##### Table of Contents



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 June 30, 2011
 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 June 30, 2011 and December
31, 2010
    
    
    1Consolidated Statements of Operations (Unaudited)  Quarters and six month periods ended June
30, 2011 and June 30, 2010
    
    
    2Consolidated Statements of Changes in Stockholders Equity (Unaudited)  For the six month
periods ended June 30, 2011 and June 30, 2010
    
    
    4Consolidated Statements of Comprehensive Income (Loss) (Unaudited)  Quarters and six month
periods ended June 30, 2011 and June 30, 2010
    
    
    5Consolidated Statements of Cash Flows (Unaudited)  For the six month periods ended June 30, 2011 and June 30, 2010
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    68Item 3    Quantitative and Qualitative Disclosures about Market Risk
    
    
    120Item 4    Controls and Procedures
    
    
    120PART II  OTHER INFORMATIONItem 1    Legal Proceedings
    
    
    121Item 1A    Risk Factors
    
    
    122Item 2    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    122Item 3    Defaults Upon Senior Securities
    
    
    122Item 4    Removed and Reserved
    
    
    123Item 5    Other Information
    
    
    123Item 6    Exhibits
    
    
    123SIGNATURESEX-10.22EX-12.1EX-12.2EX-31.1EX-31.2EX-32.1EX-32.2




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010
 June 30,
    
    
    December 31,(Dollars in thousands, except for share data)
    
    2011
    
    
    2010AssetsCash and due from banks ($890 and $2,642 were restricted at June 30, 2011 and December 31, 2010, respectively)
    
    $
    562,397
    
    
    $
    355,819Other interest-earning assets ($18,967 and $126,573 were restricted at June 30, 2011 and December 31, 2010, respectively)
    
    
    43,967
    
    
    
    156,607Securities held for trading, at fair value
    
    
    44,589
    
    
    
    45,029Securities available for sale, at fair value (includes $631,257 and $743,843 pledged as collateral at June 30, 2011 and December
31, 2010, respectively, that may be repledged)
    
    
    671,451
    
    
    
    1,505,065Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    74,565
    
    
    
    78,087Total investment securities
    
    
    790,605
    
    
    
    1,628,181Loans:Loans held for sale, at lower of cost or market (includes $119,729 and $121,988 pledged as collateral at
June 30, 2011 and December 31, 2010, respectively, that may be repledged)
    
    
    301,934
    
    
    
    319,269Loans receivable (includes $174,333 and $180,447 pledged as collateral at June 30, 2011 and December 31,
2010, respectively, that may be repledged)
    
    
    5,688,598
    
    
    
    5,588,571Less: Allowance for loan and lease losses
    
    
    (93,472
    )
    
    
    (123,652
    )Total net loans receivable
    
    
    5,595,126
    
    
    
    5,464,919Total loans, net
    
    
    5,897,060
    
    
    
    5,784,188Accounts receivable
    
    
    41,592
    
    
    
    28,704Mortgage-servicing advances
    
    
    54,011
    
    
    
    51,462Accrued interest receivable
    
    
    37,244
    
    
    
    38,774Servicing assets, net
    
    
    115,785
    
    
    
    114,342Premises and equipment, net
    
    
    103,386
    
    
    
    104,053Real estate held for sale, net
    
    
    101,499
    
    
    
    100,273Deferred tax asset (DTA)
    
    
    103,958
    
    
    
    105,712Other assets
    
    
    164,192
    
    
    
    178,239Total assets
    
    $
    8,015,696
    
    
    $
    8,646,354LiabilitiesDeposits:Non-interest-bearing deposits
    
    $
    285,582
    
    
    $
    258,230Other interest-bearing deposits
    
    
    1,986,102
    
    
    
    2,000,991Brokered certificate of deposits
    
    
    2,031,108
    
    
    
    2,359,254Total deposits
    
    
    4,302,792
    
    
    
    4,618,475Securities sold under agreements to repurchase
    
    
    442,300
    
    
    
    1,176,800Advances from FHLB
    
    
    1,342,849
    
    
    
    901,420Loans payable
    
    
    294,623
    
    
    
    304,035Notes payable
    
    
    510,430
    
    
    
    513,958Accrued expenses and other liabilities
    
    
    258,442
    
    
    
    269,471Total liabilities
    
    
    7,151,436
    
    
    
    7,784,159Commitments
and contingencies (Please refer to Notes 24 and 25)Stockholders EquityPreferred stock, $1 par value; 40,000,000 shares authorized; 5,811,391 shares issued and outstanding, at aggregate liquidation
preference value at June 30, 2011 and December 31, 2010, respectively.Perpetual noncumulative nonconvertible preferred stock (Series A, B and C)
    
    
    148,700
    
    
    
    148,700Perpetual cumulative convertible preferred stock
    
    
    203,382
    
    
    
    203,382Common stock, $0.01 par value; 300,000,000 shares authorized; 127,293,756 shares issued and outstanding at both June 30, 2011
and December 31, 2010
    
    
    1,273
    
    
    
    1,273Additional paid-in capital
    
    
    1,220,983
    
    
    
    1,219,280Legal surplus
    
    
    23,596
    
    
    
    23,596Accumulated deficit
    
    
    (735,229
    )
    
    
    (738,199
    )Accumulated other comprehensive income (loss), net of income tax expense of $621 and expense of $1,332 at June 30, 2011 and
December 31, 2010, respectively
    
    
    1,555
    
    
    
    4,163Total stockholders equity
    
    
    864,260
    
    
    
    862,195Total liabilities and stockholders equity
    
    $
    8,015,696
    
    
    $
    8,646,354
  1




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands, except for share data)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Interest income:Loans
    
    $
    79,238
    
    
    $
    78,916
    
    
    $
    159,303
    
    
    $
    160,349Mortgage-backed securities (MBS)
    
    
    9,221
    
    
    
    18,542
    
    
    
    20,277
    
    
    
    41,789Interest-only strips (IOs)
    
    
    1,508
    
    
    
    1,491
    
    
    
    2,979
    
    
    
    3,034Investment securities
    
    
    130
    
    
    
    583
    
    
    
    229
    
    
    
    1,448Other interest-earning assets
    
    
    1,020
    
    
    
    1,545
    
    
    
    2,320
    
    
    
    3,685Total interest income
    
    
    91,117
    
    
    
    101,077
    
    
    
    185,108
    
    
    
    210,305Interest expense:Deposits
    
    
    22,543
    
    
    
    27,587
    
    
    
    49,442
    
    
    
    54,287Securities sold under agreements to repurchase
    
    
    6,238
    
    
    
    13,738
    
    
    
    15,357
    
    
    
    31,762Advances from FHLB
    
    
    8,822
    
    
    
    12,921
    
    
    
    15,430
    
    
    
    26,894Notes payable
    
    
    6,561
    
    
    
    5,086
    
    
    
    13,214
    
    
    
    10,196Loans payable
    
    
    1,498
    
    
    
    1,680
    
    
    
    3,040
    
    
    
    3,340Total interest expense
    
    
    45,662
    
    
    
    61,012
    
    
    
    96,483
    
    
    
    126,479Net interest income
    
    
    45,455
    
    
    
    40,065
    
    
    
    88,625
    
    
    
    83,826Provision for loan and lease losses
    
    
    13,323
    
    
    
    44,617
    
    
    
    15,914
    
    
    
    58,538Net interest income after provision for loan and lease losses
    
    
    32,132
    
    
    
    (4,552
    )
    
    
    72,711
    
    
    
    25,288Non-interest income (loss):Total other-than-temporary impairment (OTTI) losses
    
    
    (411
    )
    
    
    
    
    
    
    (411
    )
    
    
    (40,195
    )Portion of loss recognized in other comprehensive income (before taxes)
    
    
    325
    
    
    
    
    
    
    
    325
    
    
    
    26,936Net credit related OTTI losses
    
    
    (86
    )
    
    
    
    
    
    
    (86
    )
    
    
    (13,259
    )Net gain (loss) on sale of investment securities available for sale
    
    
    14,808
    
    
    
    (137,204
    )
    
    
    17,662
    
    
    
    (110,790
    )Net loss on early repayment of debt
    
    
    (3,068
    )
    
    
    (2,545
    )
    
    
    (3,068
    )
    
    
    (3,021
    )Net gain on loans securitized and sold and capitalization of mortgage servicing
    
    
    9,026
    
    
    
    3,605
    
    
    
    14,568
    
    
    
    6,956Retail banking fees
    
    
    7,067
    
    
    
    7,199
    
    
    
    14,073
    
    
    
    14,342Mortgage loan servicing income (net of mark-to-market adjustments)
    
    
    4,543
    
    
    
    (1,354
    )
    
    
    13,442
    
    
    
    5,390Net gain on trading assets and derivatives
    
    
    3,373
    
    
    
    7,102
    
    
    
    2,286
    
    
    
    8,091Insurance agency commissions
    
    
    2,439
    
    
    
    2,436
    
    
    
    4,661
    
    
    
    4,778Other income
    
    
    695
    
    
    
    571
    
    
    
    3,884
    
    
    
    3,907Total non-interest income (loss)
    
    
    38,797
    
    
    
    (120,190
    )
    
    
    67,422
    
    
    
    (83,606
    )Non-interest expenses:Compensation and benefits
    
    
    21,081
    
    
    
    20,315
    
    
    
    39,375
    
    
    
    36,750Professional services
    
    
    9,339
    
    
    
    15,420
    
    
    
    17,976
    
    
    
    29,212Occupancy expenses
    
    
    4,786
    
    
    
    4,322
    
    
    
    9,126
    
    
    
    8,303FDIC insurance expense
    
    
    3,797
    
    
    
    5,574
    
    
    
    8,153
    
    
    
    10,765Communication expenses
    
    
    3,636
    
    
    
    4,056
    
    
    
    7,639
    
    
    
    8,000Depreciation and amortization
    
    
    3,463
    
    
    
    3,110
    
    
    
    6,666
    
    
    
    6,257EDP expenses
    
    
    3,024
    
    
    
    2,878
    
    
    
    6,299
    
    
    
    6,657Taxes, other than payroll and income taxes
    
    
    2,923
    
    
    
    2,591
    
    
    
    5,799
    
    
    
    5,155Corporate Insurance
    
    
    1,490
    
    
    
    1,264
    
    
    
    3,060
    
    
    
    2,526Other
    
    
    5,785
    
    
    
    9,737
    
    
    
    11,688
    
    
    
    16,30259,324
    
    
    
    69,267
    
    
    
    115,781
    
    
    
    129,927Other provisions and other real estate owned expenses:Foreclosure expenses and other credit related expenses
    
    
    2,196
    
    
    
    582
    
    
    
    4,561
    
    
    
    2,723Other real estate owned (OREO) expenses
    
    
    2,061
    
    
    
    23,414
    
    
    
    4,023
    
    
    
    28,011Provision for Lehman Brothers, Inc. claim receivable
    
    
    
    
    
    
    10,819
    
    
    
    
    
    
    
    10,8194,257
    
    
    
    34,815
    
    
    
    8,584
    
    
    
    41,553Total non-interest expenses
    
    
    63,581
    
    
    
    104,082
    
    
    
    124,365
    
    
    
    171,480Income (loss) before income taxes
    
    
    7,348
    
    
    
    (228,824
    )
    
    
    15,768
    
    
    
    (229,798
    )Income tax expense
    
    
    2,871
    
    
    
    4,487
    
    
    
    7,968
    
    
    
    7,016Net income (loss)
    
    $
    4,477
    
    
    $
    (233,311
    )
    
    $
    7,800
    
    
    $
    (236,814
    )Net income (loss) attributable to common shareholders(1)
    
    $
    2,062
    
    
    $
    (235,726
    )
    
    $
    2,970
    
    
    $
    (214,508
    )Net income (loss) per common share(1)(2)
    
    $
    0.02
    
    
    $
    (3.50
    )
    
    $
    0.02
    
    
    $
    (3.30
    )
 
 (1)
    
    For the quarters and six month periods ended June 30, 2011 and 2010, net income
(loss) per common share represents the basic and diluted loss per common share. Refer to Note
28 for additional information regarding net income (loss) attributable to common shareholders.(2)
    
    For the six month period ended June 30, 2010, net loss per common share included
$26.6 million related to the effect of the preferred stock exchange. Refer to Note 28 for
additional information.  2




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (UNAUDITED)
 Six Month Periods EndedJune 30,(In thousands)
    
    2011
    
    
    2010Preferred Stock:Balance at beginning of period
    
    $
    352,082
    
    
    $
    415,428Preferred stock issued (mandatorily convertible)
    
    
    
    
    
    
    171,000Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    
    
    
    
    (48,687
    )Cumulative convertible
    
    
    
    
    
    
    (14,659
    )Balance at end of period
    
    
    352,082
    
    
    
    523,082Common Stock:Balance at beginning of period
    
    
    1,273
    
    
    
    621Common stock issued/converted:Noncumulative nonconvertible
    
    
    
    
    
    
    40Cumulative convertible
    
    
    
    
    
    
    12Balance at end of period
    
    
    1,273
    
    
    
    673Additional Paid-In Capital:Balance at beginning of period
    
    
    1,219,280
    
    
    
    1,010,661Stock-based compensation recognized
    
    
    1,703
    
    
    
    73Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    
    
    
    
    17,010Cumulative convertible
    
    
    
    
    
    
    19,699Balance at end of period
    
    
    1,220,983
    
    
    
    1,047,443Legal Surplus
    
    
    23,596
    
    
    
    23,596Accumulated Deficit:Balance at beginning of period
    
    
    (738,199
    )
    
    
    (463,781
    )Net income (loss)
    
    
    7,800
    
    
    
    (236,814
    )Dividend accrued on preferred stock
    
    
    (4,830
    )
    
    
    (4,279
    )Effect of conversion of preferred stock:Noncumulative nonconvertible
    
    
    
    
    
    
    31,637Cumulative convertible
    
    
    
    
    
    
    (5,052
    )Balance at end of period
    
    
    (735,229
    )
    
    
    (678,289
    )Accumulated Other Comprehensive Income (Loss), Net of Tax:Balance at beginning of period
    
    
    4,163
    
    
    
    (111,481
    )Other
comprehensive (loss) income, net of deferred tax
    
    
    (2,608
    )
    
    
    139,948Balance at end of period
    
    
    1,555
    
    
    
    28,467Total stockholders equity
    
    $
    864,260
    
    
    $
    944,972
  3




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##### Table of Contents



DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPRENHENSIVE (LOSS) INCOME  (UNAUDITED)
 Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30, 2011(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Net income (loss)
    
    $
    4,477
    
    
    $
    (233,311
    )
    
    $
    7,800
    
    
    $
    (236,814
    )Other comprehensive (loss) income, before tax:Unrealized gains on securities arising during the period
    
    
    7,656
    
    
    
    41,660
    
    
    
    6,964
    
    
    
    65,701Non-credit portion of OTTI losses
    
    
    (325
    )
    
    
    
    
    
    
    (325
    )
    
    
    (26,936
    )Reclassification of net realized (gains) losses  included in net income (loss)
    
    
    (7,462
    )
    
    
    129,749
    
    
    
    (11,245
    )
    
    
    122,172Other comprehensive (loss) income on investment securities, before tax
    
    
    (131
    )
    
    
    171,409
    
    
    
    (4,606
    )
    
    
    160,937Income tax benefit (expense) related to investment securities
    
    
    28
    
    
    
    (25,712
    )
    
    
    711
    
    
    
    (24,141
    )Other comprehensive (loss) income on investment securities, net of tax
    
    
    (103
    )
    
    
    145,697
    
    
    
    (3,895
    )
    
    
    136,796Other comprehensive income on cash flow hedges(1)
    
    
    554
    
    
    
    1,594
    
    
    
    1,287
    
    
    
    3,152Other comprehensive income (loss)
    
    
    451
    
    
    
    147,291
    
    
    
    (2,608
    )
    
    
    139,948Comprehensive income (loss)
    
    $
    4,928
    
    
    $
    (86,020
    )
    
    $
    5,192
    
    
    $
    (96,866
    )Accumulated other comprehensive income, net of taxOther comprehensive income on investment securities
    
    $
    3,794
    
    
    $
    36,502
    
    
    $
    3,794
    
    
    $
    36,502Other comprehensive losses on investment securities on which OTTI has been recognized
    
    
    (276
    )
    
    
    (3,563
    )
    
    
    (276
    )
    
    
    (3,563
    )Total other comprehensive income on investment securities
    
    
    3,518
    
    
    
    32,939
    
    
    
    3,518
    
    
    
    32,939Other comprehensive loss on cash flow hedge(1)
    
    
    (1,963
    )
    
    
    (4,472
    )
    
    
    (1,963
    )
    
    
    (4,472
    )Total accumulated other comprehensive income net of tax
    
    $
    1,555
    
    
    $
    28,467
    
    
    $
    1,555
    
    
    $
    28,467
 
 (1)
    
    For the quarters and six month periods ended June 30, 2011 and 2010, other
comprehensive loss on cash flow hedges includes $0.8 million and $1.7 million related to a
deferred tax asset valuation allowance.  4




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##### Table of Contents



DORAL FINANCIAL CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Month Periods Ended June 30,(In thousands)
    
    2011
    
    
    2010Cash flows from operating activities:Net income (loss)
    
    $
    7,800
    
    
    $
    (236,814
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Stock-based compensation
    
    
    1,703
    
    
    
    73Depreciation and amortization
    
    
    6,666
    
    
    
    6,257Mark-to-market adjustment of servicing assets
    
    
    3,199
    
    
    
    8,480Deferred tax expense
    
    
    2,493
    
    
    
    3,126Provision for loan and lease losses
    
    
    15,914
    
    
    
    58,538Provision for claim receivable
    
    
    
    
    
    
    10,819Provision for OREO losses
    
    
    1,375
    
    
    
    26,391Loss (gain) on sale of OREO
    
    
    475
    
    
    
    (58
    )Net premium amortization on loans, investment securities and debt
    
    
    9,167
    
    
    
    8,417Origination and purchases of loans held for sale
    
    
    (177,825
    )
    
    
    (160,982
    )Principal repayments and sales of loans held for sale
    
    
    64,849
    
    
    
    95,065(Gain) loss on sale of securities
    
    
    (27,636
    )
    
    
    108,150Net OTTI losses
    
    
    86
    
    
    
    13,259Net loss on early repayment of debt
    
    
    3,068
    
    
    
    3,021Unrealized (gain) loss on trading securities
    
    
    (64
    )
    
    
    61Principal repayment and sales of securities held for trading
    
    
    253,692
    
    
    
    151,492Amortization and net gain in the fair value of IOs
    
    
    500
    
    
    
    1,011Unrealized (gain) loss on derivative instruments
    
    
    (1,021
    )
    
    
    1,594Decrease (increase) in derivative instruments
    
    
    337
    
    
    
    (5,224
    )(Increase) decrease in accounts receivable
    
    
    (12,888
    )
    
    
    6,033Increase in mortgage servicing advances
    
    
    (2,549
    )
    
    
    (22,017
    )Decrease in accrued interest receivable
    
    
    1,530
    
    
    
    882Decrease in other assets
    
    
    137,550
    
    
    
    66,033(Decrease) increase in accrued expenses and other liabilities
    
    
    (3,879
    )
    
    
    65,365Total adjustments
    
    
    276,742
    
    
    
    445,786Net cash provided by operating activities
    
    
    284,542
    
    
    
    208,972Cash flows from investing activities:Purchases of securities available for sale
    
    
    (234,764
    )
    
    
    (1,430,635
    )Principal repayment and sales of securities available for sale
    
    
    1,075,068
    
    
    
    1,852,364Proceeds from sale of FHLB stock
    
    
    3,522
    
    
    
    26,756Originations, purchases and repurchases of loans receivable
    
    
    (672,013
    )
    
    
    (592,890
    )Principal repayment of loans receivable
    
    
    351,265
    
    
    
    262,558Proceeds from sales of servicing assets
    
    
    
    
    
    
    192Purchases of premises and equipment
    
    
    (7,068
    )
    
    
    (4,455
    )Proceeds from sales of real estate held for sale
    
    
    31,430
    
    
    
    10,492Net cash provided by investing activities
    
    
    547,440
    
    
    
    124,382Cash flows from financing activities:(Decrease) increase in deposits
    
    
    (315,683
    )
    
    
    297,548Decrease in securities sold under agreements to repurchase
    
    
    (219,500
    )
    
    
    (687,483
    )Proceeds from advances from FHLB
    
    
    145,000
    
    
    
    575,000Repayment of advances from FHLB
    
    
    (160,001
    )
    
    
    (964,000
    )Fees paid on debt exchange and early repayment of debt
    
    
    (65,367
    )
    
    
    Proceeds from other short-term borrowings
    
    
    
    
    
    
    345,000Repayment of other short-term borrowings
    
    
    
    
    
    
    (455,000
    )Repayment of secured borrowings
    
    
    (9,412
    )
    
    
    (18,384
    )Repayment of notes payable
    
    
    (3,724
    )
    
    
    (3,363
    )Issuance of preferred stock
    
    
    
    
    
    
    171,000Net cash used in financing activities
    
    
    (628,687
    )
    
    
    (739,682
    )Net increase (decrease) in cash and cash equivalents
    
    $
    203,295
    
    
    $
    (406,328
    )Cash and cash equivalents at beginning of period
    
    
    383,211
    
    
    
    725,277Cash and cash equivalents at the end of period (1)
    
    $
    586,506
    
    
    $
    318,949Cash and cash equivalents includes:Cash and due from banks
    
    $
    561,506
    
    
    $
    318,949Other interest-earning assets
    
    
    25,000
    
    
    
    $
    586,506
    
    
    $
    318,949Supplemental schedule of non-cash activities:Loan securitizations
    
    $
    243,719
    
    
    $
    148,851Loans foreclosed
    
    $
    47,474
    
    
    $
    51,965Capitalization of servicing assets
    
    $
    4,642
    
    
    $
    3,184Reclassification of loans held for investment portfolio to the held for sale portfolio
    
    $
    59,917
    
    
    $
    95,648Reclassification of loans held for sale portfolio to the held for investment portfolio
    
    $
    
    
    
    $
    210Substitution of securities sold under agreement to repurchase with advances from FHLB
    
    $
    515,000
    
    
    $
    Supplemental information for cash flows:Cash used to pay interest
    
    $
    104,119
    
    
    $
    131,546Cash used to pay income taxes
    
    $
    3,824
    
    
    $
    2,267
 
 (1)
    
    Does not include $19.9 million and $0.3 million in restricted cash and equivalents
as of June 30, 2011 and 2010.  5




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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
    
    
    7Note 2  Recent Accounting Pronouncements
    
    
    7Note 3  Cash and Due from Banks
    
    
    9Note 4  Other Interest-Earning Assets
    
    
    9Note 5  Securities Held for Trading
    
    
    10Note 6  Securities Available for Sale
    
    
    11Note 7  Investments in an Unrealized Loss Position
    
    
    13Note 8  Pledged Assets
    
    
    16Note 9  Loans Held for Sale and Loans Receivable
    
    
    16Note 10  Allowance for loan and lease losses and Impaired Loans
    
    
    24Note 11  Related Party Transactions
    
    
    30Note 12  Accounts Receivable and Other Assets
    
    
    30Note 13  Servicing Activities
    
    
    30Note 14  Sale and Securitization of Mortgage Loans
    
    
    33Note 15  Servicing Related Matters
    
    
    34Note 16  Other Real Estate Owned
    
    
    34Note 17  Deposits
    
    
    34Note 18  Securities Sold Under Agreements to Repurchase
    
    
    35Note 19  Advances from FHLB
    
    
    36Note 20  Loans Payable
    
    
    37Note 21  Notes Payable
    
    
    38Note 22  Income Taxes
    
    
    38Note 23  Guarantees
    
    
    43Note 24  Financial Instruments with Off-Balance Sheet Risk
    
    
    44Note 25  Commitments and Contingencies
    
    
    45Note 26  Stock Options and Other Incentive Plans
    
    
    45Note 27  Earnings (Losses) per Share
    
    
    47Note 28  Fair Value of Assets and Liabilities
    
    
    48Note 29  Derivatives
    
    
    56Note 30  Variable Interest Entities
    
    
    59Note 31  Segment Information
    
    
    61Note 32  Subsequent Events
    
    
    65
  6




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##### Table of Contents



1. Nature of Operations and Basis of Presentation
      2. Recent Accounting Pronouncements
 Accounting Standards Update No. 2011-5 Comprehensive Income (Topic 220):
Presentation of Comprehensive Income
 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRSs
 Accounting Standards Update No. 2011-03  Transfers and Servicing (Topic 860)
 7




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##### Table of Contents



1.
    
    The financial assets to be repurchased or redeemed are the same or substantially the same as
those transferred.2.
    
    The agreement is to repurchase or redeem them before maturity, at a fixed or determinable
price.3.
    
    The agreement is entered into contemporaneously with, or in contemplation of, the transfer.
  Changes in Accounting Standards Adopted in the Financial Statements
 Accounting Standards Update No. 2011-02Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring
  Accounting Standards Update No. 2010-29 Business Combinations (Topic 805): Disclosures of
Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging
Issues Task Force)
  Accounting Standards Update No. 2010-28 Intangibles-Goodwill and Other (Topic 350): When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
(a consensus of the FASB Emerging Issues Task Force)
 8




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##### Table of Contents



Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses (ASU No. 2010-20)
 3. Cash and due from banks
    4. Other Interest-Earning Assets
   9




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##### Table of Contents



5. Securities Held for Trading
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Mortgage-Backed Securities
    
    $
    830
    
    
    $
    766Variable Rate IOs
    
    
    43,552
    
    
    
    44,018Fixed Rate IOs
    
    
    198
    
    
    
    232Derivatives(1)
    
    
    9
    
    
    
    13Total
    
    $
    44,589
    
    
    $
    45,029
 
 (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 $265.0 million as of June 30, 2011 and $310.0 million as
of December 31, 2010. Notional amounts indicate the volume of derivatives activity, but do not
represent Doral Financials exposure to market or credit risk.  10




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##### Table of Contents



6. Securities Available for Sale
   As of June 30, 2011
 Weighted-Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAgency MBSDue within one year
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    7
    
    
    
    6.60
    %Due from one to five years
    
    
    195
    
    
    
    9
    
    
    
    
    
    
    
    204
    
    
    
    4.84
    %Due from five to ten years
    
    
    68,166
    
    
    
    1,501
    
    
    
    
    
    
    
    69,667
    
    
    
    2.74
    %Due over ten years
    
    
    372,161
    
    
    
    5,114
    
    
    
    197
    
    
    
    377,078
    
    
    
    3.18
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    7,116
    
    
    
    46
    
    
    
    140
    
    
    
    7,022
    
    
    
    4.85
    %Due over ten years
    
    
    100,723
    
    
    
    2,115
    
    
    
    230
    
    
    
    102,608
    
    
    
    3.62
    %Non-Agency CMOsDue over ten years
    
    
    11,153
    
    
    
    
    
    
    
    3,193
    
    
    
    7,960
    
    
    
    17.35
    %Obligations U.S. Government Sponsored AgenciesDue within one year
    
    
    94,947
    
    
    
    35
    
    
    
    
    
    
    
    94,982
    
    
    
    0.18
    %OtherDue from one to five years
    
    
    5,002
    
    
    
    
    
    
    
    1
    
    
    
    5,001
    
    
    
    3.45
    %Due over ten years
    
    
    7,843
    
    
    
    10
    
    
    
    931
    
    
    
    6,922
    
    
    
    4.19
    %$
    667,313
    
    
    $
    8,830
    
    
    $
    4,692
    
    
    $
    671,451
    
    
    
    3.05
    %
 11




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##### Table of Contents



As of December 31, 2010
 Weighted-Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    YieldAgency MBSDue within one year
    
    $
    36
    
    
    $
    1
    
    
    $
    
    
    
    $
    37
    
    
    
    6.67
    %Due from one to five years
    
    
    220
    
    
    
    11
    
    
    
    
    
    
    
    231
    
    
    
    4.87
    %Due from five to ten years
    
    
    416,709
    
    
    
    3,447
    
    
    
    130
    
    
    
    420,026
    
    
    
    2.47
    %Due over ten years
    
    
    718,690
    
    
    
    4,949
    
    
    
    960
    
    
    
    722,679
    
    
    
    2.57
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    17,953
    
    
    
    122
    
    
    
    178
    
    
    
    17,897
    
    
    
    4.10
    %Due over ten years
    
    
    288,414
    
    
    
    6,750
    
    
    
    230
    
    
    
    294,934
    
    
    
    3.57
    %Non-Agency CMOsDue over ten years
    
    
    11,108
    
    
    
    
    
    
    
    3,916
    
    
    
    7,192
    
    
    
    19.74
    %Obligations U.S. Government Sponsored AgenciesDue within one year
    
    
    34,987
    
    
    
    5
    
    
    
    
    
    
    
    34,992
    
    
    
    0.16
    %OtherDue over ten years
    
    
    8,203
    
    
    
    
    
    
    
    1,126
    
    
    
    7,077
    
    
    
    4.25
    %$
    1,496,320
    
    
    $
    15,285
    
    
    $
    6,540
    
    
    $
    1,505,065
    
    
    
    2.83
    %
 12




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##### Table of Contents



7. Investments in an Unrealized Loss Position
  Securities Available for Sale
 As of June 30, 2011Less 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
    
    
    LossesAgency MBS
    
    
    1
    
    
    $
    16,244
    
    
    $
    197
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    16,244
    
    
    $
    197CMO Government
Sponsored Agencies
    
    
    1
    
    
    
    3,538
    
    
    
    230
    
    
    
    1
    
    
    
    1,554
    
    
    
    140
    
    
    
    2
    
    
    
    5,092
    
    
    
    370Non-Agency CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    7,960
    
    
    
    3,193
    
    
    
    3
    
    
    
    7,960
    
    
    
    3,193Other
    
    
    1
    
    
    
    5,001
    
    
    
    1
    
    
    
    1
    
    
    
    2,069
    
    
    
    931
    
    
    
    2
    
    
    
    7,070
    
    
    
