SOURCE: Doral Financial Corporation

April 20, 2011 07:00 ET

Doral Financial Corporation Reports Financial Results for the Quarter Ended March 31, 2011

Reports Quarter Net Income of $3.3 Million; Reduced Non-Performing Loans $54.9 Million in Quarter; Continues to Exceed Well Capitalized Benchmarks

SAN JUAN, PUERTO RICO--(Marketwire - Apr 20, 2011) - Doral Financial Corporation (NYSE: DRL) ("Doral" or the "Company"), the holding company of Doral Bank and Doral Bank FSB, with operations in Puerto Rico and the U.S., reported net income of $3.3 million for the quarter ended March 31, 2011, compared with net losses of $36.1 million and $3.5 million for the quarters ended December 31, 2010 and March 31, 2010, respectively.

Doral continued to improve asset quality, reporting a decrease in non-performing loans (excluding loans guaranteed by U.S. federal government agencies) during the first quarter of $54.9 million from December 31, 2010 to March 31, 2011, and $300.6 million from March 31, 2010 to March 31, 2011.

"Our earnings results are a direct consequence of our success in improving asset quality and diversifying our business. As we move forward, we will continue to focus on improving our fundamentals and building stable earnings," said Glen Wakeman, CEO and President of Doral Financial Corporation.

First quarter 2011 pre-tax income was $8.4 million, an increase of $40.5 million compared to a pre-tax loss of $32.1 million in the fourth quarter of 2010 driven by the following:

  • Net interest income of $43.2 million increased $5.6 million (15%) compared to the fourth quarter 2010 as a result of reduced interest expense from the exchange of higher rate advances from FHLB for lower rate advances from FHLB and calling high cost callable certificates of deposit, and increased interest income from improved collections of delinquent loans and growth in the U.S. loan portfolio.
  • Non-interest income of $28.6 million, an increase of $0.8 million from fourth quarter 2010, reflects continuing success in increasing revenues from fee-based services and mortgage banking activities.
  • Non-interest expense of $60.8 million declined $15.6 million (20%) from fourth quarter 2010 due to lower costs related to credit expenses including professional services, OREO related expenses, foreclosure and collection costs as well as reductions in other operational costs incurred for compensation, professional services, occupancy, communications, EDP, among others.
  • The provision for loan and lease losses of $2.6 million was down $18.5 million compared to fourth quarter 2010 as a result of improved collections on loans over the past year, net of increased loss estimates on loans reviewed individually for impairment and refinements of the loan loss provision estimates.

Doral will be hosting an earnings call for interested parties at 10:00 a.m. Wednesday, April 20, 2011.

Call-in information is:
U.S. Participant Dial-In Number: (800) 230-8960
International Participant Dial-In Number: (612) 332-0226
Conference identification number: 201808

FINANCIAL HIGHLIGHTS

  • Net income for the quarter ended March 31, 2011 totaled $3.3 million, compared to a net loss of $36.1 million for the fourth quarter of 2010 and a net loss of $3.5 million for the quarter ended March 31, 2010.

  • The Company reported net income attributable to common shareholders of $0.9 million and earnings per common share of $0.01 for the first quarter of 2011 compared to net loss attributable to common shareholders of $38.5 million and loss per common share of $0.30 for the fourth quarter of 2010, and net income attributable to common shareholders and earnings per common share of $21.2 million and $0.34, respectively, for the first quarter of 2010.

  • Net interest income for the first quarter of 2011 was $43.2 million, an increase of $5.6 million compared to the fourth quarter of 2010, and a decrease of $0.6 million when compared to the first quarter of 2010. Net interest margin increased 38 basis points to 2.23%, compared to 1.85% for the fourth quarter of 2010. Improved net interest income results from the exchange of $555 million of high rate advances from FHLB for a comparable amount of lower rate advances from FHLB, calling $129 million of high cost callable certificates of deposit, and lowering interest rates on deposits, combined with increased interest income resulting from lower levels of delinquent loans and loss mitigation, as well as growth of the U.S. loan portfolio.

  • Provision for loan and lease losses for the first quarter of 2011 was $2.6 million, a decrease of $18.5 million over the fourth quarter 2010 provision, and a decrease of $11.3 million over the provision recorded for the first quarter of 2010. The first quarter 2011 provision for loan and lease losses included $8.3 million net provisions for construction and land, commercial real estate and commercial and industrial loans reviewed individually for impairment offset in part by net lower general reserves resulting from improved collections of past delinquent loans and adoption of certain refinements in the loss reserve calculations.

  • First quarter 2011 non-interest income of $28.6 million increased $0.8 million and decreased $8.0 million compared to non-interest income of $27.8 million for the fourth quarter of 2010 and $36.6 million for the first quarter of 2010, respectively. Non-interest income for the first quarter of 2011 included a gain on sale of investment securities of $2.9 million compared to no gain or loss for the fourth quarter 2010 and $26.4 million gain for the first quarter of 2010. The first quarter 2010 gain on securities sales was partially offset by an other-than-temporary-impairment charge of $13.3 million.

  • First quarter 2011 non-interest expense of $60.8 million decreased $15.6 million and $6.6 million from expenses for the quarters ended December 31, 2010 and March 31, 2010, respectively. Lower expenses in the first quarter of 2011 compared to the fourth quarter of 2010 were due to: (i) lower provisions and other expenses for other real estate owned properties of $3.8 million, (ii) the $1.5 million 2010 fourth quarter loss on the sale and assignment to a third party of Doral's rights, title, and interest in and to its claims in the Lehman Brothers, Inc. Securities Investor Protection Corporation proceeding for the Lehman Brothers, Inc. ("LBI") claim receivable, (iii) lower compensation and benefits costs of $2.3 million, (iv) lower occupancy expenses of $0.8 million, and (v) lower professional services expenses of $2.0 million.

  • First quarter 2011 income tax expense of $5.1 million increased $1.1 million and $2.6 million compared with income tax expense of $4.0 million and $2.5 million in the fourth quarter of 2010 and the first quarter of 2010, respectively. Income tax expense reflects $3.3 million resulting from the profitable operations of certain U.S. and Puerto Rico entities, and $1.8 million resulting from the net effect on Doral's deferred tax asset of (i) Puerto Rico tax legislation approved in January 2011 lowering the effective tax rate and (ii) the increased earnings expectations for profitable Puerto Rican entities.

  • Doral's first quarter 2011 loan production was $350.1 million, largely flat compared to $349.8 million for the fourth quarter of 2010, and up from $289.1 million for the first quarter of 2010. The running quarter production mainly resulted from lower Puerto Rico residential mortgage loan production (down $30.6 million) as residential mortgage loan originations declined on the island, offset by a commercial loan production volume increase of $36.3 million, largely due to new lending by the Company's U.S. middle market syndicated lending unit, partially offset by decreases in construction and multifamily loan originations.

