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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 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 0-17224
 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,
    
    00920-2717San Juan, Puerto Rico
    
    (Zip Code)(Address of principal executive offices)
 
 
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    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 INFORMATION
    
    
    3Item 1  Financial Statements
    
    
    3Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2009 and
December 31, 2008
    
    
    3Consolidated Statements of Loss (Unaudited)  Quarters ended March 31, 2009 and March
31, 2008
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)  Quarters ended
March 31, 2009 and March 31, 2008
    
    
    5Consolidated Statements of Comprehensive Loss (Unaudited)  Quarters ended March 31,
2009 and March 31, 2008Consolidated Statements of Cash Flows (Unaudited)  Quarter ended March 31, 2009 and
March 31, 2008
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    46Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    93Item 4  Controls and Procedures
    
    
    93PART II  OTHER INFORMATION
    
    
    94Item 1  Legal Proceedings
    
    
    94Item 1A  Risk Factors
    
    
    94Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    94Item 3  Defaults Upon Senior Securities
    
    
    94Item 4  Submission of Matters to a Vote of Security Holders
    
    
    94Item 5  Other Information
    
    
    94Item 6  Exhibits
    
    
    95SIGNATURES
    
    
    96EX-12.1EX-12.2EX-31.1EX-31.2EX-32.1EX-32.2
  2




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED
 MARCH 31,
    
    
    DECEMBER 31,(Dollars in thousands, except for share data)
    
    2009
    
    
    2008ASSETSCash and due from banks
    
    $
    212,634
    
    
    $
    184,302Money market investments
    
    
    60,370
    
    
    
    3,215Securities held for trading, at fair value (includes securities pledged as
collateral that can be repledged for 2009  $135,970 and for 2008  $198,680)
    
    
    226,974
    
    
    
    251,877Securities available for sale, at fair value (includes securities pledged as
collateral that can be repledged for 2009  $1,178,911 and for 2008 
$1,067,097)
    
    
    3,354,180
    
    
    
    3,429,151Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    114,428
    
    
    
    117,938Total investment securities
    
    
    3,695,582
    
    
    
    3,798,966Loans:Loans held for sale, at lower of cost or market
    
    
    389,098
    
    
    
    386,610Loans receivable
    
    
    5,267,305
    
    
    
    5,253,910Less: Unearned interest
    
    
    (1,853
    )
    
    
    (2,197
    )Less: Allowance for loan and lease losses
    
    
    (143,900
    )
    
    
    (132,020
    )Total net loans receivable
    
    
    5,121,552
    
    
    
    5,119,693Total loans
    
    
    5,510,650
    
    
    
    5,506,303Accounts receivable
    
    
    47,383
    
    
    
    45,449Mortgage-servicing advances
    
    
    28,609
    
    
    
    28,057Accrued interest receivable
    
    
    38,751
    
    
    
    42,934Servicing assets, net
    
    
    104,426
    
    
    
    114,396Premises and equipment, net
    
    
    104,190
    
    
    
    104,733Real estate held for sale, net
    
    
    70,208
    
    
    
    61,340Deferred tax asset
    
    
    124,446
    
    
    
    120,827Other assets
    
    
    117,418
    
    
    
    128,345Total assets
    
    $
    10,114,667
    
    
    $
    10,138,867LIABILITIESDeposits:Non-interest-bearing deposits
    
    $
    245,031
    
    
    $
    235,983Interest-bearing deposits
    
    
    3,806,211
    
    
    
    4,166,789Total deposits
    
    
    4,051,242
    
    
    
    4,402,772Securities sold under agreements to repurchase
    
    
    1,947,024
    
    
    
    1,907,447Advances from FHLB
    
    
    1,600,400
    
    
    
    1,623,400Other short-term borrowings
    
    
    731,000
    
    
    
    351,600Loans payable
    
    
    360,931
    
    
    
    366,776Notes payable
    
    
    275,626
    
    
    
    276,868Accrued expenses and other liabilities
    
    
    310,545
    
    
    
    304,833Total liabilities
    
    
    9,276,768
    
    
    
    9,233,696Commitments and contingencies (Please refer to Note 24 and 25)STOCKHOLDERS EQUITYPreferred stock, $1 par value; 40,000,000 shares authorized; 9,015,000 shares
issued and outstanding, at aggregate liquidation preference value:Perpetual noncumulative nonconvertible preferred stock (Series A, B and C)
    
    
    228,250
    
    
    
    228,250Perpetual cumulative convertible preferred stock
    
    
    345,000
    
    
    
    345,000Common stock, $0.01 par value; 97,500,000 shares authorized; 53,810,110 shares
issued and outstanding
    
    
    538
    
    
    
    538Additional paid-in capital
    
    
    849,223
    
    
    
    849,172Legal surplus
    
    
    23,596
    
    
    
    23,596Accumulated deficit
    
    
    (472,783
    )
    
    
    (418,168
    )Accumulated other comprehensive loss, net of income tax benefit of $21,784 and
$19,329 in 2009 and 2008, respectively
    
    
    (135,925
    )
    
    
    (123,217
    )Total stockholders equity
    
    
    837,899
    
    
    
    905,171Total liabilities and stockholders equity
    
    $
    10,114,667
    
    
    $
    10,138,867
  3




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
 QUARTER ENDEDMARCH 31,(Dollars in thousands, except for per share data)
    
    2009
    
    
    2008Interest income:Loans
    
    $
    81,588
    
    
    $
    85,382Mortgage-backed securities
    
    
    27,381
    
    
    
    19,102Interest-only strips (IOs)
    
    
    1,628
    
    
    
    1,674Investment securities
    
    
    4,907
    
    
    
    14,766Other interest-earning assets
    
    
    990
    
    
    
    7,184Total interest income
    
    
    116,494
    
    
    
    128,108Interest expense:Deposits
    
    
    38,207
    
    
    
    42,648Securities sold under agreements to repurchase
    
    
    17,232
    
    
    
    18,313Advances from FHLB
    
    
    16,014
    
    
    
    17,258Other short-term borrowings
    
    
    436
    
    
    
    Loans payable
    
    
    3,309
    
    
    
    5,509Notes payable
    
    
    5,226
    
    
    
    5,336Total interest expense
    
    
    80,424
    
    
    
    89,064Net interest income
    
    
    36,070
    
    
    
    39,044Provision for loan and lease losses
    
    
    23,625
    
    
    
    4,786Net interest income after provision for loan and lease losses
    
    
    12,445
    
    
    
    34,258Non-interest income:Net gain on mortgage loan sales and fees
    
    
    1,719
    
    
    
    2,368Net (loss) gain on securities held for trading, including gains
and losses on the fair value of IOs
    
    
    (7,328
    )
    
    
    7,668Net (loss) gain on investment securities
    
    
    (13
    )
    
    
    194Servicing loss (net of mark-to-market adjustment)
    
    
    (2,775
    )
    
    
    (2,711
    )Commissions, fees and other income
    
    
    9,980
    
    
    
    9,860Total non-interest income
    
    
    1,583
    
    
    
    17,379Non-interest expenses:Compensation and benefits
    
    
    22,828
    
    
    
    19,078Taxes, other than payroll and income taxes
    
    
    2,488
    
    
    
    2,422Advertising
    
    
    1,448
    
    
    
    2,232Professional services
    
    
    6,127
    
    
    
    4,908Communication expenses
    
    
    4,408
    
    
    
    4,140EDP expenses
    
    
    3,616
    
    
    
    2,422Occupancy expenses
    
    
    4,001
    
    
    
    4,289Office expenses
    
    
    1,466
    
    
    
    1,624Depreciation and amortization
    
    
    3,453
    
    
    
    4,055Other
    
    
    10,591
    
    
    
    9,393Total non-interest expenses
    
    
    60,426
    
    
    
    54,563Loss before income taxes
    
    
    (46,398
    )
    
    
    (2,926
    )Income tax benefit
    
    
    (108
    )
    
    
    (628
    )Net loss
    
    $
    (46,290
    )
    
    $
    (2,298
    )Net loss attributable to common shareholders
    
    $
    (54,615
    )
    
    $
    (10,623
    )Net loss per common share(1)
    
    $
    (1.01
    )
    
    $
    (0.20
    )
 
 (1)
    
    For the quarters ended March 31, 2009 and 2008, net loss per common shares represents the basic and diluted
loss per common shares, respectively, for each of the periods presented.  4




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008PREFERRED STOCK
    
    $
    573,250
    
    
    $
    573,250COMMON STOCK
    
    
    538
    
    
    
    538ADDITIONAL PAID-IN CAPITAL:Balance at beginning of period
    
    
    849,172
    
    
    
    849,081Stock-based compensation recognized
    
    
    51
    
    
    
    Balance at end of period
    
    
    849,223
    
    
    
    849,081LEGAL SURPLUS
    
    
    23,596
    
    
    
    23,596ACCUMULATED DEFICIT:Balance at beginning of period
    
    
    (418,168
    )
    
    
    (66,610
    )Net loss
    
    
    (46,290
    )
    
    
    (2,298
    )Cash dividends declared on preferred stock
    
    
    (8,325
    )
    
    
    (8,325
    )Balance at end of period
    
    
    (472,783
    )
    
    
    (77,233
    )ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF
TAX:Balance at beginning of period
    
    
    (123,217
    )
    
    
    (33,148
    )Other comprehensive loss, net of deferred tax
    
    
    (12,708
    )
    
    
    (57,179
    )Balance at end of period
    
    
    (135,925
    )
    
    
    (90,327
    )Total stockholders equity
    
    $
    837,899
    
    
    $
    1,278,905
  5




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPRENHENSIVE LOSS
(UNAUDITED)
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Net loss
    
    $
    (46,290
    )
    
    $
    (2,298
    )Other comprehensive loss, before tax:Unrealized losses on securities arising during the period
    
    
    (16,381
    )
    
    
    (62,618
    )Reclassification of realized losses (gains) included in net loss
    
    
    13
    
    
    
    (194
    )Other comprehensive loss on investment securities, before tax
    
    
    (16,368
    )
    
    
    (62,812
    )Income tax benefit related to investment securities
    
    
    2,455
    
    
    
    8,800Other comprehensive loss on investment securities, net of tax
    
    
    (13,913
    )
    
    
    (54,012
    )Other comprehensive income (loss) on cash flow hedge(1)
    
    
    1,205
    
    
    
    (3,167
    )Other comprehensive loss
    
    
    (12,708
    )
    
    
    (57,179
    )Comprehensive loss
    
    $
    (58,998
    )
    
    $
    (59,477
    )Accumulated other comprehensive loss, net of taxOther comprehensive loss on investment securities
    
    $
    (123,443
    )
    
    $
    (86,589
    )Other comprehensive loss on cash flow hedge(1)
    
    
    (12,482
    )
    
    
    (3,738
    )Total accumulated other comprehensive loss, net of tax
    
    $
    (135,925
    )
    
    $
    (90,327
    )
 
 (1) For the quarter ended March 31, 2009, other comprehensive loss on cash flow hedges includes $4.9 million related to
a deferred tax assets valuation allowance.  6




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (46,290
    )
    
    $
    (2,298
    )Adjustments to reconcile net loss to net cash provided by operating activities:Stock-based compensation
    
    
    51
    
    
    
    Depreciation and amortization
    
    
    3,453
    
    
    
    4,055Mark-to-market adjustment of servicing assets
    
    
    11,353
    
    
    
    11,597Deferred tax benefit
    
    
    (1,163
    )
    
    
    (975
    )Provision for loan and lease losses
    
    
    23,625
    
    
    
    4,786Accretion of discount on loans, investment securities and debt
    
    
    (2,885
    )
    
    
    (7,782
    )Unrealized loss on loans held for sale
    
    
    
    
    
    
    10Net increase in loans held for sale
    
    
    (55,209
    )
    
    
    (3,649
    )Gains on securities
    
    
    (3,841
    )
    
    
    (2,959
    )Unrealized loss (gain) on trading securities
    
    
    9,476
    
    
    
    (5,582
    )Decrease in securities held for trading
    
    
    111,965
    
    
    
    59,581Amortization and net loss (gain) in the fair value of IOs
    
    
    2,435
    
    
    
    390Decrease in derivative instruments
    
    
    384
    
    
    
    7,526(Increase) decrease in accounts receivable
    
    
    (1,934
    )
    
    
    2,676Increase in mortgage servicing advances
    
    
    (552
    )
    
    
    (1,260
    )Decrease (increase) in accrued interest receivable
    
    
    4,183
    
    
    
    (791
    )Decrease (increase) in other assets
    
    
    14,744
    
    
    
    (8,371
    )Increase in accrued expenses and other liabilities
    
    
    (1,675
    )
    
    
    (35,279
    )Total adjustments
    
    
    114,410
    
    
    
    23,973Net cash provided by operating activities
    
    
    68,120
    
    
    
    21,675Cash flows from investing activities:Purchases of securities available for sale
    
    
    (390,111
    )
    
    
    (1,550,587
    )Principal repayment and sales of securities available for sale
    
    
    447,012
    
    
    
    315,659Decrease (increase) in FHLB stock
    
    
    3,510
    
    
    
    (46,575
    )Net increase of loans receivable
    
    
    (76,970
    )
    
    
    (117,491
    )Purchases of premises and equipment
    
    
    (2,910
    )
    
    
    (2,329
    )Proceeds from assets to be disposed of by sale
    
    
    
    
    
    
    474Proceeds from sales of real estate held for sale
    
    
    7,880
    
    
    
    3,162Net cash used in investing activities
    
    
    (11,589
    )
    
    
    (1,397,687
    )Cash flows from financing activities:Decrease in deposits
    
    
    (351,530
    )
    
    
    (139,489
    )Increase in securities sold under agreements to repurchase
    
    
    39,577
    
    
    
    737,789Proceeds from advances from FHLB
    
    
    215,000
    
    
    
    1,030,000Repayment of advances from FHLB
    
    
    (238,000
    )
    
    
    (445,000
    )Proceeds from other short-term borrowings
    
    
    1,091,000
    
    
    
    Repayment of other short-term borrowings
    
    
    (711,600
    )
    
    
    Repayment of secured borrowings
    
    
    (5,845
    )
    
    
    (13,775
    )Repayment of notes payable
    
    
    (1,321
    )
    
    
    (1,223
    )Dividends paid
    
    
    (8,325
    )
    
    
    (8,325
    )Net cash provided by financing activities
    
    
    28,956
    
    
    
    1,159,977Net increase (decrease) in cash and cash equivalents
    
    $
    85,487
    
    
    $
    (216,035
    )Cash and cash equivalents at beginning of period
    
    
    187,517
    
    
    
    789,169Cash and cash equivalents at the end of period
    
    $
    273,004
    
    
    $
    573,134Cash and cash equivalents includes:Cash and due from banks
    
    $
    212,634
    
    
    $
    84,016Money market investments
    
    
    60,370
    
    
    
    489,118$
    273,004
    
    
    $
    573,134Supplemental schedule of non-cash activities:Loan securitizations
    
    $
    95,231
    
    
    $
    49,325Reclassification of securities from the held for trading portfolio to the available for sale portfolio
    
    $
    
    
    
    $
    68,520Reclassification from the held for sale portfolio to the loans receivable portfolio
    
    $
    
    
    
