage loans                     105,520        na        na        na
                                    --------- --------- --------- ---------
Total loans past due 90 days or
 more and still accruing            $ 108,902 $   3,804 $   4,325 $   4,031
                                    ========= ========= ========= =========

Non-performing assets increased $32.7 million to $942.6 million, or 3.6%, in the fourth quarter of 2009, compared to September 30, 2009. Non-performing residential mortgage loans increased $22.8 million, or 5.9%, in the period while combined the remaining portfolios increased $8.8 million, or 2.0%. Also, in the fourth quarter, residential mortgage loans delinquent 31 to 89 days past due declined $22.5 million

Non-performing assets, including non-performing loans previously discussed, increased by $163.4 million, or 21%, as of December 31, 2009 compared to December 31, 2008. The growth in non-performing assets was mainly driven by increases in the construction and residential mortgage loan portfolios as a direct consequence of depressed condition of the Puerto Rico housing market and overall macro economic trends in Puerto Rico.

Non-performing residential mortgage loans increased by $56.5 million, or 16.1%, at December 31, 2009 when compared to December 31, 2008. The increase in delinquency is mostly attributable to economic stress being experienced by borrowers during the year ended December 31, 2009. Macroeconomic pressure has significantly affected both early stage delinquency and cures from later delinquency segments.

As of December 31, 2009 OREO reached $94.2 million, an increase of $32.9 million compared to December 31, 2008. The Company sold 403 OREO units in 2009 compared to 336 units sold in 2008. During 2009, Doral improved its foreclosure functions resulting in shorter foreclosure periods, and units are entering the OREO portfolio at faster rates than in previous years.

Loans included under the caption "Loans past due 90 days or more and still accruing", include loans that are (1) well-secured and in the process of collection, or (2) are exempt under regulatory rules from being classified as non-accrual. In November 2009, the Company placed in accrual status all FHA guaranteed loans until 300 days delinquent because the principal balance of these loans is insured or guaranteed under applicable FHA programs and interest is, in most cases, fully recovered in foreclosure proceedings. In addition, the bank repurchased $118.3 million of delinquent FHA guaranteed loans in December 2009.

The Doral Financial mortgage portfolio consists predominately of conventional 30 and 15 year amortizing fixed rate loans, and does not include significant amounts of adjustable interest rate, negative amortization, or other exotic loan features that are more common in certain other parts of the United States.

Doral Financial mitigates loan defaults on its construction and commercial portfolios through its Loan Workout function. The function's main objectives are avoiding defaults and minimizing losses upon default of relatively large credit relationships. The group utilizes relationship officers, collection specialists, attorneys and has contracted with third party service providers to supplement its internal resources. In the case of residential construction projects, the workout function monitors project specifics, such as project management and marketing, as deemed necessary. With respect to residential mortgages, the Company has developed collection and loss mitigation strategies designed to keep people in their homes and minimize defaults and launched a new program during 2009 titled Special Repayment Plan.

The Company also engages in the restructuring and/or modifications of the debt of borrowers, who are delinquent due to economic or legal reasons if the Company determines that it is in the best interest for both the Company and the borrower to do so. In some cases, due to the nature of the borrower's financial condition, the restructure or loan modification fits the definition of Troubled Debt Restructuring.

Non-Interest Income

Doral Financial and Subsidiaries
Non-interest Income
                             Quarters ended               Years ended
                     -------------------------------  --------------------
(in thousands)       Dec. 2009 Sept. 2009  Dec. 2008  Dec. 2009  Dec. 2008
                     ---------  ---------  ---------  ---------  ---------

Net other-than-
 temporary impairment
 losses              $ (13,472) $  (7,310) $       -  $ (27,577) $    (920)
Net gain on mortgage
 loan sales and fees     2,092      2,637      2,968      9,746     13,112
  Net gain loss on
   securities held
   for trading           1,673        661        295      4,117        724
  (Loss) gain on IO
   valuation            (1,123)     3,896      5,639      2,780      5,649
  Gain (loss) on MSR
   economic hedge        2,113      3,405     25,454     (8,678)    27,551
  Gain (loss) on
   derivatives             614     (1,490)    (3,057)    (1,594)    (3,943)
                     ---------  ---------  ---------  ---------  ---------
Net gain (loss) on
 securities held for
 trading                 3,277      6,472     28,331     (3,375)    29,981
Net gain (loss) on
 investment
 securities             29,095      1,024          -     34,916     (3,979)
  Servicing income       6,834      9,651      9,146     32,468     34,942
  Mark-to market
   adjustment of MSR      (632)     2,299    (27,194)    (3,131)   (42,642)
                     ---------  ---------  ---------  ---------  ---------
Total servicing income   6,202     11,950    (18,048)    29,337     (7,700)
  Retail banking fees    7,392      7,487      7,549     29,088     28,060
  Insurance agency
   commissions           2,611      2,381      2,404      9,879     10,550
  Other income           2,402      2,247      2,130      5,187     10,425
                     ---------  ---------  ---------  ---------  ---------
Total commissions,
 fees and other
 income                 12,405     12,115     12,083     44,154     49,035
                     ---------  ---------  ---------  ---------  ---------
  Total non-interest
   income            $  39,599  $  26,888  $  25,334  $  87,201  $  79,529
                     =========  =========  =========  =========  =========