    9323
    
    
    $
    24,783
    
    
    $
    428
    
    
    
    5
    
    
    $
    11,583
    
    
    $
    4,264
    
    
    
    8
    
    
    $
    36,366
    
    
    $
    4,692
 Securities Available for Sale
 As of December 31, 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
    
    
    LossesAgency MBS
    
    
    13
    
    
    $
    241,675
    
    
    $
    1,090
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    13
    
    
    $
    241,675
    
    
    $
    1,090CMO Government
Sponsored Agencies
    
    
    2
    
    
    
    11,564
    
    
    
    255
    
    
    
    1
    
    
    
    1,704
    
    
    
    153
    
    
    
    3
    
    
    
    13,268
    
    
    
    408Non-Agency CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    7,192
    
    
    
    3,916
    
    
    
    3
    
    
    
    7,192
    
    
    
    3,916Other
    
    
    1
    
    
    
    5,162
    
    
    
    41
    
    
    
    1
    
    
    
    1,915
    
    
    
    1,085
    
    
    
    2
    
    
    
    7,077
    
    
    
    1,12616
    
    
    $
    258,401
    
    
    $
    1,386
    
    
    
    5
    
    
    $
    10,811
    
    
    $
    5,154
    
    
    
    21
    
    
    $
    269,212
    
    
    $
    6,540
   
    
    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 amount of estimated credit loss is
determined as the amount by which the amortized cost basis exceeds the present value of
expected cash flows.
 13




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##### Table of Contents



14




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##### Table of Contents



As of
    
    
    Quarter Ended
    
    
    Six Month Period EndedJune 30, 2011
    
    
    June 30, 2011
    
    
    June 30, 2011AmortizedCost (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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    P.R. Non-Agency CMOs
    
    
    11,153
    
    
    
    3,193
    
    
    
    7,960
    
    
    
    86
    
    
    
    325
    
    
    
    411
    
    
    
    86
    
    
    
    325
    
    
    
    411$
    11,153
    
    
    $
    3,193
    
    
    $
    7,960
    
    
    $
    86
    
    
    $
    325
    
    
    $
    411
    
    
    $
    86
    
    
    $
    325
    
    
    $
    411
 As of
    
    
    Quarter Ended
    
    
    Six Month Period EndedJune 30, 2010
    
    
    June 30, 2010
    
    
    June 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
    
    
    $
    26,840
    
    
    $
    40,097P.R. Non-Agency CMOs
    
    
    8,156
    
    
    
    3,629
    
    
    
    4,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    96
    
    
    
    98$
    8,156
    
    
    $
    3,629
    
    
    $
    4,527
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    13,259
    
    
    $
    26,936
    
    
    $
    40,195
  Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    2,816
    
    
    $
    1,193
    
    
    $
    2,816
    
    
    $
    1,191Additions:Credit losses for which OTTI was not previously recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional OTTI credit losses for which an
other-than-temporary charge was previously recognized
    
    
    86
    
    
    
    
    
    
    
    86
    
    
    
    2Balance at end of period
    
    $
    2,902
    
    
    $
    1,193
    
    
    $
    2,902
    
    
    $
    1,193
  15




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##### Table of Contents



8. Pledged Assets
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Cash
    
    $
    890
    
    
    $
    2,642Other interest-earning assets
    
    
    18,967
    
    
    
    126,573Securities available for sale
    
    
    631,257
    
    
    
    1,458,992Loans held for sale
    
    
    119,729
    
    
    
    121,988Loans receivable
    
    
    2,344,012
    
    
    
    2,388,428Total pledged assets
    
    $
    3,114,855
    
    
    $
    4,098,623
 9. Loans Held for Sale and Loans Receivable
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Conventional single family residential(1)
    
    $
    110,524
    
    
    $
    119,290FHA/VA
    
    
    165,176
    
    
    
    172,216Commercial loans to financial institutions
    
    
    13,598
    
    
    
    14,608Commercial real estate
    
    
    12,636
    
    
    
    13,155Total loans held for sale (2)(3)
    
    $
    301,934
    
    
    $
    319,269
 
 (1)
    
    At both June 30, 2011 and December 31, 2010, includes $0.1 million related to U.S.
subsidiaries loans.(2)
    
    At both, June 30, 2011 and December 31, 2010, the loans held for sale portfolio
include $1.1 million of interest-only loans.(3)
    
    Includes $19.6 million and $21.4 million of balloon loans, as of June 30, 2011 and
December 31, 2010, respectively.     16




---



##### Table of Contents



June 30, 2011
    
    
    December 31, 2010PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalResidential mortgage(1)
    
    $
    3,406,704
    
    
    $
    131,200
    
    
    $
    3,537,904
    
    
    $
    3,451,895
    
    
    $
    108,641
    
    
    $
    3,560,536FHA/VA guaranteed residential mortgage
    
    
    132,657
    
    
    
    
    
    
    
    132,657
    
    
    
    187,473
    
    
    
    
    
    
    
    187,473Consumer Loans
    
    
    46,324
    
    
    
    31
    
    
    
    46,355
    
    
    
    54,354
    
    
    
    26
    
    
    
    54,380Lease financing receivables
    
    
    2,762
    
    
    
    
    
    
    
    2,762
    
    
    
    4,807
    
    
    
    
    
    
    
    4,807Total consumer
    
    
    3,588,447
    
    
    
    131,231
    
    
    
    3,719,678
    
    
    
    3,698,529
    
    
    
    108,667
    
    
    
    3,807,196Commercial real estate
    
    
    597,954
    
    
    
    68,626
    
    
    
    666,580
    
    
    
    629,043
    
    
    
    59,903
    
    
    
    688,946Commercial and industrial
    
    
    38,384
    
    
    
    874,036
    
    
    
    912,420
    
    
    
    36,639
    
    
    
    597,056
    
    
    
    633,695Construction and land
    
    
    309,590
    
    
    
    80,330
    
    
    
    389,920
    
    
    
    349,899
    
    
    
    108,835
    
    
    
    458,734Total commercial
    
    
    945,928
    
    
    
    1,022,992
    
    
    
    1,968,920
    
    
    
    1,015,581
    
    
    
    765,794
    
    
    
    1,781,375Loans receivable, gross(2)
    
    
    4,534,375
    
    
    
    1,154,223
    
    
    
    5,688,598
    
    
    
    4,714,110
    
    
    
    874,461
    
    
    
    5,588,571Allowance for loan and lease losses
    
    
    (87,592
    )
    
    
    (5,880
    )
    
    
    (93,472
    )
    
    
    (117,821
    )
    
    
    (5,831
    )
    
    
    (123,652
    )$
    4,446,783
    
    
    $
    1,148,343
    
    
    $
    5,595,126
    
    
    $
    4,596,289
    
    
    $
    868,630
    
    
    $
    5,464,919
 
 (1)
    
    Includes $576.5 million and $565.9 million of balloon loans, as of June 30,
2011 and December 31, 2010, respectively.(2)
    
    Includes $405.8 million and $442.6 million of interest-only loans, as of
June 30, 2011 and December 31, 2010, respectively.   Non-accrual and Past Due Loans and Leases
   17




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##### Table of Contents



June 30, 2011
    
    
    December 31, 2010(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalConsumerResidential mortgage
    
    $
    277,501
    
    
    $
    685
    
    
    $
    278,186
    
    
    $
    276,328
    
    
    $
    2,030
    
    
    $
    278,358Lease financing receivables
    
    
    199
    
    
    
    
    
    
    
    199
    
    
    
    415
    
    
    
    
    
    
    
    415Other consumer (1)
    
    
    500
    
    
    
    
    
    
    
    500
    
    
    
    404
    
    
    
    
    
    
    
    404Total consumer
    
    
    278,200
    
    
    
    685
    
    
    
    278,885
    
    
    
    277,147
    
    
    
    2,030
    
    
    
    279,177CommercialCommercial real estate
    
    
    167,138
    
    
    
    
    
    
    
    167,138
    
    
    
    193,348
    
    
    
    
    
    
    
    193,348Construction and land
    
    
    107,516
    
    
    
    1,610
    
    
    
    109,126
    
    
    
    147,127
    
    
    
    1,610
    
    
    
    148,737Commercial and industrial
    
    
    2,731
    
    
    
    
    
    
    
    2,731
    
    
    
    2,522
    
    
    
    
    
    
    
    2,522Total commercial
    
    
    277,385
    
    
    
    1,610
    
    
    
    278,995
    
    
    
    342,997
    
    
    
    1,610
    
    
    
    344,607Total loans receivable on which accrual of interest had been
discontinued(2)(3)
    
    $
    555,585
    
    
    $
    2,295
    
    
    $
    557,880
    
    
    $
    620,144
    
    
    $
    3,640
    
    
    $
    623,784
 
 (1)
    
    Includes personal, revolving lines of credit and other consumer loans.(2)
    
    Excludes $2.5 million and $2.7 million in loans held for sale on which accrual of
interest had been discontinued as of June 30, 2011 and December 31, 2010, respectively.(3)
    
    Excludes $79.1 million and $121.3 million of non-performing FHA/VA guaranteed loans
that, due to the nature of their guarantees, present minimal credit risk to the Company as of
June 30, 2011 and December 31, 2010, respectively. 18




---



##### Table of Contents



As of June 30, 2011
 RecordedInvestment30 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 90 DaysPast Due(1)
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total Past Due
    
    
    Total Past
    
    
    and Still(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    Due
    
    
    AccruingConsumerResidential mortgage(2)
    
    $
    84,433
    
    
    $
    
    
    
    $
    86,342
    
    
    $
    
    
    
    $
    25,432
    
    
    $
    
    
    
    $
    165,727
    
    
    $
    98
    
    
    $
    361,934
    
    
    $
    98
    
    
    $
    362,032
    
    
    $
    Lease financing receivables
    
    
    219
    
    
    
    
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418
    
    
    
    
    
    
    
    418
    
    
    
    Other consumer
    
    
    804
    
    
    
    
    
    
    
    2,452
    
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    3,418
    
    
    
    
    
    
    
    3,418
    
    
    
    1,961Total consumer
    
    
    85,456
    
    
    
    
    
    
    
    88,993
    
    
    
    
    
    
    
    25,523
    
    
    
    
    
    
    
    165,798
    
    
    
    98
    
    
    
    365,770
    
    
    
    98
    
    
    
    365,868
    
    
    
    1,961CommercialCommercial real estate
    
    
    35,057
    
    
    
    
    
    
    
    63,690
    
    
    
    
    
    
    
    5,789
    
    
    
    
    
    
    
    97,659
    
    
    
    
    
    
    
    202,195
    
    
    
    
    
    
    
    202,195
    
    
    
    Construction and land
    
    
    3,235
    
    
    
    
    
    
    
    4,121
    
    
    
    
    
    
    
    634
    
    
    
    
    
    
    
    102,761
    
    
    
    1,610
    
    
    
    110,751
    
    
    
    1,610
    
    
    
    112,361
    
    
    
    Commercial and industrial
    
    
    366
    
    
    
    
    
    
    
    618
    
    
    
    
    
    
    
    807
    
    
    
    
    
    
    
    1,960
    
    
    
    
    
    
    
    3,751
    
    
    
    
    
    
    
    3,751
    
    
    
    560Total commercial
    
    
    38,658
    
    
    
    
    
    
    
    68,429
    
    
    
    
    
    
    
    7,230
    
    
    
    
    
    
    
    202,380
    
    
    
    1,610
    
    
    
    316,697
    
    
    
    1,610
    
    
    
    318,307
    
    
    
    560Total past due loans
    
    $
    124,114
    
    
    $
    
    
    
    $
    157,422
    
    
    $
    
    
    
    $
    32,753
    
    
    $
    
    
    
    $
    368,178
    
    
    $
    1,708
    
    
    $
    682,467
    
    
    $
    1,708
    
    
    $
    684,175
    
    
    $
    2,521
 
 (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 June 30, 2011 excludes $96.0 million of non-performing FHA/VA guaranteed loans
that due to the nature of their guarantees present minimal credit risk to the Company. As of December 31, 2010
 RecordedInvestment30 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 90 DaysPast Due(1)
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total Past Due
    
    
    Total Past
    
    
    and Still(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    Due
    
    
    AccruingConsumerResidential mortgage(2)
    
    $
    68,361
    
    
    $
    
    
    
    $
    55,947
    
    
    $
    1,624
    
    
    $
    19,379
    
    
    $
    
    
    
    $
    196,181
    
    
    $
    409
    
    
    $
    339,868
    
    
    $
    2,033
    
    
    $
    341,901
    
    
    $
    Lease financing receivables
    
    
    234
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    620
    
    
    
    
    
    
    
    620
    
    
    
    Other consumer
    
    
    1,341
    
    
    
    
    
    
    
    400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1,745
    
    
    
    
    
    
    
    1,745
    
    
    
    1,993Total consumer
    
    
    69,936
    
    
    
    
    
    
    
    56,733
    
    
    
    1,624
    
    
    
    19,379
    
    
    
    
    
    
    
    196,185
    
    
    
    409
    
    
    
    342,233
    
    
    
    2,033
    
    
    
    344,266
    
    
    
    1,993CommercialCommercial real estate
    
    
    35,202
    
    
    
    
    
    
    
    65,484
    
    
    
    
    
    
    
    6,962
    
    
    
    
    
    
    
    120,231
    
    
    
    
    
    
    
    227,879
    
    
    
    
    
    
    
    227,879
    
    
    
    Construction and land
    
    
    3,901
    
    
    
    
    
    
    
    284
    
    
    
    
    
    
    
    325
    
    
    
    
    
    
    
    1,916
    
    
    
    1,610
    
    
    
    6,426
    
    
    
    1,610
    
    
    
    8,036
    
    
    
    560Commercial and industrial
    
    
    2,281
    
    
    
    
    
    
    
    8,135
    
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    138,144
    
    
    
    
    
    
    
    148,955
    
    
    
    
    
    
    
    148,955
    
    
    
    Total commercial
    
    
    41,384
    
    
    
    
    
    
    
    73,903
    
    
    
    
    
    
    
    7,682
    
    
    
    
    
    
    
    260,291
    
    
    
    1,610
    
    
    
    383,260
    
    
    
    1,610
    
    
    
    384,870
    
    
    
    560Total past due loans
    
    $
    111,320
    
    
    $
    
    
    
    $
    130,636
    
    
    $
    1,624
    
    
    $
    27,061
    
    
    $
    
    
    
    $
    456,476
    
    
    $
    2,019
    
    
    $
    725,493
    
    
    $
    3,643
    
    
    $
    729,136
    
    
    $
    2,553
 
 (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, 2010 excludes $160.0 million of total past due FHA/VA guaranteed
loans that due to the nature of their guarantees present minimal credit risk to the Company. 19




---



##### Table of Contents



Quarters Ended June 30,
    
    
    Six Months Period Ended June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010ConsumerResidential mortgage (1)(2)
    
    $
    5,865
    
    
    $
    6,577
    
    
    $
    9,484
    
    
    $
    10,985Other consumer
    
    
    18
    
    
    
    31
    
    
    
    18
    
    
    
    31Total consumer
    
    
    5,883
    
    
    
    6,608
    
    
    
    9,502
    
    
    
    11,016CommercialCommercial real estate
    
    
    3,477
    
    
    
    3,292
    
    
    
    6,108
    
    
    
    5,774Commercial and industrial
    
    
    254
    
    
    
    88
    
    
    
    471
    
    
    
    116Construction and land
    
    
    2,436
    
    
    
    4,383
    
    
    
    4,790
    
    
    
    7,966Total commercial
    
    
    6,167
    
    
    
    7,763
    
    
    
    11,369
    
    
    
    13,856Total interest income
    
    $
    12,050
    
    
    $
    14,371
    
    
    $
    20,871
    
    
    $
    24,872
 
 (1)
    
    Excludes $1.6 million and $3.7 million in additional interest income the
Company would have recognized if FHA/VA non-accrual loans been accounted for on an accrual
status for the quarters ended June 30, 2011 and 2010, respectively.(2)
    
    Excludes $3.2 million and $5.8 million in additional interest income the
Company would have recognized if FHA/VA non-accrual loans been accounted for on an accrual
status for the six months period ended June 30, 2011 and 2010, respectively. Credit Quality
     20




---



##### Table of Contents



21




---



##### Table of Contents



As of June 30, 2011
 30 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 DaysCurrent
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    TotalConsumerResidential mortgage
    
    $
    3,213,187
    
    
    $
    264,959
    
    
    $
    92,355
    
    
    $
    
    
    
    $
    98,751
    
    
    $
    
    
    
    $
    32,678
    
    
    $
    
    
    
    $
    243,646
    
    
    $
    685
    
    
    $
    3,680,617
    
    
    $
    265,644
    
    
    $
    3,946,261Lease financing receivables
    
    
    2,342
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,762
    
    
    
    
    
    
    
    2,762Other consumer
    
    
    43,069
    
    
    
    31
    
    
    
    793
    
    
    
    
    
    
    
    2,316
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    46,324
    
    
    
    31
    
    
    
    46,355Total consumer
    
    
    3,258,598
    
    
    
    264,990
    
    
    
    93,367
    
    
    
    
    
    
    
    101,268
    
    
    
    
    
    
    
    32,764
    
    
    
    
    
    
    
    243,706
    
    
    
    685
    
    
    
    3,729,703
    
    
    
    265,675
    
    
    
    3,995,378CommercialCommercial real estate
    
    
    406,122
    
    
    
    68,626
    
    
    
    35,177
    
    
    
    
    
    
    
    66,460
    
    
    
    
    
    
    
    5,821
    
    
    
    
    
    
    
    97,010
    
    
    
    
    
    
    
    610,590
    
    
    
    68,626
    
    
    
    679,216Commercial and industrial
    
    
    48,318
    
    
    
    874,036
    
    
    
    371
    
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    803
    
    
    
    
    
    
    
    1,877
    
    
    
    
    
    
    
    51,982
    
    
    
    874,036
    
    
    
    926,018Construction and land
    
    
    199,100
    
    
    
    78,720
    
    
    
    3,237
    
    
    
    
    
    
    
    4,121
    
    
    
    
    
    
    
    632
    
    
    
    
    
    
    
    102,500
    
    
    
    1,610
    
    
    
    309,590
    
    
    
    80,330
    
    
    
    389,920Total commercial
    
    
    653,540
    
    
    
    1,021,382
    
    
    
    38,785
    
    
    
    
    
    
    
    71,194
    
    
    
    
    
    
    
    7,256
    
    
    
    
    
    
    
    201,387
    
    
    
    1,610
    
    
    
    972,162
    
    
    
    1,022,992
    
    
    
    1,995,154Total
    
    $
    3,912,138
    
    
    $
    1,286,372
    
    
    $
    132,152
    
    
    $
    
    
    
    $
    172,462
    
    
    $
    
    
    
    $
    40,020
    
    
    $
    
    
    
    $
    445,093
    
    
    $
    2,295
    
    
    $
    4,701,865
    
    
    $
    1,288,667
    
    
    $
    5,990,532December 31, 201030 to 89 Days
    
    
    90 to 179 Days
    
    
    180 to 240 Days
    
    
    Over 240 DaysCurrent
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Past Due
    
    
    Total(In thousands)
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    PR
    
    
    US
    
    
    TotalConsumerResidential mortgage
    
    $
    3,425,774
    
    
    $
    106,608
    
    
    $
    78,545
    
    
    $
    
    
    
    $
    72,097
    
    
    $
    1,624
    
    
    $
    27,651
    
    
    $
    38
    
    
    $
    326,671
    
    
    $
    507
    
    
    $
    3,930,738
    
    
    $
    108,777
    
    
    $
    4,039,515Lease financing receivables
    
    
    4,187
    
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,807
    
    
    
    
    
    
    
    4,807Other consumer
    
    
    50,616
    
    
    
    26
    
    
    
    1,341
    
    
    
    
    
    
    
    2,225
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    54,354
    
    
    
    26
    
    
    
    54,380Total consumer
    
    
    3,480,577
    
    
    
    106,634
    
    
    
    80,120
    
    
    
    
    
    
    
    74,708
    
    
    
    1,624
    
    
    
    27,762
    
    
    
    38
    
    
    
    326,732
    
    
    
    507
    
    
    
    3,989,899
    
    
    
    108,803
    
    
    
    4,098,702CommercialCommercial real estate
    
    
    ,428,616
    
    
    
    59,903
    
    
    
    35,307
    
    
    
    
    
    
    
    65,690
    
    
    
    
    
    
    
    6,962
    
    
    
    
    
    
    
    120,231
    
    
    
    
    
    
    
    656,806
    
    
    
    59,903
    
    
    
    716,709Commercial and industrial
    
    
    29,653
    
    
    
    597,056
    
    
    
    3,901
    
    
    
    
    
    
    
    607
    
    
    
    
    
    
    
    360
    
    
    
    
    
    
    
    2,118
    
    
    
    
    
    
    
    36,639
    
    
    
    597,056
    
    
    
    633,695Construction and land
    
    
    200,943
    
    
    
    107,225
    
    
    
    2,281
    
    
    
    
    
    
    
    8,136
    
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    138,144
    
    
    
    1,610
    
    
    
    349,899
    
    
    
    108,835
    
    
    
    458,734Total commercial
    
    
    659,212
    
    
    
    764,184
    
    
    
    41,489
    
    
    
    
    
    
    
    74,433
    
    
    
    
    
    
    
    7,717
    
    
    
    
    
    
    
    260,493
    
    
    
    1,610
    
    
    
    1,043,344
    
    
    
    765,794
    
    
    
    1,809,138Total
    
    $
    4,139,789
    
    
    $
    870,818
    
    
    $
    121,609
    
    
    $
    
    
    
    $
    149,141
    
    
    $
    1,624
    
    
    $
    35,479
    
    
    $
    38
    
    
    $
    587,225
    
    
    $
    2,117
    
    
    $
    5,033,243
    
    
    $
    874,597
    
    
    $
    5,907,840
 Loan modifications and troubled debt restructurings
  22




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##### Table of Contents



For the Quarters Ended June 30,2011
    
    
    2010Pre-Modification
    
    
    Post-Modification
    
    
    
    
    
    
    Pre-Modification
    
    
    Post-ModificationOutstanding Recorded
    
    
    Outstanding Recorded
    
    
    
    
    
    
    Outstanding Recorded
    
    
    Outstanding Recorded(In thousands)
    
    Number of Contracts
    
    
    Investment
    
    
    Investment
    
    
    Number of Contracts
    
    
    Investment
    
    
    InvestmentConsumer:Non FHA/VA Residential
    
    
    320
    
    
    $
    37,000
    
    
    $
    36,548
    
    
    
    526
    
    
    $
    64,062
    
    
    $
    63,733Other Consumer
    
    
    8
    
    
    
    46
    
    
    
    46
    
    
    
    23
    
    
    
    143
    
    
    
    130Total Consumer
    
    
    328
    
    
    
    37,046
    
    
    
    36,594
    
    
    
    549
    
    
    
    64,205
    
    
    
    63,863Commercial:Commercial Real Estate
    
    
    10
    
    
    $
    3,309
    
    
    $
    3,671
    
    
    
    8
    
    
    $
    1,690
    
    
    $
    1,690Commercial and Industrial
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    5,226
    
    
    
    5,226Construction and Land
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    14,018
    
    
    
    14,010Total Commercial
    
    
    10
    
    
    
    3,309
    
    
    
    3,671
    
    
    
    14
    
    
    
    20,934
    
    
    
    20,926Total Loan Modifications
    
    
    338
    
    
    $
    40,355
    
    
    $
    40,265
    
    
    
    563
    
    
    $
    85,139
    
    
    $
    84,789
 23




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##### Table of Contents



Six Month Periods Ended June 30,2011
    
    
    2010Pre-modification
    
    
    Post-modification
    
    
    
    
    
    
    Pre-modification
    
    
    Post-modificationNumber of
    
    
    recorded
    
    
    recorded
    
    
Number of
    
    
    recorded
    
    
    recorded(In thousands)
    
    contracts
    
    
    investment
    
    
    investment
    
    
    contracts
    
    
    investment
    
    
    investmentConsumer modificationsResidential non FHA/VA
    
    
    1,130
    
    
    $
    129,277
    
    
    $
    127,318
    
    
    
    712
    
    
    $
    85,881
    
    
    $
    85,643Other consumer
    
    
    18
    
    
    
    109
    
    
    
    109
    
    
    
    36
    
    
    
    297
    
    
    
    269Total consumer
    
    
    1,148
    
    
    
    129,386
    
    
    
    127,427
    
    
    
    748
    
    
    
    86,178
    
    
    
    85,912CommercialCommercial real estate
    
    
    80
    
    
    $
    18,937
    
    
    $
    18,912
    
    
    
    17
    
    
    $
    8,581
    
    
    $
    8,581Commercial and industrial
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    9,489
    
    
    
    9,489Construction and land
    
    
    2
    
    
    
    61
    
    
    
    60
    
    
    
    5
    
    
    
    17,185
    
    
    
    17,177Total commercial
    
    
    82
    
    
    
    18,998
    
    
    
    18,972
    
    
    
    26
    
    
    
    35,255
    
    
    
    35,247Total loan modifications
    
    
    1,230
    
    
    $
    148,384
    
    
    $
    146,399
    
    
    
    774
    
    
    $
    121,433
    
    
    $
    121,159
   Six month period ended June 30, 2011(In thousands)
    

Number
of contracts
    
    
    Recorded investmentConsumerResidential mortgage  non FHA/VA
    
    
    681
    
    
    $
    83,689Other consumer
    
    
    8
    
    
    
    74Total consumer
    
    
    689
    
    
    
    83,763CommercialCommercial real estate
    
    
    105
    
    
    
    23,800Construction and land
    
    
    5
    
    
    
    6,824Total commercial
    
    
    110
    
    
    
    30,624Total recidivism
    
    
    799
    
    
    $
    114,387
   10. Allowance for Loan and Lease Losses and Impaired Loans
  24




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##### Table of Contents



Quarter Ended June 30, 2011Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    54,016
    
    
    
    5,565
    
    
    $
    59,581
    
    
    $
    23,956
    
    
    $
    30,642
    
    
    $
    6,025
    
    
    $
    60,623
    
    
    $
    120,204Provision for loan and lease losses
    
    
    5,410
    
    
    
    854
    
    
    
    6,264
    
    
    
    4,372
    
    
    
    2,278
    
    
    
    409
    
    
    
    7,059
    
    
    
    13,323Losses charged to the allowance
    
    
    (4,271
    )
    
    
    (1,239
    )
    
    
    (5,510
    )
    
    
    (12,755
    )
    
    
    (21,769
    )
    
    
    (407
    )
    
    
    (34,931
    )
    
    
    (40,441
    )Recoveries
    
    
    
    
    
    
    367
    
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19
    
    
    
    386Balance at end of period
    
    $
    55,155
    
    
    $
    5,547
    
    
    $
    60,702
    
    
    $
    15,573
    
    
    $
    11,151
    
    
    $
    6,046
    
    
    $
    32,770
    
    
    $
    93,472Reported balance of loans(1)
    
    $
    3,537,904
    
    
    $
    46,947
    
    
    $
    3,584,851
    
    
    $
    666,580
    
    
    $
    389,920
    
    
    $
    912,420
    
    
    $
    1,968,920
    
    
    $
    5,553,771ALLL for loans individually evaluated for impairment
    
    $
    26,963
    
    
    $
    
    
    
    $
    26,963
    
    
    $
    9,071
    
    
    $
    3,275
    
    
    $
    342
    
    
    $
    12,688
    
    
    $
    39,651Reported balance of loans individually evaluated for impairment
    
    $
    792,005
    
    
    $
    
    
    
    $
    792,005
    
    
    $
    252,166
    
    
    $
    154,505
    
    
    $
    11,708
    
    
    $
    418,379
    
    
    $
    1,210,384ALLL of loans collectively evaluated for impairment
    
    $
    28,192
    
    
    $
    5,547
    
    
    $
    33,739
    
    
    $
    6,502
    
    
    $
    7,876
    
    
    $
    5,704
    
    
    $
    20,082
    
    
    $
    53,821Reported balance of loans collectively evaluated for impairment
    
    $
    2,745,899
    
    
    $
    46,947
    
    
    $
    2,792,846
    
    
    $
    414,414
    
    
    $
    235,415
    
    
    $
    900,712
    
    
    $
    1,550,541
    
    
    $
    4,343,387
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. 25




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##### Table of Contents



Quarter Ended June 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
    
    $
    53,708
    
    
    $
    7,763
    
    
    $
    61,471
    
    
    $
    24,745
    
    
    $
    57,233
    
    
    $
    4,032
    
    
    $
    86,010
    
    
    $
    147,481Provision for loan and lease losses
    
    
    18,769
    
    
    
    1,644
    
    
    
    20,413
    
    
    
    4,771
    
    
    
    17,705
    
    
    
    1,728
    
    
    
    24,204
    
    
    
    44,617Losses charged to the allowance
    
    
    (14,497
    )
    
    
    (2,106
    )
    
    
    (16,603
    )
    
    
    (430
    )
    
    
    (39,489
    )
    
    
    (978
    )
    
    
    (40,897
    )
    
    
    (57,500
    )Recoveries
    
    
    
    
    
    
    272
    
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43
    
    
    
    315Balance at end of period
    
    $
    57,980
    
    
    $
    7,573
    
    
    $
    65,553
    
    
    $
    29,086
    
    
    $
    35,449
    
    
    $
    4,825
    
    
    $
    69,360
    
    
    $
    134,913Reported balance of loans(1)
    
    $
    3,674,920
    
    
    $
    70,119
    
    
    $
    3,745,039
    
    
    $
    728,608
    
    
    $
    382,572
    
    
    $
    475,061
    
    
    $
    1,586,241
    
    
    $
    5,331,280ALLL for loans individually evaluated for impairment
    
    $
    9,074
    
    
    $
    
    
    
    $
    9,074
    
    
    $
    14,303
    
    
    $
    29,256
    
    
    $
    243
    
    
    $
    43,802
    
    
    $
    52,876Reported balance of loans individually evaluated for impairment
    
    $
    250,028
    
    
    $
    
    
    