    $
    48,185Loans foreclosed
    
    $
    17,580
    
    
    $
    6,108Capitalization of servicing assets
    
    $
    1,383
    
    
    $
    929Supplemental information for cash flows:Cash used to pay interest
    
    $
    89,456
    
    
    $
    93,763Cash used to pay income taxes
    
    $
    962
    
    
    $
    6,939
  7




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DORAL FINANCIAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Nature of Operations and Basis of Presentation
    
    
    9Note 2  Recent Accounting Pronouncements
    
    
    9Note 3  Cash and Due from Banks
    
    
    11Note 4  Money Markets
    
    
    11Note 5  Securities Held for Trading
    
    
    11Note 6  Securities Available for Sale
    
    
    11Note 7  Investments in an Unrealized Loss Position
    
    
    14Note 8  Pledged Assets
    
    
    15Note 9  Loans Held for Sale
    
    
    16Note 10  Loans Receivable
    
    
    17Note 11  Related Party Transactions
    
    
    19Note 12  Accounts Receivable
    
    
    19Note 13  Servicing Activities
    
    
    20Note 14  Servicing Related Matters
    
    
    22Note 15  Other Real Estate Owned
    
    
    22Note 16  Deposits
    
    
    23Note 17  Repurchase Agreements
    
    
    23Note 18  Advances from the FHLB
    
    
    24Note 19  Other Short Term Borrowings
    
    
    24Note 20  Loans Payable
    
    
    25Note 21  Notes Payable
    
    
    25Note 22  Income Taxes
    
    
    26Note 23  Guarantees
    
    
    28Note 24  Financial Instruments with Off-Balance Sheet Risk
    
    
    29Note 25  Commitments and Contingencies
    
    
    30Note 26  Stock Options and Other Incentive Plans
    
    
    31Note 27  Earnings per Share
    
    
    33Note 28  Fair Value of Assets and Liabilities
    
    
    34Note 29  Derivatives
    
    
    39Note 30  Segment Information
    
    
    41Note 31  Subsequent Events
    
    
    43
 8




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1. Nature of Operations and Basis of Presentation
    2. Recent Accounting Pronouncements
 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions Than Are Not Orderly . Fair Value Measurements" Interim
Disclosures about Fair Value of Financial Instruments"
 9




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Recognition and Presentation of Other-Than-Temporary Impairments. Recognition and Presentation of
Other-Than-Temporary Impairments . Interim Disclosures about Fair Value of
Financial Instruments
 Interim Disclosures about Fair Value of Financial Instruments. Interim Disclosures about Fair Value of Financial
Instruments. Disclosures about Fair Value of Financial
Instruments, Interim Financial Reporting,
 10




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3. Cash and due from banks
    4. Money Market Investments
  5 Securities Held for Trading
   SECURITIES HELD FOR TRADING
    
    MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Mortgage-Backed Securities
    
    $
    798
    
    
    $
    731Variable Rate Interest-Only Strips
    
    
    49,225
    
    
    
    51,709Fixed Rate Interest-Only Strips
    
    
    519
    
    
    
    470U.S. Treasury Notes
    
    
    176,258
    
    
    
    198,680Derivatives(1)
    
    
    174
    
    
    
    287Total
    
    $
    226,974
    
    
    $
    251,877
 
 (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 marked-to-market basis with gains or
losses charged to operations as they occur. The fair value of derivatives is
generally reported net by counterparty. Derivatives not accounted as hedges
in a net asset position are recorded as securities held for trading and
derivatives in a net liability position as liabilities. The gross notional
amount of derivatives recorded as held for trading totaled $301.0 million as
of March 31, 2009 and $305.0 million as of December 31, 2008. Notional
amounts indicate the volume of derivatives activity, but do not represent
Doral Financials exposure to market or credit risk.  6. Securities Available for Sale
   11




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SECURITIES AVAILABLE FOR SALE
AS OF MARCH 31, 2009
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGE(Dollars in thousands)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMortgage-Backed SecuritiesGNMADue within one year
    
    $
    42
    
    
    $
    2
    
    
    $
    
    
    
    $
    44
    
    
    
    6.11
    %Due from one to five years
    
    
    789
    
    
    
    9
    
    
    
    12
    
    
    
    786
    
    
    
    4.68
    %Due from five to ten years
    
    
    592
    
    
    
    13
    
    
    
    
    
    
    
    605
    
    
    
    6.24
    %Due over ten years
    
    
    61,531
    
    
    
    616
    
    
    
    33
    
    
    
    62,114
    
    
    
    5.39
    %FHLMC and FNMADue from five to ten years
    
    
    72,095
    
    
    
    2,406
    
    
    
    
    
    
    
    74,501
    
    
    
    4.62
    %Due over ten years
    
    
    914,520
    
    
    
    25,050
    
    
    
    17
    
    
    
    939,553
    
    
    
    5.25
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    2,369
    
    
    
    
    
    
    
    196
    
    
    
    2,173
    
    
    
    7.80
    %Due over ten years
    
    
    1,639,838
    
    
    
    10,075
    
    
    
    8,801
    
    
    
    1,641,112
    
    
    
    2.40
    %Non-Agency CMOsDue over ten years
    
    
    484,072
    
    
    
    
    
    
    
    175,563
    
    
    
    308,509
    
    
    
    4.11
    %Debt SecuritiesFHLB NotesDue within one year
    
    
    2,059
    
    
    
    64
    
    
    
    
    
    
    
    2,123
    
    
    
    4.16
    %FNMA NotesDue within one year
    
    
    43,729
    
    
    
    
    
    
    
    37
    
    
    
    43,692
    
    
    
    0.71
    %Due from one to five years
    
    
    133,169
    
    
    
    932
    
    
    
    
    
    
    
    134,101
    
    
    
    2.42
    %Due from five to ten years
    
    
    10,000
    
    
    
    21
    
    
    
    
    
    
    
    10,021
    
    
    
    5.38
    %Due over ten years
    
    
    49,990
    
    
    
    106
    
    
    
    
    
    
    
    50,096
    
    
    
    6.00
    %P.R. Housing BankDue from five to ten years
    
    
    3,595
    
    
    
    38
    
    
    
    
    
    
    
    3,633
    
    
    
    4.92
    %Due over ten years
    
    
    3,690
    
    
    
    
    
    
    
    20
    
    
    
    3,670
    
    
    
    5.47
    %OtherDue within one year
    
    
    11,123
    
    
    
    97
    
    
    
    
    
    
    
    11,220
    
    
    
    4.64
    %Due from one to five years
    
    
    58,203
    
    
    
    1,420
    
    
    
    
    
    
    
    59,623
    
    
    
    5.20
    %Due over ten years
    
    
    8,000
    
    
    
    44
    
    
    
    1,440
    
    
    
    6,604
    
    
    
    5.61
    %$
    3,499,406
    
    
    $
    40,893
    
    
    $
    186,119
    
    
    $
    3,354,180
    
    
    
    3.59
    %
 12




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##### Table of Contents



SECURITIES AVAILABLE FOR SALE
AS OF DECEMBER 31, 2008
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    MARKET
    
    
    AVERAGE(Dollars in thousands)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMortgage-Backed SecuritiesGNMADue within one year
    
    $
    50
    
    
    $
    1
    
    
    $
    
    
    
    $
    51
    
    
    
    5.89
    %Due from one to five years
    
    
    875
    
    
    
    8
    
    
    
    16
    
    
    
    867
    
    
    
    4.42
    %Due from five to ten years
    
    
    626
    
    
    
    12
    
    
    
    
    
    
    
    638
    
    
    
    5.83
    %Due over ten years
    
    
    63,957
    
    
    
    390
    
    
    
    354
    
    
    
    63,993
    
    
    
    5.38
    %FHLMC and FNMADue from five to ten years
    
    
    52,381
    
    
    
    1,209
    
    
    
    
    
    
    
    53,590
    
    
    
    4.61
    %Due over ten years
    
    
    975,092
    
    
    
    15,844
    
    
    
    2,296
    
    
    
    988,640
    
    
    
    5.25
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    2,223
    
    
    
    
    
    
    
    
    
    
    
    2,223
    
    
    
    7.80
    %Due over ten years
    
    
    1,588,047
    
    
    
    2,367
    
    
    
    7,900
    
    
    
    1,582,514
    
    
    
    3.61
    %Non-Agency CMOsDue over ten years
    
    
    491,877
    
    
    
    47
    
    
    
    139,845
    
    
    
    352,079
    
    
    
    6.17
    %Debt SecuritiesFHLB NotesDue from one to five years
    
    
    2,060
    
    
    
    82
    
    
    
    
    
    
    
    2,142
    
    
    
    4.16
    %Due from five to ten years
    
    
    63,470
    
    
    
    720
    
    
    
    
    
    
    
    64,190
    
    
    
    5.00
    %Due over ten years
    
    
    80,000
    
    
    
    72
    
    
    
    
    
    
    
    80,072
    
    
    
    5.21
    %FNMA NotesDue within one year
    
    
    43,518
    
    
    
    45
    
    
    
    
    
    
    
    43,563
    
    
    
    3.19
    %Due from one to five years
    
    
    3,177
    
    
    
    113
    
    
    
    
    
    
    
    3,290
    
    
    
    3.37
    %Due over ten years
    
    
    49,990
    
    
    
    91
    
    
    
    
    
    
    
    50,081
    
    
    
    6.00
    %FHLMC NotesDue over ten years
    
    
    50,000
    
    
    
    
    
    
    
    395
    
    
    
    49,605
    
    
    
    5.50
    %P.R. Housing BankDue from five to ten years
    
    
    3,595
    
    
    
    30
    
    
    
    9
    
    
    
    3,616
    
    
    
    4.92
    %Due over ten years
    
    
    3,690
    
    
    
    26
    
    
    
    
    
    
    
    3,716
    
    
    
    5.47
    %OtherDue within one year
    
    
    11,141
    
    
    
    174
    
    
    
    
    
    
    
    11,315
    
    
    
    4.64
    %Due from one to five years
    
    
    64,241
    
    
    
    1,727
    
    
    
    
    
    
    
    65,968
    
    
    
    5.23
    %Due over ten years
    
    
    8,000
    
    
    
    48
    
    
    
    1,050
    
    
    
    6,998
    
    
    
    5.61
    %$
    3,558,010
    
    
    $
    23,006
    
    
    $
    151,865
    
    
    $
    3,429,151
    
    
    
    4.62
    %
  13




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##### Table of Contents



7. Investments in an Unrealized Loss Position
  SECURITIES AVAILABLE FOR SALE
 As of March 31, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber of
    
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized(Dollars in thousands)
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    LossesMortgage-Backed
SecuritiesGNMA
    
    
    32
    
    
    $
    6,533
    
    
    $
    43
    
    
    
    1
    
    
    $
    327
    
    
    $
    2
    
    
    
    33
    
    
    $
    6,860
    
    
    $
    45FNMA
    
    
    4
    
    
    
    8,463
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    8,463
    
    
    
    17CMO Government
Sponsored
Agencies
    
    
    16
    
    
    
    717,853
    
    
    
    8,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    717,853
    
    
    
    8,997Non-Agency CMOs
    
    
    2
    
    
    
    2,253
    
    
    
    372
    
    
    
    11
    
    
    
    306,256
    
    
    
    175,191
    
    
    
    13
    
    
    
    308,509
    
    
    
    175,563Debt SecuritiesFNMA Notes
    
    
    1
    
    
    
    43,692
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    43,692
    
    
    
    37P.R. Housing Bank
    
    
    2
    
    
    
    3,670
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3,670
    
    
    
    20Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,560
    
    
    
    1,440
    
    
    
    1
    
    
    
    1,560
    
    
    
    1,44057
    
    
    $
    782,464
    
    
    $
    9,486
    
    
    
    13
    
    
    $
    308,143
    
    
    $
    176,633
    
    
    
    70
    
    
    $
    1,090,607
    
    
    $
    186,119
 SECURITIES AVAILABLE FOR SALE
 As of December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber of
    
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized
    
    
    Number of
    
    
    
    
    
    
    Unrealized(Dollars in thousands)
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    Losses
    
    
    Positions
    
    
    Fair Value
    
    
    LossesMortgage-Backed
SecuritiesGNMA
    
    
    109
    
    
    $
    33,200
    
    
    $
    370
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    109
    
    
    $
    33,200
    
    
    $
    370FNMA/FHLMC
    
    
    21
    
    
    
    387,587
    
    
    
    2,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    387,587
    
    
    
    2,296CMO Government
Sponsored
Agencies
    
    
    18
    
    
    
    1,080,204
    
    
    
    7,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    1,080,204
    
    
    
    7,900Non-Agency CMOs
    
    
    2
    
    
    
    7,154
    
    
    
    3,357
    
    
    
    9
    
    
    
    342,311
    
    
    
    136,488
    
    
    
    11
    
    
    
    349,465
    
    
    
    139,845Debt SecuritiesFHLMC Notes
    
    
    1
    
    
    
    49,605
    
    
    
    395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    49,605
    
    
    
    395P.R. Housing Bank
    
    
    1
    
    
    
    2,086
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2,086
    
    
    
    9Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,950
    
    
    
    1,050
    
    
    
    1
    
    
    
    1,950
    
    
    
    1,050152
    
    
    $
    1,559,836
    
    
    $
    14,327
    
    
    
    10
    
    
    $
    344,261
    
    
    $
    137,538
    
    
    
    162
    
    
    $
    1,904,097
    
    
    $
    151,865
   14




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##### Table of Contents



Recognition
of Interest Income and Impairment on Purchased Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets Accounting for Certain Investments in Debt and Equity Securities Amendments to the Impairment Guidance of EITF Issue
No. 99-20
 8. Pledged Assets
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Securities available for sale
    
    $
    2,986,472
    
    
    $
    2,648,132Securities held for trading
    
    
    135,970
    
    
    
    198,680Loans held for sale
    
    
    160,727
    
    
    
    165,929Loans receivable(1)
    
    
    199,339
    
    
    
    199,603Total pledged assets
    
    $
    3,482,508
    
    
    $
    3,212,344
 
 (1)
    
    Excludes $2.0 million and $1.9 million at
March 31, 2009 and December 31, 2008, respectively, of loan
collateral required by the Federal Home Loan Bank of New
York. 15




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##### Table of Contents



9. Loans Held for Sale
  LOANS HELD FOR SALE(In thousands)
    
    MARCH 31, 2009
    
    
    DECEMBER 31, 2008Conventional single family residential loans
    
    $
    153,910
    
    
    $
    154,081FHA/VA loans
    
    
    198,838
    
    
    
    194,241Commercial loans to financial institutions
    
    
    18,599
    
    
    
    19,527Construction and commercial real estate loans
    
    
    17,751
    
    
    
    18,761Total loans held for sale (1)
    
    $
    389,098
    
    
    $
    386,610
 
 (1)
    
    At March 31, 2009 and December 31, 2008, the loans held for sale portfolio includes
$1.1 million and $1.1 million, respectively, related to interest-only loans.    16




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##### Table of Contents



10. Loans Receivable
  LOANS RECEIVABLE, NET
 MARCH 31, 2009
    
    
    DECEMBER 31, 2008(Dollars in thousands)
    
    AMOUNT
    
    
    PERCENT
    
    
    AMOUNT
    
    
    PERCENTConstruction loans(1)
    
    $
    462,174
    
    
    
    9
    %
    
    $
    506,031
    
    
    
    9
    %Residential mortgage loans
    
    
    3,688,585
    
    
    
    70
    %
    
    
    3,650,222
    
    
    
