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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, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___________________ to ___________________
 COMMISSION FILE NUMBER 001-31579
 DORAL FINANCIAL CORPORATION
  Puerto Rico
    
    66-0312162(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. employer
identification number)1451 F.D. Roosevelt Avenue, 
San Juan, Puerto Rico
(Address of principal executive offices)
    
    00920-2717
(Zip Code)
 
 
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ

    Smaller reporting company
o(Do not check if a smaller reporting company)
  o þ




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##### 



DORAL FINANCIAL CORPORATION
INDEX PAGE
  
 PAGEPART I  FINANCIAL INFORMATION
    
    
    3Item 1   Financial Statements
    
    
    3Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Operations (Unaudited)  Quarters ended March 31, 2010 and March 31, 2009
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)  Quarters ended March 31, 2010 and March 31, 2009
    
    
    5Consolidated Statements of Comprehensive Income (Loss) (Unaudited)  Quarters ended March 31, 2010 and March 31, 2009
    
    
    6Consolidated Statements of Cash Flows (Unaudited)  Quarters ended March 31, 2010 and March 31, 2009
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    55Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    103Item 4  Controls and Procedures
    
    
    103PART II  OTHER INFORMATION
    
    
    104Item 1   Legal Proceedings
    
    
    104Item 1A   Risk Factors
    
    
    104Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    119Item 3   Defaults Upon Senior Securities
    
    
    119Item 4   Removed and Reserved
    
    
    119Item 5   Other Information
    
    
    119Item 6 Exhibits
    
    
    120SIGNATURES
    
    
    124EX-10.15EX-10.16EX-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)
    
    2010
    
    
    2009ASSETSCash and due from banks
    
    $
    312,190
    
    
    $
    725,277Other interest-earning assets
    
    
    48,772
    
    
    
    95,000Securities held for trading, at fair value
    
    
    44,600
    
    
    
    47,726Securities available for sale, at fair value (includes $1,306,670 and $1,402,906
pledged as collateral at March 31, 2010, and December 31, 2009, respectively, that
may be repledged)
    
    
    2,099,336
    
    
    
    2,789,177Federal Home Loan Bank of NY (FHLB) stock, at cost
    
    
    110,354
    
    
    
    126,285Total investment securities
    
    
    2,254,290
    
    
    
    2,963,188Loans:Loans held for sale, at lower of cost or market
    
    
    335,761
    
    
    
    320,930Loans receivable
    
    
    5,506,413
    
    
    
    5,516,891Less: Unearned interest
    
    
    (919
    )
    
    
    (1,083
    )Less: Allowance for loan and lease losses
    
    
    (147,481
    )
    
    
    (140,774
    )Total net loans receivable
    
    
    5,358,013
    
    
    
    5,375,034Total loans, net
    
    
    5,693,774
    
    
    
    5,695,964Accounts receivable
    
    
    123,929
    
    
    
    60,478Mortgage-servicing advances
    
    
    30,361
    
    
    
    19,592Accrued interest receivable
    
    
    41,603
    
    
    
    41,866Servicing assets, net
    
    
    118,236
    
    
    
    118,493Premises and equipment, net
    
    
    99,768
    
    
    
    101,437Real estate held for sale, net
    
    
    100,345
    
    
    
    94,219Deferred tax asset (DTA)
    
    
    131,477
    
    
    
    131,201Receivables from brokers/dealers
    
    
    587,493
    
    
    
    Other assets
    
    
    170,650
    
    
    
    185,237Total assets
    
    $
    9,712,888
    
    
    $
    10,231,952LIABILITIESDeposits:Non-interest-bearing deposits
    
    $
    225,270
    
    
    $
    353,516Interest-bearing deposits
    
    
    4,360,939
    
    
    
    4,289,505Total deposits
    
    
    4,586,209
    
    
    
    4,643,021Securities sold under agreements to repurchase
    
    
    1,909,000
    
    
    
    2,145,262Advances from FHLB
    
    
    1,472,920
    
    
    
    1,606,920Other short-term borrowings
    
    
    
    
    
    
    110,000Loans payable
    
    
    329,706
    
    
    
    337,036Notes payable
    
    
    269,496
    
    
    
    270,838Accrued expenses and other liabilities
    
    
    283,206
    
    
    
    243,831Total liabilities
    
    
    8,850,537
    
    
    
    9,356,908Commitments and contingencies (Please refer to Notes 26 and 27)STOCKHOLDERS EQUITYPreferred stock, $1 par value; 40,000,000 shares authorized; 5,811,391 shares
issued and outstanding, at aggregate liquidation preference value at March 31,
2010 (7,500,850 shares issued and outstanding, at aggregate liquidation preference
value at December 31, 2009):Perpetual noncumulative nonconvertible preferred stock (Series A, B and C)
    
    $
    148,700
    
    
    $
    197,388Perpetual cumulative convertible preferred stock
    
    
    203,382
    
    
    
    218,040Common stock, $0.01 par value; 300,000,000 shares authorized; 67,283,370 shares
issued and outstanding at March 31, 2010 (97,500,000 shares authorized
and 62,064,304 shares issued and outstanding at December 31, 2009)
    
    
    673
    
    
    
    621Additional paid-in capital
    
    
    1,047,387
    
    
    
    1,010,661Legal surplus
    
    
    23,596
    
    
    
    23,596Accumulated deficit
    
    
    (442,563
    )
    
    
    (463,781
    )Accumulated other comprehensive loss, net of income tax benefit of $19,899 and
$18,328 at March 31, 2010 and December 31, 2009, respectively
    
    
    (118,824
    )
    
    
    (111,481
    )Total stockholders equity
    
    
    862,351
    
    
    
    875,044Total liabilities and stockholders equity
    
    $
    9,712,888
    
    
    $
    10,231,952
  3




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 QUARTER ENDEDMARCH 31,(Dollars in thousands, except for per share data)
    
    2010
    
    
    2009Interest income:Loans
    
    $
    81,433
    
    
    $
    81,588Mortgage-backed securities (MBS)
    
    
    23,247
    
    
    
    27,381Interest-only strips (IOs)
    
    
    1,543
    
    
    
    1,628Investment securities
    
    
    865
    
    
    
    4,907Other interest-earning assets
    
    
    2,140
    
    
    
    990Total interest income
    
    
    109,228
    
    
    
    116,494Interest expense:Deposits
    
    
    26,700
    
    
    
    38,207Securities sold under agreements to repurchase
    
    
    18,024
    
    
    
    17,232Advances from FHLB
    
    
    13,973
    
    
    
    16,014Other short-term borrowings
    
    
    11
    
    
    
    436Loans payable
    
    
    1,649
    
    
    
    3,309Notes payable
    
    
    5,110
    
    
    
    5,226Total interest expense
    
    
    65,467
    
    
    
    80,424Net interest income
    
    
    43,761
    
    
    
    36,070Provision for loan and lease losses
    
    
    13,921
    
    
    
    23,625Net interest income after provision for loan and lease losses
    
    
    29,840
    
    
    
    12,445Non-interest income:Total other-than-temporary impairment (OTTI) losses
    
    
    (46,912
    )
    
    
    Portion of loss recognized in other comprehensive income (before taxes)
    
    
    33,653
    
    
    
    Net credit related OTTI losses
    
    
    (13,259
    )
    
    
    Net gain on mortgage loan sales and fees
    
    
    2,566
    
    
    
    1,719Net gain (loss) on trading activities
    
    
    1,774
    
    
    
    (7,328
    )Net gain (loss) on investment securities
    
    
    26,414
    
    
    
    (13
    )Net loss on
early repayment of debt
    
    
    (476
    )
    
    
    Servicing income (loss) (net of mark-to-market adjustment)
    
    
    6,744
    
    
    
    (2,775
    )Commissions, fees and other income
    
    
    12,821
    
    
    
    9,980Total non-interest income
    
    
    36,584
    
    
    
    1,583Non-interest expenses:Compensation and benefits
    
    
    16,435
    
    
    
    22,828Taxes, other than payroll and income taxes
    
    
    2,564
    
    
    
    2,488Advertising
    
    
    1,498
    
    
    
    1,448Professional services
    
    
    13,792
    
    
    
    6,127Communication expenses
    
    
    3,944
    
    
    
    4,408EDP expenses
    
    
    3,779
    
    
    
    3,616Occupancy expenses
    
    
    3,981
    
    
    
    4,001Office expenses
    
    
    1,285
    
    
    
    1,466Depreciation and amortization
    
    
    3,147
    
    
    
    3,453FDIC insurance expense
    
    
    5,191
    
    
    
    1,937Other real estate owned (OREO) losses and other related expenses
    
    
    4,597
    
    
    
    1,188Other
    
    
    7,185
    
    
    
    7,466Total non-interest expenses
    
    
    67,398
    
    
    
    60,426Loss before income taxes
    
    
    (974
    )
    
    
    (46,398
    )Income tax expense (benefit)
    
    
    2,529
    
    
    
    (108
    )Net loss
    
    $
    (3,503
    )
    
    $
    (46,290
    )Net income (loss) attributable to common shareholders
    
    $
    21,218
    
    
    $
    (54,615
    )Net income (loss) per common share(1)(2)
    
    $
    0.34
    
    
    $
    (1.01
    )
 
 (1)
    
    For the quarters ended March 31, 2010 and 2009, net income (loss) per common share represents
both the basic and diluted income
(loss) per common share, respectively, for each of the periods presented. Refer to Note 29 for additional information regarding net income (loss)
attributable to common shareholders.(2)
    
    For the quarter ended March 31, 2010, net income (loss) per common share included $26.6 million related to the effect of the preferred
stock exchange. Refer to Note 29 for additional information.  4




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (UNAUDITED)
 QUARTERS ENDED MARCH 31,(In thousands)
    
    2010
    
    
    2009PREFERRED STOCK:Balance at beginning of period
    
    $
    415,428
    
    
    $
    573,250Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    (48,687
    )
    
    
    Cumulative convertible
    
    
    (14,659
    )
    
    
    Balance at end of period
    
    
    352,082
    
    
    
    573,250COMMON STOCK:Balance at beginning of period
    
    
    621
    
    
    
    538Common stock issued/converted:Noncumulative nonconvertible
    
    
    40
    
    
    
    Cumulative convertible
    
    
    12
    
    
    
    Balance at end of period
    
    
    673
    
    
    
    538ADDITIONAL PAID-IN CAPITAL:Balance at beginning of period
    
    
    1,010,661
    
    
    
    849,172Stock-based compensation recognized
    
    
    17
    
    
    
    51Conversion of preferred stock to common stock at par value:Noncumulative nonconvertible
    
    
    17,010
    
    
    
    Cumulative convertible
    
    
    19,699
    
    
    
    Balance at end of period
    
    
    1,047,387
    
    
    
    849,223LEGAL SURPLUS
    
    
    23,596
    
    
    
    23,596ACCUMULATED DEFICIT:Balance at beginning of period
    
    
    (463,781
    )
    
    
    (418,168
    )Net loss
    
    
    (3,503
    )
    
    
    (46,290
    )Cash dividend accrued on preferred stock
    
    
    (1,864
    )
    
    
    Effect of conversion of preferred stock:Noncumulative nonconvertible
    
    
    31,637
    
    
    
    Cumulative convertible
    
    
    (5,052
    )
    
    
    Cash dividends paid on preferred stock
    
    
    
    
    
    
    (8,325
    )Balance at end of period
    
    
    (442,563
    )
    
    
    (472,783
    )ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX:Balance at beginning of period
    
    
    (111,481
    )
    
    
    (123,217
    )Other comprehensive loss, net of deferred tax
    
    
    (7,343
    )
    
    
    (12,708
    )Balance at end of period
    
    
    (118,824
    )
    
    
    (135,925
    )Total stockholders equity
    
    $
    862,351
    
    
    $
    837,899
  5




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 (UNAUDITED)
 QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Net loss
    
    $
    (3,503
    )
    
    $
    (46,290
    )Other comprehensive income (loss), before tax:Unrealized losses on securities arising during the period
    
    
    30,758
    
    
    
    (16,381
    )Non-credit portion of OTTI losses
    
    
    (33,653
    )
    
    
    Reclassification of realized (gains) losses included in net loss
    
    
    (7,577
    )
    
    
    13Other comprehensive loss on investment securities, before tax
    
    
    (10,472
    )
    
    
    (16,368
    )Income tax benefit related to investment securities
    
    
    1,571
    
    
    
    2,455Other comprehensive loss on investment securities, net of tax
    
    
    (8,901
    )
    
    
    (13,913
    )Other comprehensive income on cash flow hedges(1)
    
    
    1,558
    
    
    
    1,205Other comprehensive loss
    
    
    (7,343
    )
    
    
    (12,708
    )Comprehensive loss
    
    $
    (10,846
    )
    
    $
    (58,998
    )Accumulated other comprehensive loss, net of taxOther comprehensive loss on investment securities
    
    $
    (24,146
    )
    
    $
    (123,443
    )Other comprehensive loss on investment securities on which OTTI has
been recognized
    
    
    (88,612
    )
    
    
    Total other comprehensive loss on investment securities
    
    
    (112,758
    )
    
    
    (123,443
    )Other comprehensive loss on cash flow hedge(1)
    
    
    (6,066
    )
    
    
    (12,482
    )Total accumulated other comprehensive loss, net of tax
    
    $
    (118,824
    )
    
    $
    (135,925
    )
 
 (1)
    
    For the quarters ended March 31, 2010 and 2009, other comprehensive loss on cash flow hedges includes $2.4
million and $4.9 million related to a deferred tax asset valuation allowance.  6




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DORAL FINANCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (3,503
    )
    
    $
    (46,290
    )Adjustments to reconcile net loss to net cash provided by operating activities:Stock-based compensation
    
    
    17
    
    
    
    51Depreciation and amortization
    
    
    3,147
    
    
    
    3,453Mark-to-market adjustment of servicing assets
    
    
    2,004
    
    
    
    11,353Deferred tax expense (benefit)
    
    
    2,253
    
    
    
    (1,163
    )Provision for loan and lease losses
    
    
    13,921
    
    
    
    23,625Net premium amortization (discount accretion) on loans, investment securities and debt
    
    
    5,357
    
    
    
    (2,885
    )Origination and purchases of loans held for sale
    
    
    (73,862
    )
    
    
    (106,449
    )Principal repayments and sales of loans held for sale
    
    
    172
    
    
    
    51,240Gain on securities
    
    
    (27,296
    )
    
    
    (3,841
    )Net OTTI losses
    
    
    13,259
    
    
    
    Net loss on
early repayment of debt
    
    
    476
    
    
    
    Unrealized loss on trading securities
    
    
    97
    
    
    
    9,476Purchases of securities held for trading
    
    
    
    
    
    
    (175,574
    )Principal repayment and sales of securities held for trading
    
    
    78,524
    
    
    
    287,539Amortization and net (gain) loss in the fair value of IOs
    
    
    2,139
    
    
    
    2,435Unrealized loss on derivative instruments
    
    
    1,070
    
    
    
    384Increase in derivative instruments
    
    
    (1,411
    )
    
    
    Increase in accounts receivable
    
    
    (63,451
    )
    
    
    (1,934
    )Increase in mortgage servicing advances
    
    
    (10,769
    )
    
    
    (552
    )Decrease in accrued interest receivable
    
    
    263
    
    
    
    4,183Decrease in other assets
    
    
    63,525
    
    
    
    14,744Increase (decrease) in accrued expenses and other liabilities
    
    
    78,095
    
    
    
    (1,675
    )Total adjustments
    
    
    87,530
    
    
    
    114,410Net cash provided by operating activities
    
    
    84,027
    
    
    
    68,120Cash flows from investing activities:Purchases of securities available for sale
    
    
    (823,072
    )
    
    
    (390,111
    )Principal repayment and sales of securities available for sale
    
    
    921,925
    
    
    
    447,012Increase in FHLB stock
    
    
    15,931
    
    
    
    3,510Originations, purchases and repurchases of loans receivable
    
    
    (225,294
    )
    
    
    (135,890
    )Principal repayment of loans receivable
    
    
    154,618
    
    
    
    58,920Proceeds from sales of servicing assets
    
    
    30
    
    
    
    Purchases of premises and equipment
    
    
    (1,922
    )
    
    
    (2,910
    )Proceeds from sales of real estate held for sale
    
    
    6,977
    
    
    
    7,880Net cash provided by (used in) investing activities
    
    
    49,193
    
    
    
    (11,589
    )Cash flows from financing activities:Decrease in deposits
    
    
    (56,812
    )
    
    
    (351,530
    )(Decrease) increase in securities sold under agreements to repurchase
    
    
    (236,737
    )
    
    
    39,577Proceeds from advances from FHLB
    
    
    575,000
    
    
    
    215,000Repayment of advances from FHLB
    
    
    (709,000
    )
    
    
    (238,000
    )Proceeds from other short-term borrowings
    
    
    60,000
    
    
    
    1,091,000Repayment of other short-term borrowings
    
    
    (170,000
    )
    
    
    (711,600
    )Repayment of secured borrowings
    
    
    (7,330
    )
    
    
    (5,845
    )Repayment of notes payable
    
    
    (1,428
    )
    
    
    (1,321
    )Dividends paid
    
    
    
    
    
    
    (8,325
    )Net cash (used in) provided by financing activities
    
    
    (546,307
    )
    
    
    28,956Net (decrease) increase in cash and cash equivalents
    
    $
    (413,087
    )
    
    $
    85,487Cash and cash equivalents at beginning of period
    
    
    725,277
    
    
    
    187,517Cash and cash equivalents at the end of period
    
    $
    312,190
    
    
    $
    273,004Cash and cash equivalents includes:Cash and due from banks
    
    $
    312,190
    
    
    $
    212,634Other interest-earning assets
    
    
    
    
    
    
    60,370$
    312,190
    
    
    $
    273,004Supplemental schedule of non-cash activities:Loan securitizations
    
    $
    77,641
    
    
    $
    95,231Loans foreclosed
    
    $
    16,332
    
    
    $
    17,580Reclassification of loans held for sale to loans receivable
    
    $
    210
    
    
    $
    Capitalization of servicing assets
    
    $
    1,777
    
    
    $
    1,383Supplemental information for cash flows:Cash used to pay interest
    
    $
    68,215
    
    
    $
    89,456Cash used to pay income taxes
    
    $
    1,015
    
    
    $
    962
  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
    
    10Note 3  Cash and Due from Banks
    
    11Note 4  Other Interest-Earning Assets
    
    11Note 5  Securities Held for Trading
    
    11Note 6  Securities Available for Sale
    
    12Note 7  Investments in an Unrealized Loss Position
    
    13Note 8  Pledged Assets
    
    17Note 9  Loans Held for Sale
    
    17Note 10  Loans Receivable
    
    18Note 11  Allowance for loan and lease losses
    
    19Note 12  Related Party Transactions
    
    21Note 13  Accounts Receivable and Other Assets
    
    21Note 14  Servicing Activities
    
    22Note 15  Sale and Securitization of Mortgage Loans
    
    25Note 16  Servicing Related Matters
    
    26Note 17  Other Real Estate Owned
    
    26Note 18  Deposits
    
    27Note 19  Securities Sold Under Agreements to Repurchase
    
    27Note 20  Advances from the FHLB
    
    28Note 21  Other Short-Term Borrowings
    
    28Note 22  Loans Payable
    
    29Note 23  Notes Payable
    
    29Note 24  Income Taxes
    
    30Note 25  Guarantees
    
    33Note 26  Financial Instruments with Off-Balance Sheet Risk
    
    34Note 27  Commitments and Contingencies
    
    35Note 28  Stock Options and Other Incentive Plans
    
    36Note 29  Earnings (Losses) per Share
    
    38Note 30  Fair Value of Assets and Liabilities
    
    38Note 31  Derivatives
    
    45Note 32  Variable Interest Entities
    
    48Note 33  Segment Information
    
    50Note 34  Subsequent Events
    
    51
 8




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##### Table of Contents



1. Nature of Operations and Basis of Presentation
        9




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##### Table of Contents



2. Recent Accounting Pronouncements
 Accounting Standard Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements (ASU No. 210-06). ASU No. 2010-06 Subtopic 820-10 Fair Value Measurements and
Disclosures-Overall,
  Accounting Standard Update No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements (ASU No. 2010-09 ). ASU
No. 2010-09, Topic 855 Subsequent Events,
 Accounting Standard Update No. 2010-11, Derivatives and Hedging (Topic 815): Scope Exception
Related to Embedded Credit Derivatives (ASU No. 2010-11). ASU No.
2010-11 Topic 815,
Derivatives and Hedging.
  Changes in Accounting Standards Adopted in the Financial Statements
 ASC 810, Consolidation,( previously SFAS No. 167, Amendments to FASB Interpretation No. 46R)  ASC 810 FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities ASC 810 ASC 860, Transfers and Servicing.
  10