  • Doral reported total assets as of March 31, 2011 of $8.5 billion compared to $8.6 billion as of December 31, 2010 and $9.7 billion as of March 31, 2010. The Company strategically decreased its investment securities portfolio and borrowings since March 2010 as part of its interest rate risk management strategies.

  • Total deposits of $4.5 billion as of March 31, 2011, decreased $132.2 million, or 2.9%, from deposits of $4.6 billion as of December 31, 2010. The deposit decrease resulted from a $122.1 million (5.2%) decrease in brokered deposits. At March 31, 2010, deposits totaled $4.6 billion. Since March 31, 2010, brokered deposits have decreased $460.1 million (17.1%).

  • Advances from FHLB were $865.4 million as of March 31, 2011, down $36.0 million (4.0%) from advances from FHLB of $901.4 million as of December 31, 2010.

  • Non-performing loans ("NPLs") as of March 31, 2011 were $571.5 million, a decrease of $54.9 million and $300.6 million from December 31, 2010 and March 31, 2010, respectively, as Doral continued to emphasize collections and restructures to optimize performance of the loan portfolio.

  • The Company's capital ratios continue to exceed the published well-capitalized standards established by the federal banking agencies with ratios of Tier 1 Leverage of 8.87%, Tier 1 Risk-based Capital of 13.54% and Total Risk-based Capital of 14.80%. The Leverage, Tier 1 and Total Risk-based Capital Ratios exceeded the well-capitalized standards by $325.4 million, $415.3 million and $264.5 million, respectively.



Doral Financial and Subsidiaries
Selected Financial Data

                                                 Quarters ended
                                     -------------------------------------
(Dollars in thousands, except share
 and per share data)                  Mar. 2011    Dec. 2010    Mar. 2010
                                     ------------ -----------  -----------
Selected Income Statement data:
  Interest income                    $     93,991 $    92,333  $   109,228
  Interest expense                         50,821      54,726       65,467
                                     ------------ -----------  -----------
  Net interest income                      43,170      37,607       43,761
  Provision for loan and lease
   losses                                   2,590      21,102       13,921
                                     ------------ -----------  -----------
  Net interest income after
   provision for loan and lease
   losses                                  40,580      16,505       29,840
  Non-interest income                      28,624      27,820       36,584
  Non-interest expense                     60,784      76,422       67,398
                                     ------------ -----------  -----------
  Income (loss) before taxes                8,420     (32,097)        (974)
  Income tax expense                        5,096       3,971        2,529
                                     ------------ -----------  -----------
  Net income (loss)                  $      3,324 $   (36,068) $    (3,503)
                                     ============ ===========  ===========
  Net income (loss) attributable to
   common shareholders               $        909 $   (38,483) $    21,218
                                     ============ ===========  ===========
  Net income (loss) per share        $       0.01 $     (0.30) $      0.34
                                     ============ ===========  ===========

Dividends accrued on preferred stock $      2,415 $     2,415  $     1,864
Preferred stock exchange premium     $          - $         -  $   (26,585)
Preferred shares outstanding at end
 of period                              5,811,391   5,811,391    5,811,391
Book value per common share          $       4.00 $      4.01  $      7.58
Weighted average common shares
 outstanding                          127,293,756 127,293,756   62,528,221
Common share outstanding at end of
 period                               127,293,756 127,293,756   67,283,370

Selected Balance Sheet Data:
  Total loans, net                   $  5,724,271 $ 5,784,188  $ 5,693,774
  Allowance for loan and lease
   losses                                 120,204     123,652      147,481
  Total investment securities (1)       1,461,392   1,550,094    2,143,936
  Servicing assets, net                   116,299     114,342      118,236
  Total assets                          8,464,096   8,646,354    9,712,888
  Deposits                              4,486,248   4,618,475    4,586,209
  Borrowings                            2,853,274   2,896,213    3,981,122
  Total liabilities                     7,603,391   7,784,159    8,850,537
  Preferred equity                        352,082     352,082      352,082
  Common equity                           508,623     510,113      510,269
  Total stockholders' equity              860,705     862,195      862,351
Selected Average Balance Sheet Data:
  Total loans                           5,865,592   5,916,549    5,839,194
  Total investment securities           1,588,310   1,498,631    2,925,437
  Interest earning assets               7,851,951   8,054,872    9,503,734
  Total assets                          8,530,595   8,792,810   10,192,660
  Deposits                              4,535,820   4,672,345    4,652,603
  Borrowings                            2,848,369   2,937,144    4,309,017
  Interest bearing liabilities          7,115,169   7,341,307    8,717,846
  Preferred equity                        352,082     352,082      409,797
  Common equity                           507,730     548,148      467,237
  Total stockholders' equity              859,812     900,230      877,034

(1) Excludes Federal Home Loan Bank of NY stock, at cost



Doral Financial and Subsidiaries
Selected Financial Data

                                                   Quarters ended
                                           -------------------------------
(Dollars in thousands, except share and
 per share data)                           Mar. 2011  Dec. 2010  Mar. 2010
                                           ---------  ---------  ---------
Selected Financial Ratios:
Performance:
  Net interest margin                           2.23%      1.85%      1.87%
  Return on average assets                      0.16%     -1.63%     -0.14%
  Return on average common equity*              0.73%    -27.85%     -4.66%
  Efficiency ratio                             91.16%    111.27%     99.93%
Capital:
  Leverage ratio                                8.87%      8.56%      8.43%
  Tier 1 risk-based capital ratio              13.54%     13.25%     13.83%
  Total risk-based capital ratio               14.80%     14.51%     15.09%
Asset quality:
  Non-performing loans                       571,548    626,475    872,168
  Non-performing assets                      777,952    851,820  1,004,340
  Allowance for loan and lease losses to
   period-end loans receivable                  2.17%      2.21%      2.68%
  Allowance for loan and lease losses to
   period-end loans receivable (excluding
   FHA/VA guaranteed loans and loans on
   savings deposits)                            2.24%      2.29%      2.76%
  Allowance for loan and lease losses plus
   partial charge-offs and discounts to
   loans receivable (excluding FHA/VA
   guaranteed loans and loans on savings
   deposits)                                    3.83%      3.92%      3.58%
  Allowance for loan and lease losses to
   non-performing loans (excluding NPLs
   held for sale)                              21.11%     19.82%     16.99%
  Allowance for loan and lease losses plus
   partial charge-offs and discounts to
   non-performing loans (excluding NPLs
   held for sale)                              36.09%     33.83%     22.21%
  Non-performing loans to total loans
   (excluding GNMA defaulted loans and
   FHA/VA guaranteed loans)                    10.36%     11.29%     15.87%
Other Non-GAAP Ratios:
  Tier 1 common equity to risk-weighted
   assets (2)                                   7.15%      6.95%      8.16%