    69
    %Commercial  secured by real estate
    
    
    791,149
    
    
    
    15
    %
    
    
    757,112
    
    
    
    14
    %Consumer  other:Personal loans
    
    
    35,746
    
    
    
    1
    %
    
    
    37,844
    
    
    
    1
    %Auto loans
    
    
    49
    
    
    
    0
    %
    
    
    122
    
    
    
    0
    %Credit cards
    
    
    25,396
    
    
    
    1
    %
    
    
    26,034
    
    
    
    1
    %Overdrawn checking accounts
    
    
    1,435
    
    
    
    0
    %
    
    
    668
    
    
    
    0
    %Revolving lines of credit
    
    
    24,809
    
    
    
    0
    %
    
    
    25,520
    
    
    
    1
    %Lease financing receivables
    
    
    20,738
    
    
    
    0
    %
    
    
    23,158
    
    
    
    0
    %Commercial non-real estate
    
    
    132,447
    
    
    
    2
    %
    
    
    136,210
    
    
    
    3
    %Loans on savings deposits
    
    
    4,436
    
    
    
    0
    %
    
    
    5,240
    
    
    
    0
    %Land secured
    
    
    113,057
    
    
    
    2
    %
    
    
    118,870
    
    
    
    2
    %Loans receivable, gross(2)
    
    
    5,300,021
    
    
    
    100
    %
    
    
    5,287,031
    
    
    
    100
    %Less:Discount on loans transferred(3)
    
    
    (14,206
    )
    
    
    
    
    
    
    (15,735
    )Unearned interest
    
    
    (1,853
    )
    
    
    
    
    
    
    (2,197
    )Deferred loan fees/costs, net
    
    
    (18,510
    )
    
    
    
    
    
    
    (17,386
    )Allowance for loan and lease losses
    
    
    (143,900
    )
    
    
    
    
    
    
    (132,020
    )(178,469
    )
    
    
    
    
    
    
    (167,338
    )Loans receivable, net
    
    $
    5,121,552
    
    
    
    
    
    
    $
    5,119,693
 
 (1)
    
    Includes $332.2 million and $422.6 million of construction loans for residential housing
projects as of March 31, 2009 and December 31, 2008, respectively. Also includes $130.0 million and $83.4
million of construction loans for commercial, condominiums and multifamily projects as of March 31, 2009
and December 31, 2008, respectively.(2)
    
    Includes $354.5 million and $349.5 million of interest-only loans, as of March 31, 2009 and
December 31, 2008, respectively.(3)
    
    Related to $1.4 billion of loans transferred during 2007, from the loans held for sale
portfolio to the loans receivable portfolio. As of March 31, 2009 and December 31, 2008, the outstanding
balance of these loans transferred was $1.2 billion for both periods.   Accounting by Creditors for Impairment of a Loan
 17




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##### Table of Contents



MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Impaired loans with allowance
    
    $
    233,500
    
    
    $
    207,949Impaired loans without allowance
    
    
    155,381
    
    
    
    120,378Total impaired loans
    
    $
    388,881
    
    
    $
    328,327Related allowance
    
    $
    50,645
    
    
    $
    45,099Average impaired loans
    
    $
    358,604
    
    
    $
    317,844
  Accounting by Debtors and Creditors of Troubled Debt
Restructurings
 Accounting for Contingencies
  QUARTER ENDEDALLOWANCE FOR LOAN AND LEASE LOSSES
    
    MARCH 31,(Dollars in thousands)
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    132,020
    
    
    $
    124,733Provision for loan and lease losses
    
    
    23,625
    
    
    
    4,786Losses charged to the allowance
    
    
    (11,970
    )
    
    
    (9,053
    )Recoveries
    
    
    225
    
    
    
    716Balance at end of period
    
    $
    143,900
    
    
    $
    121,182
 18




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##### Table of Contents



11. Related Party Transactions
  (In thousands)
    
    MARCH 31, 2009
    
    
    DECEMBER 31, 2008Balance at beginning of period
    
    $
    2,579
    
    
    $
    5,090New loans
    
    
    3,174
    
    
    
    58Repayments
    
    
    (2,043
    )
    
    
    (101
    )Loans sold
    
    
    
    
    
    
    (511
    )Loans of former officers
    
    
    
    
    
    
    (1,957
    )Balance at end of period (1)
    
    $
    3,710
    
    
    $
    2,579
 
 (1)
    
    At March 31, 2009 and December 31, 2008, none of the loans outstanding to
officers, directors and 5% or more stockholders were delinquent.    12. Accounts Receivable
  Lehman Brothers Transaction
   19




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##### Table of Contents



13 Servicing Activities
  Accounting for Servicing of Financial Assets
  QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    114,396
    
    
    $
    150,238Capitalization of servicing assets
    
    
    1,383
    
    
    
    929Change in fair value
    
    
    (11,353
    )
    
    
    (11,597
    )Balance at end of period(1)
    
    $
    104,426
    
    
    $
    139,570
 
 (1)
    
    Outstanding balance of loans serviced for third parties
amounted to $9.3 billion and $9.9 billion as of March 31, 2009 and 2008,
respectively.   QUARTER ENDEDINTEREST-ONLY STRIPS ACTIVITY
    
    MARCH 31,(In thousands)
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    52,179
    
    
    $
    51,928Amortization
    
    
    (1,873
    )
    
    
    (1,067
    )(Loss) gain on the IO value
    
    
    (562
    )
    
    
    677Balance at end of period
    
    $
    49,744
    
    
    $
    51,538
 20




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##### Table of Contents



21




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##### Table of Contents



Servicing
    
    Interest-(Dollars in thousands)
    
    Assets
    
    Only StripsCarrying amount of retained interest
    
    $
    104,426
    
    
    $
    49,744Weighted-average expected life (in years)
    
    
    4.5
    
    
    
    4.8Constant prepayment rate
(weighted-average annual rate)
    
    
    13.9
    %
    
    
    12.2
    %Decrease in fair value due to 10%
adverse change
    
    
    (5,755
    )
    
    
    (1,813
    )Decrease in fair value due to 20%
adverse change
    
    
    (11,069
    )
    
    
    (3,513
    )Residual cash flow discount rate
(weighted-average annual rate)
    
    
    11.4
    %
    
    
    13.0
    %Decrease in fair value due to 10%
adverse change
    
    
    (3,690
    )
    
    
    (1,681
    )Decrease in fair value due to 20%
adverse change
    
    
    (7,129
    )
    
    
    (3,239
    )
   (Dollars in thousands)Change in Interest
    
    Constant Prepayment
    
    Weighted-Average Expected Life
    
    Change in Fair
    
    Percentage ofRates (Basis Points)
    
    Rate
    
    (Years)
    
    Value of IOs
    
    Change+200
    
    7.2%
    
    6.5
    
    $(3,398)
    
    (6.8)%+100
    
    9.3%
    
    5.7
    
    (1,595)
    
    (3.2)%+50
    
    10.8%
    
    5.2
    
    (1,095)
    
    (2.2)%Base
    
    12.2%
    
    4.8
    
    
    
    0%-50
    
    14.0%
    
    4.4
    
    582
    
    1.2%-100
    
    14.9%
    
    4.2
    
    2,344
    
    4.7%-200
    
    15.8%
    
    4.0
    
    6,628
    
    13.3%
 14. Servicing Related Matters
  15. Other Real Estate Owned
  22




---



##### Table of Contents



16. Deposits
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Certificates of deposit
    
    $
    2,712,712
    
    
    $
    3,194,379Regular savings
    
    
    368,251
    
    
    
    338,784NOW accounts and other transaction accounts
    
    
    359,003
    
    
    
    356,988Money markets accounts
    
    
    366,245
    
    
    
    276,638Total interest-bearing
    
    
    3,806,211
    
    
    
    4,166,789Non interest-bearing deposits
    
    
    245,031
    
    
    
    235,983Total deposits
    
    $
    4,051,242
    
    
    $
    4,402,772
 17. Repurchase Agreements
 Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
 MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Non-callable repurchase
agreements with a maturities
less than or equal to 90 days,
at various fixed rates averaging
0.42% and 0.78% at March 31,
2009 and December 31, 2008,
respectively
    
    $
    176,762
    
    
    $
    281,447Non-callable repurchase
agreements with maturities
ranging from October 2009 to
October 2013 (2008 - October
2009 to October 2013), at
various fixed rates averaging
3.72% and 3.96% at March 31,
2009 and December 31, 2008,
respectively
    
    
    1,491,762
    
    
    
    1,347,500Callable repurchase agreements
with maturities ranging from
September 2009 to February 2014,
at various fixed rates averaging
4.88% at both March 31, 2009 and
December 31, 2008
    
    
    278,500
    
    
    
    278,500$
    1,947,024
    
    
    $
    1,907,447
 23




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##### Table of Contents



18. Advances from FHLB
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Non-callable advances
with maturities
ranging from April
2009 to May 2013
(2008 - February 2009
to May 2013), at
various fixed rates
averaging 3.64% and
3.77% at March 31,
2009 and December 31,
2008, respectively
    
    $
    951,400
    
    
    $
    974,400Non-callable advances
due on July 6, 2010,
tied to 3-month LIBOR
adjustable quarterly,
at a rate of 1.39%
and 4.17% at March
31, 2009 and December
31, 2008,
respectively
    
    
    200,000
    
    
    
    200,000Non-callable advances
with maturities
ranging from
September 2009 to
November 2012, tied
to 1-month LIBOR
adjustable monthly,
at a rate of 0.54%
and 0.49% at March
31, 2009 and December
31, 2008,
respectively
    
    
    145,000
    
    
    
    145,000Callable advances
with maturities
ranging from July
2009 to March 2012,
at various fixed
rates averaging 5.40%
at both March 31,
2009 and December 31,
2008, callable at
various dates
beginning on April
2009 (2008 - January
2009)
    
    
    304,000
    
    
    
    304,000$
    1,600,400
    
    
    $
    1,623,400
  19. Other short-term borrowings
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Borrowings with the
Federal Home Loan Bank,
collateralized by
securities at a fixed
rate of 0.25% and 0.46%,
maturing in May 2009
(2008 - January 2009),
at March 31, 2009 and
December 31, 2008,
respectively
    
    $
    300,000
    
    
    $
    55,000Borrowings with the
Federal Reserve Bank,
collateralized by
securities at a fixed
rate of 0.25%, with
maturities ranging from
April 2009 to June 2009
    
    
    431,000
    
    
    
    Borrowings with the
Federal Reserve Bank,
collateralized by
securities at a fixed
rate of 1.39%, maturing
in January 2009
    
    
    
    
    
    
    10,000Borrowings with the
Federal Reserve Bank,
collateralized by
securities at a fixed
rate of 0.60%, maturing
in January 2009
    
    
    
    
    
    
    138,600Borrowings with the
Federal Reserve Bank,
collateralized by
securities at a fixed
rate of 0.42%, maturing
in February 2009
    
    
    
    
    
    
    148,000$
    731,000
    
    
    $
    351,600
  24




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##### Table of Contents



20. Loans Payable
   MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Secured borrowings
with local financial
institutions,
collateralized by
real estate mortgage
loans, at variable
interest rates tied
to 3-month LIBOR
averaging 2.66% and
5.00% at March 31,
2009 and December
31, 2008,
respectively
    
    $
    339,140
    
    
    $
    344,257Secured borrowings
with local financial
institutions,
collateralized by
real estate mortgage
loans at fixed
interest rates
averaging 7.41% and
7.42% at March 31,
2009 and December
31, 2008,
respectively
    
    
    21,791
    
    
    
    22,519$
    360,931
    
    
    $
    366,776
   21. Notes payable
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008$100 million notes, net of
discount, bearing interest at
7.65%, due on March 26, 2016,
paying interest monthly
    
    $
    98,499
    
    
    $
    98,459$30 million notes, net of
discount, bearing interest at
7.00%, due on April 26, 2012,
paying interest monthly
    
    
    29,728
    
    
    
    29,709$40 million notes, net of
discount, bearing interest at
7.10%, due on April 26, 2017,
paying interest monthly
    
    
    39,388
    
    
    
    39,374$30 million notes, net of
discount, bearing interest at
7.15%, due on April 26, 2022,
paying interest monthly
    
    
    29,452
    
    
    
    29,446Bonds payable secured by
mortgage on building at fixed
rates ranging from 6.40% to
6.90%, with maturities ranging
from June 2009 to December
2029, paying interest monthly
    
    
    40,335
    
    
    
    40,335Bonds payable at a fixed rate
of 6.25%, with maturities
ranging from December 2010 to
December 2029, paying interest
monthly
    
    
    7,600
    
    
    
    7,600Note payable with a local
financial institution,
collateralized by IOs at a
fixed rate of 7.75%, due on
December 25, 2013, paying
interest monthly
    
    
    30,624
    
    
    
    31,945$
    275,626
    
    
    $
    276,868
 25




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##### Table of Contents



22. Income Taxes
 Background
     26




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##### Table of Contents



Income
Tax (Benefit) Expense
  (In thousands)
    
    2009
    
    
    2008Current income tax expense:Puerto Rico
    
    $
    343
    
    
    $
    347United States
    
    
    712
    
    
    
    Total current income tax expense
    
    
    1,055
    
    
    
    347Deferred income tax benefit:Puerto Rico
    
    
    (1,115
    )
    
    
    (1,174
    )United States
    
    
    (48
    )
    
    
    199Total deferred income tax benefit
    
    
    (1,163
    )
    
    
    (975
    )Total income tax benefit
    
    $
    (108
    )
    
    $
    (628
    )
  Deferred Tax Components
    Accounting for
Income Taxes
   27




---



##### Table of Contents



FIN 48
    23. Guarantees
 Guarantors Accounting and Disclosure Requirements for Guarantees
  28




---



##### Table of Contents



24. Financial Instruments with Off-Balance Sheet Risk
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Commitments to extend credit
    
    $
    119,647
    
    
    $
    125,762Commitments to sell loans
    
    
    227,807
    
    
    
    137,797Commercial, financial and
performance standby letters of
credit
    
    
    325
    
    
    
    325Total
    
    $
    347,779
    
    
    $
    263,884
 29




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##### Table of Contents



Accounting for derivatives
instruments and hedging activities
   25. Commitments and Contingencies
  (In thousands)2010
    
    $
    5,6812011
    
    
    5,0792012
    
    
    4,4952013
    
    
    3,2232014
    
    
    3,1652015 and thereafter
    
    
    20,712$
    42,355
    Legal Matters
  30




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##### Table of Contents



Banking Regulatory Matters
     26. Stock Option and Other Incentive Plans
  31




---



##### Table of Contents



Share-Based Payment
  QUARTER ENDED(In thousands)
    
    MARCH 31, 2009Stock-based compensation recognized, net
    
    $
    51Unrecognized at end of period
    
    $
    437
  Weighted-average exercise price
    
    $
    13.70Stock option estimated fair value
    
    $
    5.88Expected stock option term (years)
    
    
    6.5Expected volatility
    
    
    39
    %Expected dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    3.49
    %
   32




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##### Table of Contents



27. Earnings Per Share Data
  Quarter EndedMarch 31,(Dollars in thousands, except per share amounts)
    
    2009
    
    
    2008Net Loss:Net loss
    
    $
    (46,290
    )
    
    $
    (2,298
    )Convertible preferred stock dividend(1) (2)
    
    
    (4,097
    )
    