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##### Table of Contents



ASC 860, Transfer and Servicing (previously SFAS No.166) ASC
860 ASC 860 ASC 860
 3. Cash and due from banks
    4. Other Interest-Earning Assets
  5. Securities Held for Trading
  SECURITIES HELD FOR TRADING(In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Mortgage-Backed Securities
    
    $
    796
    
    
    $
    893Variable Rate IOs
    
    
    43,235
    
    
    
    45,342Fixed Rate IOs
    
    
    349
    
    
    
    381Derivatives(1)
    
    
    220
    
    
    
    1,110Total
    
    $
    44,600
    
    
    $
    47,726
 
 (1)
    
    Doral Financial uses derivatives to manage its exposure to
interest rate risk caused by changes in interest rates. Derivatives include interest
rate caps and forward contracts. Doral Financials policy is to account for
derivatives on a marked-to-market basis with gains or losses charged to operations as
they occur. Derivatives not accounted as hedges in a net asset position are recorded
as securities held for trading, and derivatives in a net liability position are
reported as liabilities. The gross notional amount of derivatives recorded as held
for trading totaled $395.0 million as of March 31, 2010 and $480.0 million as of
December 31, 2009. Notional amounts indicate the volume of derivatives activity, but
do not represent Doral Financials exposure to market or credit risk.  11




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##### Table of Contents



6. Securities Available for Sale
   SECURITIES AVAILABLE FOR SALE
AS OF MARCH 31, 2010
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR
    
    
    AVERAGE(Dollars in thousands)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMortgage-Backed SecuritiesGNMADue from one to five years
    
    $
    73
    
    
    $
    5
    
    
    $
    
    
    
    $
    78
    
    
    
    6.67
    %Due over ten years
    
    
    78,780
    
    
    
    375
    
    
    
    
    
    
    
    79,155
    
    
    
    3.50
    %FHLMC and FNMADue from five to ten years
    
    
    555,094
    
    
    
    533
    
    
    
    4,536
    
    
    
    551,091
    
    
    
    3.13
    %Due over ten years
    
    
    408,008
    
    
    
    1,544
    
    
    
    2,081
    
    
    
    407,471
    
    
    
    2.52
    %CMOs Government and Government
Sponsored AgenciesDue from five to ten years
    
    
    40,412
    
    
    
    374
    
    
    
    167
    
    
    
    40,619
    
    
    
    3.80
    %Due over ten years
    
    
    710,906
    
    
    
    9,964
    
    
    
    3,977
    
    
    
    716,893
    
    
    
    3.51
    %Non-Agency CMOsDue over ten years
    
    
    394,955
    
    
    
    
    
    
    
    133,826
    
    
    
    261,129
    
    
    
    3.02
    %Debt SecuritiesFNMA NotesDue within one year
    
    
    3,139
    
    
    
    43
    
    
    
    
    
    
    
    3,182
    
    
    
    3.37
    %P.R. Housing BankDue from five to ten years
    
    
    645
    
    
    
    15
    
    
    
    
    
    
    
    660
    
    
    
    4.92
    %Due over ten years
    
    
    1,980
    
    
    
    24
    
    
    
    
    
    
    
    2,004
    
    
    
    5.49
    %OtherDue from one to five years
    
    
    35,000
    
    
    
    194
    
    
    
    
    
    
    
    35,194
    
    
    
    5.50
    %Due over ten years
    
    
    3,000
    
    
    
    
    
    
    
    1,140
    
    
    
    1,860
    
    
    
    5.80
    %$
    2,231,992
    
    
    $
    13,071
    
    
    $
    145,727
    
    
    $
    2,099,336
    
    
    
    3.19
    %
 12




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##### Table of Contents



SECURITIES AVAILABLE FOR SALE
AS OF DECEMBER 31, 2009
 WEIGHTED-AMORTIZED
    
    
    UNREALIZED
    
    
    UNREALIZED
    
    
    FAIR
    
    
    AVERAGE(Dollars in thousands)
    
    COST
    
    
    GAINS
    
    
    LOSSES
    
    
    VALUE
    
    
    YIELDMortgage-Backed SecuritiesGNMADue from one to five years
    
    
    85
    
    
    
    7
    
    
    
    
    
    
    
    92
    
    
    
    6.67
    %Due over ten years
    
    
    93,586
    
    
    
    745
    
    
    
    61
    
    
    
    94,270
    
    
    
    3.65
    %FHLMC and FNMADue from five to ten years
    
    
    302
    
    
    
    13
    
    
    
    
    
    
    
    315
    
    
    
    4.83
    %Due over ten years
    
    
    804,441
    
    
    
    19,829
    
    
    
    676
    
    
    
    823,594
    
    
    
    4.45
    %CMO Government Sponsored AgenciesDue from five to ten years
    
    
    57,584
    
    
    
    690
    
    
    
    175
    
    
    
    58,099
    
    
    
    3.73
    %Due over ten years
    
    
    1,424,235
    
    
    
    12,663
    
    
    
    6,984
    
    
    
    1,429,914
    
    
    
    3.48
    %Non-Agency CMOsDue over ten years
    
    
    418,299
    
    
    
    
    
    
    
    147,699
    
    
    
    270,600
    
    
    
    3.03
    %Debt SecuritiesFHLB NotesDue within one year
    
    
    2,056
    
    
    
    17
    
    
    
    
    
    
    
    2,073
    
    
    
    4.16
    %FNMA NotesDue within one year
    
    
    46,064
    
    
    
    85
    
    
    
    
    
    
    
    46,149
    
    
    
    0.89
    %P.R. Housing BankDue from five to ten years
    
    
    645
    
    
    
    16
    
    
    
    
    
    
    
    661
    
    
    
    4.92
    %Due over ten years
    
    
    1,980
    
    
    
    37
    
    
    
    
    
    
    
    2,017
    
    
    
    5.49
    %OtherDue within one year
    
    
    6,538
    
    
    
    62
    
    
    
    
    
    
    
    6,600
    
    
    
    4.26
    %Due from one to five years
    
    
    47,548
    
    
    
    388
    
    
    
    
    
    
    
    47,936
    
    
    
    5.31
    %Due from five to ten years
    
    
    5,000
    
    
    
    207
    
    
    
    
    
    
    
    5,207
    
    
    
    5.50
    %Due over ten years
    
    
    3,000
    
    
    
    
    
    
    
    1,350
    
    
    
    1,650
    
    
    
    5.80
    %$
    2,911,363
    
    
    $
    34,759
    
    
    $
    156,945
    
    
    $
    2,789,177
    
    
    
    3.68
    %
 7. Investments in an Unrealized Loss Position
  13




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##### Table of Contents



SECURITIES AVAILABLE FOR SALE
 As of March 31, 2010Less 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 SecuritiesFNMA/FHLMC
    
    
    25
    
    
    $
    612,795
    
    
    $
    6,617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    $
    612,795
    
    
    $
    6,617CMOs Government
and Government
Sponsored Agencies
    
    
    5
    
    
    
    241,690
    
    
    
    3,977
    
    
    
    1
    
    
    
    1,854
    
    
    
    167
    
    
    
    6
    
    
    
    243,544
    
    
    
    4,144Non-Agency CMOs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    261,129
    
    
    
    133,826
    
    
    
    12
    
    
    
    261,129
    
    
    
    133,826Debt SecuritiesOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,860
    
    
    
    1,140
    
    
    
    1
    
    
    
    1,860
    
    
    
    1,14030
    
    
    $
    854,485
    
    
    $
    10,594
    
    
    
    14
    
    
    $
    264,843
    
    
    $
    135,133
    
    
    
    44
    
    
    $
    1,119,328
    
    
    $
    145,727
 SECURITIES AVAILABLE FOR SALE
 As of December 31, 2010Less 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
    
    
    1
    
    
    $
    49,255
    
    
    $
    61
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    49,255
    
    
    $
    61FNMA/FHLMC
    
    
    5
    
    
    
    162,454
    
    
    
    676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    162,454
    
    
    
    676CMO Government and
Government
Sponsored Agencies
    
    
    9
    
    
    
    403,114
    
    
    
    7,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    403,114
    
    
    
    7,159Non-Agency CMOs
    
    
    1
    
    
    
    2,163
    
    
    
    233
    
    
    
    11
    
    
    
    268,437
    
    
    
    147,466
    
    
    
    12
    
    
    
    270,600
    
    
    
    147,699Debt SecuritiesOther
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1,650
    
    
    
    1,350
    
    
    
    1
    
    
    
    1,650
    
    
    
    1,35016
    
    
    $
    616,986
    
    
    $
    8,129
    
    
    
    12
    
    
    $
    270,087
    
    
    $
    148,816
    
    
    
    28
    
    
    $
    887,073
    
    
    $
    156,945
  Investments-Debt and Equity
Securities/Transition and Open Effective Date Information Recognition and Presentation of Other-Than-Temporary Impairments),
 
    
    If the Company intends to sell the investment security and its fair value is less than its
amortized cost.
    
    If, based on available evidence, it is more likely than not that the Company will decide or
be required to sell the investment security before the recovery of its amortized cost basis.
    
    If the Company does not expect to recover the entire amortized cost basis of the investment
security. This occurs when the present value of cash flows expected to be collected is less
than the amortized cost basis of the security. In determining whether a credit loss exists,
the Company uses its best estimate of the present value of cash flows expected to be collected
from the investment security. Cash flows expected to be collected are estimated based on a
careful assessment of all available information. The difference between the present value of
the cash flows expected to be collected and the amortized cost basis represents the amount of
credit loss.
 14




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##### Table of Contents



Investments  Other/Beneficial
Interest in Securitized Financial Assets Recognition of Interest
Income and Impairment on Purchased Beneficial Interests That Continue to Be Held by a Transferor in
Securitized Financial Assets Amendments to
the Impairment Guidance of EITF Issue No. 99-20).
   15




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##### Table of Contents



As of
    
    
    Quarter EndedMarch 31, 2010
    
    
    March 31, 2010AmortizedCost (After
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OTTICredit
    
    
    Gross
    
    
    
    
    
    
    OTTI
    
    
    Related to
    
    
    TotalRelated
    
    
    Unrealized
    
    
    Fair
    
    
    Related to
    
    
    Non-Credit
    
    
    Impairment(In thousands)
    
    OTTI)
    
    
    Losses
    
    
    Value
    
    
    Credit Loss
    
    
    Loss
    
    
    LossesOTTI InvestmentsU.S. Non-Agency CMOs
    
    $
    305,759
    
    
    $
    100,590
    
    
    $
    205,169
    
    
    $
    13,257
    
    
    $
    33,653
    
    
    $
    46,910P.R. Non-Agency CMOs
    
    
    8,179
    
    
    
    3,660
    
    
    
    4,518
    
    
    
    2
    
    
    
    
    
    
    
    2$
    313,937
    
    
    $
    104,250
    
    
    $
    209,687
    
    
    $
    13,259
    
    
    $
    33,653
    
    
    $
    46,912
   QUARTER ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance beginning of period
    
    $
    28,497
    
    
    $
    920Additions:Credit losses for which OTTI was not previously recognized
    
    
    1,301
    
    
    
    Additional OTTI credit losses for which an
other-than-temporary charge was previously recognized
    
    
    11,958
    
    
    
    Balance at end of period
    
    $
    41,756
    
    
    $
    920
  16




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##### Table of Contents



8. Pledged Assets
  (In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Securities available for sale
    
    $
    1,826,385
    
    
    $
    2,498,149Loans held for sale
    
    
    137,559
    
    
    
    143,111Loans receivable
    
    
    2,057,917
    
    
    
    2,072,242Total pledged assets
    
    $
    4,021,861
    
    
    $
    4,713,502
 9. Loans Held for Sale
  (In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Conventional single family residential loans
    
    $
    123,505
    
    
    $
    137,134FHA/VA loans
    
    
    180,972
    
    
    
    151,187Commercial loans to financial institutions
    
    
    16,312
    
    
    
    17,059Commercial real estate loans
    
    
    14,972
    
    
    
    15,550Total loans held for sale (1)
    
    $
    335,761
    
    
    $
    320,930
 
 (1)
    
    At March 31, 2010 and December 31, 2009, the loans held for sale portfolio
includes $1.1 million for each period related to interest-only loans.    17




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##### Table of Contents



10. Loans Receivable
  MARCH 31, 2010
    
    
    DECEMBER 31, 2009(Dollars in thousands)
    
    AMOUNT
    
    
    PERCENT
    
    
    AMOUNT
    
    
    PERCENTConstruction loans(1)
    
    $
    405,772
    
    
    
    7
    %
    
    $
    452,386
    
    
    
    8
    %Residential mortgage loans(2)
    
    
    3,837,885
    
    
    
    69
    %
    
    
    3,859,276
    
    
    
    70
    %Commercial  secured by real estate
    
    
    729,604
    
    
    
    13
    %
    
    
    740,429
    
    
    
    13
    %Consumer  other:Personal loans
    
    
    22,200
    
    
    
    1
    %
    
    
    25,164
    
    
    
    1
    %Auto loans
    
    
    25
    
    
    
    0
    %
    
    
    30
    
    
    
    0
    %Credit cards
    
    
    21,679
    
    
    
    1
    %
    
    
    22,802
    
    
    
    0
    %Overdrawn checking accounts
    
    
    634
    
    
    
    0
    %
    
    
    599
    
    
    
    0
    %Revolving lines of credit
    
    
    21,387
    
    
    
    1
    %
    
    
    22,062
    
    
    
    0
    %Lease financing receivables
    
    
    11,228
    
    
    
    0
    %
    
    
    13,656
    
    
    
    0
    %Commercial non-real estate
    
    
    347,818
    
    
    
    6
    %
    
    
    312,352
    
    
    
    6
    %Loans on savings deposits
    
    
    3,059
    
    
    
    0
    %
    
    
    3,249
    
    
    
    0
    %Land secured
    
    
    140,352
    
    
    
    2
    %
    
    
    100,450
    
    
    
    2
    %Loans receivable, gross(3)
    
    
    5,541,643
    
    
    
    100
    %
    
    
    5,552,455
    
    
    
    100
    %Less:Discount on loans transferred(4)
    
    
    (12,025
    )
    
    
    
    
    
    
    (13,190
    )Unearned interest
    
    
    (919
    )
    
    
    
    
    
    
    (1,083
    )Deferred loan fees/costs, net
    
    
    (23,205
    )
    
    
    
    
    
    
    (22,374
    )Allowance for loan and lease losses
    
    
    (147,481
    )
    
    
    
    
    
    
    (140,774
    )(183,630
    )
    
    
    
    
    
    
    (177,421
    )Loans receivable, net
    
    $
    5,358,013
    
    
    
    
    
    
    $
    5,375,034
 
 (1)
    
    Includes $264.2 million and $276.2 million of construction loans for residential
housing projects as of March 31, 2010 and December 31, 2009, respectively. Also includes $141.6 million
and $176.2 million of construction loans for commercial, condominiums and multifamily projects as of
March 31, 2010 and December 31, 2009, respectively.(2)
    
    Includes $552.6 million and $574.9 million of balloon loans, as of March 31, 2010 and December 31, 2009, respectively.(3)
    
    Includes $371.0 million and $388.2 million of interest-only loans, as of March 31, 2010 and December 31,
2009, respectively.(4)
    
    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, 2010 and December 31,
2009, the outstanding balance of these loans transferred was $1.1 billion for both periods.  Receivables / Nonrefundable Fees and Other Costs Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases .
 18




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##### Table of Contents



11. Allowance for Loan and Lease Losses
  QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    140,774
    
    
    $
    132,020Provision for loan and lease losses
    
    
    13,921
    
    
    
    23,625Losses charged to the allowance
    
    
    (7,650
    )
    
    
    (11,970
    )Recoveries
    
    
    436
    
    
    
    225Balance at end of period
    
    $
    147,481
    
    
    $
    143,900
 Receivables-Measurement of Loan Impairment Accounting by Creditors for
Impairment of a Loan
  (In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Impaired loans with allowance
    
    $
    447,023
    
    
    $
    346,145Impaired loans without allowance
    
    
    130,330
    
    
    
    184,601Total impaired loans
    
    $
    577,353
    
    
    $
    530,746Related allowance
    
    $
    67,321
    
    
    $
    48,223Average impaired loan portfolio
    
    $
    554,050
    
    
    $
    449,741
 Contingencies-Loss
Contingencies/Recognition Accounting for Contingencies
  19




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##### Table of Contents



Receivables-Troubled Debt Restructuring by
Creditors Debt-Troubled Restructuring by Debtors Accounting by Debtors and Creditors of Troubled Debt Restructurings
  March 31, 201090 days and over(In thousands)
    
    TDRs
    
    
    delinquencyResidential mortgage loans
    
    $
    461,909
    
    
    $
    107,438Construction loans (including land)
    
    
    117,497
    
    
    
    97,675Commercial loans
    
    
    55,430
    
    
    
    23,650Consumer loans
    
    
    1,474
    
    
    
    91Total TDRs
    
    $
    636,310
    
    
    $
    228,854
  20




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##### Table of Contents



12. Related Party Transactions
  (In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Balance at beginning of period
    
    $
    2,840
    
    
    $
    2,579New loans
    
    
    
    
    
    
    3,178Repayments
    
    
    (19
    )
    
    
    (2,129
    )Loans of former officers
    
    
    
    
    
    
    (788
    )Balance at end of period (1)
    
    $
    2,821
    
    
    $
    2,840
 
 (1)
    
    At March 31, 2010 and December 31, 2009, none of the loans
outstanding to officers, directors and 5% or more stockholders were delinquent.    13. Accounts Receivable and Other Assets
   Lehman Brothers Transaction
   21




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##### Table of Contents



14 Servicing Activities
  22




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##### Table of Contents



QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    118,493
    
    
    $
    114,396Capitalization of servicing assets
    
    
    1,777
    
    
    
    1,383Sales of servicing assets(1)
    
    
    (30
    )
    
    
    MSRs reversal on loans repurchased(2)
    
    
    (136
    )
    
    
    (258
    )Change in fair value
    
    
    (1,868
    )
    
    
    (11,095
    )Balance at end of period(3)
    
    $
    118,236
    
    
    $
    104,426
 
 (1)
    
    Amount represents MSR sales related to $1.5 million in principal balance of mortgage loans for the quarter ended March 31,
2010.(2)
    
    Amount represents the adjustment of MSR fair value related to
the repurchase of $10.1 million and $19.8 million in
principal balance of mortgage loans serviced for others as of March 31,
2010 and 2009, respectively.(3)
    
    Outstanding balance of loans serviced for third parties amounted to $8.5 billion and $9.3
billion as of March 31, 2010 and 2009, respectively, which includes
$3.0 million and $3.3 million, respectively, of loans being serviced
under sub-servicing arrangements.     23




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##### Table of Contents



Servicing
    
    Interest-(Dollars in thousands)
    
    Assets
    
    Only StripsCarrying amount of retained interest
    
    $
    118,236
    
    
    $
    43,584Weighted-average expected life (in years)
    
    
    6.8
    
    
    
    5.0Constant prepayment rate (weighted-average
annual rate)
    
    
    8.8
    %
    
    
    10.9
    %Decrease in fair value due to 10%
adverse change
    
    $
    (4,328
    )
    
    $
    (1,335
    )Decrease in fair value due to 20%
adverse change
    
    $
    (8,407
    )
    
    $
    (2,599
    )Residual cash flow discount rate
(weighted-average annual rate)
    
    
    11.3
    %
    
    
    13.0
    %Decrease in fair value due to 10%
adverse change
    
    $
    (4,796
    )
    
    $
    (1,351
    )Decrease in fair value due to 20%
adverse change
    
    $
    (9,234
    )
    
    $
    (2,612
    )
      24




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##### Table of Contents



QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    45,723
    
    
    $
    52,179Amortization
    
    
    (2,798
    )
    
    
    (1,873
    )Gain (loss) on IO valuation
    
    
    659
    
    
    
    (562
    )Balance at end of period
    
    $
    43,584
    
    
    $
    49,744
   (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
    
    
    6.8
    %
    
    
    6.4
    
    
    $
    (4,002
    )
    
    
    (9.2
    )%+100
    
    
    8.3
    %
    
    
    5.8
    
    
    
    (1,777
    )
    
    
    (4.1
    )%+50
    
    
    9.6
    %
    
    
    5.3
    
    
    
    (1,086
    )
    
    
    (2.5
    )%Base
    
    
    10.9
    %
    
    
    5.0
    
    
    
    
    
    
    
    0
    %-50
    
    
    12.2
    %
    
    
    4.6
    
    
    
    984
    
    
    
    2.3
    %-100
    
    
    13.2
    %
    
    
    4.4
    
    
    
    1,856
    
    
    
    4.3
    %-200
    
    
    14.6
    %
    
    
    4.1
    
    
    
    3,943
    
    
    
    9.0
    %
 15. Sale and Securitization of Mortgage Loans
    25




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##### Table of Contents



16.
    
