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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 001-31579
 DORAL FINANCIAL CORPORATION
  Puerto Rico
    
    66-0312162(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification number)1451 F.D. Roosevelt Avenue,San Juan, Puerto Rico
    
    00920-2717(Address of principal executive offices)
    
    (Zip Code)
   
  þ o
  o o
  Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer þ
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



DORAL FINANCIAL CORPORATION
INDEX PAGE
 PAGEPART I  FINANCIAL INFORMATIONItem 1  Financial StatementsConsolidated Statements of Financial Condition (Unaudited) as of September 30, 2010 and December
31, 2009
    
    
    3Consolidated Statements of Operations (Unaudited)  Quarters and nine month periods ended
September 30, 2010 and September 30, 2009
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)  For the nine month
periods ended September 30, 2010 and September 30, 2009
    
    
    5Consolidated Statements of Comprehensive Income (Loss) (Unaudited)  Quarters and nine month
periods ended September 30, 2010 and September 30, 2009
    
    
    6Consolidated Statements of Cash Flows (Unaudited)  For the nine month periods ended September 30,
2010 and September 30, 2009
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    64Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    114Item 4  Controls and Procedures
    
    
    114PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    115Item 1A  Risk Factors
    
    
    115Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    115Item 3  Defaults Upon Senior Securities
    
    
    115Item 4  Removed and Reserved
    
    
    115Item 5  Other Information
    
    
    115Item 6  Exhibits
    
    
    115SIGNATURESEX-12.1EX-12.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION  (UNAUDITED)
 September 30,
    
    
    December 31,(Dollars in thousands, except for share data)
    
    2010
    
    
    2009AssetsCash and due from banks
    
    $
    594,636
    
    
    $
    725,277Other interest-earning assets
    
    
    262,609
    
    
    
    95,000Securities held for trading, at fair value
    
    
    47,291
    
    
    
    47,726Securities available for sale, at fair value (includes $854,737 and $1,402,906 pledged as collateral at September 30, 2010 and
December 31, 2009, respectively, that may be repledged)
    
    
    1,510,692
    
    
    
    2,789,177Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    83,577
    
    
    
    126,285Total investment securities
    
    
    1,641,560
    
    
    
    2,963,188Loans:Loans held for sale, at lower of cost or market
    
    
    323,748
    
    
    
    320,930Loans receivable
    
    
    5,636,621
    
    
    
    5,516,891Less: Unearned interest
    
    
    (395
    )
    
    
    (1,083
    )Less: Allowance for loan and lease losses
    
    
    (119,263
    )
    
    
    (140,774
    )Total net loans receivable
    
    
    5,516,963
    
    
    
    5,375,034Total loans, net
    
    
    5,840,711
    
    
    
    5,695,964Accounts receivable
    
    
    37,141
    
    
    
    60,478Mortgage-servicing advances
    
    
    43,978
    
    
    
    19,592Accrued interest receivable
    
    
    38,972
    
    
    
    41,866Servicing assets, net
    
    
    113,834
    
    
    
    118,493Premises and equipment, net
    
    
    102,141
    
    
    
    101,437Real estate held for sale, net
    
    
    101,683
    
    
    
    94,219Deferred tax asset (DTA)
    
    
    104,118
    
    
    
    131,201Other assets
    
    
    194,719
    
    
    
    185,237Total assets
    
    $
    9,076,102
    
    
    $
    10,231,952LiabilitiesDeposits:Non-interest-bearing deposits
    
    $
    246,261
    
    
    $
    353,516Other retail interest-bearing deposits
    
    
    1,953,607
    
    
    
    1,637,096Brokered certificate of deposits
    
    
    2,561,221
    
    
    
    2,652,409Total deposits
    
    
    4,761,089
    
    
    
    4,643,021Securities sold under agreements to repurchase
    
    
    1,326,800
    
    
    
    2,145,262Advances from FHLB
    
    
    973,420
    
    
    
    1,606,920Other short-term borrowings
    
    
    
    
    
    
    110,000Loans payable
    
    
    309,819
    
    
    
    337,036Notes payable
    
    
    516,070
    
    
    
    270,838Accrued expenses and other liabilities
    
    
    274,559
    
    
    
    243,831Total liabilities
    
    
    8,161,757
    
    
    
    9,356,908Commitments and contingencies (Please refer to Note 25 and 26)Stockholders EquityPreferred stock, $1 par value; 40,000,000 shares authorized; 5,811,391 shares issued and outstanding, at aggregate liquidation
preference value at September 30, 2010 (7,500,850 shares issued and outstanding, at aggregate liquidation preference value at
December 31, 2009):Perpetual noncumulative nonconvertible preferred stock (Series A, B and C)
    
    
    148,700
    
    
    
    197,388Perpetual cumulative convertible preferred stock
    
    
    203,382
    
    
    
    218,040Common stock, $0.01 par value; 300,000,000 shares authorized; 127,293,756 shares issued and outstanding at September 30, 2010
(97,500,000 shares authorized and 62,064,304 shares issued and outstanding at December 31, 2009)
    
    
    1,273
    
    
    
    621Additional paid-in capital
    
    
    1,218,562
    
    
    
    1,010,661Legal surplus
    
    
    23,596
    
    
    
    23,596Accumulated deficit
    
    
    (699,716
    )
    
    
    (463,781
    )Accumulated other comprehensive income (loss), net of income tax expense of $4,013 and a benefit of $18,328 at September 30,
2010 and December 31, 2009, respectively
    
    
    18,548
    
    
    
    (111,481
    )Total stockholders equity
    
    
    914,345
    
    
    
    875,044Total liabilities and stockholders equity
    
    $
    9,076,102
    
    
    $
    10,231,952
  3




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  (UNAUDITED)
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands, except for share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income:Loans
    
    $
    79,518
    
    
    $
    78,653
    
    
    $
    239,867
    
    
    $
    241,486Mortgage-backed securities (MBS)
    
    
    16,266
    
    
    
    30,026
    
    
    
    58,055
    
    
    
    84,663Interest-only strips (IOs)
    
    
    1,580
    
    
    
    1,347
    
    
    
    4,614
    
    
    
    4,550Investment securities
    
    
    74
    
    
    
    1,580
    
    
    
    1,522
    
    
    
    9,252Other interest-earning assets
    
    
    1,445
    
    
    
    1,797
    
    
    
    5,130
    
    
    
    4,524Total interest income
    
    
    98,883
    
    
    
    113,403
    
    
    
    309,188
    
    
    
    344,475Interest expense:Deposits
    
    
    28,920
    
    
    
    28,615
    
    
    
    83,207
    
    
    
    97,694Securities sold under agreements to repurchase
    
    
    11,372
    
    
    
    17,770
    
    
    
    43,134
    
    
    
    52,483Advances from FHLB
    
    
    10,961
    
    
    
    15,778
    
    
    
    37,855
    
    
    
    47,780Other short-term borrowings
    
    
    
    
    
    
    227
    
    
    
    15
    
    
    
    1,069Notes payable
    
    
    6,695
    
    
    
    5,178
    
    
    
    16,891
    
    
    
    15,607Loans payable
    
    
    1,764
    
    
    
    2,226
    
    
    
    5,089
    
    
    
    8,073Total interest expense
    
    
    59,712
    
    
    
    69,794
    
    
    
    186,191
    
    
    
    222,706Net interest income
    
    
    39,171
    
    
    
    43,609
    
    
    
    122,997
    
    
    
    121,769Provision for loan and lease losses
    
    
    19,335
    
    
    
    4,879
    
    
    
    77,873
    
    
    
    38,637Net interest income after provision for loan and lease losses
    
    
    19,836
    
    
    
    38,730
    
    
    
    45,124
    
    
    
    83,132Non-interest income (loss):Total other-than-temporary impairment (OTTI) losses
    
    
    
    
    
    
    (72,930
    )
    
    
    (46,912
    )
    
    
    (108,169
    )Portion of loss recognized in other comprehensive income (before taxes)
    
    
    
    
    
    
    65,620
    
    
    
    33,653
    
    
    
    94,064Net credit related OTTI losses
    
    
    
    
    
    
    (7,310
    )
    
    
    (13,259
    )
    
    
    (14,105
    )Net gain (loss) on trading activities
    
    
    8,765
    
    
    
    6,472
    
    
    
    19,435
    
    
    
    (6,652
    )Net gain on mortgage loan sales and fees
    
    
    302
    
    
    
    2,637
    
    
    
    4,679
    
    
    
    7,654Servicing income (net of mark-to-market adjustments)
    
    
    8,410
    
    
    
    11,950
    
    
    
    13,800
    
    
    
    23,135Net loss on early repayment of debt
    
    
    (2,641
    )
    
    
    
    
    
    
    (5,662
    )
    
    
    Net gain (loss) on investment securities
    
    
    17,077
    
    
    
    1,024
    
    
    
    (93,713
    )
    
    
    5,821Commissions, fees and other income
    
    
    9,797
    
    
    
    12,115
    
    
    
    32,824
    
    
    
    31,749Total non-interest income (loss)
    
    
    41,710
    
    
    
    26,888
    
    
    
    (41,896
    )
    
    
    47,602Non-interest expenses:Compensation and benefits
    
    
    17,728
    
    
    
    14,459
    
    
    
    54,478
    
    
    
    53,110Professional services
    
    
    14,010
    
    
    
    7,252
    
    
    
    43,222
    
    
    
    20,770FDIC insurance expense
    
    
    4,895
    
    
    
    5,468
    
    
    
    15,660
    
    
    
    13,549Communication expenses
    
    
    4,446
    
    
    
    4,208
    
    
    
    12,446
    
    
    
    12,621Occupancy expenses
    
    
    4,259
    
    
    
    3,788
    
    
    
    12,562
    
    
    
    10,703EDP expenses
    
    
    3,697
    
    
    
    3,968
    
    
    
    10,354
    
    
    
    10,751Depreciation and amortization
    
    
    3,178
    
    
    
    3,086
    
    
    
    9,435
    
    
    
    9,756Taxes, other than payroll and income taxes
    
    
    2,820
    
    
    
    2,567
    
    
    
    7,975
    
    
    
    7,478Recourse Provision
    
    
    2,149
    
    
    
    1,124
    
    
    
    3,406
    
    
    
    3,159Advertising
    
    
    1,978
    
    
    
    1,806
    
    
    
    7,549
    
    
    
    4,678Office expenses
    
    
    1,595
    
    
    
    1,430
    
    
    
    3,992
    
    
    
    4,099Corporate Insurance
    
    
    1,490
    
    
    
    1,210
    
    
    
    4,016
    
    
    
    3,403Other
    
    
    7,458
    
    
    
    5,674
    
    
    
    17,258
    
    
    
    15,46569,703
    
    
    
    56,040
    
    
    
    202,353
    
    
    
    169,542Other reserves and OREO:Reserve on Lehman Brothers, Inc. (LBI) claim receivable
    
    
    
    
    
    
    
    
    
    
    10,819
    
    
    
    Other real estate owned (OREO) lower of cost or market adjustments
    
    
    2,935
    
    
    
    3,503
    
    
    
    29,207
    
    
    
    5,423Loss (gain) on sales of OREO
    
    
    2,905
    
    
    
    (589
    )
    
    
    2,966
    
    
    
    (1,068
    )OREO other related expenses
    
    
    1,119
    
    
    
    310
    
    
    
    2,797
    
    
    
    1,3196,959
    
    
    
    3,224
    
    
    
    45,789
    
    
    
    5,674Total non-interest expenses
    
    
    76,662
    
    
    
    59,264
    
    
    
    248,142
    
    
    
    175,216Loss (income) before income taxes
    
    
    (15,116
    )
    
    
    6,354
    
    
    
    (244,914
    )
    
    
    (44,482
    )Income tax expense (benefit)
    
    
    3,896
    
    
    
    (6,855
    )
    
    
    10,912
    
    
    
    (19,617
    )Net (loss) income
    
    $
    (19,012
    )
    
    $
    13,209
    
    
    $
    (255,826
    )
    
    $
    (24,865
    )Net (loss) income attributable to common shareholders(1)
    
    $
    (21,427
    )
    
    $
    10,000
    
    
    $
    (235,935
    )
    
    $
    (30,091
    )Net (loss) income per common share(1)(2)
    
    $
    (0.19
    )
    
    $
    0.17
    
    
    $
    (2.92
    )
    
    $
    (0.54
    )
 
 (1)
    
    For the quarters and nine month periods ended September 30, 2010 and 2009, net
income (loss) per common share represents the basic and diluted loss per common share,
respectively, for each of the periods presented. Please refer to Note 29 for additional
information regarding net income (loss) attributable to common shareholders.(2)
    
    For the nine month periods ended September 30, 2010 and 2009, net income (loss) per
common share included $26.6 million and $9.4 million, respectively, related to the effect of
the preferred stock exchange. Please refer to Note 29 for additional information.  4




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  (UNAUDITED)
 Nine Month Periods EndedSeptember 30,(In thousands)
    
    2010
    
    
    2009Preferred Stock:Balance at beginning of period
    
    $
    415,428
    
    
    $
    573,250Preferred
stock issued (mandatorily convertible)
    
    
    171,000
    
    
    
    Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    (48,687
    )
    
    
    (30,862
    )Cumulative convertible
    
    
    (14,659
    )
    
    
    (74,747
    )Mandatorily convertible
    
    
    (171,000
    )
    
    
    Balance at end of period
    
    
    352,082
    
    
    
    467,641Common Stock:Balance at beginning of period
    
    
    621
    
    
    
    538Common stock issued/converted:Noncumulative nonconvertible
    
    
    40
    
    
    
    14Cumulative convertible
    
    
    12
    
    
    
    26Mandatorily convertible
    
    
    600
    
    
    
    Balance at end of period
    
    
    1,273
    
    
    
    578Additional Paid-In Capital:Balance at beginning of period
    
    
    1,010,661
    
    
    
    849,172Stock-based compensation recognized
    
    
    792
    
    
    
    76Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    17,010
    
    
    
    5,697Cumulative convertible
    
    
    19,699
    
    
    
    85,530Mandatorily convertible
    
    
    170,400
    
    
    
    Balance at end of period
    
    
    1,218,562
    
    
    
    940,475Legal Surplus
    
    
    23,596
    
    
    
    23,596Accumulated Deficit:Balance at beginning of period
    
    
    (463,781
    )
    
    
    (418,168
    )Net loss
    
    
    (255,826
    )
    
    
    (24,865
    )Dividends accrued on preferred stock
    
    
    (6,694
    )
    
    
    (6,270
    )Cash dividends paid on preferred stock
    
    
    
    
    
    
    (8,325
    )Effect of conversion of preferred stock:Noncumulative nonconvertible
    
    
    31,637
    
    
    
    23,917Cumulative convertible
    
    
    (5,052
    )
    
    
    (14,548
    )Balance at end of period
    
    
    (699,716
    )
    
    
    (448,259
    )Accumulated Other Comprehensive Income (Loss), Net of Tax:Balance at beginning of period
    
    
    (111,481
    )
    
    
    (123,217
    )Other comprehensive income, net of deferred tax
    
    
    130,029
    
    
    
    19,306Balance at end of period
    
    
    18,548
    
    
    
    (103,911
    )Total stockholders equity
    
    $
    914,345
    
    
    $
    880,120
  5




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##### Table of Contents



DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME  (UNAUDITED)
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income
    
    $
    (19,012
    )
    
    $
    13,209
    
    
    $
    (255,826
    )
    
    $
    (24,865
    )Other comprehensive (loss) income, before tax:Unrealized gains on securities arising during the period
    
    
    7,302
    
    
    
    107,664
    
    
    
    79,720
    
    
    
    106,190Non-credit portion of OTTI losses
    
    
    
    
    
    
    (65,620
    )
    
    
    (33,653
    )
    
    
    (94,064
    )Reclassification of net realized losses (gains) included in net (loss)
income
    
    
    (19,299
    )
    
    
    (174
    )
    
    
    102,873
    
    
    
    5,590Other comprehensive (loss) income on investment securities, before tax
    
    
    (11,997
    )
    
    
    41,870
    
    
    
    148,940
    
    
    
    17,716Income tax benefit (expense) related to investment securities
    
    
    1,800
    
    
    
    (6,280
    )
    
    
    (22,341
    )
    
    
    (2,657
    )Other comprehensive (loss) income on investment securities, net of tax
    
    
    (10,197
    )
    
    
    35,590
    
    
    
    126,599
    
    
    
    15,059Other comprehensive income on cash flow hedges(1)
    
    
    278
    
    
    
    654
    
    
    
    3,430
    
    
    
    4,247Other comprehensive (loss) income
    
    
    (9,919
    )
    
    
    36,244
    
    
    
    130,029
    
    
    
    19,306Comprehensive (loss) income
    
    $
    (28,931
    )
    
    $
    49,453
    
    
    $
    (125,797
    )
    
    $
    (5,559
    )Accumulated other comprehensive income (loss), net of taxOther comprehensive income (loss) on investment securities
    
    $
    26,093
    
    
    $
    (15,974
    )
    
    $
    26,093
    
    
    $
    (15,974
    )Other comprehensive losses on investment securities on which OTTI has been recognized
    
    
    (3,351
    )
    
    
    (78,497
    )
    
    
    (3,351
    )
    
    
    (78,497
    )Total other comprehensive income (loss) on investment securities
    
    
    22,742
    
    
    
    (94,471
    )
    
    
    22,742
    
    
    
    (94,471
    )Other comprehensive loss on cash flow hedge(1)
    
    
    (4,194
    )
    
    
    (9,440
    )
    
    
    (4,194
    )
    
    
    (9,440
    )Total accumulated other comprehensive income (loss), net of tax
    
    $
    18,548
    
    
    $
    (103,911
    )
    
    $
    18,548
    
    
    $
    (103,911
    )
 
 (1)
    
    For the quarters and nine month periods ended September 30, 2010 and 2009,
other comprehensive loss on cash flow hedges includes $1.6 million and $3.7 million related to
a deferred tax asset valuation allowance.  6




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##### Table of Contents



DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)
 Nine Month Periods Ended September 30,(In thousands)
    
    2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (255,826
    )
    
    $
    (24,865
    )Adjustments to reconcile net loss to net cash provided by operating activities:Stock-based compensation
    
    
    792
    
    
    
    76Depreciation and amortization
    
    
    9,435
    
    
    
    9,756Mark-to-market adjustment of servicing assets
    
    
    9,529
    
    
    
    2,499Deferred tax expense (benefit)
    
    
    6,200
    
    
    
    (7,260
    )Provision for loan and lease losses
    
    
    77,873
    
    
    
    38,637Provision for claim receivable
    
    
    10,819
    
    
    
    Net premium amortization (discount accretion) on loans, investment securities and debt
    
    
    12,991
    
    
    
    3,304Origination and purchases of loans held for sale
    
    
    (283,366
    )
    
    
    (346,546
    )Principal repayments and sales of loans held for sale
    
    
    184,591
    
    
    
    184,280Loss (gain) on sale of securities
    
    
    87,003
    
    
    
    (10,700
    )Net OTTI losses
    
    
    13,259
    
    
    
    14,105Net loss on early repayment of liabilities
    
    
    5,662
    
    
    
    Unrealized loss on trading securities
    
    
    152
    
    
    
    16,279Purchases of securities held for trading
    
    
    
    
    
    
    (200,042
    )Principal repayment and sales of securities held for trading
    
    
    255,859
    
    
    
    701,548Amortization and net gain in the fair value of IOs
    
    
    (822
    )
    
    
    3,099Unrealized loss on derivative instruments
    
    
    1,455
    
    
    
    233Increase in derivative instruments
    
    
    (2,068
    )
    
    
    Decrease (increase) in accounts receivable
    
    
    12,518
    
    
    
    (2,244
    )Increase in mortgage servicing advances
    
    
    (24,386
    )
    
    
    (3,913
    )Decrease in accrued interest receivable
    
    
    2,894
    
    
    
    834(Increase) decrease in other assets
    
    
    (144,588
    )
    
    
    13,485Increase (decrease) in accrued expenses and other liabilities
    
    
    121,096
    
    
    
    (19,625
    )Total adjustments
    
    
    356,898
    
    
    
    397,805Net cash provided by operating activities
    
    
    101,072
    
    
    
    372,940Cash flows from investing activities:Purchases of securities available for sale
    
    
    (1,430,684
    )
    
    
    (2,248,504
    )Principal repayment and sales of securities available for sale
    
    
    2,736,302
    
    
    
    2,306,809Decrease (increase) in FHLB stock
    
    
    42,708
    
    
    
    (8,347
    )Originations, purchases and repurchases of loans receivable
    
    
    (901,691
    )
    
    
    (487,530
    )Principal repayment of loans receivable
    
    
    362,231
    
    
    
    213,549Proceeds from sales of servicing assets
    
    
    192
    
    
    
    159Purchases of premises and equipment
    
    
    (10,078
    )
    
    
    (7,893
    )Proceeds from sales of real estate held for sale
    
    
    23,755
    
    
    
    28,814Net cash provided by investing activities
    
    
    822,735
    
    
    
    (202,943
    )Cash flows from financing activities:Increase (decrease) in deposits
    
    
    118,068
    
    
    
    (187,458
    )(Decrease) increase in securities sold under agreements to repurchase
    
    
    (824,124
    )
    
    
    192,815Proceeds from advances from FHLB
    
    
    725,000
    
    
    
    427,000Repayment of advances from FHLB
    
    
    (1,358,500
    )
    
    
    (443,480
    )Proceeds from other short-term borrowings
    
    
    345,000
    
    
    
    2,776,000Repayment of other short-term borrowings
    
    
    (455,000
    )
    
    
    (2,862,600
    )Repayment of secured borrowings
    
    
    (27,217
    )
    
    
    (21,312
    )Proceeds from notes payable
    
    
    249,817
    
    
    
    Repayment of notes payable
    
    
    (4,846
    )
    
    
    (4,492
    )Issuance of common stock
    
    
    171,000
    
    
    
    Payment associated with conversion of preferred stock
    
    
    
    
    
    
    (4,972
    )Dividends paid
    
    
    
    
    
    
    (8,325
    )Net cash used in financing activities
    
    
    (1,060,802
    )
    
    
    (136,824
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (136,995
    )
    
    $
    33,173Cash and cash equivalents at beginning of period
    
    
    725,277
    
    
    
    187,517Cash and cash equivalents at the end of period
    
    $
    588,282
    
    
    $
    220,690Cash and cash equivalents includes:Cash and due from banks
    
    $
    588,252
    
    
    $
    220,690Other interest-earning assets
    
    
    
    
    
    
    $
    588,252
    
    
    $
    220,690Supplemental schedule of non-cash activities:Loan securitizations
    
    $
    249,148
    
    
    $
    318,496Loans foreclosed
    
    $
    71,597
    
    
    $
    67,638Capitalization of servicing assets
    
    $
    5,062
    
    
    $
    5,220Reclassification of loans held for investment portfolio to the held for sale portfolio
    
    $
    95,648
    
    
    $
    Reclassification of loans held for sale portfolio to the held for investment portfolio
    
    $
    210
    
    
    $
    Supplemental information for cash flows:Cash used to pay interest
    
    $
    190,677
    
    
    $
    235,373Cash used to pay income taxes
    
    $
    2,517
    
    
    $
    2,865
  7




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##### Table of Contents



DORAL FINANCIAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Nature of Operations and Basis of Presentation
    
    
    9Note 2  Recent Accounting Pronouncements
    
    
    10Note 3  Cash and Due from Banks
    
    
    11Note 4  Other Interest-Earning Assets
    
    
    11Note 5  Securities Held for Trading
    
    
    12Note 6  Securities Available for Sale
    
    
    13Note 7  Investments in an Unrealized Loss Position
    
    
    15Note 8  Pledged Assets
    
    
    18Note 9  Loans Held for Sale and Loans Receivable
    
    
    18Note 10  Allowance for loan and lease losses and Impaired Loans
    
    
    23Note 11  Related Party Transactions
    
    
    29Note 12  Accounts Receivable and Other Assets
    
    
    29Note 13  Servicing Activities
    
    
    30Note 14  Sale and Securitization of Mortgage Loans
    
    
    32Note 15  Servicing Related Matters
    
    
    33Note 16  Other Real Estate Owned
    
    
    33Note 17  Deposits
    
    
    33Note 18  Securities Sold Under Agreements to Repurchase
    
    
    34Note 19  Advances from the FHLB
    
    
    35Note 20  Other Short-Term Borrowings
    
    
    35Note 21  Loans Payable
    
    
    36Note 22  Notes Payable
    
    
    37Note 23  Income Taxes
    
    
    37Note 24  Guarantees
    
    
    40Note 25  Financial Instruments with Off-Balance Sheet Risk
    
    
    41Note 26  Commitments and Contingencies
    
    
    42Note 27  Capital Stock
    
    
    43Note 28  Stock Options and Other Incentive Plans
    
    
    44Note 29  (Losses) Earnings per Share
    
    
    45Note 30  Fair Value of Assets and Liabilities
    
    
    46Note 31  Derivatives
    
    
    53Note 32  Variable Interest Entities
    
    
    56Note 33  Segment Information
    
    
    58
  8




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##### Table of Contents



1. Nature of Operations and Basis of Presentation
           9




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##### Table of Contents



2. Recent Accounting Pronouncements
 Accounting Standards Update No. 2010-13 CompensationStock Compensation (Topic 718): Effect of
Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in
Which the Underlying Equity Security Trades, a consensus of the FASB Emerging Issues Task Force . FASB Accounting Standards Codification Topic 718,
CompensationStock Compensation
  Accounting Standards Update No. 2010-18 Receivables (Topic 310): Effect of a Loan Modification When
the Loan Is Part of a Pool That Is Accounted for as a Single Asset, a consensus of the FASB
Emerging Issues Task Force (Subtopic 310-30, ReceivablesLoans and Debt Securities Acquired with Deteriorated
Credit Quality) ASU
 Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses
 Changes in Accounting Standards Adopted in the Financial Statements
 Accounting Standard Update No. 2010-11 Derivatives and Hedging (Topic 815): Scope Exception Related
to Embedded Credit Derivatives Topic 815 Derivatives
and Hedging.
  Accounting Standard Codification (ASC) 810, Consolidation  FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities ASC 860, Transfers and Servicing.
  10




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##### Table of Contents



ASC 860, Transfer and Servicing ASC 860 ASC 860
 Accounting Standard Update No. 2010-06- Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements Subtopic 820-10 Fair Value Measurements and
Disclosures-Overall,
  Accounting Standard Update No. 2010-09 Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements Topic 855 Subsequent Events,
 
 3. Cash and due from banks
     
 4. Other Interest-Earning Assets
   11




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##### Table of Contents



5. Securities Held for Trading
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Mortgage-Backed Securities
    
    $
    741
    
    
    $
    893Variable Rate IOs
    
    
    46,284
    
    
    
    45,342Fixed Rate IOs
    
    
    261
    
    
    
    381Derivatives(1)
    
    
    5
    
    
    
    1,110Total
    
    $
    47,291
    
    
    $
    47,726
 
 (1)
    
    Doral Financial uses derivatives to manage its exposure to interest rate risk caused
by changes in interest rates. Derivatives include interest rate caps and forward contracts.
Doral Financials general policy is to account for derivatives on a mark-to-market basis with
gains or losses charged to operations as they occur. Derivatives not accounted for as hedges
in a net asset position are recorded as securities held for trading, and derivatives in a net
liability position are reported as liabilities. The gross notional amount of derivatives
recorded as held for trading totaled $370.0 million as of September 30, 2010 and $480.0
million as of December 31, 2009. Notional amounts indicate the volume of derivatives activity,
but do not represent Doral Financials exposure to market or credit risk.  12




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##### Table of Contents



6. Securities Available for Sale
   As of September 30, 2010
 Weighted-Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldMortgage-Backed SecuritiesGNMADue within one year
    
    $
    49
    
    
    $
    1
    
    
    $
    
    
    
    $
    50
    
    
    
    6.67
    %Due over ten years
    
    
    28,840
    
    
    
    1,073
    
    
    
    
    
    
    
    29,913
    
    
    
    3.69
    %FHLMC and FNMADue from one to five years
    
    
    237
    
    
    
    11
    
    
    
    
    
    
    
    248
    
    
    
    4.96
    %Due from five to ten years
    
    
    444,523
    
    
    
    8,173
    
    
    
    
    
    
    
    452,696
    
    
    
    2.68
    %Due over ten years
    
    
    643,077
    
    
    
    10,958
    
    
    
    
    
    
    
    654,035
    
    
    
    2.97
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    25,419
    
    
    
    51
    
    
    
    191
    
    
    
    25,279
    
    
    
    3.94
    %Due over ten years
    
    
    327,057
    
    
    
    11,523
    
    
    
    
    
    
    
    338,580
    
    
    
    3.59
    %Non-Agency CMOsDue over ten years
    
    
    11,734
    
    
    
    
    
    
    
    3,943
    
    
    
    7,791
    
    
    
    12.13
    %Debt SecuritiesOtherDue over ten years
    
    
    3,000
    
    
    
    
    
    
    
    900
    
    
    
    2,100
    
    
    
    5.80
    %$
    1,483,936
    
    
    $
    31,790
    
    
    $
    5,034
    
    
    $
    1,510,692
    
    
    
    3.13
    %
 13




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##### Table of Contents



As of December 31, 2009
 Weighted-Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldMortgage-Backed SecuritiesGNMADue from one to five years
    
    $
    85
    
    
    $
    7
    
    
    $
    
    
    
    $
    92
    
    
    
    6.67
    %Due over ten years
    
    
    93,586
    
    
    
    745
    
    
    
    61
    
    
    
    94,270
    
    
    
    3.65
    %FHLMC and FNMADue from five to ten years
    
    
    302
    
    
    
    13
    
    
    
    
    
    
    
    315
    
    
    
    4.83
    %Due over ten years
    
    
    804,441
    
    
    
    19,829
    
    
    
    676
    
    
    
    823,594
    
    
    
    4.45
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    57,584
    
    
    
    690
    
    
    
    175
    
    
    
    58,099
    
    
    
    3.73
    %Due over ten years
    
    
    1,424,235
    
    
    
    12,663
    
    
    
    6,984
    
    
    
    1,429,914
    
    
    
    3.48
    %Non-Agency CMOsDue over ten years
    
    
    418,299
    
    
    
    
    
    
    
    147,699
    
    
    
    270,600
    
    
    
    3.03
    %Debt SecuritiesFHLB NotesDue within one year
    
    
    2,056
    
    
    
    17
    
    
    
    
    
    
    
    2,073
    
    
    
    4.16
    %FNMA NotesDue within one year
    
    
    46,064
    
    
    
    85
    
    
    
    
    
    
    
    46,149
    
    
    
    0.89
    %P.R. Housing BankDue from five to ten years
    
    
    645
    
    
    
    16
    
    
    
    
    
    
    
    661
    
    
    
    4.92
    %Due over ten years
    
    
    1,980
    
    
    
    37
    
    
    
    
    
    
    
    2,017
    
    
    
    5.49
    %OtherDue within one year
    
    
    6,538
    
    
    
    62
    
    
    
    
    
    
    
    6,600
    
    
    
    4.26
    %Due from one to five years
    
    
    47,548
    
    
    
    388
    
    
    
    
    
    
    
    47,936
    
    
    
    5.31
    %Due from five to ten years
    
    
    5,000
    
    
    
    207
    
    
    
    
    
    
    
    5,207
    
    
    
    5.50
    %Due over ten years
    
    
    3,000
    
    
    
    
    
    
    
    1,350
    
    
    
    1,650
    
    
    
    5.80
    %$
    2,911,363
    
    
    $
    34,759
    
    
    $
    156,945
    
    
    $
    2,789,177
    
    
    
    3.68
    %
 14




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##### Table of Contents



7. Investments in an Unrealized Loss Position
  Securities Available for Sale
 As of September 30, 2010Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    
    
    
    
    Unrealized
    
    
    of
    
    
    
    
    
    
    Unrealized
    
    
    of
    
    
    
    
    
    
    Unrealized(Dollars in thousands)
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    LossesMortgage-Backed SecuritiesCMOs Government
Sponsored Agencies
    
    
    1
    
    
    $
    13,807
    
    
    $
    33
    
    
    
    1
    
    
    $
    1,754
    
    
    $
    158
    
    
    
    2
    
    
    $
    15,561
    
    
    $
    191Non-Agency CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    7,791
    
    
    
    3,943
    
    
    
    3
    
    
    
    7,791
    
    
    
    3,943Debt SecuritiesOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2,100
    
    
    
    900
    
    
    
    1
    
    
    
    2,100
    
    
    
    9001
    
    
    $
    13,807
    
    
    $
    33
    
    
    
    5
    
    
    $
    11,645
    
    
    $
    5,001
    
    
    
    6
    
    
    $
    25,452
    
    
    $
    5,034
 Securities Available for Sale
 As of December 31, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    
    
    
    
    Unrealized
    
    
    of
    
    
    
    
    
    
    Unrealized
    
    
    of
    
    
    
    
    
    
    Unrealized(Dollars in thousands)
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    LossesMortgage-Backed SecuritiesGNMA
    
    
    1
    
    
    $
    49,255
    
    
    $
    61
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    49,255
    
    
    $
    61FNMA/FHLMC
    
    
    5
    
    
    
    162,454
    
    
    
    676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    162,454
    
    
    
    676CMO Government
Sponsored Agencies
    
    
    9
    
    
    
    403,114
    
    
    
    7,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    403,114
    
    
    
    7,159Non-Agency CMOs
    
    
    1
    
    
    
    2,163
    
    
    
    233
    
    
    
    11
    
    
    
    268,437
    
    
    
    147,466
    
    
    
    12
    
    
    
    270,600
    
    
    
    147,699Debt SecuritiesOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,650
    
    
    
    1,350
    
    
    
    1
    
    
    
    1,650
    
    
    
    1,35016
    
    
    $
    616,986
    
    
    $
    8,129
    
    
    
    12
    
    
    $
    270,087
    
    
    $
    148,816
    
    
    
    28
    
    
    $
    887,073
    
    
    $
    156,945
  Investments-Debt and Equity Securities/Transition and Open
Effective Date Information
 
    
    If the Company intends to sell the investment security and its fair value is less than its
amortized cost.
 