    
    (4,097
    )Nonconvertible preferred stock dividend(1) (2)
    
    
    (4,228
    )
    
    
    (4,228
    )Net loss attributable to common shareholders
    
    $
    (54,615
    )
    
    $
    (10,623
    )Weighted-Average Shares(3):Weighted-average number of common shares
outstanding(3) (4) (5)
    
    
    53,810,110
    
    
    
    53,810,110Net Loss per Common Share:Basic
    
    $
    (1.01
    )
    
    $
    (0.20
    )Diluted
    
    $
    (1.01
    )
    
    $
    (0.20
    )
 
 (1)
    
    For the quarters ended March 31, 2009 and 2008, there were 1,380,000 shares of the Companys 4.75%
perpetual cumulative convertible preferred stock that were excluded from the computation of diluted earnings per
share because their effect would have been antidilutive. Each share of convertible preferred stock is currently
convertible into 0.31428 shares of common stock, subject to adjustment under specific conditions. The option of
the purchasers to convert the convertible preferred stock into shares of the Companys common stock is
exercisable only (a) if during any fiscal quarter after September 30, 2003, the closing sale price of the
Companys common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last
trading date of the preceding fiscal quarter exceeds 120% of the conversion price of the convertible preferred
stock (currently 120% of $795.47, or $954.56); (b) upon the occurrence of certain corporate transactions; or (c)
upon the delisting of the Companys common stock. On or after September 30, 2008, the Company may, at its option,
cause the convertible preferred stock to be converted into the number of shares of common stock that are issuable
at the conversion price. The Company may only exercise its conversion right if the closing sale price of the
Companys common stock exceeds 130% of the conversion price of the convertible preferred stock (currently 130% of
$795.47, or $1,034.11) in effect for 20 trading days within any period of 30 consecutive trading days ending on a
trading day not more than two trading days prior to the date the Company gives notice of conversion.(2)
    
    On March 20, 2009, the Board of Directors of Doral Financial announced that it had suspended the
declaration and payment of all dividends on all of Doral Financials outstanding series of cumulative and
non-cumulative preferred stock. The suspension of dividends is effective and commences with the dividends for the
month of April 2009 for Doral Financials three outstanding series of non-cumulative preferred stock and the
dividends for the second quarter of 2009 for Doral Financials one outstanding series of cumulative preferred
stock.(3)
    
    Weighted-average number of common shares outstanding represents the basic and diluted loss per
common shares, respectively, for each of the periods presented.(4)
    
    Excludes unvested shares of restricted stock.(5)
    
    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 per share since their inclusion would have an antidilutive
effect in earnings per share. As of March 31, 2009, there were 80,000 and 8,000 outstanding stock options and
shares of restricted stock, respectively, that were excluded from the computation of diluted earnings per common
share for the quarter ended March 31, 2009 because the Company reported a net loss for such periods. 33




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##### Table of Contents



28. Fair Value of Assets and Liabilities
  Fair Value Measurements
 The Fair Value Option for Financing Assets and Financing
Liabilities
 Fair Value Hierarchy
   Level 1
  Level 2
  Level 3
 Determination of Fair Value
    34




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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:
 Servicing assets and interest-only strips:
 35




---



##### Table of Contents



Real estate held for sale:
 Other assets:
 Premises and equipment:
 Goodwill:
 CB, LLC:
 Derivatives:
 36




---



##### Table of Contents



Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  March 31, 2009(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading
    
    $
    226,800
    
    
    $
    176,258
    
    
    $
    
    
    
    $
    50,542
    (1)Securities available for sale
    
    
    3,354,180
    
    
    
    
    
    
    
    3,008,204
    
    
    
    345,976Derivatives(2)
    
    
    174
    
    
    
    
    
    
    
    174
    
    
    
    Servicing assets
    
    
    104,426
    
    
    
    
    
    
    
    
    
    
    
    104,426$
    3,685,580
    
    
    $
    176,258
    
    
    $
    3,008,378
    
    
    $
    500,944Liabilities:Derivatives(3)
    
    $
    15,676
    
    
    $
    
    
    
    $
    15,676
    
    
    $
    
 
 (1)
    
    Represents interest-only strips, of which variable interest-only strips represent substantially all of the balance. Also,
includes derivatives.(2)
    
    Includes as part of securities held for trading in the Statement of Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Statement of Financial Condition. December 31, 2008(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading
    
    $
    251,590
    
    
    $
    198,680
    
    
    $
    
    
    
    $
    52,910
    (1)Securities available for sale
    
    
    3,429,151
    
    
    
    
    
    
    
    3,038,517
    
    
    
    390,634Derivatives(2)
    
    
    287
    
    
    
    
    
    
    
    287
    
    
    
    Servicing assets
    
    
    114,396
    
    
    
    
    
    
    
    
    
    
    
    114,396$
    3,795,424
    
    
    $
    198,680
    
    
    $
    3,038,804
    
    
    $
    557,940Liabilities:Derivatives(3)
    
    $
    15,283
    
    
    $
    
    
    
    $
    15,283
    
    
    $
    
 
 (1)
    
    Represents interest-only strips, of which variable interest-only strips represent substantially all of the balance. Also,
includes derivatives.(2)
    
    Includes as part of securities held for trading in the Statement of Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Statement of Financial Condition. 37




---



##### Table of Contents



Securities
    
    
    Securities
    
    
    Servicing(In thousands)
    
    Held for Trading
    
    
    Available for Sale
    
    
    AssetsMarch 31, 2009Beginning balance
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396Change in fair value
    
    
    (2,368
    )
    
    
    (35,797
    )
    
    
    (11,353
    )Principal repayment
/amortization of premium
and discount
    
    
    
    
    
    
    (8,861
    )
    
    
    Capitalization / sales, net
    
    
    
    
    
    
    
    
    
    
    1,383Ending balance
    
    $
    50,542
    
    
    $
    345,976
    
    
    $
    104,426December 31, 2008Beginning balance
    
    $
    67,992
    
    
    $
    6,366
    
    
    $
    150,238Change in fair value
    
    
    (803
    )
    
    
    62,878
    
    
    
    (42,642
    )Principal repayment
/amortization of premium
and discount
    
    
    (91
    )
    
    
    (11,134
    )
    
    
    Transfer
    
    
    (14,188
    )
    
    
    332,524
    
    
    
    Capitalization / sales, net
    
    
    
    
    
    
    
    
    
    
    6,800Ending balance
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396
 Assets Recorded at Fair Value on a Nonrecurring Basis
  (In thousands)
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3March 31, 2009Loans receivable (1)
    
    $
    89,346
    
    
    $
    
    
    
    $
    
    
    
    $
    89,346Real estate held for
sale(2)
    
    
    14,043
    
    
    
    
    
    
    
    
    
    
    
    14,043Total
    
    $
    103,389
    
    
    $
    
    
    
    $
    
    
    
    $
    103,389December 31, 2008Loans receivable(1)
    
    $
    77,966
    
    
    $
    
    
    
    $
    
    
    
    $
    77,966
 
 (1)
    
    Represents the carrying value and related write-downs of 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. 38




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##### Table of Contents



Loss for the Quarter EndedLocation of Loss Recognized in
    
    
    March 31,(In thousands)
    
    the Income Statement
    
    
    2009
    
    
    2008Loans receivable
    
    Provision for loan and
lease losses
    
    $
    (706
    )
    
    $
    (4,553
    )Real estate held for sale
    
    Other expenses
    
    $
    (1,406
    )
    
    $
    
 29. Derivatives
   March 31, 2009
    
    
    December 31, 2008Fair Value
    
    
    
    
    
    
    Fair ValueNotional
    
    
    
    
    
    
    
    
    
    
    Notional(In thousands)
    
    Amount
    
    
    Asset
    
    
    Liability
    
    
    Amount
    
    
    Asset
    
    
    LiabilityCash Flow Hedges:Interest rate swaps
    
    $
    345,000
    
    
    $
    
    
    
    $
    (15,219
    )
    
    $
    345,000
    
    
    $
    
    
    
    $
    (15,096
    )Other Derivatives:Interest rate caps
    
    
    270,000
    
    
    
    174
    
    
    
    
    
    
    
    270,000
    
    
    
    287
    
    
    
    Forward contracts
    
    
    31,000
    
    
    
    
    
    
    
    (457
    )
    
    
    35,000
    
    
    
    
    
    
    
    (187
    )Total
    
    $
    646,000
    
    
    $
    174
    
    
    $
    (15,676
    )
    
    $
    650,000
    
    
    $
    287
    
    
    $
    (15,283
    )
  March 31, 2009Location of Loss Recognized in the
    
    
    Notional
    
    
    Fair(In thousands)
    
    Income Statement
    
    
    Amount
    
    
    Value
    
    
    Net LossDerivatives not designated
as hedges:Interest rate caps
    
    Net (loss) gain on securities held for trading
    
    $
    270,000
    
    
    $
    174
    
    
    $
    (113
    )Forward contracts
    
    Net (loss) gain on securities held for trading
    
    
    31,000
    
    
    
    (457
    )
    
    
    (1,031
    )$
    301,000
    
    
    $
    (283
    )
    
    $
    (1,144
    )
 39




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##### Table of Contents



March 31, 2008Location of Loss Recognized in the
    
    
    Notional
    
    
    Fair(In thousands)
    
    Income Statement
    
    
    Amount
    
    
    Value
    
    
    Net LossDerivatives not designated
as hedges:Other derivativesInterest rate swaps
    
    Net (loss) gain on securities held for trading
    
    $
    
    
    
    $
    
    
    
    $
    (157
    )Interest rate caps
    
    Net (loss) gain on securities held for trading
    
    
    270,000
    
    
    
    992
    
    
    
    (490
    )Forward contracts
    
    Net (loss) gain on securities held for trading
    
    
    26,000
    
    
    
    (756
    )
    
    
    (710
    )$
    296,000
    
    
    $
    236
    
    
    $
    (1,357
    )
    March 31, 2009
    
    
    December 31, 2008Fair Value
    
    
    
    
    
    
    Fair ValueNotional
    
    
    
    
    
    
    
    
    
    
    Notional(In thousands)
    
    Amount
    
    
    Asset
    
    
    Liability
    
    
    Amount
    
    
    Asset
    
    
    LiabilityDerivatives designated as cash flow hedges:Hedging Advances from FHLB
    
    $
    345,000
    
    
    $
    
    
    
    $
    (15,219
    )
    
    $
    345,000
    
    
    $
    
    
    
    $
    (15,096
    )Derivatives not designated as cash flow hedges
    
    
    301,000
    
    
    
    174
    
    
    
    (457
    )
    
    
    305,000
    
    
    
    287
    
    
    
    (187
    )Total
    
    $
    646,000
    
    
    $
    174
    
    
    $
    (15,676
    )
    
    $
    650,000
    
    
    $
    287
    
    
    $
    (15,283
    )
 Cash Flow Hedges
  40




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##### Table of Contents



Location of Loss
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    Loss Reclassified fromReclassified from
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Accumulated OtherAccumulated Other
    
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive Loss toComprehensive Loss to
    
    
    Notional
    
    
    Fair
    
    
    Loss for the
    
    
    Income for the Quarter(In thousands)
    
    Income
    
    
    Amount
    
    
    Value
    
    
    Quarter Ended
    
    
    EndedCash flow HedgesMarch 31, 2009Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    345,000
    
    
    $
    (15,219
    )
    
    $
    1,205
    
    
    $
    (1,394
    )March 31, 2008Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    195,000
    
    
    $
    (8,238
    )
    
    $
    (3,167
    )
    
    $
    (311
    )
 Trading and Non-Hedging Activities
      30. Segment Information
  41




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##### Table of Contents



(In thousands)
    
    Mortgage
    
    
    
    
    
    Institutional
    
    Insurance
    
    IntersegmentMarch 31, 2009
    
    Banking
    
    Banking
    
    Securities
    
    Agency
    
    Eliminations(1)
    
    TotalsNet interest income
    
    $
    4,249
    
    
    $
    30,887
    
    
    $
    
    
    
    $
    
    
    
    $
    934
    
    
    $
    36,070(Recovery) provision for loan
and lease losses
    
    
    (7,776
    )
    
    
    31,401
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,625Non-interest income
    
    
    5,034
    
    
    
    (2,042
    )
    
    
    
    
    
    
    2,525
    
    
    
    (3,934
    )
    
    
    1,583Income (loss) before income taxes
    
    
    11
    
    
    
    (46,958
    )
    
    
    
    
    
    
    1,836
    
    
    
    (1,287
    )
    
    
    (46,398
    )Net income (loss)
    
    
    1,574
    
    
    
    (47,965
    )
    
    
    
    
    
    
    1,388
    
    
    
    (1,287
    )
    
    
    (46,290
    )Identifiable assets
    
    
    1,671,794
    
    
    
    9,196,964
    
    
    
    1,789
    
    
    
    29,809
    
    
    
    (785,689
    )
    
    
    10,114,667
 Mortgage
    
    
    
    
    
    Institutional
    
    Insurance
    
    IntersegmentMarch 31, 2008
    
    Banking
    
    Banking
    
    Securities
    
    Agency
    
    Eliminations(1)
    
    TotalsNet interest income
    
    $
    4,895
    
    
    $
    33,795
    
    
    $
    
    
    
    $
    
    
    
    $
    354
    
    
    $
    39,044Provision
for loan and lease losses
    
    
    840
    
    
    
    3,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,786Non-interest income
    
    
    7,645
    
    
    
    13,980
    
    
    
    138
    
    
    
    3,014
    
    
    
    (7,398
    )
    
    
    17,379(Loss) income before income taxes
    
    
    (1,643
    )
    
    
    1,247
    
    
    
    65
    
    
    
    2,258
    
    
    
    (4,853
    )
    
    
    (2,926
    )Net income (loss)
    
    
    5,774
    
    
    
    (4,626
    )
    
    
    31
    
    
    
    1,377
    
    
    
    (4,854
    )
    
    
    (2,298
    )Identifiable assets
    
    
    2,131,266
    
    
    
    8,968,115
    
    
    
    1,952
    
    
    
    22,636
    
    
    
    (652,532
    )
    
    
    10,471,437
 
 (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. 42




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##### Table of Contents



(In thousands)March 31, 2009
    
    Puerto Rico
    
    Mainland US
    
    Eliminations
    
    TotalsNet interest income
    
    $
    33,265
    
    
    $
    2,718
    
    
    $
    87
    
    
    $
    36,070Provision for loan and lease losses
    
    
    23,579
    
    
    
    46
    
    
    
    
    
    
    
    23,625Non-interest income
    
    
    1,270
    
    
    
    400
    
    
    
    (87
    )
    
    
    1,583(Loss) income before income taxes
    
    
    (47,860
    )
    
    
    1,462
    
    
    
    
    
    
    
    (46,398
    )Net (loss) income
    
    
    (47,088
    )
    
    
    798
    
    
    
    
    
    
    
    (46,290
    )Identifiable assets
    
    
    9,981,496
    
    
    
    283,875
    
    
    
    (150,704
    )
    
    
    10,114,667
 March 31, 2008
    
    Puerto Rico
    
    Mainland US
    
    Eliminations
    
    TotalsNet interest income
    
    $
    37,660
    
    
    $
    1,313
    
    
    $
    71
    
    
    $
    39,044Provision (recovery) for loan and lease losses
    
    
    4,888
    
    
    
    (102
    )
    
    
    
    
    