Fourth Quarter 2009 vs. Third Quarter 2009

Non-interest income of $39.6 million was up $12.7 million, or 47.3%, over the third quarter of 2009. Significant variances in non-interest income for the quarter ended December 31, 2009 compared to the quarter ended September 30, 2009 were as follows:

--  A net gain on investment securities of $29.1 million resulting from the
    sale of approximately $0.6 billion of mortgage-backed securities,
    primarily pass through mortgage backed securities.
--  An OTTI loss totaling $13.5 million was recognized on six of the
    Company's non-agency CMOs, with an aggregate amortized cost of $244.3
    million as of December 31, 2009. Two of these securities were P.R.
    non-agency CMO's with an amortized cost of $9.2 million and a
    recognized credit loss of approximately $77,000 for the quarter. The
    additional four securities with OTTI were U.S. non-agency CMOs with
    an amortized cost of $235.1 million and a recognized credit loss of
    $13.4 million for the quarter. OTTI loss for the quarter ending
    September 30, 2009 was $7.3 million.
--  A loss on the IO valuation of $1.1 million compared to a gain of $3.9
    million for the third quarter of 2009 was driven by the overall
    increase in rates across all terms of the LIBOR-Swap curve, which
    drove down the value of the IO.
--  A decrease in servicing income due to interest lost on servicing
    advances during the period related to the repurchase of certain GNMA
    defaulted loans during the fourth quarter of 2009.

Fourth Quarter 2009 vs. Fourth Quarter 2008

Non-interest income of $39.6 million was up $14.3 million, or 56.3%, over the fourth quarter of 2008. Significant variances in non-interest income for the quarter ended December 31, 2009 compared to the quarter ended December 31, 2008 were as follows:

--  A net gain on investment securities of $29.1 million resulted from the
    sale of approximately $0.6 billion of mortgage-backed securities,
    primarily pass through mortgage backed securities.
--  An OTTI loss totaling $13.5 million was recognized on six of the
    Company's non-agency CMOs, with an aggregate amortized cost of $244.3
    million as of December 31, 2009. Two of these securities were P.R.
    non-agency CMO's with an amortized cost of $9.2 million and a
    recognized credit loss of approximately $77,000 for the quarter. The
    additional four securities with OTTI were U.S. non-agency CMOs with an
    amortized cost of $235.1 million and a recognized credit loss of $13.4
    million for the quarter. There was no OTTI charge in the fourth
    quarter of 2008.
--  A reduction in net gain on trading activities was driven principally by
    a lower gain on the MSR economic hedge of $23.3 million when compared
    to 2008. This reduction was due to the unique market circumstances of
    the 2008 fourth quarter as interest rates declined sharply and was
    offset by an improvement in the mark-to-market adjustment of the
    mortgage servicing assets of $26.6 million, principally related to the
    effect of the fall of interest rates in the 2008 fourth quarter on the
    prepayment speed assumptions used to value the MSR asset.

Full Year 2009 vs. Full Year 2008

Non-interest income of $87.2 million was up $7.7 million or 9.6 % over the previous year. Significant variances in non-interest income for the year ended December 31, 2009 compared to the same period in 2008 were as follow:

--  A net gain on investment securities of $34.9 million resulted from the
    sale of approximately $2.0 billion of mortgage-backed securities,
    primarily CMO floaters and pass through mortgage backed securities, and
    other debt securities.
--  An OTTI loss of $27.6 million was recognized on seven of the Company's
    non-agency CMOs, with an aggregate amortized cost of $246.7 million as
    of December 31, 2009. Three of these securities were Puerto Rico
    non-agency CMO's with an amortized cost of $11.6 million and a
    recognized credit loss of $1.2 million, and the additional four
    securities with OTTI were U.S. non-agency CMOs with an amortized cost
    of $235.1 million and a recognized credit loss of $26.4 million.
--  The net loss on trading activities was driven principally by an
    increase in the loss on the MSR economic hedge of $36.2 million when
    compared to 2008. This loss was due to a loss of $13.8 million related
    to the U.S. Treasuries that were serving as an economic hedge on the
    Company's capitalized MSR during 2008 and the first four months of
    2009. The spreads between mortgage rates and the U.S. Treasury curve
    compressed as the U.S. Federal Reserve Bank Monetary Policy programs
    implemented at the end of 2008 to promote mortgage loan originations
    and reduce mortgage loan interest rates, made the economic hedge
    ineffective. This loss was partially offset by eliminating the use of
    U.S. Treasury securities as the economic hedge on the MSRs, adopting
    the use of forward contracts as the economic hedge, and market based
    decreases in forecasted prepayment speeds experienced. The loss on
    the MSR hedge was offset by an improvement in the mark-to-market
    adjustment of the mortgage servicing assets of $39.5 million
    principally related to the decrease in mortgage rates triggering
    higher prepayment speed assumptions and reduced MSR valuations in the
    2008 calculation combined with more stable and slower prepayment speed
    assumptions used in the 2009 calculation consistent with observed
    trends in benchmark prepayment speeds and recent trends in the Puerto
    Rico mortgage origination and prepayment experience.
--  A decrease in other income of $5.2 million due to a lower gain on
    redemption of shares of VISA, Inc. in 2009 of $3.2 million and lower
    sales of units of a residential housing project which the Company
    took possession of in 2005 of $1.3 million.

Non-Interest Expense

Doral Financial and Subsidiaries
Non-interest Expense
                                 Quarters ended            Years ended
                          ----------------------------- -------------------
(in thousands)           Dec. 2009 Sept. 2009 Dec. 2008 Dec. 2009 Dec. 2008
                          --------- --------- --------- --------- ---------

Compensation and benefits $  15,614 $  14,459 $  16,885 $  68,724 $  70,562
Professional services        10,812     7,252     6,296    31,582    24,156
OREO losses and other
 related expenses             8,868     3,224     1,104    14,542       842
Other                         6,997     6,798    29,762    25,620    47,942
FDIC insurance expense        4,689     5,468     1,235    18,238     4,654
Occupancy expenses            4,529     3,788     4,618    15,232    18,341
Communication expenses        4,040     4,208     4,420    16,661    17,672
Depreciation and
 amortization                 3,055     3,086     3,716    12,811    16,013
EDP expenses                  2,976     3,968     3,203    13,727    11,146
Taxes, other than payroll
 and income taxes             2,573     2,567     2,529    10,051     9,880
Advertising                   1,955     1,806     1,262     6,633     8,519
Corporate insurance           1,258     1,210     1,048     4,662     4,586
Office expenses               1,204     1,430     1,697     5,303     6,099
                          --------- --------- --------- --------- ---------
                          $  68,570 $  59,264 $  77,775 $ 243,786 $ 240,412
                          ========= ========= ========= ========= =========

Fourth Quarter 2009 vs. Third Quarter 2009

Non-interest expense of $68.6 million was up $9.3 million, or 15.7%, over the third quarter of 2009. Significant variances in non-interest expense for the quarter ended December 31, 2009 compared to the quarter ended September 30, 2009 were as follows:

--  An increase of $3.6 million in professional services expenses was
    driven by amounts advanced to cover legal expenses of the Company's
    former officers, the management of legacy portfolios and expenses
    associated with the preferred stock exchanges.
--  An increase of $5.6 million in OREO losses and other related expenses
    as a result of appraisal adjustments driven by a devaluation of OREO
    properties in Puerto Rico during the second half of 2009, higher levels
    of repossessed units and higher expenses to maintain the properties in
    saleable condition.

Fourth Quarter 2009 vs. Fourth Quarter 2008

Non-interest expense of $68.6 million was down $9.2 million, or 11.8%, over the fourth quarter of 2008. Significant variances in non-interest expense for the quarter ended December 31, 2009 compared to the quarter ended December 31, 2008 were as follows:

--  A decrease of $1.3 million in compensation and employee benefits was
    driven by a reduction in workforce during 2009. The number of full
    time equivalent employees decreased by 252 to 1,154 in 2009 from
    1,406 in 2008.
--  An increase of $4.5 million in professional services expenses was
    driven by amounts advanced to cover legal expenses of the Company's
    former officers, the management of legacy portfolios and expenses
    associated with the preferred stock exchanges.
--  An increase of $3.5 million in the FDIC insurance expense primarily
    related to the new assessment rates established in 2009.
--  An increase of $7.8 million in OREO losses and other related expenses
    as a result of significant appraisal adjustments driven by a
    devaluation of OREO properties in Puerto Rico during the second half
    of 2009, higher levels of repossessed units and higher expenses to
    maintain the properties in saleable condition.
--  A decrease in other expenses resulted from a provision of $21.6
    million recognized during 2008 related to the account receivable
    from Lehman Brothers, Inc.