    
    If, based on available evidence, it is more likely than not that the Company will decide or
be required to sell the investment security before the recovery of its amortized cost basis.
 
    
    If the Company does not expect to recover the entire amortized cost basis of the investment
security. This occurs when the present value of cash flows expected to be collected is less
than the amortized cost basis of the security. In determining whether a credit loss exists,
the Company uses its best estimate of the present value of cash flows expected to be collected
from the investment security. Cash flows expected to be collected are estimated based on a
careful assessment of all available information. The difference between the present value of
the cash flows expected to be collected and the amortized cost basis represents the amount of
credit loss.
 15




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##### Table of Contents



Investments  Other/Beneficial
Interest in Securitized Financial Assets.
   16




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##### Table of Contents



As of
    
    
    Quarter Ended
    
    
    Nine Month Period EndedSeptember 30, 2010
    
    
    September 30, 2010
    
    
    September 30, 2010AmortizedCost (after
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    OTTI Related
    
    
    Total
    
    
    
    
    
    
    OTTI Related
    
    
    Totalcredit related
    
    
    Unrealized
    
    
    
    
    
    
    OTTI Related
    
    
    to Non-Credit
    
    
    Impairment
    
    
    OTTI Related
    
    
    to Non-Credit
    
    
    Impairment(In thousands)
    
    OTTI)
    
    
    Losses
    
    
    Fair Value
    
    
    to Credit Loss
    
    
    Loss
    
    
    Losses
    
    
    to Credit Loss
    
    
    Loss
    
    
    LossesOTTI InvestmentsU.S. Non-Agency CMOs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,257
    
    
    $
    33,653
    
    
    $
    46,910P.R. Non-Agency CMOs
    
    
    8,166
    
    
    
    3,417
    
    
    
    4,749
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2$
    8,166
    
    
    $
    3,417
    
    
    $
    4,749
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,259
    
    
    $
    33,653
    
    
    $
    46,912As of
    
    
    Quarter Ended
    
    
    Nine Month Period EndedSeptember 30, 2009
    
    
    September 30, 2009
    
    
    September 30, 2009AmortizedCost (after
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    OTTI Related
    
    
    Total
    
    
    
    
    
    
    OTTI Related
    
    
    Totalcredit related
    
    
    Unrealized
    
    
    
    
    
    
    OTTI Related
    
    
    to Non-Credit
    
    
    Impairment
    
    
    OTTI Related
    
    
    to Non-Credit
    
    
    Impairment(In thousands)
    
    OTTI)
    
    
    Losses
    
    
    Fair Value
    
    
    to Credit Loss
    
    
    Loss
    
    
    Losses
    
    
    to Credit Loss
    
    
    Loss
    
    
    LossesOTTI InvestmentsU.S. Non-Agency CMOs
    
    $
    255,926
    
    
    $
    88,448
    
    
    $
    167,478
    
    
    $
    7,310
    
    
    $
    65,620
    
    
    $
    72,930
    
    
    $
    12,991
    
    
    $
    90,163
    
    
    $
    103,154P.R. Non-Agency CMOs
    
    
    10,708
    
    
    
    3,994
    
    
    
    6,714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,114
    
    
    
    3,901
    
    
    
    5,015$
    266,634
    
    
    $
    92,442
    
    
    $
    174,192
    
    
    $
    7,310
    
    
    $
    65,620
    
    
    $
    72,930
    
    
    $
    14,105
    
    
    $
    94,064
    
    
    $
    108,169
  Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    1,193
    
    
    $
    7,715
    
    
    $
    1,191
    
    
    $
    920Additions:Credit losses for which OTTI was not previously recognized
    
    
    
    
    
    
    5,216
    
    
    
    
    
    
    
    13,995Additional OTTI credit losses for which an
other-than-temporary charge was previously recognized
    
    
    
    
    
    
    2,094
    
    
    
    2
    
    
    
    110Balance at end of period
    
    $
    1,193
    
    
    $
    15,025
    
    
    $
    1,193
    
    
    $
    15,025
  17




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##### Table of Contents



8. Pledged Assets
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Cash
    
    $
    6,354
    
    
    $
    Other interest-earning assets
    
    
    262,609
    
    
    
    95,000Securities available for sale
    
    
    1,492,983
    
    
    
    2,498,149Loans held for sale
    
    
    126,885
    
    
    
    143,111Loans receivable
    
    
    3,074,524
    
    
    
    2,868,697Total pledged assets
    
    $
    4,963,355
    
    
    $
    5,604,957
 
 9. Loans Held for Sale and Loans Receivable
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Conventional single family residential(1)
    
    $
    126,846
    
    
    $
    137,134FHA/VA
    
    
    168,422
    
    
    
    151,187Commercial loans to financial institutions
    
    
    15,000
    
    
    
    17,059Commercial real estate
    
    
    13,480
    
    
    
    15,550Total loans held for sale (2)
    
    $
    323,748
    
    
    $
    320,930
 
 (1)
    
    At both, September 30, 2010 and December 31, 2009, the loans held for sale portfolio
include $0.1 million related to U.S. subsidiaries loans.(2)
    
    At both, September 30, 2010 and December 31, 2009, the loans held for sale portfolio
include $1.1 million of interest-only loans.     18




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalConsumerResidential mortgage(1)
    
    $
    3,520,237
    
    
    $
    105,366
    
    
    $
    3,625,603
    
    
    $
    3,598,995
    
    
    $
    59,706
    
    
    $
    3,658,701FHA/VA guaranteed residential mortgage
    
    
    224,472
    
    
    
    
    
    
    
    224,472
    
    
    
    168,569
    
    
    
    
    
    
    
    168,569Personal
    
    
    17,598
    
    
    
    
    
    
    
    17,598
    
    
    
    25,164
    
    
    
    
    
    
    
    25,164Revolving lines of credit
    
    
    18,718
    
    
    
    
    
    
    
    18,718
    
    
    
    22,062
    
    
    
    
    
    
    
    22,062Credit cards
    
    
    18,682
    
    
    
    
    
    
    
    18,682
    
    
    
    22,725
    
    
    
    
    
    
    
    22,725Lease financing receivables
    
    
    6,425
    
    
    
    
    
    
    
    6,425
    
    
    
    12,702
    
    
    
    
    
    
    
    12,702Loans on savings deposits
    
    
    2,973
    
    
    
    
    
    
    
    2,973
    
    
    
    3,249
    
    
    
    
    
    
    
    3,249Other consumer
    
    
    878
    
    
    
    
    
    
    
    878
    
    
    
    628
    
    
    
    1
    
    
    
    629Total consumer
    
    
    3,809,983
    
    
    
    105,366
    
    
    
    3,915,349
    
    
    
    3,854,094
    
    
    
    59,707
    
    
    
    3,913,801CommercialCommercial real estate
    
    
    639,843
    
    
    
    58,105
    
    
    
    697,948
    
    
    
    684,781
    
    
    
    54,057
    
    
    
    738,838Commercial and industrial
    
    
    44,827
    
    
    
    488,193
    
    
    
    533,020
    
    
    
    53,752
    
    
    
    257,506
    
    
    
    311,258Construction and land
    
    
    361,222
    
    
    
    128,687
    
    
    
    489,909
    
    
    
    447,990
    
    
    
    103,921
    
    
    
    551,911Total commercial
    
    
    1,045,892
    
    
    
    674,985
    
    
    
    1,720,877
    
    
    
    1,186,523
    
    
    
    415,484
    
    
    
    1,602,007Loans receivable, gross(2)
    
    
    4,855,875
    
    
    
    780,351
    
    
    
    5,636,226
    
    
    
    5,040,617
    
    
    
    475,191
    
    
    
    5,515,808Less:Allowance for loan and lease losses
    
    
    (115,300
    )
    
    
    (3,963
    )
    
    
    (119,263
    )
    
    
    (136,878
    )
    
    
    (3,896
    )
    
    
    (140,774
    )Loans receivable, net
    
    $
    4,740,575
    
    
    $
    776,388
    
    
    $
    5,516,963
    
    
    $
    4,903,739
    
    
    $
    471,295
    
    
    $
    5,375,034
 
 (1)
    
    Includes $243.8 million and $270.0 million of balloon loans, as of September
30, 2010 and December 31, 2009, respectively.(2)
    
    Includes $475.9 million and $388.2 million of interest-only loans, as of
September 30, 2010 and December 31, 2009, respectively.    Non-accrual and Past Due Loans and Leases
   19




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalConsumerResidential mortgage
    
    $
    359,273
    
    
    $
    799
    
    
    $
    360,072
    
    
    $
    392,797
    
    
    $
    
    
    
    $
    392,797Lease financing receivables
    
    
    958
    
    
    
    
    
    
    
    958
    
    
    
    1,091
    
    
    
    
    
    
    
    1,091Other consumer (1)
    
    
    442
    
    
    
    
    
    
    
    442
    
    
    
    519
    
    
    
    
    
    
    
    519Total consumer
    
    
    360,673
    
    
    
    799
    
    
    
    361,472
    
    
    
    394,407
    
    
    
    
    
    
    
    394,407CommercialCommercial real estate
    
    
    194,561
    
    
    
    
    
    
    
    194,561
    
    
    
    130,156
    
    
    
    
    
    
    
    130,156Construction and land
    
    
    176,244
    
    
    
    1,610
    
    
    
    177,854
    
    
    
    285,344
    
    
    
    21,610
    
    
    
    306,954Commercial and industrial
    
    
    3,098
    
    
    
    
    
    
    
    3,098
    
    
    
    933
    
    
    
    
    
    
    
    933Total commercial
    
    
    373,903
    
    
    
    1,610
    
    
    
    375,513
    
    
    
    416,433
    
    
    
    21,610
    
    
    
    438,043Total loans receivable on which accrual of interest had been
discontinued(2)(3)
    
    $
    734,576
    
    
    $
    2,409
    
    
    $
    736,985
    
    
    $
    810,840
    
    
    $
    21,610
    
    
    $
    832,450
 
 (1)
    
    Includes personal, revolving lines of credit and other consumer loans.(2)
    
    Excludes $4.0 million and $5.6 million in loans held for sale on which accrual of
interest had been discontinued as of September 30, 2010 and December 31, 2009, respectively.(3)
    
    Excludes $124.8 million and $10.3 million of non-performing FHA/VA guaranteed loans
that due to the nature of their guarantees, present little credit  risk to the Company as of September
30, 2010 and December 31, 2009, respectively. 20




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##### Table of Contents



As of September 30, 2010
 RecordedInvestment> 9030 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Days andPast Due(1)
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total Past Due
    
    
    Total Past
    
    
    Still(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    Due
    
    
    AccruingConsumerResidential mortgage(2)
    
    $
    81,486
    
    
    $
    
    
    
    $
    78,180
    
    
    $
    
    
    
    $
    26,518
    
    
    $
    700
    
    
    $
    236,180
    
    
    $
    99
    
    
    $
    422,364
    
    
    $
    799
    
    
    $
    423,163
    
    
    $
    468Lease financing receivables
    
    
    469
    
    
    
    
    
    
    
    886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355
    
    
    
    
    
    
    
    1,355
    
    
    
    Other consumer
    
    
    1,858
    
    
    
    
    
    
    
    426
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    2,300
    
    
    
    
    
    
    
    2,300
    
    
    
    2,536Total consumer
    
    
    83,813
    
    
    
    
    
    
    
    79,492
    
    
    
    
    
    
    
    26,518
    
    
    
    700
    
    
    
    236,196
    
    
    
    99
    
    
    
    426,019
    
    
    
    799
    
    
    
    426,818
    
    
    
    3,004CommercialCommercial real estate
    
    
    19,834
    
    
    
    27,498
    
    
    
    56,365
    
    
    
    
    
    
    
    13,600
    
    
    
    
    
    
    
    122,584
    
    
    
    
    
    
    
    212,383
    
    
    
    27,498
    
    
    
    239,881
    
    
    
    Construction and land
    
    
    22,811
    
    
    
    12,466
    
    
    
    3,166
    
    
    
    
    
    
    
    16,144
    
    
    
    
    
    
    
    156,477
    
    
    
    1,610
    
    
    
    198,598
    
    
    
    14,076
    
    
    
    212,674
    
    
    
    Commercial and industrial
    
    
    1,072
    
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    894
    
    
    
    
    
    
    
    1,417
    
    
    
    
    
    
    
    3,887
    
    
    
    
    
    
    
    3,887
    
    
    
    525Total commercial
    
    
    43,717
    
    
    
    39,964
    
    
    
    60,035
    
    
    
    
    
    
    
    30,638
    
    
    
    
    
    
    
    280,478
    
    
    
    1,610
    
    
    
    414,868
    
    
    
    41,574
    
    
    
    456,442
    
    
    
    525Total non-performing loans
    
    $
    127,530
    
    
    $
    39,964
    
    
    $
    139,527
    
    
    $
    
    
    
    $
    57,156
    
    
    $
    700
    
    
    $
    516,674
    
    
    $
    1,709
    
    
    $
    840,887
    
    
    $
    42,373
    
    
    $
    883,260
    
    
    $
    3,529
 
 (1)
    
    In accordance with regulatory guidance, Doral defines 30 days past due as when the
borrower is delinquent two payments. Doral defines 90 days past due based upon the actual
number of days past due.(2)
    
    As of September 30, 2010 excludes $124.8 million of non-performing FHA/VA guaranteed
loans that due to the nature of their guarantees, present little credit risk to the Company. As of December 31, 2009
 RecordedInvestment> 9030 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Days andPast Due(1)
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total Past Due
    
    
    Total Past
    
    
    Still(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    Due
    
    
    AccruingConsumerResidential mortgage(2)
    
    $
    84,117
    
    
    $
    
    
    
    $
    105,061
    
    
    $
    
    
    
    $
    43,864
    
    
    $
    
    
    
    $
    238,277
    
    
    $
    
    
    
    $
    471,319
    
    
    $
    
    
    
    $
    471,319
    
    
    $
    Lease financing receivables
    
    
    894
    
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,880
    
    
    
    
    
    
    
    1,880
    
    
    
    Other consumer
    
    
    1,888
    
    
    
    
    
    
    
    492
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    2,407
    
    
    
    
    
    
    
    2,407
    
    
    
    2,137Total consumer
    
    
    86,899
    
    
    
    
    
    
    
    106,539
    
    
    
    
    
    
    
    43,875
    
    
    
    
    
    
    
    238,293
    
    
    
    
    
    
    
    475,606
    
    
    
    
    
    
    
    475,606
    
    
    
    2,137CommercialCommercial real estate
    
    
    29,553
    
    
    
    
    
    
    
    19,015
    
    
    
    
    
    
    
    21,035
    
    
    
    
    
    
    
    89,164
    
    
    
    
    
    
    
    158,767
    
    
    
    
    
    
    
    158,767
    
    
    
    Construction and land
    
    
    20,230
    
    
    
    
    
    
    
    1,366
    
    
    
    
    
    
    
    251,571
    
    
    
    20,000
    
    
    
    23,905
    
    
    
    1,610
    
    
    
    297,072
    
    
    
    21,610
    
    
    
    318,682
    
    
    
    Commercial and industrial
    
    
    625
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    58
    
    
    
    
    
    
    
    760
    
    
    
    
    
    
    
    1,559
    
    
    
    
    
    
    
    1,559
    
    
    
    1,245Total commercial
    
    
    50,408
    
    
    
    
    
    
    
    20,497
    
    
    
    
    
    
    
    272,664
    
    
    
    20,000
    
    
    
    113,829
    
    
    
    1,610
    
    
    
    457,398
    
    
    
    21,610
    
    
    
    479,008
    
    
    
    1,245Total non-performing loans
    
    $
    137,307
    
    
    $
    
    
    
    $
    127,036
    
    
    $
    
    
    
    $
    316,539
    
    
    $
    20,000
    
    
    $
    352,122
    
    
    $
    1,610
    
    
    $
    933,004
    
    
    $
    21,610
    
    
    $
    954,614
    
    
    $
    3,382
 
 (1)
    
    In accordance with regulatory guidance, Doral defines 30 days past due as when the
borrower is delinquent two payments. Doral defines 90 days past due based upon the actual
number of days past due.(2)
    
    As of December 31, 2009 excludes $10.3 million of non-performing FHA/VA guaranteed
loans that due to the nature of their guarantees, present little credit risk to the Company.  21




---



##### Table of Contents



Loan modifications and troubled debt restructurings
 Receivables  Troubled Debt Restructuring by Creditors Receivables-Measurement of Loan Impairment
    Quarters Ended September 30,2010
    
    
    2009Pre-modification
    
    
    Post-modification
    
    
    
    
    
    
    Pre-modification
    
    
    Post-modificationrecorded
    
    
    recorded
    
    
    
    
    
    
    recorded
    
    
    recorded(In thousands)
    
    # contracts
    
    
    investment
    
    
    investment
    
    
    # contracts
    
    
    investment
    
    
    investmentConsumer modificationsNon-FHA/VA residential
    
    
    1,371
    
    
    $
    178,372
    
    
    $
    176,167
    
    
    
    640
    
    
    $
    74,797
    
    
    $
    74,640Other consumer
    
    
    5
    
    
    
    50
    
    
    
    50
    
    
    
    56
    
    
    
    453
    
    
    
    453Total consumer
    
    
    1,376
    
    
    
    178,422
    
    
    
    176,217
    
    
    
    696
    
    
    
    75,250
    
    
    
    75,093CommercialCommercial real estate
    
    
    47
    
    
    $
    11,813
    
    
    $
    11,715
    
    
    
    32
    
    
    $
    7,230
    
    
    $
    7,222Commercial and industrial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction and land
    
    
    2
    
    
    
    15,418
    
    
    
    15,418
    
    
    
    1
    
    
    
    2,232
    
    
    
    2,232Total commercial
    
    
    49
    
    
    
    27,231
    
    
    
    27,133
    
    
    
    33
    
    
    
    9,462
    
    
    
    9,454Total loan modifications
    
    
    1,425
    
    
    $
    205,653
    
    
    $
    203,350
    
    
    
    729
    
    
    $
    84,712
    
    
    $
    84,547
 22




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##### Table of Contents



Nine Month Periods Ended September 30,2010
    
    
    2009Pre-modification
    
    
    Post-modification
    
    
    
    
    
    
    Pre-modification
    
    
    Post-modificationrecorded
    
    
    recorded
    
    
    
    
    
    
    recorded
    
    
    recorded(In thousands)
    
    # contracts
    
    
    investment
    
    
    investment
    
    
    # contracts
    
    
    investment
    
    
    investmentConsumer modificationsNon FHA/VA residential
    
    
    2,539
    
    
    $
    312,233
    
    
    $
    308,599
    
    
    
    1,821
    
    
    $
    207,906
    
    
    $
    206,567Other consumer
    
    
    44
    
    
    
    348
    
    
    
    348
    
    
    
    123
    
    
    
    995
    
    
    
    995Total consumer
    
    
    2,583
    
    
    
    312,581
    
    
    
    308,947
    
    
    
    1,944
    
    
    
    208,901
    
    
    
    207,562CommercialCommercial real estate
    
    
    64
    
    
    $
    20,516
    
    
    $
    20,389
    
    
    
    101
    
    
    $
    23,675
    
    
    $
    23,655Commercial and industrial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction and land
    
    
    2
    
    
    
    15,418
    
    
    
    15,418
    
    
    
    10
    
    
    
    60,259
    
    
    
    60,259Total commercial
    
    
    66
    
    
    
    35,934
    
    
    
    35,807
    
    
    
    111
    
    
    
    83,934
    
    
    
    83,914Total loan modifications
    
    
    2,649
    
    
    $
    348,515
    
    
    $
    344,754
    
    
    
    2,055
    
    
    $
    292,835
    
    
    $
    291,476
   Quarters Ended September 30,
    
    
    Nine Month Periods Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Recorded
    
    
    
    
    
    
    Recorded
    
    
    
    
    
    
    Recorded
    
    
    
    
    
    
    Recorded(In thousands)
    
    # contracts
    
    
    investment
    
    
    # contracts
    
    
    investment
    
    
    # contracts
    
    
    investment
    
    
    # contracts
    
    
    investmentConsumerNon-FHA/VA residential
    
    
    343
    
    
    $
    50,572
    
    
    
    332
    
    
    $
    39,078
    
    
    
    421
    
    
    $
    59,490
    
    
    
    368
    
    
    $
    42,022Other consumer
    
    
    2
    
    
    
    23
    
    
    
    4
    
    
    
    94
    
    
    
    3
    
    
    
    33
    
    
    
    5
    
    
    
    100Total consumer
    
    
    345
    
    
    
    50,595
    
    
    
    336
    
    
    
    39,172
    
    
    
    424
    
    
    
    59,523
    
    
    
    373
    
    
    
    42,122CommercialCommercial real estate
    
    
    17
    
    
    $
    3,617
    
    
    
    23
    
    
    $
    4,640
    
    
    
    18
    
    
    $
    3,799
    
    
    
    27
    
    
    $
    6,012Construction and land
    
    
    3
    
    
    
    15,674
    
    
    
    2
    
    
    
    917
    
    
    
    3
    
    
    
    15,674
    
    
    
    2
    
    
    
    917Total commercial
    
    
    20
    
    
    
    19,291
    
    
    
    25
    
    
    
    5,557
    
    
    
    21
    
    
    
    19,473
    
    
    
    29
    
    
    
    6,929Total recidivism
    
    
    365
    
    
    $
    69,886
    
    
    
    361
    
    
    $
    44,729
    
    
    
    445
    
    
    $
    78,996
    
    
    
    402
    
    
    $
    49,051
   
 10. Allowance for Loan and Lease Losses and Impaired Loans
  23




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24




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##### Table of Contents



Quarter Ended September 30, 2010Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    57,980
    
    
    $
    7,573
    
    
    $
    65,553
    
    
    $
    29,086
    
    
    $
    35,449
    
    
    $
    4,825
    
    
    $
    69,360
    
    
    $
    134,913Provision for loan and lease losses
    
    
    3,923
    
    
    
    3,093
    
    
    
    7,016
    
    
    
    11,012
    
    
    
    (669
    )
    
    
    1,976
    
    
    
    12,319
    
    
    
    19,335Losses charged to the allowance
    
    
    (4,549
    )
    
    
    (3,540
    )
    
    
    (8,089
    )
    
    
    (16,406
    )
    
    
    (9,042
    )
    
    
    (1,944
    )
    
    
    (27,392
    )
    
    
    (35,481
    )Recoveries
    
    
    153
    
    
    
    334
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    9
    
    
    
    496Balance at end of period
    
    $
    57,507
    
    
    $
    7,460
    
    
    $
    64,967
    
    
    $
    23,692
    
    
    $
    25,738
    
    
    $
    4,866
    
    
    $
    54,296
    
    
    $
    119,263Reported balance of loans(1)
    
    $
    3,625,603
    
    
    $
    62,301
    
    
    $
    3,687,904
    
    
    $
    697,948
    
    
    $
    489,909
    
    
    $
    533,020
    
    
    $
    1,720,877
    
    
    $
    5,408,781ALLL for loans individually evaluated for impairment
    
    $
    14,305
    
    
    $
    
    
    
    $
    14,305
    
    
    $
    18,418
    
    
    $
    19,052
    
    
    $
    938
    
    
    $
    38,408
    
    
    $
    52,713Reported balance of loans individually evaluated for impairment
    
    $
    384,021
    
    
    $
    
    
    
    $
    384,021
    
    
    $
    231,953
    
    
    $
    198,999
    
    
    $
    7,114
    
    
    $
    438,066
    
    
    $
    822,087ALLL of loans collectively evaluated for impairment
    
    $
    43,202
    
    
    $
    7,460
    
    
    $
    50,662
    
    
    $
    5,274
    
    
    $
    6,686
    
    
    $
    3,928
    
    
    $
    15,888
    
    
    $
    66,550Reported balance of loans collectively evaluated for impairment
    
    $
    3,241,582
    
    
    $
    62,301
    
    
    $
    3,303,883
    
    
    $
    465,995
    
    
    $
    290,910
    
    
    $
    525,906
    
    
    $
    1,282,811
    
    
    $
    4,586,694
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. Quarter Ended September 30, 2009Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    42,728
    
    
    $
    9,033
    
    
    $
    51,761
    
    
    $
    28,000
    
    
    $
    63,847
    
    
    $
    3,161
    
    
    $
    95,008
    
    
    $
    146,769Provision for loan and lease losses
    
    
    7,232
    
    
    
    2,783
    
    
    
    10,015
    
    
    
    (4,197
    )
    
    
    (1,596
    )
    
    
    657
    
    
    
    (5,136
    )
    
    
    4,879Losses charged to the allowance
    
    
    (810
    )
    
    
    (3,160
    )
    
    
    (3,970
    )
    
    
    (3,098
    )
    
    
    (2,505
    )
    
    
    (815
    )
    
    
    (6,418
    )
    
    
    (10,388
    )Recoveries
    
    
    
    
    
    
    148
    
    
    
    148
    
    
    
    23
    
    
    
    647
    
    
    
    11
    
    
    
    681
    
    
    
    829Balance at end of period
    
    $
    49,150
    
    
    $
    8,804
    
    
    $
    57,954
    
    
    $
    20,728
    
    
    $
    60,393
    
    
    $
    3,014
    
    
    $
    84,135
    
    
    $
    142,089Reported balance of loans(1)
    
    $
    3,653,414
    
    
    $
    90,321
    
    
    $
    3,743,735
    
    
    $
    752,416
    
    
    $
    565,073
    
    
    $
    176,786
    
    
    $
    1,494,275
    
    
    $
    5,238,010ALLL for loans individually evaluated for impairment
    
    $
    4,200
    
    
    $
    
    
    
    $
    4,200
    
    
    $
    393
    
    
    $
    44,263
    
    
    $
    263
    
    
    $
    44,919
    
    
    $
    49,119Reported balance of loans individually evaluated for impairment
    
    $
    51,540
    
    
    $
    
    
    