    
    4,786Non-interest income
    
    
    16,905
    
    
    
    602
    
    
    
    (128
    )
    
    
    17,379(Loss) income before income taxes
    
    
    (3,725
    )
    
    
    787
    
    
    
    12
    
    
    
    (2,926
    )Net (loss) income
    
    
    (2,898
    )
    
    
    588
    
    
    
    12
    
    
    
    (2,298
    )Identifiable assets
    
    
    10,402,038
    
    
    
    147,883
    
    
    
    (78,484
    )
    
    
    10,471,437
 31. Subsequent events
 Preferred stock conversion
 43




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##### Table of Contents



FORWARD LOOKING STATEMENTS
   
    
    the continued recessionary conditions of the Puerto Rico and the United States
economies and the continued weakness in the performance of the United States capital
markets leading to, among other things, (i) a deterioration in the credit quality of our
loans and other assets, (ii) decreased demand for our products and services and lower
revenue and earnings, (iii) reduction in our interest margins, and (iv) decreased
availability of our funding sources;
    
    the strength or weakness of the real estate markets and of the consumer and commercial
credit sectors and its impact in the credit quality of our loans and other assets which may
lead to, among other things, an increase in our non-performing loans, charge-offs and loan
loss provisions;
    
    a decline in the market value and  estimated cash flows of our mortgage-backed securities and other assets may
result in the recognition of other-than-temporary impairment of such assets under
generally accepted accounting principles in the United States of America (GAAP) if it were
also concluded that, with respect to any assets in unrealized loss positions, we do not
have the ability and intent to hold assets to maturity or for a period of time sufficient
to allow for recovery of the amortized cost of such assets;
    
    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 several
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;
    
    the ability of our banking subsidiaries to issue brokered certificates of deposits as
one of their funding sources;
    
    increased funding costs due to continued market illiquidity and increased competition
for funding;
    
    changes in interest rates and the potential impact of such changes in interest rates on
our net interest income and the value of our loans and investments;
    
    the commercial soundness of our various counterparties of financing and other
securities transactions, which could lead to possible losses when the collateral held by us
to secure the obligations of the counterparty is not sufficient or to possible delays or
losses in recovering any excess collateral belonging to us held by the counterparty;
 44




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##### Table of Contents




    
    our ability to collect payment of a receivable from Lehman Brothers, Inc. (LBI),
which results from the excess of the value of securities owned by Doral Financial that were
held by LBI above the amounts owed by Doral Financial under certain terminated repurchase
agreements and forward agreement. Based on the information available to Doral Financial
regarding the Securities Investor Protection Corporation (SIPC) liquidation proceeding
for LBI, the status of its claim and the deteriorating conditions of the financial markets
during the fourth quarter of 2008, Doral Financial accrued a loss of $21.6 million against
the $43.3 million receivable as of December 31, 2008. As additional information becomes
available, Doral Financial may need to accrue further losses or reverse losses already
accrued. The actual loss that may ultimate be incurred by Doral Financial with respect to
its pending LBI claim may have a significant adverse impact on Doral Financials results of
operations;
    
    the fiscal and monetary policy of the federal government and its agencies;
    
    potential adverse development from ongoing enforcement actions by bank regulatory
agencies;
    
    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;
    
    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;
    
    developments in the regulatory and legal environment for financial services companies
in Puerto Rico and the United States; and
    
    potential adverse outcome in the legal or regulatory proceedings described in Item 3 of
Part I in the Companys 2008 Annual Report on Form 10-K.
  Risk
Factors
 45




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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 loss attributable to common shareholders for the first quarter of 2009 amounted to
$54.6 million, or a diluted loss per share of $1.01, compared to $10.6 million, or a
diluted loss per share of $0.20, for the corresponding 2008 period.
    
    Net interest income for the first quarter of 2009 was $36.1 million, compared to $39.0
million for the comparable period in 2008. The decrease of $2.9 million in net interest
income for 2009, compared to 2008, was mainly related to a reduction in interest income of
$11.6 million, partially offset by a decrease in interest expense of $8.6 million. The
reduction in interest income was principally related to (i) a reduction of $6.2 million in
income on other interest-earning assets; (ii) a reduction of $3.8 million in interest
income on loans; (iii) a reduction of $9.9 million in interest income on investment
securities; (iv) partially offset by an increase of $8.3 million in interest income on
mortgage-backed securities. Interest income was directly affected by the lower average
market interest rates on the floating rate investment securities held by the Company. The
reduction in interest expense resulted from the lower average market interest rates and
repositioning of the Companys funding by replacing certain callable brokered deposits with
lower cost funding.
    
    The provision for loan and lease losses was $23.6 million, compared to $4.8 million for
the same period in 2008. The increase in the provision for loan and lease losses resulted
from the effects of continuing deterioration of the Puerto Rico economy on the residential
real estate market, causing lower home absorption rates on new construction, increased
defaults on existing mortgages, weakening economic situation of existing borrowers, and the
need to increase loan loss reserves.
    
    Non-interest income for the first quarter of 2009 was $1.6 million, compared to $17.4
million for the corresponding period in 2008. The decrease in non-interest income of $15.8
million for the first quarter of 2009, compared to the same period in 2008, resulted from a
decrease in the U.S. Treasury securities portfolio value of $7.3 million in the first
quarter of 2009 compared to an increase in portfolio value of $7.4 million in the first
quarter of 2008, and a $1.2 million increase in loss on the value of the interest-only
strip. The Company uses U.S. Treasury securities in its hedging programs and classifies the
portfolio as trading, thereby requiring mark-to-market accounting for the securities.
    
    Non-interest expense for the first quarter of 2009 was $60.4 million, compared to $54.6
million for the corresponding period in 2008, an increase of $5.8 million. Severance
expenses associated with a reduction in work force executed during the first quarter of
2009 resulted in an increase in compensation expense of $3.8 million compared to first
quarter 2008. The reduction in force recognized the reduced level of business activity in
Puerto Rico and positions the bank for more efficient operations in future periods. In
addition, increases in professional expenses related to legacy issues, FDIC insurance
expense and EDP expenses were partially offset by decreases in advertising and depreciation
and amortization expenses.
    
    The Company reported other comprehensive losses of approximately $12.7 million for the
first quarter of 2009 compared to $57.2 million for the corresponding 2008 period. The
Companys other comprehensive loss for the first quarter of 2009 resulted principally from
the reduction in value of its available for sale securities portfolio. As of March 31,
2009, the Companys accumulated other comprehensive loss (net of income tax benefit)
totaled $135.9 million, compared to $123.2 million as of December 31, 2008.
    
    Doral Financials loan production for the first quarter of 2009 was $242.3 million,
compared to $372.1 million for the comparable period in 2008, a decrease of approximately
35%. The decrease in Doral Financials loan production for the first quarter of 2009
reflects the reduction in Puerto Rico real estate purchase and mortgage lending activity
caused by the end of the Puerto Rico government tax incentive program for the purchase of
new homes, and changes in laws and regulations, such as the recent amendment to the Puerto
Rico Notary Law that led to an increase in the closing costs and fees payable by persons
involved in real estate purchase and mortgage loan transactions in Puerto Rico, as well as
tighter loan underwriting standards.
    
    Total assets as of March 31, 2009 and December 31, 2008, remained relatively stable at
$10.1 billion. A decrease of $103.4 million in the Companys investment securities
portfolio was partially offset by increases in cash and due from banks of $28.3 million,
money market investments of $57.2 million and loans of
$4.3 million. Total liabilities were $9.3 billion at
March 31, 2009, compared to $9.2 billion at
December 31, 2008. Total liabilities were affected by a decrease of $351.5
million in deposits that was offset by an increase of $379.4 million
in short-term borrowings.
 46




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##### Table of Contents



TABLE A  SELECTED FINANCIAL DATA
 March 31,2009
    
    
    2008Selected Income Statement Data:Interest income
    
    $
    116,494
    
    
    $
    128,108Interest expense
    
    
    80,424
    
    
    
    89,064Net interest income
    
    
    36,070
    
    
    
    39,044Provision for loan and lease losses
    
    
    23,625
    
    
    
    4,786Net interest income after provision for loan and lease losses
    
    
    12,445
    
    
    
    34,258Total non-interest income
    
    
    1,583
    
    
    
    17,379Non-interest expenses
    
    
    60,426
    
    
    
    54,563Loss before income taxes
    
    
    (46,398
    )
    
    
    (2,926
    )Income tax benefit (1)
    
    
    (108
    )
    
    
    (628
    )Net loss
    
    $
    (46,290
    )
    
    $
    (2,298
    )Net loss attributable to common shareholders
    
    $
    (54,615
    )
    
    $
    (10,623
    )Net loss per common share(2)
    
    $
    (1.01
    )
    
    $
    (0.20
    )Cash Dividends Declared, Preferred Stock
    
    $
    8,325
    
    
    $
    8,325Book Value Per Common Share
    
    $
    4.92
    
    
    $
    13.11Weighted  Average Common Shares Outstanding
    
    
    53,810,110
    
    
    
    53,810,110
 47




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##### Table of Contents



TABLE A  SELECTED FINANCIAL DATA
 March 31,2009
    
    
    2008Common shares outstanding at end of period
    
    
    53,810,110
    
    
    
    53,810,110Selected Balance Sheet Data at Period End:Total investment securities
    
    $
    3,695,582
    
    
    $
    3,587,300Total loans(3)
    
    
    5,510,650
    
    
    
    5,405,219Servicing assets, net
    
    
    104,426
    
    
    
    139,570Total assets
    
    
    10,114,667
    
    
    
    10,471,437Deposit accounts
    
    
    4,051,242
    
    
    
    4,128,535Total borrowings
    
    
    4,914,981
    
    
    
    4,671,386Total liabilities
    
    
    9,276,768
    
    
    
    9,192,532Preferred stock
    
    
    573,250
    
    
    
    573,250Common stock
    
    
    538
    
    
    
    538Stockholders equity
    
    
    837,899
    
    
    
    1,278,905Selected Average Balance Sheet Data at Period End:Total interest-earning assets
    
    
    9,421,720
    
    
    
    8,738,164Total assets
    
    
    10,027,573
    
    
    
    9,559,465Total interest-bearing liabilities
    
    
    8,584,069
    
    
    
    7,590,977Total stockholders equity
    
    
    852,822
    
    
    
    1,261,229Operating Data:Loan production
    
    $
    242,338
    
    
    $
    372,074Loan servicing portfolio(4)
    
    
    9,267,513
    
    
    
    9,874,498Selected Financial Ratios(5)Performance:Net interest margin
    
    
    1.55
    %
    
    
    1.80
    %Return on average assets
    
    
    (1.87
    )%
    
    
    (0.10
    )%Return on average common equity
    
    
    (79.23
    )%
    
    
    (6.21
    )%Average common equity to average assets
    
    
    2.79
    %
    
    
    7.20
    %Capital:Leverage ratio
    
    
    7.18
    %
    
    
    10.15
    %Tier 1 risk-based capital ratio
    
    
    11.82
    %
    
    
    15.17
    %Total risk-based capital ratio
    
    
    16.16
    %
    
    
    16.49
    %
 
 (1)
    
    See Note 22 of the consolidated financial statements for an explanation of the computation of income tax benefit.(2)
    
    For the quarters ended March 31, 2009 and 2008, net loss per common shares represents the basic and diluted loss per common shares, respectively,
for each of the periods presented.(3)
    
    Includes loans held for sale.(4)
    
    Represents the total portfolio of loans serviced for third parties. Excludes $4.2 billion and $3.7 billion of mortgage loans owned by Doral
Financial at March 31, 2009 and 2008, respectively.(5)
    
    Average balances are computed on a daily basis. SUBSEQUENT EVENTS
 Preferred Stock Conversion
   48




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CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
 Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly. Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions Than Are Not Orderly . Fair Value Measurements Interim
Disclosures about Fair Value of Financial Instruments
 49




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##### Table of Contents



Recognition and Presentation of Other-Than-Temporary Impairments. Recognition and Presentation of
Other-Than-Temporary Impairments . Interim Disclosures about Fair Value of
Financial Instruments
 Interim Disclosures about Fair Value of Financial Instruments. Interim Disclosures about Fair Value of Financial
Instruments. Disclosures about Fair Value of Financial
Instruments, Interim Financial Reporting,
 50




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2009 AND 2008
  NET INTEREST INCOME
      51




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##### Table of Contents



TABLE B  AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME  (Dollars in thousands)
 QUARTER ENDED MARCH 31,2009
    
    
    2008AVERAGE
    
    
    
    
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGEBALANCE
    
    
    INTEREST
    
    
    YIELD/RATE
    
    
    BALANCE
    
    
    INTEREST
    
    
    YIELD/RATEASSETS:Interest-earning assets:Total loans(1)(2)
    
    $
    5,594,175
    
    
    $
    81,588
    
    
    
    5.91
    %
    
    $
    5,450,698
    
    
    $
    85,382
    
    
    
    6.30
    %Mortgage-backed securities
    
    
    3,129,230
    
    
    
    27,381
    
    
    
    3.55
    %
    
    
    1,265,345
    
    
    
    19,102
    
    
    
    6.07
    %Interest-only strips
    
    
    51,662
    
    
    
    1,628
    
    
    
    12.78
    %
    
    
    46,658
    
    
    
    1,674
    
    
    
    14.43
    %Investment securities
    
    
    515,523
    
    
    
    4,907
    
    
    
    3.86
    %
    
    
    1,174,303
    
    
    
    14,766
    
    
    
    5.06
    %Other interest-earning assets
    
    
    131,130
    
    
    
    990
    
    
    
    3.06
    %
    
    
    801,160
    
    
    
    7,184
    
    
    
    3.61
    %Total interest-earning assets/interest income
    
    
    9,421,720
    
    
    $
    116,494
    
    
    
    5.01
    %
    
    
    8,738,164
    
    
    $
    128,108
    
    
    
    5.90
    %Total non-interest-earning assets
    
    
    605,853
    
    
    
    
    
    
    
    
    
    
    
    821,301Total assets
    
    $
    10,027,573
    
    
    
    
    
    
    
    
    
    
    $
    9,559,465LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits
    
    $
    3,911,483
    
    
    $
    38,207
    
    
    
    3.96
    %
    
    $
    3,861,770
    
    
    $
    42,648
    
    
    
    4.44
    %Repurchase agreements
    
    
    1,805,528
    
    
    
    17,232
    
    
    
    3.87
    %
    
    
    1,536,188
    
    
    
    18,313
    
    
    
    4.79
    %Advances from FHLB
    
    
    1,615,256
    
    
    
    16,014
    
    
    
    4.02
    %
    
    
    1,523,560
    
    
    
    17,258
    
    
    
    4.56
    %Other short-term borrowings
    
    
    611,064
    
    
    
    436
    
    
    
    0.29
    %
    
    
    
    
    
    
    
    
    
    
    Loans payable
    
    
    364,357
    
    
    
    3,309
    
    
    
    3.68
    %
    
    
    390,840
    
    
    
    5,509
    
    
    
    5.67
    %Notes payable
    
    
    276,381
    
    
    
    5,226
    
    
    
    7.67
    %
    
    
    278,619
    
    
    
    5,336
    
    
    
    7.70
    %Total interest-bearing liabilities/interest expense
    
    
    8,584,069
    
    
    $
    80,424
    
    
    
    3.80
    %
    
    
    7,590,977
    
    
    $
    89,064
    
    
    