Full Year 2009 vs. Full Year 2008

Non-interest expense of $243.8 million was up $3.4 million, or 1.4%, over the previous year. Significant variances in non-interest expense for the year ended December 31, 2009 compared to the year ended December 31, 2008 were as follow:

--  A decrease of $1.8 million in compensation and employee benefits was
    driven by a reduction in workforce during 2009, partially offset by
    one-time severance expenses. The number of full time equivalent
    employees decreased by 252 to 1,154 in 2009 from 1,406 in 2008.
--  A decrease in advertising expenses of $1.9 million resulted from the
    cost control measures implemented by the Company since 2008. Also,
    during 2008 advertising expenses included some additional expenses
    related to the Company's refreshed branding program initiated late in
    2007.
--  An increase of $7.4 million in professional services expenses was
    driven by amounts advanced to cover legal expenses of the Company's
    former officers, for the management of legacy portfolios and expenses
    associated with the preferred stock exchanges.
--  An increase of $2.6 million in EDP expenses was primarily related to
    certain initiatives to optimize and update the Company's banking and
    mortgage platforms and to an increase in the Company's outsourced
    services.
--  A decrease of $3.1 million in occupancy expenses was partially driven
    by a decrease in utilities expenses resulting from the Company's
    implementation of cost control measures and controls established to
    reduce energy consumption together with lower fuel costs. Also, this
    decrease in occupancy expenses was related to a non-recurring
    impairment charge of $1.4 million made during the third quarter of 
    2008 on a residential housing project which the Company took
    possession of in 2005.
--  A decrease of $3.2 million in depreciation expenses related to
    intangibles, software and building improvements fully depreciated or
    amortized during 2009.
--  An increase of $13.6 million in the FDIC insurance expense primarily
    related to (i) $4.2 million of the FDIC special assessment expense
    during the second quarter of 2009 and (ii) an increase of $7.8 million
    during the second half of 2009 resulting from a final rule adopted by
    the FDIC in May 2009, effective June 30, 2009 that caused a significant
    increase in rates and assessment bases.
--  An increase of $13.7 million in OREO losses and other related expenses
    as a result of significant appraisal adjustments driven by a
    devaluation of OREO properties in Puerto Rico during the second half of
    2009, higher levels of repossessed units and higher expenses to
    maintain the properties in saleable condition.
--  A significant decrease in other expenses resulted from a provision of
    $21.6 million recognized during 2008 related to the account receivable
    from Lehman Brothers, Inc.

Income Tax Expense

The recognition of income tax benefit of $1.9 million for the quarter ended December 31, 2009 resulted from a current tax expense of $0.9 million and a deferred tax benefit of $2.8 million. The current tax expense was related to the recognition of tax expenses related to certain transactions with the Company's U.S. affiliates and interest on unrecognized tax benefits. The deferred tax benefit is due to the settlement of certain intercompany transactions with a U.S. affiliate resulting in the realization of a previously recognized deferred tax liability.

The recognition of current income tax benefit of $21.5 million for the year ended December 31, 2009 resulted from a current tax benefit of $11.5 million and a deferred tax benefit of $10.0 million. The current tax benefit was related to the release of unrecognized tax benefits due to the expiration of the statute of limitations on certain tax positions, partially offset by the recognition of tax expense related to intercompany transactions in the federal tax jurisdiction which had not been previously recognized net of current tax expenses. The deferred tax benefit is primarily related to the effect of the Company entering into an agreement with the Puerto Rico Treasury Department during the third quarter of 2009 amending the previous agreement regarding amortization of certain prepaid taxes, net of the amortization of existing DTAs.

Balance Sheet

Doral Financial's assets totaled $10.2 billion at December 31, 2009, compared to $10.1 billion at December 31, 2008. Total assets at December 31, 2009, when compared to December 31, 2008 were affected by a decrease of $835.8 million in the Company's investment securities portfolio that resulted from a combination of a sale of $2.0 billion of investment securities during 2009 and purchases primarily of shorter duration mortgage-backed securities as part of interest rate risk management, and partially offset by increases of $189.7 million in net loans, $539.5 million in cash and due from banks, $93.3 million in interest earning assets, $32.9 million in real estate held for sale and $56.9 million in other assets.