    $
    51,540
    
    
    $
    68,773
    
    
    $
    341,573
    
    
    $
    263
    
    
    $
    410,609
    
    
    $
    462,149ALLL of loans collectively evaluated for impairment
    
    $
    44,950
    
    
    $
    8,804
    
    
    $
    53,754
    
    
    $
    20,335
    
    
    $
    16,130
    
    
    $
    2,751
    
    
    $
    39,216
    
    
    $
    92,970Reported balance of loans collectively evaluated for impairment
    
    $
    3,601,874
    
    
    $
    90,321
    
    
    $
    3,692,195
    
    
    $
    683,643
    
    
    $
    223,500
    
    
    $
    176,523
    
    
    $
    1,083,666
    
    
    $
    4,775,861
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. 25




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##### Table of Contents



Nine Month Period Ended September 30, 2010Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    51,814
    
    
    $
    8,338
    
    
    $
    60,152
    
    
    $
    21,883
    
    
    $
    54,458
    
    
    $
    4,281
    
    
    $
    80,622
    
    
    $
    140,774Provision for loan and lease losses
    
    
    29,301
    
    
    
    6,370
    
    
    
    35,671
    
    
    
    18,851
    
    
    
    19,721
    
    
    
    3,630
    
    
    
    42,202
    
    
    
    77,873Losses charged to the allowance
    
    
    (23,761
    )
    
    
    (8,095
    )
    
    
    (31,856
    )
    
    
    (17,092
    )
    
    
    (48,563
    )
    
    
    (3,120
    )
    
    
    (68,775
    )
    
    
    (100,631
    )Recoveries
    
    
    153
    
    
    
    847
    
    
    
    1,000
    
    
    
    50
    
    
    
    122
    
    
    
    75
    
    
    
    247
    
    
    
    1,247Balance at end of period
    
    $
    57,507
    
    
    $
    7,460
    
    
    $
    64,967
    
    
    $
    23,692
    
    
    $
    25,738
    
    
    $
    4,866
    
    
    $
    54,296
    
    
    $
    119,263Reported balance of loans(1)
    
    $
    3,625,603
    
    
    $
    62,301
    
    
    $
    3,687,904
    
    
    $
    697,948
    
    
    $
    489,909
    
    
    $
    533,020
    
    
    $
    1,720,877
    
    
    $
    5,408,781ALLL for loans individually evaluated for impairment
    
    $
    14,305
    
    
    $
    
    
    
    $
    14,305
    
    
    $
    18,418
    
    
    $
    19,052
    
    
    $
    938
    
    
    $
    38,408
    
    
    $
    52,713Reported balance of loans individually evaluated for impairment
    
    $
    384,021
    
    
    $
    
    
    
    $
    384,021
    
    
    $
    231,953
    
    
    $
    198,999
    
    
    $
    7,114
    
    
    $
    438,066
    
    
    $
    822,087ALLL of loans collectively evaluated for impairment
    
    $
    43,202
    
    
    $
    7,460
    
    
    $
    50,662
    
    
    $
    5,274
    
    
    $
    6,686
    
    
    $
    3,928
    
    
    $
    15,888
    
    
    $
    66,550Reported balance of loans collectively evaluated for impairment
    
    $
    3,241,582
    
    
    $
    62,301
    
    
    $
    3,303,883
    
    
    $
    465,995
    
    
    $
    290,910
    
    
    $
    525,906
    
    
    $
    1,282,811
    
    
    $
    4,586,694
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. Nine Month Period Ended September 30, 2009Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    33,026
    
    
    $
    9,276
    
    
    $
    42,302
    
    
    $
    27,076
    
    
    $
    58,352
    
    
    $
    4,290
    
    
    $
    89,718
    
    
    $
    132,020Provision for loan and lease losses
    
    
    19,151
    
    
    
    7,815
    
    
    
    26,966
    
    
    
    (1,264
    )
    
    
    9,453
    
    
    
    3,482
    
    
    
    11,671
    
    
    
    38,637Losses charged to the allowance
    
    
    (3,029
    )
    
    
    (8,802
    )
    
    
    (11,831
    )
    
    
    (5,133
    )
    
    
    (8,059
    )
    
    
    (4,782
    )
    
    
    (17,974
    )
    
    
    (29,805
    )Recoveries
    
    
    2
    
    
    
    515
    
    
    
    517
    
    
    
    49
    
    
    
    647
    
    
    
    24
    
    
    
    720
    
    
    
    1,237Balance at end of period
    
    $
    49,150
    
    
    $
    8,804
    
    
    $
    57,954
    
    
    $
    20,728
    
    
    $
    60,393
    
    
    $
    3,014
    
    
    $
    84,135
    
    
    $
    142,089Reported balance of loans(1)
    
    $
    3,653,414
    
    
    $
    90,321
    
    
    $
    3,743,735
    
    
    $
    752,416
    
    
    $
    565,073
    
    
    $
    176,786
    
    
    $
    1,494,275
    
    
    $
    5,238,010ALLL for loans individually evaluated for impairment
    
    $
    4,200
    
    
    $
    
    
    
    $
    4,200
    
    
    $
    393
    
    
    $
    44,263
    
    
    $
    263
    
    
    $
    44,919
    
    
    $
    49,119Reported balance of loans individually evaluated for impairment
    
    $
    51,540
    
    
    $
    
    
    
    $
    51,540
    
    
    $
    68,773
    
    
    $
    341,573
    
    
    $
    263
    
    
    $
    410,609
    
    
    $
    462,149ALLL of loans collectively evaluated for impairment
    
    $
    44,950
    
    
    $
    8,804
    
    
    $
    53,754
    
    
    $
    20,335
    
    
    $
    16,130
    
    
    $
    2,751
    
    
    $
    39,216
    
    
    $
    92,970Reported balance of loans collectively evaluated for impairment
    
    $
    3,601,874
    
    
    $
    90,321
    
    
    $
    3,692,195
    
    
    $
    683,643
    
    
    $
    223,500
    
    
    $
    176,523
    
    
    $
    1,083,666
    
    
    $
    4,775,861
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits.  26




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##### Table of Contents



As of September 30, 2010Recorded
    
    
    
    
    
    
    Related
    
    
    Gross
    
    
    Average(In thousands)
    
    Investment
    
    
    UPB
    
    
    Allowance
    
    
    Reserve %(1)
    
    
    Recorded InvestmentWith no allowance recorded at the report date:Non-FHA/VA residential
    
    $
    73,834
    
    
    $
    89,811
    
    
    $
    
    
    
    
    
    %
    
    $
    49,258Total consumer
    
    
    73,834
    
    
    
    89,811
    
    
    
    
    
    
    
    
    %Commercial real estate
    
    
    130,909
    
    
    
    131,355
    
    
    
    
    
    
    
    
    %
    
    
    61,791Construction and land
    
    
    80,990
    
    
    
    81,269
    
    
    
    
    
    
    
    
    %
    
    
    86,339Commercial and industrial
    
    
    5,488
    
    
    
    5,488
    
    
    
    
    
    
    
    
    %
    
    
    1,372Total commercial
    
    
    217,387
    
    
    
    218,112
    
    
    
    
    
    
    
    
    %
    
    
    149,502With allowance recorded at the report date:Non-FHA/VA residential
    
    
    310,187
    
    
    
    312,009
    
    
    
    14,305
    
    
    
    4.61
    %
    
    
    156,787Total consumer
    
    
    310,187
    
    
    
    312,009
    
    
    
    14,305
    
    
    
    4.61
    %
    
    
    156,787Commercial real estate
    
    
    101,044
    
    
    
    103,150
    
    
    
    18,418
    
    
    
    18.23
    %
    
    
    98,221Construction and land
    
    
    118,009
    
    
    
    118,271
    
    
    
    19,052
    
    
    
    16.14
    %
    
    
    179,878Commercial and industrial
    
    
    1,626
    
    
    
    1,625
    
    
    
    938
    
    
    
    57.69
    %
    
    
    594Total commercial
    
    
    220,679
    
    
    
    223,046
    
    
    
    38,408
    
    
    
    17.40
    %
    
    
    278,693TotalNon-FHA/VA residential
    
    
    384,021
    
    
    
    401,820
    
    
    
    14,305
    
    
    
    3.72
    %
    
    
    206,045Total consumer
    
    
    384,021
    
    
    
    401,820
    
    
    
    14,305
    
    
    
    3.72
    %
    
    
    206,045Commercial real estate
    
    
    231,953
    
    
    
    234,505
    
    
    
    18,418
    
    
    
    7.94
    %
    
    
    160,012Construction and land
    
    
    198,999
    
    
    
    199,540
    
    
    
    19,052
    
    
    
    9.57
    %
    
    
    266,217Commercial and industrial
    
    
    7,114
    
    
    
    7,113
    
    
    
    938
    
    
    
    13.19
    %
    
    
    1,966Total commercial
    
    
    438,066
    
    
    
    441,158
    
    
    
    38,408
    
    
    
    8.77
    %
    
    
    428,195Total
    
    $
    822,087
    
    
    $
    842,978
    
    
    $
    52,713
    
    
    
    6.41
    %
    
    $
    634,240
 
 (1)
    
    Gross reserve percent represents the amount the recorded investment is
discounted to the UPB and indicates the total estimated loss on the impaired assets. 27




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##### Table of Contents



As of December 31, 2009Recorded
    
    
    
    
    
    
    Related
    
    
    Gross
    
    
    Average(In thousands)
    
    Investment
    
    
    UPB
    
    
    Allowance
    
    
    Reserve %(1)
    
    
    Recorded InvestmentWith no allowance recorded at the report date:Non-FHA/VA residential
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    Total consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    Commercial real estate
    
    
    67,128
    
    
    
    67,473
    
    
    
    
    
    
    
    
    %
    
    
    53,958Construction and land
    
    
    116,950
    
    
    
    117,128
    
    
    
    
    
    
    
    
    %
    
    
    123,430Total commercial
    
    
    184,078
    
    
    
    184,601
    
    
    
    
    
    
    
    
    %
    
    
    177,388With allowance recorded at the report date:Non-FHA/VA residential
    
    
    72,304
    
    
    
    72,612
    
    
    
    7,069
    
    
    
    9.78
    %
    
    
    38,502Total consumer
    
    
    72,304
    
    
    
    72,612
    
    
    
    7,069
    
    
    
    9.78
    %
    
    
    38,502Commercial real estate
    
    
    61,989
    
    
    
    62,083
    
    
    
    2,104
    
    
    
    3.39
    %
    
    
    24,939Construction and land
    
    
    210,774
    
    
    
    211,196
    
    
    
    38,796
    
    
    
    18.41
    %
    
    
    208,060Commercial and industrial
    
    
    256
    
    
    
    254
    
    
    
    254
    
    
    
    99.22
    %
    
    
    265Total commercial
    
    
    273,019
    
    
    
    273,533
    
    
    
    41,154
    
    
    
    15.07
    %
    
    
    233,264TotalNon-FHA/VA residential
    
    
    72,304
    
    
    
    72,612
    
    
    
    7,069
    
    
    
    9.78
    %
    
    
    38,502Total consumer
    
    
    72,304
    
    
    
    72,612
    
    
    
    7,069
    
    
    
    9.78
    %
    
    
    38,502Commercial real estate
    
    
    129,117
    
    
    
    129,556
    
    
    
    2,104
    
    
    
    1.63
    %
    
    
    78,897Construction and land
    
    
    327,724
    
    
    
    328,324
    
    
    
    38,796
    
    
    
    11.84
    %
    
    
    331,490Commercial and industrial
    
    
    256
    
    
    
    254
    
    
    
    254
    
    
    
    99.22
    %
    
    
    265Total commercial
    
    
    457,097
    
    
    
    458,134
    
    
    
    41,154
    
    
    
    9.00
    %
    
    
    410,652Total
    
    $
    529,401
    
    
    $
    530,746
    
    
    $
    48,223
    
    
    
    9.11
    %
    
    $
    449,154
 
 (1)
    
    Gross reserve percent represents the amount the recorded investment is
discounted to the UPB and indicates the total estimated loss on the impaired assets. 28




---



##### Table of Contents



11. Related Party Transactions
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Balance at beginning of period
    
    $
    2,840
    
    
    $
    2,579New loans
    
    
    
    
    
    
    3,178Repayments
    
    
    (86
    )
    
    
    (2,129
    )Loans of former officers
    
    
    (921
    )
    
    
    (788
    )Balance at end of period(1)
    
    $
    1,833
    
    
    $
    2,840
 
 (1)
    
    At September 30, 2010 and December 31, 2009, none of the loans outstanding to
officers, directors and 5% or more stockholders were delinquent.    
 12. Accounts Receivable and Other Assets
  Lehman Brothers Transaction
    Contingencies
 29




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##### Table of Contents



13. Servicing Activities
   Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    113,005
    
    
    $
    112,869
    
    
    $
    118,493
    
    
    $
    114,396Capitalization of servicing assets
    
    
    1,878
    
    
    
    1,790
    
    
    
    5,062
    
    
    
    5,220Sales of servicing asset (1)
    
    
    
    
    
    
    
    
    
    
    (192
    )
    
    
    (159
    )Servicing release due to repurchase (2)
    
    
    (149
    )
    
    
    (105
    )
    
    
    (1,314
    )
    
    
    (635
    )Change in fair value
    
    
    (900
    )
    
    
    2,404
    
    
    
    (8,215
    )
    
    
    (1,864
    )Balance at end of period (3)
    
    $
    113,834
    
    
    $
    116,958
    
    
    $
    113,834
    
    
    $
    116,958
 
 (1)
    
    Amount represents MSRs sales related to $24.0 million and $7.1 million in principal
balance of mortgage loans for the corresponding nine month periods ended 2010 and 2009,
respectively.(2)
    
    Amount represents the adjustment of MSR fair value related to the repurchase of
$10.9 million and $8.1 million in principal balance of mortgage loans serviced for others for
the quarters ended September 30, 2010 and 2009, and $95.5 million and $51.3 million for the
nine month periods ended September 30, 2010 and 2009, respectively.(3)
    
    Outstanding balance of loans serviced for third parties amounted to $8.2 billion and
$8.9 billion as of September 30, 2010 and 2009, respectively, which includes $2.8 million and
$3.1 million, respectively, of loans being serviced under sub-servicing arrangements.  30




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##### Table of Contents



Interest-Only(Dollars in thousands)
    
    Servicing Assets
    
    StripsCarrying amount of retained interest
    
    $
    113,834
    
    
    $
    46,545Weighted-average expected life (in years)
    
    
    6.7
    
    
    
    5.0Constant prepayment rate (weighted-average annual rate)
    
    
    8.7
    %
    
    
    10.6
    %Decrease in fair value due to 10% adverse change
    
    $
    (4,182
    )
    
    $
    (1,437
    )Decrease in fair value due to 20% adverse change
    
    $
    (8,134
    )
    
    $
    (2,797
    )Residual cash flow discount rate (weighted-average annual rate)
    
    
    11.3
    %
    
    
    13.0
    %Decrease in fair value due to 10% adverse change
    
    $
    (4,614
    )
    
    $
    (1,489
    )Decrease in fair value due to 20% adverse change
    
    $
    (8,886
    )
    
    $
    (2,881
    )
     Investments  Other/Beneficial Interest in
Securitized Financial Assets
 31




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##### Table of Contents



Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    44,712
    
    
    $
    47,866
    
    
    $
    45,723
    
    
    $
    52,179Amortization
    
    
    (2,421
    )
    
    
    (2,682
    )
    
    
    (7,948
    )
    
    
    (7,002
    )Gain on the IO value
    
    
    4,254
    
    
    
    3,896
    
    
    
    8,770
    
    
    
    3,903Balance at end of period
    
    $
    46,545
    
    
    $
    49,080
    
    
    $
    46,545
    
    
    $
    49,080
   (Dollars in thousands)Change in Interest Rates
    
    Constant
    
    Weighted-Average
    
    Change in Fair
    
    Percentage(Basis Points)
    
    Prepayment Rate
    
    Expected Life (Years)
    
    Value of IOs
    
    of Change200
    
    
    6.8
    %
    
    
    6.4
    
    
    $
    (5,565
    )
    
    
    (12.0
    )%100
    
    
    8.4
    %
    
    
    5.7
    
    
    
    (2,985
    )
    
    
    (6.4
    )%50
    
    
    9.2
    %
    
    
    5.4
    
    
    
    (1,214
    )
    
    
    (2.6
    )%Base
    
    
    10.6
    %
    
    
    5.0
    
    
    
    
    
    
    
    
    %-50
    
    
    11.5
    %
    
    
    4.8
    
    
    
    1,289
    
    
    
    2.8
    %-100
    
    
    12.1
    %
    
    
    4.6
    
    
    
    2,370
    
    
    
    5.1
    %-200
    
    
    13.0
    %
    
    
    4.4
    
    
    
    3,578
    
    
    
    7.7
    %
 
 14. Sale and Securitization of Mortgage Loans
    32




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##### Table of Contents



15.
    
    Servicing Related Matters
  
 16. Other Real Estate Owned
   (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Residential
    
    $
    69,507
    
    
    $
    76,461Commercial
    
    
    16,125
    
    
    
    14,283Construction and land
    
    
    16,051
    
    
    
    3,475Balance at end of period
    
    $
    101,683
    
    
    $
    94,219
  Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    103,177
    
    
    $
    83,964
    
    
    $
    94,219
    
    
    $
    61,340Additions
    
    
    19,803
    
    
    
    21,278
    
    
    
    75,893
    
    
    
    69,940Sales
    
    
    (20,211
    )
    
    
    (9,028
    )
    
    
    (33,350
    )
    
    
    (30,341
    )Retirements
    
    
    (72
    )
    
    
    
    
    
    
    (4,196
    )
    
    
    (2,302
    )Lower of cost or market adjustments
    
    
    (1,014
    )
    
    
    (3,069
    )
    
    
    (30,883
    )
    
    
    (5,492
    )Balance at end of period
    
    $
    101,683
    
    
    $
    93,145
    
    
    $
    101,683
    
    
    $
    93,145
   
 17. Deposits
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Brokered certificates of deposit
    
    $
    2,561,221
    
    
    $
    2,652,409Certificates of deposit
    
    
    739,575
    
    
    
    507,987Money markets accounts
    
    
    425,441
    
    
    
    408,152NOW accounts and other transactions accounts
    
    
    392,063
    
    
    
    364,469Regular savings
    
    
    396,528
    
    
    
    356,488Total interest-bearing
    
    
    4,514,828
    
    
    
    4,289,505Non-interest-bearing deposits
    
    
    246,261
    
    
    
    353,516Total deposits
    
    $
    4,761,089
    
    
    $
    4,643,021
 33




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##### Table of Contents



18. Securities Sold Under Agreements to Repurchase
  (Dollars in thousands)
    
    September 30, 2010
    
    
    December 31, 2009Repurchase
agreements with
maturities less than or
equal to 90 days, at a
various rates with a
weighted average of 1.89%
at December 31, 2009.
    
    $
    
    
    
    $
    216,262Repurchase agreements
with maturities ranging
from September 2011 to
June 2015 (2009- May 2010
to October 2013), at
various fixed rates
averaging 2.96% and
3.32%, at September 30,
2010 and December 31,
2009,respectively.
    
    
    1,176,800
    
    
    
    1,700,500Putable repurchase
agreement with a maturity
of February 17, 2014
(2009 - March 2010 to
February 2014), at a
fixed rate of 2.98%, at
various fixed rates
averaging 4.72%, at
September 30, 2010 and
December 31, 2009,
respectively, with a
callable date of October
2010 (2009 - February to
March 2010).
    
    
    100,000
    
    
    
    228,500Callable repurchase
agreements with maturity
date from August 2014 to
January 2015, at various
fixed rates averaging
2.33% at September 30,
2010 with callable dates
between July 2010 and
August 2012.
    
    
    50,000
    
    
    
    $
    1,326,800
    
    
    $
    2,145,262
  34




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##### Table of Contents



19. Advances from FHLB
  (Dollars in thousands)
    
    September 30, 2010
    
    
    December 31, 2009Non-callable advances with maturities
ranging from October 2010 to May 2013
(2009- January 2010 to May 2013) at
various fixed rates averaging 3.99% and
3.25%, at September 30, 2010 and December
31, 2009, respectively.(1)
    
    $
    707,420
    
    
    $
    1,022,920Non-callable advances with maturities
ranging from November 2010 to November
2012 (2009- September 2010 to November
2012), tied to 1-month LIBOR adjustable
monthly, at a rate of 0.28% and 0.25%, at
September 30, 2010 and December 31, 2009,
respectively.
    
    
    97,000
    
    
    
    105,000Non-callable advances due on July 6,
2010, tied to 3-month LIBOR adjustable
quarterly, at a rate of 0.25% at December
31, 2009.
    
    
    
    
    
    
    200,000Putable structured advances with
maturities ranging from October 2010 to
March 2012 (2009 - June 2010 to March
2012), at various fixed rates averaging
5.23% and 5.41% at September 30, 2010 and
December 31, 2009, respectively, callable
at various dates beginning on October
2010 (2009- February 2010).
    
    
    169,000
    
    
    
    279,000$
    973,420
    
    
    $
    1,606,920
 
 (1)
    
    Includes one structured advance with an outstanding balance of $50.0 million.    
 20. Other short-term borrowings
  35




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##### Table of Contents



21. Loans Payable
   (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Secured
borrowings with
local financial
institutions, at
variable interest
rates tied to
3-month LIBOR
averaging 1.73% and
1.99% at September
30, 2010 and
December 31, 2009,
respectively,
collateralized by
residential
mortgage loans.
    
    $
    293,023
    
    
    $
    318,180Secured borrowings
with local
financial
institutions, at
fixed interest
rates averaging
7.41% at both
September 30, 2010
and December 31,
2009,
collateralized by
residential
mortgage loans.
    
    
    16,796
    
    
    
    18,856$
    309,819
    
    
    $
    337,036
   36




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##### Table of Contents



22. Notes Payable
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009$100.0 million notes,
net of discount,
bearing interest at
7.65%, due on March 26,
2016, paying interest
monthly.
    
    $
    98,755
    
    
    $
    98,623$30.0 million notes,
net of discount,
bearing interest at
7.00%, due on April 26,
2012, paying interest
monthly.
    
    
    29,853
    
    
    
    29,789$40.0 million notes,
net of discount,
bearing interest at
7.10%, due on April 26,
2017, paying interest
monthly.
    
    
    39,476
    
    
    
    39,431$30.0 million notes,
net of discount,
bearing interest at
7.15%, due on April 26,
2022, paying interest
monthly.
    
    
    29,492
    
    
    
    29,472Bonds payable secured
by mortgage on building
at fixed rates ranging
from 6.75% to 6.90%,
with maturities ranging
from December 2010 to
December 2029 (2009 -
December 2014 to
December 2029), paying
interest monthly.
    
    
    38,940
    
    
    
    39,420Bonds payable at a
fixed rate of 6.25%,
with maturities ranging
from December 2010 to
December 2029, paying
interest monthly.
    
    
    7,600
    
    
    
    7,600Note payable with a
local financial
institution,
collateralized by IOs,
at a fixed rate of
7.75%, due on December
25, 2013, paying
principal and interest
monthly.
    
    
    22,137
    
    
    
    26,503$250.0 million notes,
net of discount,
bearing interest at a
variable interest rate
(3-month LIBOR plus
1.85%), due on July 21,
2020, paying interest
quarterly commencing on
January 2011.
    
    
    249,817
    
    
    
    $
    516,070
    
    
    $
    270,838
  
 23. Income Taxes
 Background
    37




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##### Table of Contents



Income Tax Expense (Benefit)
  Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Current income tax expense (benefit):Puerto Rico
    
    $
    
    
    
    $
    36
    
    
    $
    
    
    
    $
    (14,896
    )United States
    
    
    822
    
    
    
    974
    
    
    
    4,712
    
    
    
    2,539Total current income tax expense (benefit)
    
    
    822
    
    
    
    1,010
    
    
    
    4,712
    
    
    
    (12,357
    )Deferred income tax expense (benefit):Puerto Rico
    
    
    1,952
    
    
    
    (10,490
    )
    
    
    4,746
    
    
    
    (9,221
    )United States
    
    
    1,122
    
    
    
    2,625
    
    
    
    1,454
    
    
    
    1,961Total deferred income tax expense (benefit)
    
    
    3,074
    
    
    
    (7,865
    )
    
    
    6,200
    
    
    
    (7,260
    )Total income tax expense (benefit)
    
    $
    3,896
    
    
    $
    (6,855
    )
    
    $
    10,912
    
    
    $
    (19,617
    )
   Deferred Tax Components
    38




---



##### Table of Contents



Income Taxes
   (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Deferred income tax asset resulting from:Differential in tax basis of IOs sold
    
    $
    237,005
    
    
    $
    237,324Net operating loss carry-forwards
    
    
    169,911
    
    
    
    128,710Allowance for loan and lease losses
    
    
    46,791
    
    
    
    55,175Capital loss carry-forward
    
    
    26,783
    
    
    
    6,791Reserve for losses on OREO
    
    
    19,443
    
    
    
    7,391Other
    
    
    53,721
    
    
    
    81,739Gross deferred tax asset
    
    
    553,654
    
    
    
    517,130Valuation allowance
    
    
    (449,536
    )
    
    
    (385,929
    )Net deferred tax asset
    
    $
    104,118
    
    
    $
    131,201
   (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Differential in tax basis of IOs sold
    
    $
    143,103
    
    
    $
    143,259Net operating loss carry-forwards
    
    
    160,277
    
    
    
    114,284Allowance for loan and lease losses
    
    
    44,967
    
    
    
    53,382Capital loss carry-forward
    
    
    26,779
    
    
    
    6,788Reserve for losses on OREO
    
    
    19,397
    
    
    
    7,391Other
    
    
    55,013
    
    
    
    60,825Total valuation allowance
    
    $
    449,536
    
    
    $
    385,929
  39




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes
    (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Balance at beginning of period
    
    $
    3,475
    
    
    $
    13,709Additions for tax positions of prior years
    
    
    280
    
    
    
    2,892Additions for tax positions of current year
    
    
    
    
    
    
    583Release of contingencies
    
    
    (3,755
    )
    
    
    (13,709
    )Balance at end of period
    
    $
    
    
    
    $
    3,475
 
 24. Guarantees
   40




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##### Table of Contents



Quarter Ended
    
    
    Nine Month Period Ended(In thousands)
    
    September 30, 2010
    
    
    September 30, 2010Balance at beginning of period
    
    $
    9,225
    
    
    $
    9,440Net charge-offs / termination
    
    
    (806
    )
    
    
    (2,278
    )Provision for recourse liability
    
    
    2,149
    
    
    
    3,406Balance at end of period
    
    $
    10,568
    
    
    $
    10,568
 
 25. Financial Instruments with Off-Balance Sheet Risk
  (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Commitments to extend credit
    
    $
    131,639
    
    
    $
    85,124Commitments to sell loans
    
    
    109,675
    
    
    
    76,176Performance standby letter of credit
    
    
    25
    
    
    
    25Total
    
    $
    241,339
    
    
    $
    161,325
   Derivatives and Hedging
 41




---



##### Table of Contents



26. Commitments and Contingencies
  (In thousands)2011
    
    $
    5,8012012
    
    
    4,8652013
    
    
    5,7772014
    
    
    4,1762015
    
    
    4,0572016 and thereafter
    
    
    18,454$
    43,130
    Legal Matters
   Banking Regulatory Matters
  42




---



##### Table of Contents



27. Capital Stock
    43




---



##### Table of Contents



28. Stock Option and Other Incentive Plans
 Compensation Stock Compensation
     Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation recognized, net
    
    $
    719
    
    
    $
    (27
    )
    
    $
    792
    
    
    $
    76Unrecognized at end of period:Stock options
    
    $
    196
    
    
    $
    268
    
    
    $
    196
    
    
    $
    268Restricted stock
    
    $
    7,482
    
    
    $
    
    
    
    $
    7,482
    
    
    $
    
 44




---



##### Table of Contents



Weighted-average exercise price
    
    $
    13.70Stock option estimated fair value
    
    $
    5.88Expected stock option term (years)
    
    
    6.50Expected volatility
    
    
    39.00
    %Expected dividend yield
    
    
    
    %Risk-free interest rate
    
    
    3.49
    %
   
 29. (Losses) Earnings Per Share Data
  Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(Dollars in thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net (Loss) Income:Net (loss) income
    
    $
    (19,012
    )
    
    $
    13,209
    
    
    $
    (255,826
    )
    
    $
    (24,865
    )Non-convertible preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,228
    )Convertible preferred stock dividend
    
    
    (2,415
    )
    
    
    (3,209
    )
    
    
    (6,694
    )
    
    
    (10,367
    )Effect of conversion of preferred stock(1)
    
    
    
    
    
    
    
    
    
    
    26,585
    
    
    
    9,369Net (loss) income attributable to common shareholders
    
    $
    (21,427
    )
    
    $
    10,000
    
    
    $
    (235,935
    )
    
    $
    (30,091
    )Weighted-Average Number of Common Shares Outstanding(2)
    
    
    112,165,805
    
    
    
    57,764,002
    
    
    
    80,841,687
    
    
    
    55,432,220Net (Loss) Income per Common Share(3)
    
    $
    (0.19
    )
    
    $
    0.17
    
    
    $
    (2.92
    )
    
    $
    (0.54
    )
 
 (1)
    
    The carrying value of the noncumulative preferred stock exceeded the fair value of
consideration transferred and, accordingly, the difference between the liquidation preference
of the preferred stock retired and the market value of the common stock issued and the cash
tendered (in 2009) amounted to $31.6 million and $23.9 million for the nine month periods
ended September 30, 2010 and 2009, respectively, and was credited to retained earnings. In the
case of the convertible preferred stock, the fair value of stock exchanged for the preferred
stock converted exceeded the fair value of the stock issuable pursuant to the original
conversion terms and, accordingly, this excess or inducement amounted to $5.1 million and
$14.5 million for the nine month periods ended September 30, 2010 and 2009, respectively, was
charged to retained earnings. As a result, both transactions impacted the net (loss) income
attributable to common shareholders.(2)
    