    $
    250,028
    
    
    $
    146,469
    
    
    $
    211,972
    
    
    $
    244
    
    
    $
    358,685
    
    
    $
    608,713ALLL of loans collectively evaluated for impairment
    
    $
    48,906
    
    
    $
    7,573
    
    
    $
    56,479
    
    
    $
    14,783
    
    
    $
    6,193
    
    
    $
    4,582
    
    
    $
    25,558
    
    
    $
    82,037Reported balance of loans collectively evaluated for impairment
    
    $
    3,424,892
    
    
    $
    70,119
    
    
    $
    3,495,011
    
    
    $
    582,139
    
    
    $
    170,600
    
    
    $
    474,817
    
    
    $
    1,227,556
    
    
    $
    4,722,567(1)    
Excludes reported balance of guaranteed loans and loans on savings deposits.Six Month Period Ended June 30, 2011Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    and
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    56,487
    
    
    $
    6,274
    
    
    $
    62,761
    
    
    $
    29,712
    
    
    $
    25,026
    
    
    $
    6,153
    
    
    $
    60,891
    
    
    $
    123,652Provision for loan and lease losses
    
    
    6,165
    
    
    
    1,349
    
    
    
    7,514
    
    
    
    (1,384
    )
    
    
    9,484
    
    
    
    300
    
    
    
    8,400
    
    
    
    15,914Losses charged to the allowance
    
    
    (7,497
    )
    
    
    (2,837
    )
    
    
    (10,334
    )
    
    
    (12,755
    )
    
    
    (23,359
    )
    
    
    (426
    )
    
    
    (36,540
    )
    
    
    (46,874
    )Recoveries
    
    
    
    
    
    
    761
    
    
    
    761
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19
    
    
    
    780Balance at end of period
    
    $
    55,155
    
    
    $
    5,547
    
    
    $
    60,702
    
    
    $
    15,573
    
    
    $
    11,151
    
    
    $
    6,046
    
    
    $
    32,770
    
    
    $
    93,472Reported balance of loans(1)
    
    $
    3,537,904
    
    
    $
    46,947
    
    
    $
    3,584,851
    
    
    $
    666,580
    
    
    $
    389,920
    
    
    $
    912,420
    
    
    $
    1,968,920
    
    
    $
    5,553,771ALLL for loans individually evaluated for impairment
    
    $
    26,963
    
    
    $
    
    
    
    $
    26,963
    
    
    $
    9,071
    
    
    $
    3,275
    
    
    $
    342
    
    
    $
    12,688
    
    
    $
    39,651Reported balance of loans individually evaluated for impairment
    
    $
    792,005
    
    
    $
    
    
    
    $
    792,005
    
    
    $
    252,166
    
    
    $
    154,505
    
    
    $
    11,708
    
    
    $
    418,379
    
    
    $
    1,210,384ALLL of loans collectively evaluated for impairment
    
    $
    28,192
    
    
    $
    5,547
    
    
    $
    33,739
    
    
    $
    6,502
    
    
    $
    7,876
    
    
    $
    5,704
    
    
    $
    20,082
    
    
    $
    53,821Reported balance of loans collectively evaluated for impairment
    
    $
    2,745,899
    
    
    $
    46,947
    
    
    $
    2,792,846
    
    
    $
    414,414
    
    
    $
    235,415
    
    
    $
    900,712
    
    
    $
    1,550,541
    
    
    $
    4,343,387
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. 26




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##### Table of Contents



Six Month Period Ended June 30, 2010Non-FHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    Commercial
    
    
    Total(In thousands)
    
    Residential
    
    
    Consume
    
    
    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
    
    
    25,378
    
    
    
    3,277
    
    
    
    28,655
    
    
    
    7,839
    
    
    
    20,390
    
    
    
    1,654
    
    
    
    29,883
    
    
    
    58,538Losses charged to the allowance
    
    
    (19,212
    )
    
    
    (4,555
    )
    
    
    (23,767
    )
    
    
    (686
    )
    
    
    (39,521
    )
    
    
    (1,176
    )
    
    
    (41,383
    )
    
    
    (65,150
    )Recoveries
    
    
    
    
    
    
    513
    
    
    
    513
    
    
    
    50
    
    
    
    122
    
    
    
    66
    
    
    
    238
    
    
    
    751Balance at end of period
    
    $
    57,980
    
    
    $
    7,573
    
    
    $
    65,553
    
    
    $
    29,086
    
    
    $
    35,449
    
    
    $
    4,825
    
    
    $
    69,360
    
    
    $
    134,913Reported balance of loans (1)
    
    $
    3,674,920
    
    
    $
    70,119
    
    
    $
    3,745,039
    
    
    $
    728,608
    
    
    $
    382,572
    
    
    $
    475,061
    
    
    $
    1,586,241
    
    
    $
    5,331,280ALLL for loans individually evaluated for
impairment
    
    $
    9,074
    
    
    $
    
    
    
    $
    9,074
    
    
    $
    14,303
    
    
    $
    29,256
    
    
    $
    243
    
    
    $
    43,802
    
    
    $
    52,876Reported balance of loans individually
evaluated for impairment
    
    $
    250,028
    
    
    $
    
    
    
    $
    250,028
    
    
    $
    146,469
    
    
    $
    211,972
    
    
    $
    244
    
    
    $
    358,685
    
    
    $
    608,713ALLL of loans collectively evaluated for
impairment
    
    $
    48,906
    
    
    $
    7,573
    
    
    $
    56,479
    
    
    $
    14,783
    
    
    $
    6,193
    
    
    $
    4,582
    
    
    $
    25,558
    
    
    $
    82,037Reported balance of loans collectively
evaluated for impairment
    
    $
    3,424,892
    
    
    $
    70,119
    
    
    $
    3,495,011
    
    
    $
    582,139
    
    
    $
    170,600
    
    
    $
    474,817
    
    
    $
    1,227,556
    
    
    $
    4,722,567
 
 (1)
    
    Excludes reported balance of guaranteed loans and loans on savings deposits. 27




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##### Table of Contents



As of June 30, 2011
    
    
    December 31, 2010Recorded
    
    
    Related
    
    
    
    
    
    
    
    
    
    
    Recorded
    
    
    Related(In thousands)
    
    UPB
    
    
    Investment
    
    
    Allowance
    
    
    Reserve %
    
    
    UPB
    
    
    Investment
    
    
    Allowance
    
    
    Reserve %(1)With no allowance recorded at the report date:Residential(2)
    
    $
    299,817
    
    
    $
    277,954
    
    
    $
    
    
    
    
    
    %
    
    $
    267,767
    
    
    $
    264,785
    
    
    $
    
    
    
    
    
    %Total consumer
    
    
    299,817
    
    
    
    277,954
    
    
    
    
    
    
    
    
    %
    
    
    267,767
    
    
    
    264,785
    
    
    
    
    
    
    
    
    %Commercial real estate
    
    
    165,751
    
    
    
    148,754
    
    
    
    
    
    
    
    
    %
    
    
    145,099
    
    
    
    131,078
    
    
    
    
    
    
    
    
    %Commercial and industrial
    
    
    10,890
    
    
    
    10,822
    
    
    
    
    
    
    
    
    %
    
    
    5,489
    
    
    
    5,435
    
    
    
    
    
    
    
    
    %Construction and land
    
    
    107,945
    
    
    
    107,535
    
    
    
    
    
    
    
    
    %
    
    
    96,357
    
    
    
    85,252
    
    
    
    
    
    
    
    
    %Total commercial
    
    
    284,586
    
    
    
    267,111
    
    
    
    
    
    
    
    
    %
    
    
    246,945
    
    
    
    221,765
    
    
    
    
    
    
    
    
    %With allowance recorded at the report date:Residential(2)
    
    
    529,184
    
    
    
    514,051
    
    
    
    26,963
    
    
    
    5.25
    %
    
    
    537,698
    
    
    
    533,223
    
    
    
    27,347
    
    
    
    5.13
    %Total consumer
    
    
    529,184
    
    
    
    514,051
    
    
    
    26,963
    
    
    
    5.25
    %
    
    
    537,698
    
    
    
    533,223
    
    
    
    27,347
    
    
    
    5.13
    %Commercial real estate
    
    
    119,149
    
    
    
    103,412
    
    
    
    9,071
    
    
    
    8.77
    %
    
    
    138,827
    
    
    
    131,941
    
    
    
    22,086
    
    
    
    16.74
    %Commercial and industrial
    
    
    1,031
    
    
    
    887
    
    
    
    342
    
    
    
    6.97
    %
    
    
    2,069
    
    
    
    2,070
    
    
    
    1,060
    
    
    
    51.21
    %Construction and land
    
    
    47,085
    
    
    
    46,970
    
    
    
    3,275
    
    
    
    38.56
    %
    
    
    118,966
    
    
    
    105,872
    
    
    
    18,200
    
    
    
    17.19
    %Total commercial
    
    
    167,265
    
    
    
    151,269
    
    
    
    12,688
    
    
    
    8.39
    %
    
    
    259,862
    
    
    
    239,883
    
    
    
    41,346
    
    
    
    17.24
    %TotalResidential(2)
    
    
    829,001
    
    
    
    792,005
    
    
    
    26,963
    
    
    
    3.40
    %
    
    
    805,465
    
    
    
    798,008
    
    
    
    27,347
    
    
    
    3.43
    %Total consumer
    
    
    829,001
    
    
    
    792,005
    
    
    
    26,963
    
    
    
    3.40
    %
    
    
    805,465
    
    
    
    798,008
    
    
    
    27,347
    
    
    
    3.43
    %Commercial real estate
    
    
    284,900
    
    
    
    252,166
    
    
    
    9,071
    
    
    
    3.60
    %
    
    
    283,926
    
    
    
    263,019
    
    
    
    22,086
    
    
    
    8.40
    %Commercial and industrial
    
    
    11,921
    
    
    
    11,709
    
    
    
    3,275
    
    
    
    2.12
    %
    
    
    7,558
    
    
    
    7,505
    
    
    
    1,060
    
    
    
    14.12
    %Construction and land
    
    
    155,030
    
    
    
    154,505
    
    
    
    342
    
    
    
    2.92
    %
    
    
    215,323
    
    
    
    191,124
    
    
    
    18,200
    
    
    
    9.52
    %Total commercial
    
    
    451,851
    
    
    
    418,380
    
    
    
    12,688
    
    
    
    3.03
    %
    
    
    506,807
    
    
    
    461,648
    
    
    
    41,346
    
    
    
    8.96
    %Total
    
    $
    1,280,852
    
    
    $
    1,210,385
    
    
    $
    39,651
    
    
    
    3.28
    %
    
    $
    1,312,272
    
    
    $
    1,259,656
    
    
    $
    68,693
    
    
    
    5.45
    %
 
 (1)
    
    Gross reserve percent represents the amount of the allowance to the recorded
investment.(2)
    
    As of December 31, 2010 includes UPB and recorded investment
of $66.0 million and $65.7 million,
respectively of TDRs not previously included as impaired loans. 28




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Quarters Ended June 30,2011
    
    
    2010Average
    
    
    
    
    
    
    AverageRecorded
    
    
    Interest Income
    
    
    Recorded
    
    
    Interest Income(In thousands)
    
    Investment
    
    
    Recognized
    
    
    Investment
    
    
    RecognizedConsumerNon-FHA/VA residential
    
    $
    609,598
    
    
    $
    6,015
    
    
    $
    536,076
    
    
    $
    6,878Total consumer
    
    
    609,598
    
    
    
    6,015
    
    
    
    536,076
    
    
    
    6,878CommercialCommercial real estate
    
    
    241,285
    
    
    
    1,241
    
    
    
    156,604
    
    
    
    647Commercial and industrial
    
    
    9,264
    
    
    
    172
    
    
    
    247
    
    
    
    5Construction and land
    
    
    164,799
    
    
    
    763
    
    
    
    269,624
    
    
    
    347Total commercial
    
    
    415,348
    
    
    
    2,176
    
    
    
    426,475
    
    
    
    999Total
    
    $
    1,024,946
    
    
    $
    8,191
    
    
    $
    962,551
    
    
    $
    7,877Six month period Ended June 30,2011
    
    
    2010Average
    
    
    
    
    
    
    AverageRecorded
    
    
    Interest Income
    
    
    Recorded
    
    
    Interest Income(In thousands)
    
    Investment
    
    
    Recognized
    
    
    Investment
    
    
    RecognizedConsumerNon-FHA/VA residential
    
    $
    626,380
    
    
    $
    12,029
    
    
    $
    485,222
    
    
    $
    13,756Total consumer
    
    
    626,380
    
    
    
    12,029
    
    
    
    485,222
    
    
    
    13,756CommercialCommercial real estate
    
    
    243,676
    
    
    
    2,482
    
    
    
    153,247
    
    
    
    1,297Commercial and industrial
    
    
    9,606
    
    
    
    344
    
    
    
    250
    
    
    
    10Construction and land
    
    
    172,351
    
    
    
    1,526
    
    
    
    270,389
    
    
    
    693Total commercial
    
    
    425,633
    
    
    
    4,352
    
    
    
    423,886
    
    
    
    2,000Total
    
    $
    1,052,013
    
    
    $
    16,381
    
    
    $
    909,108
    
    
    $
    15,756
  29




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11. Related Party Transactions
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Balance at beginning of period
    
    $
    1,300
    
    
    $
    2,840Repayments
    
    
    (20
    )
    
    
    (96
    )Loans of former officers
    
    
    (29
    )
    
    
    (1,444
    )Balance at end of period(1)
    
    $
    1,251
    
    
    $
    1,300
 
 (1)
    
    At June 30, 2011 and December 31, 2010, none of the loans outstanding to officers,
directors and 5% or more stockholders were delinquent.    12. Accounts Receivable and Other Assets
  13 Servicing Activities
  30




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##### Table of Contents



Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    116,299
    
    
    $
    118,236
    
    
    $
    114,342
    
    
    $
    118,493Capitalization of servicing assets
    
    
    2,546
    
    
    
    1,407
    
    
    
    4,642
    
    
    
    3,184Sales of servicing asset(1)
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (192
    )Servicing release due to repurchase(2)
    
    
    (417
    )
    
    
    (1,029
    )
    
    
    (505
    )
    
    
    (1,165
    )Change in fair value
    
    
    (2,643
    )
    
    
    (5,447
    )
    
    
    (2,694
    )
    
    
    (7,315
    )Balance at end of period(3)
    
    $
    115,785
    
    
    $
    113,005
    
    
    $
    115,785
    
    
    $
    113,005
 
 (1)
    
    Amount represents MSRs sales related to $22.5 million and $24.0 million in principal
balance of mortgage loans for the quarter and six month period ended 2010.(2)
    
    Amount represents the adjustment of MSR fair value related to the repurchase of
$28.8 million and $74.5 million in principal balance of mortgage loans serviced for others for
the quarters ended June 30, 2011 and 2010, and $35.1 million and $84.6 million for the six
month periods ended June 30, 2011 and 2010, respectively.(3)
    
    Outstanding balance of loans serviced for third parties totalled to $8.0 billion and
$8.3 billion as of June 30, 2011 and 2010, respectively, which includes $2.5 million and $2.8
million, respectively, of loans being serviced under sub-servicing arrangements.      Interest-Only(Dollars in thousands)
    
    Servicing Assets
    
    StripsCarrying amount of retained interest
    
    $
    115,785
    
    
    $
    43,750Weighted-average expected life (in years)
    
    
    7.3
    
    
    
    5.8Constant prepayment rate (weighted-average annual rate)
    
    
    7.3
    %
    
    
    7.5
    %Decrease in fair value due to 10% adverse change
    
    $
    (3,642
    )
    
    $
    (1,013
    )Decrease in fair value due to 20% adverse change
    
    $
    (7,115
    )
    
    $
    (1,988
    )Residual cash flow discount rate (weighted-average annual rate)
    
    
    11.3
    %
    
    
    13.0
    %Decrease in fair value due to 10% adverse change
    
    $
    (4,833
    )
    
    $
    (1,496
    )Decrease in fair value due to 20% adverse change
    
    $
    (9,301
    )
    
    $
    (2,890
    )
 31




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Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    41,618
    
    
    $
    43,584
    
    
    $
    44,250
    
    
    $
    45,723Amortization
    
    
    (1,947
    )
    
    
    (2,729
    )
    
    
    (4,128
    )
    
    
    (5,527
    )Gain on the IO value
    
    
    4,079
    
    
    
    3,857
    
    
    
    3,628
    
    
    
    4,516Balance at end of period
    
    $
    43,750
    
    
    $
    44,712
    
    
    $
    43,750
    
    
    $
    44,712
  (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
    
    
    
    5.3
    %
    
    
    6.8
    
    
    $
    (6,154
    )
    
    
    (14.1)
    %100
    
    
    
    6.3
    %
    
    
    6.3
    
    
    
    (3,445
    )
    
    
    (7.9)
    %50
    
    
    
    6.8
    %
    
    
    6.1
    
    
    
    (1,726
    )
    
    
    (3.9)
    %Base
    
    
    7.5
    %
    
    
    5.8
    
    
    
    
    
    
    
    
    %-50
    
    
    
    8.2
    %
    
    
    5.6
    
    
    
    1,695
    
    
    
    3.9
    %-100
    
    
    
    8.9
    %
    
    
    5.4
    
    
    
    2,676
    
    
    
    6.1
    %-200
    
    
    
    10.2
    %
    
    
    5.0
    
    
    
    4,177
    
    
    
    9.5
    %
 32




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##### Table of Contents



14. Sale and Securitization of Mortgage Loans
    33




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##### Table of Contents



15. Servicing Related Matters
  16. Other Real Estate Owned
   (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Residential
    
    $
    53,381
    
    
    $
    63,794Commercial
    
    
    20,163
    
    
    
    17,599Construction and land
    
    
    27,955
    
    
    
    18,880Balance at end of period
    
    $
    101,499
    
    
    $
    100,273
  Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    103,767
    
    
    $
    100,345
    
    
    $
    100,273
    
    
    $
    94,219Additions
    
    
    22,331
    
    
    
    37,368
    
    
    
    51,703
    
    
    
    56,090Sales
    
    
    (22,110
    )
    
    
    (10,324
    )
    
    
    (44,836
    )
    
    
    (16,617
    )Retirements
    
    
    (1,882
    )
    
    
    (1,735
    )
    
    
    (4,266
    )
    
    
    (4,124
    )Provision for OREO losses
    
    
    (607
    )
    
    
    (22,477
    )
    
    
    (1,375
    )
    
    
    (26,391
    )Balance at end of period
    
    $
    101,499
    
    
    $
    103,177
    
    
    $
    101,499
    
    
    $
    103,177
 17. Deposits
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Brokered certificates of deposit
    
    $
    2,031,108
    
    
    $
    2,359,254Certificates of deposit
    
    
    607,701
    
    
    
    703,473Money markets accounts
    
    
    554,528
    
    
    
    475,467NOW accounts and other transactions accounts
    
    
    414,061
    
    
    
    411,633Regular savings
    
    
    409,812
    
    
    
    410,418Total interest-bearing
    
    
    4,017,210
    
    
    
    4,360,245Non-interest-bearing deposits
    
    
    285,582
    
    
    
    258,230Total deposits
    
    $
    4,302,792
    
    
    $
    4,618,475
  34




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18. Securities Sold Under Agreements to Repurchase
  (Dollars in thousands)
    
    June 30, 2011
    
    
    December 31, 2010Repurchase agreements
with maturities ranging
from November 2012 to June
2015 (2010- March 2012 to
June 2015), at various
fixed rates averaging 2.42%
and 3.15%, at June 30,
2011 and December 31, 2010,
respectively.
    
    
    342,300
    
    
    
    1,026,800Callable repurchase
agreements with maturity
date from August 2014 to
January 2015, at various
fixed rates averaging 2.33%
at December 31, 2010 with
callable dates between July
and August 2012.
    
    
    
    
    
    
    50,000Putable repurchase
agreement with a maturity
of February 17, 2014 at a
rate of 2.98% at June 30,
2011 and December 31, 2010,
with a callable date of
August 2011 (2010 -
February 2011).
    
    
    100,000
    
    
    
    100,000$
    442,300
    
    
    $
    1,176,800
   35




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##### Table of Contents



19. Advances from FHLB
  (Dollars in thousands)
    
    June 30, 2011
    
    
    December 31, 2010Non-callable advances with maturities
ranging from October 2011 to February
2016 (2010- January 2011 to May 2013) at
various fixed rates averaging 3.09% and
3.64%, at June 30, 2011 and December 31,
2010, respectively.
    
    $
    1,188,849
    
    
    $
    747,420Non-callable advances with maturities
ranging from September 2011 to November
2012, tied to 1-month LIBOR adjustable
monthly, at a variable rate of 0.21% and
0.28% at June 30, 2011 and December 31,
2010, respectively.
    
    
    74,000
    
    
    
    74,000Putable structured advances due on March
2012 at a fixed rate of 5.04% at June 30,
2011 and December 31, 2010, respectively,
putable at September 2011 (2010- March
2011).
    
    
    80,000
    
    
    
    80,000$
    1,342,849
    
    
    $
    901,420
      36




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##### Table of Contents



20. Loans Payable
   (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Secured borrowings
with local financial
institutions, at variable
interest rates tied to
3-month LIBOR averaging
1.76% and 1.74% at June 30,
2011 and December 31, 2010,
respectively,
collateralized by
residential mortgage loans.
    
    $
    279,724
    
    
    $
    287,511Secured borrowings with
local financial
institutions, at fixed
interest rates averaging
7.39% and 7.40% at June 30,
2011 and December 31, 2010,
respectively,
collateralized by
residential mortgage loans.
    
    
    14,899
    
    
    
    16,524$
    294,623
    
    
    $
    304,035
   37




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##### Table of Contents



21. Notes Payable
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010$30.0 million notes, net of discount,
bearing interest at 7.00%, due on
April 26, 2012, paying interest
monthly.
    
    $
    29,921
    
    
    $
    29,875$100.0 million notes, net of
discount, bearing interest at 7.65%,
due on March 26, 2016, paying
interest monthly.
    
    
    98,896
    
    
    
    98,801$40.0 million notes, net of discount,
bearing interest at 7.10%, due on
April 26, 2017, paying interest
monthly.
    
    
    39,524
    
    
    
    39,492$30.0 million notes, net of discount,
bearing interest at 7.15%, due on
April 26, 2022, paying interest
monthly.
    
    
    29,513
    
    
    
    29,499Bonds payable secured by mortgage on
building at fixed rates ranging from
6.75% to 6.90%, with maturities
ranging from December 2011 to
December 2029, paying interest
monthly.
    
    
    37,935
    
    
    
    38,445Bonds payable at a fixed rate of
6.25%, with maturities ranging from
December 2011 to December 2029,
paying interest monthly.
    
    
    7,300
    
    
    
    7,400Note payable with a local financial
institution, collateralized by IOs,
at a fixed rate of 7.75%, paying principal
and interest monthly, last payment due on December 2013.
    
    
    17,510
    
    
    
    20,624$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 comencing
on January 2011.
    
    
    249,831
    
    
    
    249,822$
    510,430
    
    
    $
    513,958
    22. Income Taxes
 Background
  38




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Income Tax Expense
  Quarters Ended
    
    
    Six month periods endedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Current income tax expense  United States
    
    $
    3,101
    
    
    $
    3,615
    
    
    $
    5,475
    
    
    $
    3,890Deferred income tax expense (benefit):Puerto Rico
    
    
    450
    
    
    
    1,008
    
    
    
    3,120
    
    
    
    2,795United States
    
    
    (680
    )
    
    
    (136
    )
    
    
    (627
    )
    
    
    331Total deferred income tax (benefit) expense
    
    
    (230
    )
    
    
    872
    
    
    
    2,493
    
    
    
    3,126Total income tax expense (benefit)
    
    $
    2,871
    
    
    $
    4,487
    
    
    $
    7,968
    
    
    $
    7,016
  39




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Deferred Tax Components
       40




---



##### Table of Contents



(In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Deferred income tax asset resulting from:Differential in tax basis of IOs sold
    
    $
    207,797
    
    
    $
    237,912Net operating loss carry-forwards
    
    
    226,509
    
    
    
    193,322Allowance for loan and lease losses
    
    
    36,868
    
    
    
    48,635Capital loss carry-forward
    
    
    18,227
    
    
    
    26,783Reserve for losses on OREO
    
    
    13,367
    
    
    
    17,340Other
    
    
    42,378
    
    
    
    44,445Gross deferred tax asset
    
    
    545,146
    
    
    
    568,437Valuation allowance
    
    
    (441,188
    )
    
    
    (462,725
    )Net deferred tax asset
    
    $
    103,958
    
    
    $
    105,712
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Differential in tax basis of IOs sold
    
    $
    115,494
    
    
    $
    143,550Net operating loss carry-forwards
    
    
    220,376
    
    
    
    186,447Allowance for loan and lease losses
    
    
    34,161
    
    
    
    45,950Capital loss carry-forward
    
    
    18,224
    
    
    
    26,779Reserve for losses on OREO
    
    
    13,321
    
    
    
    17,294Other
    
    
    39,612
    
    
    
    42,705Total valuation allowance
    
    $
    441,188
    
    
    $
    462,725
   41




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##### Table of Contents



As of June 30, 2011Doral
    
    
    
    
    
    
    Doral
    
    
    DoralFinancial
    
    
    Doral
    
    
    Mortgage
    
    
    Insurance
    
    
    Doral
    
    
    Doral(In thousands)
    
    Corporation
    
    
    Bank PR
    
    
    LLC
    
    
    Agency
    
    
    Money
    
    
    Bank FSB
    
    
    TotalDifferential in tax basis of IOs sold
    
    $
    207,797
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    207,797Net operating loss carry-forwards
    
    
    48,544
    
    
    
    171,832
    
    
    
    5,030
    
    
    
    
    
    
    
    
    
    
    
    1,103
    
    
    
    226,509Allowance for loan and lease losses
    
    
    4,178
    
    
    
    29,983
    
    
    
    
    
    
    
    
    
    
    
    2,194
    
    
    
    513
    
    
    
    36,868Capital loss carry-forward
    
    
    849
    
    
    
    17,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    18,227Reserve for losses on OREO
    
    
    3,278
    
    
    
    10,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    13,367Unrealized gains on investment
securities available for sale
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Other
    
    
    15,109
    
    
    
    25,352
    
    
    
    172
    
    
    
    2,905
    
    
    
    221
    
    
    
    278
    
    
    
    44,037Deferred tax assets
    
    
    280,229
    
    
    
    254,585
    
    
    
    5,202
    
    
    
    2,905
    
    
    
    2,415
    
    
    
    1,943
    
    
    
    547,279Unrealized gains on investment
securities available for sale
    
    
    
    
    
    
    (1,095
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,095
    )Other
    
    
    (549
    )
    
    
    (324
    )
    
    
    (120
    )
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    (1,038
    )Deferred tax liabilities
    
    
    (549
    )
    
    
    (1,419
    )
    
    
    (120
    )
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    (2,133
    )Valuation allowance
    
    
    (186,927
    )
    
    
    (254,261
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (441,188
    )Net deferred tax asset (liability)
    
    $
    92,753
    
    
    $
    (1,095
    )
    
    $
    5,082
    
    
    $
    2,905
    
    
    $
    2,370
    
    
    $
    1,943
    
    
    $
    103,958
 As of December 31, 2010Doral
    
    
    
    
    
    
    Doral
    
    
    DoralFinancial
    
    
    Doral
    
    
    Mortgage
    
    
    Insurance
    
    
    Doral
    
    
    Doral(In thousands)
    
    Corporation
    
    
    Bank PR
    
    
    LLC
    
    
    Agency
    
    
    Money
    
    
    Bank FSB
    
    
    TotalDifferential in tax basis of IOs sold
    
    $
    237,912
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    237,912Net operating loss carry-forwards
    
    
    46,634
    
    
    
    139,813
    
    
    
    5,963
    
    
    
    83
    
    
    
    
    
    
    
    829
    
    
    
    193,322Allowance for loan and lease losses
    
    
    3,554
    
    
    
    42,396
    
    
    
    
    
    
    
    
    
    
    
    2,098
    
    
    
    587
    
    
    
    48,635Capital loss carry-forward
    
    
    6,776
    
    
    
    20,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    26,783Reserve for losses on OREO
    
    
    4,903
    
    
    
    12,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    17,340Other
    
    
    14,887
    
    
    
    29,403
    
    
    
    178
    
    
    
    2,935
    
    
    
    14
    
    
    
    100
    
    
    
    47,517Deferred tax assets
    
    
    314,666
    
    
    
    244,006
    
    
    
    6,141
    
    
    
    3,018
    
    
    
    2,112
    
    
    
    1,566
    
    
    
    571,509Unrealized gains on investment
securities available for sale
    
    
    
    
    
    
    (1,889
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,889
    )Other
    
    
    (700
    )
    
    
    (299
    )
    
    
    (135
    )
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (1,183
    )Deferred tax liabilities
    
    
    (700
    )
    
    
    (2,188
    )
    
    
    (135
    )
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (3,072
    )Valuation allowance
    
    
    (219,017
    )
    
    
    (243,708
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462,725
    )Net deferred tax asset (liability)
    
    $
    94,949
    
    
    $
    (1,890
    )
    
    $
    6,006
    
    
    $
    3,018
    
    
    $
    2,063
    
    
    $
    1,566
    
    
    $
    105,712
   42




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##### Table of Contents



Accounting for Uncertainty in Income Taxes
    23. Guarantees
    43




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##### Table of Contents



Quarter Ended
    
    
    Six Month Period Ended(In thousands)
    
    June 30, 2011
    
    
    June 30, 2011Balance at beginning of period
    
    $
    9,877
    
    
    $
    10,264Net charge-offs / termination
    
    
    (100
    )
    
    
    (728
    )Provision for recourse liability
    
    
    352
    
    
    
    593Balance at end of period
    
    $
    10,129
    
    
    $
    10,129
 24. Financial Instruments with Off-Balance Sheet Risk
  (In thousands)
    