Total liabilities were $9.4 billion at December 31, 2009, compared to $9.2 billion at December 31, 2008. Total liabilities as of December 31, 2009 were principally affected by an increase in deposits of $240.2 million, primarily in retail deposits, an increase in securities sold under agreements to repurchase of $237.8 million, partially offset by a decrease in other short term borrowings of $241.6 million. Other short-term borrowings consist of the balance of a line of credit with the FHLB and auction term funds to depository institutions granted by the Federal Reserve under TAF. There were also decreases in loans payable of $29.7 million due to pay-downs and other liabilities of $61.0 million.

Loan Portfolio

Doral Financial and Subsidiaries
Loan Portfolio including loans held
 for sale at period-end
(in thousands)                        Dec. 2009    Sep. 2009    Dec. 2008
                                     -----------  -----------  -----------

Residential mortgage loans           $ 3,827,269  $ 3,709,364  $ 3,620,250
Construction                             451,540      461,502      504,771
Commercial - secured by real estate      738,838      752,416      755,430
Commercial - non-real estate             311,258      176,786      136,241
Land Secured                             100,371      103,571      118,774
Consumer                                  70,580       75,436       90,068
Lease financing receivable                12,702       14,885       20,939
Loans on savings deposits                  3,250        3,841        5,240
                                     -----------  -----------  -----------
                                       5,515,808    5,297,801    5,251,713
Allowance for loan and lease losses     (140,774)    (142,089)    (132,020)
                                     -----------  -----------  -----------
Loans receivable, net                  5,375,034    5,155,712    5,119,693
Loans held for sale                      320,930      410,190      386,610
                                     -----------  -----------  -----------
Total loan portfolio, net            $ 5,695,964  $ 5,565,902  $ 5,506,303
                                     ===========  ===========  ===========

Doral Financial's loan portfolio consists primarily of residential mortgage loans and approximately 93% of the total loan portfolio is secured by real estate. The total net loan portfolio increased $189.7 million compared to December 31, 2008, mostly in residential mortgage loans which increased $207.0 million and commercial non-real estate loans which increased $175.0 million related mostly to participation in syndicated loans in the U.S. mainland. These increases were partially offset by decreases in the construction and land portfolios of $53.2 million and $18.4 million, respectively, resulting from the Company discontinuing actively lending in these product lines. Management expects to continue to work down the construction and land portfolios in the future.

Consumer and lease financings also reflected decreases due to the Company's decision to discontinue actively lending in these product lines.

Capital

Doral Financial's equity totaled $875.0 million at December 31, 2009, compared to $905.2 million at December 31, 2008.

On March 20, 2009, the Board of Directors of Doral Financial announced that it had suspended the declaration and payment of all dividends on all of Doral Financial's outstanding series of cumulative and non-cumulative preferred stock. The suspension of dividends was effective and commenced with the dividends for the month of April 2009 for Doral Financial's three outstanding series of non-cumulative preferred stock, and the dividends for the second quarter of 2009 for Doral Financial's one outstanding series of cumulative preferred stock.

On May 7, 2009, the Company announced the commencement of an offer to exchange a stated amount of its shares of common stock and a cash payment in exchange for a limited number of its shares of outstanding preferred stock. Each of the series of outstanding preferred stock of Doral Financial were eligible to participate in the exchange offer, subject to all terms and conditions set forth in the Tender Offer Statement that was filed with the SEC on May 7, 2009, as amended. The transaction was settled on June 11, 2009.

As a result of the exchange offer, Doral issued an aggregate of 3,953,892 shares of common stock and paid an aggregate of $5.0 million in cash premium payments and recognized a non-cash credit to retained earnings (with a corresponding charge to additional paid in capital) of $9.4 million that was added to net income available to common shareholders in calculating earnings per share. This exchange resulted in an increase in common equity of $100.6 million and a decrease in preferred stock of $105.6 million, resulting in an increase in book value per common share of $1.63.

On November 20, 2009, the Company filed an amendment to its Registration Statement on Form S-4 (S-4) announcing its offer to exchange a number of properly tendered and accepted shares of its 4.75% Perpetual Cumulative Convertible Preferred Stock (Convertible Preferred Stock) for newly issued shares of its common stock. The offer to exchange expired on December 9, 2009 and was settled on December 14, 2009. Pursuant to the terms of the offer to exchange, the Company issued 4,300,301 shares of common stock in exchange for 208,854 shares of Convertible Preferred Stock. This exchange resulted in an increase in common equity and a corresponding decrease in preferred stock of $52.2 million, as well as a non-cash charge to retained earnings of $18.0 million (with a corresponding credit to additional paid in capital) that was deducted from net income available to common shareholders in calculating earnings per share. This exchange resulted in an increase in book value per common share of $0.84.

The effect of the two preferred stock exchanges in 2009 was to increase common equity by $152.8 million, increase book value per common share by $2.47, decrease preferred equity by $157.8 million and decrease net income available to common shareholders by $8.6 million.