    Potential common shares consist of common stock issuable under the assumed exercise
of stock options and unvested shares of restricted stock using the treasury stock method. This
method assumes that the potential common shares are issued and the proceeds from exercise in
addition to the amount of compensation cost attributed to future services are used to purchase
common stock at the exercise date. The difference between the number of potential shares
issued and the shares purchased is added as incremental shares to the actual number of shares
outstanding to compute diluted earnings per share. Stock options and unvested shares of
restricted stock that result in lower potential shares issued than shares purchased under the
treasury stock method are not included in the computation of dilutive (loss) earnings per
share since their inclusion would have an antidilutive effect in earnings per share. As of
September 30, 2010, there were granted 60,000 stock options and 3,000,000 shares of restricted
stock.(3)
    
    For the quarters and nine month periods ended September 30, 2010 and 2009, net
(loss) income per common share represents both the basic and diluted (loss) income per common
share, respectively, for each of the periods presented. 45




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##### Table of Contents



30. Fair Value of Assets and Liabilities
  Fair Value Measurements and Disclosures
 Financial Instruments
 Financial Instruments- Disclosures.
 ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
 Fair Value Hierarchy
   Level 1
    
    
    
    Valuation is based upon unadjusted quoted prices for identical
instruments traded in active markets. Level 2
    
    
    
    Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets that are
not active, and model-based valuation techniques for which all significant assumptions
are observable in the market, or are derived principally from or corroborated by
observable market data, by correlation or by other means.
 46




---



##### Table of Contents



 Level 3
    
    
    
    Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable assumptions
reflect the Companys estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
 Determination of Fair Value
 Fair Value Measurements and Disclosures
     Securities held for trading: Available for Sale Servicing
assets and interest-only strips, and Derivatives
  Securities available for sale:
 47




---



##### Table of Contents



Loans held for sale:
 Loans receivable:
  Servicing assets and interest-only strips: Transfer and Servicing
 Servicing Assets and Liabilities
 Real estate held for sale:
 48




---



##### Table of Contents



Other assets:
 Premises and equipment:
 Goodwill:
 CB, LLC:
 Derivatives:
   Cash and due from banks and other interest-earning assets:
 Deposits
 Loans payable
 Notes payable, advances from FHLB, other short-term borrowings and securities sold under agreements
to repurchase
 49




---



##### Table of Contents



Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  September 30, 2010(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading(1)
    
    $
    47,286
    
    
    $
    
    
    
    $
    
    
    
    $
    47,286Securities available for sale
    
    
    1,510,692
    
    
    
    
    
    
    
    1,491,213
    
    
    
    19,479Derivatives(2)
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Servicing assets
    
    
    113,834
    
    
    
    
    
    
    
    
    
    
    
    113,834$
    1,671,817
    
    
    $
    
    
    
    $
    1,491,218
    
    
    $
    180,599Liabilities:Derivatives(3)
    
    $
    5,823
    
    
    $
    
    
    
    $
    5,823
    
    
    $
    
 
 (1)
    
    Includes $46.5 million of interest-only strips, of which variable IOs represent
substantially all of the balance.(2)
    
    Included as part of securities held for trading in the Consolidated Statement of
Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Consolidated
Statement of Financial Condition. December 31, 2009(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading(1)
    
    $
    46,616
    
    
    $
    
    
    
    $
    
    
    
    $
    46,616Securities available for sale
    
    
    2,789,177
    
    
    
    
    
    
    
    2,507,396
    
    
    
    281,781Derivatives(2)
    
    
    1,110
    
    
    
    
    
    
    
    1,110
    
    
    
    Servicing assets
    
    
    118,493
    
    
    
    
    
    
    
    
    
    
    
    118,493$
    2,955,396
    
    
    $
    
    
    
    $
    2,508,506
    
    
    $
    446,890Liabilities:Derivatives(3)
    
    $
    12,596
    
    
    $
    
    
    
    $
    12,596
    
    
    $
    
 
 (1)
    
    Includes $45.7 million of interest-only strips, of which variable IOs represent
substantially all of the balance.(2)
    
    Included as part of securities held for trading in the Consolidated Statement of
Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Consolidated
Statement of Financial Condition  Quarter Ended
    
    
    Nine Month Period EndedSeptember 30, 2010
    
    
    September 30, 2010Securities
    
    
    Securities
    
    
    
    
    
    
    Securities
    
    
    SecuritiesHeld for
    
    
    Available
    
    
    Servicing
    
    
    Held for
    
    
    Available
    
    
    Servicing(In thousands)
    
    Trading (1)
    
    
    for Sale (2)
    
    
    Assets (3)
    
    
    Trading (1)
    
    
    for Sale (2)
    
    
    Assets (3)Balance at beginning of period
    
    $
    45,544
    
    
    $
    18,853
    
    
    $
    113,005
    
    
    $
    46,616
    
    
    $
    281,781
    
    
    $
    118,493Change in fair value
    
    
    4,163
    
    
    
    589
    
    
    
    (900
    )
    
    
    8,618
    
    
    
    15,258
    
    
    
    (8,215
    )Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248,760
    )
    
    
    (192
    )Other-than-temporary impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,259
    )
    
    
    Principal repayment/amortization of premium and discount
    
    
    (2,421
    )
    
    
    37
    
    
    
    
    
    
    
    (7,948
    )
    
    
    (15,541
    )
    
    
    Capitalization
    
    
    
    
    
    
    
    
    
    
    1,878
    
    
    
    
    
    
    
    
    
    
    
    5,062Reversal of loans purchased (4)
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    (1,314
    )Balance at end of period
    
    $
    47,286
    
    
    $
    19,479
    
    
    $
    113,834
    
    
    $
    47,286
    
    
    $
    19,479
    
    
    $
    113,834
 
 (1)
    
    Securities held for trading classified as Level 3 include IOs and residual CMO
certificates. Change in fair value is recognized as part of non-interest income in the
Companys Consolidated Statement of Operations as net (loss) gain on trading activities, which
includes $4.3 million and $8.8 million of changes in fair value of IOs and $(91,000) and
$(152,000) of changes in fair value of residual CMO certificates for the quarter and nine
month period ended September 30, 2010, respectively. Amortization of IO is recognized as part
of interest income on interest-only strips and includes $2.4 million and $7.9 million for the
quarter and nine month periods ended September 30, 2010, respectively.(2)
    
    Level 3 securities available for sale include non-agency and agency CMOs, certain
agency mortgage-backed securities and other securities not actively traded. OTTI is recognized
as part of non-interest income in the Companys Consolidated Statement of Operations.
Amortization of premium and discount is recognized as part of interest income as
mortgage-backed securities, which includes $0.1 million and $1.2 million for the quarter and
nine month periods ended September 30, 2010, respectively. 50




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##### Table of Contents



(3)
    
    Change in fair value of servicing assets, net of reversal of loans purchased, is
recognized as part of non-interest income in the Companys Consolidated Statement of
Operations as servicing income (loss) for the periods presented. Capitalization of servicing
assets is recognized as part of non-interest income as net gain on mortgage loan sales and
fees, which includes $1.9 million and $5.1 million for the quarter and nine month periods
ended September 30, 2010, respectively.(4)
    
    Amount represents the adjustment of MSR fair value related to the repurchase of
$10.9 million and $95.5 million in principal balance of mortgage loans serviced for others for
the quarter and nine month periods ended September 30, 2010, respectively.  Quarter Ended
    
    
    Nine Month Period EndedSeptember 30, 2009
    
    
    September 30, 2009Securities
    
    
    Securities
    
    
    
    
    
    
    Securities
    
    
    SecuritiesHeld for
    
    
    Available
    
    
    Servicing
    
    
    Held for
    
    
    Available
    
    
    Servicing(In thousands)
    
    Trading (1)
    
    
    for Sale (2)
    
    
    Assets (3)
    
    
    Trading (1)
    
    
    for Sale (2)
    
    
    Assets (3)Balance at beginning of period
    
    $
    48,569
    
    
    $
    324,264
    
    
    $
    112,869
    
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396Change in fair value
    
    
    3,915
    
    
    
    10,298
    
    
    
    2,404
    
    
    
    3,894
    
    
    
    (26,869
    )
    
    
    (1,864
    )Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159
    )Purchases
    
    
    
    
    
    
    159,865
    
    
    
    
    
    
    
    
    
    
    
    159,865
    
    
    
    Other-than-temporary impairment
    
    
    
    
    
    
    (7,310
    )
    
    
    
    
    
    
    
    
    
    
    (14,105
    )
    
    
    Principal repayment/amortization of premium and discount
    
    
    (2,682
    )
    
    
    (15,286
    )
    
    
    
    
    
    
    (7,002
    )
    
    
    (37,694
    )
    
    
    Capitalization
    
    
    
    
    
    
    
    
    
    
    1,790
    
    
    
    
    
    
    
    
    
    
    
    5,220Reversal of loans purchased (4)
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    
    
    
    
    
    
    
    
    (635
    )Balance at end of period
    
    $
    49,802
    
    
    $
    471,831
    
    
    $
    116,958
    
    
    $
    49,802
    
    
    $
    471,831
    
    
    $
    116,958
 
 (1)
    
    Securities held for trading classified as Level 3 include IOs and residual CMO
certificates. Change in fair value is recognized as part of non-interest income in the
Companys Consolidated Statement of Operations as net (loss) gain on trading activities, which
includes $3.9 million of changes in fair
value of IOs for both the quarter and nine
month periods ended September 30, 2009, respectively, and $19,000 and $(10,000) of changes in
fair value of residual CMO certificates for the quarter and nine month period ended September
30, 2009, respectively. Amortization of IO is recognized as part of interest income on
Interest-only strips and includes $2.6 million and $7.0 million for the quarter and nine month
periods ended September 30, 2009, respectively.(2)
    
    Level 3 securities available for sale include non-agency and agency CMOs, certain
agency mortgage-backed securities and other securities not actively traded. OTTI is recognized
as part of non-interest income in the Companys Consolidated Statement of Operations.
Amortization of premium and discount is recognized as part of interest income on MBS, which
includes $0.5 million and $(0.5) million for the quarter and nine month periods ended
September 30, 2009, respectively.(3)
    
    Change in fair value of servicing assets, net of the reversal of loans purchased, is
recognized as part of non-interest income in the Companys Consolidated Statement of
Operations as servicing income (loss) for the periods presented. Capitalization of servicing
assets is recognized as part of non-interest income as net gain on mortgage loan sales and
fees, which includes $1.8 million and $5.2 million for the quarter and nine month periods
ended September 30, 2009, respectively.(4)
    
    Amount represents the adjustment of MSR fair value related to the repurchase of $8.1
million and $51.3 million in principal balance of mortgage loans serviced for others for the
quarter and nine month periods ended September 30, 2009, respectively. 51




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##### Table of Contents



Assets Recorded at Fair Value on a Nonrecurring Basis
  (In thousands)
    
    Carrying Value
    
    
    Level 3September 30, 2010Loans receivable (1)
    
    $
    222,960
    
    
    $
    222,960Real estate held for sale (2)
    
    
    79,603
    
    
    
    79,603Total
    
    $
    302,563
    
    
    $
    302,563December 31, 2009Loans receivable (1)
    
    $
    196,726
    
    
    $
    196,726Real estate held for sale (2)
    
    
    66,042
    
    
    
    66,042Total
    
    $
    262,768
    
    
    $
    262,768
 
 (1)
    
    Represents the carrying value of collateral dependent loans for which adjustments
are based on the appraised value of the collateral.(2)
    
    Represents the carrying value of real estate held for sale for which adjustments are
based on the appraised value of the properties.  Loss for the quarters ended
    
    Loss for the nine monthLocation of Loss Recognized in the
    
    September 30,
    
    periods ended September 30,(In thousands)
    
    Statement of Operations
    
    2010
    
    2009
    
    2010
    
    2009Loans receivable (1)
    
    Provision for loan and lease losses
    
    $
    (9,511
    )
    
    $
    (1,223
    )
    
    $
    (36,145
    )
    
    $
    (1,578
    )Real estate held for sale (2)
    
    Other expenses
    
    $
    (2,842
    )
    
    $
    (2,810
    )
    
    $
    (35,271
    )
    
    $
    (5,567
    )
 
 (1)
    
    Represents the carrying value of collateral dependent loans for which adjustments
are based on the appraised value of the collateral.(2)
    
    Represents the carrying value of real estate held for sale for which adjustments are
based on the appraised value of the properties. 52




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##### Table of Contents



Disclosures about Fair Value of Financial Instruments
   September 30, 2010
    
    December 31, 2009Carrying
    
    
    
    
    
    Carrying(In thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    594,636
    
    
    $
    594,636
    
    
    $
    725,277
    
    
    $
    725,277Other interest-earning assets
    
    
    262,609
    
    
    
    262,609
    
    
    
    95,000
    
    
    
    95,000Securities held for trading (1)
    
    
    47,291
    
    
    
    47,291
    
    
    
    47,726
    
    
    
    47,726Securities available for sale
    
    
    1,510,692
    
    
    
    1,510,692
    
    
    
    2,789,177
    
    
    
    2,789,177Loans held for sale (2)
    
    
    323,748
    
    
    
    330,877
    
    
    
    320,930
    
    
    
    326,108Loans receivable
    
    
    5,516,963
    
    
    
    5,269,469
    
    
    
    5,375,034
    
    
    
    5,015,141Servicing assets
    
    
    113,834
    
    
    
    113,834
    
    
    
    118,493
    
    
    
    118,493Financial liabilities:Deposits
    
    $
    4,761,089
    
    
    $
    4,840,585
    
    
    $
    4,643,021
    
    
    $
    4,684,443Securities sold under agreements to repurchase
    
    
    1,326,800
    
    
    
    1,384,362
    
    
    
    2,145,262
    
    
    
    2,213,755Advances from FHLB
    
    
    973,420
    
    
    
    1,010,909
    
    
    
    1,606,920
    
    
    
    1,655,258Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    110,000
    
    
    
    110,024Loans payable
    
    
    309,819
    
    
    
    309,819
    
    
    
    337,036
    
    
    
    337,036Notes payable
    
    
    516,070
    
    
    
    474,873
    
    
    
    270,838
    
    
    
    262,585Derivatives (3)
    
    
    5,823
    
    
    
    5,823
    
    
    
    12,596
    
    
    
    12,596
 
 (1)
    
    Includes derivatives of $5,000 and $1.1 million for September 30, 2010 and December
31, 2009, respectively.(2)
    
    Includes $149.3 million and $128.6 million for September 30, 2010 and December 31,
2009, respectively, related to GNMA defaulted loans for which the Company has an unconditional
buy-back option.(3)
    
    Includes $0.2 million and $1.9 million of derivatives held for trading purposes and
$5.6 million and $10.7 million of derivatives held for purposes other than trading, for
September 30, 2010 and December 31, 2009, respectively, as part of accrued expenses and other
liabilities in the Consolidated Statement of Financial Condition. 
 31. Derivatives
   53




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Notional
    
    
    Fair Value
    
    
    Notional
    
    
    Fair Value(In thousands)
    
    Amount
    
    
    Asset
    
    
    Liability
    
    
    Amount
    
    
    Asset
    
    
    LiabilityCash Flow Hedges:Interest rate swaps
    
    $
    97,000
    
    
    $
    
    
    
    $
    (5,635
    )
    
    $
    305,000
    
    
    $
    
    
    
    $
    (10,691
    )Other Derivatives (non hedges):Interest rate caps
    
    
    245,000
    
    
    
    5
    
    
    
    
    
    
    
    270,000
    
    
    
    777
    
    
    
    Forward contracts
    
    
    125,000
    
    
    
    
    
    
    
    (188
    )
    
    
    210,000
    
    
    
    333
    
    
    
    (1,905
    )Total
    
    $
    467,000
    
    
    $
    5
    
    
    $
    (5,823
    )
    
    $
    785,000
    
    
    $
    1,110
    
    
    $
    (12,596
    )
 Cash Flow Hedges
    Location of Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) ReclassifiedReclassified from
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    from AccumulatedAccumulated Other
    
    
    
    
    
    
    
    
    
    Other
    
    
    OtherComprehensive Loss
    
    Notional
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive(In thousands)
    
    to Income
    
    Amount
    
    
    Fair Value
    
    
    Income
    
    
    Loss to IncomeCash flow HedgesSeptember 30, 2010Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    97,000
    
    
    $
    (5,635
    )
    
    $
    278
    
    
    $
    (2,299
    )September 30, 2009Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    335,000
    
    
    $
    (12,596
    )
    
    $
    654
    
    
    $
    (2,491
    )
  54




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##### Table of Contents



Location of Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) ReclassifiedReclassified from
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    from AccumulatedAccumulated Other
    
    
    
    
    
    
    
    
    
    Other
    
    
    OtherComprehensive Loss to
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive(In thousands)
    
    Income
    
    Notional Amount
    
    
    Fair Value
    
    
    Income
    
    
    Loss to IncomeCash flow HedgesSeptember 30, 2010Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    97,000
    
    
    $
    (5,635
    )
    
    $
    3,430
    
    
    $
    (5,972
    )September 30, 2009Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    335,000
    
    
    $
    (12,596
    )
    
    $
    4,247
    
    
    $
    (6,195
    )
 Trading and Non-Hedging Activities
  Location of Gain (Loss)
    
    September 30, 2010Recognized in the
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (Loss) GainConsolidated Statement of
    
    Notional
    
    
    
    
    
    
    Net (Loss) Gain
    
    
    for the Nine(In thousands)
    
    Operations
    
    Amount
    
    
    Fair Value
    
    
    for the Quarter
    
    
    Month PeriodDerivatives not designated as
cash flow hedges:Interest rate caps
    
    Net gain (loss) on trading activities
    
    $
    245,000
    
    
    $
    5
    
    
    $
    (48
    )
    
    $
    (771
    )Forward contracts
    
    Net gain (loss) on trading activities
    
    
    125,000
    
    
    
    (188
    )
    
    
    580
    
    
    
    4,878$
    370,000
    
    
    $
    (183
    )
    
    $
    532
    
    
    $
    4,107
 September 30, 2009Location of Gain (Loss)
    
    
    
    
    
    
    
    
    Net Gain forRecognized in the Consolidated
    
    Notional
    
    
    
    
    
    
    Net (Loss) Gain
    
    
    the Nine Month(In thousands)
    
    Statement of Operations
    
    Amount
    
    
    Fair Value
    
    
    for the Quarter
    
    
    PeriodDerivatives not designated as
cash flow hedges:Interest rate caps
    
    Net gain (loss) on securities trading activities
    
    $
    270,000
    
    
    $
    368
    
    
    $
    (117
    )
    
    $
    81Forward contracts
    
    Net gain (loss) on trading activities
    
    
    265,000
    
    
    
    (501
    )
    
    
    2,031
    
    
    
    764$
    535,000
    
    
    $
    (133
    )
    
    $
    1,914
    
    
    $
    845
    55




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##### Table of Contents



32. Variable Interest Entities
  
    
    The equity investment at risk is not sufficient for the entity to finance its
activities without additional subordinated financial support.
    
    As a group, the holders of equity investment at risk do not possess: i) the power,
through voting rights or similar rights, to direct the activities that most
significantly impact the entitys economic performance; or ii) the obligation to absorb
expected losses or the right to receive the expected residual returns of the entity; or
iii) symmetry between voting rights and economic interests and where substantially all
of the entitys activities either involve or are conducted on behalf of an investor
with disproportionately fewer voting rights (e.g., structures with nonsubstantive
voting rights).
 Consolidation-Variable Interest Entities
  Servicing Assets:
 Investment Securities:
 56




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Loans:
 Special
Purpose Entities:
 
    
    The Company sold an asset portfolio to a third party on July 29, 2010, consisting of
performing and non-performing late-stage residential construction and development loans and
real estate, with carrying amounts at the transfer date of
$33.8 million, $63.4 million and
$4.8 million, respectively. As consideration for the transferred assets, the Company received
a $5.1 million cash payment and a $96.9 million note receivable which has a 10-year maturity
and a fixed interest rate of 8% per annum and permits interest capitalization for the first 18
months. This financing provided by the Company is secured by a general pledge of all of the
acquiring entitys assets. As of September 30, 2010, the carrying amount of the note
receivable was $96.9 million and is classified in loans receivable in the Consolidated
Statement of Financial Condition.Concurrent with this transaction, the Company provided the acquirer with a $28.0 million
construction line of credit which has a 10- year maturity and a fixed interest rate of 8% per
annum. The line of credit will be used by the acquirer of the assets to provide construction
advances on the transferred loans or to fund construction on foreclosed properties. As of
September 30, 2010, the carrying amount of the line of credit is $0.1 million and is classified
in loan receivable in the Consolidated Statement of Financial Condition.The Company has determined that the acquiror is a VIE and that the Company is not its primary
beneficiary. The assets of the acquiror consist of the transferred asset portfolio in
addition to $10.2 million of in kind capital contribution provided by a single third party. The
sole equity holder has unconditionally committed to contribute an additional $7.0 million of
capital over the next six years.The primary beneficiary of a VIE is an enterprise that has a controlling financial interest in
the VIE which exists when an enterprise has both the power to direct the activities that most
significantly impact the VIEs economic performance and the obligation to absorb losses or the
right to receive benefits of the VIE that could potentially be significant to the VIE. The
rights provided to the Company as creditor are protective in nature. As the Company does not
have the right to manage the loan portfolio, impact foreclosure proceedings, or manage the
construction and sale of the property, the Company does not have power over the activities that
most significantly impact the economic performance of the acquirer. The Companys maximum
exposure to loss from the variable interest entity is limited to the interest and principal
outstanding on the note receivable and the line of credit. Therefore, the Company is not the
primary beneficiary of the variable interest entity.The transfer of the portfolio, consisting of construction loan and real estate assets, was accounted for as a
sale.  The note receivable was recognized at its initial fair value of $96.9 million. The initial fair value
measurement of the note receivable was determined using discount rate adjustment techniques with
significant unobservable (Level 3) inputs. Management based its fair value estimate using cash flow
forecasts considering the initial and future loan advances, when the various construction project units
would be complete, current absorption rates of new housing in Puerto Rico, and a market interest rate that
reflects the estimated credit risk of the acquirer and the nature of the loan collateral.  Doral considered the
loans to be construction loans for the purposes of determining a market rate.
    
    During the third quarter of 2010, the Company, through one of its subsidiaries, Doral
Money, entered into a CLO arrangement with a third party in which up to $450.0 million of
largely U.S. mainland based commercial loans are pledged to collateralize AAA rated debt of
$250.0 million paying three month LIBOR plus 1.85 percent issued by Doral CLO I, Ltd. Doral
CLO I, Ltd. is a variable interest entity created to hold the commercial loans and issue the
previously noted debt and $200.0 million of subordinated notes to the Company whereby the
Company receives any excess proceeds after payment of the senior debt interest and other fees
and charges specified in the indenture agreement. The Company also serves as collateral
manager of the assets of Doral CLO I, Ltd. Doral CLO I, Ltd. is consolidated with the Company
in these financial statements.A CLO is a securitization where a special purpose entity purchases a pool of assets consisting
of loans and issues multiple tranches of equity or notes to investors. Typically, the asset
manager has the power over the significant decisions of the VIE through its discretion to manage
the assets of the CLO.
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Doral CLO I, Ltd. is a VIE because it does not have sufficient equity investment at risk and the
subordinated notes provide
additional financial support to the structure. Management has determined that the Company is the
primary beneficiary of Doral CLO I, Ltd. because it has a variable interest in Doral CLO I,
Ltd. through both its collateral manager fee and its obligation to absorb potentially significant
losses and the right to receive potentially significant benefits of the CLO through the
subordinated securities held. The most significant activities of Doral CLO I, Ltd. are those
associated with managing the collateral obligations on a day-to-day basis and, as collateral
manager, the Company controls the significant activities of the VIE.
  (In thousands)
    
    September 30, 2010Carrying amountCash and other interest-earning assets
    
    $
    76,028Loans receivable
    
    
    370,294Allowance for loan and lease losses
    
    
    (1,967
    )Other assets
    
    
    9,917Total assets
    
    
    454,272Notes payable (third party liability)
    
    
    249,817Other liabilities
    
    
    1,406Total liabilities
    
    
    251,223Net assets
    
    $
    203,049
  (In thousands)
    
    September 30, 2010
    
    December 31, 2009Carrying amountServicing assets
    
    $
    15,221
    
    
    $
    15,878Available for sale securities:Non-agency CMO
    
    
    11,734
    
    
    
    11,568Loans receivable:Construction
    
    
    329,185
    
    
    
    452,386Maximum exposure to loss (1)Servicing assets
    
    $
    15,221
    
    
    $
    15,878Available for sale securities:Non-agency CMO (2)
    
    
    11,734
    
    
    
    11,568Loans receivable:Construction
    
    
    329,185
    
    
    
    452,386
 
 (1)
    
    Maximum exposure to loss is a required disclosure under GAAP and represents
estimated loss that would be incurred under severe, hypothetical circumstances, for which the
possibility of occurrence is remote, such as where the value of our interests and any
associated collateral declines to zero, without any consideration of recovery or offset from
any economic hedges. Accordingly, this required disclosure is not an indication of expected
loss.(2)
    
    Refers to book value of residual interest from two private placements (Refer to
Investment Securities disclosure above). These transactions are structured without recourse,
so as servicers our exposure is limited to standard representations and warranties as seller
of the loans and responsibilities as servicer of the SPEs assets. 
 33. Segment Information
  58




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Quarter Ended September 30, 2010Intersegment(In thousands)
    
    Mortgage Banking
    
    Banking
    
    Insurance Agency
    
    Eliminations(1)
    
    TotalNet interest income
    
    $
    1,001
    
    
    $
    36,714
    
    
    $
    
    
    
    $
    1,456
    
    
    $
    39,171Provision for loan
and lease losses
    
    
    416
    
    
    
    18,919
    
    
    
    
    
    
    
    
    
    
    
    19,335Non-interest income
    
    
    19,326
    
    
    
    32,068
    
    
    
    2,969
    
    
    
    (12,653
    )
    
    
    41,710Income (loss)
before income taxes
    
    
    5,598
    
    
    
    (14,441
    )
    
    
    2,325
    
    
    
    (8,598
    )
    
    
    (15,116
    )Net income (loss)
    
    
    4,600
    
    
    
    (16,386
    )
    
    
    1,372
    
    
    
    (8,598
    )
    
    
    (19,012
    )Identifiable assets
    
    
    1,742,082
    
    
    
    8,364,097
    
    
    
    13,547
    
    
    
    (1,043,624
    )
    
    
    9,076,102
 Quarter Ended September 30, 2009Mortgage
    
    
    
    
    
    Institutional
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Securities
    
    Agency
    
    Eliminations(1)
    
    TotalsNet interest income
    
    $
    3,713
    
    
    $
    39,046
    
    
    $
    
    
    
    $
    
    
    
    $
    850
    
    
    $
    43,609(Recovery)
provision for loan
and lease losses
    
    
    (1,188
    )
    
    
    6,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,879Non-interest income
    
    
    10,778
    
    
    
    17,547
    
    
    
    
    
    
    
    2,381
    
    
    
    (3,818
    )
    
    
    26,888Income before
income taxes
    
    
    5,487
    
    
    
    169
    
    
    
    
    
    
    
    1,693
    
    
    
    (995
    )
    
    
    6,354Net income (loss)
    
    
    14,624
    
    
    
    (3,467
    )
    
    
    
    
    
    
    3,047
    
    
    
    (995
    )
    
    
    13,209Identifiable assets
    
    
    1,666,658
    
    
    
    9,137,468
    
    
    
    1,659
    
    
    
    20,273
    
    
    
    (802,382
    )
    
    
    10,023,676
 
 (1)
    
    The intersegment eliminations in the tables above include servicing fees paid by the
banking subsidiaries to the mortgage banking subsidiary recognized as a reduction of the non
interest income, direct intersegment loan origination costs amortized as yield adjustment or
offset against net gains on mortgage loan sales and fees (mainly related with origination
costs paid by the banking segment to the mortgage banking segment) and other income derived
from intercompany transactions, related principally to rental income paid to Doral Properties,
the Companys subsidiary that owns the corporate headquarters facilities. Assets include
internal funding and investments in subsidiaries accounted for at cost. 59




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Nine Month Period Ended September 30, 2010Mortgage
    
    
    
    
    
    
    
    
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Insurance Agency
    
    Eliminations(1)
    
    TotalNet interest income
    
    $
    6,455
    
    
    $
    111,824
    
    
    $
    
    
    
    $
    4,718
    
    
    $
    122,997Provision for loan
and lease losses
    
    
    6,703
    
    
    
    71,170
    
    
    
    
    
    
    
    
    
    
    
    77,873Non-interest income
(loss)
    
    
    34,889
    
    
    
    (64,480
    )
    
    
    7,831
    
    
    
    (20,136
    )
    
    
    (41,896
    )(Loss) income
before income taxes
    
    
    (22,418
    )
    
    
    (219,583
    )
    
    
    5,935
    
    
    
    (8,848
    )
    
    
    (244,914
    )Net (loss) income
    
    
    (23,773
    )
    
    
    (226,709
    )
    
    
    3,504
    
    
    
    (8,848
    )
    
    
    (255,826
    )Identifiable assets
    
    
    1,742,082
    
    
    
    8,364,097
    
    
    
    13,547
    
    
    
    (1,043,624
    )
    
    
    9,076,102
 Nine Month Period Ended September 30, 2009Mortgage
    
    
    
    
    
    Institutional
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Securities
    
    Agency
    
    Eliminations(1)
    
    TotalsNet interest income
    
    $
    11,904
    
    
    $
    107,109
    
    
    $
    
    
    
    $
    
    
    
    $
    2,756
    
    
    $
    121,769(Recovery)
provision for loan
and lease losses
    
    
    (3,584
    )
    
    
    42,221
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,637Non-interest income
    
    
    34,962
    
    
    
    30,434
    
    
    
    
    
    
    
    7,369
    
    
    
    (25,163
    )
    
    
    47,602Income (loss)
before income taxes
    
    
    9,397
    
    
    
    (42,572
    )
    
    
    
    
    
    
    5,588
    
    
    
    (16,895
    )
    
    
    (44,482
    )Net income (loss)
    
    
    31,729
    
    
    
    (45,105
    )
    
    
    
    
    
    
    5,651
    
    
    
    (17,140
    )
    
    
    (24,865
    )Identifiable assets
    
    
    1,666,658
    
    
    
    9,137,468
    
    
    
    1,659
    
    
    
    20,273
    
    
    
    (802,382
    )
    
    
    10,023,676
 
 (1)
    
    The intersegment eliminations in the tables above include servicing fees paid by the
banking subsidiaries to the mortgage banking subsidiary recognized as a reduction of the non
interest income, direct intersegment loan origination costs amortized as yield adjustment or
offset against net gains on mortgage loan sales and fees (mainly related with origination
costs paid by the banking segment to the mortgage banking segment) and other income derived
from intercompany transactions, related principally to rental income paid to Doral Properties,
the Companys subsidiary that owns the corporate headquarters facilities. Assets include
internal funding and investments in subsidiaries accounted for at cost. 60




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Quarter Ended September 30, 2010(In thousands)
    
    Puerto Rico
    
    Mainland U.S.
    