    Servicing Related Matters
  17. Other Real Estate Owned
   QUARTER ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    94,219
    
    
    $
    61,340Additions
    
    
    18,722
    
    
    
    20,162Sales
    
    
    (6,978
    )
    
    
    (7,881
    )Retirement
    
    
    (2,389
    )
    
    
    (2,584
    )Lower of cost or market adjustments
    
    
    (3,229
    )
    
    
    (829
    )Balance at end of period
    
    $
    100,345
    
    
    $
    70,208
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Construction
    
    $
    2,308
    
    
    $
    1,128Residential
    
    
    81,251
    
    
    
    60,345Commercial Real Estate
    
    
    15,438
    
    
    
    8,735Land secured
    
    
    1,348
    
    
    
    Balance at end of period
    
    $
    100,345
    
    
    $
    70,208
  26




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##### Table of Contents



18. Deposits
  (In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Brokered certificates of deposit
    
    $
    2,697,175
    
    
    $
    2,652,409Certificates of deposit
    
    
    522,324
    
    
    
    507,987Regular savings
    
    
    372,258
    
    
    
    356,488NOW accounts and other transaction accounts
    
    
    364,796
    
    
    
    364,469Money markets accounts
    
    
    404,386
    
    
    
    408,152Total interest-bearing
    
    
    4,360,939
    
    
    
    4,289,505Non interest-bearing deposits
    
    
    225,270
    
    
    
    353,516Total deposits
    
    $
    4,586,209
    
    
    $
    4,643,021
  19. Securities Sold Under Agreements to Repurchase
  MARCH 31,
    
    
    DECEMBER 31,(Dollars in thousands)
    
    2010
    
    
    2009Non-callable repurchase agreements
with a maturities less than or equal
to 90 days, at a fixed rate of
4.19%, and at various fixed rates
with a weighed average of 1.89%, as of March 31,
2010 and December 31, 2009,
respectively.
    
    $
    450,000
    
    
    $
    216,262Non-callable repurchase agreements
with maturities ranging from
February 2011 to February 2014 (2009
 May 2010 to October 2013), at
various fixed rates averaging 3.14%,
and 3.32%, as of March 31, 2010, and
December 31, 2009, respectively.
    
    
    1,170,500
    
    
    
    1,700,500Callable repurchase agreements with
maturities ranging from June 2010 to
September 2011 (2009 - March 2010 to
February 2014), at various fixed
rates averaging 3.87%, and 4.72%, as
of March 31, 2010, and December 31,
2009, respectively, callable at
various dates beginning in April
2010 (2009  February 2010).
    
    
    288,500
    
    
    
    228,500$
    1,909,000
    
    
    $
    2,145,262
  27




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20. Advances from FHLB
  MARCH 31,
    
    
    DECEMBER 31,(Dollars in thousands)
    
    2010
    
    
    2009Non-callable advances with maturities ranging from April 2010 to May 2013 (2009 
January 2010 to May 2013), at various fixed rates averaging 3.03%, and 3.25%, as of
March 31, 2010, and December 31, 2009, respectively.(1)
    
    $
    888,920
    
    
    $
    1,022,920Non-callable advances with maturities ranging from September 2010 to November 2012
(2009 - September 2010 to November 2012), tied to 1-month LIBOR adjustable monthly,
at various variable rates averaging 0.27%, and 0.25%, as of March 31, 2010, and
December 31, 2009, respectively.
    
    
    105,000
    
    
    
    105,000Non-callable advances due on July 6, 2010, tied to 3-month LIBOR adjustable
quarterly, at a rate of 0.22%, and 0.25%, as of March 31, 2010, and December 31,
2009, respectively.
    
    
    200,000
    
    
    
    200,000Callable advances with maturities ranging from June 2010 to March 2012 (2009  June
2010 to March 2012), at various fixed rates averaging 5.41%, for both March 31, 2010
and December 31, 2009, respectively, callable at various dates beginning on April
2010 (2009  February 2010).
    
    
    279,000
    
    
    
    279,000$
    1,472,920
    
    
    $
    1,606,920
 
 (1)
    
    The advances from FHLB are subject to early termination fees.   21. Other short-term borrowings
  DECEMBER 31,(In thousands)
    
    2009Borrowings with the Federal Reserve
Bank, collateralized by securities
at a fixed rate of 0.25%, maturing
in January 2010.
    
    $
    110,000
  28




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##### Table of Contents



22. Loans Payable
   MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2010
    
    
    2009Secured borrowings with local
financial institutions,
collateralized by residential
mortgage loans, at variable
interest rates tied to 3-month
LIBOR averaging 1.74% and 1.99%
at March 31, 2010 and December
31, 2009, respectively.
    
    $
    311,486
    
    
    $
    318,180Secured borrowings with local
financial institutions,
collateralized by residential
mortgage loans at fixed interest
rates averaging 7.41% at March
31, 2010 and December 31, 2009.
    
    
    18,220
    
    
    
    18,856$
    329,706
    
    
    $
    337,036
   23. Notes payable
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2010
    
    
    2009$100 million notes, net of
discount, bearing interest at
7.65%, due on March 26, 2016,
paying interest monthly.
    
    $
    98,666
    
    
    $
    98,623$30 million notes, net of
discount, bearing interest at
7.00%, due on April 26, 2012,
paying interest monthly.
    
    
    29,810
    
    
    
    29,789$40 million notes, net of
discount, bearing interest at
7.10%, due on April 26, 2017,
paying interest monthly.
    
    
    39,446
    
    
    
    39,431$30 million notes, net of
discount, bearing interest at
7.15%, due on April 26, 2022,
paying interest monthly.
    
    
    29,478
    
    
    
    29,472Bonds payable secured by mortgage
on building at fixed rates
ranging from 6.75% to 6.90%, with
maturities ranging from December
2014 to December 2029, paying
interest monthly.
    
    
    39,420
    
    
    
    39,420Bonds payable at a fixed rate of
6.25%, with maturities ranging
from December 2010 to December
2029, paying interest monthly.
    
    
    7,600
    
    
    
    7,600Note payable with a local
financial institution,
collateralized by IOs, at a fixed
rate of 7.75%, due on December
25, 2013, paying principal and
interest monthly.
    
    
    25,076
    
    
    
    26,503$
    269,496
    
    
    $
    270,838
 29




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##### Table of Contents



24. Income Taxes
 Background
     30




---



##### Table of Contents



Income Tax (Benefit) Expense
  QUARTERS ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Current income tax expense:Puerto Rico
    
    $
    
    
    
    $
    343United States
    
    
    275
    
    
    
    712Total current income tax expense
    
    
    275
    
    
    
    1,055Deferred income tax expense (benefit):Puerto Rico
    
    
    1,787
    
    
    
    (1,115
    )United States
    
    
    467
    
    
    
    (48
    )Total deferred income tax expense(benefit)
    
    
    2,254
    
    
    
    (1,163
    )Total income tax expense (benefit)
    
    $
    2,529
    
    
    $
    (108
    )
   Deferred Tax Components
   Income Taxes Accounting for Income Taxes
  31




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ASC 740 (previously FIN 48)
   32




---



##### Table of Contents



(In thousands)
    
    MARCH 31, 2010
    
    
    MARCH 31, 2009Balance at beginning of period
    
    $
    3,475
    
    
    $
    13,709Additions for tax positions of prior years
    
    
    
    
    
    
    Additions for tax positions of current year
    
    
    178
    
    
    
    Release of contingencies
    
    
    
    
    
    
    Balance at end of period
    
    $
    3,653
    
    
    $
    13,709
 25. Guarantees
     33




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##### Table of Contents



QUARTER ENDED(In thousands)
    
    MARCH 31, 2010Balance at beginning of period
    
    $
    9,440Net charge-offs / termination
    
    
    (470
    )Provision for recourse liability
    
    
    367Balance at end of period
    
    $
    9,337
 26. Financial Instruments with Off-Balance Sheet Risk
  MARCH 31,
    
    
    DECEMBER 31,(In thousands)
    
    2010
    
    
    2009Commitments to extend credit
    
    $
    84,612
    
    
    $
    85,124Commitments to sell loans
    
    
    139,406
    
    
    
    76,176Commercial, financial and performance standby letters of credit.
    
    
    25
    
    
    
    25Total
    
    $
    224,043
    
    
    $
    161,325
   Derivatives and Hedging Accounting for
derivatives instruments and hedging activities
   34




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##### Table of Contents



27. Commitments and Contingencies
  (In thousands)2011
    
    $
    5,6402012
    
    
    5,0472013
    
    
    5,3632014
    
    
    4,0042015
    
    
    3,6992016 and thereafter
    
    
    19,557$
    43,310
    Legal Matters
   Banking Regulatory Matters
  35




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##### Table of Contents



28. Stock Option and Other Incentive Plans
 Stock Compensation Shared-Based Payment
   36




---



##### Table of Contents



QUARTERSENDED MARCH 31,(In thousands)
    
    2010
    
    
    2009Stock-based compensation recognized, net
    
    $
    17
    
    
    $
    51Unrecognized at end of period
    
    $
    232
    
    
    $
    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
    %
   37




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##### Table of Contents



29. Earnings (Losses) Per Share Data
  QUARTERS ENDEDMARCH 31,(Dollars in thousands, except per share amounts)
    
    2010
    
    
    2009Net Loss:Net loss
    
    $
    (3,503
    )
    
    $
    (46,290
    )Non-convertible preferred stock dividend(2)
    
    
    
    
    
    
    (4,228
    )Convertible preferred stock dividend(1)(2)
    
    
    (1,864
    )
    
    
    (4,097
    )Effect of conversion of preferred stock(3)
    
    
    26,585
    
    
    
    Net income (loss) attributable to common shareholders
    
    $
    21,218
    
    
    $
    (54,615
    )Weighted-Average Number of Common Shares Outstanding(4)
    
    
    62,528,221
    
    
    
    53,810,110Net Income (Loss) per Common Share(5)
    
    $
    0.34
    
    
    $
    (1.01
    )
 
 (1)
    
    For the quarter ended March 31, 2010, there were 813,526 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,
compared to 1,380,000 for the corresponding 2009 period. 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
was effective and commenced with the dividends for the month of April 2009 for Doral Financials
three outstanding series of non-cumulative preferred stock, and the dividends for the second
quarter of 2009 for Doral Financials one outstanding series of cumulative preferred stock.(3)
    
    The carrying value of the noncumulative preferred stock exceeded the fair value of
consideration transferred and, accordingly, the difference between the liquidation preference of the preferred
stock retired and the market value of the common stock issued amounted to $31.6 million and was
credited to retained earnings. In the case of the convertible preferred stock, the fair value of
stock exchanged for the preferred stock converted exceeded the fair value of the stock issuable
pursuant to the original conversion terms and, accordingly, this excess or inducement amounted to $5.1 million and was
charged to retained earnings. As a result, both transactions impacted the net income attributable
to common shareholders.(4)
    
    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 on earnings per share.
As of March 31, 2010, there were 60,000 stock options granted and no unvested shares  of restricted  stock outstanding.(5)
    
    For the quarters ended March 31, 2010 and 2009, net income (loss) per common share
represents both the basic and diluted income (loss) per common share, respectively, for each of the periods
presented. 30. Fair Value of Assets and Liabilities
  38




---



##### Table of Contents



Fair Value Measurements and Disclosures Fair Value Measurements
 Financial Instruments The Fair Value
Option for Financing Assets and Financing Liabilities
 Financial Instruments Interim Disclosures about Fair Value of Financial Instruments Disclosures
about Fair Value of Financial Instruments
 ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU No. 210-06).
 Fair Value Hierarchy
   Level 1
    
    Valuation is based upon unadjusted quoted prices for identical
instruments traded in active markets. Level 2
    
    Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets that
are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market, or are derived principally from or
corroborated by observable market data, by correlation or by other means. Level 3
    
    Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable assumptions
reflect the Companys estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
 Determination of Fair Value
   39




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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:
 40




---



##### Table of Contents



Servicing assets and interest-only strips: Transfer and Servicing 
Servicing Assets and Liabilities Accounting for Servicing of Financial
Assets
 Real estate held for sale:
 Other assets:
 Premises and equipment:
 Goodwill:
 CB, LLC:
 41




---



##### Table of Contents



Derivatives:
  Cash and due from banks and other interest-earning assets:
 Deposits
 Loans payable
 Notes payable, advances from FHLB, other short-term borrowings and securities sold under agreements
to repurchase
 Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  March 31, 2010(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading
    
    $
    44,380
    
    
    $
    
    
    
    $
    
    
    
    $
    44,380
    (1)Securities available for sale
    
    
    2,099,336
    
    
    
    
    
    
    
    1,826,415
    
    
    
    272,921Derivatives(2)
    
    
    220
    
    
    
    
    
    
    
    220
    
    
    
    Servicing assets
    
    
    118,236
    
    
    
    
    
    
    
    
    
    
    
    118,236$
    2,262,172
    
    
    $
    
    
    
    $
    1,826,635
    
    
    $
    435,537Liabilities:Derivatives(3)
    
    $
    9,787
    
    
    $
    
    
    
    $
    9,787
    
    
    $
    
 
 (1)
    
    Includes $43.6 million of interest-only strips, of which variable IOs represent substantially all of the balance.(2)
    
    Included as part of securities held for trading in the Consolidated Statement of Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Consolidated Statement of Financial Condition. 42




---



##### Table of Contents



December 31, 2009(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Securities held for trading
    
    $
    46,616
    
    
    $
    
    
    
    $
    
    
    
    $
    46,616
    (1)Securities available for sale
    
    
    2,789,177
    
    
    
    
    
    
    
    2,507,396
    
    
    
    281,781Derivatives (2)
    
    
    1,110
    
    
    
    
    
    
    
    1,110
    
    
    
    Servicing assets
    
    
    118,493
    
    
    
    
    
    
    
    
    
    
    
    118,493$
    2,955,396
    
    
    $
    
    
    
    $
    2,508,506
    
    
    $
    446,890Liabilities:Derivatives (3)
    
    $
    12,596
    
    
    $
    
    
    
    $
    12,596
    
    
    $
    
 
 (1)
    
    Includes $45.7 million of interest-only strips, of which variable IOs represent substantially all of the balance.(2)
    
    Included as part of securities held for trading in the Consolidated Statement of Financial Condition.(3)
    
    Included as part of accrued expenses and other liabilities in the Consolidated Statement of Financial Condition.  QUARTER ENDED
    
    
    
    
    
    
    
    
    
    
    QUARTER ENDEDMARCH 31, 2010
    
    
    MARCH 31, 2009Securities
    
    
    Securities
    
    
    
    
    
    
    Securities
    
    
    SecuritiesHeld for
    
    
    Available
    
    
    Servicing
    
    
    Held for
    
    
    Available
    
    
    Servicing(In thousands)
    

Trading (1)
    
    

for Sale (2)
    
    

Assets (3)
    
    

Trading (1)
    
    

for Sale (2)
    
    

Assets (3)Balance at beginning of period
    
    $
    46,616
    
    
    $
    281,781
    
    
    $
    118,493
    
    
    $
    52,910
    
    
    $
    390,634
    
    
    $
    114,396Change in fair value
    
    
    562
    
    
    
    14,669
    
    
    
    (1,868
    )
    
    
    (495
    )
    
    
    (35,797
    )
    
    
    (11,096
    )Purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OTTI
    
    
    
    
    
    
    (13,259
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Principal repayment/amortization
of premium and discount
    
    
    (2,798
    )
    
    
    (10,270
    )
    
    
    
    
    
    
    (1,873
    )
    
    
    (8,861
    )
    
    
    Capitalization/sales, net
    
    
    
    
    
    
    
    
    
    
    1,747
    
    
    
    
    
    
    
    
    
    
    
    1,383Reversal on loans purchased (4)
    
    
    
    
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    
    
    
    
    (257
    )Balance at end of period
    
    $
    44,380
    
    
    $
    272,921
    
    
    $
    118,236
    
    
    $
    50,542
    
    
    $
    345,976
    
    
    $
    104,426
 
 (1)
    
    Securities held for trading classified as Level 3 include IOs and residual CMO certificates. Change in fair value is recognized as part of non-interest income in the
Companys Consolidated Statement of Operations as net (loss) gain on trading activities, which includes $0.7 million and $0.6 million of changes in fair value of IOs and $(0.1) million (for both periods)
of changes in fair value of residual CMO certificates for the quarters ended March 31, 2010 and 2009, respectively. Amortization of IO is recognized as part of interest income as Interest-only strips and
includes $2.8 million and $1.9 million for the quarters ended March 31, 2010 and 2009, respectively.(2)
    
    Level 3 securities available for sale include non-agency and agency CMOs. OTTI is recognized as part of non-interest income in the Companys Consolidated Statement of Operations.
Amortization of premium and discount is recognized as part of interest income as mortgage-backed securities, which includes $0.6 million and $0.7 million for the quarters ended March 31, 2010 and 2009,
respectively.(3)
    