*   Excluding the effect of the preferred stock exchange premium

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


FIRST QUARTER PERFORMANCE DISCUSSION
Income Statement

Net Interest Income

First Quarter 2011 vs. Fourth Quarter 2010 -- Net interest margin was up 38 basis points to 2.23%, compared to 1.85% for the fourth quarter of 2010 due to an improvement in net interest income of $5.6 million driven by an increase in interest income of $1.7 million and a decrease in interest expense of $3.9 million. The increase in interest income was driven by improved performance of the loan portfolio due to the decrease in delinquent loans, loss mitigation strategies that move non-performing loans to performing status and growth of the U.S. loan portfolio. The decrease in interest expense was due to a decrease in interest on advances from FHLB of $2.7 million that resulted from a decrease in average advances from FHLB of $37.0 million and from the exchange of $555 million of high rate advances from FHLB (with an average coupon of 4.1%) for a comparable amount of lower rate advances from FHLB (with an average coupon of 1.7%). There was also a decrease of $0.7 million on interest on deposits due to a decrease in average brokered deposits of $158.7 million driven primarily by the call of $128.5 million of callable brokered deposits, partially offset by an increase in average retail deposits of $21.3 million.

First Quarter 2011 vs. First Quarter 2010 -- Net interest margin increased 36 basis points to 2.23% for the quarter ended March 31, 2011 from 1.87% for the quarter ended March 31, 2010. A decrease of $0.6 million in net interest income was due to a decrease in interest income of $15.2 million and a decrease in interest expense of $14.6 million. The decrease in interest income was driven by lower average interest earning assets, primarily due to sales of mortgage backed securities during the second and third quarters of 2010. Average loans increased $26.4 million, or 0.5%, quarter over quarter and interest on loans decreased $1.4 million, or 1.7%. The decrease in interest income was only partially offset by a decrease in interest expense. A decrease in average interest-bearing deposits of $142.0 million, or 3.2%, was due to a decrease of $496.5 million, or 17.8% in brokered deposits partially offset by an increase in average retail deposits of $354.5 million, or 21.8%. Growth in retail deposits was due to the Company's efforts to capture deposits after the market consolidation in Puerto Rico in the second quarter of 2010, and the opening of branches in the U.S. mainland, were the drivers for the increase in interest on deposits of $0.2 million, or 0.7%. There were lower average borrowings of $1.5 billion and a reduction of interest on borrowings of $14.8 million during the first quarter of 2011 compared to the same period in 2010. The variance of interest on borrowings was also impacted by the exchange of advances from FHLB which resulted in a reduction in interest expense of approximately $2.7 million, as well as the call of high cost callable certificates of deposit and lowering of interest rates on deposits. Interest on notes payable increased $1.5 million primarily as a result of the $250.0 million debt issued under the CLO, a net funding source for Doral beginning in the third quarter of 2010, at a rate of three month LIBOR plus 1.85%.

Credit Quality and the Allowance for Loan and Lease Losses

Doral's investment securities and loans receivable are subject to credit risk. The Company has continued offering different loss mitigation alternatives to be able to reach more distressed borrowers that, coupled with increased resources allocated to collections, resulted in a reduction in non-performing loans during the quarter.

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
                                           -------------------------------
(In thousands)                             Mar. 2011  Dec. 2010  Mar. 2010
                                           ---------  ---------  ---------

Balance at beginning of period             $ 123,652  $ 119,263  $ 140,774
  Provision for loan and lease losses          2,590     21,102     13,921

    Total loans charged off                   (6,434)   (17,285)    (7,650)

    Total recoveries of loans previously
     charged off                                 396        572        436
                                           ---------  ---------  ---------
  Net charge-offs                             (6,038)   (16,713)    (7,214)
                                           ---------  ---------  ---------
Balance at end of period                   $ 120,204  $ 123,652  $ 147,481
                                           =========  =========  =========

Recoveries to charge-offs                       6.15%      3.31%      5.70%
Net charge-offs to average loans                0.11%      0.30%      0.13%
Provision to net charge-offs                   42.89%    126.26%    192.97%


The following tables summarize key credit quality information for the periods indicated:



Doral Financial and Subsidiaries
Loan Data
(In thousands)                     As of March 31, 2011
               -----------------------------------------------------------
                                              ALLL plus
                                                partial
                                              charge-offs
                                            and discounts   ALLL(2) as a %
                                            (1) as a % of         of
                                            --------------  --------------
                                            Loans
                                         Receivable         Loans
                 Loans                       (3)    NPLs  Receivable  NPLs
               Receivable NPLs(5)    ALLL    (6)   (4)(5)    (6)      (5)
               ---------- -------- -------- -----  -------  -----  -------

Consumer
  Residential
   mortgage    $3,543,208 $252,849 $ 54,016  2.37%   31.88%  1.52%   21.36%
  FHA/VA
   guaranteed
   residential
   mortgage       161,429        -        -    na       na     na       na
  Consumer         47,534      240    5,137 10.91% 2163.33% 10.81% 2140.42%
  Lease
   financing        3,724      311      428 11.49%  137.62% 11.49%  137.62%
  Loans on
   savings
   deposits         2,413        -        -    na       na     na       na
               ---------- -------- -------- -----  -------  -----  -------
    Total
     Consumer   3,758,308  253,400   59,581  2.49%   34.03%  1.66%   23.51%
Commercial
  Commercial
   real estate    680,582  186,970   23,956  6.43%   24.15%  3.52%   12.81%
  Commercial
   and
   industrial     666,352    2,789    6,025  0.90%  216.03%  0.90%  216.03%
  Construction
   and land       433,762  126,190   30,642 14.45%   53.95%  7.06%   24.28%
               ---------- -------- -------- -----  -------  -----  -------
    Total
     Commercial 1,780,696  315,949   60,623  6.48%   37.75%  3.40%   19.19%
               ---------- -------- -------- -----  -------  -----  -------
Total          $5,539,004 $569,349 $120,204  3.83%   36.09%  2.24%   21.11%
               ========== ======== ======== =====  =======  =====  =======

(1) Loans and NPL amounts are increased by the amount of partial
    charge-offs and discounts.
(2) Loans and NPL amounts are not increased by the amount of partial charge
    offs and discounts.
(3) Reflects partial charge-offs and credit related discounts on loans in
    the residential mortgage, commercial real estate and construction and
    land portfolios of $30.6 million, $21.2 million and $37.4 million,
    respectively.
(4) Reflects partial charge-offs and credit related discounts on loans in
    the residential mortgage, commercial real estate and construction and
    land portfolios of $26.5 million, $21.2 million and $37.4 million,
    respectively.
(5) Excludes $2.2 million non-performing loans classified as held for sale
    as of March 31, 2011.
(6) Excludes $161.4 million and $2.4 million of FHA/VA guaranteed loans and
    loans on savings deposits, respectively.