    4.72
    %Total non-interest-bearing liabilities
    
    
    590,682
    
    
    
    
    
    
    
    
    
    
    
    707,259Total liabilities
    
    
    9,174,751
    
    
    
    
    
    
    
    
    
    
    
    8,298,236Stockholders equity
    
    
    852,822
    
    
    
    
    
    
    
    
    
    
    
    1,261,229Total liabilities and stockholders equity
    
    $
    10,027,573
    
    
    
    
    
    
    
    
    
    
    $
    9,559,465Net interest-earning assets
    
    $
    837,651
    
    
    
    
    
    
    
    
    
    
    $
    1,147,187Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    36,070
    
    
    
    
    
    
    
    
    
    
    $
    39,044Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    1.21
    %
    
    
    
    
    
    
    
    
    
    
    1.18
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    1.55
    %
    
    
    
    
    
    
    
    
    
    
    1.80
    %Net interest-earning assets ratio(5)
    
    
    
    
    
    
    
    
    
    
    109.76
    %
    
    
    
    
    
    
    
    
    
    
    115.11
    %
 
 (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 $238,000 and $293,000 for the first quarter of 2009 and 2008, respectively, of income from prepayment penalties related to the Companys loan portfolio.(3)
    
    Interest rate spread represents the difference between Doral Financials weighted-average yield on interest-earning assets and the weighted-average rate on interest-bearing liabilities.(4)
    
    Interest rate margin represents net interest income on an annualized basis as a percentage of average interest-earning assets.(5)
    
    Net interest-earning assets ratio represents average interest-earning assets as a percentage of average interest-bearing liabilities. 52




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TABLE C  NET INTEREST INCOME VARIANCE ANALYSIS  (In thousands)
 QUARTER ENDEDMARCH 31,2009 COMPARED TO 2008INCREASE (DECREASE) DUE TO:VOLUME
    
    
    RATE
    
    
    TOTALINTEREST INCOME VARIANCETotal loans
    
    $
    2,040
    
    
    $
    (5,834
    )
    
    $
    (3,794
    )Mortgage-backed securities
    
    
    27,795
    
    
    
    (19,516
    )
    
    
    8,279Interest-only strips
    
    
    172
    
    
    
    (218
    )
    
    
    (46
    )Investment securities
    
    
    (8,316
    )
    
    
    (1,543
    )
    
    
    (9,859
    )Other interest-earning assets
    
    
    (6,015
    )
    
    
    (179
    )
    
    
    (6,194
    )TOTAL INTEREST INCOME VARIANCE
    
    $
    15,676
    
    
    $
    (27,290
    )
    
    $
    (11,614
    )INTEREST EXPENSE VARIANCEDeposits
    
    $
    507
    
    
    $
    (4,948
    )
    
    $
    (4,441
    )Repurchase agreements
    
    
    3,109
    
    
    
    (4,190
    )
    
    
    (1,081
    )Advances from FHLB
    
    
    991
    
    
    
    (2,235
    )
    
    
    (1,244
    )Other short-term borrowings
    
    
    
    
    
    
    436
    
    
    
    436Loans payable
    
    
    (377
    )
    
    
    (1,823
    )
    
    
    (2,200
    )Notes payable
    
    
    (74
    )
    
    
    (36
    )
    
    
    (110
    )TOTAL INTEREST EXPENSE VARIANCE
    
    $
    4,156
    
    
    $
    (12,796
    )
    
    $
    (8,640
    )NET INTEREST INCOME VARIANCE
    
    $
    11,520
    
    
    $
    (14,494
    )
    
    $
    (2,974
    )
 PROVISION FOR LOAN AND LEASE LOSSES
   53




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NON-INTEREST INCOME
  QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Non-interest income:Net gain on mortgage loan sales and fees
    
    $
    1,719
    
    
    $
    2,368Net (loss) gain on securities held for trading,
including gains and losses on the fair value
of IOs
    
    
    (7,328
    )
    
    
    7,668Net (loss) gain on investment securities
    
    
    (13
    )
    
    
    194Servicing loss (net of mark-to-market adjustment)
    
    
    (2,775
    )
    
    
    (2,711
    )Commissions, fees and other income
    
    
    9,980
    
    
    
    9,860Total non-interest income
    
    $
    1,583
    
    
    $
    17,379
 Net Gain on Mortgage Loan Sales and Fees
  QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Loan sales:Loans sales and securitizations
    
    $
    95,231
    
    
    $
    49,325Loans sales as cash windows
    
    
    9,859
    
    
    
    11,008Total loan sales
    
    $
    105,090
    
    
    $
    60,333Net gain on mortgage loan sales and fees
    
    $
    1,719
    
    
    $
    2,368MSR capitalization
    
    $
    1,383
    
    
    $
    929
  54




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Trading Activities
   TABLE D
COMPONENTS OF TRADING ACTIVITIES
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Net realized gains on sales of securities held for trading
    
    $
    1,612
    
    
    $
    680Net (losses) gains on securities held for trading
economically hedging MSRs
    
    
    (7,301
    )
    
    
    7,430(Losses) gains on the IO valuation
    
    
    (562
    )
    
    
    677Net unrealized gains on trading securities, excluding IOs
    
    
    67
    
    
    
    238Net realized and unrealized losses on derivative instruments
    
    
    (1,144
    )
    
    
    (1,357
    )Total
    
    $
    (7,328
    )
    
    $
    7,668
   Net (Loss) Gain on Investment Securities
   55




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Net Servicing Loss
   TABLE E  NET SERVICING LOSS
 QUARTER ENDED
    
    
    QUARTER ENDEDMARCH 31,
    
    
    MARCH 31,(In thousands)
    
    2009
    
    
    2008Servicing fees (net of guarantee fees)
    
    $
    7,841
    
    
    $
    8,394Late charges
    
    
    2,276
    
    
    
    2,216Prepayment penalties
    
    
    126
    
    
    
    100Interest loss
    
    
    (1,798
    )
    
    
    (2,080
    )Other servicing fees
    
    
    133
    
    
    
    256Servicing income, gross
    
    
    8,578
    
    
    
    8,886Change in fair value of mortgage servicing rights
    
    
    (11,353
    )
    
    
    (11,597
    )Total net servicing loss
    
    $
    (2,775
    )
    
    $
    (2,711
    )
    Commissions, Fees and Other Income
  TABLE F
COMMISSIONS, FEES AND OTHER INCOME
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Retail banking fees
    
    $
    7,082
    
    
    $
    6,382Insurance agency commissions
    
    
    2,424
    
    
    
    2,405Asset management fees and commissions
    
    
    123
    
    
    
    138Other income
    
    
    351
    
    
    
    935Total
    
    $
    9,980
    
    
    $
    9,860
 56




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57




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NON-INTEREST EXPENSE
  TABLE G  NON INTEREST EXPENSE
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2009
    
    
    2008Compensation and employee benefits
    
    $
    22,828
    
    
    $
    19,078Taxes, other than payroll and income taxes
    
    
    2,488
    
    
    
    2,422Advertising
    
    
    1,448
    
    
    
    2,232Professional services
    
    
    6,127
    
    
    
    4,908Communication expenses
    
    
    4,408
    
    
    
    4,140EDP expenses
    
    
    3,616
    
    
    
    2,422Occupancy expenses
    
    
    4,001
    
    
    
    4,289Office expenses
    
    
    1,466
    
    
    
    1,624Depreciation and amortization
    
    
    3,453
    
    
    
    4,055Other
    
    
    10,591
    
    
    
    9,393Total non-interest expense
    
    $
    60,426
    
    
    $
    54,563
    58




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INCOME TAXES
 Background
     Income
Tax (Benefit) Expense
  (In thousands)
    
    2009
    
    
    2008Current income tax expense:Puerto Rico
    
    $
    343
    
    
    $
    347United States
    
    
    712
    
    
    
    Total current income tax expense
    
    
    1,055
    
    
    
    347Deferred income tax benefit:Puerto Rico
    
    
    (1,115
    )
    
    
    (1,174
    )United States
    
    
    (48
    )
    
    
    199Total deferred income tax benefit
    
    
    (1,163
    )
    
    
    (975
    )Total income tax benefit
    
    $
    (108
    )
    
    $
    (628
    )
  59




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Deferred Tax Components
    Accounting for
Income Taxes
    60




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##### Table of Contents



FIN 48
    BALANCE SHEET AND OPERATING DATA ANALYSIS
 LOAN PRODUCTION
   61




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TABLE H
LOAN PRODUCTION
 QUARTER ENDEDMARCH 31,(Dollars in thousands, except for average initial loan balance)
    
    2009
    
    
    2008FHA/VA mortgage loansNumber of loans
    
    
    504
    
    
    
    461Volume of loans
    
    $
    72,395
    
    
    $
    50,494Percent of total volume
    
    
    30
    %
    
    
    13
    %Average initial loan balance
    
    $
    143,641
    
    
    $
    109,531Conventional conforming mortgage loansNumber of loans
    
    
    268
    
    
    
    236Volume of loans
    
    $
    34,054
    
    
    $
    28,661Percent of total volume
    
    
    14
    %
    
    
    8
    %Average initial loan balance
    
    $
    127,067
    
    
    $
    121,445Conventional non-conforming mortgage loans(1)Number of loans
    
    
    657
    
    
    
    1,093Volume of loans
    
    $
    101,972
    
    
    $
    155,428Percent of total volume
    
    
    42
    %
    
    
    42
    %Average initial loan balance
    
    $
    155,209
    
    
    $
    142,203Disbursement under existing construction development loansVolume of loans
    
    $
    7,793
    
    
    $
    28,427Percent of total volume
    
    
    3
    %
    
    
    8
    %Commercial loans(2)Number of loans
    
    
    15
    
    
    
    92Volume of loans
    
    $
    23,407
    
    
    $
    65,175Percent of total volume
    
    
    10
    %
    
    
    17
    %Average initial loan balance
    
    $
    1,560,467
    
    
    $
    708,424Consumer loans(2)Number of loans
    
    
    312
    
    
    
    6,064Volume of loans
    
    $
    2,717
    
    
    $
    43,889Percent of total volume
    
    
    1
    %
    
    
    12
    %Average initial loan balance
    
    $
    8,708
    
    
    $
    7,238Total loansNumber of loans
    
    
    1,756
    
    
    
    7,946Volume of loans
    
    $
    242,338
    
    
    $
    372,074
 
 (1)
    
    Includes $0.9 million and $9.5 million, in second mortgages for the quarters ended March 31, 2009 and 2008, respectively.(2)
    
    Commercial and consumer lines of credit are included in the loan production according to the credit limit approved.   62




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TABLE I
LOAN ORIGINATION SOURCES
 QUARTER ENDED MARCH 31,2009
    
    2008Puerto Rico
    
    U.S.
    
    Total
    
    Puerto Rico
    
    U.S.
    
    TotalRetail
    
    
    75
    %
    
    
    
    
    
    
    75
    %
    
    
    51
    %
    
    
    
    
    
    
    51
    %Wholesale(1)
    
    
    11
    %
    
    
    
    
    
    
    11
    %
    
    
    12
    %
    
    
    
    
    
    
    12
    %Housing Developments(2)
    
    
    2
    %
    
    
    1
    %
    
    
    3
    %
    
    
    7
    %
    
    
    1
    %
    
    
    8
    %Other(3)
    
    
    2
    %
    
    
    9
    %
    
    
    11
    %
    
    
    22
    %
    
    
    7
    %
    
    
    29
    %
 
 (1)
    
    Refers to purchases of mortgage loans from other financial institutions and mortgage lenders.(2)
    
    Refers to disbursement of existing construction development loans.(3)
    
    Refers to commercial, consumer and multifamily loans originated through the banking subsidiaries. MORTGAGE LOAN SERVICING
  63




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TABLE J
LOANS SERVICED FOR THIRD PARTIES
 AS OF MARCH 31,(Dollars in Thousands, Except for Average Size of Loans Serviced)
    
    2009
    
    
    2008Composition of Portfolio Serviced for Third Parties at Period End:GNMA
    
    $
    2,297,269
    
    
    $
    2,103,438FHLMC/FNMA
    
    
    3,356,510
    
    
    
    3,688,642Other conventional mortgage loans(1)(2)
    
    
    3,613,734
    
    
    
    4,082,418Total portfolio serviced for third parties
    
    $
    9,267,513
    
    
    $
    9,874,498Activity of Portfolio Serviced for Third Parties:Beginning servicing portfolio
    
    $
    9,460,350
    
    
    $
    10,072,538Additions to servicing portfolio
    
    
    105,090
    
    
    
    60,333Servicing sold and released due to repurchases
    
    
    (19,455
    )
    
    
    Run-off(3)
    
    
    (278,472
    )
    
    
    (258,373
    )Ending servicing portfolio
    
    $
    9,267,513
    
    
    $
    9,874,498Selected Data Regarding Mortgage Loans Serviced for Third Parties:Number of loans
    
    
    109,821
    
    
    
    117,344Weighted- average interest rate
    
    
    6.39
    %
    
    
    6.45
    %Weighted- average remaining maturity (months)
    
    
    245
    
    
    
    249Weighted- average gross servicing fee rate
    
    
    0.40
    %
    
    
    0.40
    %Average servicing portfolio(4)
    
    $
    9,363,932
    
    
    $
    9,973,518Principal prepayments
    
    $
    167,556
    
    
    $
    160,228Constant prepayment rate
    
    
    7
    %
    
    
    6
    %Average size of loans
    
    $
    84,387
    
    
    $
    84,150Servicing assets, net
    
    $
    104,426
    
    
    $
    139,570Mortgage-servicing advances
    
    $
    28,609
    
    
    $
    33,042Delinquent Mortgage Loans and Pending Foreclosures at Period End:60-89 days past due
    
    
    2.20
    %
    
    
    1.92
    %90 days or more past due
    
    
    3.65
    %
    
    
    2.04
    %Total delinquencies excluding foreclosures
    
    
    5.85
    %
    
    
    3.96
    %Foreclosures pending
    
    
    2.69
    %
    
    
    2.51
    %
 
 (1)
    
    Excludes $4.2 billion and $3.7 billion of mortgage loans owned by Doral Financial at March 31, 2009 and 2008, respectively.(2)
    
    Includes portfolios of $169.0 million and $193.5 million at March 31, 2009 and 2008, 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 $4.2 billion and $3.6 billion as of March 31, 2009 and 2008, respectively. 64




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Liquidity of the Holding Company
     65




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##### Table of Contents



Liquidity of the Banking Subsidiaries
  Cash Sources and Uses
    66




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##### Table of Contents



Primary Sources of Cash
  TABLE K
SOURCES OF BORROWINGS
 AS OF MARCH 31, 2009
    
    AS OF DECEMBER 31, 2008AMOUNT
    
    AVERAGE
    
    AMOUNT
    
    AVERAGE(Dollars in thousands)
    
    OUTSTANDING
    
    RATE
    
    OUTSTANDING
    
    RATEDeposits
    
    $
    4,051,242
    
    
    
    3.11
    %
    
    $
    4,402,772
    
    
    
    3.58
    %Repurchase Agreements
    
    
    1,947,024
    
    
    
    3.59
    %
    
    
    1,907,447
    
    
    
    3.62
    %Advances from FHLB
    
    
    1,600,400
    
    
    
    3.41
    %
    
    
    1,623,400
    
    
    
    3.83
    %Other short-term borrowings
    
    
    731,000
    
    
    