    June 30, 2011
    
    
    December 31, 2010Commitments to extend credit
    
    $
    146,982
    
    
    $
    139,791Commitments to sell loans
    
    
    98,123
    
    
    
    64,751Commercial and Performance standby letter of credit
    
    
    2,664
    
    
    
    25Total
    
    $
    247,769
    
    
    $
    204,567
     44




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##### Table of Contents



25. Commitments and Contingencies
  (In thousands)2012
    
    $
    6,2252013
    
    
    6,1912014
    
    
    5,4082015
    
    
    5,1832016
    
    
    5,0492017 and thereafter
    
    
    22,860$
    50,916
    26. Stock Option and Other Incentive Plans
      45




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##### Table of Contents



Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Stock-based compensation recognized, net
    
    $
    1,043
    
    
    $
    56
    
    
    $
    1,703
    
    
    $
    73Unrecognized at end of period:Stock options
    
    $
    95
    
    
    $
    214
    
    
    $
    95
    
    
    $
    214Restricted stock
    
    $
    6,581
    
    
    $
    8,182
    
    
    $
    6,581
    
    
    $
    8,182
  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
    %
   Weighted-AverageGrant Date FairNonvested Restricted Shares
    
    Shares
    
    
    ValueNonvested at December 31, 2010
    
    
    3,000,000
    
    
    $
    2.74Granted
    
    
    125,000
    
    
    
    1.17Nonvested at March 31, 2011
    
    
    3,125,000
    
    
    
    2.68Granted
    
    
    1,192,728
    
    
    
    1.11Vested
    
    
    (1,000,000
    )
    
    
    (2.74
    )Nonvested at June 30, 2011
    
    
    3,317,728
    
    
    $
    2.10
  46




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##### Table of Contents



27. Earnings (Losses) Per Share Data
  Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(Dollars in thousands, except per share amounts)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Net Income (Loss):Net income (loss)
    
    $
    4,477
    
    
    $
    (233,311
    )
    
    $
    7,800
    
    
    $
    (236,814
    )Non-convertible preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible preferred stock dividend
    
    
    (2,415
    )
    
    
    (2,415
    )
    
    
    (4,830
    )
    
    
    (4,279
    )Effect of conversion of preferred stock(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,585Net income (loss) attributable to common shareholders
    
    $
    2,062
    
    
    $
    (235,726
    )
    
    $
    2,970
    
    
    $
    (214,508
    )Weighted-Average Number of Common Shares Outstanding(2)
    
    
    127,293,756
    
    
    
    67,285,568
    
    
    
    127,293,756
    
    
    
    64,920,036Net Income (loss) per Common Share(3)
    
    $
    0.02
    
    
    $
    (3.50
    )
    
    $
    0.02
    
    
    $
    (3.30
    )
 
 (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 amounted to
$31.6 million for the six month period ended June 30, 2010, 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 for the six month periods ended June 30, 2010 and was charged to retained earnings. As a
result, both transactions impacted the net income (loss) 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 earnings (losses) per
share since their inclusion would have an antidilutive effect in earnings per share. As of
June 30, 2011, there were granted 60,000 stock options and 4,323,728 shares of restricted
stock.(3)
    
    For the quarters and six month periods ended June 30, 2011 and 2010, net income
(loss) per common share represents both the basic and diluted earnings (losses) per common
share, respectively, for each of the periods presented.   47




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##### Table of Contents



28. Fair Value of Assets and Liabilities
   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.
    
    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
      48




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##### Table of Contents



Securities held for trading: Available for Sale Servicing
assets and interest-only strips, and Derivatives
  Securities available for sale:
 Loans held for sale:
 Loans receivable:
 49




---



##### Table of Contents



Servicing assets and interest-only strips:
 Real estate held for sale:
 Other assets:
 Premises and equipment:Premises and equipment are carried at cost. However, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable,
the Company recognizes an impairment loss based on the fair value of the property, which is
generally obtained from appraisals. Property impairment losses are recorded as part of
occupancy expenses in the Consolidated Statement of Operations.
 Goodwill:Goodwill is not amortized, but is tested for impairment at least annually or more
frequently if events or circumstances indicate possible impairment. In determining the fair
value of a reporting unit the Company uses discounted cash flow analysis. Goodwill impairment
losses are recorded as part of other expenses in the Consolidated Statement of Operations.
 CB, LLC:Events or changes in circumstances may indicate that the carrying amount of certain
assets may not be recoverable, such as for land and the remaining housing units. Impairment
losses are recorded as part of occupancy expenses in the Consolidated Statement of Operations.
 50




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##### Table of Contents



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
 Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  June 30, 2011
    
    
    December 31, 2010(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities Held for TradingMBS
    
    $
    830
    
    
    $
    
    
    
    $
    
    
    
    $
    830
    
    
    $
    766
    
    
    $
    
    
    
    $
    
    
    
    $
    766IOs
    
    
    43,750
    
    
    
    
    
    
    
    
    
    
    
    43,750
    
    
    
    44,250
    
    
    
    
    
    
    
    
    
    
    
    44,250Derivatives
    
    
    9
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    Total Securities Held for
Trading
    
    
    44,589
    
    
    
    
    
    
    
    9
    
    
    
    44,580
    
    
    
    45,029
    
    
    
    
    
    
    
    13
    
    
    
    45,016Securities Available for SaleAgency MBS
    
    
    446,956
    
    
    
    
    
    
    
    445,288
    
    
    
    1,668
    
    
    
    1,142,973
    
    
    
    
    
    
    
    1,141,281
    
    
    
    1,692CMO Government Sponsored Agencies
    
    
    109,630
    
    
    
    
    
    
    
    102,347
    
    
    
    7,283
    
    
    
    312,831
    
    
    
    
    
    
    
    305,442
    
    
    
    7,389Non-Agency CMOs
    
    
    7,960
    
    
    
    
    
    
    
    
    
    
    
    7,960
    
    
    
    7,192
    
    
    
    
    
    
    
    
    
    
    
    7,192Obligations U.S. Government Sponsored
Agencies
    
    
    94,982
    
    
    
    
    
    
    
    94,982
    
    
    
    
    
    
    
    34,992
    
    
    
    
    
    
    
    34,992
    
    
    
    Other
    
    
    11,923
    
    
    
    
    
    
    
    
    
    
    
    11,923
    
    
    
    7,077
    
    
    
    
    
    
    
    
    
    
    
    7,077Total Securities Available
for Sale
    
    
    671,451
    
    
    
    
    
    
    
    642,617
    
    
    
    28,834
    
    
    
    1,505,065
    
    
    
    
    
    
    
    1,481,715
    
    
    
    23,350Servicing Assets
    
    
    115,785
    
    
    
    
    
    
    
    
    
    
    
    115,785
    
    
    
    114,342
    
    
    
    
    
    
    
    
    
    
    
    114,342$
    831,825
    
    
    $
    
    
    
    $
    642,626
    
    
    $
    189,199
    
    
    $
    1,664,436
    
    
    $
    
    
    
    $
    1,481,728
    
    
    $
    182,708Liabilities:Derivatives(1)
    
    $
    3,435
    
    
    $
    
    
    
    $
    3,435
    
    
    $
    
    
    
    $
    5,418
    
    
    $
    
    
    
    $
    5,418
    
    
    $
    
 
 (1)
    
    Forward contracts and interest rate swaps included as part of accrued expenses and
other liabilities in the consolidated statements of financial condition. 51




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##### Table of Contents



For the quarter ended June 30, 2011Capitalization
    
    
    
    
    
    
    PrincipalChange in fair
    
    
    of servicing
    
    
    Net gains
    
    
    repaymentsvalue
    
    
    assets
    
    
    included in
    
    
    andBalance,
    
    
    included in
    
    
    included in
    
    
    other
    
    
    amortizationbeginning of
    
    
    the Statement
    
    
    the Statement
    
    
    comprehensive
    
    
    of premium
    
    
    
    
    
    
    Balance, end(In thousands)
    
    quarter
    
    
    of Operations
    
    
    of Operations
    
    
    income
    
    
    and discount (4)
    
    
    Purchases
    
    
    of quarterSecurities held for tradingMBS
    
    $
    805
    
    
    $
    25
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    830IOs(1)
    
    
    41,618
    
    
    
    2,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,750Total securities held for
trading
    
    
    42,423
    
    
    
    2,157
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,580Securities available for sale(2)Agency MBS
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    (26
    )
    
    
    
    
    
    
    1,668CMO Government Sponsored Agencies
    
    
    7,336
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    (63
    )
    
    
    
    
    
    
    7,283Non-Agency CMOs
    
    
    7,753
    
    
    
    (86
    )
    
    
    
    
    
    
    216
    
    
    
    77
    
    
    
    
    
    
    
    7,960Other
    
    
    11,876
    
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    (140
    )
    
    
    
    
    
    
    11,923Total securities available for
sale
    
    
    28,647
    
    
    
    (86
    )
    
    
    
    
    
    
    425
    
    
    
    (152
    )
    
    
    
    
    
    
    28,834Servicing Assets(3)
    
    
    116,299
    
    
    
    (3,059
    )
    
    
    2,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,785Balance at end of
period
    
    $
    187,369
    
    
    $
    (988
    )
    
    $
    2,545
    
    
    $
    425
    
    
    $
    (152
    )
    
    $
    
    
    
    $
    189,199
 For the quarter ended June 30, 2010Capitalization
    
    
    
    
    
    
    PrincipalChange in fair
    
    
    of servicing
    
    
    Net gains (losses)
    
    
    repaymentsvalue
    
    
    assets
    
    
    included in
    
    
    andBalance,
    
    
    included in
    
    
    included in
    
    
    other
    
    
    amortizationbeginning of
    
    
    the Statement
    
    
    the Statement
    
    
    comprehensive
    
    
    of premium
    
    
    
    
    
    
    Balance, end(In thousands)
    
    quarter
    
    
    of Operations
    
    
    of Operations
    
    
    income
    
    
    and discount (4)
    
    
    Purchases
    
    
    of quarterSecurities held for tradingMBS
    
    $
    796
    
    
    $
    36
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    832IOs(1)
    
    
    43,584
    
    
    
    1,128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,712Total securities held for
trading
    
    
    44,380
    
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,544Securities available for sale(2)Agency MBS
    
    
    1,738
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    1,763CMO Government Sponsored Agencies
    
    
    8,194
    
    
    
    
    
    
    
    
    
    
    
    (349
    )
    
    
    (65
    )
    
    
    
    
    
    
    7,780Non-Agency CMOs
    
    
    261,129
    
    
    
    
    
    
    
    
    
    
    
    129,634
    
    
    
(383,268
    )
    
    
    
    
    
    
    7,495Other
    
    
    1,860
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    1,815Total securities available for sale
    
    
    272,921
    
    
    
    
    
    
    
    
    
    
    
    129,265
    
    
    
    (383,333
    )
    
    
    
    
    
    
    18,853Servicing Assets(3)
    
    
    118,236
    
    
    
    (6,475
    )
    
    
    1,406
    
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    113,005Balance at end of
period
    
    $
    435,537
    
    
    $
    (5,311
    )
    
    $
    1,406
    
    
    $
    129,265
    
    
    $
    (383,333
    )
    
    $
    (162
    )
    
    $
    177,402
 
 (1)
    
    Changes in fair value are recognized in net gain on trading activities in
non-interest income and the amortization of the IOs is recognized in interest income on
interest-only strips. For the quarter ended June 30, 2011, the IO had a gain of $4.1 million
for change in fair value and an amortization of $2.0 million. For the quarter ended June 30,
2010, the IO had a gain of $3.8 million for change in fair value and an amortization of $2.7
million.(2)
    
    OTTI is recognized as part of non-interest income. Amortization of premium and
discount is recognized as part of interest income as mortgage-backed securities.(3)
    
    Change in fair value of servicing assets is recognized in non-interest income as
servicing income. Capitalization of servicing assets is recognized in non-interest income as
net gain on mortgage loan sales and fees.(4)
    
    Amortization of premium and discount of $108,000 and $489,000 for the quarters ended
June 30, 2011 and 2010, respectively is recognized within interest income from MBS in the
consolidated financial statements. 52




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##### Table of Contents



For the six month period ended June 30, 2011Change in fair
    
    
    Capitalization of
    
    
    Net gains
    
    
    Principalvalue included
    
    
    servicing assets
    
    
    included in
    
    
    repayments andBalance,
    
    
    in the
    
    
    included in the
    
    
    other
    
    
    amortization ofbeginning of
    
    
    Statement of
    
    
    Statement of
    
    
    comprehensive
    
    
    premium and
    
    
    
    
    
    
    Balance, endyear
    
    
    Operations
    
    
    Operations
    
    
    income
    
    
    discount(4)
    
    
    Purchases
    
    
    of yearSecurities available for trading
MBS
    
    $
    766
    
    
    $
    64
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    830IOs(1)
    
    
    44,250
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,750Total securities held for trading
    
    
    45,016
    
    
    
    (436
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,580Securities available for sale (2)
Agency MBS
    
    
    1,692
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    (50
    )
    
    
    
    
    
    
    1,668CMO Government Sponsored Agencies
    
    
    7,389
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    (134
    )
    
    
    
    
    
    
    7,283Non-Agency CMOs
    
    
    7,192
    
    
    
    (86
    )
    
    
    
    
    
    
    724
    
    
    
    130
    
    
    
    
    
    
    
    7,960Other
    
    
    7,077
    
    
    
    
    
    
    
    
    
    
    
    204
    
    
    
    (360
    )
    
    
    5,002
    
    
    
    11,923Total securities available for sale
    
    
    23,350
    
    
    
    (86
    )
    
    
    
    
    
    
    982
    
    
    
    (414
    )
    
    
    5,002
    
    
    
    28,834Servicing Assets (3)
    
    
    114,342
    
    
    
    (3,199
    )
    
    
    4,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,785Balance at end of period
    
    $
    182,708
    
    
    $
    (3,721
    )
    
    $
    4,642
    
    
    $
    982
    
    
    $
    (414
    )
    
    $
    5,002
    
    
    $
    189,199
 For the six month period ended June 30, 2010Change in fair
    
    
    Capitalization of
    
    
    Net gains
    
    
    Principalvalue included
    
    
    servicing assets
    
    
    included in
    
    
    repayments andBalance,
    
    
    in the
    
    
    included in the
    
    
    other
    
    
    amortization ofbeginning of
    
    
    Statement of
    
    
    Statement of
    
    
    comprehensive
    
    
    premium and
    
    
    
    
    
    
    Balance, endyear
    
    
    Operations
    
    
    Operations
    
    
    income
    
    
    discount (4)
    
    
    Purchases
    
    
    of yearSecurities available for trading
MBS
    
    $
    893
    
    
    $
    (61
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    832IOs (1)
    
    
    45,723
    
    
    
    (1,011
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,712Total securities held for trading
    
    
    46,616
    
    
    
    (1,072
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,544Securities available for sale (2)
Agency MBS
    
    
    1,830
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    (99
    )
    
    
    
    
    
    
    1,763CMO Government Sponsored Agencies
    
    
    7,701
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    (151
    )
    
    
    
    
    
    
    7,780Non-Agency CMOs
    
    
    270,600
    
    
    
    (13,259
    )
    
    
    
    
    
    
    143,507
    
    
    
    (393,353
    )
    
    
    
    
    
    
    7,495Other
    
    
    1,650
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    1,815Total securities available for sale
    
    
    281,781
    
    
    
    (13,259
    )
    
    
    
    
    
    
    143,934
    
    
    
    (393,603
    )
    
    
    
    
    
    
    18,853Servicing Assets (3)
    
    
    118,493
    
    
    
    (8,478
    )
    
    
    3,183
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    113,005Balance at end of period
    
    $
    446,890
    
    
    $
    (22,809
    )
    
    $
    3,183
    
    
    $
    143,934
    
    
    $
    (393,603
    )
    
    $
    (193
    )
    
    $
    177,402
 
 (1)
    
    Changes in fair value are recognized in net gain on trading activities in
non-interest income and the amortization of the IOs is recognized in interest income on
interest-only strips. For the period ended June 30, 2011, the IO had a gain of $3.6 million
for change in fair value and an amortization of $4.1 million. For the period ended June 30,
2010, the IO had a gain of $4.5 million for change in fair value and an amortization of $5.5
million.(2)
    
    OTTI is recognized as part of non-interest income. Amortization of premium and
discount is recognized as part of interest income as mortgage-backed securities.(3)
    
    Change in fair value of servicing assets is recognized in non-interest income as
servicing income. Capitalization of servicing assets is recognized in non-interest income as
net gain on mortgage loan sales and fees.(4)
    
    Amortization of premium and discount of $172,000 and $0.1 million for the periods
ended June 30, 2011 and 2010, respectively is recognized within interest income from MBS in
the consolidated financial statements. 53




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##### Table of Contents



Assets Recorded at Fair Value on a Nonrecurring Basis
  (In thousands)
    
    Carrying Value
    
    
    Level 3June 30, 2011Loans receivable (1)
    
    $
    158,590
    
    
    $
    158,590Real estate held for sale(2)

    
    $
    37,507
    
    
    $
    37,507Total
    
    
    196,097
    
    
    
    196,097December 31, 2010Loans receivable(1)
    
    $
    266,093
    
    
    $
    266,093Real estate held for sale(2)
    
    
    70,335
    
    
    
    70,335Other assets(3)
    
    
    2,275
    
    
    
    2,275Total
    
    $
    338,703
    
    
    $
    338,703
 
 (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.(3)
    
    Represents the carrying value of CB, LLC assets for which adjustments are based on
the appraised value of land and the remaining housing units.  Loss for the quarters ended
    
    Loss for the six month periodsLocation of Loss Recognized in the
    
    June 30,
    
    ended June 30,(In thousands)
    
    Statement of Operations
    
    2011
    
    2010
    
    2011
    
    2010Loans receivable
    
    Provision for loan and lease losses
    
    $
    8,411
    
    
    $
    4,284
    
    
    $
    5,789
    
    
    $
    20,335Real estate held
for sale
    
    Other expenses
    
    $
    1,945
    
    
    $
    27,980
    
    
    $
    6,493
    
    
    $
    32,429
 54




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##### Table of Contents



Disclosures about Fair Value of Financial Instruments
  June 30, 2011
    
    December 31, 2010Carrying
    
    
    
    
    
    Carrying(In thousands)
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and due from banks
    
    $
    562,397
    
    
    $
    562,397
    
    
    $
    355,819
    
    
    $
    355,819Other interest-earning assets
    
    
    43,967
    
    
    
    43,967
    
    
    
    156,607
    
    
    
    156,607Securities held for trading(1)
    
    
    44,589
    
    
    
    44,589
    
    
    
    45,029
    
    
    
    45,029Securities available for sale
    
    
    671,451
    
    
    
    671,451
    
    
    
    1,505,065
    
    
    
    1,505,065Loans held for sale(2)
    
    
    301,934
    
    
    
    308,715
    
    
    
    319,269
    
    
    
    325,655Loans receivable
    
    
    5,595,126
    
    
    
    5,357,922
    
    
    
    5,464,919
    
    
    
    5,179,879Servicing assets
    
    
    115,785
    
    
    
    115,785
    
    
    
    114,342
    
    
    
    114,342Financial liabilities:Deposits
    
    $
    4,302,792
    
    
    $
    4,361,116
    
    
    $
    4,618,475
    
    
    $
    4,685,730Securities sold under agreements to repurchase
    
    
    442,300
    
    
    
    458,706
    
    
    
    1,176,800
    
    
    
    1,218,280Advances from FHLB
    
    
    1,342,849
    
    
    
    1,421,846
    
    
    
    901,420
    
    
    
    923,266Loans payable
    
    
    294,623
    
    
    
    294,623
    
    
    
    304,035
    
    
    
    304,035Notes payable
    
    
    510,430
    
    
    
    481,915
    
    
    
    513,958
    
    
    
    482,441Derivatives(3)
    
    
    3,435
    
    
    
    3,435
    
    
    
    5,418
    
    
    
    5,418
 
 (1)
    
    Includes derivatives of $9,000 and $13,000 for June 30, 2011 and December 31, 2010,
respectively.(2)
    
    Includes $148.1 million and $153.4 million for June 30, 2011 and December 31, 2010,
respectively, related to GNMA defaulted loans for which the Company has an unconditional
buy-back option.(3)
    
    Includes $53,000 and $0.7 million of derivatives held for trading purposes and $3.4
million and $4.7 million of derivatives held for purposes other than trading, for June 30,
2011 and December 31, 2010, respectively, as part of accrued expenses and other liabilities in
the Consolidated Statement of Financial Condition. 55




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##### Table of Contents



29. Derivatives
    June 30, 2011
    
    
    December 31, 2010Notional
    
    
    Fair Value
    
    
    Notional
    
    
    Fair Value(In thousands)
    
    Amount
    
    
    Asset
    
    
    Liability
    
    
    Amount
    
    
    Asset
    
    
    LiabilityCash Flow Hedges:Interest rate swaps
    
    $
    74,000
    
    
    $
    
    
    
    $
    (3,382
    )
    
    $
    74,000
    
    
    $
    
    
    
    $
    (4,677
    )Other Derivatives (non hedges):Interest rate caps
    
    
    210,000
    
    
    
    1
    
    
    
    
    
    
    
    210,000
    
    
    
    13
    
    
    
    Forward contracts
    
    
    55,000
    
    
    
    8
    
    
    
    (53
    )
    
    
    100,000
    
    
    
    
    
    
    
    (741
    )Total
    
    $
    339,000
    
    
    $
    9
    
    
    $
    (3,435
    )
    
    $
    384,000
    
    
    $
    13
    
    
    $
    (5,418
    )
 Cash Flow Hedges
   56




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##### Table of Contents



Location of Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss ReclassifiedReclassified from
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    from AccumulatedAccumulated Other
    
    
    
    
    
    
    
    
    
    Other
    
    
    OtherComprehensive
    
    Notional
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive(In thousands)
    
    Income to Income
    
    Amount
    
    
    Fair Value
    
    
    Income
    
    
    Income to IncomeCash flow Hedges
June 30, 2011Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    74,000
    
    
    $
    (3,382
    )
    
    $
    554
    
    
    $
    (825
    )June 30, 2010Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    305,000
    
    
    $
    (7,511
    )
    
    $
    1,594
    
    
    $
    (2,522
    )
  Location of LossReclassified from
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss ReclassifiedAccumulated Other
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    from AccumulatedComprehensive
    
    
    
    
    
    
    
    
    
    Other
    
    
    OtherIncome to
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive(In thousands)
    
    Income
    
    Notional Amount
    
    
    Fair Value
    
    
    Income
    
    
    Income to IncomeCash flow Hedges
June 30, 2011Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    74,000
    
    
    $
    (3,382
    )
    
    $
    1,287
    
    
    $
    (1,589
    )June 30, 2010Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    305,000
    
    
    $
    (7,511
    )
    
    $
    3,152
    
    
    $
    (3,673
    )
 57




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##### Table of Contents



Trading and Non-Hedging Activities
  June 30, 2011Location of Gain (Loss)Recognized in the
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Loss for theConsolidated Statement of
    
    Notional
    
    
    
    
    
    
    Net Loss for the
    
    
    Six Month(In thousands)
    
    Operations
    
    Amount
    
    
    Fair Value
    
    
    Quarter
    
    
    PeriodDerivatives not designated as
cash flow hedges:Interest rate caps
    
    Net gain (loss) on trading activities
    
    $
    210,000
    
    
    $
    1
    
    
    $
    (2
    )
    
    $
    (12
    )Forward contracts
    
    Net gain (loss) on trading activities
    
    
    55,000
    
    
    
    (45
    )
    
    
    (704
    )
    
    
    (1,331
    )$
    265,000
    
    
    $
    (44
    )
    
    $
    (706
    )
    
    $
    (1,343
    )
 June 30, 2010Location of Gain (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (Loss) GainRecognized in the Consolidated
    
    Notional
    
    
    
    
    
    
    Net (Loss) Gain
    
    
    for the Six(In thousands)
    
    Statement of Operations
    
    Amount
    
    
    Fair Value
    
    
    for the Quarter
    
    
    Month PeriodDerivatives not designated as
cash flow hedges:Interest rate caps
    
    Net gain (loss) on trading activities
    
    $
    270,000
    
    
    $
    53
    
    
    $
    (162
    )
    
    $
    (723
    )Forward contracts
    
    Net gain (loss) on trading activities
    
    
    135,000
    
    
    
    2,781
    
    
    
    3,407
    
    
    
    4,298$
    405,000
    
    
    $
    2,834
    
    
    $
    3,245
    
    
    $
    3,575
     58




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##### Table of Contents



30. 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:
 Loans:
 59




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##### Table of Contents



Special Purpose Entities (SPE):
 
    
    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
other real estate assets, 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 June 30, 2011, 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 June
30, 2011, the carrying amount of the line of credit is $3.4 million and is classified as loan
receivable in the Consolidated Statement of Financial Condition.
 The Company has determined that the acquirer is a VIE and that the Company is not its primary
beneficiary. The assets of the acquirer are comprised 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 VIE.
 The transfer of the portfolio, consisting of contruction loans and other 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 flows forecasted 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 purposed of determining a market rate.
 
    
    During the third quarter of 2010, the Company, through one of its subsidiaries, Doral
Money, entered into a Collateralized Loan Obligation (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.
 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.
 60




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##### Table of Contents



(In thousands)
    
    June 30, 2011
    
    December 31, 2010Carrying amountCash and other interest-earning assets
    
    $
    13,267
    
    
    $
    51,828Loans receivable
    
    
    438,898
    
    
    
    401,723Allowance for loan and lease losses
    
    
    (1,669
    )
    
    
    (2,388
    )Other assets
    
    
    9,156
    
    
    
    9,795Total assets
    
    
    459,652
    
    
    
    460,958Notes payable (third party liability)
    
    
    249,831
    
    
    
    249,822Other liabilities
    
    
    1,721
    
    
    
    2,934Total liabilities
    
    
    251,552
    
    
    
    252,756Net assets
    
    $
    208,100
    
    
    $
    208,202
  (In thousands)
    
    June 30, 2011
    
    December 31, 2010Carrying amountServicing assets
    
    $
    14,849
    
    
    $
    15,201Available for sale securities:Non-agency CMO
    
    
    11,153
    
    
    
    11,108Loans receivable:Construction
and land (3)(4)
    
    
    359,063
    
    
    
    412,352Maximum exposure to loss(1)Servicing assets
    
    $
    14,849
    
    
    $
    15,201Available for sale securities:Non-agency CMO(2)
    
    
    11,153
    
    
    
    11,108Loans receivable:Construction
and land (3)(4)
    
    
    359,063
    
    
    
    412,352
 
 (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.(3)
    
    Does not include construction spot loans and construction development loans to non-developers.(4)
    
    Net of ALLL of $11.2 million and $25.0 million as of
June 30, 2011 and December 31, 2010, respectively. 31. Segment Information
    61




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##### Table of Contents




    
    Puerto Rico  This segment is the Companys principal market and includes all mortgage and
retail banking activities in Puerto Rico including loans, deposits and insurance activities.
This segment operates a branch network in Puerto Rico of 34 branches offering a variety of
consumer loan products as well as deposit products and other retail banking services. This
segments primary lending activities have traditionally focused on the origination of
residential mortgage loans in Puerto Rico.
 
    
    United States  This segment is the Companys principal source of growth in the current
economic environment. It includes retail banking in the United States through its federal
savings bank subsidiary with branches in New York and Florida. This segment also includes the
Companys middle market syndicated lending unit that is engaged in purchasing participations
in senior credit facilities in the U.S. syndicated leverage loan market and is the primary
source of growth in the Companys loan portfolio.
 
    
    Liquidating Operations  This segment manages the Companys liquidating portfolios
comprised primarily of construction and land portfolios (loans and repossessed assets) with
the purpose of maximizing the Companys returns on these assets. There is no expected growth
in the portfolios within this segment except as part of a workout function.
 