Doral Financial and Subsidiaries
Loan Data
(In thousands)                   As of December 31, 2010
               ------------------------------------------------------------
                                              ALLL plus
                                                partial
                                              charge-offs
                                            and discounts   ALLL(2) as a %
                                            (1) as a % of         of
                                            --------------  --------------
                                            Loans
                                         Receivable         Loans
                 Loans                       (3)    NPLs  Receivable  NPLs
               Receivable NPLs(5)    ALLL    (6)   (4)(5)    (6)      (5)
               ---------- -------- -------- -----  -------  -----  -------

Consumer
  Residential
   mortgage    $3,560,536 $278,359 $ 56,487  2.46%   31.77%  1.59%   20.29%
  FHA/VA
   guaranteed
   residential
   mortgage       187,473        -        -    na       na     na       na
  Consumer         51,520      404    5,756 11.22% 1431.68% 11.17% 1424.75%
  Lease
   financing        4,807      415      518 10.78%  124.82% 10.78%  124.82%
  Loans on
   savings
   deposits         2,860        -        -    na       na     na       na
               ---------- -------- -------- -----  -------  -----  -------
    Total
     Consumer   3,807,196  279,178   62,761  2.60%   33.94%  1.74%   22.48%
Commercial
  Commercial
   real estate    688,946  193,348   29,712  7.17%   26.33%  4.31%   15.37%
  Commercial
   and
   industrial     633,695    2,522    6,153  0.97%  243.97%  0.97%  243.97%
  Construction
   and land       458,734  148,737   25,026 12.79%   42.00%  5.46%   16.83%
               ---------- -------- -------- -----  -------  -----  -------
    Total
     Commercial 1,781,375  344,607   60,891  6.55%   34.68%  3.42%   17.67%
               ---------- -------- -------- -----  -------  -----  -------
Total          $5,588,571 $623,785 $123,652  3.92%   33.83%  2.29%   19.82%
               ========== ======== ======== =====  =======  =====  =======

(1) Loans and NPL amounts are increased by the amount of partial
    charge-offs and discounts.
(2) Loans and NPL amounts are not increased by the amount of partial charge
    offs and discounts.
(3) Reflects partial charge-offs and credit related discounts on loans in
    the residential mortgage, commercial real estate and construction and
    land portfolios of $32.0 million, $21.2 million and $38.6 million,
    respectively.
(4) Reflects partial charge-offs and credit related discounts on loans in
    the residential mortgage, commercial real estate and construction and
    land portfolios of $28.7 million, $21.2 million and $37.4 million,
    respectively.
(5) Excludes $2.7 million non-performing loans classified as held for sale
    as of December 31, 2010.
(6) Excludes $187.5 million and $2.9 million of FHA/VA guaranteed loans and
    loans on savings deposits, respectively.


The loans receivable portfolio decreased $49.6 million, or 0.9%, NPLs decreased $54.4 million, or 8.7% and the allowance for loan and lease losses decreased $3.4 million or 2.8% as of March 31, 2011 compared to December 31, 2010. Accordingly, the loans receivable and NPL coverage ratios (ALLL plus partial charge-offs and discounts as a percentage of loans receivable and NPLs, respectively) also decreased 9 basis points and 226 basis points, respectively over the same periods. The decrease in NPLs has been the most significant contributor to the decrease in the ALLL and in the related coverage ratios. Improvement in the performance of the portfolios has directly impacted the ALLL models as roll-rates and delinquency trends and probabilities of default improve. In addition, during the first quarter of 2011 the Company revised and updated its Collateral Price Index ("CPI").

The decrease in the loans receivable portfolio was driven by a decrease of $17.3 million in residential mortgage loans and $26.0 million in FHA/VA guaranteed residential mortgage loans due to prepayments, collections and sales and a decrease of $25.0 million in construction and land due to transfers of $13.8 million to OREO, partial charge-offs of $1.6 million and pay-downs of approximately $9.3 million. These decreases were partially offset by an increase of $32.7 million in the commercial and industrial portfolio primarily due to an increase in commercial loan production volume largely due to new lending by the Company's U.S. middle market syndicated lending unit.

Doral has focused on reducing its credit risk. Doral discontinued new construction lending in Puerto Rico in 2007, new commercial real estate and commercial and industrial lending in Puerto Rico in 2008, and significantly tightened its residential underwriting standards in 2009. The seasoned vintages characterizing Doral's exposures require smaller reserve increases.

Provision and Allowance for Loan and Lease Losses

The following tables summarize the effect of provisions and recoveries on the allowance for loan and lease losses by portfolio for the periods indicated:


Doral Financial and Subsidiaries
Allowance for Loan and Lease Losses

                                        For the quarters ended
                            -----------------------------------------------
(in thousands)                              March 31, 2011
                            -----------------------------------------------

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

Residential mortgage        $    56,487 $      755  $   (3,226) $    54,016
Consumer                          5,756        776      (1,395)       5,137
Lease financing                     518       (282)        192          428
Commercial real estate           29,712     (5,756)          -       23,956
Commercial and industrial         6,153       (109)        (19)       6,025
Construction and land            25,026      7,206      (1,590)      30,642

                            ----------- ----------  ----------  -----------
Total                       $   123,652 $    2,590  $   (6,038) $   120,204
                            =========== ==========  ==========  ===========



                                        For the quarters ended
                            -----------------------------------------------
(in thousands)                            December 31, 2010
                            -----------------------------------------------

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

Residential mortgage        $    57,507 $    6,229  $   (7,249) $    56,487
Consumer                          6,416      1,109      (1,769)       5,756
Lease financing                   1,044       (577)         51          518
Commercial real estate           23,692      6,050         (30)      29,712
Commercial and industrial         4,866      1,509        (222)       6,153
Construction and land            25,738      6,782      (7,494)      25,026

                            ----------- ----------  ----------  -----------
Total                       $   119,263 $   21,102  $  (16,713) $   123,652
                            =========== ==========  ==========  ===========



                                        For the quarters ended
                            -----------------------------------------------
(in thousands)                              March 31, 2010
                            -----------------------------------------------

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

Residential mortgage        $    51,814 $    6,609  $   (4,715) $    53,708
Consumer                          6,955      1,887      (1,924)       6,918
Lease financing                   1,383       (254)       (284)         845
Commercial real estate           21,883      3,068        (206)      24,745
Commercial and industrial         4,281        (74)       (175)       4,032
Construction and land            54,458      2,685          90       57,233

                            ----------- ----------  ----------  -----------
Total                       $   140,774 $   13,921  $   (7,214) $   147,481
                            =========== ==========  ==========  ===========


The ALLL decreased $3.4 million compared to December 31, 2010 due to net charge-offs of previously reserved loans of $6.0 million only partially offset by the $2.6 million provision. Doral's first quarter 2011 provision for loan and lease losses of $2.6 million was down $18.5 million from $21.1 million as of December 31, 2010, and down $11.3 million from $13.9 million as of March 31, 2010. In general, the decrease in the provision for loan and lease losses was due to additional provisions for loans individually evaluated for impairment partially offset by improved delinquency trends as a result of effective collection and loss mitigation strategies and refinements in the collateral price index. The $18.5 million decrease in the provision for loan and lease losses in the first quarter of 2011 compared to the fourth quarter of 2010 was due to the following:

  • The current provision for residential mortgage loans decreased $5.5 million due to a $2.4 million decrease in the provision driven cures in the loan portfolio as a result of loss mitigation programs. In the fourth quarter of 2010 there had been a $2.8 million provision related to loans entering the loss mitigation process.
  • The provision for commercial real estate loans decreased $11.8 million as a result of a release of $5.4 million of provisions related to refinements of the collateral price index compared to a provision of $2.6 million in the fourth quarter of 2010 ($8.0 million reduction), a $0.1 million provision for new loans individually measured for impairment compared to a $1.4 million provision in the previous quarter ($1.3 million reduction), a decrease of $1.4 million in provisions related to TDR loans, and in the fourth quarter of 2010 there was a provision of $1.2 million related to higher delinquencies while there was no corresponding provision in 2011 (a decrease of $1.2 million).
  • The provision for commercial and industrial loans decreased $1.6 million due to a $1.1 million decrease in provisions due to lower delinquency in the Puerto Rico portfolio and a $0.5 million decrease in the U.S. portfolio.
  • The $7.2 million provision for construction and land loans includes a $10.4 million provision for loans reviewed individually for impairment, comparable to the prior period and partially offset by improvements in performance of one large loan and enhancements to the methodology.

The provision for loan and lease losses for the first quarter of 2011 reflected a decrease of $11.3 million compared to the first quarter of 2010, primarily in the residential mortgage, consumer, and commercial real estate portfolios, partially offset by higher provisions in the construction and land portfolio.

Non-Performing Assets


Doral Financial and Subsidiaries
Non-performing assets


(Dollars in thousands)                  Mar. 2011   Dec. 2010   Mar. 2010
                                        ----------- ----------- -----------

Non-performing consumer, excluding
 FHA/VA
    Residential mortgage                $   253,172 $   278,675 $   407,057
    U.S. Residential mortgage                 1,770       2,166         199
                                        ----------- ----------- -----------
  Subtotal Residential mortgage             254,942     280,841     407,256
  Personal                                      221         374         481
  Revolving lines of credit                       2          21           -
  Lease financing receivable                    311         415         637
  Other consumer                                 17           9          30
                                        ----------- ----------- -----------
    Total non-performing consumer,
     excluding FHA/VA                       255,493     281,660     408,404

Non-performing commercial
  Commercial real estate                    187,076     193,556     157,443
    Construction and land                   124,580     147,127     282,803
    U.S. Construction and land                1,610       1,610      21,610
                                        ----------- ----------- -----------
  Subtotal Construction and land            126,190     148,737     304,413
  Commercial and industrial                   2,789       2,522       1,908
                                        ----------- ----------- -----------
Total non-performing commercial             316,055     344,815     463,764

                                        ----------- ----------- -----------
Total non-performing loans, excluding
 FHA/VA                                 $   571,548 $   626,475 $   872,168

  OREO                                      103,117      99,623      99,595
  U.S. OREO                                     650         650         750
                                        ----------- ----------- -----------
Subtotal OREO                               103,767     100,273     100,345
Non-performing FHA/VA guaranteed
 residential                                 99,357     121,305      31,682
Other non-performing assets                   3,204       3,692           -
Repossessed assets                               76          75         146
                                        ----------- ----------- -----------
Total non-performing assets             $   777,952 $   851,820 $ 1,004,341
                                        =========== =========== ===========

Loans past due 90 days or more and
 still accruing
  Consumer loans                         $    1,594 $     1,995 $     2,461
  Commercial and industrial                     588         560         806
  Residential mortgages                           -           -           -
  Government guaranteed residential
   mortgage loans                            21,599      31,508      76,443
                                        ----------- ----------- -----------
Total loans past due 90 days or more
 and still accruing                     $    23,781 $    34,063 $    79,710
                                        =========== =========== ===========


Non-performing loans ("NPLs") as of March 31, 2011 were $571.5 million, a decrease of $54.9 million and $300.6 million from December 31, 2010 and March 31, 2010, respectively. During the first quarter of 2011, there was a decrease in non-performing mortgage loans of $25.9 million and $152.3 million compared to December 31, 2010 and March 31, 2010, respectively, due primarily to strong collection efforts and loss mitigation strategies. Non-performing commercial loans decreased $28.8 million and $147.7 million when compared to December 31, 2010 and March 31, 2010, respectively. The decrease when compared to December 31, 2010 is due primarily to continued workout efforts. Non-performing construction and land portfolio decreased $22.5 million when compared to December 31, 2010 as a result of one large loan that was worked out and other large loans transferred to the OREO portfolio. Also, non-performing loans in this portfolio decreased by $178.2 million when compared to March 31, 2010 due to the sale of non-performing residential construction loans with an unpaid principal balance of approximately $138.0 million to a third party for $102.0 million during the third quarter of 2010, and a reduction in the U.S. portfolio of $20.0 million as one large loan was worked out.

Non-performing assets, including non-performing loans previously discussed, decreased by $73.9 million, or 8.7%, as of March 31, 2011 compared to December 31, 2010, and $226.4 million, or 22.5%, compared to March 31, 2010. The decrease in non-performing loans during the first quarter of 2011 compared to December 31, 2010 was complemented by a decrease in non-performing FHA/VA guaranteed loans of $21.9 million, but partially offset by an increase in OREO of $3.5 million, as a result of a large loan transferred to OREO from the construction portfolio and partially offset by sales of OREO properties during the quarter. Compared to March 31, 2010 the decrease in non-performing loans was partially offset by an increase in non-performing FHA/VA guaranteed loans of $67.7 million due in part to Doral's decision to repurchase FHA/VA guaranteed loans from GNMA securitizations in June 2010 as well as an increase in OREO of $3.4 million.

The significant improvement in non-performing assets quarter over quarter is due to the Company's continued emphasis on collections and loss mitigation strategies in order to optimize performance of its loan portfolio.

