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Doral Financial Corporation Reports Financial Results for the Quarter Ended June 30, 2011

Reports Net Income of $4.5 Million for the Quarter; Continues to Exceed Well Capitalized Benchmarks

ID: 1025756
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(businesspress24) - SAN JUAN, PR -- (Marketwire) -- 07/28/11 -- Doral Financial Corporation (NYSE: DRL)
("Doral," "Doral Financial" or the "Company"), the holding company of Doral
Bank and Doral Bank FSB, with operations in Puerto Rico and the U.S.,
reported net income of $4.5 million for the quarter ended June 30, 2011,
compared to $3.3 million for the quarter ended March 31, 2011.

"Our second consecutive profitable quarter is a consequence of improving
fundamentals. We increased revenues, reduced non-performing assets and
strengthened our capital position by selling non-strategic assets at a
gain. Our focus continues to be in repositioning our portfolios and
sustaining our profitability," said Glen Wakeman, CEO and President of
Doral Financial Corporation.

Second Quarter Highlights:

Conference Call

Doral will be hosting an earnings call for interested parties at 10:00 a.m.
Monday, August 1, 2011.

Call-in information is:

U.S. Participant Dial-In Number: (800) 230-1096

International Participant Dial-In Number: (612) 288-0340

Conference identification number: 211811

FINANCIAL HIGHLIGHTS

SECOND QUARTER PERFORMANCE DISCUSSION

Income Statement

Net Interest Income

Second quarter 2011 vs. First quarter2011 -- Net interest margin was up 13
basis points to 2.36%, compared to 2.23% for the first quarter of 2011 due
to an improvement in net interest income of $2.3 million driven by a
decrease in interest expense of $5.2 million and partially offset by a
decrease in interest income of $2.9 million. The decrease in interest
expense was mainly due to (i) a decrease of $4.4 million on interest


expense on deposits as the brokered deposits portfolio continued to
decrease due to lower levels of brokered CDs and lower interest rates as
well as a reduction in rates on non-brokered deposits as Doral has reduced
the rates paid on its retail deposits in Puerto Rico and diversified its
sources of deposits by establishing US branches and other alternative
deposits sources, and (ii) a decrease in interest expense on other
borrowings of $0.8 million as Doral renegotiated $1.1 billion in FHLB
advances and repurchase agreements in the first and second quarters, and
retired $219.5 million of repurchase agreements upon the sale of $679.2
million of investment securities. The decrease in interest income resulted
from a decrease in interest on mortgage backed securities of $1.8 million
as Doral sold $679.2 million of securities and a decrease of $0.8 million
of interest on other loans. The impact of the sale of mortgage backed
securities was partially offset by an increase in commercial and industrial
loans in the U.S. of $246.0 million that had a positive impact on interest
on loans, which was partially offset by lower early payment penalties
recognized in interest income in the second quarter of 2011 compared to the
first quarter of 2011.

Second quarter 2011 vs. Second quarter2010 -- Net interest margin increased
52 basis points to 2.36% for the second quarter of 2011 from 1.84% for the
quarter ended June 30, 2010. An increase of $5.4 million in net interest
income was due to a decrease in interest expense of $15.4 million partially
offset by a decrease in interest income of $10.0 million. The decrease in
interest expense is attributed to decreases of $7.5 million in interest
expense on securities sold under agreements to repurchase, $4.1 million in
interest expense on advances from FHLB and $5.0 million on deposits,
partially offset by an increase in interest expense of $1.5 million in
notes payable primarily related to a $250.0 million debt issued under the
CLO at a rate of 3-month LIBOR plus 1.85% in July 2010. The decrease in
interest income was driven by a decrease in interest on mortgage backed
securities of $9.3 million from the sale of securities to delever the bank
and decrease the bank's sensitivity to increasing interest rates.