    Eliminations
    
    TotalsNet interest income
    
    $
    34,095
    
    
    $
    4,832
    
    
    $
    244
    
    
    $
    39,171Provision for loan and lease losses
    
    
    18,792
    
    
    
    543
    
    
    
    
    
    
    
    19,335Non-interest income
    
    
    41,251
    
    
    
    731
    
    
    
    (272
    )
    
    
    41,710(Loss) income before income taxes
    
    
    (15,194
    )
    
    
    78
    
    
    
    
    
    
    
    (15,116
    )Net loss
    
    
    (18,616
    )
    
    
    (396
    )
    
    
    
    
    
    
    (19,012
    )Identifiable assets
    
    
    8,665,372
    
    
    
    952,274
    
    
    
    (541,544
    )
    
    
    9,076,102
 Quarter Ended September 30, 2009(In thousands)
    
    Puerto Rico
    
    Mainland U.S.
    
    Eliminations
    
    TotalsNet interest income
    
    $
    41,081
    
    
    $
    2,402
    
    
    $
    126
    
    
    $
    43,609Provision for loan and lease losses
    
    
    4,493
    
    
    
    386
    
    
    
    
    
    
    
    4,879Non-interest income
    
    
    26,593
    
    
    
    449
    
    
    
    (154
    )
    
    
    26,888Income (loss) before income taxes
    
    
    6,823
    
    
    
    (470
    )
    
    
    1
    
    
    
    6,354Net income (loss)
    
    
    15,286
    
    
    
    (2,078
    )
    
    
    1
    
    
    
    13,209Identifiable assets
    
    
    9,927,588
    
    
    
    360,916
    
    
    
    (264,828
    )
    
    
    10,023,676
 Nine Month Period Ended September 30, 2010(In thousands)
    
    Puerto Rico
    
    Mainland U.S.
    
    Eliminations
    
    TotalsNet interest income
    
    $
    110,726
    
    
    $
    11,708
    
    
    $
    563
    
    
    $
    122,997Provision for loan and lease losses
    
    
    76,815
    
    
    
    1,058
    
    
    
    
    
    
    
    77,873Non-interest (loss) income
    
    
    (43,930
    )
    
    
    2,678
    
    
    
    (644
    )
    
    
    (41,896
    )(Loss) income before income taxes
    
    
    (247,003
    )
    
    
    2,089
    
    
    
    
    
    
    
    (244,914
    )Net (loss) income
    
    
    (256,316
    )
    
    
    490
    
    
    
    
    
    
    
    (255,826
    )Identifiable assets
    
    
    8,665,372
    
    
    
    952,274
    
    
    
    (541,544
    )
    
    
    9,076,102
 Nine Month Period Ended September 30, 2009(In thousands)
    
    Puerto Rico
    
    Mainland U.S.
    
    Eliminations
    
    TotalsNet interest income
    
    $
    113,238
    
    
    $
    8,200
    
    
    $
    331
    
    
    $
    121,769Provision for loan and lease losses
    
    
    38,049
    
    
    
    588
    
    
    
    
    
    
    
    38,637Non-interest income
    
    
    46,684
    
    
    
    1,332
    
    
    
    (414
    )
    
    
    47,602(Loss) income before income taxes
    
    
    (47,366
    )
    
    
    2,884
    
    
    
    
    
    
    
    (44,482
    )Net (loss) income
    
    
    (24,996
    )
    
    
    376
    
    
    
    (245
    )
    
    
    (24,865
    )Identifiable assets
    
    
    9,927,588
    
    
    
    360,916
    
    
    
    (264,828
    )
    
    
    10,023,676
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FORWARD LOOKING STATEMENTS
     
    
    the continued recessionary conditions of the Puerto Rico economy and the continued
weakness in the performance of the United States economy and capital markets leading to,
among other things, (i) a deterioration in the credit quality of our loans and other
assets, (ii) decreased demand for our products and services and lower revenue and earnings,
(iii) reduction in our interest margins, and (iv) decreased availability and increased
pricing of our funding sources, including brokered certificates of deposits;
    
    the strength or weakness of the real estate markets and of the consumer and commercial
credit sectors and its impact in the credit quality of our loans and other assets which may
lead to, among other things, an increase in our non-performing loans, charge-offs and loan
loss provisions;
    
    a decline in the market value and estimated cash flows of our mortgage-backed
securities and other assets may result in the recognition of other-than-temporary
impairment (OTTI) of such assets under generally accepted accounting principles in the
United States of America (GAAP);
    
    our ability to derive sufficient income to realize the benefit of the deferred tax
assets;
    
    uncertainty about the legislative and other measures adopted by the Puerto Rico
government in response to its fiscal situation and the impact of such measures on different
sectors of the Puerto Rico economy;
    
    uncertainty about the effectiveness of the various actions undertaken to stimulate the
United States economy and stabilize the United States financial markets, and the impact of
such actions on our business, financial condition and results of operations;
    
    changes in interest rates, which may result from changes in the fiscal and monetary
policy of the federal government, and the potential impact of such changes in interest
rates on our net interest income and the value of our loans and investments;
    
    the commercial soundness of our various counterparties of financing and other
securities transactions, which could lead to possible losses when the collateral held by us
to secure the obligations of the counterparty is not sufficient or to possible delays or
losses in recovering any excess collateral belonging to us held by the counterparty;
    
    our ability to collect payment of a receivable from Lehman Brothers, Inc. (LBI),
which results from the excess of the value of securities owned by Doral Financial that were
held by LBI above the amounts owed by Doral Financial under certain terminated repurchase
agreements and forward agreement;
    
    higher credit losses because of federal or state legislation or regulatory action that
either (i) reduces the amount that our
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borrowers are required to pay us, or (ii) limits our ability to foreclose on properties or
collateral or makes foreclosures less economically feasible;
 
    
    developments in the regulatory and legal environment for public companies and financial
services companies in the United States (including Puerto Rico) as a result of, among other
things, the adoption in July 2010 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act and the regulations to be adopted thereunder by various federal and state
securities and banking regulatory agencies;
    
    changes in our accounting policies or in accounting standards, and changes in how
accounting standards are interpreted or applied;
    
    general competitive factors and industry consolidation;
    
    the strategies adopted by the FDIC and the three acquiring banks in connection with the
resolution of the residential, construction and commercial real estate loans acquired in
connection with the three Puerto Rico banks that failed in April 2010 may adversely affect
real estate values in Puerto Rico;
    
    to the extent we make any acquisitions, including FDIC-assisted acquisitions of assets
and liabilities of failed banks, risks and difficulties relating to combining the acquired
operations with our existing operations;
    
    potential adverse outcome in the legal or regulatory actions or proceedings described
in Part I, Item 3 Legal Proceedingsin the Companys 2009 Annual Report on Form 10-K, as
updated from time to time in the Companys future reports filed with the SEC; and
    
    the other risks and uncertainties detailed in Part II, Item 1A Risk Factorsin the
Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as updated in
Part II, Item 1A Risk Factorsin the Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010 and as updated from time to time in the Companys future reports filed with
the SEC.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   OVERVIEW OF RESULTS OF OPERATIONS
   
    
    Net loss attributable to common shareholders for the third quarter of 2010
totaled $21.4 million, and resulted in a loss per share of $0.19, compared to net income
attributable to common shareholders for the corresponding 2009 period of $10.0 million,
or earnings per share of $0.17. For further information please refer to Note 29 of the
accompanying financial statements.
    
    Net interest income for the third quarter of 2010 was $39.2 million,
compared to $43.6 million for the corresponding period in 2009. The decrease of $4.4
million in net interest income for 2010, compared to 2009, was due to a decrease in
interest income of $14.5 million, or 12.8%, partially offset by a decrease in interest
expense of $10.1 million, or 14.4%. The decrease in interest income was driven by lower
average interest-earning assets, primarily mortgage-backed securities (MBS) and
investment securities due to the sale of MBS during the third quarter of 2010, the sale
of non-agency collateralize mortgage obligations (CMOs) during the second quarter of
2010 as well as sales of MBS and investment securities late in 2009. In addition, asset
yields are being adversely affected by the higher level of non-performing loans and
yield concessions on loan restructurings. The decrease in interest expense was driven by
lower average borrowings primarily driven by efforts to reduce excess liquidity
associated to the de-leveraging of investment securities.
    
    The provision for loan and lease losses for the quarter ended September 30,
2010 totaled $19.3 million, an increase of $14.5 million over the $4.9 million provision
for the corresponding 2009 period. The increase in the provision for loan and lease
losses for the third quarter of 2010 largely resulted from an $8.4 million charge for a
large current commercial real estate loan and for $5.4 million charge related to certain
restructured residential mortgage loans.
    
    Non-interest income for the third quarter of 2010 was $41.7 million, an
increase of $14.8 million compared to non-interest income of $26.9 million for the
corresponding 2009 period. The increase in non-interest income for the third quarter of
2010, compared to the same period in 2009, was driven by a net gain on the sale of
securities of $14.4 million, net of cost to terminate related borrowings, as the Company
strategically deleveraged by selling $660.0 million of MBS.
    
    Non-interest expense for the third quarter of 2010 was $76.7 million,
compared to $59.3 million for the corresponding period in 2009. The $17.4 million
increase in non-interest expenses for the third quarter of 2010 was due to (i) higher
professional services of $6.8 million due to expenses incurred in the Companys capital
raise, preferred stock exchange, participation in bids for FDIC assisted transactions,
sale of non-performing assets and the defense of the Companys former officers, (ii) an
increase of $3.7 million in expenses related to other real estate owned (OREO) due
primarily to losses on OREO sales during the third quarter of 2010, and (iii) an
increase of $3.3 million in compensation and benefits resulting
from an increase in the
Companys headcount.
    
    An income tax expense of $3.9 million for the third quarter of 2010,
compared to an income tax benefit of $6.9 million for the corresponding period in 2009.
The income tax expense for the third quarter of 2010 is related to taxes
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on U.S. source income and taxes on profitable Puerto Rico entities, whereas the 2009 tax
benefit was related to the effect on deferred tax assets (DTAs) of certain tax
agreements.
 
    
    The Company reported cumulative other comprehensive income of $18.5 million
as of September 30, 2010, compared to other comprehensive loss of $103.9 million for the
corresponding 2009 period. The Companys cumulative other comprehensive income as of
September 30, 2010 resulted primarily from the sale of the Companys non-agency CMOs
during the second quarter of 2010, that realized a loss of approximately $129.7 million
at the time of sale.
    
    Doral Financials loan production for the third quarter of 2010 was $420.3
million, compared to $248.5 million for the comparable 2009 period, an increase of
approximately 69.1%. The increase in loan production for the third quarter of 2010 was
due to an increase in the U.S. commercial loan portfolio as a result of loan production
generated by the Companys U.S. based middle market syndicated lending unit which is
engaged in acquiring participation interests in credit facilities in the syndicated loan
market and to an increase in construction loans largely due to the issuance of a note
receivable of $96.9 million related to the sale of a construction loan portfolio to a
third party.
    
    Assets as of September 30, 2010 totaled $9.1 billion compared to $10.2
billion as of December 31, 2009, a decrease of $1.1 billion or 11.3%. The decrease in
assets was due to a decrease of $1.3 billion in the Companys investment securities
portfolio that resulted from a combination of a sale of $2.3 billion of MBS, primarily
CMOs, partially offset by purchases totalling $1.4 billion, primarily of shorter
duration mortgage-backed securities, as part of interest rate risk management
strategies. There were also increases of $37.0 million in cash and interest-earning
assets and in net loans of $144.7 million.
    
    Total deposits of $4.8 billion increased $118.1 million, or 2.5%, over
deposits of $4.6 billion as of December 31, 2009. The year-to-date deposit increase
resulted from a $209.3 million, or 10.5%, in retail deposits and a $91.2 million, or
3.4%, decrease in brokered deposits.
    
    Non-performing loans (NPL) as of September 30, 2010 were $741.0 million, a
decrease of $97.0 million compared to December 31, 2009. During the third quarter of
2010, the Company sold certain construction loans and OREO to a third party resulting in
a reduction of $63.2 million in construction and land loans that were non-performing.
Non-performing assets (NPA) as of September 30, 2010 were $970.7 million, an increase
of $28.1 million compared to December 31, 2009.
Non-performing FHA guaranteed loans, which are
guaranteed by an agency of the United States government and present little credit risk
to Doral, were $124.8 million, an increase of $114.5 million from December 31, 2009.
 65




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##### Table of Contents



Table A
Selected Financial Data
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands, except for share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Selected Income Statement Data:Interest income
    
    $
    98,883
    
    
    $
    113,403
    
    
    $
    309,188
    
    
    $
    344,475Interest expense
    
    
    59,712
    
    
    
    69,794
    
    
    
    186,191
    
    
    
    222,706Net interest income
    
    
    39,171
    
    
    
    43,609
    
    
    
    122,997
    
    
    
    121,769Provision for loan and lease losses
    
    
    19,335
    
    
    
    4,879
    
    
    
    77,873
    
    
    
    38,637Net interest income after provision for loan and lease losses
    
    
    19,836
    
    
    
    38,730
    
    
    
    45,124
    
    
    
    83,132Non-interest income (loss)
    
    
    41,710
    
    
    
    26,888
    
    
    
    (41,896
    )
    
    
    47,602Non-interest expenses
    
    
    76,662
    
    
    
    59,264
    
    
    
    248,142
    
    
    
    175,216(Loss) income before income taxes
    
    
    (15,116
    )
    
    
    6,354
    
    
    
    (244,914
    )
    
    
    (44,482
    )Income tax expense (benefit)
    
    
    3,896
    
    
    
    (6,855
    )
    
    
    10,912
    
    
    
    (19,617
    )Net (loss) income
    
    $
    (19,012
    )
    
    $
    13,209
    
    
    $
    (255,826
    )
    
    $
    (24,865
    )Net (loss) income attributable to common shareholders
    
    $
    (21,427
    )
    
    $
    10,000
    
    
    $
    (235,935
    )
    
    $
    (30,091
    )Net (loss) income per common share(1)
    
    $
    (0.19
    )
    
    $
    0.17
    
    
    $
    (2.92
    )
    
    $
    (0.54
    )Accrued dividends, preferred stock
    
    $
    2,415
    
    
    $
    3,209
    
    
    $
    6,694
    
    
    $
    14,595Preferred stock exchange premium, net
    
    $
    
    
    
    $
    
    
    
    $
    (26,585
    )
    
    $
    (9,369
    )Book value per common share
    
    $
    4.42
    
    
    $
    7.14
    
    
    $
    4.42
    
    
    $
    7.14Preferred shares outstanding at end of period
    
    
    5,811,391
    
    
    
    7,709,704
    
    
    
    5,811,391
    
    
    
    7,709,704Weighted average common shares outstanding
    
    
    112,165,805
    
    
    
    57,764,002
    
    
    
    80,841,687
    
    
    
    55,432,220Common shares outstanding at end of period
    
    
    127,293,756
    
    
    
    57,764,002
    
    
    
    127,293,756
    
    
    
    57,764,002Selected Balance Sheet Data at Period End:Total investment securities
    
    $
    1,641,560
    
    
    $
    3,550,760
    
    
    $
    1,641,560
    
    
    $
    3,550,760Total loans, net(2)
    
    
    5,840,711
    
    
    
    5,565,902
    
    
    
    5,840,711
    
    
    
    5,565,902Allowance for loan and lease losses (ALLL)
    
    
    119,263
    
    
    
    142,089
    
    
    
    119,263
    
    
    
    142,089Servicing assets, net
    
    
    113,834
    
    
    
    116,958
    
    
    
    113,834
    
    
    
    116,958Total assets
    
    
    9,076,102
    
    
    
    10,023,676
    
    
    
    9,076,102
    
    
    
    10,023,676Deposits
    
    
    4,761,089
    
    
    
    4,215,314
    
    
    
    4,761,089
    
    
    
    4,215,314Total borrowings
    
    
    3,126,109
    
    
    
    4,590,265
    
    
    
    3,126,109
    
    
    
    4,590,265Total liabilities
    
    
    8,161,757
    
    
    
    9,143,556
    
    
    
    8,161,757
    
    
    
    9,143,556Preferred equity
    
    
    352,082
    
    
    
    467,641
    
    
    
    352,082
    
    
    
    467,641Common equity
    
    
    562,263
    
    
    
    412,479
    
    
    
    562,263
    
    
    
    412,479Total stockholders equity
    
    
    914,345
    
    
    
    880,120
    
    
    
    914,345
    
    
    
    880,120Selected Average Balance Sheet Data for Period End: (3)Total investment securities
    
    $
    2,169,893
    
    
    $
    3,210,929
    
    
    $
    2,457,233
    
    
    $
    3,429,271Total loans(2)
    
    
    5,945,860
    
    
    
    5,671,294
    
    
    
    5,887,592
    
    
    
    5,644,597Total interest-earning assets
    
    
    8,775,719
    
    
    
    9,260,630
    
    
    
    9,006,074
    
    
    
    9,438,482Total assets
    
    
    9,515,416
    
    
    
    9,816,670
    
    
    
    9,709,991
    
    
    
    9,993,780Deposits
    
    
    4,853,278
    
    
    
    4,180,747
    
    
    
    4,717,386
    
    
    
    4,143,168Total borrowings
    
    
    3,457,285
    
    
    
    4,379,885
    
    
    
    3,735,531
    
    
    
    4,569,090Total interest-bearing liabilities
    
    
    8,055,761
    
    
    
    8,325,996
    
    
    
    8,209,502
    
    
    
    8,469,155Preferred equity
    
    
    395,197
    
    
    
    467,641
    
    
    
    430,341
    
    
    
    529,923Common equity
    
    
    544,933
    
    
    
    377,211
    
    
    
    494,449
    
    
    
    326,990Total stockholders equity
    
    
    940,130
    
    
    
    844,852
    
    
    
    924,790
    
    
    
    856,913Operating Data:Loan production
    
    $
    420,284
    
    
    $
    248,529
    
    
    $
    1,089,509
    
    
    $
    782,807Loan servicing portfolio (4)
    
    
    8,233,291
    
    
    
    8,917,697
    
    
    
    8,233,291
    
    
    
    8,917,697Selected Financial Ratios:Performance:Net interest margin
    
    
    1.77
    %
    
    
    1.87
    %
    
    
    1.83
    %
    
    
    1.72
    %Return on average assets (3)
    
    
    (0.79
    )%
    
    
    0.53
    %
    
    
    (3.52
    )%
    
    
    (0.33
    )%Return on average common equity(3)(5)
    
    
    (15.60
    )%
    
    
    10.52
    %
    
    
    (70.99
    )%
    
    
    (16.13
    )%Capital:Leverage ratio
    
    
    8.31
    %
    
    
    8.46
    %
    
    
    8.31
    %
    
    
    8.46
    %Tier 1 risk-based capital ratio
    
    
    13.72
    %
    
    
    13.53
    %
    
    
    13.72
    %
    
    
    13.53
    %Total risk-based capital ratio
    
    
    14.98
    %
    
    
    15.34
    %
    
    
    14.98
    %
    
    
    15.34
    %Asset quality:Total NPAs as percentage of the loan portfolio, net, and OREO (excluding GNMA
defaulted loans)
    
    
    16.75
    %
    
    
    16.72
    %
    
    
    16.75
    %
    
    
    16.72
    %Total NPAs as percentage of consolidated total assets
    
    
    10.70
    %
    
    
    9.08
    %
    
    
    10.70
    %
    
    
    9.08
    %ALLL as a percentage of loans receivable outstanding, at end of period
    
    
    2.12
    %
    
    
    2.68
    %
    
    
    2.12
    %
    
    
    2.68
    %ALLL to period-end loans receivable (excluding FHA/VA guaranteed loans)
    
    
    2.20
    %
    
    
    2.71
    %
    
    
    2.20
    %
    
    
    2.71
    %ALLL plus partial charge-offs and discounts to loans receivable (excluding FHA/VA
guaranteed loans and loans on savings)
    
    
    3.66
    %
    
    
    n/a
    
    
    
    3.66
    %
    
    
    n/aALLL to non-performing loans (excluding NPLs held for sale)
    
    
    16.18
    %
    
    
    17.69
    %
    
    
    16.18
    %
    
    
    17.69
    %ALLL plus partial charge-offs and discounts to non-performing loans (excluding
NPLs held for sale)
    
    
    27.27
    %
    
    
    n/a
    
    
    
    27.27
    %
    
    
    n/aProvision for loan and lease losses to net charge-offs
    
    
    55.27
    %
    
    
    51.04
    %
    
    
    78.36
    %
    
    
    135.25
    %Net charge-offs to average loan receivable outstanding
    
    
    0.62
    %
    
    
    0.18
    %
    
    
    1.79
    %
    
    
    0.54
    %ALLL to net charge-offs on an annualized basis
    
    
    85.92
    %
    
    
    374.68
    %
    
    
    89.76
    %
    
    
    372.01
    %Other ratios:Average common equity to average assets(3)
    
    
    5.73
    %
    
    
    3.84
    %
    
    
    5.09
    %
    
    
    3.27
    %Tier 1 common equity to risk-weighted assets
    
    
    7.51
    %
    
    
    6.45
    %
    
    
    7.51
    %
    
    
    6.45
    %
 
 (1)
    
    For the quarters and nine month periods ended September 30, 2010 and 2009,
net (loss) income per common share represents the basic and diluted (loss) income per common
share, respectively, for each of the periods presented.(2)
    
    Includes loans held for sale.(3)
    
    Average balances are computed on a daily basis.(4)
    
    Represents the total portfolio of loans serviced for third parties. Excludes
$4.5 billion and $4.4 billion of mortgage loans owned by Doral Financial at September 30, 2010
and 2009, respectively.(5)
    
    Excludes the effect of the preferred stock exchange inducement. 66




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
 Form 10-K.
 RECENT ACCOUNTING PRONOUNCEMENTS
  RESULTS OF OPERATIONS FOR THE QUARTERS AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009
 NET INTEREST INCOME
  Third
Quarter 2010 vs. Third Quarter 2009
   67




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##### Table of Contents



Nine Month Period Ended September 30, 2010 vs. Nine Month Period Ended September 30, 2009
     68




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##### Table of Contents



Table B
Average Balance Sheet and Summary of Net Interest Income
 Quarters Ended September 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateASSETS:Interest-earning assets:Total loans(1)(2)
    
    $
    5,945,860
    
    
    $
    79,518
    
    
    
    5.31
    %
    
    $
    5,671,294
    
    
    $
    78,653
    
    
    
    5.50
    %Mortgage-backed securities
    
    
    2,117,825
    
    
    
    16,266
    
    
    
    3.05
    %
    
    
    2,963,276
    
    
    
    30,026
    
    
    
    4.02
    %Interest-only strips (IOs)
    
    
    45,882
    
    
    
    1,580
    
    
    
    13.66
    %
    
    
    47,760
    
    
    
    1,347
    
    
    
    11.19
    %Investment securities
    
    
    6,186
    
    
    
    74
    
    
    
    4.75
    %
    
    
    199,893
    
    
    
    1,580
    
    
    
    3.14
    %Other interest-earning assets
    
    
    659,966
    
    
    
    1,445
    
    
    
    0.87
    %
    
    
    378,407
    
    
    
    1,797
    
    
    
    1.88
    %Total
interest-earning
assets/interest income
    
    
    8,775,719
    
    
    $
    98,883
    
    
    
    4.47
    %
    
    
    9,260,630
    
    
    $
    113,403
    
    
    
    4.86
    %Total non-interest-earning assets
    
    
    739,697
    
    
    
    
    
    
    
    
    
    
    
    556,040Total assets
    
    $
    9,515,416
    
    
    
    
    
    
    
    
    
    
    $
    9,816,670LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits
    
    $
    4,598,476
    
    
    $
    28,920
    
    
    
    2.50
    %
    
    $
    3,946,111
    
    
    $
    28,615
    
    
    
    2.88
    %Repurchase agreements
    
    
    1,571,941
    
    
    
    11,372
    
    
    
    2.87
    %
    
    
    1,840,621
    
    
    
    17,770
    
    
    
    3.83
    %Advances from FHLB
    
    
    1,072,594
    
    
    
    10,961
    
    
    
    4.05
    %
    
    
    1,557,503
    
    
    
    15,778
    
    
    
    4.02
    %Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    358,348
    
    
    
    227
    
    
    
    0.25
    %Loans payable
    
    
    314,845
    
    
    
    1,764
    
    
    
    2.22
    %
    
    
    350,012
    
    
    
    2,226
    
    
    
    2.52
    %Notes payable
    
    
    497,905
    
    
    
    6,695
    
    
    
    5.38
    %
    
    
    273,401
    
    
    
    5,178
    
    
    
    7.57
    %Total
interest-bearing
liabilities/interest
expense
    
    
    8,055,761
    
    
    $
    59,712
    
    
    
    2.94
    %
    
    
    8,325,996
    
    
    $
    69,794
    
    
    
    3.33
    %Total non-interest-bearing liabilities
    
    
    519,525
    
    
    
    
    
    
    
    
    
    
    
    645,822Total liabilities
    
    
    8,575,286
    
    
    
    
    
    
    
    
    
    
    
    8,971,818Stockholders equity
    
    
    940,130
    
    
    
    
    
    
    
    
    
    
    
    844,852Total liabilities and stockholders equity
    
    $
    9,515,416
    
    
    
    
    
    
    
    
    
    
    $
    9,816,670Net interest-earning assets
    
    $
    719,958
    
    
    
    
    
    
    
    
    
    
    $
    934,634Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    39,171
    
    
    
    
    
    
    
    
    
    
    $
    43,609Interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    1.53
    %
    
    
    
    
    
    
    
    
    
    
    1.53
    %Interest rate margin (4)
    
    
    
    
    
    
    
    
    
    
    1.77
    %
    
    
    
    
    
    
    
    
    
    
    1.87
    %Net interest-earning assets ratio (5)
    
    
    
    
    
    
    
    
    
    
    108.94
    %
    
    
    
    
    
    
    
    
    
    
    111.23
    %
 
 (1)
    
    Average loan balances include the average balance of non-accruing loans, on which
interest income is recognized when collected. Also, includes the average balance of GNMA
defaulted loans for which the Company has an unconditional buy-back option.(2)
    
    Interest income on loans includes $0.1 million and $0.3 million for the third
quarter of 2010 and 2009, respectively, of income from prepayment penalties related to the
Companys loan portfolio.(3)
    
    Interest rate spreads represents the difference between the weighted-average yield
on interest-earning assets and the weighted-average yield on interest bearing liabilities.(4)
    
    Interest rate margin represents net interest income on an annualized basis as a
percentage of average interest-earning assets.(5)
    
    Net interest-earning assets ratio represents average interest-earning assets as a
percentage of average interest-bearing liabilities. 69




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##### Table of Contents



Table C
Average Balance Sheet and Summary of Net Interest Income
 Nine Month Periods Ended September 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateASSETS:Interest-earning assets:Total loans(1)(2)
    
    $
    5,887,592
    
    
    $
    239,867
    
    
    
    5.45
    %
    
    $
    5,644,597
    
    
    $
    241,486
    
    
    
    5.72
    %Mortgage-backed securities
    
    
    2,368,022
    
    
    
    58,055
    
    
    
    3.28
    %
    
    
    3,021,946
    
    
    
    84,663
    
    
    
    3.75
    %Interest-only strips (IOs)
    
    
    45,178
    
    
    
    4,614
    
    
    
    13.65
    %
    
    
    48,832
    
    
    
    4,550
    
    
    
    12.46
    %Investment securities
    
    
    44,033
    
    
    
    1,522
    
    
    
    4.62
    %
    
    
    358,493
    
    
    
    9,252
    
    
    
    3.45
    %Other interest-earning assets
    
    
    661,249
    
    
    
    5,130
    
    
    
    1.04
    %
    
    
    364,614
    
    
    
    4,524
    
    
    
    1.66
    %Total
interest-earning
assets/interest income
    
    
    9,006,074
    
    
    $
    309,188
    
    
    
    4.59
    %
    
    
    9,438,482
    
    
    $
    344,475
    
    
    
    4.88
    %Total non-interest-earning assets
    
    
    703,917
    
    
    
    
    
    
    
    
    
    
    
    555,298Total assets
    
    $
    9,709,991
    
    
    
    
    
    
    
    
    
    
    $
    9,993,780LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits
    
    $
    4,473,971
    
    
    $
    83,207
    
    
    
    2.49
    %
    
    $
    3,900,065
    
    
    $
    97,694
    
    
    
    3.35
    %Repurchase agreements
    
    
    1,788,474
    
    
    
    43,134
    
    
    
    3.22
    %
    
    
    1,810,589
    
    
    
    52,483
    
    
    
    3.88
    %Advances from FHLB
    
    
    1,269,055
    
    
    
    37,855
    
    
    