Non-Interest Income


Doral Financial and Subsidiaries
Non-Interest Income

                                                   Quarters ended
                                           -------------------------------
(In thousands)                             Mar. 2011  Dec. 2010  Mar. 2010
                                           ---------  ---------  ---------

Net other-than-temporary impairment losses $       -  $    (702) $ (13,259)

Net gain on mortgage loan sales and fees       2,520      3,935      2,566

  Net gain on securities held for trading      3,022      5,203        785
  (Loss) gain on IO valuation                   (451)        41        659
  (Loss) gain on MSR economic hedge             (523)      (399)     1,828
  (Loss) gain on derivatives                    (113)     1,157     (1,498)
                                           ---------  ---------  ---------
Net gain on trading activities                 1,935      6,002      1,774

Net gain (loss) on investment securities       2,853          -     26,414
Net loss on early repayment of debt                -     (2,087)      (476)

  Servicing income                             9,040      9,664      8,748
  Mark-to market adjustment of MSR              (140)    (2,558)    (2,004)
                                           ---------  ---------  ---------
Total servicing income (loss)                  8,900      7,106      6,744

  Retail banking fees                          7,007      7,313      7,143
  Insurance agency commissions                 2,223      5,475      2,380
  Other income                                 3,186        778      3,298
                                           ---------  ---------  ---------
Total commissions, fees and other income      12,416     13,566     12,821
                                           ---------  ---------  ---------
      Total non-interest income            $  28,624  $  27,820  $  36,584
                                           =========  =========  =========


First Quarter 2011 vs. Fourth Quarter 2010 and First Quarter 2010 -- Non-interest income of $28.6 million for the first quarter of 2011, reflected an increase of $0.8 million and a decrease of $8.0 million compared to non-interest income of $27.8 million and $36.6 million for the fourth and first quarters of 2010, respectively. The increase in non-interest income when compared to December 31, 2010 was due to:

  • Gains on mortgage loan sales and fees decreased $1.4 million due to a non-recurring sale of a portfolio of loans during the fourth quarter of 2010 and lower sales in the first quarter of 2011.
  • Gains from trading activities decreased $4.1 million driven by lower gains on sales of trading securities of $2.2 million, loss of $0.5 million on the IO value, higher loss on the MSR economic hedge of $0.1 million and higher derivative losses of $1.3 million.
  • A gain on sale of investments securities of $2.9 million related to the sale of $155.8 million of mortgage backed securities, while there were no sales in the fourth quarter of 2010.
  • A reduction in net loss on early repayment of debt of $2.1 million recorded in the fourth quarter of 2010, while there were no early debt repayments in the first quarter of 2011.
  • Servicing income reflected an increase of $1.8 million driven by an improvement in the mark-to-market adjustment of the MSR of $2.4 million partially offset by a reduction in servicing income of $0.6 million.
  • Commissions, fees and other income decreased $1.2 million due to the recognition of reimbursed fees from Doral Insurance Agency of $3.1 million which are realized annually in the fourth quarter of the year, partially offset by the recognition of a gain of $2.3 million on the redemption of shares of VISA, Inc.

The $8.0 million decrease in non-interest income compared to the first quarter of 2010 was due to:

  • An improvement of $13.3 million due to the recognition of an OTTI loss in the first quarter of 2010, while there was no impairment recognized in 2011.
  • Gain on sale of investment securities reflected a reduction of $23.4 million as the first quarter 2010 reflected a gain of $26.4 million related to the sale of $1.2 billion of MBS and other debt securities while the first quarter of 2011 reflected a gain of $2.9 million.
  • Servicing income increased $2.2 million related to an improvement in the mark to market adjustment of the MSR of $1.9 million and higher servicing fees of $0.3 million.

Non-Interest Expense


Doral Financial and Subsidiaries
Non-Interest Expense

                                                     Quarters ended
                                             ------------------------------
(In thousands)                               Mar. 2011 Dec. 2010 Mar. 2010
                                             --------- --------- ---------

Compensation and employee benefits           $  18,293 $  20,602 $  16,435
Professional services                            8,637    10,680    13,792
FDIC insurance expense                           4,356     4,173     5,191
Occupancy expenses                               4,340     5,096     3,981
Communication expenses                           4,004     4,573     3,944
EDP expenses                                     3,275     3,843     3,779
Depreciation and amortization                    3,203     3,254     3,147
Taxes, other than payroll and income taxes       2,876     3,202     2,564
Corporate insurance                              1,570     1,648     1,262
Foreclosure expenses                             1,370     2,159       449
Advertising                                        998     1,368     1,498
Office expenses                                    990     1,498     1,285
Recourse provision                                 241       533       367
Other                                            4,668     6,512     5,107
                                             --------- --------- ---------
                                                58,821    69,141    62,801
Other reserves and OREO:
  Loss on Lehman Brothers, Inc. claim
   receivable                                        -     1,540         -
  OREO lower of cost or market adjustments         768     2,374     3,914
  Loss (gain) on OREO sales                        210     1,955       (17)
  OREO other related expenses                      985     1,412       700
                                             --------- --------- ---------
                                                 1,963     7,281     4,597
                                             --------- --------- ---------
                                             $  60,784 $  76,422 $  67,398
                                             ========= ========= =========


First Quarter 2011 vs. Fourth Quarter 2010 and First Quarter 2010 -- First quarter 2011 non-interest expense of $60.8 million was down $15.6 million and $6.6 million compared to the fourth and first quarters of 2010, respectively. The decrease in non-interest expense for the first quarter of 2011 compared to the fourth quarter of 2010 was driven by:

  • Compensation and benefits declined $2.3 million due to lower severance costs of $1.7 million, lower temporary expenses of $0.5 million and lower salaries of $0.2 million.
  • Professional services declined $2.0 million due to a reduction in legal fees incurred.
  • Occupancy expenses declined $0.8 million due to an impairment charge taken in December 2010 of $0.5 million on a foreclosed property and lower rent expense of $0.3 million as the Company incurred higher costs of $0.5 million on early termination of leases during the fourth quarter of 2010 partially offset by higher rent expense in the U.S. operations of $0.2 million.
  • Communications expenses declined $0.5 million due primarily to lower ATH network fees due to higher transaction volume in the fourth quarter of 2010.
  • EDP expenses declined $0.6 million related to a reduction in technical consultant fees of $0.4 million and a reduction in core system outsourcing fees of $0.2 million.
  • Foreclosure expenses declined $0.8 million due to reduced credit costs as a result of improved collection efforts.
  • Office expenses declined $0.5 million due to a reduction in mailing and postage costs of $0.3 million and a reduction in card, checks and other office supplies of $0.2 million.
  • Other expenses declined $1.9 million driven by a non recurring expense of $1.1 million incurred in the fourth quarter of 2010 related to certain representation and warranty payments and reductions in other credit related reserves of $0.9 million.
  • Other reserves and OREO decreased $5.3 million due to a non recurring expense of $1.5 million in the fourth quarter of 2010 related to the loss on the sale and assignment to a third party of Doral's rights, title, and interest in and to its claims in the Lehman Brothers, Inc. Securities Investor Protection Corporation proceeding for the LBI claim receivable and a $3.8 million reduction in OREO expenses. The reduction in OREO losses is due to lower LOCOM adjustments as recent selling prices more closely approximate book value.