    Change in fair value of servicing assets is recognized as part of non-interest income in the Companys Consolidated Statement of Operations as servicing income (loss) for the periods
presented. Capitalization of servicing assets is recognized as part of non-interest income as net gain on mortgage loan sales and fees, which includes $1.8 million and $1.4 million for the quarters ended
March 31, 2010 and 2009.(4)
    
    Amount represents the adjustment of MSR fair value related to the repurchase of $10.1 million and $19.7 million in principal balance of mortgage loans serviced for others as of March
31, 2010 and 2009, respectively. Assets Recorded at Fair Value on a Nonrecurring Basis
  43




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##### Table of Contents



(In thousands)
    
    Carrying Value
    
    
    Level 3March 31, 2010Loans receivable (1)
    
    $
    291,833
    
    
    $
    291,833Real estate held for sale (2)
    
    
    65,285
    
    
    
    65,285Total
    
    $
    357,118
    
    
    $
    357,118December 31, 2009Loans receivable (1)
    
    $
    196,726
    
    
    $
    196,726Real estate held for sale (2)
    
    
    66,042
    
    
    
    66,042Total
    
    $
    262,768
    
    
    $
    262,768
 
 (1)
    
    Represents the carrying value of collateral
dependent loans for which adjustments are based on the appraised value
of the collateral.(2)
    
    Represents the carrying value of real estate held
for sale for which adjustments are based on the appraised value of
the properties.  Loss for the quarters endedLocation of Loss Recognized in
    
    March 31,(In thousands)
    
    
    the Statement of Operations
    
    2010
    
    
    2009Loans receivable(1)
    
    Provision for loan and lease losses
    
    $
    (16,051
    )
    
    $
    (706
    )Real estate held for sale(2)
    
    Other expenses
    
    $
    (4,449
    )
    
    $
    (1,406
    )
 
 (1)
    
    Represents the carrying value of collateral dependent loans for which
adjustments are based on the appraised value of the collateral.(2)
    
    Represents the carrying value of real estate held for sale for which
adjustments are based on the appraised value of the properties. Disclosures about Fair Value of Financial Instruments
   44




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##### Table of Contents



March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and due from banks
    
    $
    312,190
    
    
    $
    312,190
    
    
    $
    725,277
    
    
    $
    725,277Other interest-earning assets
    
    
    48,772
    
    
    
    48,772
    
    
    
    95,000
    
    
    
    95,000Securities held for trading(1)
    
    
    44,600
    
    
    
    44,600
    
    
    
    47,726
    
    
    
    47,726Securities available for sale
    
    
    2,099,336
    
    
    
    2,099,336
    
    
    
    2,789,177
    
    
    
    2,789,177Loans held for sale(2)
    
    
    335,761
    
    
    
    343,739
    
    
    
    320,930
    
    
    
    326,108Loans receivable
    
    
    5,358,013
    
    
    
    5,058,931
    
    
    
    5,375,034
    
    
    
    5,015,141Servicing assets
    
    
    118,236
    
    
    
    118,236
    
    
    
    118,493
    
    
    
    118,493Financial liabilities:Deposits
    
    $
    4,586,209
    
    
    $
    4,640,280
    
    
    $
    4,643,021
    
    
    $
    4,684,443Securities sold under agreements to repurchase
    
    
    1,909,000
    
    
    
    1,974,799
    
    
    
    2,145,262
    
    
    
    2,213,755Advances from FHLB
    
    
    1,472,920
    
    
    
    1,517,548
    
    
    
    1,606,920
    
    
    
    1,655,258Other short-term borrowings
    
    
    
    
    
    
    
    
    
    
    110,000
    
    
    
    110,024Loans payable
    
    
    329,706
    
    
    
    329,706
    
    
    
    337,036
    
    
    
    337,036Notes payable
    
    
    269,496
    
    
    
    262,908
    
    
    
    270,838
    
    
    
    262,585Derivatives(2)
    
    
    9,787
    
    
    
    9,787
    
    
    
    12,596
    
    
    
    12,596
 
 (1)
    
    Includes derivatives of $0.2 million and $1.1 million for March 31, 2010 and December 31, 2010, respectively.(2)
    
    Includes $164.9 million and $128.6 million for March 31, 2010 and December 31, 2009, respectively, related to GNMA defaulted loans for
which the Company has an unconditional buy-back option.(3)
    
    Includes $0.7 million and $1.9 million of derivatives held for trading purposes and $9.1 million and $10.7 million of derivatives held for
purposes other than trading, for March 31, 2010 and December 31, 2009, respectively, as part of accrued expenses and other liabilities in
the Consolidated Statement of Financial Condition. 31. Derivatives
    March 31, 2010
    
    
    December 31, 2009Fair Value
    
    
    
    
    
    
    Fair Value(In thousands)
    
    Notional Amount
    
    
    Asset
    
    
    Liability
    
    
    Notional Amount
    
    
    Asset
    
    
    LiabilityCash Flow Hedges:Interest rate swaps
    
    $
    305,000
    
    
    $
    
    
    
    $
    (9,114
    )
    
    $
    305,000
    
    
    $
    
    
    
    $
    (10,691
    )Other Derivatives (non hedges):Interest rate caps
    
    
    270,000
    
    
    
    216
    
    
    
    
    
    
    
    270,000
    
    
    
    777
    
    
    
    Forward contracts
    
    
    125,000
    
    
    
    4
    
    
    
    (673
    )
    
    
    210,000
    
    
    
    333
    
    
    
    (1,905
    )Total
    
    $
    700,000
    
    
    $
    220
    
    
    $
    (9,787
    )
    
    $
    785,000
    
    
    $
    1,110
    
    
    $
    (12,596
    )
 45




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##### Table of Contents



Cash Flow Hedges
    Location of Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) Reclassified fromReclassified from
    
    
    
    
    
    
    
    
    
    Accumulated Other
    
    
    Accumulated OtherAccumulated Other
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    Comprehensive Loss toComprehensive
    
    Notional
    
    
    Fair
    
    
    Income for the
    
    
    Income for the(In thousands)
    
    
    Loss to Income
    
    Amount
    
    
    Value
    
    
    Quarter
    
    
    QuarterCash flow HedgesMarch 31, 2010Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    305,000
    
    
    $
    (9,114
    )
    
    $
    1,558
    
    
    $
    (1,151
    )March 31, 2009Interest rate swaps
    
    Interest expense  Advances from FHLB
    
    $
    345,000
    
    
    $
    (15,219
    )
    
    $
    1,205
    
    
    $
    (1,394
    )
 46




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##### Table of Contents



Trading and Non-Hedging Activities
  March 31, 2010Location of Gain (Loss)Recognized in theConsolidated Statement
    
    Notional
    
    
    Fair(In thousands)
    
    of Operations
    
    Amount
    
    
    Value
    
    
    Net Gain (Loss)Derivatives not
designated as cash
flow hedges:Interest rate caps
    
    Net gain (loss) on securities held for trading
    
    $
    270,000
    
    
    $
    216
    
    
    $
    (561
    )Forward contracts
    
    Net gain (loss) on securities held for trading
    
    
    125,000
    
    
    
    (669
    )
    
    
    891$
    395,000
    
    
    $
    (453
    )
    
    $
    330
 March 31, 2009Location of Gain (Loss)Recognized in theConsolidated Statement
    
    Notional
    
    
    Fair(In thousands)
    
    of Operations
    
    Amount
    
    
    Value
    
    
    Net (Loss)Derivatives not
designated as cash
flow hedges:Interest rate caps
    
    Net gain (loss) on securities held for trading
    
    $
    270,000
    
    
    $
    174
    
    
    $
    (113
    )Forward contracts
    
    Net gain (loss) on  securities held for  trading
    
    
    31,000
    
    
    
    (457
    )
    
    
    (1,031
    )$
    301,000
    
    
    $
    (283
    )
    
    $
    (1,144
    )
     47




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##### Table of Contents



32. Variable Interest Entities
  
    
    The equity investment at risk is not sufficient for the entity to finance its
activities without additional subordinated financial support.
    
    As a group, the holders of equity investment at risk do not possess: i) the power,
through voting rights or similar rights, to direct the activities that most
significantly impact the entitys economic performance; or ii) the obligation to absorb
expected losses or the right to receive the expected residual returns of the entity; or
iii) symmetry between voting rights and economic interests and where substantially all
of the entitys activities either involve or are conducted on behalf of an investor
with disproportionately fewer voting rights (e.g., structures with nonsubstantive
voting rights).
 of ASC 810-10-05,
Consolidation-Variable Interest Entities
  Servicing Assets
  48




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##### Table of Contents



Investment Securities
  Loans
   March 31,
    
    
    December 31,(in thousands)
    
    2010
    
    
    2009Carrying AmountServicing Assets
    
    $
    15,656
    
    
    $
    15,878Available for Sale Securities-
Non-Agency CMO
    
    
    11,665
    
    
    
    11,568Loan Receivable:Construction Loans
    
    
    405,722
    
    
    
    452,386Maximum Exposure to loss(1)Servicing Assets
    
    $
    15,656
    
    
    $
    15,878Available for Sale Securities-
Non-Agency CMO(2)
    
    
    11,665
    
    
    
    11,568Loan Receivable:Construction Loans(3)
    
    
    405,722
    
    
    
    452,386
 
 (1)
    
    Maximum exposure to loss is a required disclosure under
GAAP and represents estimated loss that would be incurred under severe,
hypothetical circumstances, for which the possibility of occurrence is
remote, such as where the value of our interests and any associated
collateral declines to zero, without any consideration of recovery or offset
from any economic hedges. Accordingly, this required disclosure is not an
indication of expected loss.(2)
    
    Refers to book value of residual interest from two private
placements (Refer to Investment Securities disclosure above). These
transactions are structured without recourse, so as servicers our exposure is
limited to standard representations and warranties as seller of the loans and
responsibilities as servicer of the SPEs assets.(3)
    
    Maximum exposure to loss related to the construction portfolio
excluding the outstanding balance of construction /development loans,
including undisbursed amounts for construction loans under commitment to
extend credit of $29.7 million and $21.8 million as of March 31, 2010 and
December 31, 2009 respectively. 49




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##### Table of Contents



33. Segment Information
      (In thousands)
    
    Mortgage
    
    
    
    
    
    
    Insurance
    
    
    IntersegmentQuarter Ended March 31, 2010
    
    Banking
    
    
    Banking
    
    
    Agency
    
    
    Eliminations(1)
    
    
    TotalsNet interest income
    
    $
    3,386
    
    
    $
    38,603
    
    
    $
    
    
    
    $
    1,772
    
    
    $
    43,761Provision for loan and lease losses
    
    
    2,117
    
    
    
    11,804
    
    
    
    
    
    
    
    
    
    
    
    13,921Non-interest income
    
    
    6,161
    
    
    
    31,624
    
    
    
    2,380
    
    
    
    (3,581
    )
    
    
    36,584(Loss) income before income taxes
    
    
    (7,356
    )
    
    
    4,346
    
    
    
    1,887
    
    
    
    149
    
    
    
    (974
    )Net (loss) income
    
    
    (7,410
    )
    
    
    2,643
    
    
    
    1,115
    
    
    
    149
    
    
    
    (3,503
    )Identifiable assets
    
    
    1,610,150
    
    
    
    8,948,732
    
    
    
    18,622
    
    
    
    (864,616
    )
    
    
    9,712,888
 50




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##### Table of Contents



(In thousands)
    
    Mortgage
    
    
    
    
    
    
    Institutional
    
    
    Insurance
    
    
    IntersegmentQuarter Ended March 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 (loss)
    
    
    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
 
 (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.  (In thousands)Quarter Ended March 31, 2010
    
    Puerto Rico
    
    
    Mainland U.S.
    
    
    Eliminations
    
    
    TotalsNet interest income
    
    $
    40,414
    
    
    $
    3,207
    
    
    $
    140
    
    
    $
    43,761Provision (recovery) for loan and
lease
losses
    
    
    13,939
    
    
    
    (18
    )
    
    
    
    
    
    
    13,921Non-interest income
    
    
    36,149
    
    
    
    604
    
    
    
    (169
    )
    
    
    36,584(Loss) income before income taxes
    
    
    (1,611
    )
    
    
    637
    
    
    
    
    
    
    
    (974
    )Net (loss) income
    
    
    (3,613
    )
    
    
    110
    
    
    
    
    
    
    
    (3,503
    )Identifiable assets
    
    
    9,617,521
    
    
    
    568,923
    
    
    
    (473,556
    )
    
    
    9,712,888
 Quarter Ended March 31, 2009
    
    Puerto Rico
    
    
    Mainland U.S.
    
    
    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
 34. Subsequent Events
 Capital Raise.
  51




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##### Table of Contents



Sale of Non-Agency Securities.
 52




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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 and increased pricing of our funding sources, including brokered certificates
of deposits;
    
    the strength or weakness of the real estate markets and of the consumer and commercial
credit sectors and its impact in the credit quality of our loans and other assets which may
lead to, among other things, an increase in our non-performing loans, charge-offs and loan
loss provisions;
    
    a decline in the market value and estimated cash flows of our mortgage-backed
securities and other assets may result in the recognition of other-than-temporary
impairment (OTTI) of such assets under generally accepted accounting principles in the
United States of America (GAAP);
    
    our ability to derive sufficient income to realize the benefit of the deferred tax
assets;
    
    uncertainty about the legislative and other measures adopted by the Puerto Rico
government in response to its fiscal situation and the impact of such measures on 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;
    
    changes in interest rates, which may result from changes in the fiscal and monetary
policy of the federal government, and the potential impact of such changes in interest
rates on our net interest income and the value of our loans and investments;
    
    the commercial soundness of our various counterparties of financing and other
securities transactions,
 53




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##### Table of Contents



which could lead to possible losses when the collateral held by us to secure the obligations
of the counterparty is not sufficient or to possible delays or losses in recovering any
excess collateral belonging to us held by the counterparty;
    
    our ability to collect payment of a receivable from Lehman Brothers, Inc. (LBI),
which results from the excess of the value of securities owned by Doral Financial that were
held by LBI above the amounts owed by Doral Financial under certain terminated repurchase
agreements and forward agreement;
    
    higher credit losses because of federal or state legislation or regulatory action that
either (i) reduces the amount that our borrowers are required to pay us, or (ii) limits our
ability to foreclose on properties or collateral or makes foreclosures less economically
feasible;
    
    developments in the regulatory and legal environment for financial services companies
in Puerto Rico and the United States as a result of, among other things, recent legislative
and regulatory proposals made by the federal government, which may lead to various changes
in bank regulatory requirements, including required levels and components of capital;
    
    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;
    
    to the extent we make any acquisitions, including FDIC-assisted acquisitions of assets
and liabilities of failed banks, risks and difficulties relating to combining the acquired
operations with our existing operations;
    
    potential adverse outcome in the legal or regulatory actions or proceedings described
in Part I, Item 3 Legal Proceedingsin the Companys 2009 Annual Report on Form 10-K, as
updated from time to time in the Companys future reports filed with the SEC; and
    
    the other risks and uncertainties detailed in Part II, Item 1A Risk Factorsin this
Quarterly Report on Form 10-Q, as updated from time to time in the Companys future reports
filed with the SEC.
 54




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   OVERVIEW OF RESULTS OF OPERATIONS
   
    
    Net income attributable to common shareholders for the first quarter of
2010 totaled $21.2 million, resulted in a diluted earnings per share of $0.34, compared
to a net loss attributable to common shareholders for the corresponding 2009 period of
$54.6 million, or a diluted loss per share of $1.01, resulting in a $1.35 improvement
in the quarterly earnings per share, due primarily to the
$42.8 million improvement in net income and to the
$26.5 million effect of
the preferred stock exchange. For further information see Note 29.
    
    Net interest income for the first quarter of 2010 was $43.8 million,
compared to $36.1 million for the corresponding period in 2009. The increase of $7.7
million in net interest income for 2010, compared to 2009, was the result of a
reduction in interest expense of $15.0 million or 18.6%, partially offset by a
reduction in interest income of $7.3 million or 6.2%. The reduction in interest expense was due
to (i) a reduction of $11.5 million in interest expense on deposits driven by lower
interest rates, (ii) a reduction of $2.0 million in interest expense on advances from
the Federal Home Loan bank of New York (FHLB), and (iii) a decrease in interest expense on loans payable of $1.7 million. The
decrease in interest income was due to (i) a reduction in interest income on
mortgage-backed securities of $4.1 million, (ii) a reduction in interest income on
investment securities of $4.0 million, partially offset by (iii) an increase in
interest income on other interest earning assets of $1.2 million.
    
    Doral Financials provision for loan and lease losses for the quarter ended
March 31, 2010 totaled $13.9 million, compared to $23.6 million for the corresponding
2009 period. The $9.7 million decrease in the provision in the first quarter of 2010
compared to the corresponding 2009 period was due to higher provisions established in 2009 as a result of the
full impact of the discontinuation of a local governments
incentive program under Tax Credit Law 197 and adverse
development on five loans that drove an additional $11.0 million provision in the 2009
period.
    
    Non-interest income for the first quarter of 2010 was $36.6 million,
compared to $1.6 million for the corresponding period in 2009. The increase in
non-interest income of $35.0 million for the first quarter of 2010, compared to the
same period in 2009, resulted from (i) a net gain on investment securities of $26.4
million due to the sale of approximately $1.2 billion of mortgage-backed securities and
other debt securities during the first quarter of 2010; (ii) a $9.5 million improvement in servicing income largely attributable to an adverse mark on the
servicing asset in 2009; (iii) a net gain on trading activities of $1.8 million driven principally
by a lower loss on the MSR economic hedge of $9.1 million when compared to 2009; (iv) an increase
in other income of $2.9 million due to a gain on redemption of shares of VISA, Inc., offset in part
by an OTTI loss of $13.3 million recognized on six of the Companys non-agency CMOs.
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
    
    Non-interest expense for the first quarter of 2010 was $67.4 million,
compared to $60.4 million for the corresponding period in 2009. The $7.0 million
increase in non-interest expenses for the first quarter of 2010 was due to (i) an
increase of $7.7 million in professional services related to expenses incurred in the
exchange of preferred stock to common stock, expenses related to managing the portfolio of construction loans and expenses incurred to facilitate the Companys
qualification as a bidder in a possible Federal Deposit Insurance Corporation (FDIC) assisted transaction, (ii) an increase of
$3.4 million in other real estate owned (OREO) losses and other related expenses, (iii) an increase of $3.3
million in FDIC insurance expense related to the increase in rates and assessment bases
adopted by the FDIC in the third quarter of 2009, partially offset by (iv) a decrease
in compensation and employee benefits of $6.4 million related to severance expenses
incurred in the first quarter of 2009 related to a reduction in force.
    
    An income tax expense of $2.5 million for the first quarter of 2010,
compared to an income tax benefit of $0.1 million for the corresponding period in 2009.
The current tax expense resulted from taxes on U.S. source income and the amortization
of existing deferred tax assets.
    
    The Company reported other comprehensive loss of $7.3 million for the first
quarter of 2010 compared to other comprehensive loss of $12.7 million for the
corresponding 2009 period. The Companys other comprehensive loss for the first quarter
of 2010 and 2009 resulted principally from a decrease in value of securities in its
available for sale investment portfolio.
    
    Doral Financials loan production for the first quarter of 2010 was $289.1
million, compared to $242.3 million for the comparable 2009 period, an increase of
approximately 19.3%. The increase in Doral Financials loan production for the first
quarter of 2010 was due to an increase in the commercial loan portfolio primarily as a
result of loan production generated by the Companys syndicated lending unit that
started operations during the third quarter of 2009. The increase in the commercial
loan portfolio was partially offset by decreases in residential mortgage loan origination as well
as in construction and consumer loans due primarily to the general economic conditions
in Puerto Rico.
    