    3.99
    %
    
    
    1,588,021
    
    
    
    47,780
    
    
    
    4.02
    %Other short-term borrowings
    
    
    6,722
    
    
    
    15
    
    
    
    0.30
    %
    
    
    538,182
    
    
    
    1,069
    
    
    
    0.27
    %Loans payable
    
    
    324,775
    
    
    
    5,089
    
    
    
    2.09
    %
    
    
    357,389
    
    
    
    8,073
    
    
    
    3.02
    %Notes payable
    
    
    346,505
    
    
    
    16,891
    
    
    
    6.50
    %
    
    
    274,909
    
    
    
    15,607
    
    
    
    7.57
    %Total
interest-bearing
liabilities/interest
expense
    
    
    8,209,502
    
    
    $
    186,191
    
    
    
    3.03
    %
    
    
    8,469,155
    
    
    $
    222,706
    
    
    
    3.52
    %Total non-interest-bearing liabilities
    
    
    575,699
    
    
    
    
    
    
    
    
    
    
    
    667,712Total liabilities
    
    
    8,785,201
    
    
    
    
    
    
    
    
    
    
    
    9,136,867Stockholders equity
    
    
    924,790
    
    
    
    
    
    
    
    
    
    
    
    856,913Total liabilities and stockholders equity
    
    $
    9,709,991
    
    
    
    
    
    
    
    
    
    
    $
    9,993,780Net interest-earning assets
    
    $
    796,572
    
    
    
    
    
    
    
    
    
    
    $
    969,327Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    122,997
    
    
    
    
    
    
    
    
    
    
    $
    121,769Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    1.56
    %
    
    
    
    
    
    
    
    
    
    
    1.36
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    1.83
    %
    
    
    
    
    
    
    
    
    
    
    1.72
    %Net interest-earning assets ratio(5)
    
    
    
    
    
    
    
    
    
    
    109.70
    %
    
    
    
    
    
    
    
    
    
    
    111.45
    %
 
 (1)
    
    Average loan balances include the average balance of non-accruing loans, on which
interest income is recognized when collected. Also, includes the average balance of GNMA
defaulted loans for which the Company has an unconditional buy-back option.(2)
    
    Interest income on loans includes $0.5 million and $0.9 million for the nine months
periods ended September 30, 2010 and 2009, respectively, of income from prepayment penalties
related to the Companys loan portfolio.(3)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average yield on interest-bearing liabilities.(4)
    
    Interest rate margin represents net interest income on an annualized basis as a
percentage of average interest-earning assets.(5)
    
    Net interest-earning assets ratio represents average interest-earning assets as a
percentage of average interest-bearing liabilities.  70




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Table D
Net Interest Income Variance Analysis
 Quarter Ended September 30,2010 Compared to 2009Increase (Decrease) Due To:(In thousands)
    
    Volume
    
    
    Rate
    
    
    TotalInterest Income VarianceTotal loans
    
    $
    3,685
    
    
    $
    (2,820
    )
    
    $
    865Mortgage-backed securities
    
    
    (8,148
    )
    
    
    (5,612
    )
    
    
    (13,760
    )Interest-only strips
    
    
    (67
    )
    
    
    300
    
    
    
    233Investment securities
    
    
    (2,122
    )
    
    
    616
    
    
    
    (1,506
    )Other interest-earning assets
    
    
    901
    
    
    
    (1,253
    )
    
    
    (352
    )Total Interest Income Variance
    
    $
    (5,751
    )
    
    $
    (8,769
    )
    
    $
    (14,520
    )Interest Expense VarianceDeposits
    
    $
    4,333
    
    
    $
    (4,028
    )
    
    $
    305Repurchase agreements
    
    
    (3,398
    )
    
    
    (3,000
    )
    
    
    (6,398
    )Advances from FHLB
    
    
    (5,740
    )
    
    
    923
    
    
    
    (4,817
    )Other short-term borrowings
    
    
    (227
    )
    
    
    
    
    
    
    (227
    )Loans payable
    
    
    (287
    )
    
    
    (175
    )
    
    
    (462
    )Notes payable
    
    
    3,111
    
    
    
    (1,594
    )
    
    
    1,517Total Interest Expense Variance
    
    $
    (2,208
    )
    
    $
    (7,874
    )
    
    $
    (10,082
    )Net Interest Income Variance
    
    $
    (3,543
    )
    
    $
    (895
    )
    
    $
    (4,438
    )
 Table E
Net Interest Income Variance Analysis
 Nine Month Period Ended September 30,2010 Compared to 2009Increase (Decrease) Due To:(In thousands)
    
    Volume
    
    
    Rate
    
    
    TotalInterest Income VarianceTotal loans
    
    $
    10,119
    
    
    $
    (11,738
    )
    
    $
    (1,619
    )Mortgage-backed securities
    
    
    (17,556
    )
    
    
    (9,052
    )
    
    
    (26,608
    )Interest-only strips
    
    
    (356
    )
    
    
    420
    
    
    
    64Investment securities
    
    
    (10,301
    )
    
    
    2,571
    
    
    
    (7,730
    )Other interest-earning assets
    
    
    2,721
    
    
    
    (2,115
    )
    
    
    606Total Interest Income Variance
    
    $
    (15,373
    )
    
    $
    (19,914
    )
    
    $
    (35,287
    )Interest Expense VarianceDeposits
    
    $
    8,705
    
    
    $
    (23,192
    )
    
    $
    (14,487
    )Repurchase agreements
    
    
    (3,425
    )
    
    
    (5,924
    )
    
    
    (9,349
    )Advances from FHLB
    
    
    (12,481
    )
    
    
    2,556
    
    
    
    (9,925
    )Other short-term borrowings
    
    
    (1,181
    )
    
    
    127
    
    
    
    (1,054
    )Loans payable
    
    
    (1,576
    )
    
    
    (1,408
    )
    
    
    (2,984
    )Notes payable
    
    
    3,301
    
    
    
    (2,017
    )
    
    
    1,284Total Interest Expense Variance
    
    $
    (6,657
    )
    
    $
    (29,858
    )
    
    $
    (36,515
    )Net Interest Income Variance
    
    $
    (8,716
    )
    
    $
    9,944
    
    
    $
    1,228
 71




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PROVISION FOR LOAN AND LEASE LOSSES
        72




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NON-INTEREST INCOME (LOSS)
 Table F
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    Variance
    
    
    2010
    
    
    2009
    
    
    VarianceNet other-than-temporary impairment losses
    
    $
    
    
    
    $
    (7,310
    )
    
    $
    7,310
    
    
    $
    (13,259
    )
    
    $
    (14,105
    )
    
    $
    846Net gain on mortgage loan sales and fees
    
    
    302
    
    
    
    2,637
    
    
    
    (2,335
    )
    
    
    4,679
    
    
    
    7,654
    
    
    
    (2,975
    )Net gain on securities held for trading
    
    
    3,979
    
    
    
    661
    
    
    
    3,318
    
    
    
    6,558
    
    
    
    2,444
    
    
    
    4,114Gain on IO valuation
    
    
    4,254
    
    
    
    3,896
    
    
    
    358
    
    
    
    8,770
    
    
    
    3,903
    
    
    
    4,867Gain (loss) on MSR economic hedge
    
    
    1,391
    
    
    
    3,405
    
    
    
    (2,014
    )
    
    
    7,875
    
    
    
    (10,791
    )
    
    
    18,666Loss on derivatives
    
    
    (859
    )
    
    
    (1,490
    )
    
    
    631
    
    
    
    (3,768
    )
    
    
    (2,208
    )
    
    
    (1,560
    )Net gain (loss) on trading activities
    
    
    8,765
    
    
    
    6,472
    
    
    
    2,293
    
    
    
    19,435
    
    
    
    (6,652
    )
    
    
    26,087Net gain (loss) on investment securities
    
    
    17,077
    
    
    
    1,024
    
    
    
    16,053
    
    
    
    (93,713
    )
    
    
    5,821
    
    
    
    (99,534
    )Loss on early repayment of debt
    
    
    (2,641
    )
    
    
    
    
    
    
    (2,641
    )
    
    
    (5,662
    )
    
    
    
    
    
    
    (5,662
    )Servicing income:Servicing fees
    
    
    6,780
    
    
    
    6,970
    
    
    
    (190
    )
    
    
    21,405
    
    
    
    21,945
    
    
    
    (540
    )Late charges
    
    
    2,602
    
    
    
    2,041
    
    
    
    561
    
    
    
    6,984
    
    
    
    6,376
    
    
    
    608Prepayment penalties
    
    
    132
    
    
    
    21
    
    
    
    111
    
    
    
    127
    
    
    
    283
    
    
    
    (156
    )Other servicing fees
    
    
    225
    
    
    
    122
    
    
    
    103
    
    
    
    697
    
    
    
    396
    
    
    
    301Interest loss on serial notes and others
    
    
    (278
    )
    
    
    497
    
    
    
    (775
    )
    
    
    (5,884
    )
    
    
    (3,366
    )
    
    
    (2,518
    )Mark-to-market adjustment of servicing assets
    
    
    (1,051
    )
    
    
    2,299
    
    
    
    (3,350
    )
    
    
    (9,529
    )
    
    
    (2,499
    )
    
    
    (7,030
    )Total servicing income
    
    
    8,410
    
    
    
    11,950
    
    
    
    (3,540
    )
    
    
    13,800
    
    
    
    23,135
    
    
    
    (9,335
    )Commissions, fees and other income:Retail banking fees
    
    
    6,940
    
    
    
    7,487
    
    
    
    (547
    )
    
    
    21,282
    
    
    
    21,696
    
    
    
    (414
    )Insurance agency commissions
    
    
    2,969
    
    
    
    2,381
    
    
    
    588
    
    
    
    7,747
    
    
    
    7,268
    
    
    
    479Other (loss) income
    
    
    (112
    )
    
    
    2,247
    
    
    
    (2,359
    )
    
    
    3,795
    
    
    
    2,785
    
    
    
    1,010Total commissions, fees and other income
    
    
    9,797
    
    
    
    12,115
    
    
    
    (2,318
    )
    
    
    32,824
    
    
    
    31,749
    
    
    
    1,075Total non-interest income (loss)
    
    $
    41,710
    
    
    $
    26,888
    
    
    $
    14,822
    
    
    $
    (41,896
    )
    
    $
    47,602
    
    
    $
    (89,498
    )
 Third Quarter 2010 vs. Third Quarter 2009
 
    
    There was no OTTI during the third quarter of 2010 resulting in positive variance of $7.3
million.
    
    An increase of $2.3 million in net gain on trading activities was resulted from:
 o
    
    A gain of $4.0 million on sales of securities held for trading during the quarter
compared to $0.6 million for the corresponding 2009 period due largely to market value
changes of securities classified as trading.o
    
    A gain on the IO valuation of $4.3 million compared to $3.9 million for the third
quarter of 2009 was driven by decreases in market interest rates.o
    
    A gain on the MSR economic hedge of $1.4 million compared to $3.4 million for the
corresponding 2009 period. The lower gain on the MSR economic hedge was due to a
reduction in the notional amount of the economic hedge so as to more closely match the
risk being hedged and loss market volatility.
 
    
    Servicing income of $8.4 million for the third quarter
of 2010 compared to servicing income of $12.0 million for the
corresponding 2009 period. The decrease in servicing income was due to:
 o
    
    A loss of $1.1 million in the value of the mortgage servicing asset (MSR)
driven by a reduction in serviced loan balance $684.4 million, offset in part by changes
in inputs and assumptions. The third quarter of 2009 included a gain of $2.3 million in
the value of the MSR due primarily to a decrease in prepayment speeds caused by higher
interest rates during the third quarter of 2009.
 73




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##### Table of Contents




    
    A decrease of $2.3 million in commissions, fees and other income driven by a gain of $2.0
million recognized during the third quarter of 2009 from the redemption of shares of VISA,
Inc., pursuant to their global restructuring agreement.
 Nine Month Period Ended September 30, 2010 vs. Nine Month Period Ended September 30, 2009
 
    
    A net loss on investment securities of $93.7 million resulted from a loss of $136.7 million
during the second quarter of 2010, from the sale of certain non-agency CMOs with an amortized
cost basis of $378.0 million, offset in part by the sale of certain agency securities in the
first and third quarters of 2010 that generated net gains of $26.4 million and $17.1 million,
respectively, together with a loss of an early repayment of debt of $5.7 million.
    
    A net gain on trading activities of $19.4 million compared to a loss of $6.7 million for
the corresponding 2009 period driven by:
 o
    
    A gain on the MSR economic hedge of $7.9 million compared to a loss of $10.8
million for the corresponding 2009 period primarily due to a change in the hedging
strategy during the second quarter of 2009.o
    
    A gain on the IO valuation of $8.8 million compared to $3.9 million for the third
quarter of 2009, driven by decreases in the market interest rates.o
    
    A gain of $6.6 million on securities held for trading compared to $2.4 million
for the corresponding 2009 period as declining interest rates have increased the value
of the security holdings.
 
    
    A reduction of $9.3 million in servicing income compared to $23.1 million for the nine
month period ended September 30, 2009 driven by:
 o
    
    A $5.9 million interest loss on servicing advances primarily related to the
repurchase of certain GNMA defaulted loans during the second quarter of 2010 that
generated a loss of $4.2 million.o
    
    A reduction of $7.0 million in the value of the mortgage servicing asset due to
changes in inputs and assumptions and a reduction in loan balances.
 
    
    An increase in other income of $1.1 million primarily driven by a higher gain on redemption
of shares of VISA, Inc. during 2010 compared to 2009.
 74




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##### Table of Contents



NON-INTEREST EXPENSE
 Table G
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    Variance
    
    
    2010
    
    
    2009
    
    
    VarianceCompensation and benefits
    
    $
    17,728
    
    
    $
    14,459
    
    
    $
    3,269
    
    
    $
    54,478
    
    
    $
    53,110
    
    
    $
    1,368Professional services
    
    
    14,010
    
    
    
    7,252
    
    
    
    6,758
    
    
    
    43,222
    
    
    
    20,770
    
    
    
    22,452FDIC insurance expense
    
    
    4,895
    
    
    
    5,468
    
    
    
    (573
    )
    
    
    15,660
    
    
    
    13,549
    
    
    
    2,111Communication expenses
    
    
    4,446
    
    
    
    4,208
    
    
    
    238
    
    
    
    12,446
    
    
    
    12,621
    
    
    
    (175
    )Occupancy expenses
    
    
    4,259
    
    
    
    3,788
    
    
    
    471
    
    
    
    12,562
    
    
    
    10,703
    
    
    
    1,859EDP expenses
    
    
    3,697
    
    
    
    3,968
    
    
    
    (271
    )
    
    
    10,354
    
    
    
    10,751
    
    
    
    (397
    )Depreciation and amortization
    
    
    3,178
    
    
    
    3,086
    
    
    
    92
    
    
    
    9,435
    
    
    
    9,756
    
    
    
    (321
    )Taxes, other than payroll and income taxes
    
    
    2,820
    
    
    
    2,567
    
    
    
    253
    
    
    
    7,975
    
    
    
    7,478
    
    
    
    497Recourse provision
    
    
    2,149
    
    
    
    1,124
    
    
    
    1,025
    
    
    
    3,406
    
    
    
    3,159
    
    
    
    247Advertising
    
    
    1,978
    
    
    
    1,806
    
    
    
    172
    
    
    
    7,549
    
    
    
    4,678
    
    
    
    2,871Office expenses
    
    
    1,595
    
    
    
    1,430
    
    
    
    165
    
    
    
    3,992
    
    
    
    4,099
    
    
    
    (107
    )Corporate insurance
    
    
    1,490
    
    
    
    1,210
    
    
    
    280
    
    
    
    4,016
    
    
    
    3,403
    
    
    
    613Other
    
    
    7,458
    
    
    
    5,674
    
    
    
    1,784
    
    
    
    17,258
    
    
    
    15,465
    
    
    
    1,79369,703
    
    
    
    56,040
    
    
    
    13,663
    
    
    
    202,353
    
    
    
    169,542
    
    
    
    32,811Other reserves and OREO:Reserve on Lehman Brothers,
Inc. claim receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,819
    
    
    
    
    
    
    
    10,819OREO lower of cost or
market adjustments
    
    
    2,935
    
    
    
    3,503
    
    
    
    (568
    )
    
    
    29,207
    
    
    
    5,423
    
    
    
    23,784Loss (gain) on sales of OREO
    
    
    2,905
    
    
    
    (589
    )
    
    
    3,494
    
    
    
    2,966
    
    
    
    (1,068
    )
    
    
    4,034OREO other related expenses
    
    
    1,119
    
    
    
    310
    
    
    
    809
    
    
    
    2,797
    
    
    
    1,319
    
    
    
    1,4786,959
    
    
    
    3,224
    
    
    
    3,735
    
    
    
    45,789
    
    
    
    5,674
    
    
    
    40,115Total non-interest expense
    
    $
    76,662
    
    
    $
    59,264
    
    
    $
    17,398
    
    
    $
    248,142
    
    
    $
    175,216
    
    
    $
    72,926
 Third Quarter 2010 vs. Third Quarter 2009
 
    
    An increase of $3.3 million in compensation and benefits was primarily due to an increase in the Companys headcount related to
collections efforts.
    
    Professional services of $14.0 million reflected an increase of $6.8 million primarily related to:
 o
    
    An increase of $0.2 million in defense litigation costs of former company officers.o
    
    An increase of $2.1 million for advisory services related to corporate lawsuits
that the Company is acting as a plaintiff.o
    
    An increase of $4.5 million in other professional services primarily related to
non-recurring transactions during 2010: (i) approximately $1.0 million of expenses
incurred on the CLO transaction; (ii) $2.5 million in higher servicing costs related to
the construction and large commercial loan portfolios; and (iii) an increase of $1.4
million related to expenses incurred in 2010 for other transactions such as the sale of
certain construction loans during the third quarter of 2010, preferred stock exchanges,
expenses related to bidding for FDIC assisted transactions and the dissolution of Doral
Holdings.
 
    
    An increase of $3.7 million in OREO losses and other related expenses due primarily to
losses on OREO sales during the third quarter of 2010 as a result of the strategic decision to
reduce pricing on the OREO portfolio in order to accelerate sales. The accelerated disposition
of OREO properties is expected to reduce the carrying costs of OREO.
 Nine Month Period Ended September 30, 2010 vs. Nine Month Period Ended September 30, 2009
 75




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##### Table of Contents




    
    Professional services of $43.2 million reflected an increase of $22.5 million compared to
corresponding 2009 period, primarily due to:
 o
    
    An increase of $4.1 million in defense litigation costs of former company officers.o
    
    An increase of $4.0 million in legal expenses to support corporate litigation and collection efforts.o
    
    An increase of $14.4 million in other professional services primarily related to
non-recurring transactions during 2010: (i) approximately $1.0 million of expenses
incurred on the CLO transaction and (ii) higher servicing costs related to the
construction and large commercial loan portfolios of $2.5 million. In addition, there
were higher expenses of approximately $8.8 million for other transactions such as the
sale of construction loans, preferred stock exchanges, expenses related to bidding for
FDIC assisted transactions and the dissolution of Doral Holdings.
 
    
    Increase in advertising expense of $2.9 million primarily related to campaigns to gain
market share in deposits and mortgage origination subsequent to the local market bank failures
and asset acquisitions in April 2010.
    
    An additional $10.8 million reserve for the Companys claim on Lehman Brothers Inc. was
established during the second quarter of 2010.
    
    An increase of $2.1 million in FDIC insurance expense related to increases in rates and
assessment bases.
    
    An increase of $29.3 million in OREO losses and other related expenses as a result of an
additional provision for OREO losses of $17.0 million to recognize the effect of managements
strategic decision to reduce pricing in order to accelerate OREO
sales, adjustments driven by
lower values of certain of Dorals OREO properties, higher levels of repossessed units and
higher expenses to maintain the properties in saleable conditions.
 INCOME TAXES
  Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Current income tax expense (benefit):Puerto Rico
    
    $
    
    
    
    $
    36
    
    
    $
    
    
    
    $
    (14,896
    )United States
    
    
    822
    
    
    
    974
    
    
    
    4,712
    
    
    
    2,539Total current income tax expense (benefit)
    
    
    822
    
    
    
    1,010
    
    
    
    4,712
    
    
    
    (12,357
    )Deferred income tax expense (benefit):Puerto Rico
    
    
    1,952
    
    
    
    (10,490
    )
    
    
    4,746
    
    
    
    (9,221
    )United States
    
    
    1,122
    
    
    
    2,625
    
    
    
    1,454
    
    
    
    1,961Total deferred income tax expense (benefit)
    
    
    3,074
    
    
    
    (7,865
    )
    
    
    6,200
    
    
    
    (7,260
    )Total income tax expense (benefit)
    
    $
    3,896
    
    
    $
    (6,855
    )
    
    $
    10,912
    
    
    $
    (19,617
    )
    BALANCE SHEET AND OPERATING DATA ANALYSIS
 LOAN PRODUCTION
  76




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##### Table of Contents



Table H
Loan Production
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(Dollars in thousands, except for average initial loan balance)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009FHA/VA mortgage loansNumber of loans
    
    
    554
    
    
    
    642
    
    
    
    1,358
    
    
    
    1,907Volume of loans
    
    $
    76,800
    
    
    $
    77,945
    
    
    $
    186,423
    
    
    $
    258,874Percent of total volume
    
    
    18
    %
    
    
    31
    %
    
    
    17
    %
    
    
    33
    %Average initial loan balance
    
    $
    138,628
    
    
    $
    121,410
    
    
    $
    137,278
    
    
    $
    135,749Conventional conforming mortgage loansNumber of loans
    
    
    359
    
    
    
    213
    
    
    
    774
    
    
    
    697Volume of loans
    
    $
    45,994
    
    
    $
    26,922
    
    
    $
    97,353
    
    
    $
    87,672Percent of total volume
    
    
    11
    %
    
    
    11
    %
    
    
    9
    %
    
    
    11
    %Average initial loan balance
    
    $
    128,117
    
    
    $
    126,394
    
    
    $
    125,779
    
    
    $
    125,785Conventional non-conforming mortgage loans(1)Number of loans
    
    
    461
    
    
    
    490
    
    
    
    1,505
    
    
    
    1,801Volume of loans
    
    $
    68,458
    
    
    $
    76,682
    
    
    $
    234,573
    
    
    $
    278,304Percent of total volume
    
    
    16
    %
    
    
    31
    %
    
    
    22
    %
    
    
    36
    %Average initial loan balance
    
    $
    148,496
    
    
    $
    156,494
    
    
    $
    155,862
    
    
    $
    154,527Construction development loansNumber of loans
    
    
    13
    
    
    
    
    
    
    
    19
    
    
    
    Volume of loans
    
    $
    131,307
    
    
    $
    
    
    
    $
    134,168
    
    
    $
    Percent of total volume
    
    
    31
    %
    
    
    
    %
    
    
    12
    %
    
    
    
    %Average initial loan balance
    
    $
    10,100,538
    
    
    $
    
    
    
    $
    7,061,474
    
    
    $
    Disbursement under existing construction development loansVolume of loans
    
    $
    2,968
    
    
    $
    11,136
    
    
    $
    9,657
    
    
    $
    41,125Percent of total volume
    
    
    1
    %
    
    
    5
    %
    
    
    1
    %
    
    
    5
    %Commercial loans(2)Number of loans
    
    
    28
    
    
    
    25
    
    
    
    202
    
    
    
    49Volume of loans
    
    $
    85,451
    
    
    $
    55,244
    
    
    $
    377,220
    
    
    $
    103,158Percent of total volume
    
    
    21
    %
    
    
    22
    %
    
    
    35
    %
    
    
    13
    %Average initial loan balance
    
    $
    3,051,821
    
    
    $
    2,209,760
    
    
    $
    1,867,426
    
    
    $
    2,105,265Consumer loans(2)(3)Number of loans
    
    
    136
    
    
    
    107
    
    
    
    571
    
    
    
    591Volume of loans
    
    $
    746
    
    
    $
    600
    
    
    $
    3,020
    
    
    $
    4,474Percent of total volume
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    1
    %Average initial loan balance
    
    $
    5,485
    
    
    $
    5,607
    
    
    $
    5,289
    
    
    $
    7,570Other(4)Number of loans
    
    
    8
    
    
    
    
    
    
    
    36
    
    
    
    1Volume of loans
    
    $
    8,560
    
    
    $
    
    
    
    $
    47,095
    
    
    $
    9,200Percent of total volume
    
    
    2
    %
    
    
    
    %
    
    
    4
    %
    
    
    1
    %Average initial loan balance
    
    $
    1,070,000
    
    
    $
    
    
    
    $
    1,308,194
    
    
    $
    Total loansNumber of loans
    
    
    1,559
    
    
    
    1,477
    
    
    
    4,465
    
    
    
    5,046Volume of loans
    
    $
    420,284
    
    
    $
    248,529
    
    
    $
    1,089,509
    
    
    $
    782,807
 
 (1)
    
    Includes $0.7 million and $0.4 million in second mortgages for the quarters ended
September 30, 2010 and 2009, respectively, and $1.2 million and $1.9 million in second
mortgages for the nine month periods ended September 30, 2010 and 2009,
respectively.(2)
    
    Commercial and consumer lines of credit are included in the loan production
according to the credit limit approved.(3)
    
    Includes commercial real estate and commercial and industrial loans.(4)
    
    Consists of multifamily loans. 77




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Table I
Loan Origination Sources
 Nine Month Periods Ended September 30,2010
    
    2009Puerto Rico
    
    US
    
    Total
    
    Puerto Rico
    
    US
    
    TotalConsumer
    
    
    42
    %
    
    
    
    %
    
    
    42
    %
    
    
    68
    %
    
    
    
    %
    
    
    68
    %Wholesale(1)
    
    
    6
    %
    
    
    1
    %
    
    
    7
    %
    
    
    12
    %
    
    
    
    %
    
    
    12
    %Housing Developments(2)
    
    
    9
    %
    
    
    4
    %
    
    
    13
    %
    
    
    2
    %
    
    
    3
    %
    
    
    5
    %Commercial and Industrial
    
    
    
    %
    
    
    32
    %
    
    
    32
    %
    
    
    
    %
    
    
    8
    %
    
    
    8
    %Other(3)
    
    
    1
    %
    
    
    5
    %
    
    
    6
    %
    
    
    1
    %
    
    
    6
    %
    
    
    7
    %Total
    
    
    58
    %
    
    
    42
    %
    
    
    100
    %
    
    
    83
    %
    
    
    17
    %
    
    
    100
    %
 
 (1)
    
    Refers to purchases of mortgage loans from other financial institutions and mortgage
lenders.(2)
    
    Includes new construction development loans and the disbursement of existing
construction development loans.(3)
    
    Refers to commercial real estate, consumer and multifamily loans originated through
the banking subsidiaries. MORTGAGE LOAN SERVICING
  78




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Table J
Loans Serviced For Third Parties
 As of September 30,(Dollars in Thousands, Except for Average Size of Loans Serviced)
    
    2010
    
    
    2009Composition of Portfolio Serviced for Third Parties at Period End:GNMA
    
    $
    2,312,042
    
    
    $
    2,367,668FHLMC/FNMA
    
    
    2,882,124
    
    
    
    3,167,297Other conventional mortgage loans(1)(2)
    
    
    3,039,125
    
    
    
    3,382,732Total portfolio serviced for third parties
    
    $
    8,233,291
    
    
    $
    8,917,697Activity of Portfolio Serviced for Third Parties:Beginning servicing portfolio
    
    $
    8,655,613
    
    
    $
    9,460,350Additions to servicing portfolio
    
    
    273,565
    
    
    
    345,925Servicing released due to repurchases
    
    
    (95,548
    )
    
    
    (51,269
    )MSRs sales
    
    
    (24,045
    )
    
    
    (7,111
    )Run-off(3)
    
    
    (576,294
    )
    
    
    (830,198
    )Ending servicing portfolio
    
    $
    8,233,291
    
    
    $
    8,917,697Selected Data Regarding Mortgage Loans Serviced for Third Parties:Number of loans
    
    
    98,671
    
    
    
    105,976Weighted-average interest rate
    
    
    6.22
    %
    
    
    6.34
    %Weighted-average remaining maturity (months)
    
    
    239
    
    
    
    243Weighted-average gross servicing fee rate
    
    
    0.40
    %
    
    
    0.39
    %Average servicing portfolio(4)
    
    $
    8,442,882
    
    
    $
    9,177,648Principal prepayments
    
    $
    334,646
    
    
    $
    545,997Constant prepayment rate
    
    
    5.02
    %
    
    
    7.35
    %Average size of loans
    
    $
    83,442
    
    
    $
    84,148Servicing assets, net
    
    $
    113,834
    
    
    $
    116,958Mortgage-servicing advances(5)
    
    $
    43,978
    
    
    $
    22,222Delinquent Mortgage Loans and Pending Foreclosures at Period End:60-89 days past due
    
    
    2.86
    %
    
    
    2.48
    %90 days or more past due
    
    
    5.31
    %
    
    
    4.86
    %Total delinquencies excluding foreclosures
    
    
    8.17
    %
    
    
    7.34
    %Foreclosures pending
    
    
    3.25
    %
    
    
    3.01
    %
 
 (1)
    
    Excludes $4.5 billion and $4.4 billion of mortgage loans owned by Doral Financial at
September 30, 2010 and 2009, respectively.(2)
    
    Includes portfolios of $143.1 million and $158.9 million at September 30, 2010 and
2009, respectively, of delinquent FHA/VA and conventional mortgage loans sold to third
parties.(3)
    
    Run-off refers to regular amortization of loans, prepayments and foreclosures.(4)
    
    Excludes the average balance of mortgage loans owned by Doral Financial of $4.4
billion and $4.3 billion at September 30, 2010 and 2009, respectively.(5)
    
    Includes reserves for
possible losses on P&I advances of $5.8 million and $9.0 million at September 30, 2010 and
2009, respectively.  79