    0.25
    %
    
    
    351,600
    
    
    
    0.52
    %Loans Payable
    
    
    360,931
    
    
    
    7.26
    %
    
    
    366,776
    
    
    
    7.27
    %Notes Payable
    
    
    275,626
    
    
    
    7.31
    %
    
    
    276,868
    
    
    
    7.31
    %
   TABLE L
AVERAGE DEPOSIT BALANCE
 QUARTER ENDED
    
    
    YEAR ENDEDMARCH 31, 2009
    
    
    DECEMBER 31, 2008AVERAGE
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    AVERAGE(Dollars in thousands)
    
    BALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATECertificates of deposit
    
    $
    2,889,147
    
    
    
    4.62
    %
    
    $
    2,994,604
    
    
    
    4.45
    %Regular passbook savings
    
    
    349,930
    
    
    
    1.89
    %
    
    
    332,032
    
    
    
    2.56
    %NOW accounts and other transaction accounts
    
    
    348,454
    
    
    
    1.45
    %
    
    
    381,848
    
    
    
    1.57
    %Money market accounts
    
    
    323,952
    
    
    
    2.99
    %
    
    
    294,847
    
    
    
    3.07
    %Total interest-bearing
    
    
    3,911,483
    
    
    
    3.96
    %
    
    
    4,003,331
    
    
    
    3.91
    %Non-interest bearing
    
    
    243,328
    
    
    
    
    
    
    
    254,566
    
    
    
    Total deposits
    
    $
    4,154,811
    
    
    
    3.73
    %
    
    $
    4,257,897
    
    
    
    3.68
    %
  TABLE M
CERTIFICATES OF DEPOSIT MATURITIES
 (In thousands)
    
    AMOUNTCertificates of deposit maturing:Three months or less
    
    $
    355,845Over three through six months
    
    
    139,199Over six through twelve months
    
    
    1,013,250Over twelve months
    
    
    891,173Total
    
    $
    2,399,467
 67




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Other Uses of Cash
  68




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##### Table of Contents



REGULATORY CAPITAL RATIOS
  69




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##### Table of Contents



TABLE N
REGULATORY CAPITAL RATIOS
 As of March 31, 2009DORAL
    
    DORAL
    
    DORALFINANCIAL(2)
    
    BANK PR
    
    BANK NYTotal Capital Ratio (Total capital to risk- weighted assets)
    
    16.2
    %
    
    
    
    13.8
    %
    
    
    16.8
    %Tier 1 Capital Ratio (Tier 1 capital to risk- weighted assets)
    
    11.8
    %
    
    
    
    12.6
    %
    
    
    16.4
    %Leverage Ratio(1)
    
    7.2
    %
    
    
    
    6.3
    %
    
    
    11.1
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR and Tier 1 capital
to adjusted total assets in the case of Doral Bank NY.(2)
    
    Doral Financial was not subject to regulatory capital requirements as of March 31, 2009. Ratios
were prepared as if the company were subject to the requirement for comparability purposes. As of December 31, 2008DORAL
    
    DORAL
    
    DORALFINANCIAL(2)
    
    BANK PR
    
    BANK NYTotal Capital Ratio (Total capital to risk- weighted assets)
    
    
    17.1
    %
    
    
    15.5
    %
    
    
    19.1
    %Tier 1 Capital Ratio (Tier 1 capital to risk- weighted assets)
    
    
    13.8
    %
    
    
    14.3
    %
    
    
    18.5
    %Leverage Ratio(1)
    
    
    7.6
    %
    
    
    6.4
    %
    
    
    15.0
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR and Tier 1 capital to
adjusted total assets in the case of Doral Bank NY.(2)
    
    Doral Financial was not subject to regulatory capital requirements as of December 31, 2008. Ratios
were prepared as if the company were subject to the requirement for comparability purposes.   Legal Proceedings
  ASSETS AND LIABILITIES
  70




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FAIR VALUE OF FINANCIAL INSTRUMENTS
  Fair Value Measurements The
Fair Value Option for Financing Assets and Financing Liabilities
   Level 1
  Level 2
  Level 3
   71




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##### Table of Contents



Assets and Liabilities Recorded at Fair Value on a Recurring Basis using Level 3
Measurements
   Securities held for trading:
 Securities available for sale:
 Servicing assets:
 72




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##### Table of Contents



Securities
    
    
    Securities
    
    
    Servicing(In thousands)
    
    Held for Trading
    
    
    Available for Sale
    
    
    AssetsMarch 31, 2009Beginning balance
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396Change in fair value
    
    
    (2,368
    )
    
    
    (35,797
    )
    
    
    (11,353
    )Principal repayment
/amortization of premium
and discount
    
    
    
    
    
    
    (8,861
    )
    
    
    Capitalization / sales, net
    
    
    
    
    
    
    
    
    
    
    1,383Ending balance
    
    $
    50,542
    
    
    $
    345,976
    
    
    $
    104,426December 31, 2008Beginning balance
    
    $
    67,992
    
    
    $
    6,366
    
    
    $
    150,238Change in fair value
    
    
    (803
    )
    
    
    62,878
    
    
    
    (42,642
    )Principal repayment
/amortization of premium
and discount
    
    
    (91
    )
    
    
    (11,134
    )
    
    
    Transfer
    
    
    (14,188
    )
    
    
    332,524
    
    
    
    Capitalization / sales, net
    
    
    
    
    
    
    
    
    
    
    6,800Ending balance
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396
  Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis using Level 3
Measurements
  (In thousands)
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3March 31, 2009Loans receivable (1)
    
    $
    89,346
    
    
    $
    
    
    
    $
    
    
    
    $
    89,346Real estate held for sale(2)
    
    
    14,043
    
    
    
    
    
    
    
    
    
    
    
    14,043Total
    
    $
    103,389
    
    
    $
    
    
    
    $
    
    
    
    $
    103,389December 31, 2008Loans receivable(1)
    
    $
    77,966
    
    
    $
    
    
    
    $
    
    
    
    $
    77,966
 
 (1)
    
    Represents the carrying value and related write-downs of 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. 73




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##### Table of Contents



Loss for the Quarter EndedLocation of Loss Recognized in
    
    March 31,(In thousands)
    
    the Income Statement
    
    2009
    
    
    2008Loans receivable
    
    Provision for loan and lease losses
    
    $
    (706
    )
    
    $
    (4,553
    )Real estate held for sale
    
    Other expenses
    
    $
    (1,406
    )
    
    $
    
  OFF-BALANCE SHEET ACTIVITIES
     74




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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
  75




---



##### Table of Contents



TABLE O
CONTRACTUAL OBLIGATIONS
 PAYMENT DUE BY PERIOD(In thousands)
    
    
    
    
    
    LESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTERCONTRACTUAL OBLIGATIONS
    
    TOTAL
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSDeposits
    
    $
    4,051,242
    
    
    $
    3,111,726
    
    
    $
    511,693
    
    
    $
    227,345
    
    
    $
    200,478Repurchase agreements(1) (2)
    
    
    1,947,024
    
    
    
    652,216
    
    
    
    688,308
    
    
    
    606,500
    
    
    
    Advances from FHLB(1) (2)
    
    
    1,600,400
    
    
    
    698,480
    
    
    
    652,920
    
    
    
    249,000
    
    
    
    Other short-term borrowings
    
    
    731,000
    
    
    
    731,000
    
    
    
    
    
    
    
    
    
    
    
    Loans payable(3)
    
    
    360,931
    
    
    
    47,546
    
    
    
    85,742
    
    
    
    65,622
    
    
    
    162,021Notes payable
    
    
    275,626
    
    
    
    6,463
    
    
    
    12,309
    
    
    
    43,294
    
    
    
    213,560Other liabilities
    
    
    107,967
    
    
    
    107,967
    
    
    
    
    
    
    
    
    
    
    
    Non-cancelable operating leases
    
    
    44,567
    
    
    
    5,695
    
    
    
    9,637
    
    
    
    8,523
    
    
    
    20,712Total Contractual Cash Obligations
    
    $
    9,118,757
    
    
    $
    5,361,093
    
    
    $
    1,960,609
    
    
    $
    1,200,284
    
    
    $
    596,771
 
 (1)
    
    Amounts included in the table above do not include interest.(2)
    
    Includes $278.5 million of repurchase agreements with an average rate of 4.88% and $304.0 million in advances from
FHLB-NY with an average rate of 5.40%,which the lenders have the right to call before their contractual maturities. The majority of
such repurchase agreements and advances from FHLB-NY are included in the less than one year category in the above table but have actual
contractual maturities ranging from July 2009 to February 2014. They are included on the first call date basis because increases in
interest rates over the average rate of the Companys callable borrowings may induce the lenders to exercise their call right.(3)
    
    Secured borrowings with local financial institutions, collateralized by real estate mortgage loans at variable
interest rates tied to 3-month LIBOR. These loans are not subject to scheduled payments, but are 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 12.2% to estimate the repayments. TABLE P
OTHER COMMERCIAL COMMITMENTS (1)
 AMOUNT OF COMMITMENT EXPIRATION PER PERIODTOTAL(In thousands)
    
    AMOUNT
    
    
    LESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTEROTHER COMMERCIAL COMMITMENTS
    
    COMMITTED
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSCommitments to extend credit
    
    $
    119,647
    
    
    $
    113,438
    
    
    $
    5,747
    
    
    $
    22
    
    
    $
    440Commitments to sell loans
    
    
    277,807
    
    
    
    277,807
    
    
    
    
    
    
    
    
    
    
    
    Commercial and financial standby letters of credit
    
    
    325
    
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    Maximum contractual recourse exposure
    
    
    976,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    976,324Total
    
    $
    1,374,103
    
    
    $
    391,570
    
    
    $
    5,747
    
    
    $
    22
    
    
    $
    976,764
 
 (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
   76




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##### Table of Contents




    
    developing the Companys asset/liability management and liquidity strategy;
    
    recommending for Board approval asset/liability and liquidity risk limits that are
consistent with the Companys policies;
    
    overseeing product pricing and volume objectives for customer-related activities;
    
    overseeing the Companys secondary market activities;
    
    monitoring compliance with risk limits and judging adequacy of the execution of tactics
by the Funds Management Group; and
    
    overseeing the maintenance of management information systems that supply, on a timely
basis, the information and data necessary for the ALCO to fulfill its role as the Companys
asset/liability manager.
 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 and repricing characteristics of Doral
Financials interest-earning assets and interest-bearing liabilities. To measure net
interest income exposure to changes in market interest rates, the Company uses earning
simulations techniques. These simulations techniques allow for the forecasting of net
interest income and expenses 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 therefore is a measure focused on short to medium
term risk. The basic underlying assumptions for net interest income simulations are: (a)
static balance sheet; (b) full reinvestment of funds in similar
 77




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##### Table of Contents



product/instruments with similar maturity and repricing characteristics; (c) spread risk
modeled and assumed constant; (d) prepayment rates on mortgages and mortgage related
securities modeled using multi-factor prepayment model; and (e) non-maturity deposit
run-offs and embedded options are also taken into account as part of net interest income
simulations and risk measurements.
    
    Market Value of Equity Sensitivity.Used to capture and measure the risks associated
with longer-term maturity and re-pricing imbalances. Doral Financial uses value simulations
techniques for all financial components of the Statement of Financial Condition. Valuation
techniques include static cash flows analyses, stochastic models to qualify value of
embedded options and prepayment modeling. To complement and broaden the risk analysis, the
Company uses duration and convexity analysis to measure the sensitivity of the market value
of equity to changes in interest rates. Duration 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 rates changes on Doral Financials capital. The measure summarizes
the net sensitivity of assets and liabilities, adjusted for off-balance sheet positions.
The stated threshold for Doral Financial effective duration of equity is +/- 12 years.
 Interest Rate Risk Management Strategy
  Net Interest Income Risk.
  Market Value of Equity Hedging Strategies
 Duration Risk
 
    
    Interest rate swaps
    
    Swaptions
    
    Eurodollar futures
    
    Treasury futures
 78




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##### Table of Contents



Convexity Risk
 
    
    Swaptions
    
    Put and call options on Eurodollar futures
    
    Put and call options on agency mortgage-backed securities
    
    Put and call options on treasury futures
  Doral Financials Risk Profile
   79




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##### Table of Contents



Market Value
    
    Net Interest IncomeAs of March 31, 2009
    
    Of Equity Risk
    
    Risk(1)+ 100 BPS
    
    
    (0.77
    )%
    
    
    19.89
    %- 100 BPS
    
    
    1.73
    %
    
    
    3.81
    %
 Market Value of
    
    Net Interest IncomeAs of December 31, 2008
    
    Equity Risk
    
    Risk(1)+ 100 BPS
    
    
    (0.3
    )%
    
    
    15.9
    %- 100 BPS
    
    
    1.2
    %
    
    
    2.2
    %
 
 (1)
    
    Based on 12-month forward change in net interest income.    March 31, 2009
    
    December 31, 2008(In thousands)
    
    Change in Fair
    
    Change in FairChange in Interest
    
    Value of
    
    Value ofRates (Basis
    
    Available for
    
    Available forPoints)
    
    Sale Securities
    
    Sale Securities+200
    
    
    $
    (187,228
    )
    
    $
    (169,044
    )+100
    
    
    
    (87,178
    )
    
    
    (72,832
    )Base
    
    
    
    
    
    
    -100
    
    
    
    69,400
    
    
    
    47,100-200
    
    
    
    131,051
    
    
    
    80,303
  Derivatives
  80




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TABLE Q  INTEREST RATE CAPS
 (Dollars in thousands)NOTIONAL
    
    MATURITY
    
    ENTITLED PAYMENT
    
    PREMIUM
    
    
    FAIRAMOUNT
    
    DATE
    
    CONDITIONS
    
    PAID
    
    
    VALUE$25,000
    
    September, 2010
    
    1-month LIBOR over 5.00%
    
    $
    205
    
    
    $
    15,000
    
    September, 2011
    
    1-month LIBOR over 5.50%
    
    
    134
    
    
    
    515,000
    
    September, 2012
    
    1-month LIBOR over 6.00%
    
    
    143
    
    
    
    1535,000
    
    October, 2010
    
    1-month LIBOR over 5.00%
    
    
    199
    
    
    
    15,000
    
    October, 2011
    
    1-month LIBOR over 5.00%
    
    
    172
    
    
    
    515,000
    
    October, 2012
    
    1-month LIBOR over 5.50%
    
    
    182
    
    
    
    1750,000
    
    November, 2012
    
    1-month LIBOR over 6.50%
    
    
    228
    
    
    
    3350,000
    
    November, 2012
    
    1-month LIBOR over 5.50%
    
    
    545
    
    
    
    5650,000
    
    November, 2012
    
    1-month LIBOR over 6.00%
    
    
    350
    
    
    
    43$270,000
    
    
    
    
    
    $
    2,158
    
    
    $
    174
  TABLE R  INTEREST RATE SWAPS
 (Dollars in thousands)NOTIONAL
    
    MATURITY
    
    PAY
    
    
    RECEIVE
    
    FAIRAMOUNT
    
    DATE
    
    FIXED RATE
    
    
    FLOATING RATE
    
    VALUECASH FLOW HEDGE$200,000
    
    July, 2010
    
    
    3.00
    %
    
    3-month LIBOR minus 0.04%
    
    $
    (5,351
    )10,000
    
    September, 2009
    
    
    4.57
    %
    
    1-month LIBOR plus 0.02%
    
    
    (184
    )8,000
    
    September, 2010
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (431
    )3,000
    