    
    Treasury  The Companys Treasury function handles its investment portfolio, interest rate
risk management and liquidity position. It also serves as a source of funding for the
Companys other lines of business.
    62




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##### Table of Contents



Quarter ended June 30, 2011Liquidating(In thousands)
    
    Puerto Rico
    
    United States
    
    Treasury
    
    Operations
    
    Corporate
    
    Intersegment (1)
    
    TotalNet interest income (loss)
from external customers
    
    $
    43,589
    
    
    $
    11,713
    
    
    $
    (14,186
    )
    
    $
    4,339
    
    
    $
    
    
    
    $
    
    
    
    $
    45,455Intersegment net interest
(loss) income
    
    
    (12,613
    )
    
    
    (1,346
    )
    
    
    18,398
    
    
    
    (2,087
    )
    
    
    (2,352
    )
    
    
    
    
    
    
    Total net interest income (loss)
    
    
    30,976
    
    
    
    10,367
    
    
    
    4,212
    
    
    
    2,252
    
    
    
    (2,352
    )
    
    
    
    
    
    
    45,455Provision for loan and lease
losses
    
    
    6,502
    
    
    
    358
    
    
    
    
    
    
    
    6,463
    
    
    
    
    
    
    
    
    
    
    
    13,323Non-interest income (loss)
    
    
    23,040
    
    
    
    934
    
    
    
    14,864
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    38,797Depreciation and amortization
    
    
    1,522
    
    
    
    261
    
    
    
    
    
    
    
    1
    
    
    
    1,679
    
    
    
    
    
    
    
    3,463Non-interest expense
    
    
    30,288
    
    
    
    5,123
    
    
    
    4,515
    
    
    
    5,490
    
    
    
    14,702
    
    
    
    
    
    
    
    60,118Net income (loss) before income
taxes and corporate allocations
    
    
    15,704
    
    
    
    5,559
    
    
    
    14,561
    
    
    
    (9,702
    )
    
    
    (18,774
    )
    
    
    
    
    
    
    7,348Allocation of corporate
    
    
    14,197
    
    
    
    3,398
    
    
    
    
    
    
    
    1,179
    
    
    
    (18,774
    )
    
    
    
    
    
    
    Net income (loss) before income
taxes
    
    
    1,507
    
    
    
    2,161
    
    
    
    14,561
    
    
    
    (10,881
    )
    
    
    
    
    
    
    
    
    
    
    7,348Identifiable assets
    
    
    6,253,327
    
    
    
    1,295,428
    
    
    
    3,262,710
    
    
    
    611,010
    
    
    
    224,326
    
    
    
    (3,631,105
    )
    
    
    8,015,696
 Six Month Period ended June 30, 2011Liquidating(In thousands)
    
    Puerto Rico
    
    United States
    
    Treasury
    
    Operations
    
    Corporate
    
    Intersegment (1)
    
    TotalNet interest income (loss)
from external customers
    
    $
    88,549
    
    
    $
    23,549
    
    
    $
    (30,980
    )
    
    $
    7,507
    
    
    $
    
    
    
    $
    
    
    
    $
    88,625Intersegment net interest
(loss) income
    
    
    (28,353
    )
    
    
    (2,294
    )
    
    
    39,216
    
    
    
    (4,180
    )
    
    
    (4,389
    )
    
    
    
    
    
    
    Total net interest income (loss)
    
    
    60,196
    
    
    $
    21,255
    
    
    $
    8,236
    
    
    $
    3,327
    
    
    $
    (4,389
    )
    
    $
    
    
    
    
    88,625Provision (recovery) for loan
and lease losses
    
    
    6,044
    
    
    
    (38
    )
    
    
    
    
    
    
    9,908
    
    
    
    
    
    
    
    
    
    
    
    15,914Non-interest income (loss)
    
    
    46,554
    
    
    
    2,867
    
    
    
    18,044
    
    
    
    (2
    )
    
    
    (41
    )
    
    
    
    
    
    
    67,422Depreciation and amortization
    
    
    3,097
    
    
    
    424
    
    
    
    
    
    
    
    2
    
    
    
    3,143
    
    
    
    
    
    
    
    6,666Non-interest expense
    
    
    58,156
    
    
    
    11,464
    
    
    
    9,119
    
    
    
    11,387
    
    
    
    27,573
    
    
    
    
    
    
    
    117,699Net income (loss) before income
taxes and corporate allocations
    
    
    39,453
    
    
    
    12,272
    
    
    
    17,161
    
    
    
    (17,972
    )
    
    
    (35,146
    )
    
    
    
    
    
    
    15,768Allocation of corporate
    
    
    26,895
    
    
    
    6,002
    
    
    
    35
    
    
    
    2,214
    
    
    
    (35,146
    )
    
    
    
    
    
    
    Net income (loss) before income
taxes
    
    
    12,558
    
    
    
    6,270
    
    
    
    17,126
    
    
    
    (20,186
    )
    
    
    
    
    
    
    
    
    
    
    15,768Identifiable assets
    
    
    6,253,327
    
    
    
    1,295,428
    
    
    
    3,262,710
    
    
    
    611,010
    
    
    
    224,326
    
    
    
    (3,631,105
    )
    
    
    8,015,696
 63




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##### Table of Contents



Quarter Ended June 30, 2011Mortgage
    
    
    
    
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Agency
    
    Eliminations (1)
    
    TotalsNet interest income
    
    $
    1,040
    
    
    $
    43,237
    
    
    $
    
    
    
    $
    1,178
    
    
    $
    45,455Provision for loan
and lease losses
    
    
    4,036
    
    
    
    9,287
    
    
    
    
    
    
    
    
    
    
    
    13,323Non-interest income
    
    
    9,677
    
    
    
    30,038
    
    
    
    2,438
    
    
    
    (3,356
    )
    
    
    38,797(Loss) Income before
income taxes
    
    
    (2,355
    )
    
    
    7,647
    
    
    
    1,830
    
    
    
    226
    
    
    
    7,348Net (loss) income
    
    
    (2,034
    )
    
    
    5,176
    
    
    
    1,059
    
    
    
    275
    
    
    
    4,476Identifiable assets
    
    
    1,723,272
    
    
    
    7,344,397
    
    
    
    12,175
    
    
    
    (1,064,149
    )
    
    
    8,015,696
 Quarter Ended June 30, 2010Mortgage
    
    
    
    
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Agency
    
    Eliminations (1)
    
    TotalsNet interest income
    
    $
    2,068
    
    
    $
    36,507
    
    
    $
    
    
    
    $
    1,490
    
    
    $
    40,065Provision for loan
and lease losses
    
    
    4,170
    
    
    
    40,447
    
    
    
    
    
    
    
    
    
    
    
    44,617Non-interest income
    
    
    9,402
    
    
    
    (128,172
    )
    
    
    2,482
    
    
    
    (3,902
    )
    
    
    (120,190
    )(Loss) Income before
income taxes
    
    
    (20,660
    )
    
    
    (209,488
    )
    
    
    1,723
    
    
    
    (399
    )
    
    
    (228,824
    )Net (loss) income
    
    
    (20,963
    )
    
    
    (212,966
    )
    
    
    1,017
    
    
    
    (399
    )
    
    
    (233,311
    )Identifiable assets
    
    
    1,753,139
    
    
    
    8,679,522
    
    
    
    19,837
    
    
    
    (1,055,606
    )
    
    
    9,396,892
 
 (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. 64




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Six Month Period Ended June 30, 2011Mortgage
    
    
    
    
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Agency
    
    Eliminations(1)
    
    TotalNet interest income
    
    $
    1,782
    
    
    $
    84,556
    
    
    $
    
    
    
    $
    2,287
    
    
    $
    88,625Provision for loan
and lease losses
    
    
    3,996
    
    
    
    11,918
    
    
    
    
    
    
    
    
    
    
    
    15,914Non-interest income
    
    
    16,294
    
    
    
    54,439
    
    
    
    4,661
    
    
    
    (7,972
    )
    
    
    67,422(Loss) income
before income taxes
    
    
    (2,025
    )
    
    
    15,902
    
    
    
    3,169
    
    
    
    (1,278
    )
    
    
    15,768Net (loss) income
    
    
    (3,829
    )
    
    
    11,003
    
    
    
    1,853
    
    
    
    (1,227
    )
    
    
    7,800Identifiable assets
    
    
    1,723,272
    
    
    
    7,344,397
    
    
    
    12,175
    
    
    
    (1,064,148
    )
    
    
    8,015,696
 Six Month Period Ended June 30, 2010Mortgage
    
    
    
    
    
    Insurance
    
    Intersegment(In thousands)
    
    Banking
    
    Banking
    
    Agency
    
    Eliminations(1)
    
    TotalNet interest income
    
    $
    5,454
    
    
    $
    75,110
    
    
    $
    
    
    
    $
    3,262
    
    
    $
    83,826Provision for loan
and lease losses
    
    
    6,287
    
    
    
    52,251
    
    
    
    
    
    
    
    
    
    
    
    58,538Non-interest income
(loss)
    
    
    15,563
    
    
    
    (96,548
    )
    
    
    4,862
    
    
    
    (7,483
    )
    
    
    (83,606
    )(Loss) income
before income taxes
    
    
    (28,016
    )
    
    
    (205,142
    )
    
    
    3,610
    
    
    
    (250
    )
    
    
    (229,798
    )Net (loss) income
    
    
    (28,373
    )
    
    
    (210,323
    )
    
    
    2,132
    
    
    
    (250
    )
    
    
    (236,814
    )Identifiable assets
    
    
    1,753,139
    
    
    
    8,679,522
    
    
    
    19,837
    
    
    
    (1,055,606
    )
    
    
    9,396,892
 
 (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. 32. Subsequent Events
  65




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##### Table of Contents



FORWARD LOOKING STATEMENTS
     
    
    the continued recessionary conditions of the Puerto Rico economy and any deterioration
in the performance of the United States economy and capital markets that adversely affect
the general economy, housing prices, the job market, consumer confidence and spending
habits 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 weakness of the Puerto Rico and United States real estate markets and of the Puerto
Rico and United States consumer and commercial credit sectors and its impact in the credit
quality of our loans and other assets which have contributed and may continue to contribute
to, among other things, an increase in our non-performing loans, charge-offs and loan loss
provisions and may subject the Company to further risk from loan defaults and foreclosures;
    
recent and/or future downgrades of the long-term debt ratings of the United States and the Commonwealth of Puerto Rico
, which could adversely affect economic conditions in the United States and the Commonwealth of Puerto Rico;
    
    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 of such assets under generally accepted accounting principles in the United
States of America;
    
    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 adopted changes to the Puerto Rico internal revenue code and
other related tax provisions 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;
    
    uncertainty about the outcome of regular annual safety and soundness and compliance
examinations by our primary regulators which may contribute to, among other things, an
increase in our charge-offs, loan loss provisions, and compliance costs;
    
    changes in interest rates, which may result from changes in the fiscal and monetary
policy of the federal government, and
 66




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##### Table of Contents



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;
    
    higher credit losses because of federal or state legislation or regulatory action that
either (i) reduces the amount that our 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 adopted and to be adopted thereunder by various federal
and state securities and banking regulatory agencies, and the impact of such developments
on our business, business practices, capital requirements and costs of operations;
    
    the exposure of Doral Financial, as originator of residential mortgage loans, sponsor
of residential mortgage loan securitization transactions, or servicer of such loans or such
transactions, or in other capacities, to government sponsored enterprises (GSEs),
investors, mortgage insurers or other third parties as a result of representations and
warranties made in connection with the transfer or securitization of such loans;
    
    the risk of possible failure or circumvention of our controls and procedures, and the
risk that our risk management policies may be inadequate;
    
    the risk that the FDIC may further increase deposit insurance premiums and/or require
special assessments to replenish its insurance fund, causing an additional increase in the
Companys non-interest expense;
    
    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, which 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, the 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 2010 Annual Report on Form 10-K, as
updated in Part II, Item 1 Legal Proceedings in the
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and
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 Annual Report on Form 10-K for the year ended December 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, 2011 and as updated from time to time in the Companys future reports filed with
the SEC.
 67




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   OVERVIEW OF RESULTS OF OPERATIONS
   
    
    Net income attributable to common shareholders for the second quarter of
2011 totalled $2.1 million, and resulted in a net income per share of $0.02, compared to
a net loss attributable to common shareholders for the corresponding 2010 period of
$235.7 million, or a loss per share of $3.50.
    
    Net interest income for the second quarter of 2011 was $45.5 million,
compared to $40.1 million for the corresponding period in 2010. The increase of $5.4
million in net interest income for 2011, compared to 2010, was due to a decrease in
interest income of $10.0 million, or 9.9%, partially offset by a decrease in interest
expense of $15.4 million, or 25.2%. The decrease in interest income was driven by a
decrease in interest on mortgage backed securities of $9.3 million from the sale of
securities to delever the bank and decrease the banks sensitivity to increasing
interest rates. The decrease in interest expense was driven by decreases of $7.5 million
in interest expense on securities sold under agreements to repurchase, $4.1 million in
interest expense on advances from FHLB and $5.0 million on deposits, partially offset by
an increase in interest expense of $1.5 million in notes payable primarily related to a
$250.0 million debt issued under the CLO at a rate of 3-month LIBOR plus 1.85% in July
2010. Lower interest expense charges resulted from changes to FHLB borrowings (advances
and repos) that extended duration and lowered interest rates, and efforts to lower
retail deposit rates in Puerto Rico and brokered CDs.
    
    The provision for loan and lease losses for the quarter ended June 30, 2011
totalled $13.3 million, a decrease of $31.3 million over the $44.6 million provision for
the corresponding 2010 period. The decrease in the provision for loan and lease losses
for the second quarter of 2011 resulted primarily from the Puerto Rico loan portfolios,
and reflects specific provisions made in the second quarter of 2010 to write down assets
sold in July 2010 to their sales price and reflect the effect on the loan loss provision
of writing down OREO to facilitate faster sales and the lower level of non-performing
loans in the second quarter of 2011.
    
    Non-interest income for the second quarter of 2011 was $38.8 million, an
increase of $159.0 million compared to non-interest loss of $120.2 million for the
corresponding 2010 period. The increase in non-interest income for the second quarter of
2011, compared to the same period in 2010 resulting from the
following (i) during the
second quarter of 2010 the Company recognized a loss on sale of securities of $137.2
million driven by a loss of $136.7 million on the sale of $378.0 million of certain
non-agency CMOs, (ii) during the second quarter of 2011 the Company had a gain on sale of
investment securities of $14.8 million as a result of its deleveraging of the balance
sheet and (iii) servicing income increased $5.9 million related to an improvement in the
mark to market adjustment of the MSRs of $3.4 million. The
improvement in the value of the MSRs was primarily due to a reduction in
prepayment speeds. The improvement in servicing income was driven by lower interest losses
of $3.5 million. During the second quarter of 2010 the Company recognized an interest
loss on servicing advances of $4.2 million related to the
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repurchase of certain GNMA defaulted loans. This improvement was partially offset by
lower servicing fees of $0.7 million as the serviced loan portfolio continues to run-off
from prepayments.
    
    Non-interest expense for the second quarter of 2011 was $63.6 million,
compared to $104.1 million for the corresponding period in 2010. The $40.5 million
decrease in non-interest expenses for the second quarter of 2011 compared to the same
period in 2010, was due to (i) a decrease of $10.8 million in the reserve for the
Companys claim on Lehman Brothers Inc. that was established in the second quarter of
2010; this claim was subsequently sold to a third party; (ii) a decrease in OREO expenses of
$21.4 million related to an additional provision for OREO losses of $17.0 million
established during the second quarter of 2010 to recognize the effect of managements
decision to reduce pricing to stimulate property sales, adjustments driven by lower
values of certain OREO properties, and higher maintenance costs to maintain the
properties in saleable condition; (iii) a decrease of $6.1 million in professional
services driven by lower defense litigation costs of $4.2 million, lower advisory
services of $0.5 million related to the dissolution of Doral Holdings and Doral Holdings
L.P., and lower advisory services of $1.3 million in 2011 compared to 2010 which were
incurred in relation to the sale of certain construction loans; (iv) a decrease in
advertising expense of $2.3 million related to campaigns conducted to gain market share
in deposits and mortgage originations subsequent to the local market bank failures and
asset acquisition in April 2010; (v) lower FDIC insurance expense of $1.8 million
related to a lower deposit base and a change in the method of computing the assessment;
and (vi) an increase of $1.6 million in other credit
related expenses which was due to an
increase of $0.9 million in foreclosure expenses and $0.9 million in the provision for
negative escrow.
    
    An income tax expense of $2.9 million for the second quarter of 2011,
compared to an income tax expense of $4.5 million for the corresponding period in 2010.
The decrease in tax expense was due to taxes recognized in 2010 related to U.S. source
income partially
offset by realization of operational deferred tax assets.
    
    Doral Financials loan production for the second quarter of 2011 was $464.7
million, compared to $380.2 million for the comparable 2010 period, an increase of
approximately 22.2%. The production increase resulted mainly from the US loan
production.
    
    Assets as of June 30, 2011 totalled $8.0 billion compared to $8.6 billion as
of December 31, 2010, a decrease of $0.6 billion or 7.3%. The decrease in assets was due
mainly to the sale of $870.0 million of mortgage backed
securities during the first half of 2011. These sales
were conducted pursuant to the Companys deleveraging of the balance sheet.
    
    Total deposits of $4.3 billion decreased $315.7 million, or 6.8%, from
deposits of $4.6 billion as of December 31, 2010. The year-to-date deposit decrease
resulted from a decrease of $328.2 million, or 13.9%, in brokered deposits, partially
offset by a $12.5 million, or 0.6%, increase in non-brokered deposits.
    
    Non-performing loans (NPLs), excluding FHA/VA loans guaranteed by the US
government, as of June 30, 2011 were $560.5 million, a decrease of $11.0 million and
$65.9 million from March 31, 2011 and December 31, 2010, respectively. The reduction in
NPLs was a result of continued emphasis on collections and restructures to optimize
performance of the loan portfolio as well as the effect of net charge-offs of $40.1
million in the second quarter of 2011 compared to net charge-offs of $6.0 million in the
first quarter of 2011.
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Table A
Selected Financial Data
 Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands, except for share data)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Selected Income Statement Data:Interest income
    
    $
    91,117
    
    
    $
    101,077
    
    
    $
    185,108
    
    
    $
    210,305Interest expense
    
    
    45,662
    
    
    
    61,012
    
    
    
    96,483
    
    
    
    126,479Net interest income
    
    
    45,455
    
    
    
    40,065
    
    
    
    88,625
    
    
    
    83,826Provision for loan and lease losses
    
    
    13,323
    
    
    
    44,617
    
    
    
    15,914
    
    
    
    58,538Net interest income (loss) after provision for loan and lease losses
    
    
    32,132
    
    
    
    (4,552
    )
    
    
    72,711
    
    
    
    25,288Non-interest income (loss)
    
    
    38,797
    
    
    
    (120,190
    )
    
    
    67,422
    
    
    
    (83,606
    )Non-interest expenses
    
    
    63,581
    
    
    
    104,082
    
    
    
    124,365
    
    
    
    171,480Income (loss) before income taxes
    
    
    7,348
    
    
    
    (228,824
    )
    
    
    15,768
    
    
    
    (229,798
    )Income tax expense
    
    
    2,871
    
    
    
    4,487
    
    
    
    7,968
    
    
    
    7,016Net income (loss)
    
    $
    4,477
    
    
    $
    (233,311
    )
    
    $
    7,800
    
    
    $
    (236,814
    )Net income (loss) attributable to common shareholders(1)
    
    $
    2,062
    
    
    $
    (235,726
    )
    
    $
    2,970
    
    
    $
    (214,508
    )Net income
(loss) per common share(2)
    
    $
    0.02
    
    
    $
    (3.50
    )
    
    $
    0.02
    
    
    $
    (3.30
    )Accrued dividends, preferred stock
    
    $
    2,415
    
    
    $
    2,415
    
    
    $
    4,830
    
    
    $
    4,279Preferred stock exchange premium, net
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (26,585
    )Book value per common share
    
    $
    4.02
    
    
    $
    6.27
    
    
    $
    4.02
    
    
    $
    6.27Preferred shares outstanding at end of period
    
    
    5,811,391
    
    
    
    6,096,393
    
    
    
    5,811,391
    
    
    
    6,096,393Weighted average common shares outstanding
    
    
    127,293,756
    
    
    
    67,285,568
    
    
    
    127,293,756
    
    
    
    64,920,036Common shares outstanding at end of period
    
    
    127,293,756
    
    
    
    67,293,370
    
    
    
    127,293,756
    
    
    
    67,293,370Selected Balance Sheet Data at Period End:Total investment securities
    
    $
    790,605
    
    
    $
    2,527,802
    
    
    $
    790,605
    
    
    $
    2,527,802Total loans,
net(3)
    
    
    5,897,060
    
    
    
    5,768,728
    
    
    
    5,897,060
    
    
    
    5,768,728Allowance for loan and lease losses
    
    
    93,472
    
    
    
    134,913
    
    
    
    93,472
    
    
    
    134,913Servicing assets, net
    
    
    115,785
    
    
    
    113,005
    
    
    
    115,785
    
    
    
    113,005Total assets
    
    
    8,015,696
    
    
    
    9,393,533
    
    
    
    8,015,696
    
    
    
    9,393,533Deposits
    
    
    4,302,792
    
    
    
    4,940,569
    
    
    
    4,302,792
    
    
    
    4,940,569Total borrowings
    
    
    2,590,202
    
    
    
    3,265,020
    
    
    
    2,590,202
    
    
    
    3,265,020Total liabilities
    
    
    7,151,436
    
    
    
    8,448,561
    
    
    
    7,151,436
    
    
    
    8,448,561Preferred equity
    
    
    352,082
    
    
    
    523,082
    
    
    
    352,082
    
    
    
    523,082Common equity
    
    
    512,178
    
    
    
    421,890
    
    
    
    512,178
    
    
    
    421,890Total stockholders equity
    
    
    864,260
    
    
    
    944,972
    
    
    
    864,260
    
    
    
    944,972Selected
Average Balance Sheet Data for Period End: (4)Total investment securities
    
    $
    1,258,527
    
    
    $
    2,284,672
    
    
    $
    1,422,522
    
    
    $
    2,603,284Total
loans(3)
    
    
    5,890,682
    
    
    
    5,876,723
    
    
    
    5,878,311
    
    
    
    5,858,009Total interest-earning assets
    
    
    7,729,926
    
    
    
    8,747,284
    
    
    
    7,790,441
    
    
    
    9,123,226Total assets
    
    
    8,381,285
    
    
    
    9,427,981
    
    
    
    8,455,508
    
    
    
    9,808,502Deposits
    
    
    4,449,327
    
    
    
    4,644,841
    
    
    
    4,496,081
    
    
    
    4,648,579Total borrowings
    
    
    2,814,985
    
    
    
    3,449,652
    
    
    
    2,831,581
    
    
    
    3,876,960Total interest-bearing liabilities
    
    
    6,997,000
    
    
    
    7,863,038
    
    
    
    7,055,458
    
    
    
    8,287,745Preferred equity
    
    
    352,082
    
    
    
    486,191
    
    
    
    352,082
    
    
    
    448,205Common equity
    
    
    518,602
    
    
    
    468,198
    
    
    
    513,195
    
    
    
    468,161Total stockholders equity
    
    
    870,684
    
    
    
    954,389
    
    
    
    865,277
    
    
    
    916,366Operating Data:Loan production
    
    $
    464,653
    
    
    $
    380,170
    
    
    $
    814,742
    
    
    $
    669,225Loan
servicing portfolio (5)
    
    
    8,045,830
    
    
    
    8,335,364
    
    
    
    8,045,830
    
    
    
    8,335,364Selected Financial Ratios:Performance:Net interest margin
    
    
    2.36
    %
    
    
    1.84
    %
    
    
    2.29
    %
    
    
    1.85
    %Return on
average assets (4)
    
    
    0.21
    %
    
    
    (9.93
    )%
    
    
    0.19
    %
    
    
    (4.87
    )%Return on
average common
equity(4)(6)
    
    
    1.59
    %
    
    
    (201.94
    )%
    
    
    1.17
    %
    
    
    (103.85
    )%Capital:Leverage ratio
    
    
    9.07
    %
    
    
    8.52
    %
    
    
    9.07
    %
    
    
    8.52
    %Tier 1 risk-based capital ratio
    
    
    13.41
    %
    
    
    13.99
    %
    
    
    13.41
    %
    
    
    13.99
    %Total risk-based capital ratio
    
    
    14.67
    %
    
    
    15.26
    %
    
    
    14.67
    %
    
    
    15.26
    %Asset quality:Total NPAs as percentage of the loan portfolio, net, and OREO (excluding GNMA defaulted loans)
    
    
    12.73
    %
    
    
    18.26
    %
    
    
    12.73
    %
    
    
    18.26
    %Total NPAs as percentage of consolidated total assets
    
    
    9.29
    %
    
    
    11.18
    %
    
    
    9.29
    %
    
    
    11.18
    %ALLL as a percentage of loans receivable outstanding, at end of period
    
    
    1.64
    %
    
    
    2.44
    %
    
    
    1.64
    %
    
    
    2.44
    %ALLL plus partial charge-offs and discounts to loans receivable (excluding FHA/VA guaranteed loans and loans
on savings)
    
    
    3.70
    %
    
    
    2.47
    %
    
    
    3.70
    %
    
    
    2.47
    %ALLL to non-performing loans (excluding NPLs held for sale)
    
    
    16.75
    %
    
    
    17.65
    %
    
    
    16.75
    %
    
    
    17.65
    %ALLL plus partial charge-offs and discounts to non-performing loans (excluding NPLs held for sale)
    
    
    36.89
    %
    
    
    19.46
    %
    
    
    36.89
    %
    
    
    19.46
    %Provision for loan and lease losses to net charge-offs
    
    
    33.26
    %
    
    
    78.02
    %
    
    
    34.53
    %
    
    
    90.90
    %Net charge-offs to average loan receivable outstanding
    
    
    0.71
    %
    
    
    1.03
    %
    
    
    0.83
    %
    
    
    1.16
    %ALLL to net charge-offs on an annualized basis
    
    
    58.18
    %
    
    
    58.82
    %
    
    
    100.56
    %
    
    
    103.89
    %Other ratios:Average
common equity to average assets(4)
    
    
    6.19
    %
    
    
    4.97
    %
    
    
    6.07
    %
    
    
    4.77
    %Tier 1 common equity to risk-weighted assets
    
    
    7.11
    %
    
    
    4.79
    %
    
    
    7.11
    %
    
    
    4.79
    %
 70




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##### Table of Contents



(1)
    
    For the six month period ended June 30, 2010, includes $26.6
million related to the net effect of the conversion of preferred
stock during the period indicated.(2)
    
    For the quarters and six month periods ended June 30, 2011 and 2010, net
income (loss) per common share represents the basic and diluted
income (loss) per common
share, respectively, for each of the periods presented.(3)
    
    Includes loans held for sale.(4)
    
    Average balances are computed on a daily basis.(5)
    
    Represents the total portfolio of loans serviced for third parties. Excludes
$4.5 billion of mortgage loans owned by Doral Financial at June 30, 2011 and June 30, 2010.(6)
    
    Excludes the effect of the preferred stock exchange inducement CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  RESULTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
 NET INTEREST INCOME
  Second Quarter 2011 vs. Second Quarter 2010
 Six Month Period Ended June 30, 2011 vs. Six Month Period Ended June 30, 2010
 71




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Table B
Average Balance Sheet and Summary of Net Interest Income
 Quarters Ended June 30,2011
    
    
    2010Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateASSETS:Interest-earning assets:Loans:Consumer:Residential (1)
    
    $
    3,936,498
    
    
    $
    53,671
    
    
    
    5.47
    %
    
    $
    4,117,768
    
    
    $
    57,956
    
    
    
    5.65
    %Lease financing receivables
    
    
    3,220
    
    
    
    47
    
    
    
    5.83
    %
    
    
    9,701
    
    
    
    122
    
    
    
    5.04
    %Consumer
    
    
    48,399
    
    
    
    1,719
    
    
    
    14.25
    %
    
    
    66,889
    
    
    
    2,805
    
    
    
    16.82
    %3,988,117
    
    
    
    55,437
    
    
    
    5.58
    %
    
    
    4,194,358
    
    
    
    60,883
    
    
    
    5.82
    %Commercial:Commercial real estate
    
    
    704,104
    
    
    
    8,964
    
    
    
    5.11
    %
    
    
    778,372
    
    
    
    10,145
    
    
    
    5.23
    %Commercial and industrial
    
    
    768,847
    
    
    
    10,275
    
    
    
    5.36
    %
    
    
    370,747
    
    
    
    5,015
    
    
    
    5.43
    %Construction and land
    
    
    429,614
    
    
    
    4,562
    
    
    
    4.26
    %
    
    
    533,246
    
    
    
    2,873
    
    
    
    2.16
    %1,902,565
    
    
    
    23,801
    
    
    
    5.02
    %
    
    
    1,682,365
    
    
    
    18,033
    
    
    
    4.30
    %Total loans(2)
    
    
    5,890,682
    
    
    
    79,238
    
    
    
    5.40
    %
    
    
    5,876,723
    
    
    
    78,916
    
    
    
    5.39
    %Mortgage-backed securities
    
    
    1,111,699
    
    
    
    9,221
    
    
    
    3.33
    %
    
    
    2,197,216
    
    
    
    18,542
    
    
    
    3.38
    %Interest-only strips (IOs)
    
    
    43,901
    
    
    
    1,508
    
    
    
    13.78
    %
    
    
    43,946
    
    
    
    1,491
    
    
    
    13.61
    %Investment securities
    
    
    102,927
    
    
    
    130
    
    
    
    0.51
    %
    
    
    43,510
    
    
    
    583
    
    
    
    5.37
    %Other interest-earning assets
    
    
    580,717
    
    
    
    1,020
    
    
    
    0.70
    %
    
    
    585,889
    
    
    
    1,545
    
    
    
    1.06
    %Total interest-earning
assets/interest income
    
    
    7,729,926
    
    
    $
    91,117
    
    
    
    4.73
    %
    
    
    8,747,284
    
    
    $
    101,077
    
    
    
    4.63
    %Total non-interest-earning assets
    
    
    651,359
    
    
    
    
    
    
    
    
    
    
    
    680,697Total assets
    
    $
    8,381,285
    
    
    
    
    
    
    
    
    
    
    $
    9,427,981LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits:Interest bearing deposits
    
    $
    2,018,048
    
    
    $
    6,985
    
    
    
    1.39
    %
    
    $
    1,732,410
    
    
    $
    8,594
    
    
    
    1.99
    %Brokered CDs
    
    
    2,163,967
    
    
    
    15,558
    
    
    
    2.88
    %
    
    
    2,680,976
    
    
    
    18,993
    
    
    
    2.84
    %4,182,015
    
    
    
    22,543
    
    
    
    2.16
    %
    
    
    4,413,386
    
    
    
    27,587
    
    
    
    2.51
    %Repurchase agreements
    
    
    882,607
    
    
    
    6,238
    
    
    
    2.83
    %
    
    
    1,597,173
    
    
    
    13,738
    
    
    
    3.45
    %Advances from FHLB
    
    
    1,122,093
    
    
    
    8,822
    
    
    
    3.15
    %
    
    
    1,254,513
    
    
    
    12,921
    
    
    
    4.13
    %Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    3,791
    
    
    
    4
    
    
    
    0.49
    %Loans payable
    
    
    298,555
    
    
    
    1,498
    
    
    
    2.01
    %
    
    
    325,378
    
    
    
    1,676
    
    
    
    2.07
    %Notes payable
    
    
    511,730
    
    
    
    6,560
    
    
    
    5.13
    %
    
    
    268,797
    
    
    
    5,086
    
    
    
    7.57
    %Total interest-bearing
liabilities/interest expense
    
    
    6,997,000
    
    
    $
    45,661
    
    
    
    2.62
    %
    
    
    7,863,038
    
    
    $
    61,012
    
    
    
    3.11
    %Non-interest bearing deposits
    
    
    274,822
    
    
    
    
    
    
    
    
    
    
    