    Assets as of March 31, 2010 totaled $9.7 billion compared to $10.2 billion
as of December 31, 2009, a decrease of $519 million or 5.1%. The decrease in assets was
due to a decrease of $709.9 million in the Companys investment securities portfolio
that resulted from a combination of a sale of $1.2 billion of investment securities
during the first quarter of 2010 and purchases primarily of shorter duration
mortgage-backed securities as part of interest rate risk management, a decrease in cash
of $413.1 million and partially offset by an increase of $572.9 million in other assets
primarily due to an increase in unsettled investment security trades.
    
    Non-performing assets (NPA) as of March 31, 2010 were $1.0 billion, an
increase of $61.7 million compared to December 31, 2009. Non-performing loans (which
are included in NPAs) as of March 31, 2010 were $903.9 million, an increase of $55.6
million since December 31, 2009. The increase in NPAs resulted from increases in the
residential mortgage loans, commercial real estate loans and land loans and is a direct
consequence of the depressed housing market and overall macroeconomic trends in Puerto
Rico.
 56




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TABLE A  SELECTED FINANCIAL DATA
 QUARTERS ENDEDMARCH 31,(Dollars in thousands, except per share data)
    
    2010
    
    
    2009Selected Income Statement Data:Interest income
    
    $
    109,228
    
    
    $
    116,494Interest expense
    
    
    65,467
    
    
    
    80,424Net interest income
    
    
    43,761
    
    
    
    36,070Provision for loan and lease losses
    
    
    13,921
    
    
    
    23,625Net interest income after provision for loan and lease losses
    
    
    29,840
    
    
    
    12,445Non-interest income
    
    
    36,584
    
    
    
    1,583Non-interest expenses
    
    
    67,398
    
    
    
    60,426Loss before income taxes
    
    
    (974
    )
    
    
    (46,398
    )Income tax expense(benefit) (1)
    
    
    2,529
    
    
    
    (108
    )Net loss
    
    $
    (3,503
    )
    
    $
    (46,290
    )Net income (loss) attributable to common shareholders
    
    $
    21,218
    
    
    $
    (54,615
    )Net income (loss) per common share(2)
    
    $
    0.34
    
    
    $
    (1.01
    )Preferred Stock Dividends
    
    $
    1,864
    
    
    $
    8,325Preferred Stock Exchange Premium, net
    
    $
    (26,585
    )
    
    $
    Book Value Per Common Share
    
    $
    7.58
    
    
    $
    4.92Weighted  Average Common Shares Outstanding
    
    
    62,528,221
    
    
    
    53,810,110Common shares outstanding at end of period
    
    
    67,283,370
    
    
    
    53,810,110Selected Balance Sheet Data at Period End:Total investment securities
    
    $
    2,254,290
    
    
    $
    3,695,582Total loans, net(3)
    
    
    5,693,774
    
    
    
    5,510,650Servicing assets, net
    
    
    118,236
    
    
    
    104,426Total assets
    
    
    9,712,888
    
    
    
    10,114,667Deposit accounts
    
    
    4,586,209
    
    
    
    4,051,242Total borrowings
    
    
    3,981,122
    
    
    
    4,914,981Total liabilities
    
    
    8,850,537
    
    
    
    9,276,768Preferred stock
    
    
    352,082
    
    
    
    573,250Common stock
    
    
    510,269
    
    
    
    264,649Stockholders equity
    
    
    862,351
    
    
    
    837,899Selected Average Balance Sheet Data for Period End(4):Total interest-earning assets
    
    
    9,503,734
    
    
    
    9,563,211Total assets
    
    
    10,192,660
    
    
    
    10,068,252Total interest-bearing liabilities
    
    
    8,717,845
    
    
    
    8,584,083Preferred equity
    
    
    409,797
    
    
    
    573,250Common equity
    
    
    467,237
    
    
    
    320,251Total stockholders equity
    
    
    877,034
    
    
    
    893,501Operating Data:Loan production
    
    $
    289,055
    
    
    $
    242,338Loan servicing portfolio(5)
    
    
    8,247,261
    
    
    
    9,267,513Selected Financial Ratios(5)Performance:Net interest margin
    
    
    1.87
    %
    
    
    1.53
    %Return on average assets(4)
    
    
    (0.14
    )%
    
    
    (1.86
    )%Return on average common equity(4)
    
    
    18.42
    %
    
    
    (69.16
    )%Capital:Leverage ratio
    
    
    8.43
    %
    
    
    7.15
    %Tier 1 risk-based capital ratio
    
    
    13.83
    %
    
    
    11.82
    %Total risk-based capital ratio
    
    
    15.09
    %
    
    
    16.16
    %Asset quality:Total NPAs as percentage of the loan portfolio, net, and OREO (excluding GNMA defaulted loans)
    
    
    17.84
    %
    
    
    16.46
    %Total NPAs as a percentage of consolidated total assets
    
    
    10.34
    %
    
    
    8.80
    %Allowance for loan losses as a percentage of loans receivable outstanding, at the end of period
    
    
    2.68
    %
    
    
    2.73
    %
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TABLE A  SELECTED FINANCIAL DATA
 QUARTERS ENDEDMARCH 31,(Dollars in thousands, except per share data)
    
    2010
    
    
    2009Provision for loan and lease losses to net charge-offs
    
    
    192.97
    %
    
    
    201.15
    %Net charge-offs on an annualized basis to average loan receivable outstanding
    
    
    0.53
    %
    
    
    0.91
    %Allowance for loan and leases losses to net charge-offs on an annualized basis
    
    
    504.09
    %
    
    
    302.10
    %Other ratios:Average common equity to average assets(4)
    
    
    4.58
    %
    
    
    3.18
    %Tier 1 common equity to risk-weighted assets
    
    
    8.16
    %
    
    
    4.67
    %
 
 (1)
    
    See Note 24 of the consolidated financial statements for an explanation of the computation of income tax benefit.(2)
    
    For the quarter ended March 31, 2010 and 2009, net income (loss) per common share represents the basic and diluted income (loss) per common share, respectively, for each of the periods
presented.(3)
    
    Includes loans held for sale.(4)
    
    Average balances are computed on a daily basis.(5)
    
    Represents the total portfolio of loans serviced for third parties. Excludes $4.4 billion and $4.2 billion of mortgage loans owned by Doral Financial at March 31, 2010 and 2009,
respectively. CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2010 AND 2009
 NET INTEREST INCOME
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TABLE B
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
 QUARTER ENDED MARCH 31,2010
    
    
    2009AVERAGE
    
    
    
    
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGE(Dollars in thousands)
    
    BALANCE
    
    
    INTEREST
    
    
    YIELD/RATE
    
    
    BALANCE
    
    
    INTEREST
    
    
    YIELD/RATEASSETS:Interest-earning assets:Total loans(1)(2)
    
    $
    5,839,194
    
    
    $
    81,433
    
    
    
    5.66
    %
    
    $
    5,594,175
    
    
    $
    81,588
    
    
    
    5.91
    %Mortgage-backed securities
    
    
    2,796,484
    
    
    
    23,247
    
    
    
    3.37
    %
    
    
    3,129,042
    
    
    
    27,381
    
    
    
    3.55
    %Interest-only strips (IOs)
    
    
    45,703
    
    
    
    1,543
    
    
    
    13.69
    %
    
    
    50,409
    
    
    
    1,628
    
    
    
    13.10
    %Investment securities
    
    
    83,250
    
    
    
    865
    
    
    
    4.21
    %
    
    
    520,221
    
    
    
    4,907
    
    
    
    3.83
    %Other interest-earning assets
    
    
    739,103
    
    
    
    2,140
    
    
    
    1.17
    %
    
    
    269,364
    
    
    
    990
    
    
    
    1.49
    %Total interest-earning assets/interest income
    
    
    9,503,734
    
    
    $
    109,228
    
    
    
    4.66
    %
    
    
    9,563,211
    
    
    $
    116,494
    
    
    
    4.94
    %Total non-interest-earning assets
    
    
    688,926
    
    
    
    
    
    
    
    
    
    
    
    505,042Total assets
    
    $
    10,192,660
    
    
    
    
    
    
    
    
    
    
    $
    10,068,253LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Deposits
    
    $
    4,408,828
    
    
    $
    26,700
    
    
    
    2.46
    %
    
    $
    3,911,497
    
    
    $
    38,207
    
    
    
    3.96
    %Repurchase agreements
    
    
    2,203,245
    
    
    
    18,024
    
    
    
    3.32
    %
    
    
    1,805,528
    
    
    
    17,232
    
    
    
    3.87
    %Advances from FHLB
    
    
    1,484,587
    
    
    
    13,973
    
    
    
    3.82
    %
    
    
    1,615,256
    
    
    
    16,014
    
    
    
    4.02
    %Other short-term borrowings
    
    
    16,556
    
    
    
    11
    
    
    
    0.27
    %
    
    
    611,064
    
    
    
    436
    
    
    
    0.29
    %Loans payable
    
    
    334,317
    
    
    
    1,649
    
    
    
    2.00
    %
    
    
    364,357
    
    
    
    3,309
    
    
    
    3.68
    %Notes payable
    
    
    270,312
    
    
    
    5,110
    
    
    
    7.67
    %
    
    
    276,381
    
    
    
    5,226
    
    
    
    7.67
    %Total interest-bearing liabilities/interest expense
    
    
    8,717,845
    
    
    $
    65,467
    
    
    
    3.05
    %
    
    
    8,584,083
    
    
    $
    80,424
    
    
    
    3.80
    %Total non-interest-bearing liabilities
    
    
    597,781
    
    
    
    
    
    
    
    
    
    
    
    590,668Total liabilities
    
    
    9,315,626
    
    
    
    
    
    
    
    
    
    
    
    9,174,751Stockholders equity
    
    
    877,034
    
    
    
    
    
    
    
    
    
    
    
    893,502Total liabilities and stockholders equity
    
    $
    10,192,660
    
    
    
    
    
    
    
    
    
    
    $
    10,068,253Net interest-earning assets
    
    $
    785,889
    
    
    
    
    
    
    
    
    
    
    $
    979,128Net interest income on a non-taxable equivalent basis
    
    
    
    
    
    $
    43,761
    
    
    
    
    
    
    
    
    
    
    $
    36,070Interest rate spread(3)
    
    
    
    
    
    
    
    
    
    
    1.61
    %
    
    
    
    
    
    
    
    
    
    
    1.14
    %Interest rate margin(4)
    
    
    
    
    
    
    
    
    
    
    1.87
    %
    
    
    
    
    
    
    
    
    
    
    1.53
    %Net interest-earning assets ratio(5)
    
    
    
    
    
    
    
    
    
    
    109.01
    %
    
    
    
    
    
    
    
    
    
    
    111.41
    %
 
 (1)
    
    Average loan balances include the average balance of non-accruing loans, on which
interest income is recognized when collected. Also, includes the average balance of
GNMA defaulted loans for which the Company has an unconditional buy-back option.(2)
    
    Interest income on loans includes $0.2 million for the first quarters of 2010 and
2009, 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 yield on
interest-bearing liabilities.(4)
    
    Interest rate margin represents net interest income on an annualized basis as a
percentage of average interest-earning assets.(5)
    
    Net interest-earning assets ratio represents average interest-earning assets as a
percentage of average interest-bearing liabilities.  60




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TABLE C
NET INTEREST INCOME VARIANCE ANALYSIS
 QUARTER ENDEDMARCH 31,2010 COMPARED TO 2009INCREASE (DECREASE) DUE TO:(In thousands)
    
    VOLUME
    
    
    RATE
    
    
    TOTALINTEREST INCOME VARIANCETotal loans
    
    $
    14,150
    
    
    $
    (14,305
    )
    
    $
    (155
    )Mortgage-backed securities
    
    
    (2,799
    )
    
    
    (1,335
    )
    
    
    (4,134
    )Interest-only strips
    
    
    (459
    )
    
    
    374
    
    
    
    (85
    )Investment securities
    
    
    (7,151
    )
    
    
    3,109
    
    
    
    (4,042
    )Other interest-earning assets
    
    
    2,559
    
    
    
    (1,409
    )
    
    
    1,150TOTAL INTEREST INCOME VARIANCE
    
    $
    6,300
    
    
    $
    (13,566
    )
    
    $
    (7,266
    )INTEREST EXPENSE VARIANCEDeposits
    
    $
    26,598
    
    
    $
    (38,105
    )
    
    $
    (11,507
    )Repurchase agreements
    
    
    12,554
    
    
    
    (11,762
    )
    
    
    792Advances from FHLB
    
    
    (1,264
    )
    
    
    (777
    )
    
    
    (2,041
    )Other short-term borrowings
    
    
    (385
    )
    
    
    (41
    )
    
    
    (426
    )Loans payable
    
    
    (254
    )
    
    
    (1,406
    )
    
    
    (1,660
    )Notes payable
    
    
    (109
    )
    
    
    (7
    )
    
    
    (116
    )TOTAL INTEREST EXPENSE VARIANCE
    
    $
    37,140
    
    
    $
    (52,098
    )
    
    $
    (14,958
    )NET INTEREST INCOME VARIANCE
    
    $
    (30,840
    )
    
    $
    38,532
    
    
    $
    7,692
  PROVISION FOR LOAN AND LEASE LOSSES
   
    
    Overall mortgage and commercial portfolio behavior including increases in late stage
delinquency.
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
    
    A $1.1 million impairment charge related to the execution of $21.3 million in loss
mitigation programs during the quarter.
    
    Unfavorable developments in several construction and commercial impaired loans including
increases in stale appraisal reserves and the effect of six construction developer loans
that became collateral dependent during the first quarter.
    
    Increases in provision related to new loan production in the Syndicated Lending Unit.
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NON-INTEREST INCOME
 TABLE D
NON-INTEREST INCOME
 QUARTER ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009
    
    
    VarianceNet credit related to OTTI losses
    
    $
    (13,259
    )
    
    $
    
    
    
    $
    (13,259
    )Net gain on mortgage loan sales and fees
    
    
    2,566
    
    
    
    1,719
    
    
    
    847Gain (loss) on trading activities:Net gain (loss) on securities held for trading
    
    
    785
    
    
    
    1,679
    
    
    
    (894
    )Gain on IO valuation
    
    
    659
    
    
    
    (562
    )
    
    
    1,221Gain (loss) on MSR economic hedge
    
    
    1,828
    
    
    
    (7,301
    )
    
    
    9,129Loss on derivatives
    
    
    (1,498
    )
    
    
    (1,144
    )
    
    
    (354
    )Net gain (loss) trading activities
    
    
    1,774
    
    
    
    (7,328
    )
    
    
    9,102Net gain (loss) on investment securities
    
    
    26,414
    
    
    
    (13
    )
    
    
    26,427Loss on early repayment of debt
    
    
    (476
    )
    
    
    
    
    
    
    (476
    )Servicing income (loss):Servicing fees
    
    
    7,110
    
    
    
    7,841
    
    
    
    (731
    )Late charges
    
    
    2,095
    
    
    
    2,276
    
    
    
    (181
    )Prepayment penalties
    
    
    (9
    )
    
    
    126
    
    
    
    (135
    )Other servicing fees
    
    
    234
    
    
    
    133
    
    
    
    101Interest loss on serial notes and others
    
    
    (682
    )
    
    
    (1,798
    )
    
    
    1,116Mark-to-market adjustment of servicing assets
    
    
    (2,004
    )
    
    
    (11,353
    )
    
    
    9,349Total servicing income (loss)
    
    
    6,744
    
    
    
    (2,775
    )
    
    
    9,519Commissions, fees and other income:Retail banking fees
    
    
    7,143
    
    
    
    7,082
    
    
    
    61Insurance agency commissions
    
    
    2,342
    
    
    
    2,424
    
    
    
    (82
    )Other income
    
    
    3,336
    
    
    
    474
    
    
    
    2,862Total commissions, fees and other income
    
    
    12,821
    
    
    
    9,980
    
    
    
    2,841Total non-interest income
    
    $
    36,584
    
    
    $
    1,583
    
    
    $
    35,001
  
    
    During the first quarter of 2010, OTTI losses were recognized on six of the Companys
non-agency CMOs, representing an aggregate amortized cost of $277.5 million, and recognized
a credit loss of $13.3 million on these securities. One of these securities was a P.R.
non-agency CMO with an amortized cost of $8.2 million and a recognized credit loss of
approximately $2,000, and the additional five securities were U.S. non-agency CMOs with an
amortized cost of $305.8 million and a recognized credit loss of $13.3 million. Please
refer to Note 7 in the accompanying Notes to the Consolidated Financial Statements for
additional information on OTTI.
    
    The $9.1 million improvement in net gain (loss) on trading activities was driven
principally by a $1.8 million gain on the MSR economic hedge for the first quarter of 2010,
compared to a loss of $7.3 million in 2009, as a result of a change in the strategy for the
economic hedge made during the second quarter of 2009.
    
    Net gain on investment securities of $26.4 million resulted from the sale of
approximately $1.2 billion of MBS and other debt securities during the first quarter of
2010 as part of the execution of the Companys strategy to delever the balance sheet while
continuing to shorten the duration of the investment portfolio. This gain was partially
offset by a loss on early repayment of debt of $0.5 million related to the investments
sold.
    
    An improvement in the mark-to-market adjustment of mortgage servicing assets of $9.3
million primarily driven by the decrease in forecasted prepayment speeds which now better
reflect actual Puerto Rico prepayment experience.
    
    An increase in other income of $2.9 million was due to a gain on redemption of shares of
VISA, Inc. in 2010.
 
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NON-INTEREST EXPENSE
 TABLE E  NON-INTEREST EXPENSE
 QUARTER ENDED MARCH 31,(In thousands)
    
    2010
    
    
    2009
    
    
    VarianceCompensation and benefits
    
    $
    16,435
    
    
    $
    22,828
    
    
    $
    (6,393
    )Taxes, other than payroll and income taxes
    
    
    2,564
    
    
    
    2,488
    
    
    
    76Advertising
    
    
    1,498
    
    
    
    1,448
    
    
    
    50Professional services
    
    
    13,792
    
    
    
    6,127
    
    
    
    7,665Communication expenses
    
    
    3,944
    
    
    
    4,408
    
    
    
    (464
    )EDP expenses
    
    
    3,779
    
    
    
    3,616
    
    
    
    163Occupancy expenses
    
    
    3,981
    
    
    
    4,001
    
    
    
    (20
    )Office expenses
    
    
    1,285
    
    
    
    1,466
    
    
    
    (181
    )Depreciation and amortization
    
    
    3,147
    
    
    
    3,453
    
    
    
    (306
    )FDIC insurance expense
    
    
    5,191
    
    
    
    1,937
    
    
    
    3,254OREO losses and other related expenses
    
    
    4,597
    
    
    
    1,188
    
    
    
    3,409Corporate insurance
    
    
    1,262
    
    
    
    1,063
    
    
    
    199Other expenses
    
    
    5,923
    
    
    
    6,403
    
    
    
    (480
    )Total non-interest expense
    
    $
    67,398
    
    
    $
    60,426
    
    
    $
    6,972
  
    
    The decrease in compensation and benefits of $6.4 million was driven by a lower
severance expense of $5.3 million together with lower taxes and benefits of approximately
$1.2 million, as a result of a reduction in workforce during the first quarter of 2009.
This reduction was partially offset by lower deferral of loan origination costs of
approximately $0.9 million.
    