    September, 2011
    
    
    4.69
    %
    
    1-month LIBOR plus 0.02%
    
    
    (254
    )10,000
    
    October, 2009
    
    
    4.30
    %
    
    1-month LIBOR plus 0.04%
    
    
    (198
    )8,000
    
    October, 2010
    
    
    4.37
    %
    
    1-month LIBOR plus 0.02%
    
    
    (419
    )6,000
    
    October, 2011
    
    
    4.51
    %
    
    1-month LIBOR plus 0.05%
    
    
    (487
    )5,000
    
    October, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.05%
    
    
    (521
    )20,000
    
    November, 2009
    
    
    4.35
    %
    
    1-month LIBOR plus 0.02%
    
    
    (459
    )15,000
    
    November, 2010
    
    
    4.42
    %
    
    1-month LIBOR
    
    
    (834
    )15,000
    
    November, 2011
    
    
    4.55
    %
    
    1-month LIBOR plus 0.02%
    
    
    (1,268
    )45,000
    
    November, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (4,813
    )$345,000
    
    
    
    
    
    
    
    
    
    $
    (15,219
    )
 Freestanding Derivatives.
 81




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##### Table of Contents



Derivatives  Hedge Accounting.
  TABLE S  DERIVATIVES POSITIONS
 March 31, 2009
    
    
    December 31, 2008Notional
    
    
    Fair
    
    
    Notional
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueCash flow HedgesInterest
rate swaps
    
    $
    345,000
    
    
    $
    (15,219
    )
    
    $
    345,000
    
    
    $
    (15,096
    )Other derivativesInterest rate caps
    
    
    270,000
    
    
    
    174
    
    
    
    270,000
    
    
    
    287Forward contracts
    
    
    31,000
    
    
    
    (457
    )
    
    
    35,000
    
    
    
    (187
    )301,000
    
    
    
    (283
    )
    
    
    305,000
    
    
    
    100$
    646,000
    
    
    $
    (15,502
    )
    
    $
    650,000
    
    
    $
    (14,996
    )
  TABLE T  FAIR VALUE RECONCILIATION
 Quarter Ended(In thousands)
    
    March 31, 2009Fair value of contracts outstanding at the beginning of the period
    
    $
    100Changes in fair values during the period
    
    
    (383
    )Fair value of contracts outstanding at the end of the period
    
    $
    (283
    )
 82




---



##### Table of Contents



TABLE U  SOURCES OF FAIR VALUE
 Payment Due by PeriodMaturity
    
    
    
    
    
    
    
    
    
    
    Maturity(In thousands)
    
    less than
    
    
    Maturity
    
    
    Maturity
    
    
    in excess
    
    
    Total FairAs of March 31, 2009
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    of 5 Years
    
    
    ValuePrices actively quoted
    
    $
    (457
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (457
    )Prices provided by
internal sources
    
    
    
    
    
    
    11
    
    
    
    163
    
    
    
    
    
    
    
    174$
    (457
    )
    
    $
    11
    
    
    $
    163
    
    
    $
    
    
    
    $
    (283
    )
   TABLE V  DERIVATIVE COUNTERPARTY CREDIT EXPOSURE
 March 31, 2009Weighted Average(Dollars in thousands)
    
    Number of
    
    
    
    
    
    
    Total Exposure
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    At Fair Value(3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    154
    
    
    $
    
    
    
    $
    154
    
    
    
    3.20A+
    
    
    2
    
    
    
    421,000
    
    
    
    20
    
    
    
    (15,535
    )
    
    
    (15,515
    )
    
    
    1.66A
    
    
    1
    
    
    
    10,000
    
    
    
    
    
    
    
    (141
    )
    
    
    (141
    )
    
    
    0.05Total Derivatives
    
    
    4
    
    
    $
    646,000
    
    
    $
    174
    
    
    $
    (15,676
    )
    
    $
    (15,502
    )
    
    
    2.15
 
 (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). 83




---



##### Table of Contents



December 31, 2008Weighted Average(Dollars
in thousands)
    
    Number of
    
    
    
    
    
    
    Total Exposure
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    At Fair Value(3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    259
    
    
    $
    
    
    
    $
    259
    
    
    
    3.45A+
    
    
    2
    
    
    
    410,000
    
    
    
    28
    
    
    
    (15,137
    )
    
    
    (15,109
    )
    
    
    1.95A
    
    
    1
    
    
    
    25,000
    
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )
    
    
    0.07Subtotal
    
    
    4
    
    
    $
    650,000
    
    
    $
    287
    
    
    $
    (15,283
    )
    
    $
    (14,996
    )
    
    
    2.37
 
 (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
      84




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##### Table of Contents



Accounting by Debtors and Creditors of Troubled Debt
Restructurings Accounting by Creditors for Impairment of a Loan
 Non-performing Assets and Allowance for Loan and Lease Losses
   85




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TABLE W
NON-PERFORMING ASSETS
(Dollars in thousands)
 AS OF
    
    
    AS OFMARCH 31, 2009
    
    
    DECEMBER 31, 2008Non-performing loans:Residential mortgage loans  held for sale (1)
    
    $
    4,964
    
    
    $
    4,942Residential mortgage loans  held for investment
    
    
    377,841
    
    
    
    346,579Total non-performing residential mortgage loans(2)
    
    
    382,805
    
    
    
    351,521Other lending activities:Construction loans
    
    
    247,999
    
    
    
    215,080Commercial real estate loans
    
    
    130,630
    
    
    
    116,841Commercial real estate loans  held for sale
    
    
    1,957
    
    
    
    1,130Consumer loans
    
    
    391
    
    
    
    685Commercial non-real estate loans
    
    
    3,546
    
    
    
    1,751Lease financing receivable
    
    
    849
    
    
    
    1,053Land loans
    
    
    43,617
    
    
    
    29,613Total non-performing other lending activities
    
    
    428,989
    
    
    
    366,153Total non-performing loans
    
    
    811,794
    
    
    
    717,674Loans past due 90 days and still accruingConstruction loans(3)
    
    
    3,051
    
    
    
    Consumer loans(4)
    
    
    3,353
    
    
    
    2,603Commercial non-real estate loans(4)
    
    
    1,482
    
    
    
    1,428Total loans past due 90 days and still accruing
    
    
    7,886
    
    
    
    4,031Repossessed Units
    
    
    225
    
    
    
    191OREO(5)
    
    
    70,208
    
    
    
    61,340Total NPAs of Doral Financial (consolidated)
    
    $
    890,113
    
    
    $
    783,236Total NPAs as a percentage of the loan portfolio, net, and
OREO (excluding GNMA defaulted loans)
    
    
    16.46
    %
    
    
    14.50
    %Total NPAs of Doral Financial as a percentage of
consolidated total assets
    
    
    8.80
    %
    
    
    7.73
    %Total non-performing loans to total loans (excluding GNMA
defaulted loans)
    
    
    14.81
    %
    
    
    13.11
    %Ratio of allowance for loan and lease losses to total non-performing loans (excluding loans held for sale) at end of
period(6)
    
    
    17.88
    %
    
    
    18.55
    %
 
 (1)
    
    Does not include approximately $173.9 million and $165.6 million of GNMA defaulted loans (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 March 31, 2009 and December 31, 2008, respectively.(2)
    
    Includes approximately $8.5 million and $5.3 million of FHA and VA loans where the principal balance of these loans is insured or guaranteed under applicable
programs and interest is, in most cases, fully recovered in foreclosure proceedings as of March 31, 2009 and December 31, 2008, respectively.(3)
    
    Relates to a matured construction loan that was performing as of March 31, 2009.(4)
    
    Relates to revolving lines of credit ànd credit cards that are still accruing until 180 days delinquent.(5)
    
    Excludes FHA and VA claims amounting to $15.8 million and $17.0 million as of March 31, 2009 and December 31, 2008, respectively.(6)
    
    Refer to non-performing loans and allowance for loan and lease losses above for additional information regarding the Companys methodology for assessing the
adequacy of the allowance for loan and lease losses. 86




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##### Table of Contents



TABLE X
COMPOSITION OF MORTGAGE NON-PERFORMING ASSETS
 COLLATERAL TYPE
    
    LOAN TO VALUE
    
    DISTRIBUTIONFHA/VA loans
    
    
    
    
    
    
    2.9
    %Loans with private mortgage insurance
    
    
    
    
    
    
    7.8
    %Loans with no mortgage insurance
    
    
    < 60
    %
    
    
    15.4
    %61-80
    %
    
    
    47.2
    %81-90
    %
    
    
    17.9
    %Over 91%
    
    
    8.8
    %Total loans
    
    
    
    
    
    
    100.0
    %
    87




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##### Table of Contents



As of
    
    As of(Dollars in thousands)
    
    March 31, 2009
    
    December 31, 2008Construction loans(1)
    
    $
    462,174
    
    
    $
    506,031Total undisbursed funds under existing commitments(2)
    
    
    58,081
    
    
    
    54,160Total non-performing construction loans
    
    
    247,999
    
    
    
    215,080Net charge offs  Construction loans
    
    
    3,946
    
    
    
    21,749Allowance for loan losses  Construction loans
    
    
    49,568
    
    
    
    45,159Non-performing construction loans to total construction loans
    
    
    53.7
    %
    
    
    42.5
    %Allowance for loan losses  construction loans to total
construction loans
    
    
    10.7
    %
    
    
    8.9
    %Net charge-offs to total construction loans
    
    
    0.9
    %
    
    
    4.3
    %
 
 (1)
    
    Includes $332.2 million and $422.6 million of construction loans for residential housing projects as of March 31, 2009
and December 31, 2008, respectively. Also includes $130.0 million and $83.4 million of construction loans for commercial, condominiums
and multifamily projects as of March 31, 2009 and December 31, 2008, respectively.(2)
    
    Excludes undisbursed funds to matured loans and loans in non-accrual status. 88




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##### Table of Contents



TABLE Y
ALLOWANCE FOR LOAN AND LEASE
LOSSES
 QUARTER ENDEDMARCH 31,(Dollars in thousands)
    
    2009
    
    
    2008Allowance for Loan and Lease Losses:Balance at beginning of period
    
    $
    132,020
    
    
    $
    124,733Provision (recovery) for loan and lease losses:Construction loans
    
    
    8,355
    
    
    
    (3,482
    )Residential mortgage loans
    
    
    4,396
    
    
    
    2,549Commercial real estate loans
    
    
    6,089
    
    
    
    3,076Consumer loans
    
    
    2,464
    
    
    
    2,097Lease financing
    
    
    349
    
    
    
    33Commercial non-real estate loans
    
    
    1,285
    
    
    
    1,141Land secured loans
    
    
    687
    
    
    
    (628
    )Total provision for loan and lease losses
    
    
    23,625
    
    
    
    4,786Charge  offs:Construction loans
    
    
    (3,946
    )
    
    
    (4,553
    )Residential mortgage loans
    
    
    (1,033
    )
    
    
    (426
    )Commercial real estate loans
    
    
    (2,034
    )
    
    
    (1,033
    )Consumer loans
    
    
    (2,834
    )
    
    
    (2,420
    )Lease financing
    
    
    (286
    )
    
    
    (178
    )Commercial non-real estate loans
    
    
    (1,837
    )
    
    
    (443
    )Total charge-offs
    
    
    (11,970
    )
    
    
    (9,053
    )Recoveries:Commercial real estate loans
    
    
    17
    
    
    
    13Consumer loans
    
    
    182
    
    
    
    501Lease financing
    
    
    19
    
    
    
    159Commercial non-real estate loans
    
    
    7
    
    
    
    43Total recoveries
    
    
    225
    
    
    
    716Net charge-offs
    
    
    (11,745
    )
    
    
    (8,337
    )Balance at end of period
    
    $
    143,900
    
    
    $
    121,182Allowance for loan losses as a percentage of
loans receivable outstanding, at the end of period
    
    
    2.73
    %
    
    
    2.35
    %Provision for loan losses to net charge-offs on an
annualized basis
    
    
    201.15
    %
    
    
    57.41
    %Net charge-offs on an annualized basis to average
loans receivable outstanding
    
    
    0.91
    %
    
    
    0.66
    %Allowance for loan and lease losses to net
charge-offs on an annualized basis
    
    
    302.10
    %
    
    
    361.40
    %
 89




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##### Table of Contents



TABLE Z
ALLOCATION OF ALLOWANCE FOR LOAN
AND LEASE LOSSES
 March 31, 2009
    
    
    December 31, 2008(Dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentLoans receivable:Construction
    
    $
    49,568
    
    
    
    9
    %
    
    $
    45,159
    
    
    
    10
    %Residential mortgage loans
    
    
    36,389
    
    
    
    70
    %
    
    
    33,026
    
    
    
    69
    %Commercial
 secured by real estate
    
    
    31,148
    
    
    
    15
    %
    
    
    27,076
    
    
    
    14
    %Consumer
    
    
    7,776
    
    
    
    2
    %
    
    
    7,964
    
    
    
    2
    %Lease financing receivable
    
    
    1,394
    
    
    
    0
    %
    
    
    1,312
    
    
    
    0
    %Commercial non-real estate
    
    
    3,745
    
    
    
    2
    %
    
    
    4,290
    
    
    
    3
    %Land secured
    
    
    13,880
    
    
    
    2
    %
    
    
    13,193
    
    
    
    2
    %Total
    
    $
    143,900
    
    
    
    100
    %
    
    $
    132,020
    
    
    
    100
    %
    Accounting by Creditors for Impairment of a Loan
 90




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##### Table of Contents



MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2009
    
    
    2008Impaired loans with allowance
    
    $
    233,500
    
    
    $
    207,949Impaired loans without allowance
    
    
    155,381
    
    
    
    120,378Total impaired loans
    
    $
    388,881
    
    
    $
    328,327Related allowance
    
    $
    50,645
    
    
    $
    45,099Average impaired loans
    
    $
    358,604
    
    
    $
    317,844
  Accounting for Contingencies
   91




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##### Table of Contents



Operational Risk
  Overview of Operational Risk Management
  Internal Control Over Financial Reporting
 Controls and Procedures
 Liquidity Risk
  General Business, Economic and Political Conditions
     92




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##### Table of Contents



Current Puerto Rico Government Fiscal Conditions
   
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.  CONTROLS AND PROCEDURES
 Disclosure Control and Procedures
  93




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 Risk Factors
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  94




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##### Table of Contents



ITEM 6. EXHIBITS
 (a)
    
    Exhibits
   95




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##### Table of Contents



SIGNATURES
  DORAL FINANCIAL CORPORATION(Registrant)Date: May 7, 2009
    
    /s/ Glen R. WakemanGlen R. WakemanChief Executive Officer and PresidentDate: May 7, 2009
    
    /s/ Robert E. WahlmanRobert E. WahlmanExecutive Vice President andChief Financial Officer
 96




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    
    
    Description10.1
    
    
    
    Employment Agreement, dated as of March 24, 2009, between Doral Financial and
Robert E. Wahlman. (Incorporated herein by reference to Exhibit 99.2 to Doral
Financials Current Report on Form 8-K filed with the Commission on March 26,
2009.)12.1
    
    -
    
    Computation of Ratio of Earnings to Fixed Charges.12.2
    
    -
    
    Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.31.1
    
    -
    
    CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    -
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    -
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 97