Doral Financial is not subject to regulatory capital requirements, but ratios are prepared as if it were subject to the requirements for comparability purposes.

The Company's regulatory prescribed capital ratios exceed the published well capitalized standards established in banking regulation. As of December 31, 2009 the Tier 1 Leverage, Tier 1 Risk-based Capital and Total Risk-based Capital ratios were estimated at 8.43%, 13.82% and 15.08%, respectively which represents approximately $350.8 million, $488.0 million and $317.2 million of estimated Tier 1 Leverage, Tier 1 Risk-based Capital and Total Risk-based Capital in excess of the published well-capitalized standards of 5%, 6% and 10%, respectively.

Doral Financial and Subsidiaries
Capital Ratios
                                           Dec. 2009  Sep. 2009  Dec. 2008
                                           ---------  ---------  ---------

Tier 1 leverage                                 8.43%      8.46%      7.59%
Tier 1 risk-based capital                      13.82%     13.53%     13.80%
Total risk-based capital                       15.08%     15.34%     17.07%

Tier 1 common equity *                          7.16%      6.45%      6.00%

* Refer to section on Non-GAAP Financial Measures for further information.

The following table provides a reconciliation of stockholders' equity (GAAP) to Tier 1 common equity (non-GAAP):

Doral Financial and Subsidiaries
Tier 1 Common Equity Reconciliation
(in thousands)                             Dec. 2009  Sep. 2009  Dec. 2008
                                           ---------  ---------  ---------

Stockholders' equity                       $ 875,044  $ 880,120  $ 905,171
Plus: net unrealized losses on available
 for sale securities, net of tax             111,481    103,911    123,217
Less: preferred stock                       (415,428)  (467,641)  (573,250)
Less: disallowed intangible assets           (17,155)   (17,077)   (17,113)
Less: disallowed deferred tax assets        (106,943)  (104,259)   (87,498)
                                           ---------  ---------  ---------
Total Tier 1 common equity                 $ 446,999  $ 395,054  $ 350,527
                                           =========  =========  =========

The $96.5 million increase in Tier 1 common equity from December 2008 to December 2009, resulted from the preferred to common stock conversions described previously, offset in part by the 2009 net loss from operations.

Non-GAAP Financial Measures

This earnings press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are set forth when management believes they will be helpful to an understanding of the Corporation's results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the text or in the attached tables of this earnings release.

Tier 1 common equity to risk-weighted assets ratio

Tier 1 common equity is a non-GAAP measure. Ratios calculated based upon Tier 1 common equity have become a focus of regulators and investors, and management believes ratios based on Tier 1 common equity assist investors in analyzing Doral's capital position. This ratio is calculated by dividing Tier 1 capital less non-common equity items by risk weighted assets, which assets are calculated in accordance with applicable bank regulatory requirements.

The Federal Reserve began supplementing its assessment of the capital adequacy of bank holding companies based on a variation of Tier 1 capital known as Tier 1 common equity in connection with the Supervisory Capital Assessment Program. Tier 1 common equity is considered to be a non-GAAP financial measure since it is not formally defined by GAAP and, unlike Tier 1 capital, is not a federal banking regulatory requirement.

FORWARD-LOOKING STATEMENTS

This Press Release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, Doral Financial Corporation (the "Company" or "Doral Financial" or "Doral") may make forward-looking statements in its other press releases, its other filings with the Securities and Exchange Commission ("SEC") or in other public or shareholder communications and its senior management may make forward-looking statements orally to analysts, investors, the media and others.

These forward-looking statements may relate to the Company's financial condition, results of operations, plans, objectives, future performance and business, including, but not limited to, statements with respect to the adequacy of the allowance for loan and lease losses, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Company's financial condition and results of operations. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and are generally identified by the use of words or phrases such as "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "believe," "expect," "may" or similar expressions.

Doral Financial cautions readers not to place undue reliance on any of these forward-looking statements since they speak only as of the date made and represent Doral Financial's expectations of future conditions or results and are not guarantees of future performance. The Company does not undertake and specifically disclaims any obligations to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of those statements.

Forward-looking statements are, by their nature, subject to risks and uncertainties. Risk factors and uncertainties that could cause the Company's actual results to differ materially from those described in forward-looking statements can be found in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and its Annual Report on Form 10-K for the year ended December 31, 2008, each of which is available in the Company's website at www.doralfinancial.com.