    231,455Other non-interest bearing liabilities
    
    
    238,779
    
    
    
    
    
    
    
    
    
    
    
    379,099Total non-interest-bearing liabilities
    
    
    513,601
    
    
    
    
    
    
    
    
    
    
    
    610,554Total liabilities
    
    
    7,510,601
    
    
    
    
    
    
    
    
    
    
    
    8,473,592Stockholders equity
    
    
    870,684
    
    
    
    
    
    
    
    
    
    
    
    954,389Total liabilities and stockholders equity
    
    $
    8,381,285
    
    
    
    
    
    
    
    
    
    
    $
    9,427,981Net interest-earning assets
    
    $
    732,926
    
    
    
    
    
    
    
    
    
    
    $
    884,246Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    45,456
    
    
    
    
    
    
    
    
    
    
    $
    40,065Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    2.11
    %
    
    
    
    
    
    
    
    
    
    
    1.52
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    2.36
    %
    
    
    
    
    
    
    
    
    
    
    1.84
    %Net interest-earning assets ratio(5)
    
    
    
    
    
    
    
    
    
    
    110.47
    %
    
    
    
    
    
    
    
    
    
    
    111.25
    %
 73




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##### Table of Contents



(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 $76,000 and $0.2 million for the second quarter of
2011 and 2010, 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. 74




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Table C
Average Balance Sheet and Summary of Net Interest Income
 Six Month Periods Ended June 30,2011
    
    
    2010Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateASSETS:Interest-earning assets:Loans:Consumer:Residential (1)
    
    $
    3,971,743
    
    
    $
    107,903
    
    
    
    5.48
    %
    
    $
    4,113,655
    
    
    $
    118,822
    
    
    
    5.82
    %Lease financing receivables
    
    
    3,755
    
    
    
    122
    
    
    
    6.56
    %
    
    
    10,671
    
    
    
    228
    
    
    
    4.31
    %Consumer
    
    
    50,347
    
    
    
    3,560
    
    
    
    14.26
    %
    
    
    69,207
    
    
    
    4,705
    
    
    
    13.71
    %4,025,845
    
    
    
    111,585
    
    
    
    5.59
    %
    
    
    4,193,533
    
    
    
    123,755
    
    
    
    5.95
    %Commercial:Commercial real estate
    
    
    698,116
    
    
    
    17,231
    
    
    
    4.98
    %
    
    
    775,549
    
    
    
    20,019
    
    
    
    5.21
    %Commercial and industrial
    
    
    709,979
    
    
    
    20,975
    
    
    
    5.96
    %
    
    
    353,686
    
    
    
    9,869
    
    
    
    5.63
    %Construction and land
    
    
    444,371
    
    
    
    9,512
    
    
    
    4.32
    %
    
    
    535,241
    
    
    
    6,706
    
    
    
    2.53
    %1,852,466
    
    
    
    47,718
    
    
    
    5.19
    %
    
    
    1,664,476
    
    
    
    36,594
    
    
    
    4.43
    %Total loans(2)
    
    
    5,878,311
    
    
    
    159,303
    
    
    
    5.46
    %
    
    
    5,858,009
    
    
    
    160,349
    
    
    
    5.52
    %Mortgage-backed securities
    
    
    1,286,794
    
    
    
    20,277
    
    
    
    3.18
    %
    
    
    2,495,194
    
    
    
    41,789
    
    
    
    3.38
    %Interest-only strips (IOs)
    
    
    43,723
    
    
    
    2,979
    
    
    
    13.74
    %
    
    
    44,820
    
    
    
    3,034
    
    
    
    13.65
    %Investment securities
    
    
    92,005
    
    
    
    229
    
    
    
    0.50
    %
    
    
    63,270
    
    
    
    1,448
    
    
    
    4.62
    %Other interest-earning assets
    
    
    489,608
    
    
    
    2,320
    
    
    
    0.96
    %
    
    
    661,933
    
    
    
    3,685
    
    
    
    1.12
    %Total interest-earning
assets/interest income
    
    
    7,790,441
    
    
    $
    185,108
    
    
    
    4.79
    %
    
    
    9,123,226
    
    
    $
    210,305
    
    
    
    4.65
    %Total non-interest-earning assets
    
    
    665,067
    
    
    
    
    
    
    
    
    
    
    
    685,276Total assets
    
    $
    8,455,508
    
    
    
    
    
    
    
    
    
    
    $
    9,808,502LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits:Interest bearing deposits
    
    $
    1,998,156
    
    
    $
    14,853
    
    
    
    1.50
    %
    
    $
    1,678,246
    
    
    $
    16,430
    
    
    
    1.97
    %Brokered CDs
    
    
    2,225,721
    
    
    
    34,589
    
    
    
    3.13
    %
    
    
    2,732,539
    
    
    
    37,857
    
    
    
    2.79
    %4,223,877
    
    
    
    49,442
    
    
    
    2.36
    %
    
    
    4,410,785
    
    
    
    54,287
    
    
    
    2.48
    %Repurchase agreements
    
    
    1,028,891
    
    
    
    15,357
    
    
    
    3.01
    %
    
    
    1,898,535
    
    
    
    31,762
    
    
    
    3.37
    %Advances from FHLB
    
    
    990,049
    
    
    
    15,430
    
    
    
    3.14
    %
    
    
    1,368,914
    
    
    
    26,894
    
    
    
    3.96
    %Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    10,138
    
    
    
    15
    
    
    
    0.30
    %Loans payable
    
    
    300,085
    
    
    
    3,040
    
    
    
    2.04
    %
    
    
    329,823
    
    
    
    3,325
    
    
    
    2.03
    %Notes payable
    
    
    512,556
    
    
    
    13,214
    
    
    
    5.16
    %
    
    
    269,550
    
    
    
    10,196
    
    
    
    7.57
    %Total interest-bearing
liabilities/interest expense
    
    
    7,055,458
    
    
    $
    96,483
    
    
    
    2.76
    %
    
    
    8,287,745
    
    
    $
    126,479
    
    
    
    3.08
    %Non-interest-bearing deposits
    
    
    272,204
    
    
    
    
    
    
    
    
    
    
    
    237,794Other non-interest-bearing liabilities
    
    
    262,569
    
    
    
    
    
    
    
    
    
    
    
    366,597Total non-interest-bearing liabilities
    
    
    534,773
    
    
    
    
    
    
    
    
    
    
    
    604,391Total liabilities
    
    
    7,590,231
    
    
    
    
    
    
    
    
    
    
    
    8,892,136Stockholders equity
    
    
    865,277
    
    
    
    
    
    
    
    
    
    
    
    916,366Total liabilities and stockholders equity
    
    $
    8,455,508
    
    
    
    
    
    
    
    
    
    
    $
    9,808,502Net interest-earning assets
    
    $
    734,983
    
    
    
    
    
    
    
    
    
    
    $
    835,481Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    88,625
    
    
    
    
    
    
    
    
    
    
    $
    83,826Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    2.03
    %
    
    
    
    
    
    
    
    
    
    
    1.57
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    2.29
    %
    
    
    
    
    
    
    
    
    
    
    1.85
    %Net interest-earning assets ratio(5)
    
    
    
    
    
    
    
    
    
    
    110.42
    %
    
    
    
    
    
    
    
    
    
    
    110.08
    %
 
 (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 $0.4 million for the six month
periods ended June 30, 2011 and 2010, 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. 75




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Table D
Net Interest Income Variance Analysis
 Quarter Ended June 30,2011 Compared to 2010Increase (Decrease) Due To:(In thousands)
    
    Volume
    
    
    Rate
    
    
    TotalInterest Income VarianceLoans
    
    $
    114
    
    
    $
    208
    
    
    $
    322Mortgage-backed securities
    
    
    (12,416
    )
    
    
    3,095
    
    
    
    (9,321
    )Interest-only strips
    
    
    (2
    )
    
    
    19
    
    
    
    17Investment securities
    
    
    228
    
    
    
    (681
    )
    
    
    (453
    )Other interest-earning assets
    
    
    (13
    )
    
    
    (512
    )
    
    
    (525
    )Total Interest Income Variance
    
    $
    (12,089
    )
    
    $
    2,129
    
    
    $
    (9,960
    )Interest Expense VarianceDeposits
    
    $
    (1,579
    )
    
    $
    (3,465
    )
    
    $
    (5,044
    )Repurchase agreements
    
    
    (6,113
    )
    
    
    (1,387
    )
    
    
    (7,500
    )Advances from FHLB
    
    
    (1,442
    )
    
    
    (2,657
    )
    
    
    (4,099
    )Other short-term borrowings
    
    
    (2
    )
    
    
    (2
    )
    
    
    (4
    )Loans payable
    
    
    (151
    )
    
    
    (27
    )
    
    
    (178
    )Notes payable
    
    
    3,005
    
    
    
    (1,530
    )
    
    
    1,475Total Interest Expense Variance
    
    $
    (6,282
    )
    
    $
    (9,068
    )
    
    $
    (15,350
    )Net Interest Income Variance
    
    $
    (5,807
    )
    
    $
    11,197
    
    
    $
    5,390
 76




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Table E
Net Interest Income Variance Analysis
 Six Month Period Ended June 30,2011 Compared to 2010Increase (Decrease) Due To:(In thousands)
    
    Volume
    
    
    Rate
    
    
    TotalInterest Income VarianceLoans
    
    $
    231
    
    
    $
    (1,277
    )
    
    $
    (1,046
    )Mortgage-backed securities
    
    
    (30,936
    )
    
    
    9,424
    
    
    
    (21,512
    )Interest-only strips
    
    
    (75
    )
    
    
    20
    
    
    
    (55
    )Investment securities
    
    
    181
    
    
    
    (1,400
    )
    
    
    (1,219
    )Other interest-earning assets
    
    
    (881
    )
    
    
    (484
    )
    
    
    (1,365
    )Total Interest Income Variance
    
    $
    (31,480
    )
    
    $
    6,283
    
    
    $
    (25,197
    )Interest Expense VarianceDeposits
    
    $
    (2,434
    )
    
    $
    (2,411
    )
    
    $
    (4,845
    )Repurchase agreements
    
    
    (14,320
    )
    
    
    (2,085
    )
    
    
    (16,405
    )Advances from FHLB
    
    
    (7,059
    )
    
    
    (4,405
    )
    
    
    (11,464
    )Other short-term borrowings
    
    
    (8
    )
    
    
    (7
    )
    
    
    (15
    )Loans payable
    
    
    (325
    )
    
    
    40
    
    
    
    (285
    )Notes payable
    
    
    6,493
    
    
    
    (3,475
    )
    
    
    3,018Total Interest Expense Variance
    
    $
    (17,653
    )
    
    $
    (12,343
    )
    
    $
    (29,996
    )Net Interest Income Variance
    
    $
    (13,827
    )
    
    $
    18,626
    
    
    $
    4,799
 PROVISION FOR LOAN AND LEASE LOSSES
     77




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##### Table of Contents



NON-INTEREST INCOME (LOSS)
 Table F
 Quarters ended
    
    
    Six month periods endingJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    Variance
    
    
    2011
    
    
    2010
    
    
    VarianceNet other-than-temporary impairment losses
    
    $
    (86
    )
    
    $
    
    
    
    $
    (86
    )
    
    $
    (86
    )
    
    $
    (13,259
    )
    
    $
    13,173Net gain on loans securitized and sold and capitalization of mortgage servicing
    
    
    9,026
    
    
    
    3,605
    
    
    
    5,421
    
    
    
    14,568
    
    
    
    6,956
    
    
    
    7,612Servicing income:Servicing fees
    
    
    6,817
    
    
    
    7,515
    
    
    
    (698
    )
    
    
    13,835
    
    
    
    14,625
    
    
    
    (790
    )Late charges
    
    
    1,753
    
    
    
    2,287
    
    
    
    (534
    )
    
    
    3,520
    
    
    
    4,382
    
    
    
    (862
    )Prepayment penalties
    
    
    147
    
    
    
    4
    
    
    
    143
    
    
    
    791
    
    
    
    (5
    )
    
    
    796Other servicing fees
    
    
    298
    
    
    
    238
    
    
    
    60
    
    
    
    456
    
    
    
    472
    
    
    
    (16
    )Interest loss on serial notes and others
    
    
    (1,413
    )
    
    
    (4,924
    )
    
    
    3,511
    
    
    
    (1,961
    )
    
    
    (5,606
    )
    
    
    3,645Mark-to-market adjustment of servicing assets
    
    
    (3,059
    )
    
    
    (6,474
    )
    
    
    3,415
    
    
    
    (3,199
    )
    
    
    (8,478
    )
    
    
    5,279Total servicing income (loss)
    
    
    4,543
    
    
    
    (1,354
    )
    
    
    5,897
    
    
    
    13,442
    
    
    
    5,390
    
    
    
    8,052Trading activitiesGain (loss) on IO valuation
    
    
    4,079
    
    
    
    3,857
    
    
    
    222
    
    
    
    3,628
    
    
    
    4,516
    
    
    
    (888
    )Gain (loss) on MSR economic hedge
    
    
    582
    
    
    
    4,656
    
    
    
    (4,074
    )
    
    
    59
    
    
    
    6,484
    
    
    
    (6,425
    )Loss on hedging derivatives
    
    
    (1,288
    )
    
    
    (1,411
    )
    
    
    123
    
    
    
    (1,401
    )
    
    
    (2,909
    )
    
    
    1,508Net gain (loss) on trading activities
    
    
    3,373
    
    
    
    7,102
    
    
    
    (3,729
    )
    
    
    2,286
    
    
    
    8,091
    
    
    
    (5,805
    )Commissions, fees and other income:Retail banking fees
    
    
    7,067
    
    
    
    7,199
    
    
    
    (132
    )
    
    
    14,073
    
    
    
    14,342
    
    
    
    (269
    )Insurance agency commissions
    
    
    2,439
    
    
    
    2,436
    
    
    
    3
    
    
    
    4,661
    
    
    
    4,778
    
    
    
    (117
    )Other (loss) income
    
    
    695
    
    
    
    571
    
    
    
    124
    
    
    
    3,884
    
    
    
    3,907
    
    
    
    (23
    )Total commissions, fees and other income
    
    
    10,201
    
    
    
    10,206
    
    
    
    (5
    )
    
    
    22,618
    
    
    
    23,027
    
    
    
    (409
    )Net loss on early repayment of debt
    
    
    (3,068
    )
    
    
    (2,545
    )
    
    
    (523
    )
    
    
    (3,068
    )
    
    
    (3,021
    )
    
    
    (47
    )Net gain (loss) on investment securities
    
    
    14,808
    
    
    
    (137,204
    )
    
    
    152,012
    
    
    
    17,662
    
    
    
    (110,790
    )
    
    
    128,452Total non-interest income (loss)
    
    $
    38,797
    
    
    $
    (120,190
    )
    
    $
    158,987
    
    
    $
    67,422
    
    
    $
    (83,606
    )
    
    $
    151,028
 Second Quarter 2011 vs. Second Quarter 2010
 
    
    An improvement in gain on sale of investment securities of $152.0 million. During the
second quarter of 2010 the Company recognized a loss on sale of securities of $137.2 million
driven by a loss of $136.7 million on the sale of $378.0 million of certain non-agency CMOs.
During the second quarter of 2011 the Company had a gain on sale of investment securities of
$14.8 million as a result of its deleveraging of the balance sheet.
 
    
    Servicing income increased $5.9 million related to an improvement in the mark to market
adjustment of the MSR of $3.4 million and higher servicing fees of $2.5 million. The
improvement in the value of the MSR was primarily due to a reduction in prepayment speeds. The
improvement in servicing fees was driven by lower interest losses of $3.5 million. During the
second quarter of 2010 the Company recognized an interest loss of $4.2 million related to the
repurchase of certain GNMA defaulted loans. This improvement was partially offset by lower
servicing fees of $1.0 million.
 Six Month Period Ended June 30, 2011 vs. Six Month Period Ended June 30, 2010
 78




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##### Table of Contents




    
    An improvement in gain on sale of investment securities of $128.5 million. During the
second quarter of 2010 the Company recognized a loss on sale of securities of $137.2 million
driven by a loss of $136.7 million on the sale of $378.0 million of certain non-agency CMOs.
During the first semester of 2011 the Company had a gain on sale of investment securities of
$17.7 million as a result of its deleveraging of the balance sheet.
 
    
    An improvement in OTTI of $13.2 million. During 2010, there was a deterioration in
estimated future cash flows of non-agency CMOs resulting in an OTTI of $13.3 million. These
securities were sold during the second quarter of 2010 and the unrealized loss in OCI was
realized. OTTI of approximately $0.8 million recognized in 2011 was related to PR non-agency
CMOs.
 
    
    Servicing income increased $8.1 million related to an improvement in the mark to market
adjustment of the MSR of $5.3 million and higher servicing fees of $2.8 million. The
improvement in the value of the MSR was primarily due to a reduction in prepayment speeds. The
improvement in servicing fees was driven by lower interest losses of $3.6 million. During the
second quarter of 2010 the Company recognized an interest loss of $4.2 million related to the
repurchase of certain GNMA defaulted loans. This improvement was partially offset by lower
servicing fees of $0.8 million.
 NON-INTEREST EXPENSE
 Table G
 Quarters Ended
    
    
    Six Month Periods EndedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    Variance
    
    
    2011
    
    
    2010
    
    
    VarianceCompensation and benefits
    
    $
    21,081
    
    
    $
    20,315
    
    
    $
    766
    
    
    $
    39,375
    
    
    $
    36,750
    
    
    $
    2,625Professional services
    
    
    9,339
    
    
    
    15,420
    
    
    
    (6,081
    )
    
    
    17,976
    
    
    
    29,212
    
    
    
    (11,236
    )FDIC insurance expense
    
    
    3,797
    
    
    
    5,574
    
    
    
    (1,777
    )
    
    
    8,153
    
    
    
    10,765
    
    
    
    (2,612
    )Communication expenses
    
    
    3,636
    
    
    
    4,056
    
    
    
    (420
    )
    
    
    7,639
    
    
    
    8,000
    
    
    
    (361
    )Occupancy expenses
    
    
    4,786
    
    
    
    4,322
    
    
    
    464
    
    
    
    9,126
    
    
    
    8,303
    
    
    
    823EDP expenses
    
    
    3,024
    
    
    
    2,878
    
    
    
    146
    
    
    
    6,299
    
    
    
    6,657
    
    
    
    (358
    )Depreciation and amortization
    
    
    3,463
    
    
    
    3,110
    
    
    
    353
    
    
    
    6,666
    
    
    
    6,257
    
    
    
    409Taxes, other than payroll and income taxes
    
    
    2,923
    
    
    
    2,591
    
    
    
    332
    
    
    
    5,799
    
    
    
    5,155
    
    
    
    644Advertising
    
    
    1,748
    
    
    
    4,073
    
    
    
    (2,325
    )
    
    
    2,746
    
    
    
    5,571
    
    
    
    (2,825
    )Office expenses
    
    
    1,042
    
    
    
    1,112
    
    
    
    (70
    )
    
    
    2,032
    
    
    
    2,397
    
    
    
    (365
    )Corporate insurance
    
    
    1,490
    
    
    
    1,264
    
    
    
    226
    
    
    
    3,060
    
    
    
    2,526
    
    
    
    534Other
    
    
    2,995
    
    
    
    4,552
    
    
    
    (1,557
    )
    
    
    6,910
    
    
    
    8,334
    
    
    
    (1,424
    )59,324
    
    
    
    69,267
    
    
    
    (9,943
    )
    
    
    115,781
    
    
    
    129,927
    
    
    
    (14,146
    )OREO expenses and other reserves:Other real estate owned expense
    
    
    2,061
    
    
    
    23,414
    
    
    
    (21,353
    )
    
    
    4,023
    
    
    
    28,011
    
    
    
    (23,988
    )Foreclosure expenses
    
    
    864
    
    
    
    (74
    )
    
    
    938
    
    
    
    2,507
    
    
    
    622
    
    
    
    1,885Reserve on claim receivable
from LBI
    
    
    
    
    
    
    10,819
    
    
    
    (10,819
    )
    
    
    
    
    
    
    10,819
    
    
    
    (10,819
    )Provisions for other credit
related expenses
    
    
    1,332
    
    
    
    656
    
    
    
    676
    
    
    
    2,054
    
    
    
    2,101
    
    
    
    (47
    )4,257
    
    
    
    34,815
    
    
    
    (30,558
    )
    
    
    8,584
    
    
    
    41,553
    
    
    
    (32,969
    )Total non-interest expense
    
    $
    63,581
    
    
    $
    104,082
    
    
    $
    (40,501
    )
    
    $
    124,365
    
    
    $
    171,480
    
    
    $
    (47,115
    )
 Second Quarter 2011 vs. Second Quarter 2010
 
    
    A decrease of $10.8 million in the reserve for the Companys claim on Lehman Brothers Inc.
that was established in the second quarter of 2010. The claim was subsequently sold to a third
party.
 
    
    OREO expenses were $2.1 million in the second quarter of 2011 compared to $23.4 million for
the same period in 2010, a decrease of $21.4 million. Higher OREO expenses in 2010 were
related to an additional provision for OREO losses of $17.0 million established during the
second quarter of 2010 to recognize the effect of managements strategic decision to reduce
pricing
 79




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to stimulate property sales, adjustments driven by lower values of certain OREO properties, and
higher maintenance costs to maintain the properties in saleable condition.
 
    
    A decrease of $6.1 million in professional services was driven by lower defense litigation
costs of $4.2 million, lower advisory services of $0.5 million related to the dissolution of
Doral Holdings and Doral Holdings L.P., and lower advisory services of $1.3 million in 2011
compared to 2010 which were incurred in relation to the sale of certain construction loans.
 
    
    There was a higher advertising expense in 2010 of $2.3 million compared to the second
quarter of 2011, related to campaigns conducted to gain market share in deposits and mortgage
originations subsequent to the local market bank failures and asset acquisition in April 2010.
 
    
    Lower FDIC insurance expense of $1.8 million related to a lower deposit base and a change
in the method of computing the assessment.
 
    
    An increase of $1.6 million in credit related costs was due to an increase of $0.9 million
in foreclosure expenses and $0.9 million in the provision for negative escrow.
 Six Month Period Ended June 30, 2011 vs. Six Month Period Ended June 30, 2010
 
    
    A decrease of $10.8 million in the reserve for the Companys claim on Lehman Brothers
Inc. that was established in the second quarter of 2010. The claim was subsequently sold to
a third party.
    
    OREO expenses were $4.0 million in 2011 compared to $28.0 million for the same period in
2010, a decrease of $24.0 million. Higher OREO expenses in 2010 were related to an
additional provision for OREO losses of $17.0 million established during the second quarter
of 2010 to recognize the effect of managements strategic decision to reduce pricing to
stimulate property sales, market value adjustments driven by lower values of certain OREO
properties, and higher maintenance costs to maintain the properties in saleable condition.
    
    A decrease of $11.2 million in professional services was driven by lower defense
litigation costs of $8.1 million, lower advisory services of $0.5 million related to the
dissolution of Doral Holdings and Doral Holdings L.P., and lower advisory services of $2.7
million in 2011 compared to 2010 which were incurred in relation to the sale of certain
construction loans as well as expenses incurred for the Companys participation in bidding
for FDIC assisted transactions in 2010.
    
    There was a higher advertising expense in 2010 of $2.8 million compared to 2011, related
to campaigns conducted to gain market share in deposits and mortgage originations
subsequent to the local market bank failures and asset acquisition in April 2010.
    
    Lower FDIC insurance expense of $2.6 million related to a lower deposit base and a
change in the method of computing the assessment.
    
    An increase of $2.6 million in stock based compensation was related to certain stock
incentive bonuses and tax benefits thereon.
 INCOME TAXES
   80




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Quarters Ended
    
    
    Six month period endedJune 30,
    
    
    June 30,(In thousands)
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Current income tax expense  United States
    
    $
    3,101
    
    
    $
    3,615
    
    
    $
    5,475
    
    
    $
    3,890Deferred income tax (benefit) expense:Puerto Rico
    
    
    450
    
    
    
    1,008
    
    
    
    3,120
    
    
    
    2,795United States
    
    
    (680
    )
    
    
    (136
    )
    
    
    (627
    )
    
    
    331Total deferred income tax (benefit) expense
    
    
    (230
    )
    
    
    872
    
    
    
    2,493
    
    
    
    3,126Total income tax expense (benefit)
    
    $
    2,871
    
    
    $
    4,487
    
    
    $
    7,968
    
    
    $
    7,016
   BALANCE SHEET AND OPERATING DATA ANALYSIS
 LOAN PRODUCTION
  81




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##### Table of Contents



Table H
Loan Production
 Quarters Ended June 30,(Dollars in thousands, except for average
    
    2011
    
    
    2010initial loan balance)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalFHA/VA mortgage loansNumber of loans
    
    
    378
    
    
    
    
    
    
    
    378
    
    
    
    422
    
    
    
    
    
    
    
    422Volume of loans
    
    $
    50,704
    
    
    $
    
    
    
    $
    50,704
    
    
    $
    58,136
    
    
    $
    
    
    
    $
    58,136Percent of total volume
    
    
    11
    %
    
    
    
    %
    
    
    11
    %
    
    
    15
    %
    
    
    
    %
    
    
    15
    %Average initial loan balance
    
    $
    134,138
    
    
    $
    
    
    
    $
    134,138
    
    
    $
    137,763
    
    
    $
    
    
    
    $
    137,763Conventional conforming mortgage loansNumber of loans
    
    
    333
    
    
    
    
    
    
    
    333
    
    
    
    217
    
    
    
    
    
    
    
    217Volume of loans
    
    $
    40,116
    
    
    $
    
    
    
    $
    40,116
    
    
    $
    28,984
    
    
    $
    
    
    
    $
    28,984Percent of total volume
    
    
    9
    %
    
    
    
    %
    
    
    9
    %
    
    
    8
    %
    
    
    
    %
    
    
    8
    %Average initial loan balance
    
    $
    120,469
    
    
    $
    
    
    
    $
    120,469
    
    
    $
    133,567
    
    
    $
    
    
    
    $
    133,567Conventional non-conforming mortgage loans(1)Number of loans
    
    
    171
    
    
    
    4
    
    
    
    175
    
    
    
    493
    
    
    
    
    
    
    
    493Volume of loans
    
    $
    28,811
    
    
    $
    2,323
    
    
    $
    31,134
    
    
    $
    72,269
    
    
    $
    
    
    
    $
    72,269Percent of total volume
    
    
    6
    %
    
    
    1
    %
    
    
    7
    %
    
    
    19
    %
    
    
    
    %
    
    
    19
    %Average initial loan balance
    
    $
    168,485
    
    
    $
    580,750
    
    
    $
    177,903
    
    
    $
    146,590
    
    
    $
    
    
    
    $
    146,590Construction development loansNumber of loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Volume of loans
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,861
    
    
    $
    2,861Percent of total volume
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    1
    %
    
    
    1
    %Average initial loan balance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    476,833
    
    
    $
    476,833Disbursement under existing construction development loansVolume of loans
    
    $
    3,021
    
    
    $
    418
    
    
    $
    3,439
    
    
    $
    2,300
    
    
    $
    1,498
    
    
    $
    3,798Percent of total volume
    
    
    1
    %
    
    
    
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    %
    
    
    1
    %Commercial loans(2)(3)Number of loans
    
    
    10
    
    
    
    133
    
    
    
    143
    
    
    
    12
    
    
    
    82
    
    
    
    94Volume of loans
    
    $
    4,671
    
    
    $
    294,656
    
    
    $
    299,327
    
    
    $
    3,780
    
    
    $
    180,644
    
    
    $
    184,424Percent of total volume
    
    
    1
    %
    
    
    63
    %
    
    
    64
    %
    
    
    1
    %
    
    
    48
    %
    
    
    49
    %Average initial loan balance
    
    $
    467,100
    
    
    $
    2,215,459
    
    
    $
    2,093,201
    
    
    $
    315,000
    
    
    $
    2,202,976
    
    
    $
    1,961,957Consumer loans(2)Number of loans
    
    
    98
    
    
    
    2
    
    
    
    100
    
    
    
    338
    
    
    
    
    
    
    
    338Volume of loans
    
    $
    534
    
    
    $
    9
    
    
    $
    543
    
    
    $
    1,613
    
    
    $
    
    
    
    $
    1,613Percent of total volume
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Average initial loan balance
    
    $
    5,449
    
    
    $
    4,500
    
    
    $
    5,427
    
    
    $
    4,772
    
    
    $
    
    
    
    $
    4,772Other(4)Number of loans
    
    
    
    
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    24
    
    
    
    24Volume of loans
    
    $
    
    
    
    $
    39,390
    
    
    $
    39,390
    
    
    $
    
    
    
    $
    28,085
    
    
    $
    28,085Percent of total volume
    
    
    
    %
    
    
    8
    %
    
    
    8
    %
    
    
    
    %
    
    
    7
    %
    
    
    7
    %Average initial loan balance
    
    $
    
    
    
    $
    5,627,143
    
    
    $
    5,627,143
    
    
    $
    
    
    
    $
    1,170,208
    
    
    $
    1,170,208Total loansNumber of loans
    
    
    990
    
    
    
    146
    
    
    
    1,136
    
    
    
    1,482
    
    
    
    112
    
    
    
    1,594Volume of loans
    
    $
    127,857
    
    
    $
    336,796
    
    
    $
    464,653
    
    
    $
    167,082
    
    
    $
    213,088
    
    
    $
    380,170
 
 (1)
    
    Includes $70,000 and $87,000 in second mortgages for the quarters ended June 30,
2011 and 2010, 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. 82




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##### Table of Contents



Table I
 Loan Production
 Six Month Periods Ended June 30,(Dollars in thousands, except for average
    
    2011
    
    
    2010initial loan balance)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalFHA/VA mortgage loansNumber of loans
    
    
    762
    
    
    
    
    
    
    
    762
    
    
    
    804
    
    
    
    
    
    
    
    804Volume of loans
    
    $
    100,125
    
    
    $
    
    
    
    $
    100,125
    
    
    $
    109,623
    
    
    $
    
    
    