    An increase of $7.7 million in professional expenses was related to expenses incurred in
the exchange of preferred stock for common stock, expenses related to managing the portfolio of construction loans and expenses incurred to facilitate the Companys
qualification as a bidder in a possible FDIC assisted transaction.
The Company was successful in becoming a qualified bidder, however,
it was not selected to acquire assets and liabilities of any Puerto
Rico bank in an FDIC assisted transaction.
    
    An increase of $3.3 million in the FDIC insurance expense primarily related to the
increase in rates and assessment bases adopted by the FDIC in the third quarter of 2009.
    
    An increase of $3.4 million in OREO losses and other related expenses as a result of
adjustments to lower of cost or appraisal, as well as stale appraisal adjustments driven by
lower values of properties, higher levels of repossessed units and higher
expenses to maintain the properties in saleable condition.
 INCOME TAXES
    64




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BALANCE SHEET AND OPERATING DATA ANALYSIS
 LOAN PRODUCTION
   65




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TABLE F
LOAN PRODUCTION
 Quarter EndedMarch 31,(Dollars in thousands, except for average initial loan balance)
    
    2010
    
    
    2009FHA/VA mortgage loansNumber of loans
    
    
    382
    
    
    
    504Volume of loans
    
    $
    51,487
    
    
    $
    72,395Percent of total volume
    
    
    18
    %
    
    
    30
    %Average initial loan balance
    
    $
    134,783
    
    
    $
    143,641Conventional conforming mortgage loansNumber of loans
    
    
    198
    
    
    
    268Volume of loans
    
    $
    22,375
    
    
    $
    34,054Percent of total volume
    
    
    8
    %
    
    
    14
    %Average initial loan balance
    
    $
    113,005
    
    
    $
    127,067Conventional non-conforming mortgage loans(1)Number of loans
    
    
    551
    
    
    
    657Volume of loans
    
    $
    93,847
    
    
    $
    101,972Percent of total volume
    
    
    32
    %
    
    
    42
    %Average initial loan balance
    
    
    170,321
    
    
    $
    155,209Disbursement under existing construction development loansVolume of loans
    
    $
    2,891
    
    
    $
    7,793Percent of total volume
    
    
    1
    %
    
    
    3
    %Commercial loans(2)Number of loans
    
    
    80
    
    
    
    15Volume of loans
    
    $
    107,344
    
    
    $
    23,407Percent of total volume
    
    
    37
    %
    
    
    10
    %Average initial loan balance
    
    $
    1,341,800
    
    
    $
    1,560,467Consumer loans(2)Number of loans
    
    
    97
    
    
    
    312Volume of loans
    
    $
    661
    
    
    $
    2,717Percent of total volume
    
    
    0
    %
    
    
    1
    %Average initial loan balance
    
    $
    6,814
    
    
    $
    8,708Other(3)Number of loans
    
    
    4
    
    
    
    312Volume of loans
    
    $
    10,450
    
    
    $
    2,717Percent of total volume
    
    
    4
    %
    
    
    1
    %Total loansNumber of loans
    
    
    1,312
    
    
    
    1,756Volume of loans
    
    $
    289,055
    
    
    $
    242,338
 
 (1)
    
    Includes $0.4 million and $0.9 million in second mortgages for the quarters
ended March 31, 2010 and 2009, respectively.(2)
    
    Commercial and consumer lines of credit are included in the loan production
according to the credit limit approved.(3)
    
    Consists of multifamily loans.   66




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TABLE G  LOAN ORIGINATION SOURCES
 QUARTER ENDED MARCH 31,2010
    
    2009Puerto Rico
    
    US
    
    Total
    
    Puerto Rico
    
    US
    
    TotalRetail
    
    
    51
    %
    
    
    
    
    
    
    51
    %
    
    
    75
    %
    
    
    
    
    
    
    75
    %Wholesale(1)
    
    
    7
    %
    
    
    
    
    
    
    7
    %
    
    
    11
    %
    
    
    
    
    
    
    11
    %Housing Developments(2)
    
    
    1
    %
    
    
    4
    %
    
    
    5
    %
    
    
    2
    %
    
    
    1
    %
    
    
    3
    %Other(3)
    
    
    1
    %
    
    
    36
    %
    
    
    37
    %
    
    
    2
    %
    
    
    9
    %
    
    
    11
    %
 
 (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
   67




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TABLE H  LOANS SERVICED FOR THIRD PARTIES
 AS OF MARCH 31,(Dollars in Thousands, Except for Average Size of Loans Serviced)
    
    2010
    
    
    2009Composition of Portfolio Serviced for Third Parties at Period End:GNMA
    
    $
    2,313,848
    
    
    $
    2,297,269FHLMC/FNMA
    
    
    3,011,320
    
    
    
    3,356,510Other conventional mortgage loans(1)(2)
    
    
    3,222,093
    
    
    
    3,613,734Total portfolio serviced for third parties
    
    $
    8,547,261
    
    
    $
    9,267,513Activity of Portfolio Serviced for Third Parties:Beginning servicing portfolio
    
    $
    8,655,613
    
    
    $
    9,460,350Additions to servicing portfolio
    
    
    87,584
    
    
    
    105,090Servicing released due to repurchases
    
    
    (10,100
    )
    
    
    (19,829
    )MSRs sales
    
    
    (1,545
    )
    
    
    Run-off(3)
    
    
    (184,561
    )
    
    
    (278,098
    )Ending servicing portfolio
    
    $
    8,547,261
    
    
    $
    9,267,513Selected Data Regarding Mortgage Loans Serviced for Third Parties:Number of loans
    
    
    102,207
    
    
    
    109,821Weighted- average interest rate
    
    
    6.29
    %
    
    
    6.39
    %Weighted- average remaining maturity (months)
    
    
    241
    
    
    
    245Weighted- average gross servicing fee rate
    
    
    0.40
    %
    
    
    0.40
    %Average servicing portfolio(4)
    
    $
    8,601,437
    
    
    $
    9,363,932Principal prepayments
    
    $
    118,357
    
    
    $
    167,556Constant prepayment rate
    
    
    5.22
    %
    
    
    6.68
    %Average size of loans
    
    $
    83,627
    
    
    $
    84,387Servicing assets, net
    
    $
    118,236
    
    
    $
    104,426Mortgage-servicing advances(5)
    
    $
    30,361
    
    
    $
    19,924Delinquent Mortgage Loans and Pending Foreclosures at Period End:60-89 days past due
    
    
    2.48
    %
    
    
    2.20
    %90 days or more past due
    
    
    4.91
    %
    
    
    3.65
    %Total delinquencies excluding foreclosures
    
    
    7.39
    %
    
    
    5.85
    %Foreclosures pending
    
    
    3.35
    %
    
    
    2.69
    %
 
 (1)
    
    Excludes $4.4 billion and $4.2 billion of mortgage loans owned by Doral Financial at
March 31, 2010 and 2009, respectively.(2)
    
    Includes portfolios of $151.3 million and $169.0 million at March 31, 2010 and 2009,
respectively, of delinquent FHA/VA and conventional mortgage loans sold to third parties.(3)
    
    Run-off refers to regular amortization of loans, prepayments and foreclosures.(4)
    
    Excludes the average balance of mortgage loans owned by Doral Financial of $4.4
billion and $4.2 billion as of March 31, 2010 and 2009, respectively.(5)
    
    Includes reserves for possible losses on P&I advances of $9.0 million and $8.7
million as of March 31, 2010 and 2009, respectively.    68




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LIQUIDITY AND CAPITAL RESOURCES
  Liquidity of the Holding Company
      
    
    changes in short-term borrowings and deposits in the normal course of business;
    
    repayment of certain long-term callable certificate of deposits;
    
    adoption of an initiative to lengthen the brokered CD term to structurally reduce
interest rate sensitivity;
 69




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
    
    the impact on the Companys assets and liabilities as a result of the Companys exposure
to Lehman Brothers Inc. in connection with repurchase
agreements and forward to-be-announced
agreements;
    
    capital contributions to Doral Bank;
    
    suspension of payment of dividends on outstanding preferred stock;
    
    prepayment of FDIC insurance assessments for the years 2010-2012;
    
    repurchase of loans subject to recourse arrangements or
representation and warranties;
    
    repurchase of GNMA defaulted loans in 2009.
  Liquidity of the Banking Subsidiaries
  Cash Sources and Uses
    70




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Primary Sources of Cash
  TABLE I
SOURCES OF BORROWINGS
 AS OF MARCH 31, 2010
    
    AS OF DECEMBER 31, 2009AMOUNT
    
    AVERAGE
    
    AMOUNT
    
    AVERAGE(Dollars in thousands)
    
    OUTSTANDING
    
    RATE
    
    OUTSTANDING
    
    RATEDeposits
    
    $
    4,586,209
    
    
    
    2.20
    %
    
    $
    4,643,021
    
    
    
    2.24
    %Repurchase Agreements
    
    
    1,909,000
    
    
    
    3.50
    %
    
    
    2,145,262
    
    
    
    3.32
    %Advances from FHLB
    
    
    1,472,920
    
    
    
    2.90
    %
    
    
    1,606,920
    
    
    
    3.05
    %Other Short-Term Borrowings
    
    
    
    
    
    
    0.00
    %
    
    
    110,000
    
    
    
    0.25
    %Loans Payable
    
    
    329,706
    
    
    
    6.99
    %
    
    
    337,036
    
    
    
    7.27
    %Notes Payable
    
    
    269,496
    
    
    
    7.30
    %
    
    
    270,838
    
    
    
    7.30
    %
   TABLE J
AVERAGE DEPOSIT BALANCE
 QUARTER ENDED
    
    
    YEAR ENDEDMARCH 31, 2010
    
    
    DECEMBER 31, 2009AVERAGE
    
    
    AVERAGE
    
    
    AVERAGE
    
    
    AVERAGE(Dollars in thousands)
    
    BALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATECertificates of deposit
    
    $
    511,024
    
    
    
    2.76
    %
    
    $
    484,917
    
    
    
    3.34
    %Brokered certificates of deposits
    
    
    2,784,675
    
    
    
    2.75
    %
    
    
    2,374,207
    
    
    
    3.70
    %Regular passbook savings
    
    
    358,674
    
    
    
    1.51
    %
    
    
    361,217
    
    
    
    1.69
    %NOW accounts and other transaction accounts
    
    
    351,488
    
    
    
    1.13
    %
    
    
    350,300
    
    
    
    1.26
    %Money market accounts
    
    
    402,968
    
    
    
    2.06
    %
    
    
    390,962
    
    
    
    2.71
    %Total interest-bearing
    
    
    4,408,829
    
    
    
    2.46
    %
    
    
    3,961,603
    
    
    
    3.16
    %Non-interest bearing
    
    
    243,774
    
    
    
    
    
    
    
    244,606
    
    
    
    Total deposits
    
    $
    4,652,603
    
    
    
    2.33
    %
    
    $
    4,206,209
    
    
    
    2.97
    %
  TABLE K
CERTIFICATES OF DEPOSIT MATURITIES
 (In thousands)
    
    AMOUNTCertificates of deposit maturing:Three months or less
    
    $
    453,688Over three through six months
    
    
    412,324Over six through twelve months
    
    
    590,791Over twelve months
    
    
    1,495,770Total
    
    $
    2,952,573
 71




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Other Uses of Cash
  72




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Regulatory Capital Ratios
   73




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TABLE L
REGULATORY CAPITAL RATIOS
 AS OF MARCH 31, 2010DORAL
    
    DORAL
    
    DORALFINANCIAL
    
    BANK PR
    
    BANK NYTotal Capital Ratio (Total capital to risk- weighted assets)
    
    
    15.1
    %
    
    
    15.7
    %
    
    
    16.4
    %Tier 1
Capital Ratio (Tier 1 capital to risk- weighted assets)
    
    
    13.8
    %
    
    
    14.4
    %
    
    
    15.9
    %Leverage Ratio(1)
    
    
    8.4
    %
    
    
    7.4
    %
    
    
    12.5
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR and Tier 1 capital
to adjusted total assets in the case of Doral Bank NY. AS OF DECEMBER 31, 2009DORAL
    
    DORAL
    
    DORALFINANCIAL
    
    BANK PR
    
    BANK NYTotal Capital Ratio (Total capital to risk- weighted assets)
    
    
    15.1
    %
    
    
    15.3
    %
    
    
    16.6
    %Tier 1
Capital Ratio (Tier 1 capital to risk- weighted assets)
    
    
    13.8
    %
    
    
    14.0
    %
    
    
    16.2
    %Leverage Ratio(1)
    
    
    8.4
    %
    
    
    7.4
    %
    
    
    13.0
    %
 
 (1)
    
    Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR and Tier 1 capital to
adjusted total assets in the case of Doral Bank NY.   Legal Proceedings
  ASSETS AND LIABILITIES
  74




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CAPITAL
     Earnings per Share The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion
of Preferred Stock).
  75




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Housing and Urban Development Requirements
  76




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FAIR VALUE OF FINANCIAL INSTRUMENTS
     Level 1
    
    Valuation is based upon unadjusted quoted prices for identical
instruments traded in active markets.  Level 2
    
    Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets that
are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market, or are derived principally from or
corroborated by observable market data, by correlation or by other means.  Level 3
    
    Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable assumptions
reflect the Companys estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option pricing
models, discounted cash flow models and similar techniques.
    77




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OFF-BALANCE SHEET ACTIVITIES
      78




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QUARTER ENDED(In thousands)
    
    MARCH 31, 2010Balance at beginning of period
    
    $
    9,440Net charge-offs / termination
    
    
    (471
    )Provision for recourse liability
    
    
    368Balance at end of period
    
    $
    9,337
       79




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CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS
  TABLE M
CONTRACTUAL OBLIGATIONS
 PAYMENT DUE BY PERIODLESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTER(In thousands)
    
    TOTAL
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSDeposits
    
    $
    4,586,209
    
    
    $
    3,059,024
    
    
    $
    1,128,233
    
    
    $
    241,553
    
    
    $
    157,399Repurchase agreements(1) (2)
    
    
    1,909,000
    
    
    
    807,500
    
    
    
    486,500
    
    
    
    615,000
    
    
    
    Advances from FHLB(1) (2)
    
    
    1,472,920
    
    
    
    908,500
    
    
    
    308,420
    
    
    
    256,000
    
    
    
    Loans payable(3)
    
    
    329,706
    
    
    
    40,443
    
    
    
    74,583
    
    
    
    58,940
    
    
    
    155,740Notes payable
    
    
    269,496
    
    
    
    3,505
    
    
    
    5,953
    
    
    
    10,465
    
    
    
    249,573Other liabilities(4)
    
    
    115,212
    
    
    
    115,212
    
    
    
    
    
    
    
    
    
    
    
    Non-cancelable operating leases
    
    
    43,311
    
    
    
    5,641
    
    
    
    10,410
    
    
    
    7,703
    
    
    
    19,557Total Contractual Cash Obligations
    
    $
    8,725,854
    
    
    $
    4,939,825
    
    
    $
    2,014,099
    
    
    $
    1,189,661
    
    
    $
    582,269
 
 (1)
    
    Amounts included in the table above do not include interest.(2)
    
    Includes $288.5 million of repurchase agreements with an
average rate of 3.87% and $279.0 million in advances from FHLB with
an average rate of 5.41%,which the lenders have the right to call before their contractual maturities. The majority of such repurchase
agreements and advances from FHLB are included in the less-than-one year category in the above table but have actual contractual maturities
ranging from June 2010 to February 2012. 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 residential mortgage loans at variable interest
rates tied to 3-month LIBOR. These loans are not subject to scheduled payments, but are required to be repaid according to the regular amortization and prepayments of the underlying mortgage loans. For purposes of the table above, the Company used a
CPR of 10.9% to estimate the repayments.(4)
    
    Includes the liability for uncertain tax positions, excluding associated interest and penalties of $3.7 million that the
Company expects to settle within less than one year. TABLE N
OTHER COMMERCIAL COMMITMENTS (1)
 AMOUNT OF COMMITMENT EXPIRATION PER PERIODTOTALAMOUNT
    
    
    LESS THAN
    
    
    
    
    
    
    
    
    
    
    AFTER(In thousands)
    
    COMMITTED
    
    
    1 YEAR
    
    
    1-3 YEARS
    
    
    3-5 YEARS
    
    
    5 YEARSCommitments to extend credit
    
    $
    84,612
    
    
    $
    77,568
    
    
    $
    3,550
    
    
    $
    2,780
    
    
    $
    714Commitments to sell loans
    
    
    139,406
    
    
    
    139,406
    
    
    
    
    
    
    
    
    
    
    
    Commercial and financial standby letters of credit
    
    
    25
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Maximum contractual recourse exposure
    
    
    752,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752,132Total
    
    $
    926,175
    
    
    $
    166,999
    
    
    $
    3,550
    
    
    $
    2,780
    
    
    $
    752,846
 
 (1)
    
    Refer to Off-Balance Sheet Activities above for additional information regarding other commercial commitments of the Company. 80




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RISK MANAGEMENT
  Interest Rate and Market Risk Management
     
    
    developing the Companys asset/liability management and liquidity strategy;
    
    establishing and monitoring of interest rate, pricing and liquidity risk limits to ensure
compliance with the Companys policies;
    
    overseeing product pricing and volume objectives for banking and treasury activities;
and
    
    overseeing the maintenance of management information systems that supply relevant
information for the ALCO to fulfill its responsibilities as it relates to asset/liability
management.
 Risk Identification Measurement and Control
   81




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
    
    Net Interest Income Sensitivity.Refers to the relationship between market interest
rates and net interest income due to the maturity mismatches and repricing characteristics
of Doral Financials interest-earning assets, interest-bearing liabilities and off-balance
sheet positions. To measure net interest income exposure to changes in market interest
rates, the Company uses earnings simulation techniques. These simulation techniques allow
for the forecasting of net interest income and expense under various rate scenarios for the
measurement of interest rate risk exposures of Doral Financial. Primary scenarios include
instantaneous parallel and non-parallel rate shocks. Net interest income sensitivity is
measured for time horizons ranging from twelve to sixty months and as such, serves as a
measure of short to medium term earnings risk. The basic underlying assumptions used in net
interest income simulations are: (a) the Company maintains a static balance sheet; (b) full
reinvestment of funds in similar product/instruments with similar maturity and repricing
characteristics; (c) spread assumed constant; (d) prepayment rates on mortgages and
mortgage related securities are modeled using multi-factor prepayment model; (e)
non-maturity deposit decay and price elasticity assumptions are incorporated, and (f)
evaluation of embedded options is also taken into consideration. To complement and broaden
the analysis of earnings at risk the Company also performs earning simulations for longer
time horizons.
    
    Market Value of Equity Sensitivity.Used to capture and measure the risks associated
with longer-term maturity and re-pricing mismatches. Doral Financial uses value simulation
techniques for all financial components of the Statement of Financial Condition. Valuation
techniques include static cash flows analyses, stochastic models to qualify value of
embedded options and prepayment modeling. To complement and broaden the risk analysis, the
Company uses duration and convexity analysis to measure the sensitivity of the market value
of equity to changes in interest rates. Duration measures the linear change in market value
of equity caused by changes in interest rates, while, convexity measures the asymmetric
changes in market value of equity caused by changes in interest rates due to the presence
of options. The analysis of duration and convexity combined provide a better understanding
of the sensitivity of the market value of equity to changes in interest rates.
    
    Effective Duration of Equity.The effective duration of equity is a broad measure of
the impact of interest rate changes on Doral Financials economic capital. The measure
summarizes the net sensitivity of assets and liabilities, adjusted for off-balance sheet
positions.
 Interest Rate Risk Management Strategy
  Net Interest Income Risk.
 Market Value of Equity Hedging Strategies
 82




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Duration Risk
 Convexity Risk
 Hedging related to Mortgage Banking Activities
  
    
    The valuation of MSRs are recorded in earnings immediately within the accounting period
in which the changes in value occur, whereas the impact of changes in interest rates are
reflected in originations with a time lag and effects on servicing fee income occurs over
time. Thus, even when mortgage activities could be protected from adverse changes in
interest rates over a period of time (on a cumulative basis) they may display large
variations in income from period to period.
    