Institutional Background

Doral Financial Corporation ("Doral," "Doral Financial" or the "Company") is a bank holding company engaged in banking (including thrift operations), mortgage banking and insurance agency activities through its wholly-owned subsidiaries Doral Bank ("Doral Bank PR"), Doral Bank, FSB ("Doral Bank NY"), Doral Insurance Agency, Inc. ("Doral Insurance Agency"), and Doral Properties, Inc. ("Doral Properties"). Doral Bank PR in turn operates three wholly-owned subsidiaries Doral Mortgage LLC ("Doral Mortgage"), Doral Money, Inc. ("Doral Money"), engaged in commercial lending in the New York metropolitan area, and CB, LLC, an entity formed to dispose of a real estate project of which Doral Bank PR took possession during 2005.

Doral Financial Corporation's common shares trade on the New York Stock Exchange under the symbol DRL. Additional information about Doral Financial Corporation may be found on the Company's website at www.doralfinancial.com.

Doral Financial and Subsidiaries
Consolidated Statements of
 Financial Condition (Unaudited)
(in thousands)                      Dec. 2009     Sep. 2009     Dec. 2008
                                  ------------  ------------  ------------
Assets
  Cash and due from banks         $    725,277  $    220,690  $    185,817
  Interest-earning assets               95,000             -         1,700
  Investment securities:
    Trading securities, at fair
     value                              47,726        50,170       251,877
    Available for sale securities,
     at fair value                   2,789,177     3,374,305     3,429,151
    Federal Home Loan Bank of NY
     (FHLB) stock, at cost             126,285       126,285       117,938
                                  ------------  ------------  ------------
      Total investment securities    2,963,188     3,550,760     3,798,966
                                  ------------  ------------  ------------
  Loans held for sale, at lower
   of cost or market                   320,930       410,190       386,610
  Loans held for investment          5,515,808     5,297,801     5,251,713
  Allowance for loan and lease
   losses                             (140,774)     (142,089)     (132,020)
                                  ------------  ------------  ------------
       Total loans, net of
        allowance for loan and
        lease losses                 5,695,964     5,565,902     5,506,303
                                  ------------  ------------  ------------
  Accounts Receivable                   60,478        57,441        55,197
  Mortgage-servicing advances           19,592        22,222        18,309
  Accrued interest receivable           41,866        42,100        42,934
  Servicing assets, net                118,493       116,958       114,396
  Premises and equipment, net          101,437       102,870       104,733
  Real estate held for sale, net        94,219        93,145        61,340
  Deferred tax asset                   131,201       126,386       120,827
  Other assets                         185,237       125,202       128,345
                                  ------------  ------------  ------------
      Total Assets                $ 10,231,952  $ 10,023,676  $ 10,138,867
                                  ============  ============  ============
Liabilities
  Deposits:
    Non-interest-bearing deposits $    353,516  $    227,055  $    235,983
    Interest-bearing deposits        4,289,505     3,988,259     4,166,789
                                  ------------  ------------  ------------
      Total deposits                 4,643,021     4,215,314     4,402,772
                                  ------------  ------------  ------------
  Securities sold under
   agreements to repurchase          2,145,262     2,100,262     1,907,447
  Advances from FHLB                 1,606,920     1,606,920     1,623,400
  Other short-term borrowings          110,000       265,000       351,600
  Loans payable                        337,036       345,464       366,776
  Notes payable                        270,838       272,619       276,868
  Accrued expenses and other
   liabilities                         243,831       337,977       304,833
                                  ------------  ------------  ------------
      Total liabilities              9,356,908     9,143,556     9,233,696
                                  ------------  ------------  ------------
Stockholders' equity
  Preferred stock                      415,428       467,641       573,250
  Common stock                             621           578           538
  Additional paid-in capital         1,010,661       940,475       849,172
  Legal surplus                         23,596        23,596        23,596
  Accumulated deficit                 (463,781)     (448,259)     (418,168)
  Accumulated other comprehensive
   loss, net of tax                   (111,481)     (103,911)     (123,217)
                                  ------------  ------------  ------------
      Total stockholders' equity       875,044       880,120       905,171
                                  ------------  ------------  ------------
      Total liabilities and
       stockholders' equity       $ 10,231,952  $ 10,023,676  $ 10,138,867
                                  ============  ============  ============



Doral Financial and Subsidiaries
Consolidated Statements
 of Income (Loss) (Unaudited)
(in thousands             Quarters ended                 Year ended
 except for per ----------------------------------  ----------------------
 share data)    Dec. 2009   Sept. 2009  Dec. 2008   Dec. 2009   Dec. 2008
                ----------  ----------  ----------  ----------  ----------