    $
    109,623Percent of total volume
    
    
    12
    %
    
    
    
    %
    
    
    12
    %
    
    
    16
    %
    
    
    
    %
    
    
    16
    %Average initial loan balance
    
    $
    131,398
    
    
    $
    
    
    
    $
    131,398
    
    
    $
    136,347
    
    
    $
    
    
    
    $
    136,347Conventional conforming mortgage loansNumber of loans
    
    
    645
    
    
    
    
    
    
    
    645
    
    
    
    415
    
    
    
    
    
    
    
    415Volume of loans
    
    $
    77,699
    
    
    $
    
    
    
    $
    77,699
    
    
    $
    51,359
    
    
    $
    
    
    
    $
    51,359Percent of total volume
    
    
    10
    %
    
    
    
    %
    
    
    10
    %
    
    
    8
    %
    
    
    
    %
    
    
    8
    %Average initial loan balance
    
    $
    120,464
    
    
    $
    
    
    
    $
    120,464
    
    
    $
    123,756
    
    
    $
    
    
    
    $
    123,756Conventional non-conforming mortgage loans(1)Number of loans
    
    
    398
    
    
    
    4
    
    
    
    402
    
    
    
    1,044
    
    
    
    
    
    
    
    1,044Volume of loans
    
    $
    66,208
    
    
    $
    2,323
    
    
    $
    68,531
    
    
    $
    166,115
    
    
    $
    
    
    
    $
    166,115Percent of total volume
    
    
    8
    %
    
    
    
    %
    
    
    8
    %
    
    
    25
    %
    
    
    
    %
    
    
    25
    %Average initial loan balance
    
    $
    166,352
    
    
    $
    580,750
    
    
    $
    170,475
    
    
    $
    159,114
    
    
    $
    
    
    
    $
    159,114Construction development loansNumber of loans
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    6Volume of loans
    
    $
    
    
    
    $
    3,600
    
    
    $
    3,600
    
    
    $
    
    
    
    $
    2,861
    
    
    $
    2,861Percent of total volume
    
    
    
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    %
    
    
    1
    %
    
    
    1
    %Average initial loan balance
    
    $
    
    
    
    $
    3,600,000
    
    
    $
    3,600,000
    
    
    $
    
    
    
    $
    476,833
    
    
    $
    476,833Disbursement under existing construction development loansVolume of loans
    
    $
    3,528
    
    
    $
    1,956
    
    
    $
    5,484
    
    
    $
    4,918
    
    
    $
    1,771
    
    
    $
    6,689Percent of total volume
    
    
    1
    %
    
    
    
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    %
    
    
    1
    %Commercial loans(2)(3)Number of loans
    
    
    18
    
    
    
    185
    
    
    
    203
    
    
    
    21
    
    
    
    153
    
    
    
    174Volume of loans
    
    $
    6,377
    
    
    $
    509,864
    
    
    $
    516,241
    
    
    $
    6,587
    
    
    $
    285,182
    
    
    $
    291,769Percent of total volume
    
    
    1
    %
    
    
    62
    %
    
    
    63
    %
    
    
    1
    %
    
    
    43
    %
    
    
    44
    %Average initial loan balance
    
    $
    354,278
    
    
    $
    2,756,022
    
    
    $
    2,543,059
    
    
    $
    313,667
    
    
    $
    1,863,935
    
    
    $
    1,676,833Consumer loans(2)Number of loans
    
    
    238
    
    
    
    2
    
    
    
    240
    
    
    
    435
    
    
    
    
    
    
    
    435Volume of loans
    
    $
    1,317
    
    
    $
    9
    
    
    $
    1,326
    
    
    $
    2,274
    
    
    $
    
    
    
    $
    2,274Percent of total volume
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Average initial loan balance
    
    $
    5,534
    
    
    $
    4,500
    
    
    $
    5,525
    
    
    $
    5,227
    
    
    $
    
    
    
    $
    5,227Other(4)Number of loans
    
    
    1
    
    
    
    7
    
    
    
    8
    
    
    
    
    
    
    
    28
    
    
    
    28Volume of loans
    
    $
    2,348
    
    
    $
    39,390
    
    
    $
    41,738
    
    
    $
    
    
    
    $
    38,535
    
    
    $
    38,535Percent of total volume
    
    
    
    %
    
    
    5
    %
    
    
    5
    %
    
    
    
    %
    
    
    6
    %
    
    
    6
    %Average initial loan balance
    
    $
    2,348,000
    
    
    $
    5,627,143
    
    
    $
    5,217,250
    
    
    $
    
    
    
    $
    1,376,250
    
    
    $
    1,376,250Total loansNumber of loans
    
    
    2,062
    
    
    
    199
    
    
    
    2,261
    
    
    
    2,719
    
    
    
    187
    
    
    
    2,906Volume of loans
    
    $
    257,602
    
    
    $
    557,142
    
    
    $
    814,744
    
    
    $
    340,876
    
    
    $
    328,349
    
    
    $
    669,225
 
 (1)
    
    Includes $70,000 and $0.4 million in second mortgages for the six month periods
ended June 30, 2011 and June 30, 2010, 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. 83




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##### Table of Contents



Table J
Loan Origination Sources
 Six Month Periods Ended June 30,2011
    
    2010PR
    
    US
    
    Total
    
    PR
    
    US
    
    TotalConsumer
    
    
    27
    %
    
    
    
    %
    
    
    27
    %
    
    
    43
    %
    
    
    
    %
    
    
    43
    %Wholesale(1)
    
    
    4
    %
    
    
    
    %
    
    
    4
    %
    
    
    6
    %
    
    
    3
    %
    
    
    9
    %Housing Developments(2)
    
    
    
    %
    
    
    1
    %
    
    
    1
    %
    
    
    1
    %
    
    
    
    %
    
    
    1
    %Commercial and Industrial
    
    
    1
    %
    
    
    62
    %
    
    
    63
    %
    
    
    
    %
    
    
    39
    %
    
    
    39
    %Other(3)
    
    
    
    %
    
    
    5
    %
    
    
    5
    %
    
    
    1
    %
    
    
    7
    %
    
    
    8
    %Total
    
    
    32
    %
    
    
    68
    %
    
    
    100
    %
    
    
    51
    %
    
    
    49
    %
    
    
    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
  84




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Table K
Loans Serviced For Third Parties
 As of June 30,(Dollars in Thousands, Except for Average Size of Loans Serviced)
    
    2011
    
    
    2010Composition of Portfolio Serviced for Third Parties at Period End:GNMA
    
    $
    2,455,564
    
    
    $
    2,272,527FHLMC/FNMA
    
    
    2,748,411
    
    
    
    2,943,897Other conventional mortgage loans(1)(2)
    
    
    2,841,855
    
    
    
    3,118,940Total portfolio serviced for third parties
    
    $
    8,045,830
    
    
    $
    8,335,364Activity of Portfolio Serviced for Third Parties:Beginning servicing portfolio
    
    $
    8,208,060
    
    
    $
    8,655,613Additions to servicing portfolio
    
    
    167,538
    
    
    
    167,244Servicing released due to repurchases
    
    
    (35,094
    )
    
    
    (84,647
    )MSRs sales
    
    
    
    
    
    
    (24,045
    )Run-off(3)
    
    
    (294,674
    )
    
    
    (378,801
    )Ending servicing portfolio
    
    $
    8,045,830
    
    
    $
    8,335,364Selected Data Regarding Mortgage Loans Serviced for Third Parties:Number of loans
    
    
    96,909
    
    
    
    99,760Weighted-average interest rate
    
    
    6.13
    %
    
    
    6.26
    %Weighted-average remaining maturity (months)
    
    
    237
    
    
    
    239Weighted-average gross servicing fee rate
    
    
    0.41
    %
    
    
    0.41
    %Average servicing portfolio(4)
    
    $
    8,126,624
    
    
    $
    8,512,746Principal prepayments
    
    $
    207,361
    
    
    $
    222,161Constant prepayment rate
    
    
    4.86
    %
    
    
    4.96
    %Average size of loans
    
    $
    83,018
    
    
    $
    83,554Servicing assets, net
    
    $
    115,785
    
    
    $
    113,005Mortgage-servicing advances(5)
    
    $
    54,011
    
    
    $
    41,609Delinquent Mortgage Loans and Pending Foreclosures at Period End:60-89 days past due
    
    
    2.53
    %
    
    
    2.60
    %90 days or more past due
    
    
    5.85
    %
    
    
    5.10
    %Total delinquencies excluding foreclosures
    
    
    8.38
    %
    
    
    7.70
    %Foreclosures pending
    
    
    3.54
    %
    
    
    2.99
    %
 
 (1)
    
    Excludes $4.6 billion and $4.5 billion of mortgage loans owned by Doral Financial at
June 30, 2011 and 2010, respectively.(2)
    
    Includes portfolios of $125.1 million and $0.1 million at June 30, 2011 and 2010,
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 $4.5
billion and $4.5 billion at June 30, 2011 and 2010, respectively. Includes reserves for
possible losses on P&I advances of $8.8 million and $5.5 million at June 30, 2011 and 2010,
respectively.  85




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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;
    
    sales of securities;
 86




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
    
    early repayment of debt;
    
    adoption of an initiative to lengthen the brokered certificates term to structurally
reduce interest rate sensitivity;
    
    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 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
$450.0 million of U.S. based commercial loans are funded by $250.0 million from 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
    87




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Primary Sources of Cash
  Table L
Sources Of Borrowings
 As of June 30, 2011
    
    As of December 31, 2010Amount
    
    Average
    
    Amount
    
    Average(Dollars in thousands)
    
    Outstanding
    
    Rate
    
    Outstanding
    
    RateDeposits
    
    $
    4,302,792
    
    
    
    1.85
    %
    
    $
    4,618,475
    
    
    
    2.18
    %Repurchase Agreements
    
    
    442,300
    
    
    
    2.55
    %
    
    
    1,176,800
    
    
    
    3.10
    %Advances from FHLB
    
    
    1,342,849
    
    
    
    3.05
    %
    
    
    901,420
    
    
    
    3.49
    %Loans Payable
    
    
    294,623
    
    
    
    2.00
    %
    
    
    304,035
    
    
    
    1.95
    %Notes Payable
    
    
    510,430
    
    
    
    4.78
    %
    
    
    513,958
    
    
    
    4.91
    %
     Table M  Average Deposit Balance
 Six Month Period Ended
    
    
    Year EndedJune 30, 2011
    
    
    December 31, 2010Average
    
    
    Average
    
    
    Average
    
    
    Average(Dollars in thousands)
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateCertificates of deposit
    
    $
    674,457
    
    
    
    2.13
    %
    
    $
    634,924
    
    
    
    2.48
    %Brokered certificates of deposits
    
    
    2,216,458
    
    
    
    3.14
    %
    
    
    2,645,028
    
    
    
    2.89
    %Regular passbook savings
    
    
    408,426
    
    
    
    1.04
    %
    
    
    380,534
    
    
    
    1.46
    %NOW accounts and other transaction accounts
    
    
    414,737
    
    
    
    0.94
    %
    
    
    379,100
    
    
    
    1.31
    %Money market accounts
    
    
    509,799
    
    
    
    1.48
    %
    
    
    416,269
    
    
    
    1.94
    %Total interest-bearing
    
    
    4,223,877
    
    
    
    2.36
    %
    
    
    4,455,855
    
    
    
    2.49
    %Non-interest bearing
    
    
    272,204
    
    
    
    
    %
    
    
    249,991
    
    
    
    
    %Total deposits
    
    $
    4,496,081
    
    
    
    2.22
    %
    
    $
    4,705,846
    
    
    
    2.36
    %
 88




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Table N  Certificates of Deposits Maturities
 (In thousands)
    
    June 30, 2011Certificates of deposit maturing:Three months or less
    
    $
    249,736Over three through six months
    
    
    300,211Over six through twelve months
    
    
    493,281Over twelve months
    
    
    1,341,188Total
    
    $
    2,384,416
     Other Uses of Cash
  89




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ASSETS AND LIABILITIES
    CAPITAL
  Regulatory Capital Ratios
   90




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##### Table of Contents



Table N
Regulatory Capital Ratios
 As of June 30, 2011Doral
    
    Doral
    
    DoralFinancial
    
    Bank PR
    
    Bank USTotal Capital Ratio (Total capital
to risk-weighted assets)
    
    
    14.7
    %
    
    
    15.4
    %
    
    
    12.4
    %Tier 1 Capital Ratio (Tier 1
capital to risk-weighted assets)
    
    
    13.4
    %
    
    
    14.2
    %
    
    
    12.1
    %Tier 1 Leverage Ratio(1)
    
    
    9.1
    %
    
    
    8.6
    %
    
    
    6.9
    %
 
 (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, 2010Doral
    
    Doral
    
    DoralFinancial
    
    Bank PR
    
    Bank USTotal Capital Ratio (Total capital to risk-weighted assets)
    
    
    14.5
    %
    
    
    15.6
    %
    
    
    11.0
    %Tier 1 Capital Ratio (Tier 1 capital to risk-weighted assets)
    
    
    13.3
    %
    
    
    14.4
    %
    
    
    10.7
    %Leverage Ratio(1)
    
    
    8.6
    %
    
    
    8.0
    %
    
    
    6.5
    %
 
 (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
   91




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FAIR VALUE OF FINANCIAL INSTRUMENTS
    Level 1
  Level 2
  Level 3
     OFF-BALANCE SHEET ACTIVITIES
   92




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93




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Quarter Ended
    
    
    Six Month Period Ended(In thousands)
    
    June 30, 2011
    
    
    June 30, 2011Balance at beginning of period
    
    $
    9,877
    
    
    $
    10,264Net charge-offs / termination
    
    
    (100
    )
    
    
    (728
    )Provision for recourse liability
    
    
    352
    
    
    
    593Balance at end of period
    
    $
    10,129
    
    
    $
    10,129
 CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
  Table Q  Contractual Obligations
 Payment Due By PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    After(In thousands)
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsDeposits
    
    $
    4,302,792
    
    
    $
    2,941,531
    
    
    $
    833,959
    
    
    $
    453,277
    
    
    $
    74,025Repurchase agreements(1)(2)
    
    
    442,300
    
    
    
    100,000
    
    
    
    307,300
    
    
    
    35,000
    
    
    
    Advances from FHLB(1)(2)
    
    
    1,342,849
    
    
    
    214,000
    
    
    
    628,027
    
    
    
    500,822
    
    
    
    Loans payable(3)
    
    
    294,623
    
    
    
    28,517
    
    
    
    55,870
    
    
    
    48,170
    
    
    
    162,066Notes payable
    
    
    510,430
    
    
    
    37,797
    
    
    
    13,789
    
    
    
    102,110
    
    
    
    356,734Other liabilities
    
    
    107,642
    
    
    
    107,642
    
    
    
    
    
    
    
    
    
    
    
    Non-cancelable operating leases
    
    
    50,916
    
    
    
    6,225
    
    
    
    11,599
    
    
    
    10,232
    
    
    
    22,860Total Contractual Cash Obligations
    
    $
    7,051,552
    
    
    $
    3,435,712
    
    
    $
    1,850,544
    
    
    $
    1,149,611
    
    
    $
    615,685
 
 (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
which the lender has the right to call before its contractual maturity. The repurchase
agreement is included in the less-than-one year category in the above table but has an actual
contractual maturity of February 2014. It was included on the first call date basis because
increases in interest rates over the average rate of the Companys borrowings may induce the
lender to exercise its 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 7.5% to estimate the repayments.   94




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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
    
    $
    146,982
    
    
    $
    86,140
    
    
    $
    25,065
    
    
    $
    
    
    
    $
    35,777Commitments to sell loans
    
    
    98,123
    
    
    
    98,123
    
    
    
    
    
    
    
    
    
    
    
    Commercial and financial standby letters of credit
    
    
    2,664
    
    
    
    2,664
    
    
    
    
    
    
    
    
    
    
    
    Maximum contractual recourse exposure
    
    
    653,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    653,955Total
    
    $
    901,724
    
    
    $
    186,927
    
    
    $
    25,065
    
    
    $
    
    
    
    $
    689,732
 
 (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
    95




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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 consolidated 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 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.
 96




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##### Table of Contents



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.
    
    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
  97




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##### Table of Contents



As of June 30, 2011
    
    Market Value of Equity Risk
    
    Net Interest Income Risk(1)+ 100 BPS
    
    
    (6.3
    )%
    
    
    1.0
    %- 100 BPS
    
    
    3.6
    %
    
    
    0.3
    %
 As of December 31, 2010
    
    Market Value of Equity Risk
    
    Net Interest Income Risk(1)+ 100 BPS
    
    
    (8.5
    )%
    
    
    (0.9)
    %- 100 BPS
    
    
    4.7
    %
    
    
    (0.1)
    %
 
 (1)
    
    Based on 12-month forward change in net interest income.   98




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(In thousands)
    
    June 30, 2011
    
    December 31, 2010Change in Fair
    
    Change in FairChange in Interest
    
    Value of Available
    
    Value of AvailableRates (Basis Points)
    
    For Sale Securities
    
    For Sale Securities+200
    
    $
    (45,387
    )
    
    $
    (180,474
    )+100
    
    
    (19,571
    )
    
    
    (47,474
    )Base
    
    
    
    
    
    
    -100
    
    
    6,997
    
    
    
    21,917-200
    
    
    11,370
    
    
    
    34,416
 Derivatives
  Table R  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
    
    
    
    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
    
    
    
    50,000
    
    
    
    
    November, 2012
    
    1-month LIBOR over 5.50%
    
    
    545
    
    
    
    150,000
    
    
    
    
    November, 2012
    
    1-month LIBOR over 6.00%
    
    
    350
    
    
    
    $
    210,000
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,754
    
    
    $
    1
  99




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Table S  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%
    
    $
    (34
    )6,000
    
    
    
    
    October, 2011
    
    
    4.51
    %
    
    1-month LIBOR plus 0.05%
    
    
    (86
    )5,000
    
    
    
    
    October, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.05%
    
    
    (282
    )15,000
    
    
    
    
    November, 2011
    
    
    4.55
    %
    
    1-month LIBOR plus 0.02%
    
    
    (275
    )45,000
    
    
    
    
    November, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (2,705
    )$
    74,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (3,382
    )
 Freestanding Derivatives.
 Derivatives  Hedge Accounting.
  Table T  Derivatives Positions
 June 30, 2011
    
    
    December 31, 2010Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueCash Flow HedgesInterest rate swaps
    
    $
    74,000
    
    
    $
    (3,382
    )
    
    $
    74,000
    
    
    $
    (4,677
    )Other DerivativesInterest rate caps
    
    
    210,000
    
    
    
    1
    
    
    
    210,000
    
    
    
    13Forward contracts
    
    
    55,000
    
    
    
    (45
    )
    
    
    100,000
    
    
    
    (741
    )265,000
    
    
    
    (44
    )
    
    
    310,000
    
    
    
    (728
    )$
    339,000
    
    
    $
    (3,426
    )
    
    $
    384,000
    
    
    $
    (5,405
    )
 100




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Table U  Fair Value Reconciliation
 Six Month Period Ended(In thousands)
    
    June 30, 2011Fair value of contracts outstanding at the beginning of the period
    
    $
    (728
    )Changes in fair values during the period
    
    
    684Fair value of contracts outstanding at the end of the period
    
    $
    (44
    )
 Table V  Sources of Fair Value
 (In thousands)
    
    Payment Due by PeriodMaturity
    
    
    
    
    
    
    
    
    
    
    Maturityless than
    
    
    Maturity
    
    
    Maturity
    
    
    in excess
    
    
    Total FairAs of June 30, 2011
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    of 5 Years
    
    
    ValuePrices actively quoted
    
    $
    (45
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (45
    )Prices provided by internal sources
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1$
    (45
    )
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    (44
    )
   101




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##### Table of Contents



Table W  Derivative Counterparty Credit Exposure
 (Dollars in thousands)
    
    June 30, 2011Weighted AverageNumber of
    
    
    
    
    
    
    Total Exposure at
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    Fair Value(3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    180,000
    
    
    $
    1
    
    
    $
    
    
    
    $
    1
    
    
    
    1.27A+
    
    
    1
    
    
    
    104,000
    
    
    
    
    
    
    
    (3,382
    )
    
    
    (3,382
    )
    
    
    0.98A
    
    
    2
    
    
    
    55,000
    
    
    
    168
    
    
    
    (213
    )
    
    
    (45
    )
    
    
    0.06Total Derivatives
    
    
    4
    
    
    $
    339,000
    
    
    $
    169
    
    
    $
    (3,595
    )
    
    $
    (3,426
    )
    
    
    0.98
 
 (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.) (Dollars in thousands)
    
    December 31, 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
    
    
    $
    180,000
    
    
    $
    12
    
    
    $
    
    
    
    $
    12
    
    
    
    1.76A+
    
    
    1
    
    
    
    104,000
    
    
    
    1
    
    
    
    (4,677
    )
    
    
    (4,676
    )
    
    
    1.47A
    
    
    2
    
    
    
    100,000
    
    
    
    95
    
    
    
    (836
    )
    
    
    (741
    )
    
    
    0.06Total Derivatives
    
    
    4
    
    
    $
    384,000
    
    
    $
    108
    
    
    $
    (5,513
    )
    
    $
    (5,405
    )
    
    
    1.24
 
 (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
    102




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##### Table of Contents



Loan modifications and troubled debt restructurings
  Receivables  Troubled Debt Restructuring by Creditors Receivables-Measurement of Loan Impairment
 103




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##### Table of Contents



Table X  Loan modifications considered TDRs
 June 30, 2011
    
    
    December 31, 201090 days and over
    
    
    
    
    
    
    90 days and over(In thousands)
    
    TDRs
    
    
    delinquency
    
    
    TDRs
    
    
    delinquencyConsumer modificationsResidential mortgage(1)
    
    $
    713,093
    
    
    $
    77,388
    
    
    $
    740,889
    
    
    $
    142,213Other consumer
    
    
    1,098
    
    
    
    432
    
    
    
    1,257
    
    
    
    75Total consumer
    
    
    714,191
    
    
    
    77,820
    
    
    
    742,146
    
    
    
    142,288CommercialCommercial real estate
    
    $
    84,326
    
    
    $
    16,841
    
    
    $
    71,501
    
    
    $
    31,314Commercial and industrial
    
    
    9,663
    
    
    
    
    
    
    
    5,568
    
    
    
    71Construction and land
    
    
    82,766
    
    
    
    24,957
    
    
    
    78,847
    
    
    
    36,438Total commercial
    
    
    176,755
    
    
    
    41,798
    
    
    
    155,916
    
    
    
    67,823Total TDRs
    
    $
    890,946
    
    
    $
    119,618
    
    
    $
    898,062
    
    
    $
    210,111
     90 days and over
    
    
    Percentage ofOriginal UPB of
    
    
    Remaining UPB of
    
    
    delinquent at
    
    
    restructured UPBYear restructured
    
    restructured loans(1)
    
    
    restructured loans
    
    
    June 30, 2011 (2)
    
    
    90 days and over2007
    
    $
    5,941
    
    
    $
    5,922
    
    
    $
    623
    
    
    
    10.5
    %2008
    
    
    47,605
    
    
    
    44,494
    
    
    
    10,379
    
    
    
    23.5
    %2009
    
    
    121,523
    
    
    
    117,230
    
    
    
    26,491
    
    
    
    22.6
    %2010
    
    
    420,915
    
    
    
    411,648
    
    
    
    37,029
    
    
    
    9.0
    %2011
    
    
    137,007
    
    
    
    133,799
    
    
    
    2,866
    
    
    
    2.1
    %$
    732,991
    
    
    $
    713,093
    
    
    $
    77,388
    
    
    
    10.9
    %
 
 (1)
    
    Excluding loans subject to a second restructure.(2)
    
    Using bank regulatory definition of four or more payments past due. 104




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##### Table of Contents



Non-performing Loans
    105




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##### Table of Contents



Table Y  Non-Performing Assets
 June 30, 2011
    
    
    December 31, 2010(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalNon-performing consumer, excluding FHA/VA(1)Residential mortgage
    
    $
    279,529
    
    
    $
    820
    
    
    $
    280,349
    
    
    $
    278,675
    
    
    $
    2,166
    
    
    $
    280,841Lease financing receivables
    
    
    199
    
    
    
    
    
    
    
    199
    
    
    
    415
    
    
    
    
    
    
    
    415Other consumer(2)
    
    
    500
    
    
    
    
    
    
    
    500
    
    
    
    404
    
    
    
    
    
    
    
    404Total non-performing consumer, excluding
FHA/VA
    
    
    280,228
    
    
    
    820
    
    
    
    281,048
    
    
    
    279,494
    
    
    
    2,166
    
    
    
    281,660Non-performing commercialCommercial real estate
    
    
    167,643
    
    
    
    
    
    
    
    167,643
    
    
    
    193,556
    
    
    
    
    
    
    
    193,556Commercial and industrial
    
    
    2,731
    
    
    
    
    
    
    
    2,731
    
    
    
    2,522
    
    
    
    
    
    
    
    2,522Construction and land
    
    
    107,516
    
    
    
    1,610
    
    
    
    109,126
    
    
    
    147,127
    
    
    
    1,610
    
    
    
    148,737Total non-performing commercial
    
    
    277,890
    
    
    
    1,610
    
    
    
    279,500
    
    
    
    343,205
    
    
    
    1,610
    
    
    
    344,815Total non-performing loans, excluding FHA/VA
    
    $
    558,118
    
    
    $
    2,430
    
    
    $
    560,548
    
    
    $
    622,699
    
    
    $
    3,776
    
    
    $
    626,475OREO and repossessed unitsResidential mortgage
    
    $
    53,381
    
    
    $
    
    
    
    $
    53,381
    
    
    $
    63,794
    
    
    $
    
    
    
    $
    63,794Commercial
    
    
    20,163
    
    
    
    
    
    
    
    20,163
    
    
    
    17,599
    
    
    
    
    
    
    
    17,599Construction and land
    
    
    27,305
    
    
    
    650
    
    
    
    27,955
    
    
    
    18,230
    
    
    
    650
    
    
    
    18,880Other
    
    
    111
    
    
    
    
    
    
    
    111
    
    
    
    75
    
    
    
    
    
    
    
    75Total OREO and repossessed units
    
    $
    100,960
    
    
    $
    650
    
    
    $
    101,610
    
    
    $
    99,698
    
    
    $
    650
    
    
    $
    100,348Non-performing FHA/VA guaranteed residential(1)(3)(4)
    
    $
    79,179
    
    
    $
    
    
    
    $
    79,179
    
    
    $
    121,305
    
    
    $
    
    
    
    $
    121,305Other non-performing assets
    
    
    3,204
    
    
    
    
    
    
    
    3,204
    
    
    
    3,692
    
    
    
    
    
    
    
    3,692Total non-performing assets(5)
    
    $
    741,461
    
    
    $
    3,080
    
    
    $
    744,541
    
    
    $
    847,394
    
    
    $
    4,426
    
    
    $
    851,820Total NPAs as a percentage of the loan portfolio, net, and OREO (excluding
GNMA defaulted loans)
    
    
    
    
    
    
    
    
    
    
    12.73
    %
    
    
    
    
    
    
    
    
    
    
    14.85
    %Total NPAs as a percentage of consolidated total assets
    
    
    
    
    
    
    
    
    
    
    9.29
    %
    
    
    
    
    
    
    
    
    
    
    9.85
    %Total non-performing loans to total loans (excluding GNMA defaulted loans and
FHA/VA guaranteed loans)
    
    
    
    
    
    
    
    
    
    
    9.85
    %
    
    
    
    
    
    
    
    
    
    
    11.29
    %Ratio of allowance for loan and lease losses to total non-performing loans
(excluding loans held for sale) at end of period(5)
    
    
    
    
    
    
    
    
    
    
    16.75
    %
    
    
    
    
    
    
    
    
    
    
    19.82
    %
 
 (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 $115.3 million and $112.8 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
June 30, 2011 and December 31, 2010, respectively.(4)
    
    FHA loans are placed in accrual status 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 foreclosures proceedings. Accordingly, total
non-performing FHA guaranteed residential mortgage loans exclude $16.8 million and $31.5
million of FHA loans as of June 30, 2011 and December 31, 2010, respectively, that were 90
days or more past due.(5)
    
    Excludes FHA and VA claims amounting to $15.2 million and $12.5 million as of June
30, 2011 and December 31, 2010, respectively. 106




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##### Table of Contents



Table Z  Non-Performing Loans Activity
 Quarter Ended June 30, 2011Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    and Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    254,942
    
    
    $
    551
    
    
    $
    255,493
    
    
    $
    187,076
    
    
    $
    126,190
    
    
    $
    2,789
    
    
    $
    316,055
    
    
    $
    571,548Additions
    
    
    74,441
    
    
    
    780
    
    
    
    75,221
    
    
    
    9,884
    
    
    
    1,883
    
    
    
    859
    
    
    
    12,626
    
    
    
    87,847Repurchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remediated/Cure
    
    
    (46,395
    )
    
    
    (450
    )
    
    
    (46,845
    )
    
    
    (17,271
    )
    
    
    (214
    )
    
    
    (457
    )
    
    
    (17,942
    )
    
    
    (64,787
    )Foreclosed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,628
    )
    
    
    
    
    
    
    
    
    
    
    (3,628
    )
    
    
    (3,628
    )Write-downs
    
    
    (2,639
    )
    
    
    (182
    )
    
    
    (2,821
    )
    
    
    (8,418
    )
    
    
    (18,733
    )
    
    
    (460
    )
    
    
    (27,611
    )
    
    
    (30,432
    )$
    280,349
    
    
    $
    699
    
    
    $
    281,048
    
    
    $
    167,643
    
    
    $
    109,126
    
    
    $
    2,731
    
    
    $
    279,500
    
    
    $
    560,548
 Quarter Ended June 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
    
    $
    407,256
    
    
    $
    1,148
    
    
    $
    408,404
    
    
    $
    157,443
    
    
    $
    304,413
    
    
    $
    1,908
    
    
    $
    463,764
    
    
    $
    872,168Additions
    
    
    84,768
    
    
    