    The degree to which the natural hedge associated to mortgage banking (i.e. originating
and servicing) offsets changes in servicing asset valuations may be imperfect, as it may
vary over time.
    
    Origination volumes, the valuation of servicing assets, economic hedging activities and
other related costs are impacted by multiple factors, which include, changes in the mix of
new business, changes in the term structure of interest rates, changes in mortgage spreads
(mortgage basis) to other rate benchmarks, and rate volatility, among others. Interrelation
of all these factors is hard to predict and, as such, the ability to perfectly hedge their
effects is limited.
 Doral Financials Risk Profile
    83




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Market Value
    
    
    Net Interest IncomeAs of March 31, 2010
    
    Of Equity Risk
    
    
    Risk(1)+ 100 BPS
    
    
    (5.1
    )%
    
    
    (2.4
    )%- 100 BPS
    
    
    (2.7
    )%
    
    
    0.9
    %
 Market Value of
    
    
    Net Interest IncomeAs of December 31, 2009
    
    Equity Risk
    
    
    Risk(1)+ 100 BPS
    
    
    (9.4
    )%
    
    
    (3.4
    )%- 100 BPS
    
    
    (2.4
    )%
    
    
    (0.4
    )%
 
 (1)
    
    Based on 12-month forward change in net interest income.   84




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##### Table of Contents



(In thousands)
    
    March 31, 2010
    
    
    December 31, 2009Change in Fair Value
    
    
    Change in Fair ValueChange in Interest
    
    of Available for Sale
    
    
    of Available for SaleRates (Basis Points)
    
    Securities
    
    
    Securities+200
    
    $
    (144,404
    )
    
    $
    (164,043
    )+100
    
    
    (65,347
    )
    
    
    (71,675
    )Base
    
    
    
    
    
    
    -100
    
    
    39,320
    
    
    
    51,165-200
    
    
    57,895
    
    
    
    103,334
 Derivatives
  85




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TABLE O
INTEREST RATE CAPS
 (Dollars in thousands)MATURITY
    
    
    ENTITLED PAYMENT
    
    
    PREMIUM
    
    
    FAIRNOTIONAL AMOUNT
    
    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
    
    
    
    15,000
    
    September, 2012
    
    1-month LIBOR over 6.00%
    
    
    143
    
    
    
    1335,000
    
    October, 2010
    
    1-month LIBOR over 5.00%
    
    
    199
    
    
    
    15,000
    
    October, 2011
    
    1-month LIBOR over 5.00%
    
    
    172
    
    
    
    15,000
    
    October, 2012
    
    1-month LIBOR over 5.50%
    
    
    182
    
    
    
    2150,000
    
    November, 2012
    
    1-month LIBOR over 6.50%
    
    
    228
    
    
    
    4850,000
    
    November, 2012
    
    1-month LIBOR over 5.50%
    
    
    545
    
    
    
    7650,000
    
    November, 2012
    
    1-month LIBOR over 6.00%
    
    
    350
    
    
    
    58$270,000
    
    
    
    
    
    
    
    
    
    $
    2,158
    
    
    $
    216
  TABLE P
INTEREST RATE SWAPS
 (Dollars in thousands)MATURITY
    
    
    PAY
    
    
    RECEIVE
    
    
    FAIRNOTIONAL AMOUNT
    
    DATE
    
    
    FIXED RATE
    
    
    FLOATING RATE
    
    
    VALUECASH FLOW HEDGE$200,000
    
    July, 2010
    
    
    3.00
    %
    
    3-month LIBOR minus 0.04%
    
    $
    (2,785
    )8,000
    
    September, 2010
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (176
    )3,000
    
    September, 2011
    
    
    4.69
    %
    
    1-month LIBOR plus 0.02%
    
    
    (179
    )8,000
    
    October, 2010
    
    
    4.37
    %
    
    1-month LIBOR plus 0.02%
    
    
    (192
    )6,000
    
    October, 2011
    
    
    4.51
    %
    
    1-month LIBOR plus 0.05%
    
    
    (349
    )5,000
    
    October, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.05%
    
    
    (399
    )15,000
    
    November, 2010
    
    
    4.42
    %
    
    1-month LIBOR
    
    
    (415
    )15,000
    
    November, 2011
    
    
    4.55
    %
    
    1-month LIBOR plus 0.02%
    
    
    (921
    )45,000
    
    November, 2012
    
    
    4.62
    %
    
    1-month LIBOR plus 0.02%
    
    
    (3,698
    )$305,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,114
    )
 Freestanding Derivatives.
 86




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Derivatives  Hedge Accounting.
  TABLE Q
DERIVATIVES POSITIONS
 March 31, 2010
    
    
    December 31, 2009Notional
    
    
    Fair
    
    
    
    
    
    
    Fair(In thousands)
    
    Amount
    
    
    Value
    
    
    Notional Amount
    
    
    ValueCash flow HedgesInterest rate swaps
    
    $
    305,000
    
    
    $
    (9,114
    )
    
    $
    305,000
    
    
    $
    (10,691
    )Other derivativesInterest rate caps
    
    
    270,000
    
    
    
    216
    
    
    
    270,000
    
    
    
    777Forward contracts
    
    
    125,000
    
    
    
    (669
    )
    
    
    210,000
    
    
    
    (1,572
    )395,000
    
    
    
    (453
    )
    
    
    480,000
    
    
    
    (795
    )$
    700,000
    
    
    $
    (9,567
    )
    
    $
    785,000
    
    
    $
    (11,486
    )
  TABLE R
FAIR VALUE RECONCILIATION
 Quarter Ended(In thousands)
    
    March 31, 2010Fair value of contracts outstanding at the beginning of the period
    
    $
    (795
    )Changes in fair values during the period
    
    
    342Fair value of contracts outstanding at the end of the period
    
    $
    (453
    )
 TABLE S
SOURCES OF FAIR VALUE
 Payment Due by PeriodMaturity
    
    
    
    
    
    
    
    
    
    
    Maturity(In thousands)
    
    less than
    
    
    Maturity
    
    
    Maturity
    
    
    in excess
    
    
    Total FairAs of March 31, 2010
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    of 5 Years
    
    
    ValuePrices actively quoted
    
    $
    (669
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (669
    )Prices provided by
internal sources
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    216$
    (669
    )
    
    $
    216
    
    
    $
    
    
    
    $
    
    
    
    $
    (453
    )
  87




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TABLE T
DERIVATIVE COUNTERPARTY CREDIT EXPOSURE
 March 31, 2010Total Exposure
    
    
    
    
    
    
    
    
    
    
    Weighted Average(Dollars in thousands)
    
    Number of
    
    
    
    
    
    
    At Fair
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    Value(3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    203
    
    
    $
    
    
    
    $
    203
    
    
    
    2.20A+
    
    
    1
    
    
    
    360,000
    
    
    
    13
    
    
    
    (9,114
    )
    
    
    (9,101
    )
    
    
    0.88A
    
    
    2
    
    
    
    125,000
    
    
    
    49
    
    
    
    (718
    )
    
    
    (669
    )
    
    
    0.11Total Derivatives
    
    
    4
    
    
    $
    700,000
    
    
    $
    265
    
    
    $
    (9,832
    )
    
    $
    (9,567
    )
    
    
    1.15
 
 (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). December 31, 2009Total Exposure
    
    
    
    
    
    
    
    
    
    
    Weighted Average(Dollars in thousands)
    
    Number of
    
    
    
    
    
    
    At Fair
    
    
    Negative Fair
    
    
    
    
    
    
    Contractual MaturityRating(1)
    
    Counterparties(2)
    
    
    Notional
    
    
    Value(3)
    
    
    Values
    
    
    Total Fair Value
    
    
    (in years)AA-
    
    
    1
    
    
    $
    215,000
    
    
    $
    719
    
    
    $
    
    
    
    $
    719
    
    
    
    2.45A+
    
    
    1
    
    
    
    360,000
    
    
    
    58
    
    
    
    (10,691
    )
    
    
    (10,633
    )
    
    
    1.12A
    
    
    2
    
    
    
    210,000
    
    
    
    553
    
    
    
    (2,125
    )
    
    
    (1,572
    )
    
    
    0.11Subtotal
    
    
    4
    
    
    $
    785,000
    
    
    $
    1,330
    
    
    $
    (12,816
    )
    
    $
    (11,486
    )
    
    
    1.21
 
 (1)
    
    Based on the S&P Long-Term Issuer Credit Ratings.(2)
    
    Based on legal entities. Affiliated legal entities are reported separately.(3)
    
    For each counterparty, this amount includes derivatives with a positive fair value including the related accrued interest receivable/payable (net). Credit Risk
    88




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89




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Receivables- Troubled Debt
Restructuring by Creditors Debt-Troubled Debt Restructuring by Debtors Accounting by Debtors and Creditors of Troubled Debt Restructurings) Receivables-Measurement of Loan Impairment Accounting by Creditors for
Impairment of a Loan)
      March 31, 201090 and over days(In thousands)
    
    TDRs
    
    
    delinquencyResidential mortgage loans
    
    $
    461,909
    
    
    $
    107,438Construction loans (including land)
    
    
    117,497
    
    
    
    97,675Commercial loans
    
    
    55,430
    
    
    
    23,650Consumer loans
    
    
    1,474
    
    
    
    91Total TDRs
    
    $
    636,310
    
    
    $
    228,854
 90




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Non-performing Assets and Allowance for Loan and Lease Losses
   91




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TABLE U  NON-PERFORMING ASSETS
 AS OF
    
    
    AS OF(Dollars in thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Non-performing loans:Residential mortgage loans  held for sale (1)
    
    $
    3,374
    
    
    $
    4,901Residential mortgage loans  held for investment
    
    
    435,564
    
    
    
    403,070Total non-performing residential mortgage loans(2)
    
    
    438,938
    
    
    
    407,971Other lending activities:Construction loans
    
    
    230,351
    
    
    
    273,581Commercial real estate loans
    
    
    156,694
    
    
    
    130,156Commercial real estate loans  held for sale
    
    
    749
    
    
    
    655Consumer loans
    
    
    511
    
    
    
    519Commercial non-real estate loans
    
    
    1,908
    
    
    
    933Lease financing receivable
    
    
    637
    
    
    
    1,091Land loans
    
    
    74,062
    
    
    
    33,373Total non-performing other lending activities
    
    
    464,912
    
    
    
    440,308Total non-performing loans
    
    
    903,850
    
    
    
    848,279Repossessed Units
    
    
    146
    
    
    
    101OREO(3)
    
    
    100,345
    
    
    
    94,219Total NPAs of Doral Financial (consolidated)
    
    $
    1,004,341
    
    
    $
    942,599Total NPAs as a percentage of the loan portfolio, net, and OREO
(excluding GNMA defaulted loans)
    
    
    17.84
    %
    
    
    16.65
    %Total NPAs of Doral Financial as a percentage of
consolidated total assets
    
    
    10.34
    %
    
    
    9.21
    %Total non-performing loans to total loans (excluding GNMA
defaulted loans)
    
    
    15.92
    %
    
    
    14.86
    %Ratio of allowance for loan and lease losses to total
Non-performing loans (excluding loans held for sale) at end of period(4)
    
    
    16.39
    %
    
    
    16.70
    %
 
 (1)
    
    Does not include approximately $164.9 million and $128.6 million of GNMA defaulted loans over 90 days delinquent (for which the Company has the
option, but not an obligation, to buy back from the pools serviced), included as part of the loans held for sale portfolio as of March 31, 2010 and December 31, 2009,
respectively.(2)
    
    In November 2009, the Company evaluated its non-performing assets policy and placed in accrual status all FHA loans until 300 days delinquent because
the principal balance of these loans is insured or guaranteed under applicable FHA programs and interest is, in most cases, fully recovered in foreclosure proceedings. As a
result of the change in policy, total non-performing residential mortgage loans exclude $76.4 million and $105.5 million of FHA loans as of March 31, 2010 and December 31,
2009, respectively.(3)
    
    Excludes FHA and VA claims amounting to $15.6 million as of both March 31, 2010 and December 31, 2009, respectively.(4)
    
    Refer to non-performing assets 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.    92




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TABLE V  COMPOSITION OF MORTGAGE NON-PERFORMING ASSETS
 COLLATERAL TYPE
    
    LOAN TO VALUE
    
    
    DISTRIBUTIONFHA/VA loans
    
    
    
    
    
    
    7.4
    %Loans with private mortgage insurance
    
    
    
    
    
    
    7.1
    %Loans with no mortgage insurance
    
    
    < 60
    %
    
    
    14.1
    %61-80
    %
    
    
    40.3
    %81-90
    %
    
    
    15.3
    %Over 91%
    
    
    15.8
    %Total loans
    
    
    
    
    
    
    100.0
    %
    QUARTER ENDEDMARCH 31,(In thousands)
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    94,219
    
    
    $
    61,340Additions
    
    
    18,722
    
    
    
    20,162Sales
    
    
    (6,978
    )
    
    
    (7,881
    )Retirement
    
    
    (2,389
    )
    
    
    (2,584
    )Lower of cost or market adjustments
    
    
    (3,229
    )
    
    
    (829
    )Balance at end of period
    
    $
    100,345
    
    
    $
    70,208
    93




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As
ofMarch 31,
    

    
    December 31(In thousands)
    
    2010
    
    
    2009Construction
    
    $
    2,308
    
    
    $
    1,878Residential
    
    
    81,251
    
    
    
    76,461Commercial Real Estate
    
    
    15,438
    
    
    
    14,283Land secured
    
    
    1,348
    
    
    
    1,597Balance at end of period
    
    $
    100,345
    
    
    $
    94,219
     94




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As of
    
    
    As of(Dollars in thousands)
    
    March 31, 2010
    
    
    December 31, 2009Construction loans(1) (2)
    
    $
    405,772
    
    
    $
    452,386Total undisbursed funds under existing commitments(2) (3)
    
    
    30,391
    
    
    
    30,879Total non-performing construction loans(2)
    
    
    230,351
    
    
    
    273,581Net
(recovery) charge offs  Construction loans(2)
    
    
    (90
    )
    
    
    17,754Allowance for loan losses  Construction loans(2)
    
    
    39,854
    
    
    
    44,626Non-performing construction loans to total construction loans
    
    
    56.8
    %
    
    
    60.5
    %Allowance for loan losses  construction loans to total
construction loans
    
    
    9.8
    %
    
    
    9.9
    %Net charge-offs on an annualized basis to total construction loans
    
    
    (0.1
    )%
    
    
    3.9
    %
 
 (1)
    
    Includes $264.2 million and $276.2 million of construction loans for residential housing projects as of March 31, 2010 and December 31,
2009, respectively. Also includes $141.5 million and $176.2 million of construction loans for commercial, condominiums and multi-family projects as of March
31, 2010 and December 31, 2009, respectively.(2)
    
    Excludes land loans.(3)
    
    Includes undisbursed funds to matured loans and loans in non-accrual status that still disbursing funds.  Table W  Loans past due 90 days and still accruing
 As of
    
    
    As of(Dollars in thousands)
    
    March 31, 2010
    
    
    December 31, 2009Loans past due 90 days and still accruing:Residential mortgage loans(1)
    
    $
    76,443
    
    
    $
    105,520Commercial non-real estate loans(2)
    
    
    806
    
    
    
    1,245Consumer loans(2)(3)
    
    
    2,461
    
    
    
    2,137Total loans past due 90 days and still accruing
    
    $
    79,710
    
    
    $
    108,902
 
 (1)
    
    In November 2009, the Company placed in accrual status all Federal Housing Administration (FHA),
Farmers Home Administration (FMHA) and Veterans Administration (VA) guaranteed loans less than 300 days delinquent
because the principal balance of these loans is insured or guaranteed under applicable FHA, FmHA or VA programs and
interest is, in most cases, fully recovered in foreclosure proceedings.(2)
    
    Revolving lines of credit still accruing until 180 days delinquent.(3)
    
    Credit cards still accruing until 180 days delinquent. 95




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TABLE X  ALLOWANCE FOR LOAN AND LEASE LOSSES
 QUARTER ENDED MARCH 31,(Dollars in thousands)
    
    2010
    
    
    2009Allowance for Loan and Lease Losses:Balance at beginning of period
    
    $
    140,774
    
    
    $
    132,020Provision (recovery) for loan and lease losses:Construction loans
    
    
    (4,862
    )
    
    
    8,355Residential mortgage loans
    
    
    6,609
    
    
    
    4,396Commercial real estate loans
    
    
    3,069
    
    
    
    6,089Consumer loans
    
    
    1,886
    
    
    
    2,464Lease financing
    
    
    (254
    )
    
    
    349Commercial non-real estate loans
    
    
    (74
    )
    
    
    1,285Land secured loans
    
    
    7,547
    
    
    
    687Total provision for loan and lease losses
    
    
    13,921
    
    
    
    23,625Charge-offs:Construction loans
    
    
    (32
    )
    
    
    (3,946
    )Residential mortgage loans
    
    
    (4,715
    )
    
    
    (1,033
    )Commercial real estate loans
    
    
    (256
    )
    
    
    (2,034
    )Consumer loans
    
    
    (2,139
    )
    
    
    (2,834
    )Commercial non-real estate loans
    
    
    (310
    )
    
    
    (1,837
    )Lease financing
    
    
    (198
    )
    
    
    (286
    )Total charge-offs
    
    
    (7,650
    )
    
    
    (11,970
    )Recoveries:Construction loans
    
    
    122
    
    
    
    Commercial real estate loans
    
    
    50
    
    
    
    17Consumer loans
    
    
    215
    
    
    
    182Commercial non-real estate loans
    
    
    23
    
    
    
    7Leasing financing receivable
    
    
    26
    
    
    
    19Total recoveries
    
    
    436
    
    
    
    225Net charge-offs
    
    
    (7,214
    )
    
    
    (11,745
    )Balance at end of period
    
    $
    147,481
    
    
    $
    143,900Allowance for loan losses as a percentage of loans receivable outstanding,
at the end of period
    
    
    2.68
    %
    
    
    2.73
    %Provision for loan losses to net charge-offs
    
    
    192.97
    %
    
    
    201.15
    %Net charge-offs on an annualized basis to average loans receivable outstanding
    
    
    0.53
    %
    
    
    0.91
    %Allowance for loan and lease losses to net charge-offs on an annualized basis
    
    
    504.09
    %
    
    
    302.10
    %
 96




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TABLE Y
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
 March 31, 2010
    
    
    December 31, 2009(Dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentLoans receivable:Construction
    
    $
    39,854
    
    
    
    7
    %
    
    $
    44,626
    
    
    
    8
    %Residential mortgage loans
    
    
    53,708
    
    
    
    69
    %
    
    
    51,814
    
    
    
    70
    %Commercial  secured by real estate
    
    
    24,745
    
    
    
    13
    %
    
    
    21,883
    
    
    
    13
    %Consumer
    
    
    6,918
    
    
    
    2
    %
    
    
    6,955
    
    
    
    1
    %Lease financing receivable
    
    
    845
    
    
    
    0
    %
    
    
    1,383
    
    
    
    0
    %Commercial non-real estate
    
    
    4,032
    
    
    
    6
    %
    
    
    4,281
    
    
    
    6
    %Land secured
    
    
    17,379
    
    
    
    3
    %
    
    
    9,832
    
    
    