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LIQUIDITY AND CAPITAL RESOURCES
  Liquidity of the Holding Company
      
    
    changes in short-term borrowings and deposits in the normal course of business;
    
    repayment of certain long-term callable certificate of deposits;
 80




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
    
    early repayment of debt;
    
    adoption of an initiative to lengthen the brokered certificates term to structurally
reduce interest rate sensitivity;
    
    the impact on the Companys assets and liabilities as a result of the Companys exposure
to LBI in connection with repurchase agreements and forward TBA agreements;
    
    capital contributions to Doral Bank;
    
    suspension of payment of dividends on outstanding preferred stock;
    
    prepayment of FDIC insurance assessments for the years 2010-2012;
    
    repurchase of GNMA defaulted loans in 2009 and 2010;
    
    inducement on preferred stock conversions;
    
    capital raise of $171.0 million in the second quarter of 2010;
    
    efforts to increase retail deposits in the wake of failed Puerto Rico banks; and
    
    On July 8, 2010, the Company entered into a collateralized loan arrangement in which,
when fully operational, $450.0 million of U.S. based commercial loans are funded $250.0
million by a third party paying 3-month LIBOR plus 1.85%, and $200.0 million by Doral. The
entity holding the loans is consolidated by Doral and the third party financing is reported
as a note payable. The third party funding provides an additional source of liquidity for
the Companys US operations.
  Liquidity of the Banking Subsidiaries
  Cash Sources and Uses
    81




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Primary Sources of Cash
  Table K
Sources Of Borrowings
 As of September 30, 2010
    
    As of December 31, 2009Amount
    
    Average
    
    Amount
    
    Average(Dollars in thousands)
    
    Outstanding
    
    Rate
    
    Outstanding
    
    RateDeposits
    
    $
    4,761,089
    
    
    
    2.25
    %
    
    $
    4,643,021
    
    
    
    2.24
    %Repurchase Agreements
    
    
    1,326,800
    
    
    
    2.94
    %
    
    
    2,145,262
    
    
    
    3.32
    %Advances from FHLB
    
    
    973,420
    
    
    
    3.84
    %
    
    
    1,606,920
    
    
    
    3.05
    %Other Short-Term Borrowings
    
    
    
    
    
    
    
    %
    
    
    110,000
    
    
    
    0.25
    %Loans Payable
    
    
    309,819
    
    
    
    6.75
    %
    
    
    337,036
    
    
    
    7.27
    %Notes Payable
    
    
    516,070
    
    
    
    4.92
    %
    
    
    270,838
    
    
    
    7.30
    %
   Table L
Average Deposit Balance
 Nine Month Periods Ended
    
    
    Year EndedSeptember 30, 2010
    
    
    December 31, 2009Average
    
    
    Average
    
    
    Average
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateCertificates of deposit
    
    $
    610,140
    
    
    
    2.56
    %
    
    $
    484,917
    
    
    
    3.34
    %Brokered certificates of deposits
    
    
    2,711,818
    
    
    
    2.84
    %
    
    
    2,374,207
    
    
    
    3.70
    %Regular passbook savings
    
    
    374,783
    
    
    
    1.49
    %
    
    
    361,217
    
    
    
    1.69
    %NOW accounts and other transaction accounts
    
    
    369,349
    
    
    
    1.24
    %
    
    
    350,300
    
    
    
    1.26
    %Money market accounts
    
    
    407,881
    
    
    
    2.08
    %
    
    
    390,962
    
    
    
    2.71
    %Total interest-bearing
    
    
    4,473,971
    
    
    
    2.49
    %
    
    
    3,961,603
    
    
    
    3.16
    %Non-interest bearing
    
    
    243,415
    
    
    
    
    %
    
    
    244,606
    
    
    
    
    %Total deposits
    
    $
    4,717,386
    
    
    
    2.36
    %
    
    $
    4,206,209
    
    
    
    2.97
    %
  Table M
Certificates of Deposits Maturities
 (In thousands)
    
    September 30, 2010Certificates of deposit maturing:Three months or less
    
    $
    498,585Over three through six months
    
    
    261,877Over six through twelve months
    
    
    526,810Over twelve months
    
    
    1,722,641Total
    
    $
    3,009,913
  82




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Other Uses of Cash
     83




---



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84




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ASSETS AND LIABILITIES
    CAPITAL
     85




---



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Earnings per Share
        86




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Regulatory Capital Ratios
   Table N
Regulatory Capital Ratios
 As of September 30, 2010Doral
    
    Doral
    
    DoralFinancial
    
    Bank PR
    
    Bank USTotal Capital Ratio (Total capital to risk-weighted assets)
    
    
    15.0
    %
    
    
    16.2
    %
    
    
    14.1
    %Tier 1 Capital Ratio (Tier 1 capital to risk-weighted assets)
    
    
    13.7
    %
    
    
    15.0
    %
    
    
    13.7
    %Leverage Ratio (1)
    
    
    8.3
    %
    
    
    7.7
    %
    
    
    8.7
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR
and Tier 1 capital to adjusted total assets in the case of Doral Bank US. As of December 31, 2009Doral
    
    Doral
    
    DoralFinancial
    
    Bank PR
    
    Bank USTotal Capital Ratio (Total capital to risk-weighted assets)
    
    
    15.1
    %
    
    
    15.3
    %
    
    
    16.6
    %Tier 1 Capital Ratio (Tier 1 capital to risk-weighted assets)
    
    
    13.8
    %
    
    
    14.0
    %
    
    
    16.2
    %Leverage Ratio (1)
    
    
    8.4
    %
    
    
    7.4
    %
    
    
    13.0
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR
and Tier 1 capital to adjusted total assets in the case of Doral Bank US.   Legal
Proceedings
  Housing and Urban Development Requirements
   FAIR VALUE OF FINANCIAL INSTRUMENTS
    Level 1
    
    Valuation is based upon unadjusted quoted prices for identical
instruments traded in active markets. Level 2
    
    Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets that are
not active, and model-based valuation techniques for which all significant assumptions
are observable in the market, or are derived principally from or corroborated by
observable market data, by correlation or by other means. Level 3
    
    Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable assumptions
reflect the Companys estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
    87




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OFF-BALANCE SHEET ACTIVITIES
     88




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Quarter Ended
    
    
    Nine Month Period Ended(In thousands)
    
    September 30, 2010
    
    
    September 30, 2010Balance at beginning of period
    
    $
    9,225
    
    
    $
    9,440Net charge-offs / termination
    
    
    (806
    )
    
    
    (2,278
    )Provision for recourse liability
    
    
    2,149
    
    
    
    3,406Balance at end of period
    
    $
    10,568
    
    
    $
    10,568
    Derivatives and Hedging
   CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
  89




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Table O
Contractual Obligations
 Payment Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    After(In thousands)
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDeposits
    
    $
    4,761,089
    
    
    $
    2,992,660
    
    
    $
    1,100,997
    
    
    $
    460,805
    
    
    $
    206,627Repurchase agreements(1)(2)
    
    
    1,326,800
    
    
    
    125,000
    
    
    
    742,300
    
    
    
    459,500
    
    
    
    Advances from FHLB(1)(2)
    
    
    973,420
    
    
    
    419,420
    
    
    
    554,000
    
    
    
    
    
    
    
    Loans payable (3)
    
    
    309,819
    
    
    
    37,395
    
    
    
    69,289
    
    
    
    55,131
    
    
    
    148,004Notes payable
    
    
    516,070
    
    
    
    7,535
    
    
    
    46,478
    
    
    
    5,047
    
    
    
    457,010Other liabilities
    
    
    125,654
    
    
    
    125,654
    
    
    
    
    
    
    
    
    
    
    
    Non-cancelable operating leases
    
    
    43,130
    
    
    
    5,801
    
    
    
    10,642
    
    
    
    8,233
    
    
    
    18,454Total Contractual Cash Obligations
    
    $
    8,055,982
    
    
    $
    3,713,465
    
    
    $
    2,523,706
    
    
    $
    988,716
    
    
    $
    830,095
 
 (1)
    
    Amounts included in the table above do not include interest.(2)
    
    Includes $100.0 million of a repurchase agreement with a fixed rate of 2.98% and
$169.0 million of advances from FHLB with an average fixed rate of 5.23%,which the lenders
have the right to call before their contractual maturities. The repurchase agreement and the
advances from FHLB are included in the less-than-one year category in the above table but have
actual contractual maturities ranging from October 2010 to February 2014. They are included on
the first call date basis because increases in interest rates over the average rate of the
Companys borrowings may induce the lenders to exercise their right.(3)
    
    Consist of secured borrowings with local financial institutions, collateralized by
residential mortgage loans at variable interest rates tied to 3-month LIBOR. These loans are
not subject to scheduled payments, but are required to be repaid according to the regular
amortization and prepayments of the underlying mortgage loans. For purposes of the table
above, the Company used a CPR of 10.6% to estimate the repayments. Table P
Other Commercial Commitments (1)
 Amount of Commitment Expiration Per PeriodTotalAmount
    
    
    Less Than
    
    
    
    
    
    
    
    
    
    
    After(In thousands)
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsCommitments to extend credit
    
    $
    131,639
    
    
    $
    94,197
    
    
    $
    9,113
    
    
    $
    28,329
    
    
    $
    Commitments to sell loans
    
    
    109,675
    
    
    
    109,675
    
    
    
    
    
    
    
    
    
    
    
    Commercial and financial standby letters of credit
    
    
    25
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Maximum contractual recourse exposure
    
    
    707,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    707,389Total
    
    $
    948,728
    
    
    $
    203,897
    
    
    $
    9,113
    
    
    $
    28,329
    
    
    $
    707,389
 
 (1)
    
    Refer to Off-Balance Sheet Activities above for additional information regarding
other commercial commitments of the Company. RISK MANAGEMENT
  Interest Rate and Market Risk Management
   90




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
    
    developing the Companys asset/liability management and liquidity strategy;
    
    establishing and monitoring of interest rate, pricing and liquidity risk limits to
ensure compliance with the Companys policies;
    
    overseeing product pricing and volume objectives for banking and treasury activities;
and
    
    overseeing the maintenance of management information systems that supply relevant
information for the ALCO to fulfill its responsibilities as it relates to asset/liability
management.
 Risk Identification Measurement and Control
   
    
    Net Interest Income Sensitivity.Refers to the relationship between market interest
rates and net interest income due to the maturity mismatches and repricing characteristics
of Doral Financials interest-earning assets, interest-bearing liabilities and off-balance
sheet positions. To measure net interest income exposure to changes in market interest
rates, the Company uses earnings simulation techniques. These simulation techniques allow
for the forecasting of net interest income and expense under various rate scenarios for the
measurement of interest rate risk exposures of Doral Financial. Primary scenarios include
instantaneous parallel and non-parallel rate shocks. Net interest income sensitivity is
measured for time horizons ranging from twelve to sixty months and as such, serves as a
measure of short to medium term earnings risk. The basic underlying assumptions used in net
interest income simulations are: (i) the Company maintains a static balance sheet; (ii)
full reinvestment of funds in similar product/instruments with similar maturity and
repricing characteristics; (iii) spread assumed constant; (iv) prepayment rates on
mortgages and mortgage related securities are modeled using multi-factor prepayment model;
(v) non-maturity deposit decay and price elasticity assumptions are incorporated, and (vi)
evaluation of embedded options is also taken into consideration. To complement and broaden
the analysis of earnings at risk the Company also performs earning simulations for longer
time horizons.
    
    Market Value of Equity Sensitivity.Used to capture and measure the risks associated
with longer-term maturity and re-pricing mismatches. Doral Financial uses value simulation
techniques for all financial components of the Statement of Financial Condition. Valuation
techniques include static cash flows analyses, stochastic models to qualify value of
embedded options and prepayment modeling. To complement and broaden the risk analysis, the
Company uses duration and convexity analysis to measure the sensitivity of the market value
of equity to changes in interest rates. Duration
 91




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measures the linear change in market value of equity caused by changes in interest rates,
while, convexity measures the asymmetric changes in market value of equity caused by changes
in interest rates due to the presence of options. The analysis of duration and convexity
combined provide a better understanding of the sensitivity of the market value of equity to
changes in interest rates.
    
    Effective Duration of Equity.The effective duration of equity is a broad measure of
the impact of interest rate changes on Doral Financials economic capital. The measure
summarizes the net sensitivity of assets and liabilities, adjusted for off-balance sheet
positions.
 Interest Rate Risk Management Strategy
  Net Interest Income Risk.
 Market Value of Equity Hedging Strategies
 Duration Risk
 Convexity Risk
 Hedging related to Mortgage Banking Activities
  
    
    The valuation of MSRs are recorded in earnings immediately within the accounting period
in which the changes in value occur, whereas the impact of changes in interest rates are
reflected in originations with a time lag and effects on servicing fee income occurs over
time. Thus, even when mortgage activities could be protected from adverse changes in
interest rates over a period of time (on a cumulative basis) they may display large
variations in income from period to period.
    
    The degree to which the natural hedge associated to mortgage banking (i.e.
originating and servicing) offsets changes in servicing asset valuations may be imperfect,
as it may vary over time.
 92




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##### Table of Contents




    
    Origination volumes, the valuation of servicing assets, economic hedging activities and
other related costs are impacted by multiple factors, which include, changes in the mix of
new business, changes in the term structure of interest rates, changes in mortgage spreads
(mortgage basis) to other rate benchmarks, and rate volatility, among others. Interrelation
of all these factors is hard to predict and, as such, the ability to perfectly hedge their
effects is limited.
 Doral Financials Risk Profile
      As of September 30, 2010
    
    Market Value of Equity Risk
    
    Net Interest Income Risk (1)+ 100 BPS
    
    
    (4.0
    )%
    
    
    0.2
    %- 100 BPS
    
    
    5.5
    %
    
    
    0.7
    %
 As of December 31, 2009
    
    Market Value of Equity Risk
    
    Net Interest Income Risk (1)+ 100 BPS
    
    
    (9.4
    )%
    
    
    (3.4
    )%- 100 BPS
    
    
    (2.4
    )%
    
    
    (0.4
    )%
 
 (1)
    
    Based on 12-month forward change in net interest income.   93




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##### Table of Contents



(In thousands)
    
    September 30, 2010
    
    December 31, 2009Change in Fair
    
    Change in FairChange in Interest
    
    Value of Available
    
    Value of AvailableRates (Basis Points)
    
    For Sale Securities
    
    For Sale Securities+200
    
    $
    (77,080
    )
    
    $
    (164,043
    )+100
    
    
    (25,736
    )
    
    
    (71,675
    )Base
    
    
    
    
    
    
    +100
    
    
    15,279
    
    
    
    51,165+200
    
    
    25,628
    
    
    
    103,334
 Derivatives
  Table Q
Interest Rate Caps
 (Dollars in thousands)Notional
    
    
    Maturity
    
    
    
    
    
    
    
    FairAmount
    
    
    Date
    
    Entitled Payment Conditions
    
    Premium Paid
    
    
    Value$
    15,000
    
    
    September, 2011
    
    1-month LIBOR over 5.50%
    
    $
    134
    
    
    $
    15,000
    
    
    September, 2012
    
    1-month LIBOR over 6.00%
    
    
    143
    
    
    
    35,000
    
    
    October, 2010
    
    1-month LIBOR over 5.00%
    
    
    199
    
    
    
    15,000
    
    
    October, 2011
    
    1-month LIBOR over 5.00%
    
    
    172
    
    
    
    15,000
    
    
    October, 2012
    
    1-month LIBOR over 5.50%
    
    
    182
    
    
    
    50,000
    
    
    November, 2012
    
    1-month LIBOR over 6.50%
    
    
    228
    
    
    
    150,000
    
    
    November, 2012
    
    1-month LIBOR over 5.50%
    
    
    545
    
    
    
    250,000
    
    
    November, 2012
    
    1-month LIBOR over 6.00%
    
    
    350
    
    
    
    2$
    245,000
    
    
    
    
    
    
    
    
    $
    1,953
    
    
    $
    5
  94




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Table R
Interest Rate Swaps
 (Dollars in thousands)Notional
    
    
    Maturity
    
    
    
    
    
    
    
    FairAmount
    
    
    Date
    
    Pay Fixed Rate
    
    
    Receive Floating Rate
    
    ValueCash Flow Hedge$
    3,000
    
    
    September, 2011
    
    
    4.69
    %
    
    1-month LIBOR plus 0.02%
    
    $
    (132
    )8,000
    
    
    October, 2010
    
    
    4.37
    %
    
    1-month LIBOR plus 0.02%
    
    
    (28
    )6,000
    
    
    October, 2011
    
    
    4.51
    %
    
    1-month LIBOR plus 0.05%
    
    
    (272
    )5,000
    
    
    October, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.05%
    
    
    (420
    )15,000
    
    
    November, 2010
    
    
    4.42
    %
    
    1-month LIBOR
    
    
    (107
    )15,000
    
    
    November, 2011
    
    
    4.55
    %
    
    1-month LIBOR plus 0.02%
    
    
    (741
    )45,000
    
    
    November, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (3,935
    )$
    97,000
    
    
    
    
    
    
    
    
    
    
    $
    (5,635
    )
 Freestanding Derivatives.
 Derivatives  Hedge Accounting. Derivatives and Hedging
  Table S
Derivatives Positions
 September 30, 2010
    
    
    December 31, 2009Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueCash Flow HedgesInterest rate swaps
    
    $
    97,000
    
    
    $
    (5,635
    )
    
    $
    305,000
    
    
    $
    (10,691
    )Other DerivativesInterest rate caps
    
    
    245,000
    
    
    
    5
    
    
    
    270,000
    
    
    
    777Forward contracts
    
    
    125,000
    
    
    
    (188
    )
    
    
    210,000
    
    
    
    (1,572
    )370,000
    
    
    
    (183
    )
    
    
    480,000
    
    
    
    (795
    )$
    467,000
    
    
    $
    (5,818
    )
    
    $
    785,000
    
    
    $
    (11,486
    )
 95




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Table T
Fair Value Reconciliation
 Nine Month Period Ended(In thousands)
    
    September 30, 2010Fair value of contracts outstanding at the beginning of the period
    
    $
    (795
    )Changes in fair values during the period
    
    
    612Fair value of contracts outstanding at the end of the period
    
    $
    (183
    )
 Table U
Sources of Fair Value
 (In thousands)
    
    Payment Due by PeriodMaturity
    
    
    
    
    
    
    
    
    
    
    Maturityless than
    
    
    Maturity
    
    
    Maturity
    
    
    in excess
    
    
    Total FairAs of September 30, 2010
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    of 5 Years
    
    
    ValuePrices actively quoted
    
    $
    (188
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (188
    )Prices provided by internal sources
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5$
    (188
    )
    
    $
    5
    
    
    $
    
    
    
    $
    
    
    
    $
    (183
    )
   Table V
Derivative Counterparty Credit Exposure
 (Dollars in thousands)September 30, 2010Weighted AverageNumber of
    
    
    
    
    
    
    Total Exposure at
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating (1)
    
    Counterparties (2)
    
    
    Notional
    
    
    Fair Value (3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    5
    
    
    $
    
    
    
    $
    5
    
    
    
    1.70A+
    
    
    1
    
    
    
    127,000
    
    
    
    
    
    
    
    (5,635
    )
    
    
    (5,635
    )
    
    
    1.44A
    
    
    2
    
    
    
    125,000
    
    
    
    9
    
    
    
    (197
    )
    
    
    (188
    )
    
    
    0.05Total
Derivatives
    
    
    4
    
    
    $
    467,000
    
    
    $
    14
    
    
    $
    (5,832
    )
    
    $
    (5,818
    )
    
    
    1.19
 
 (1)
    
    Based on the S&P Long-Term Issuer Credit Ratings.(2)
    
    Based on legal entities. Affiliated legal entities are reported separately.(3)
    
    For each counterparty, this amount includes derivatives with a positive fair value
including the related accrued interest receivable/payable (net.) 96




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(Dollars in thousands)December 31, 2009Weighted AverageNumber of
    
    
    
    
    
    
    Total Exposure at
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating (1)
    
    Counterparties (2)
    
    
    Notional
    
    
    Fair Value (3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    719
    
    
    $
    
    
    
    $
    719
    
    
    
    2.45A+
    
    
    1
    
    
    
    360,000
    
    
    
    58
    
    
    
    (10,691
    )
    
    
    (10,633
    )
    
    
    1.12A
    
    
    2
    
    
    
    210,000
    
    
    
    553
    
    
    
    (2,125
    )
    
    
    (1,572
    )
    
    
    0.11Total Derivatives
    
    
    4
    
    
    $
    785,000
    
    
    $
    1,330
    
    
    $
    (12,816
    )
    
    $
    (11,486
    )
    
    
    1.21
 
 (1)
    
    Based on the S&P Long-Term Issuer Credit Ratings.(2)
    
    Based on legal entities. Affiliated legal entities are reported separately.(3)
    
    For each counterparty, this amount includes derivatives with a positive fair value
including the related accrued interest receivable/payable (net) Credit Risk
       97




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##### Table of Contents



Loan modifications and troubled debt restructurings
  Receivables  Troubled Debt Restructuring by Creditors Receivables-Measurement of Loan Impairment
   98




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##### Table of Contents



Table W
 September 30, 2010
    
    
    December 31, 200990 days and over
    
    
    
    
    
    
    90 days and over(In thousands)
    
    TDRs
    
    
    delinquency
    
    
    TDRs
    
    
    delinquencyConsumer modificationsResidential mortgage
    
    $
    595,282
    
    
    $
    100,239
    
    
    $
    429,302
    
    
    $
    89,771Other consumer
    
    
    1,190
    
    
    
    105
    
    
    
    1,301
    
    
    
    Total consumer
    
    
    596,472
    
    
    
    100,344
    
    
    
    430,603
    
    
    
    89,771CommercialCommercial real estate
    
    $
    64,312
    
    
    $
    25,815
    
    
    $
    51,194
    
    
    $
    15,078Commercial and industrial
    
    
    239
    
    
    
    
    
    
    
    2,482
    
    
    
    Construction and land
    
    
    60,940
    
    
    
    60,621
    
    
    
    109,895
    
    
    
    98,316Total commercial
    
    
    125,491
    
    
    
    86,436
    
    
    
    163,571
    
    
    
    113,394Total TDRs
    
    $
    721,963
    
    
    $
    186,780
    
    
    $
    594,174
    
    
    $
    203,165
 Non-performing Loans
    99




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##### Table of Contents



Table X
 September 30, 2010
    
    
    December 31, 2009(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalNon-performing consumer, excluding FHA/VA(1)Residential mortgage
    
    $
    362,939
    
    
    $
    898
    
    
    $
    363,837
    
    
    $
    397,596
    
    
    $
    102
    
    
    $
    397,698Lease financing receivables
    
    
    958
    
    
    
    
    
    
    
    958
    
    
    
    1,091
    
    
    
    
    
    
    
    1,091Other consumer (2)
    
    
    442
    
    
    
    
    
    
    
    442
    
    
    
    519
    
    
    
    
    
    
    
    519Total non-performing consumer, excluding
FHA/VA
    
    
    364,339
    
    
    
    898
    
    
    
    365,237
    
    
    
    399,206
    
    
    
    102
    
    
    
    399,308Non-performing commercialCommercial real estate
    
    
    194,793
    
    
    
    
    
    
    
    194,793
    
    
    
    130,811
    
    
    
    
    
    
    
    130,811Construction and land
    
    
    176,244
    
    
    
    1,610
    
    
    
    177,854
    
    
    
    285,344
    
    
    
    21,610
    
    
    
    306,954Commercial and industrial
    
    
    3,098
    
    
    
    
    
    
    
    3,098
    
    
    
    933
    
    
    
    
    
    
    
    933Total non-performing commercial
    
    
    374,135
    
    
    
    1,610
    
    
    
    375,745
    
    
    
    417,088
    
    
    
    21,610
    
    
    
    438,698Total non-performing loans, excluding FHA/VA
    
    $
    738,474
    
    
    $
    2,508
    
    
    $
    740,982
    
    
    $
    816,294
    
    
    $
    21,712
    
    
    $
    838,006OREO and repossessed unitsResidential mortgage
    
    $
    69,507
    
    
    $
    
    
    
    $
    69,507
    
    
    $
    76,461
    
    
    $
    
    
    
    $
    76,461Commercial
    
    
    16,125
    
    
    
    
    
    
    
    16,125
    
    
    
    14,283
    
    
    
    
    
    
    
    14,283Construction and land
    
    
    15,401
    
    
    
    650
    
    
    
    16,051
    
    
    
    2,725
    
    
    
    750
    
    
    
    3,475Other
    
    
    91
    
    
    
    
    
    
    
    91
    
    
    
    101
    
    
    
    
    
    
    
    101Total OREO and repossessed units
    
    $
    101,124
    
    
    $
    650
    
    
    $
    101,774
    
    
    $
    93,570
    
    
    $
    750
    
    
    $
    94,320Non-performing FHA/VA guaranteed residential(1)(3)(4)
    
    $
    124,783
    
    
    $
    
    
    
    $
    124,783
    
    
    $
    10,273
    
    
    $
    
    
    
    $
    10,273Other non-performing assets
    
    
    3,204
    
    
    
    
    
    
    
    3,204
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets (5)
    
    $
    967,585
    
    
    $
    3,158
    
    
    $
    970,743
    
    
    $
    920,137
    
    
    $
    22,462
    
    
    $
    942,599Total NPAs as a percentage of the loan portfolio, net, and OREO (excluding
GNMA defaulted loans)
    
    
    
    
    
    
    
    
    
    
    16.75
    %
    
    
    
    
    
    
    
    
    
    
    16.65
    %Total NPAs as a percentage of consolidated total assets
    
    
    
    
    
    
    
    
    
    
    10.70
    %
    
    
    
    
    
    
    
    
    
    
    9.21
    %Total non-performing loans to total loans (excluding GNMA defaulted loans and
FHA/VA guaranteed loans)
    
    
    
    
    
    
    
    
    
    
    13.31
    %
    
    
    
    
    
    
    
    
    
    
    15.19
    %Ratio of allowance for loan and lease losses to total non-performing loans
(excluding loans held for sale) at end of period (5)
    
    
    
    
    
    
    
    
    
    
    16.18
    %
    
    
    
    
    
    
    
    
    
    
    16.81
    %
 
 (1)
    
    FHA/VA delinquent loans are separated from the non-performing loans that present
substantial credit risk to the Company in order to recognize the different risk of loss
presented by these assets.(2)
    
    Includes delinquency related personal, revolving lines of credit and other consumer
loans.(3)
    
    Does not include approximately $109.0 million and $86.8 million of GNMA defaulted
loans over 90 days delinquent (for which the Company has the option, but not an obligation, to
buy back from the pools serviced), included as part of the loans held for sale portfolio as of
September 30, 2010 and December 31, 2009, respectively.(4)
    
    In November 2009, the Company evaluated its non-performing assets policy and placed
in accrual status all FHA loans until 270 days delinquent because the principal balance of
these loans is insured or guaranteed under applicable FHA program and interest is, in most
cases, fully recovered in foreclosure proceedings. As a result of the change in policy, total
non-performing FHA guaranteed residential mortgage loans exclude $39.8 million and $105.5
million of FHA loans as of September 30, 2010 and December 31, 2009, respectively, that were
90 days or more past due.(5)
    
    Excludes FHA and VA claims amounting to $13.0 million and $15.6 million as of
September 30, 2010 and December 31, 2009, respectively. 100




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Table Y
 Quarter Ended September 30, 2010Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    and Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    402,976
    
    
    $
    1,062
    
    
    $
    404,038
    
    
    $
    169,243
    
    
    $
    255,098
    
    
    $
    3,343
    
    
    $
    427,684
    
    
    $
    831,722Additions
    
    
    67,857
    
    
    
    1,319
    
    
    
    69,176
    
    
    
    63,849
    
    
    
    19,891
    
    
    
    731
    
    
    
    84,471
    
    
    
    153,647Repurchases
    
    
    4,046
    
    
    
    
    
    
    
    4,046
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,046Remediated/Cure
    
    
    (98,448
    )
    
    
    (981
    )
    
    
    (99,429
    )
    
    
    (16,706
    )
    
    
    (23,883
    )
    
    
    (976
    )
    
    
    (41,565
    )
    
    
    (140,994
    )Foreclosed
    
    
    (11,915
    )
    
    
    
    
    
    
    (11,915
    )
    
    
    (3,243
    )
    
    
    (4,779
    )
    
    
    
    
    
    
    (8,022
    )
    
    
    (19,937
    )Write-downs
    
    
    (679
    )
    
    
    
    
    
    
    (679
    )
    
    
    (18,350
    )
    
    
    (9,096
    )
    
    
    
    
    
    
    (27,446
    )
    
    
    (28,125
    )Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,377
    )
    
    
    
    
    
    
    (59,377
    )
    
    
    (59,377
    )Balance at end of period
    
    $
    363,837
    
    
    $
    1,400
    
    
    $
    365,237
    
    
    $
    194,793
    
    
    $
    177,854
    
    
    $
    3,098
    
    
    $
    375,745
    
    
    $
    740,982
 Quarter Ended September 30, 2009Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    

and Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    373,672
    
    
    $
    1,584
    
    
    $
    375,256
    
    
    $
    117,603
    
    
    $
    302,534
    
    
    $
    1,852
    
    
    $
    421,989
    
    
    $
    797,245Additions
    
    
    77,300
    
    
    
    923
    
    
    
    78,223
    
    
    
    29,571
    
    
    
    3,321
    
    
    
    790
    
    
    
    33,682
    
    
    
    111,905Repurchases
    
    
    4,161
    
    
    
    
    
    
    
    4,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,161Remediated/Cure
    
    
    (61,332
    )
    
    
    (721
    )
    
    
    (62,053
    )
    
    
    (9,454
    )
    
    
    (7,410
    )
    
    
    (580
    )
    
    
    (17,444
    )
    
    
    (79,497
    )Foreclosed
    
    
    (17,760
    )
    
    
    
    
    
    
    (17,760
    )
    
    
    (2,380
    )
    
    
    
    
    
    
    
    
    
    
    (2,380
    )
    
    
    (20,140
    )Write-downs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,716
    )
    