The $6.6 million decrease in non-interest expense in the first quarter of 2011 compared to the same period in 2010 resulted from the following:

  • Higher compensation and benefits of $1.9 million comprised of higher severance costs of $0.8 million, higher payroll tax and fringe benefits of $0.4 million and higher incentive and stock compensation of $0.7 million.
  • Lower professional services of $5.2 million due to a reduction in defense litigation costs of former company officers of $2.5 million, and lower legal fees of $1.3 million and other professional services of $1.2 million due to costs incurred in 2010 to facilitate the Company's preferred stock exchanges and the Company's unsuccessful effort to acquire failed banks in a an FDIC assisted transaction.
  • Lower FDIC insurance expense of $0.8 million.
  • OREO expenses declined $2.6 million as the Company changed its disposition strategy during 2010.

Income Tax Expense

First quarter 2011 reflected an income tax expense of $5.1 million compared with a $4.0 million and $2.5 million income tax expense in the fourth and first quarters of 2010, respectively. The tax expense for the first quarter of 2011 includes an expense of $3.3 million from the profitable operations of U.S. and Puerto Rico entities, and a net expense of $1.8 million resulting from the net effect on Doral's deferred tax asset of (i) lower tax rates included in the Puerto Rico tax legislation approved in January 2011, and (ii) the increased earnings expectations for profitable Puerto Rico entities.

On January 31, 2011, the Governor signed into law the Internal Revenue Code of 2011 ("2011 Code"). Under the provisions of the 2011 Code, the maximum statutory corporate income tax rate is 30% for years commenced after December 31, 2010 and ending before January 1, 2014. Notwithstanding, a corporation may elect to remain subject to the 1994 Puerto Rico Tax Code as amended ("1994 Code"), if it so elects by the time it files its income tax return for 2011. If such an election is made, it will be effective for 2011 and the next four succeeding years. The Company is evaluating the impact of the tax reform on its results of operations including the election to be taxed under the 1994 Code. Nevertheless, the Company recorded its deferred tax assets expected to reverse after 2015 at the 30% tax rate required for all taxable earnings beginning in 2016.

Balance Sheet

Doral's assets totaled $8.5 billion at March 31, 2011, compared to $8.6 billion at December 31, 2010. Total assets at March 31, 2011, when compared to December 31, 2010 were affected by a (i) decrease of $86.2 million in available for sale securities as part of the Company's interest rate risk management strategies, and (ii) a decrease of $63.4 million in gross loans.

Total liabilities were $7.6 billion at March 31, 2011, compared to $7.8 billion at December 31, 2010. Total liabilities as of March 31, 2011 were principally affected by a decrease in total deposits of $132.2 million and advances from FHLB of $36.1 million.

Loan Portfolio


Doral Financial and Subsidiaries
Loan Portfolio including loans held for sale at period-end

(in thousands)                                     Mar. 2011
                                     -------------------------------------
                                         PR           US          Total
                                     -----------  -----------  -----------
Consumer
  Residential mortgage               $ 3,436,709  $   106,499  $ 3,543,208
  FHA/VA guaranteed residential
   mortgage                              161,429            -      161,429
  Personal                                12,837            -       12,837
  Revolving lines of credit               16,954            -       16,954
  Credit cards                            16,780            -       16,780
  Lease financing receivable               3,724            -        3,724
  Loans on savings deposits                2,413            -        2,413
  Other consumer                             960            3          963
                                     -----------  -----------  -----------
    Total consumer                     3,651,806      106,502    3,758,308
Commercial
  Commercial real estate                 620,828       59,754      680,582
  Commercial and industrial               38,030      628,322      666,352
  Construction and land                  334,584       99,178      433,762
                                     -----------  -----------  -----------
    Total commercial                     993,442      787,254    1,780,696
                                     -----------  -----------  -----------
      Loans receivable, gross          4,645,248      893,756    5,539,004
Allowance for loan and lease losses     (114,768)      (5,436)    (120,204)
                                     -----------  -----------  -----------
Loans receivable, net                  4,530,480      888,320    5,418,800

Loans held for sale
  Conventional single family
   residential                           111,027          135      111,162
  FHA/VA guaranteed residential          167,246            -      167,246
  Commercial real estate                  27,063            -       27,063
                                     -----------  -----------  -----------
    Loans held for sale                  305,336          135      305,471
                                     -----------  -----------  -----------
Total loan portfolio, net            $ 4,835,816  $   888,455  $ 5,724,271
                                     ===========  ===========  ===========



(in thousands)                                     Dec. 2010
                                     -------------------------------------
                                         PR           US          Total
                                     -----------  -----------  -----------
Consumer
  Residential mortgage               $ 3,451,895  $   108,641    3,560,536
  FHA/VA guaranteed residential
   mortgage                              187,473            -      187,473
  Personal                                15,003            -       15,003
  Revolving lines of credit               17,810            -       17,810
  Credit cards                            17,719            -       17,719
  Lease financing receivable               4,807            -        4,807
  Loans on savings deposits                2,860            -        2,860
  Other consumer                             962           26          988
                                     -----------  -----------  -----------
   Total consumer                      3,698,529      108,667    3,807,196
Commercial
  Commercial real estate                 629,043       59,903      688,946
  Commercial and industrial               36,639      597,056      633,695
  Construction and land                  349,899      108,835      458,734
                                     -----------  -----------  -----------
   Total commercial                    1,015,581      765,794    1,781,375
                                     -----------  -----------  -----------
    Loans receivable, gross            4,714,110      874,461    5,588,571
Allowance for loan and lease losses     (117,821)      (5,831)    (123,652)
                                     -----------  -----------  -----------
Loans receivable, net                  4,596,289      868,630    5,464,919

Loans held for sale
  Conventional single family
   residential                           119,154          136      119,290
  FHA/VA guaranteed residential          172,216            -      172,216
  Commercial real estate                  27,763            -       27,763
                                     -----------  -----------  -----------
    Loans held for sale                  319,133          136      319,269
                                     -----------  -----------  -----------
Total loan portfolio, net            $ 4,915,422  $   868,766  $ 5,784,188
                                     ===========  ===========  ===========



(in thousands)                                     Mar. 2010
                                     -------------------------------------
                                         PR           US          Total
                                     -----------  -----------  -----------
Consumer
  Residential mortgage               $ 3,571,005  $    69,957  $ 3,640,962
  FHA/VA guaranteed residential
   mortgage                              165,766            -      165,766
  Personal                                22,200            -       22,200
  Revolving lines of credit               21,387            -       21,387
  Credit cards                            21,595            -       21,595
  Lease financing receivable              10,470            -       10,470
  Loans on savings deposits                3,059            -        3,059
  Other consumer                             644           16          660
                                     -----------  -----------  -----------
    Total consumer                     3,816,126       69,973    3,886,099
Commercial
  Commercial real estate                 674,366       54,006      728,372
  Commercial and industrial               40,011      305,780      345,791
  Construction and land                  442,414      102,818      545,232
                                     -----------  -----------  -----------
    Total commercial                   1,156,791      462,604    1,619,395
                                     -----------  -----------  -----------
      Loans receivable, gross          4,972,917      532,577    5,505,494
Allowance for loan and lease losses     (143,603)      (3,878)    (147,481)
                                     -----------  -----------  -----------
Loans receivable, net                  4,829,314      528,699    5,358,013