    2
    %Total
    
    $
    147,481
    
    
    
    100
    %
    
    $
    140,774
    
    
    
    100
    %
       97




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##### Table of Contents



(In thousands)
    
    MARCH 31, 2010
    
    
    DECEMBER 31, 2009Impaired loans with allowance(1)
    
    $
    447,023
    
    
    $
    346,145Impaired loans without allowance
    
    
    130,330
    
    
    
    184,601Total impaired loans
    
    $
    577,353
    
    
    $
    530,746Related allowance
    
    $
    67,321
    
    
    $
    48,223Average impaired loan portfolio
    
    $
    554,050
    
    
    $
    449,741
 
 (1)
    
    The increase in balance of impaired loans with
allowance during the first quarter of 2010 was primarily related to
$82.3 million of loans
under the  Companys Special Repayment Plan.
  98




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Contingencies- Loss
Contingencies/Recognition Accounting for Contingencies
   Construction
    
    
    Residential(Dollars in thousands)
    
    and Land Secured
    
    
    Mortgage Loans
    
    
    Commercial Loans
    
    
    Consumer and Lease
    
    
    TotalASC 310-10 (SFAS No. 114)  Specific reservesUnpaid balance
    
    $
    352,418
    
    
    $
    97,441
    
    
    $
    132,530
    
    
    $
    1,474
    
    
    $
    583,863Allowance for loan and lease losses
    
    
    48,913
    
    
    
    7,910
    
    
    
    11,041
    
    
    
    44
    
    
    
    67,908Allowance for loan and lease losses to
unpaid principal balance
    
    
    13.88
    %
    
    
    8.12
    %
    
    
    8.33
    %
    
    
    2.99
    %
    
    
    11.63
    %ASC 450-20-25 (SFAS No. 5)  General allowanceUnpaid balance
    
    
    192,814
    
    
    
    3,709,287
    
    
    
    941,633
    
    
    
    77,897
    
    
    
    4,921,631Allowance for loan and lease losses
    
    
    8,320
    
    
    
    45,798
    
    
    
    17,736
    
    
    
    7,719
    
    
    
    79,573Allowance for loan and lease losses to
unpaid principal balance
    
    
    4.32
    %
    
    
    1.23
    %
    
    
    1.88
    %
    
    
    9.91
    %
    
    
    1.62
    %Total PortfolioUnpaid balance
    
    
    545,232
    
    
    
    3,806,728
    
    
    
    1,074,163
    
    
    
    79,371
    
    
    
    5,505,494Allowance for loan and lease losses
    
    
    57,233
    
    
    
    53,708
    
    
    
    28,777
    
    
    
    7,763
    
    
    
    147,481Allowance for loan and lease losses to
unpaid principal balance
    
    
    10.50
    %
    
    
    1.41
    %
    
    
    2.68
    %
    
    
    9.78
    %
    
    
    2.68
    %
  99




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Counterparty Risk
   Operational Risk
  100




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Overview of Operational Risk Management
  Internal Control Over Financial Reporting
 Controls and Procedures
 Liquidity Risk
  General Business, Economic and Political Conditions; Puerto Rico Economy and Fiscal Condition
        101




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Fiscal Condition.
 Fiscal Stabilization Plan.
  Economic Reconstruction Plan.
  102




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Control and Procedures
  Changes in Internal Control Over Financial Reporting
  103




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PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  Risks Related to the General Business Environment and Our Industry
 The actions of the United States government and regulatory bodies for the purpose of stabilizing
the United States financial markets may not achieve the intended effect.
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Difficult
market conditions have already affected our industry and us and may
continue to adversely affect us.
   
    
    We expect to face increased regulation of our industry, including as a result of the
EESA and the Financial Stability Plan. Compliance with such regulation may increase our
costs and limit our ability to pursue business opportunities.
 
    
    Our ability to assess the creditworthiness of our customers may be impaired if the
models and approaches we use to select, manage, and underwrite our customers become less
predictive of future behaviors.
 
    
    The processes we use to estimate losses inherent in our credit exposure requires
difficult, subjective, and complex judgments, including forecast of economic conditions and
how these economic conditions might impair the ability of our borrowers to repay their
loans, which may no longer be capable of accurate estimation and which may, in turn, impact
the reliability of the processes.
 
    
    Our ability to borrow from other financial institutions or to engage in sales of
mortgage loans to third parties (including mortgage loan securitization transactions with
government sponsored entities) on favorable terms or at all could be adversely affected by
further disruptions in the capital markets or other
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events, including deteriorating investor expectations.
 
    
    Competition in our industry could intensify as a result of increasing consolidation of
financial services companies in connection with current market conditions.
 
    
    We may be required to pay in the future significantly higher FDIC assessments on our
deposits if market conditions do not improve or if market conditions deteriorate.
 
    
    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
viable. In particular, there is legislation pending in the U.S. Congress that would allow a
Chapter 13 bankruptcy plan to cram down the value of certain mortgages on a consumers
principal residence to its market value and/or reset debtor interest rate and monthly
payments to an amount that permits them to remain in their homes.
 The Companys business is concentrated in Puerto Rico and continued weakness of Puerto Rico economy
may continue to adversely affect us.
     Deteriorating credit quality particularly in real estate loans has adversely impacted Doral
Financial and may continue to adversely impact Doral Financial.
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The imposition of additional property tax payments in Puerto Rico may further deteriorate our loan
portfolios.
  Market volatility and disruption could affect us.
  The soundness of other financial institutions could affect us.
  Changes in interest rates could negatively affect the Companys income and cash flows.
  Increases in FDIC insurance assessments may have a material adverse effect on the Companys
earnings.
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Unforeseen disruptions in the brokered deposits market could compromise the Companys liquidity
position.
  Adverse credit market conditions may affect the Companys ability to meet its liquidity needs.
   108




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The Company operates within a highly regulated industry and its business and results are
significantly affected by the regulations to which it is subject; changes in statutes and
regulations could adversely affect the Company.
    Financial Regulatory
Reform-A New Foundation: Rebuilding Financial Regulation and Supervision
   Changes in accounting standards issued by the Financial Accounting Standards Board or other
standard-setting bodies may adversely affect the Companys financial statements
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The
consolidation of the Puerto Rico banking industry may adversely
affect us.
  Risks
Related to our Business
 For the quarter ended March 31, 2010, the Companys credit quality, including the potential for
credit losses on its investment portfolio, continued to be affected by the sustained deterioration
of the economic conditions affecting our markets, including higher unemployment levels, much lower
absorption rates and further declines in property values.
     An additional loss may have to be accrued by the Company with respect to a pending Lehman Brothers
Inc. claim.
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5
    Deteriorating credit quality has adversely impacted the Company and may continue to adversely
impact the Company.
  111




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The Company and its banking subsidiaries are subject to regulatory capital adequacy and other
supervisory guidelines, and if we fail to meet those guidelines our business and financial
condition would be adversely affected.
  The hedging transactions that the Company enters into may not be effective in managing the exposure
to interest rate risk.
  Our risk management policies and procedures may leave us exposed to unidentified or unanticipated
risk, which could negatively affect us.
  We may
participate in future FDIC-assisted transactions, which could present additional risks to our business.
  The preparation of our financial statements requires the use of estimates that may vary from actual
results.
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Defective and repurchased loans may harm our business and financial condition.
  
    
    compliance with laws and regulations;
    
    underwriting standards;
    
    the accuracy of information in the loan documents and loan file; and
    
    the characteristics and enforceability of the loan.
  We are exposed to credit risk from mortgage loans held pending sale and mortgage loans that have
been sold subject to recourse arrangements.
  We are subject to risks in servicing loans for others.
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As a result of our credit ratings, we may be subjected to increased collateral requirements and
other measures that could have an adverse impact on our results of operations and financial
condition.
  Our ability to sell loans and other mortgage products to government-sponsored entities could be
impacted by changes in our financial condition or the historical performance of our mortgage
products.
  We may fail to retain and attract key employees and management personnel.
  Competition with other financial institutions could adversely affect the profitability of our
operations.
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Damage to our reputation could damage our businesses.
  Doral Financial and its banking subsidiaries are subject to the supervision and regulation of
various banking regulators and have entered into consent orders with these regulators, and these
regulators could take action against the Company or its banking subsidiaries.
   Doral Financial has been the subject of an investigation by the U.S. Attorneys Office for the
Southern District of New York, which could require it to pay substantial fines or penalties.
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Doral Financial may be required to advance significant amounts to cover the reasonable legal and
other expenses of its former officers and directors.
    Risks Related to Our Common Stock
 Additional issuances of common stock or securities convertible into common stock may further dilute
existing holders of our common stock.
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Availability for sale of a substantial number of shares of our common stock may cause the price of
our common stock to decline.
   We may be required to make certain payments to investors under the Stock Purchase Agreement and
Doral Holdings under the Cooperation Agreement if registration of the common stock is delayed or
under certain other circumstances.
  Dividends on our common stock have been suspended; Doral Financial may not be able to pay dividends
on its common stock in the future.
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The price of our common stock may be subject to fluctuations and volatility.
  
    
    changes or perceived changes in the condition, operations, results or prospects of
our businesses and market assessments of these changes or perceived changes;
    
    announcements of strategic developments, acquisitions and other material events by us
or our competitors;
    
    changes in governmental regulations or proposals, or new government regulations or
proposals, affecting us, including those relating to the current financial crisis and
global economic downturn and those that may be specifically directed to us;
    
    the continued decline, failure to stabilize or lack of improvement in general market
and economic conditions in our principal markets;
    
    the departure of key personnel;
    
    changes in the credit, mortgage and real estate markets;
    
    the dissolution of Doral Holdings;
    
    operating results that vary from expectations of management, securities analysts and
investors;
    
    operating and stock price performance of companies that investors deem comparable to
us;
    
    changes in financial reports by securities analysts;
    
    changes in our credit ratings or other rating agency actions
with respect to Doral Financial;
    
    developments related to investigations, proceedings, or litigation that involves us;
and
    
    the occurrence of major catastrophic events, including terrorist attacks.
 All of our debt obligations and our preferred stock will have priority over our common stock with
respect to payment in the event of a liquidation, dissolution or winding up.
  Our certificate of incorporation, our by-laws, certain banking law provisions and our security
holders and registration rights agreement contain provisions that could discourage an acquisition
or change of control of the Company.
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Our controlling shareholder is able to determine the outcome of any matter that may be submitted
for a vote of the shareholders.
   Our suspension of preferred stock dividends could result in the expansion of our board of directors.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. REMOVED AND RESERVED
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS.
   ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of Doral Financial, as currently in effect.
(Incorporated herein by reference to exhibit number 3.1(j) to Doral Financials
Annual Report on Form 10-K for the year ended December 31, 2007 filed with the
Commission on March 19, 2008).3.2
    
    Bylaws of Doral Financial, as amended on August 2, 2007. (Incorporated herein
by reference to exhibit number 3.1 of Doral Financials Current Report on
Form 8-K filed with the Commission on August 6, 2007).3.3
    
    Certificate of Amendment of the Certificate of Incorporation of Doral Financial
dated March 12, 2010 (Incorporated herein by reference to exhibit number 3.1 of
Doral Financials Current Report on Form 8-K filed with the Commission on March
16, 2010).3.4
    
    Certificate of Designations of Mandatorily Convertible Non-Cumulative
Non-Voting Preferred Stock dated April 20, 2010 (Incorporated herein by
reference to exhibit number 3.1 of Doral Financials Current Report on Form 8-K
filed with the Commission on April 26, 2010).4.1
    
    Common Stock Certificate (Incorporated herein by reference to exhibit number
4.1 to Doral Financials Annual Report on Form 10-K for the year ended December
31, 2007 filed with the Commission on March 19, 2008).4.2
    
    Loan and Guaranty Agreement among Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities Financing Authority (AFICA),
Doral Properties, Inc. and Doral Financial. (Incorporated herein by reference
to exhibit number 4.1 of Doral Financials Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 filed with the Commission on November 15,
1999).4.3
    
    Trust Agreement between AFICA and Citibank, N.A. (Incorporated herein by
reference to exhibit number 4.2 of Doral Financials Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 filed with the Commission on
November 15, 1999).4.4
    
    Form of Serial and Term Bond (included in Exhibit 4.3 hereof).4.5
    
    Deed of Constitution of First Mortgage over Doral Financial Plaza.
(Incorporated herein by reference to exhibit number 4.4 of Doral Financials
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed with
the Commission on November 15, 1999).4.6
    
    Mortgage Note secured by First Mortgage referred to in Exhibit 4.5 hereto
(included in Exhibit 4.5 hereof).4.7
    
    Pledge and Security Agreement. (Incorporated herein by reference to exhibit
number 4.6 of Doral Financials Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 filed with the Commission on November 15, 1999).
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ExhibitNumber
    
    Description4.8
    
    Indenture, dated May 14, 1999, between Doral Financial and U.S. Bank National
Association, as trustee, pertaining to senior debt securities. (Incorporated
herein by reference to exhibit number 4.1 of Doral Financials Current Report
on Form 8-K filed with the Commission on May 21, 1999).4.9
    
    Indenture, dated May 14, 1999, between Doral Financial and Bankers Trust
Company, as trustee, pertaining to subordinated debt securities. (Incorporated
herein by reference to exhibit number 4.3 of Doral Financials Current Report
on Form 8-K filed with the Commission on May 21, 1999).4.10
    
    Form of Stock Certificate for 7% Noncumulative Monthly Income Preferred Stock,
Series A. (Incorporated herein by reference to exhibit number 4(A) of Doral
Financials Registration Statement on Form S-3 filed with the Commission on
October 30, 1998).4.11
    
    Form of Stock Certificate for 8.35% Noncumulative Monthly Income Preferred
Stock, Series B. (Incorporated herein by reference to exhibit number 4.1 of
Doral Financials Registration Statement on Form 8-A filed with the Commission
on August 30, 2000).4.12
    
    First Supplemental Indenture, dated as of March 30, 2001, between Doral
Financial and Deutsche Bank Trust Company Americas (formerly known as Bankers
Trust Company), as trustee. (Incorporated herein by reference to exhibit number
4.9 to Doral Financials Current Report on Form 8-K filed with the Commission
on April 2, 2001).4.13
    
    Form of Stock Certificate for 7.25% Noncumulative Monthly Income Preferred
Stock, Series C. (Incorporated herein by reference to exhibit number 4.1 of
Doral Financials Registration Statement on Form 8-A filed with the Commission
on May 30, 2002).4.14
    
    Form of Stock Certificate for 4.75% Perpetual Cumulative Convertible Preferred
Stock. (Incorporated herein by reference to exhibit number 4 to Doral
Financials Current Report on Form 10-K filed with the Commission on March 31,
2003).4.15
    
    Form of Stock Certificate for Mandatorily Convertible Non-Cumulative Non-Voting
Preferred Stock (Incorporated herein by reference to exhibit number 4.1 of
Doral Financials Current Report on Form 8-K filed with the Commission on April
26, 2010)(included in Exhibit 3.4 hereto).10.1
    
    Order to Cease and Desist issued by the Board of Governors of the Federal
Reserve System on March 16, 2006. (Incorporated herein by reference to exhibit
number 99.2 of Doral Financials Current Report of Form 8-K filed with the
Commission on March 17, 2006).10.2
    
    Stipulation and Agreement of Partial Settlement, dated as of April 27, 2007.
(Incorporated herein by reference to same exhibit number of Doral Financials
Annual Report on Form 10-K for the year ended December 31, 2006 filed with the
Commission on April 30, 2007).10.3
    
    Order to Cease and Desist issued by the Federal Deposit Insurance Corporation,
dated February 19, 2008. (Incorporated herein by reference to exhibit number
99-2 of Doral Financials Current Report of Form 8-K filed with the Commission
on February 21, 2008).10.4
    
    Purchase Agreement, dated September 23, 2003, between Doral Financial
Corporation and Wachovia Securities LLC, as Representative of the Initial
Purchasers of Doral Financials 4.75% Perpetual Cumulative Convertible
Preferred Stock named therein. (Incorporated herein by reference to
exhibit number 1 to Doral Financials Current Report on Form 8-K filed with the
Commission on March 31, 2003).10.5
    
    Employment Agreement, dated as of May 23, 2006, between Doral Financial
Corporation and Glen Wakeman. (Incorporated herein by reference to
exhibit number 10.1 to Doral Financials Current
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ExhibitNumber
    
    DescriptionReport on Form 8-K filed with
the Commission on May 30, 2006).10.6
    
    Employment Agreement, dated as of August 14, 2006, between Doral Financial
Corporation and Lesbia Blanco. (Incorporated herein by reference to
exhibit number 10.1 to Doral Financials Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006 filed with the Commission on December 29, 2006).10.7
    
    Employment Agreement, dated as of October 2, 2006, between Doral Financial
Corporation and Enrique R. Ubarri, Esq. (Incorporated herein by reference to
exhibit number 10.7 to Doral Financials Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006 filed with the Commission on December 29, 2006).10.8
    
    Employment Agreement, dated as of June 25, 2007, between Doral Financial
Corporation and Paul Makowski (Incorporated herein by reference to exhibit
number 10.11 to Doral Financials Annual Report on Form 10-K for the year ended
December 31, 2007 filed with the Commission on March 19, 2008).10.9
    
    Employment Agreement, dated as of June 1, 2007, between Doral Financial
Corporation and Christopher Poulton (Incorporated herein by reference to
exhibit number 10.10 to Doral Financials Annual Report on Form 10-K for the
year ended December 31, 2007 filed with the Commission on March 19, 2008).10.10
    
    Securityholders Registration Rights Agreement dated as of July 19, 2007,
between Doral Financial Corporation and Doral Holding Delaware, LLC
(Incorporated herein by reference to exhibit number 10.1 to the Current Report
on Form 8-K filed with the Commission on July 20, 2007).10.11
    
    Advisory Services Agreements, dated as of July 19, 2007, between Doral
Financial Corporation and Bear Stearns Merchant Manager III, L.P. (Incorporated
herein by reference to exhibit number 10.2 to the Current Report on Form 8-K
filed with the Commission on July 20, 2007).10.12
    
    Doral Financial 2008 Stock Incentive Plan (Incorporated herein by reference to
Annex A to the Definitive Proxy Statement for the Doral Financial 2008 Annual
Stockholders Meeting filed with the Commission on April 11, 2008).10.13
    
    Employment Agreement, dated as of March 24, 2009, between Doral Financial and
Robert E. Wahlman. (Incorporated herein by reference to exhibit number 99.2 to
Doral Financials Current Report on Form 8-K filed with the Commission on March
26, 2009).10.14
    
    Summary of Doral Financials 2007 Key Incentive Plan (Incorporated herein by
reference to Exhibit 10.15 to Amendment No. 1 to Doral Financials Registration
Statement of Form S-4 filed with the Commission on September 29, 2009).10.15
    
    Cooperation Agreement dated as of April 19, 2010 by and among Doral Financial
Corporation, Doral Holdings Delaware, LLC, Doral Holdings, L.P. and Doral GP
Ltd.10.16
    
    Stock Purchase Agreement dated as of April 19, 2010 by and among Doral Financial
Corporation with the purchasers named therein.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.
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ExhibitNumber
    
    Description31.2
    
    CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
the Sarbanes-Oxley Act of 2002.32.2
    
    CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  DORAL FINANCIAL CORPORATION
               (Registrant)Date: May 7, 2010
    /s/ Glen R. WakemanGlen R. WakemanChief Executive Officer and PresidentDate: May 7, 2010
    /s/ Robert E. WahlmanRobert E. WahlmanExecutive Vice President and
Chief Financial Officer 124