    1,373
    
    
    
    86,141
    
    
    
    24,011
    
    
    
    60,058
    
    
    
    2,312
    
    
    
    86,381
    
    
    
    172,522Repurchases
    
    
    6,672
    
    
    
    
    
    
    
    6,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,672Remediated/Cure
    
    
    (65,211
    )
    
    
    (737
    )
    
    
    (65,948
    )
    
    
    (9,402
    )
    
    
    (69,780
    )
    
    
    (877
    )
    
    
    (80,059
    )
    
    
    (146,007
    )Foreclosed
    
    
    (19,833
    )
    
    
    
    
    
    
    (19,833
    )
    
    
    (1,386
    )
    
    
    (104
    )
    
    
    
    
    
    
    (1,490
    )
    
    
    (21,323
    )Write-downs
    
    
    (10,676
    )
    
    
    (722
    )
    
    
    (11,398
    )
    
    
    (1,423
    )
    
    
    (39,488
    )
    
    
    
    
    
    
    (40,911
    )
    
    
    (52,309
    )Balance at end of period
    
    $
    402,976
    
    
    $
    1,062
    
    
    $
    404,038
    
    
    $
    169,243
    
    
    $
    255,099
    
    
    $
    3,343
    
    
    $
    427,685
    
    
    $
    831,723
 Six Months Ended June 30, 2011Non-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CommercialFHA/VA
    
    
    Other
    
    
    Total
    
    
    Commercial
    
    
    Construction
    
    
    and
    
    
    Total(In thousands)
    
    Residential
    
    
    Consumer
    
    
    Consumer
    
    
    Real Estate
    
    
    and Land
    
    
    Industrial
    
    
    Commercial
    
    
    TotalBalance at beginning of period
    
    $
    280,841
    
    
    $
    819
    
    
    $
    281,660
    
    
    $
    193,556
    
    
    $
    148,737
    
    
    $
    2,522
    
    
    $
    344,815
    
    
    $
    626,475Additions
    
    
    121,702
    
    
    
    1,662
    
    
    
    123,364
    
    
    
    24,647
    
    
    
    4,625
    
    
    
    1,873
    
    
    
    31,145
    
    
    
    154,509Repurchases
    
    
    2,628
    
    
    
    
    
    
    
    2,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,628Remediated/Cure
    
    
    (107,317
    )
    
    
    (1,101
    )
    
    
    (108,418
    )
    
    
    (36,592
    )
    
    
    (10,006
    )
    
    
    (1,185
    )
    
    
    (47,783
    )
    
    
    (156,201
    )Foreclosed
    
    
    (11,640
    )
    
    
    
    
    
    
    (11,640
    )
    
    
    (5,550
    )
    
    
    (13,907
    )
    
    
    
    
    
    
    (19,457
    )
    
    
    (31,097
    )Write-downs
    
    
    (5,865
    )
    
    
    (681
    )
    
    
    (6,546
    )
    
    
    (8,418
    )
    
    
    (20,323
    )
    
    
    (479
    )
    
    
    (29,220
    )
    
    
    (35,766
    )Balance at end of
period
    
    $
    280,349
    
    
    $
    699
    
    
    $
    281,048
    
    
    $
    167,643
    
    
    $
    109,126
    
    
    $
    2,731
    
    
    $
    279,500
    
    
    $
    560,548
 Six Months Ended June 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
    
    
    162,930
    
    
    
    2,020
    
    
    
    164,950
    
    
    
    62,638
    
    
    
    103,861
    
    
    
    3,708
    
    
    
    170,207
    
    
    
    335,157Repurchases
    
    
    11,864
    
    
    
    
    
    
    
    11,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,864Remediated/Cure
    
    
    (123,632
    )
    
    
    (1,846
    )
    
    
    (125,478
    )
    
    
    (18,256
    )
    
    
    (115,081
    )
    
    
    (1,075
    )
    
    
    (134,412
    )
    
    
    (259,890
    )Foreclosed
    
    
    (32,138
    )
    
    
    
    
    
    
    (32,138
    )
    
    
    (4,271
    )
    
    
    (1,116
    )
    
    
    (25
    )
    
    
    (5,412
    )
    
    
    (37,550
    )Write-downs
    
    
    (13,746
    )
    
    
    (722
    )
    
    
    (14,468
    )
    
    
    (1,679
    )
    
    
    (39,520
    )
    
    
    (198
    )
    
    
    (41,397
    )
    
    
    (55,865
    )Balance at end of period
    
    $
    402,976
    
    
    $
    1,062
    
    
    $
    404,038
    
    
    $
    169,243
    
    
    $
    255,098
    
    
    $
    3,343
    
    
    $
    427,684
    
    
    $
    831,722
 107




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##### Table of Contents



Table AA
Composition of Mortgage Non-Performing Loans
June 30, 2011
 Collateral Type
    
    Loan To Value
    
    DistributionFHA/VA loans
    
    
    n/a
    
    
    
    23.9
    %Loans with private mortgage insurance
    
    
    n/a
    
    
    
    5.6
    %Loans with no mortgage insurance
    
    
    < 60
    %
    
    
    8.1
    %61-80
    %
    
    
    21.2
    %81-90
    %
    
    
    13.9
    %Over 91%
    
    
    27.3
    %Total loans
    
    
    
    
    
    
    100.0
    %
   108




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##### Table of Contents



Table BB  Construction and land loan portfolio analysis
 June 30, 2011
    
    December 31, 2010(In thousands)
    
    PR
    
    US
    
    Total
    
    PR
    
    US
    
    TotalResidential construction loans
    
    $
    157,915
    
    
    $
    300
    
    
    $
    158,215
    
    
    $
    181,240
    
    
    $
    300
    
    
    $
    181,540Multi-family, condominium, commercial and land
construction loans
    
    
    151,675
    
    
    
    80,030
    
    
    
    231,705
    
    
    
    168,659
    
    
    
    108,535
    
    
    
    277,194Undisbursed funds under existing commitments(1)
    
    
    47,114
    
    
    
    15,495
    
    
    
    62,609
    
    
    
    44,336
    
    
    
    9,539
    
    
    
    53,875Total non-performing
    
    
    107,516
    
    
    
    1,610
    
    
    
    109,126
    
    
    
    147,127
    
    
    
    1,610
    
    
    
    148,737Net charge offs
    
    
    23,359
    
    
    
    
    
    
    
    23,359
    
    
    
    54,944
    
    
    
    991
    
    
    
    55,935Allowance for loan losses
    
    
    9,634
    
    
    
    1,516
    
    
    
    11,151
    
    
    
    22,761
    
    
    
    2,265
    
    
    
    25,026Non-performing construction to total construction
loans
    
    
    34.73
    %
    
    
    2.00
    %
    
    
    27.99
    %
    
    
    42.05
    %
    
    
    1.48
    %
    
    
    32.42
    %Net charge-offs on an annualized basis to total construction
loans
    
    
    15.22
    %
    
    
    
    %
    
    
    12.08
    %
    
    
    15.70
    %
    
    
    0.91
    %
    
    
    12.19
    %
 
 (1)
    
    Includes undisbursed funds to matured loans and loans in non-accrual status that are
still active.  Table CC  Loans past due 90 days and still accruing
 June 30, 2011
    
    
    December 31, 2010(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalConsumer loans past due 90 days and still accruingResidential mortgage (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Credit cards(2)
    
    
    960
    
    
    
    
    
    
    
    960
    
    
    
    973
    
    
    
    
    
    
    
    973Other consumer(3)
    
    
    1,059
    
    
    
    
    
    
    
    1,059
    
    
    
    1,022
    
    
    
    
    
    
    
    1,022Total consumer loans past due 90 days and still accruing
    
    
    2,019
    
    
    
    
    
    
    
    2,019
    
    
    
    1,995
    
    
    
    
    
    
    
    1,995Commercial loans past due 90 days and still accruingCommercial and industrial
    
    
    655
    
    
    
    
    
    
    
    655
    
    
    
    560
    
    
    
    
    
    
    
    560Total loans past due 90 days and still accruing
    
    $
    2,674
    
    
    $
    
    
    
    $
    2,674
    
    
    $
    2,555
    
    
    $
    
    
    
    $
    2,555
 
 (1)
    
    Excludes $16.8 million and $31.5 million, FHA/VA guaranteed residential mortgages
past due 90 days and still accruing, as of June 30, 2011 and December 31, 2010, respectively.(2)
    
    Credit cards until 180 days delinquent.(3)
    
    Revolving lines of credit until 180 days delinquent. 109




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##### Table of Contents



Table DD  Loans past due 30-89 days
 June 30, 2011
    
    
    December 31, 2010(In thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    TotalPast-due 30-89 days consumerResidential mortgage(1)
    
    $
    87,545
    
    
    $
    
    
    
    $
    87,545
    
    
    $
    71,750
    
    
    $
    
    
    
    $
    71,750Lease financing receivables
    
    
    219
    
    
    
    
    
    
    
    219
    
    
    
    245
    
    
    
    
    
    
    
    245Other consumer
    
    
    804
    
    
    
    
    
    
    
    804
    
    
    
    1,343
    
    
    
    
    
    
    
    1,343Total past-due consumer
    
    
    88,568
    
    
    
    
    
    
    
    88,568
    
    
    
    73,338
    
    
    
    
    
    
    
    73,338Past-due 30-89 days commercialCommercial real estate
    
    
    35,057
    
    
    
    
    
    
    
    35,057
    
    
    
    35,353
    
    
    
    
    
    
    
    35,353Construction and land
    
    
    3,235
    
    
    
    
    
    
    
    3,235
    
    
    
    2,286
    
    
    
    
    
    
    
    2,286Commercial and industrial
    
    
    366
    
    
    
    
    
    
    
    366
    
    
    
    3,900
    
    
    
    
    
    
    
    3,900Total past-due commercial
    
    
    38,658
    
    
    
    
    
    
    
    38,658
    
    
    
    41,539
    
    
    
    
    
    
    
    41,539Total past-due loans(2)
    
    $
    127,226
    
    
    $
    
    
    
    $
    127,226
    
    
    $
    114,877
    
    
    $
    
    
    
    $
    114,877
 
 (1)
    
    Excludes $3.6 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
    110




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##### Table of Contents



Table EE  Other real estate owned activity
 Quarters Ended June 30,(In thousands)
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    103,767
    
    
    $
    100,345Additions
    
    
    22,368
    
    
    
    37,368Sales
    
    
    (22,147
    )
    
    
    (6,161
    )Retirements
    
    
    (1,882
    )
    
    
    (1,735
    )Lower of cost or market adjustments
    
    
    (607
    )
    
    
    (26,640
    )Balance at end of period
    
    $
    101,499
    
    
    $
    103,177
 For the six month period ended June 30,(In thousands)
    
    2011
    
    
    2010Balance at beginning of period
    
    $
    100,273
    
    
    $
    94,219Additions
    
    
    51,740
    
    
    
    56,090Sales
    
    
    (44,873
    )
    
    
    (13,139
    )Retirements
    
    
    (4,266
    )
    
    
    (4,124
    )Lower of cost or market adjustments
    
    
    (1,375
    )
    
    
    (29,869
    )Balance at end of period
    
    $
    101,499
    
    
    $
    103,177
 Allowance for Loan and Lease Losses (ALLL)
  Residential mortgage.
 Construction, commercial real estate, commercial and industrial and land.
   111




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##### Table of Contents



Consumer.
   112




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##### Table of Contents



Table FF  Allowance for Loan and Lease Losses
 Quarters Ended June 30,2011
    
    
    2010(Dollars in thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    2010Balance at beginning of period
    
    $
    114,768
    
    
    $
    5,436
    
    
    $
    120,204
    
    
    $
    143,603
    
    
    $
    3,878
    
    
    $
    147,481Provision for loans and lease losses:Non-FHA/VA residential mortgage
    
    
    5,405
    
    
    
    5
    
    
    
    5,410
    
    
    
    18,719
    
    
    
    50
    
    
    
    18,769Lease financing receivables
    
    
    (148
    )
    
    
    
    
    
    
    (148
    )
    
    
    64
    
    
    
    
    
    
    
    64Other consumer
    
    
    1,002
    
    
    
    
    
    
    
    1,002
    
    
    
    1,580
    
    
    
    
    
    
    
    1,580Total consumer
    
    
    6,259
    
    
    
    5
    
    
    
    6,264
    
    
    
    20,363
    
    
    
    50
    
    
    
    20,413Commercial real estate
    
    
    4,336
    
    
    
    36
    
    
    
    4,372
    
    
    
    4,754
    
    
    
    17
    
    
    
    4,771Commercial and industrial
    
    
    (647
    )
    
    
    1,056
    
    
    
    409
    
    
    
    1,669
    
    
    
    59
    
    
    
    1,728Construction and land
    
    
    2,931
    
    
    
    (653
    )
    
    
    2,278
    
    
    
    17,301
    
    
    
    404
    
    
    
    17,705Total commercial
    
    
    6,620
    
    
    
    439
    
    
    
    7,059
    
    
    
    23,724
    
    
    
    480
    
    
    
    24,204Total provision for loan and lease losses
    
    
    12,879
    
    
    
    444
    
    
    
    13,323
    
    
    
    44,087
    
    
    
    530
    
    
    
    44,617Charge-offs:Non-FHA/VA residential mortgage
    
    
    (4,271
    )
    
    
    
    
    
    
    (4,271
    )
    
    
    (14,497
    )
    
    
    
    
    
    
    (14,497
    )Lease financing receivables
    
    
    (121
    )
    
    
    
    
    
    
    (121
    )
    
    
    (202
    )
    
    
    
    
    
    
    (202
    )Other Consumer
    
    
    (1,118
    )
    
    
    
    
    
    
    (1,118
    )
    
    
    (1,903
    )
    
    
    
    
    
    
    (1,903
    )Total consumer
    
    
    (5,510
    )
    
    
    
    
    
    
    (5,510
    )
    
    
    (16,602
    )
    
    
    
    
    
    
    (16,602
    )Commercial real estate
    
    
    (12,755
    )
    
    
    
    
    
    
    (12,755
    )
    
    
    (430
    )
    
    
    
    
    
    
    (430
    )Commercial and industrial
    
    
    (407
    )
    
    
    
    
    
    
    (407
    )
    
    
    (978
    )
    
    
    
    
    
    
    (978
    )Construction and land
    
    
    (21,769
    )
    
    
    
    
    
    
    (21,769
    )
    
    
    (38,498
    )
    
    
    (991
    )
    
    
    (39,489
    )Total commercial
    
    
    (34,931
    )
    
    
    
    
    
    
    (34,931
    )
    
    
    (39,906
    )
    
    
    (991
    )
    
    
    (40,897
    )Total charge-offs
    
    
    (40,441
    )
    
    
    
    
    
    
    (40,441
    )
    
    
    (56,508
    )
    
    
    (991
    )
    
    
    (57,499
    )Recoveries:Non-FHA/VA residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease financing receivables
    
    
    176
    
    
    
    
    
    
    
    176
    
    
    
    83
    
    
    
    
    
    
    
    83Other consumer
    
    
    191
    
    
    
    
    
    
    
    191
    
    
    
    189
    
    
    
    
    
    
    
    189Total consumer
    
    
    367
    
    
    
    
    
    
    
    367
    
    
    
    272
    
    
    
    
    
    
    
    272Commercial real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and industrial
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    43
    
    
    
    
    
    
    
    43Construction and land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commercial
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    43
    
    
    
    
    
    
    
    43Total recoveries
    
    
    386
    
    
    
    
    
    
    
    386
    
    
    
    315
    
    
    
    
    
    
    
    315Net charge-offs
    
    
    (40,055
    )
    
    
    
    
    
    
    (40,055
    )
    
    
    (56,193
    )
    
    
    (991
    )
    
    
    (57,184
    )Balance at end of period
    
    $
    87,592
    
    
    $
    5,880
    
    
    $
    93,472
    
    
    $
    131,497
    
    
    $
    3,417
    
    
    $
    134,914ALLL plus partial charge-offs and discounts to loans receivable (excluding FHA/VA
guaranteed loans and loans on savings deposits)
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    2.47
    %ALLL as a percentage of loans receivable outstanding, at the end of period
    
    
    
    
    
    
    
    
    
    
    1.64
    %
    
    
    
    
    
    
    
    
    
    
    2.44
    %Provision for loan and lease losses to net charge-offs
    
    
    
    
    
    
    
    
    
    
    33.26
    %
    
    
    
    
    
    
    
    
    
    
    78.02
    %
 113




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##### Table of Contents



Quarters Ended June 30,2011
    
    
    2010(Dollars in thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    2010Net charge-offs to average loans receivable outstanding
    
    
    
    
    
    
    
    
    
    
    0.71
    %
    
    
    
    
    
    
    
    
    
    
    1.03
    %ALLL to net charge-offs on an annualized basis
    
    
    
    
    
    
    
    
    
    
    58.18
    %
    
    
    
    
    
    
    
    
    
    
    58.82
    %
 114




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##### Table of Contents



Table GG  Allowance for Loan and Lease Losses
 Six Month Periods Ended June 30,2011
    
    
    2010(Dollars in thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    PR
    
    
    US
    
    
    2010Balance at beginning of period
    
    $
    117,821
    
    
    $
    5,831
    
    
    $
    123,652
    
    
    $
    136,878
    
    
    $
    3,896
    
    
    $
    140,774Provision (recovery) for loans and lease losses:Non-FHA/VA residential mortgage
    
    
    6,150
    
    
    
    15
    
    
    
    6,165
    
    
    
    25,312
    
    
    
    66
    
    
    
    25,378Lease financing receivables
    
    
    (430
    )
    
    
    
    
    
    
    (430
    )
    
    
    (190
    )
    
    
    
    
    
    
    (190
    )Other consumer
    
    
    1,779
    
    
    
    
    
    
    
    1,779
    
    
    
    3,467
    
    
    
    
    
    
    
    3,467Total consumer
    
    
    7,499
    
    
    
    15
    
    
    
    7,514
    
    
    
    28,589
    
    
    
    66
    
    
    
    28,655Commercial real estate
    
    
    (1,419
    )
    
    
    35
    
    
    
    (1,384
    )
    
    
    7,822
    
    
    
    17
    
    
    
    7,839Commercial and industrial
    
    
    (448
    )
    
    
    748
    
    
    
    300
    
    
    
    1,618
    
    
    
    36
    
    
    
    1,654Construction and land
    
    
    10,233
    
    
    
    (749
    )
    
    
    9,484
    
    
    
    19,997
    
    
    
    393
    
    
    
    20,390Total commercial
    
    
    8,366
    
    
    
    34
    
    
    
    8,400
    
    
    
    29,437
    
    
    
    446
    
    
    
    29,883Total provision (recovery) for loan and lease losses
    
    
    15,865
    
    
    
    49
    
    
    
    15,914
    
    
    
    58,026
    
    
    
    512
    
    
    
    58,538Charge-offs:Non-FHA/VA residential mortgage
    
    
    (7,497
    )
    
    
    
    
    
    
    (7,497
    )
    
    
    (19,212
    )
    
    
    
    
    
    
    (19,212
    )Lease financing receivables
    
    
    (231
    )
    
    
    
    
    
    
    (231
    )
    
    
    (512
    )
    
    
    
    
    
    
    (512
    )Other Consumer
    
    
    (2,606
    )
    
    
    
    
    
    
    (2,606
    )
    
    
    (4,042
    )
    
    
    
    
    
    
    (4,042
    )Total consumer
    
    
    (10,334
    )
    
    
    
    
    
    
    (10,334
    )
    
    
    (23,766
    )
    
    
    
    
    
    
    (23,766
    )Commercial real estate
    
    
    (12,755
    )
    
    
    
    
    
    
    (12,755
    )
    
    
    (686
    )
    
    
    
    
    
    
    (686
    )Commercial and industrial
    
    
    (426
    )
    
    
    
    
    
    
    (426
    )
    
    
    (1,176
    )
    
    
    
    
    
    
    (1,176
    )Construction and land
    
    
    (23,359
    )
    
    
    
    
    
    
    (23,359
    )
    
    
    (38,530
    )
    
    
    (991
    )
    
    
    (39,521
    )Total commercial
    
    
    (36,540
    )
    
    
    
    
    
    
    (36,540
    )
    
    
    (40,392
    )
    
    
    (991
    )
    
    
    (41,383
    )Total charge-offs
    
    
    (46,874
    )
    
    
    
    
    
    
    (46,874
    )
    
    
    (64,158
    )
    
    
    (991
    )
    
    
    (65,149
    )Recoveries:Non-FHA/VA residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease financing receivables
    
    
    478
    
    
    
    
    
    
    
    478
    
    
    
    109
    
    
    
    
    
    
    
    109Other consumer
    
    
    283
    
    
    
    
    
    
    
    283
    
    
    
    404
    
    
    
    
    
    
    
    404Total consumer
    
    
    761
    
    
    
    
    
    
    
    761
    
    
    
    513
    
    
    
    
    
    
    
    513Commercial real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Commercial and industrial
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    66
    
    
    
    
    
    
    
    66Construction and land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    122Total commercial
    
    
    19
    
    
    
    
    
    
    
    19
    
    
    
    238
    
    
    
    
    
    
    
    238Total recoveries
    
    
    780
    
    
    
    
    
    
    
    780
    
    
    
    751
    
    
    
    
    
    
    
    751Net charge-offs
    
    
    (46,094
    )
    
    
    
    
    
    
    (46,094
    )
    
    
    (63,407
    )
    
    
    (991
    )
    
    
    (64,398
    )Balance at end of period
    
    $
    87,592
    
    
    $
    5,880
    
    
    $
    93,472
    
    
    $
    131,497
    
    
    $
    3,417
    
    
    $
    134,914ALLL plus partial charge-offs and discounts to loans
receivable (excluding FHA/VA guaranteed loans and
loans on savings deposits)
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %ALLL as a percentage of loans receivable outstanding,
at the end of period
    
    
    
    
    
    
    
    
    
    
    1.64
    %
    
    
    
    
    
    
    
    
    
    
    2.44
    %Provision for loan losses to net charge-offs
    
    
    
    
    
    
    
    
    
    
    34.53
    %
    
    
    
    
    
    
    
    
    
    
    90.90
    %Net charge-offs to average loans receivable
outstanding
    
    
    
    
    
    
    
    
    
    
    0.83
    %
    
    
    
    
    
    
    
    
    
    
    1.16
    %ALLL to net charge-offs on an annualized basis
    
    
    
    
    
    
    
    
    
    
    100.56
    %
    
    
    
    
    
    
    
    
    
    
    103.89
    %
 115




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##### Table of Contents



Table HH  Allocation of Allowance for Loans and Lease Losses
 June 30, 2011
    
    
    December 31, 2010(Dollars in thousands)
    
    PR
    
    
    US
    
    
    Total
    
    
    Percentage
    
    
    PR
    
    
    US
    
    
    Total
    
    
    PercentageConsumer:Residential mortgage
    
    $
    54,903
    
    
    $
    252
    
    
    $
    55,155
    
    
    
    59
    %
    
    $
    56,250
    
    
    $
    237
    
    
    $
    56,487
    
    
    
    46
    %Lease financing receivable
    
    
    335
    
    
    
    
    
    
    
    335
    
    
    
    
    %
    
    
    518
    
    
    
    
    
    
    
    518
    
    
    
    
    %Other consumer
    
    
    5,212
    
    
    
    
    
    
    
    5,212
    
    
    
    6
    %
    
    
    5,756
    
    
    
    
    
    
    
    5,756
    
    
    
    5
    %Total consumer
    
    
    60,450
    
    
    
    252
    
    
    
    60,702
    
    
    
    65
    %
    
    
    62,524
    
    
    
    237
    
    
    
    62,761
    
    
    
    51
    %Commercial:Commercial real estate
    
    
    15,388
    
    
    
    185
    
    
    
    15,573
    
    
    
    17
    %
    
    
    29,562
    
    
    
    150
    
    
    
    29,712
    
    
    
    24
    %Commercial and industrial
    
    
    2,119
    
    
    
    3,927
    
    
    
    6,046
    
    
    
    6
    %
    
    
    2,974
    
    
    
    3,179
    
    
    
    6,153
    
    
    
    5
    %Construction and land
    
    
    9,635
    
    
    
    1,516
    
    
    
    11,151
    
    
    
    12
    %
    
    
    22,761
    
    
    
    2,265
    
    
    
    25,026
    
    
    
    20
    %Total commercial
    
    
    27,142
    
    
    
    5,628
    
    
    
    32,770
    
    
    
    35
    %
    
    
    55,297
    
    
    
    5,594
    
    
    
    60,891
    
    
    
    49
    %Total
    
    $
    87,592
    
    
    $
    5,880
    
    
    $
    93,472
    
    
    
    100
    %
    
    $
    117,821
    
    
    $
    5,831
    
    
    $
    123,652
    
    
    
    100
    %
    116




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Table II  Allowance for Loan and Lease Losses Coverage Ratios
 June 30, 2011
    
    December 31, 2010ALLL plus partial charge-
    
    
    
    
    
    
    
    
    
    ALLL plus partial charge-offs and discount as a % of:(1)
    
    ALLL as a % of:(2)
    
    offs and discount as a % of:(1)
    
    ALLL as a % of:(2)Loans(3)
    
    NPLs
    
    Loans(3)
    
    NPLs
    
    Loans(3)
    
    NPLs
    
    Loans(3)
    
    NPLsConsumerResidential mortgage
    
    
    2.43
    %
    
    
    29.70
    %
    
    
    1.56
    %
    
    
    19.82
    %
    
    
    2.46
    %
    
    
    31.77
    %
    
    
    1.59
    %
    
    
    20.29
    %Lease financing receivable
    
    
    12.09
    
    
    
    167.84
    
    
    
    12.09
    
    
    
    167.84
    
    
    
    10.78
    
    
    
    124.82
    
    
    
    10.78
    
    
    
    124.82Consumer
    
    
    11.91
    %
    
    
    1,053.51
    %
    
    
    11.80
    %
    
    
    1,042.60
    %
    
    
    11.22
    %
    
    
    1,431.68
    %
    
    
    11.17
    %
    
    
    1,424.75
    %Total consumer
    
    
    2.55
    %
    
    
    31.64
    %
    
    
    1.70
    %
    
    
    21.76
    %
    
    
    2.60
    %
    
    
    33.94
    %
    
    
    1.74
    %
    
    
    22.48
    %CommercialCommercial real estate
    
    
    5.91
    %
    
    
    24.45
    %
    
    
    2.34
    %
    
    
    9.32
    %
    
    
    7.17
    %
    
    
    26.33
    %
    
    
    4.31
    %
    
    
    15.37
    %Commercial and industrial
    
    
    0.70
    %
    
    
    230.54
    %
    
    
    0.66
    %
    
    
    218.86
    %
    
    
    0.97
    %
    
    
    243.97
    %
    
    
    0.97
    %
    
    
    243.97
    %Construction and land
    
    
    15.66
    %
    
    
    64.46
    %
    
    
    2.86
    %
    
    
    10.22
    %
    
    
    12.79
    %
    
    
    42.00
    %
    
    
    5.46
    %
    
    
    16.83
    %Total commercial
    
    
    5.73
    %
    
    
    42.14
    %
    
    
    1.66
    %
    
    
    11.75
    %
    
    
    6.55
    %
    
    
    34.68
    %
    
    
    3.42
    %
    
    
    17.67
    %Total
    
    
    3.70
    %
    
    
    36.89
    %
    
    
    1.64
    %
    
    
    16.75
    %
    
    
    3.92
    %
    
    
    33.83
    %
    
    
    2.29
    %
    
    
    19.82
    %
 
 (1)
    
    Loans and NPL amounts are increased by the amount of partial charge-offs and
discounts.(2)
    
    Loans and NPL amounts are not increased by the amount of partial charge-offs and
discounts.(3)
    
    Excludes FHA/VA guaranteed loans and loans on saving deposits.    Table JJ  Impaired loans and related allowance
 (In thousands)
    
    June 30, 2011
    
    

December
31, 2010 (1)Impaired loans with allowance
    
    $
    665,319
    
    
    $
    773,106Impaired loans without allowance
    
    
    545,065
    
    
    
    486,550Total impaired loans
    
    $
    1,210,384
    
    
    $
    1,259,656Related allowance
    
    $
    39,651
    
    
    $
    68,693
    117




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##### Table of Contents



Counterparty Risk
   Operational Risk
  Overview of Operational Risk Management
  Internal Control Over Financial Reporting
 Controls and Procedures
 Liquidity Risk
  General Business, Economic and Political Conditions; Puerto Rico Economy and Fiscal Condition
  118




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119




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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
  120




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Legal Matters
   Banking Regulatory Matters
    121




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Recent and/or future U.S. credit downgrades or changes in outlook by major credit rating agencies
may have an adverse effect on financial markets, including financial institutions and the financial
industry.
  The Company has been and could continue to be negatively affected by adverse economic conditions.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  122




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ITEM 4. REMOVED AND RESERVED
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS.
   123




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##### Table of Contents



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).
 124




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##### Table of Contents



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).
 125




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##### Table of Contents



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).10.10
    
    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).10.21
    
    Form of Restricted Stock Award Agreement for Directors of Doral Financial Corporation under the 2008 Stock
Incentive Plan. (Incorporated herein by reference to exhibit number 10.1 to Doral Financials Current
Report on Form 8-K filed with the Commission on January 24, 2011).10.22
    
    Amendment to Employment Agreement between the Company and Robert E. Wahlman dated August 10, 2011.12.1
    
    Computation of Ratio of Earnings to Fixed Charges.
 126




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ExhibitNumber
    
    Description12.2
    
    Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.31.1
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 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.
 127




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##### Table of Contents



SIGNATURES
  DORAL FINANCIAL CORPORATION 
(Registrant)Date:
August 16, 2011
    
    /s/ Glen R. Wakeman

Glen R. WakemanChief Executive Officer and PresidentDate:
August 16, 2011
    
    /s/ Robert E. Wahlman

Robert E. WahlmanExecutive Vice President andChief Financial Officer
 128