Loans held for sale
  Conventional single family
   residential                           123,365          140      123,505
  FHA/VA guaranteed residential          180,972            -      180,972
  Commercial real estate                  31,284            -       31,284
                                     -----------  -----------  -----------
    Loans held for sale                  335,621          140      335,761
                                     -----------  -----------  -----------
Total loan portfolio, net            $ 5,164,935  $   528,839  $ 5,693,774
                                     ===========  ===========  ===========


Doral's loan portfolio consists primarily of residential mortgage loans (68.2%), and approximately 89.5% of the total net loan portfolio is secured by real estate. The total net loan portfolio decreased $59.9 million compared to December 31, 2010 and increased $30.5 million compared to March 31, 2010. The decrease when compared to December 31, 2010 was mainly due to residential mortgage loans and mortgage loans held for sale. The increase when compared to March 31, 2010 is mostly related to participation in syndicated loans in the U.S. mainland.

Capital

Doral Financial's equity totaled $860.7 million at March 31, 2011, compared to $862.2 million at December 31, 2010. The Company reported accumulated other comprehensive income (net of tax) ("OCI") of $1.1 million as of March 31, 2011, compared to accumulated other comprehensive income (net of tax) of $4.2 million as of December 31, 2010.

The Company's regulatory prescribed capital ratios exceed the published well capitalized standards established in banking regulation. As of March 31, 2011 the Tier 1 Leverage, Tier 1 Risk-based Capital and Total Risk-based Capital ratios were 8.87%, 13.54% and 14.80%, respectively which represents approximately $325.4 million, $415.3 million and $264.5 million of 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

                                         Mar. 2011   Dec. 2010   Mar. 2010
                                         ---------   ---------   ---------

Tier 1 leverage                               8.87%       8.56%       8.43%
Tier 1 risk-based capital                    13.54%      13.25%      13.83%
Total risk-based capital                     14.80%      14.51%      15.09%

Tier 1 common equity *                        7.15%       6.95%       8.16%

* 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)                           Mar. 2011   Dec. 2010   Mar. 2010
                                         ---------   ---------   ---------

Stockholders' equity                     $ 860,705   $ 862,195   $ 862,351
(Less) plus: net unrealized (gains)
 losses on available for sale
 securities, net of tax                     (1,104)     (4,163)    118,824
Less: preferred stock                     (352,082)   (352,082)   (352,082)
Less: disallowed intangible assets         (16,561)    (16,440)    (17,055)
Less: disallowed deferred tax assets       (97,122)   (101,205)   (105,127)
                                         ---------   ---------   ---------
Total Tier 1 common equity               $ 393,836   $ 388,305   $ 506,911
                                         =========   =========   =========


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, and subject to the protection 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, 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, regulatory matters 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, but instead represents Doral Financial's current expectations regarding future events. Such statements may be 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," "predict," "forecast," "anticipate," "target," "goal," "may" or words of similar meaning 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 and changes in circumstances, many of which are beyond Doral Financial's control. 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 Annual Report on Form 10-K for the year ended December 31, 2010 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 US") with operations in the New York metropolitan area and since September 2010 in the northwest region of Florida, 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 and middle market syndicated lending primarily 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 Money consolidates two variable interest entities created for the purpose of entering into a collateralized loan arrangement with a third party.

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)                        Mar. 2011    Dec. 2010    Mar. 2010
                                     -----------  -----------  -----------
Assets
  Cash and due from banks            $   333,005  $   355,819  $   312,190
  Interest-earning assets                153,520      156,607       48,772
  Investment securities:
    Trading securities, at fair value     42,560       45,029       44,600
    Available for sale securities, at
     fair value                        1,418,832    1,505,065    2,099,336
    Federal Home Loan Bank of NY
     (FHLB) stock, at cost                77,412       78,087      110,354
                                     -----------  -----------  -----------
      Total investment securities      1,538,804    1,628,181    2,254,290
                                     -----------  -----------  -----------
  Loans held for sale, at lower of
   cost or market                        305,471      319,269      335,761
  Loans held for investment            5,539,004    5,588,571    5,505,494
  Allowance for loan and lease
   losses                               (120,204)    (123,652)    (147,481)
                                     -----------  -----------  -----------
      Total loans, net of allowance
       for loan and lease losses       5,724,271    5,784,188    5,693,774
                                     -----------  -----------  -----------
  Accounts Receivable                     31,422       28,704      123,929
  Mortgage-servicing advances             48,127       51,462       30,361
  Accrued interest receivable             38,961       38,774       41,603
  Servicing assets, net                  116,299      114,342      118,236
  Premises and equipment, net            104,176      104,053       99,768
  Real estate held for sale, net         103,767      100,273      100,345
  Deferred tax asset                     103,701      105,712      131,477
  Trade date receivables                      37            -      587,493
  Other assets                           168,006      178,239      170,650
                                     -----------  -----------  -----------
      Total Assets                   $ 8,464,096  $ 8,646,354  $ 9,712,888
                                     ===========  ===========  ===========
Liabilities
  Deposits:
    Non-interest-bearing
     deposits                        $   265,214  $   258,230  $   225,270
    Interest-bearing deposits          1,983,913    2,000,991    1,663,764
    Brokered deposits                  2,237,121    2,359,254    2,697,175
                                     -----------  -----------  -----------
      Total deposits                   4,486,248    4,618,475    4,586,209
                                     -----------  -----------  -----------
  Securities sold under agreements
   to repurchase                       1,176,800    1,176,800    1,909,000
  Advances from FHLB                     865,363      901,420    1,472,920
  Loans payable                          298,598      304,035      329,706
  Notes payable                          512,513      513,958      269,496
  Accrued expenses and other
   liabilities                           263,869      269,471      283,206
                                     -----------  -----------  -----------
      Total liabilities                7,603,391    7,784,159    8,850,537
                                     -----------  -----------  -----------
Stockholders' equity
  Preferred stock                        352,082      352,082      352,082
  Common stock                             1,273        1,273          673
  Additional paid-in capital           1,219,940    1,219,280    1,047,387
  Legal surplus                           23,596       23,596       23,596
  Accumulated deficit                   (737,290)    (738,199)    (442,563)
  Accumulated other comprehensive
   income (loss), net of tax               1,104        4,163     (118,824)
                                     -----------  -----------  -----------
      Total stockholders' equity         860,705      862,195      862,351
                                     -----------  -----------  -----------
      Total liabilities and
       stockholders' equity          $ 8,464,096  $ 8,646,354  $ 9,712,888
                                     ===========  ===========  ===========


Contact Information

  • For more information contact:

    Investor Relations:
    Christopher Poulton
    EVP
    Email Contact
    212-329-3794

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