Interest Income
  Loans         $   79,898  $   78,653  $   84,284  $  321,384  $  342,631
  Mortgage-
   backed
   securities       29,369      30,026      34,566     114,032     111,940
  Interest-
   only strips
   ("IOs")           1,592       1,347       1,757       6,142       7,162
  Investment
   securities          982       1,580       6,201      10,234      47,602
  Other interest-
   earning assets    1,949       1,797       1,296       6,473      15,339
                ----------  ----------  ----------  ----------  ----------
 Total interest
  income           113,790     113,403     128,104     458,265     524,674
                ----------  ----------  ----------  ----------  ----------
Interest Expense
  Deposits          27,439      28,615      40,617     125,133     156,730
  Securities
   sold under
   agreements to
   repurchase       18,229      17,770      18,026      70,712      80,527
  Advances from
   FHLB             15,168      15,778      16,902      62,948      69,643
  Other short-
   term
   borrowings          143         227         233       1,212         233
  Loans payable      1,808       2,226       4,525       9,881      18,865
  Notes payable      5,145       5,178       5,259      20,752      21,195
                ----------  ----------  ----------  ----------  ----------
     Total
      interest
      expense       67,932      69,794      85,562     290,638     347,193
                ----------  ----------  ----------  ----------  ----------
        Net
         interest
         income     45,858      43,609      42,542     167,627     177,481
                ----------  ----------  ----------  ----------  ----------
  Provision for
   loan and
   lease losses     15,026       4,879      26,178      53,663      48,856
                ----------  ----------  ----------  ----------  ----------
        Net
         interest
         income
         after
         provision
         for loan
         and lease
         losses     30,832      38,730      16,364     113,964     128,625
                ----------  ----------  ----------  ----------  ----------
Non-Interest
 Income
  Other-than-
   temporary
   impairment
   losses          (13,472)     (7,310)          -     (27,577)       (920)
  Gain
   (loss) on
   investment
   securities       29,095       1,024           -      34,916      (3,979)
  Gain
   (loss) from
   trading
   activities        3,277       6,472      28,331      (3,375)     29,981
  Gain from
   mortgage
   loans sales
   and fees          2,092       2,637       2,968       9,746      13,112
  Servicing
   income (net of
   mark-to-market
   adjustment)       6,202      11,950     (18,048)     29,337      (7,700)
  Commissions,
   fees, and
   other income     12,405      12,115      12,083      44,154      49,035
                ----------  ----------  ----------  ----------  ----------
     Total
      non-interest
      income        39,599      26,888      25,334      87,201      79,529
                ----------  ----------  ----------  ----------  ----------
Non-Interest
 Expense
  Compensation
   and benefits     15,614      14,459      16,885      68,724      70,562
  Taxes, other
   than payroll
   and income
   taxes             2,573       2,567       2,529      10,051       9,880
  Advertising        1,955       1,806       1,262       6,633       8,519
  Professional
   services         10,812       7,252       6,296      31,582      24,156
  Communications
   expenses          4,040       4,208       4,420      16,661      17,672
  EDP expenses       2,976       3,968       3,203      13,727      11,146
  Occupancy
   expenses          4,529       3,788       4,618      15,232      18,341
  Office
   expenses          1,204       1,430       1,697       5,303       6,099
  Depreciation
   and
   amortization      3,055       3,086       3,716      12,811      16,013
  FDIC
   insurance
   expense           4,689       5,468       1,235      18,238       4,654
  Other expense     17,123      11,232      31,914      44,824      53,370
                ----------  ----------  ----------  ----------  ----------
     Total
      non-interest
      expense       68,570      59,264      77,775     243,786     240,412
                ----------  ----------  ----------  ----------  ----------
 Income (loss)
  before income
  taxes              1,861       6,354     (36,077)    (42,621)    (32,258)
 Income tax
  (benefit)
  expense           (1,860)     (6,855)    279,770     (21,477)    286,001
                ----------  ----------  ----------  ----------  ----------
Net Income
 (Loss)         $    3,721  $   13,209  $ (315,847) $  (21,144) $ (318,259)
                ----------  ----------  ----------  ----------  ----------
Net (Loss)
 Income
 Available to
 Common
 Stockholders   $  (16,865) $   10,000  $ (324,172) $  (45,613) $ (351,558)
                ----------  ----------  ----------  ----------  ----------
Basic and
 Diluted (Loss)
 Earning Per
 Common Share   $    (0.29) $     0.17  $    (6.02) $    (0.81) $    (6.53)
                ----------  ----------  ----------  ----------  ----------

Contact Information

  • For more information contact:

    Investor Relations:
    Christopher Poulton, EVP
    Email Contact
    212-329-3794
    787-474-6683

    Media:
    Lucienne Gigante
    VP Public Relations
    Email Contact
    787-474-6298