    
    (2,396
    )
    
    
    
    
    
    
    (6,112
    )
    
    
    (6,112
    )Balance at end of period
    
    $
    376,041
    
    
    $
    1,786
    
    
    $
    377,827
    
    
    $
    131,624
    
    
    $
    296,049
    
    
    $
    2,062
    
    
    $
    429,735
    
    
    $
    807,562
 Nine Month Period Ended September 30, 2010Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    

and Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    397,698
    
    
    $
    1,610
    
    
    $
    399,308
    
    
    $
    130,811
    
    
    $
    306,954
    
    
    $
    933
    
    
    $
    438,698
    
    
    $
    838,006Additions
    
    
    128,377
    
    
    
    1,313
    
    
    
    129,690
    
    
    
    109,731
    
    
    
    71,089
    
    
    
    2,748
    
    
    
    183,568
    
    
    
    313,258Repurchases
    
    
    11,301
    
    
    
    
    
    
    
    11,301
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,301Remediated/Cure
    
    
    (122,620
    )
    
    
    (1,523
    )
    
    
    (124,143
    )
    
    
    (17,555
    )
    
    
    (93,420
    )
    
    
    (558
    )
    
    
    (111,533
    )
    
    
    (235,676
    )Foreclosed
    
    
    (39,563
    )
    
    
    
    
    
    
    (39,563
    )
    
    
    (7,543
    )
    
    
    (5,209
    )
    
    
    (25
    )
    
    
    (12,777
    )
    
    
    (52,340
    )Write-downs
    
    
    (11,356
    )
    
    
    
    
    
    
    (11,356
    )
    
    
    (20,651
    )
    
    
    (38,198
    )
    
    
    
    
    
    
    (58,849
    )
    
    
    (70,205
    )Sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,362
    )
    
    
    
    
    
    
    (63,362
    )
    
    
    (63,362
    )Balance at end of period
    
    $
    363,837
    
    
    $
    1,400
    
    
    $
    365,237
    
    
    $
    194,793
    
    
    $
    177,854
    
    
    $
    3,098
    
    
    $
    375,745
    
    
    $
    740,982
 101




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##### Table of Contents



Nine Month Period Ended September 30, 2009Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    and land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    346,250
    
    
    $
    1,738
    
    
    $
    347,988
    
    
    $
    117,971
    
    
    $
    244,693
    
    
    $
    1,751
    
    
    $
    364,415
    
    
    $
    712,403Additions
    
    
    147,082
    
    
    
    404
    
    
    
    147,486
    
    
    
    53,133
    
    
    
    73,563
    
    
    
    494
    
    
    
    127,190
    
    
    
    274,676Repurchases
    
    
    14,201
    
    
    
    
    
    
    
    14,201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,201Remediated/Cure
    
    
    (94,136
    )
    
    
    (356
    )
    
    
    (94,492
    )
    
    
    (22,956
    )
    
    
    (13,369
    )
    
    
    (183
    )
    
    
    (36,508
    )
    
    
    (131,000
    )Foreclosed
    
    
    (37,356
    )
    
    
    
    
    
    
    (37,356
    )
    
    
    (6,609
    )
    
    
    (948
    )
    
    
    
    
    
    
    (7,557
    )
    
    
    (44,913
    )Write-downs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,915
    )
    
    
    (7,890
    )
    
    
    
    
    
    
    (17,805
    )
    
    
    (17,805
    )Balance at end of period
    
    $
    376,041
    
    
    $
    1,786
    
    
    $
    377,827
    
    
    $
    131,624
    
    
    $
    296,049
    
    
    $
    2,062
    
    
    $
    429,735
    
    
    $
    807,562
      102




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Table Z
 Composition of Mortgage Non-Performing Assets
 September 30, 2010
 Collateral Type
    
    Loan To Value
    
    DistributionFHA/VA loans
    
    
    n/a
    
    
    
    25.2
    %Loans with private mortgage insurance
    
    
    n/a
    
    
    
    4.9
    %Loans with no mortgage insurance
    
    
    < 60
    %
    
    
    13.0
    %61-80
    %
    
    
    29.4
    %81-90
    %
    
    
    13.4
    %Over 91%
    
    
    14.1
    %Total loans
    
    
    
    
    
    
    100.0
    %
   90 days and over
    
    
    Percentage of amountYear
    
    Amount
    
    
    delinquency at
    
    
    restructuredrestructured
    
    restructured
    
    
    September 30, 2010
    
    
    in year past due2007
    
    $
    4,652
    
    
    $
    675
    
    
    
    14.5
    %2008
    
    
    64,288
    
    
    
    23,915
    
    
    
    37.2
    %2009
    
    
    215,348
    
    
    
    56,668
    
    
    
    26.3
    %2010
    
    
    310,994
    
    
    
    18,981
    
    
    
    6.1
    %$
    595,282
    
    
    $
    100,239
    
    
    
    16.8
    %
    103




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Table AA
 September 30, 2010
    
    December 31, 2009(In thousands)
    
    PR
    
    US
    
    Total
    
    PR
    
    US
    
    TotalResidential construction loans
    
    $
    199,838
    
    
    $
    300
    
    
    $
    200,138
    
    
    $
    274,938
    
    
    $
    404
    
    
    $
    275,342Multi-family, condominium, commercial and
land construction loans
    
    
    161,384
    
    
    
    128,387
    
    
    
    289,771
    
    
    
    173,051
    
    
    
    103,518
    
    
    
    276,569Undisbursed funds under existing
commitments (1)
    
    
    42,188
    
    
    
    13,875
    
    
    
    56,063
    
    
    
    18,713
    
    
    
    13,202
    
    
    
    31,915Non-performing
loans
    
    
    176,244
    
    
    
    1,610
    
    
    
    177,854
    
    
    
    285,344
    
    
    
    21,610
    
    
    
    306,954Net charge offs
    
    
    47,450
    
    
    
    991
    
    
    
    48,441
    
    
    
    19,658
    
    
    
    
    
    
    
    19,658Allowance for loan losses
    
    
    24,450
    
    
    
    1,288
    
    
    
    25,738
    
    
    
    52,819
    
    
    
    1,640
    
    
    
    54,459Non-performing construction to total
construction loans
    
    
    48.79
    %
    
    
    1.25
    %
    
    
    36.30
    %
    
    
    63.69
    %
    
    
    20.79
    %
    
    
    55.62
    %Net charge-offs on an annualized basis to
total construction loans
    
    
    17.56
    %
    
    
    1.03
    %
    
    
    13.22
    %
    
    
    4.39
    %
    
    
    
    %
    
    
    3.56
    %
 
 (1)
    
    Includes undisbursed funds to matured loans and loans in non-accrual status that are
still active.  Table BB
 September 30, 2010
    
    
    December 31, 2009(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalConsumer loans past due 90 days and still accruingResidential mortgage (1)
    
    $
    
    
    
    $
    507
    
    
    $
    507
    
    
    $
    
    
    
    $
    
    
    
    $
    Credit cards (2)
    
    
    1,322
    
    
    
    
    
    
    
    1,322
    
    
    
    1,231
    
    
    
    
    
    
    
    1,231Other consumer (3)
    
    
    1,214
    
    
    
    
    
    
    
    1,214
    
    
    
    906
    
    
    
    
    
    
    
    906Total consumer loans past due 90 days and still accruing
    
    
    2,536
    
    
    
    507
    
    
    
    3,043
    
    
    
    2,137
    
    
    
    
    
    
    
    2,137Commercial loans past due 90 days and still accruingCommercial and industrial
    
    
    525
    
    
    
    
    
    
    
    525
    
    
    
    1,245
    
    
    
    
    
    
    
    1,245Total loans past due 90 days and still accruing
    
    $
    3,061
    
    
    $
    507
    
    
    $
    3,568
    
    
    $
    3,382
    
    
    $
    
    
    
    $
    3,382
 
 (1)
    
    Excludes $39.8 million and $105.5 million of  FHA/VA guaranteed residential mortgages
past due 90 days and still accruing, as of September 30, 2010 and December 31, 2009,
respectively.(2)
    
    Credit cards until 180 days delinquent.(3)
    
    Revolving lines of credit until 180 days delinquent. 104




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Table CC
 September 30, 2010
    
    
    December 31, 2009(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalPast-due 30-89 days consumerResidential mortgage (1)
    
    $
    84,971
    
    
    $
    
    
    
    $
    84,971
    
    
    $
    87,900
    
    
    $
    
    
    
    $
    87,900Lease financing receivables
    
    
    498
    
    
    
    
    
    
    
    498
    
    
    
    972
    
    
    
    
    
    
    
    972Other consumer
    
    
    1,857
    
    
    
    
    
    
    
    1,857
    
    
    
    1,887
    
    
    
    
    
    
    
    1,887Total past-due consumer
    
    
    87,326
    
    
    
    
    
    
    
    87,326
    
    
    
    90,759
    
    
    
    
    
    
    
    90,759Past-due 30-89 days commercialCommercial
    
    
    20,945
    
    
    
    27,513
    
    
    
    48,458
    
    
    
    31,132
    
    
    
    
    
    
    
    31,132Construction and land
    
    
    22,812
    
    
    
    12,466
    
    
    
    35,278
    
    
    
    12,381
    
    
    
    
    
    
    
    12,381Commercial and industrial
    
    
    1,071
    
    
    
    
    
    
    
    1,071
    
    
    
    625
    
    
    
    
    
    
    
    625Total past-due commercial
    
    
    44,828
    
    
    
    39,979
    
    
    
    84,807
    
    
    
    44,138
    
    
    
    
    
    
    
    44,138Total past-due loans(2)
    
    $
    132,154
    
    
    $
    39,979
    
    
    $
    172,133
    
    
    $
    134,897
    
    
    $
    
    
    
    $
    134,897
 
 (1)
    
    Excludes $9.3 million and $7.4 million of FHA/VA guaranteed loans.(2)
    
    Regulatory guidance regarding days past due followed by many banks provides
that the number of days past due may be based upon the number of payments missed. According to
this regulatory guidance, monthly pay loans are reported as 30 days past due when the borrower
has missed two payments. Doral follows this guidance in its reporting except that it more
conservatively reports loans 90 days past due based upon the contractual number of days past
due.  Other Real Estate Owned (OREO)
    Allowance for Loan and Lease Losses (ALLL)
  Residential mortgage.
 105




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##### Table of Contents



Construction, commercial real estate, commercial and industrial and land.
    Consumer.
   106




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107




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##### Table of Contents



Table DD
 Allowance for Loan and Lease Losses
 Quarters Ended
    
    
    Nine Month Periods EndedSeptember 30,
    
    
    September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    134,913
    
    
    $
    146,769
    
    
    $
    140,774
    
    
    $
    132,020Provision (recovery) for loans and lease losses:Non-FHA/VA residential mortgage
    
    
    3,923
    
    
    
    7,232
    
    
    
    29,301
    
    
    
    19,151Lease financing
    
    
    1,019
    
    
    
    178
    
    
    
    828
    
    
    
    579Other consumer
    
    
    2,074
    
    
    
    2,605
    
    
    
    5,542
    
    
    
    7,236Total consumer
    
    
    7,016
    
    
    
    10,015
    
    
    
    35,671
    
    
    
    26,966Commercial real estate
    
    
    11,012
    
    
    
    (4,196
    )
    
    
    18,851
    
    
    
    (1,264
    )Construction and land
    
    
    (669
    )
    
    
    (1,596
    )
    
    
    19,721
    
    
    
    9,453Commercial and industrial
    
    
    1,976
    
    
    
    656
    
    
    
    3,630
    
    
    
    3,482Total commercial
    
    
    12,319
    
    
    
    (5,136
    )
    
    
    42,202
    
    
    
    11,671Total provision for loan and lease losses
    
    
    19,335
    
    
    
    4,879
    
    
    
    77,873
    
    
    
    38,637Charge-offs:Non-FHA/VA residential mortgage
    
    
    (4,549
    )
    
    
    (810
    )
    
    
    (23,761
    )
    
    
    (3,029
    )Lease financing
    
    
    (960
    )
    
    
    (333
    )
    
    
    (1,472
    )
    
    
    (612
    )Other Consumer
    
    
    (2,580
    )
    
    
    (2,827
    )
    
    
    (6,623
    )
    
    
    (8,190
    )Total consumer
    
    
    (8,089
    )
    
    
    (3,970
    )
    
    
    (31,856
    )
    
    
    (11,831
    )Commercial real estate
    
    
    (16,406
    )
    
    
    (3,098
    )
    
    
    (17,092
    )
    
    
    (5,133
    )Construction and land
    
    
    (9,042
    )
    
    
    (2,505
    )
    
    
    (48,563
    )
    
    
    (8,059
    )Commercial and industrial
    
    
    (1,944
    )
    
    
    (815
    )
    
    
    (3,120
    )
    
    
    (4,782
    )Total commercial
    
    
    (27,392
    )
    
    
    (6,418
    )
    
    
    (68,775
    )
    
    
    (17,974
    )Total charge-offs
    
    
    (35,481
    )
    
    
    (10,388
    )
    
    
    (100,631
    )
    
    
    (29,805
    )Recoveries:Non-FHA/VA residential mortgage
    
    
    153
    
    
    
    
    
    
    
    153
    
    
    
    2Lease financing
    
    
    196
    
    
    
    16
    
    
    
    305
    
    
    
    56Other consumer
    
    
    138
    
    
    
    132
    
    
    
    542
    
    
    
    459Total consumer
    
    
    487
    
    
    
    148
    
    
    
    1,000
    
    
    
    517Commercial real estate
    
    
    
    
    
    
    23
    
    
    
    50
    
    
    
    49Construction and land loans
    
    
    
    
    
    
    647
    
    
    
    122
    
    
    
    647Commercial and industrial
    
    
    9
    
    
    
    11
    
    
    
    75
    
    
    
    24Total commercial
    
    
    9
    
    
    
    681
    
    
    
    247
    
    
    
    720Total recoveries
    
    
    496
    
    
    
    829
    
    
    
    1,247
    
    
    
    1,237Net charge-offs
    
    
    (34,985
    )
    
    
    (9,559
    )
    
    
    (99,384
    )
    
    
    (28,568
    )Balance at end of period
    
    $
    119,263
    
    
    $
    142,089
    
    
    $
    119,263
    
    
    $
    142,089Allowance as a percentage of loans receivable outstanding,
at the end of period
    
    
    2.12
    %
    
    
    2.68
    %
    
    
    2.12
    %
    
    
    2.68
    %Allowance for loan and lease losses to period-end loans
receivable (excluding FHA/VA guaranteed loans)
    
    
    2.20
    %
    
    
    2.71
    %
    
    
    2.20
    %
    
    
    2.71
    %Allowance for loan and lease losses plus partial
charge-offs and discounts to loans receivable (excluding
FHA/VA guaranteed loans and loans on savings)
    
    
    3.66
    %
    
    
    n/a
    
    
    
    3.66
    %
    
    
    n/aProvision for loan losses to net charge-offs
    
    
    55.27
    %
    
    
    51.04
    %
    
    
    78.36
    %
    
    
    135.25
    %Net charge-offs on an annualized basis to average loans
receivable outstanding
    
    
    0.62
    %
    
    
    0.18
    %
    
    
    1.79
    %
    
    
    0.54
    %Allowance for loan and lease losses to net charge-offs on
an annualized basis
    
    
    85.92
    %
    
    
    374.68
    %
    
    
    89.76
    %
    
    
    372.01
    %
 108




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##### Table of Contents



Table EE
 Allocation of Allowance for Loans and Lease Losses
 September 30, 2010
    
    
    December 31, 2009(Dollars in thousands)
    
    Amount
    
    
    Percentage
    
    
    Amount
    
    
    PercentageLoans Receivable:Construction and land
    
    $
    25,738
    
    
    
    9
    %
    
    $
    54,458
    
    
    
    10
    %Residential mortgage
    
    
    57,507
    
    
    
    68
    %
    
    
    51,814
    
    
    
    70
    %Commercial real estate
    
    
    23,692
    
    
    
    12
    %
    
    
    21,883
    
    
    
    13
    %Consumer
    
    
    6,416
    
    
    
    1
    %
    
    
    6,955
    
    
    
    1
    %Lease financing receivable
    
    
    1,044
    
    
    
    
    %
    
    
    1,383
    
    
    
    
    %Commercial and industrial
    
    
    4,866
    
    
    
    10
    %
    
    
    4,281
    
    
    
    6
    %Total
    
    $
    119,263
    
    
    
    100
    %
    
    $
    140,774
    
    
    
    100
    %
      109




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##### Table of Contents



Table FF
Allowance for Loan and Lease Losses Coverage Ratios
 September 30, 2010
    
    December 31, 2009ALLL plus partial charge-
    
    
    
    
    
    
    
    
    
    ALLL plus partial charge-offs and discount as a % of:
    
    
    
    
    
    
    
    
    
    offs and discount as a % of:(1)
    
    ALLL as a % of: (2)
    
    (1)
    
    ALLL as a % of: (2)Loans (3)
    
    NPLs
    
    Loans (3)
    
    NPLs
    
    Loans (3)
    
    NPLs
    
    Loans (3)
    
    NPLsConsumerResidential mortgage
    
    
    2.34
    %
    
    
    23.73
    %
    
    
    1.59
    %
    
    
    15.97
    %
    
    
    1.87
    %
    
    
    17.49
    %
    
    
    1.42
    %
    
    
    13.19
    %Consumer
    
    
    12.01
    %
    
    
    534.84
    %
    
    
    11.97
    %
    
    
    532.86
    %
    
    
    10.12
    %
    
    
    524.09
    %
    
    
    10.01
    %
    
    
    517.89
    %Total consumer
    
    
    2.50
    %
    
    
    25.71
    %
    
    
    1.76
    %
    
    
    17.97
    %
    
    
    2.05
    %
    
    
    19.56
    %
    
    
    1.61
    %
    
    
    15.25
    %CommercialCommercial real estate
    
    
    6.30
    %
    
    
    23.31
    %
    
    
    3.39
    %
    
    
    12.18
    %
    
    
    3.88
    %
    
    
    22.24
    %
    
    
    2.96
    %
    
    
    16.81
    %Commercial and industrial
    
    
    1.02
    %
    
    
    176.33
    %
    
    
    0.91
    %
    
    
    157.07
    %
    
    
    1.46
    %
    
    
    489.18
    %
    
    
    1.38
    %
    
    
    458.84
    %Construction and land
    
    
    10.97
    %
    
    
    32.17
    %
    
    
    5.25
    %
    
    
    14.47
    %
    
    
    12.91
    %
    
    
    24.02
    %
    
    
    9.87
    %
    
    
    17.74
    %Total commercial
    
    
    6.09
    %
    
    
    28.77
    %
    
    
    3.16
    %
    
    
    14.46
    %
    
    
    6.59
    %
    
    
    24.48
    %
    
    
    5.03
    %
    
    
    18.41
    %Total
    
    
    3.66
    %
    
    
    27.27
    %
    
    
    2.20
    %
    
    
    16.18
    %
    
    
    3.42
    %
    
    
    22.15
    %
    
    
    2.63
    %
    
    
    16.91
    %
 
 (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)
    
    Excludes FHA/VA guaranteed loans and loans on saving deposits.      110




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Table GG
 (In thousands)
    
    September 30, 2010
    
    
    December 31, 2009Impaired loans with allowance
    
    $
    535,055
    
    
    $
    346,145Impaired loans without allowance
    
    
    307,923
    
    
    
    184,601Total impaired loans
    
    $
    842,978
    
    
    $
    530,746Related allowance
    
    $
    52,713
    
    
    $
    48,223Average impaired loan portfolio
    
    $
    640,314
    
    
    $
    449,741
  Counterparty Risk
   Operational Risk
  Overview of Operational Risk Management
  Internal Control Over Financial Reporting
 Controls and Procedures
 111




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##### Table of Contents



Liquidity Risk
  General Business, Economic and Political Conditions; Puerto Rico Economy and Fiscal Condition
       Fiscal Condition.
 Fiscal Stabilization Plan.
 112




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##### Table of Contents



Economic Reconstruction Plan.
      113




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Control and Procedures
  Changes in Internal Control Over Financial Reporting
  114




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Risk Factors Risk Factors
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
   
 ITEM 4. REMOVED AND RESERVED
 
 ITEM 5. OTHER INFORMATION
    
 ITEM 6. EXHIBITS.
   115




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ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of Doral Financial, as currently in effect. (Incorporated herein by reference to exhibit number 3.1(j) to Doral Financials Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Commission on March 19, 2008).3.2
    
    Bylaws of Doral Financial, as amended on August 2, 2007. (Incorporated herein by reference to exhibit number 3.1 of Doral Financials Current Report on Form 8-K filed with the Commission on August 6, 2007).3.3
    
    Certificate of Amendment of the Certificate of Incorporation of Doral Financial dated March 12, 2010 (Incorporated herein by reference to exhibit number 3.1 of Doral Financials Current Report on Form 8-K filed with the Commission on March 16, 2010).3.4
    
    Certificate of Designations of Mandatorily Convertible Non-Cumulative Non-Voting Preferred Stock dated April 20, 2010 (Incorporated herein by reference to exhibit number 3.1 of Doral Financials Current Report on Form 8-K filed with the Commission on April 26, 2010).4.1
    
    Common Stock Certificate (Incorporated herein by reference to exhibit number 4.1 to Doral Financials Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Commission on March 19, 2008).4.2
    
    Loan and Guaranty Agreement among Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA), Doral Properties, Inc. and Doral Financial. (Incorporated herein by reference to exhibit number 4.1 of Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed with the Commission on November 15, 1999).4.3
    
    Trust Agreement between AFICA and Citibank, N.A. (Incorporated herein by reference to exhibit number 4.2 of Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed with the Commission on November 15, 1999).4.4
    
    Form of Serial and Term Bond (included in Exhibit 4.3 hereof).4.5
    
    Deed of Constitution of First Mortgage over Doral Financial Plaza. (Incorporated herein by reference to exhibit number 4.4 of Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed with the Commission on November 15, 1999).4.6
    
    Mortgage Note secured by First Mortgage referred to in Exhibit 4.5 hereto (included in Exhibit 4.5 hereof).4.7
    
    Pledge and Security Agreement. (Incorporated herein by reference to exhibit number 4.6 of Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed with the Commission on November 15, 1999).4.8
    
    Indenture, dated May 14, 1999, between Doral Financial and U.S. Bank National Association, as trustee, pertaining to senior debt securities. (Incorporated herein by reference to exhibit number 4.1 of Doral Financials Current Report on Form 8-K filed with the Commission on May 21, 1999).4.9
    
    Indenture, dated May 14, 1999, between Doral Financial and Bankers Trust Company, as trustee, pertaining to subordinated debt securities. (Incorporated herein by reference to exhibit number 4.3 of Doral Financials Current Report on Form 8-K filed with the Commission on May 21, 1999).4.10
    
    Form of Stock Certificate for 7% Noncumulative Monthly Income Preferred Stock, Series A. (Incorporated herein by reference to exhibit number 4(A) of Doral Financials Registration Statement on Form S-3 filed with the Commission on October 30, 1998).
 116




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ExhibitNumber
    
    Description4.11
    
    Form of Stock Certificate for 8.35% Noncumulative Monthly Income Preferred Stock, Series B. (Incorporated herein by reference to exhibit number 4.1 of Doral Financials Registration Statement on Form 8-A filed with the Commission on August 30, 2000).4.12
    
    First Supplemental Indenture, dated as of March 30, 2001, between Doral Financial and Deutsche Bank Trust Company Americas (formerly known as Bankers Trust Company), as trustee. (Incorporated herein by reference to exhibit number 4.9 to Doral Financials Current Report on Form 8-K filed with the Commission on April 2, 2001).4.13
    
    Form of Stock Certificate for 7.25% Noncumulative Monthly Income Preferred Stock, Series C. (Incorporated herein by reference to exhibit number 4.1 of Doral Financials Registration Statement on Form 8-A filed with the Commission on May 30, 2002).4.14
    
    Form of Stock Certificate for 4.75% Perpetual Cumulative Convertible Preferred Stock. (Incorporated herein by reference to exhibit number 4 to Doral Financials Current Report on Form 10-K filed with the Commission on March 31, 2003).4.15
    
    Form of Stock Certificate for Mandatorily Convertible Non-Cumulative Non-Voting Preferred Stock (Incorporated herein by reference to exhibit number 4.1 of Doral Financials Current Report on Form 8-K filed with the Commission on April 26, 2010)(included in Exhibit 3.4 hereto).10.1
    
    Order to Cease and Desist issued by the Board of Governors of the Federal Reserve System on March 16, 2006. (Incorporated herein by reference to exhibit number 99.2 of Doral Financials Current Report of Form 8-K filed with the Commission on March 17, 2006).10.2
    
    Stipulation and Agreement of Partial Settlement, dated as of April 27, 2007. (Incorporated herein by reference to same exhibit number of Doral Financials Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Commission on April 30, 2007).10.3
    
    Order to Cease and Desist issued by the Federal Deposit Insurance Corporation, dated February 19, 2008. (Incorporated herein by reference to exhibit number 99-2 of Doral Financials Current Report of Form 8-K filed with the Commission on February 21, 2008).10.4
    
    Purchase Agreement, dated September 23, 2003, between Doral Financial Corporation and Wachovia Securities LLC, as Representative of the Initial Purchasers of Doral Financials 4.75% Perpetual Cumulative Convertible Preferred Stock named therein. (Incorporated herein by reference to exhibit number 1 to Doral Financials Current Report on Form 8-K filed with the Commission on March 31, 2003).10.5
    
    Employment Agreement, dated as of May 23, 2006, between Doral Financial Corporation and Glen Wakeman. (Incorporated herein by reference to exhibit number 10.1 to Doral Financials Current Report on Form 8-K filed with the Commission on May 30, 2006).10.6
    
    Employment Agreement, dated as of August 14, 2006, between Doral Financial Corporation and Lesbia Blanco. (Incorporated herein by reference to exhibit number 10.1 to Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed with the Commission on December 29, 2006).10.7
    
    Employment Agreement, dated as of October 2, 2006, between Doral Financial Corporation and Enrique R. Ubarri, Esq. (Incorporated herein by reference to exhibit number 10.7 to Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 filed with the Commission on December 29, 2006).10.8
    
    Employment Agreement, dated as of June 25, 2007, between Doral Financial Corporation and Paul Makowski (Incorporated herein by reference to exhibit number 10.11 to Doral Financials Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Commission on March 19, 2008).
 117




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ExhibitNumber
    
    Description10.9
    
    Employment Agreement, dated as of June 1, 2007, between Doral Financial Corporation and Christopher Poulton (Incorporated herein by reference to exhibit number 10.10 to Doral Financials Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Commission on March 19, 2008).10.1
    
    Securityholders Registration Rights Agreement dated as of July 19, 2007, between Doral Financial Corporation and Doral Holding Delaware, LLC (Incorporated herein by reference to exhibit number 10.1 to the Current Report on Form 8-K filed with the Commission on July 20, 2007).10.11
    
    Advisory Services Agreements, dated as of July 19, 2007, between Doral Financial Corporation and Bear Stearns Merchant Manager III, L.P. (Incorporated herein by reference to exhibit number 10.2 to the Current Report on Form 8-K filed with the Commission on July 20, 2007).10.12
    
    Doral Financial 2008 Stock Incentive Plan (Incorporated herein by reference to Annex A to the Definitive Proxy Statement for the Doral Financial 2008 Annual Stockholders Meeting filed with the Commission on April 11, 2008).10.13
    
    Employment Agreement, dated as of March 24, 2009, between Doral Financial and Robert E. Wahlman. (Incorporated herein by reference to exhibit number 99.2 to Doral Financials Current Report on Form 8-K filed with the Commission on March 26, 2009).10.14
    
    Summary of Doral Financials 2007 Key Incentive Plan (Incorporated herein by reference to Exhibit 10.15 to Amendment No. 1 to Doral Financials Registration Statement of Form S-4 filed with the Commission on September 29, 2009).10.15
    
    Cooperation Agreement dated as of April 19, 2010 between Doral Financial Corporation, Doral Holdings Delaware, LLC, Doral Holdings, L.P. and Doral GP, Ltd. (Incorporated herein by reference to exhibit number 10.15 to Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed with the Commission on May 10, 2010).10.16
    
    Stock Purchase Agreement dated as of April 19, 2010 between Doral Financial Corporation with the purchasers named therein. (Incorporated herein by reference to exhibit number 10.16 to Doral Financials Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 filed with the Commission on May 10, 2010).10.17
    
    Amendment to Employment Agreement between the Company and Robert Wahlman dated June 25, 2010. (Incorporated herein by reference to exhibit number 10.3 to Doral Financials Current Report on Form 8-K filed with the Commission on June 25, 2010).10.18
    
    Form of Restricted Stock Award Granted to Certain Named Executive Officers of the Company on June 25, 2010. (Incorporated herein by reference to exhibit number 10.1 to Doral Financials Current Report on Form 8-K filed with the Commission on June 25, 2010).10.19
    
    Form of Retention Bonus Letter Regarding Retention Bonuses Granted to Certain Named Executive Officers of the Company on June 25, 2010. (Incorporated herein by reference to exhibit number 10.2 to Doral Financials Current Report on Form 8-K filed with the Commission on June 25, 2010).10.20
    
    Amendment No. 1 to Securityholders and Registration Rights Agreement between Doral Financial Corporation and Doral Holdings Delaware, LLC dated as of August 5, 2010. (Incorporated herein by reference to Exhibit 10.1 to Doral Financials Current Report on Form 8-K filed with the Commission on August 10, 2010).12.1
    
    Computation of Ratio of Earnings to Fixed Charges.12.2
    
    Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.31.1
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 118




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ExhibitNumber
    
    Description31.2
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.32.2
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
 119




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SIGNATURES
  DORAL FINANCIAL CORPORATION 
(Registrant)Date: November 15, 2010
    /s/ Glen R. WakemanGlen R. WakemanChief Executive Officer and PresidentDate: November 15, 2010
    /s/ Robert E. WahlmanRobert E. WahlmanExecutive Vice President and
Chief Financial Officer 120