Six Months Ended June 30, 2011 vs. Six Months Ended June 30, 2010 -- Net
interest margin increased 44 basis points to 2.29% for the six month period
ended June 30, 2011, compared to 1.85% for the same period in 2010. An
increase of $4.8 million in net interest income was driven by a decrease in
interest expense of $30.0 million and partially offset by a decrease in
interest income of $25.2 million. The decrease in interest expense was
mainly due to (i) a decrease of $4.8 million on interest on deposits as the
brokered deposits portfolio continued to decrease in size and interest rate
as well as a reduction in interest rates of other interest bearing
deposits, and (ii) a decrease in interest of securities sold under
agreements to repurchase of $16.4 million due to the strategic
restructuring of Doral's FHLB borrowings during Q1 and Q2 2011 to increase
term to maturity and reduce rates. These decreases were partially offset by
an increase in notes payable of $3.0 million related to the $250.0 million
debt issued under the CLO in July 2010. The decrease in interest income was
driven by an increase in interest income from growth of the US commercial
loan portfolio more than offset by a decrease in interest on mortgage
backed securities of $21.5 million related to the strategic delevering of
the bank to reduce future interest income sensitivity.

Credit Quality and the Allowance for Loan and Lease Losses

Doral's investment securities and loans receivable are subject to credit
risk. The Company's investment portfolio has been reduced significantly in
size as a result of its strategic delevering program. The remaining
securities are largely agency backed mortgage related securities or
interests in securitizations executed by Doral prior to 2006. Doral's loan
portfolio consists of residential mortgage loans largely related to Puerto
Rico real estate, commercial real estate, and construction and land, and US
commercial loans and commercial real estate. The Company has, and continues
to, offer different loss mitigation products and delivery channels to be
able to reach the delinquent borrowers that, coupled with (i) increased
resources allocated to collections and (ii) charge-offs, resulted in a
reduction in non-performing loans during the second quarter of 2011.

The following table summarizes the changes in the allowance for loan and
lease losses for the periods indicated:

During the 2011 second quarter Doral changed its charge-off policy for
collateral dependent loans. Previously Doral reduced the reported balance
of collateral dependent commercial, construction, and land loans (a loan is
collateral dependent when the loan collateral is considered the likely
source of repayment of a delinquent loan) by a charge to the allowance for
loan and lease losses upon receipt of a current market appraised value or
an amount was classified as loss. Due to long delays in receiving new
market value appraisals on Puerto Rico property, Doral has developed a
method to estimate market values for all commercial real estate,
construction and land properties, based upon the changes in market values
in new appraisals received. Because of the long delay in receipt of
appraisals, in the second quarter of 2011 Doral adopted the practice of
charging off the portion of the difference between the loan balance before
charge-offs and the estimated fair value of the property collateralizing
the loan. Pursuant to this provision of Doral's charge-off policy,
charge-offs totaled $30.1 million for the period.

The following table summarizes key credit quality information for the
periods indicated:

The loans receivable portfolio increased $149.6 million, or 2.7%, while
NPLs decreased $11.0 million, or 1.9% and the allowance for loan and lease
losses decreased $26.7 million or 22.2% as of June 30, 2011 compared to
March 31, 2011. Accordingly, the loans receivable and NPL coverage ratios
(ALLL plus partial charge-offs and discounts as a percentage of loans
receivable and NPLs, respectively) decreased 13 basis points and increased
80 basis points, respectively over the same periods. Partial charge-offs of
previously reserved loans was a significant contributor to the decrease in
the ALLL and in NPLs, and has contributed to the improvement in the related
coverage ratios.

The increase in the loans receivable portfolio was driven by an increase of
$246.0 million in the commercial and industrial portfolio, primarily due to
an increase in commercial loan production volume as a result of new lending
by the Company's U.S. middle market syndicated lending unit, partially
offset by decreases of $43.9 million in construction and land loans and
$38.6 million in consumer loans.

Doral has made significant strides in reducing its credit risk. Doral
discontinued new construction lending in Puerto Rico in 2007, new
commercial real estate and commercial and industrial lending in Puerto Rico
in 2008, and significantly tightened its residential underwriting standards
in 2009. As the vintages are now seasoned, the performing loans require
less provision. In 2010 Doral sold $138.0 million of unpaid principal
balance of construction loans, further reducing our credit exposure. As
Doral is able to improve its asset quality it reduces its costs to reserve,
maintain and sell low quality assets.

Provision and Allowance for Loan and Lease Losses

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

The ALLL decreased $26.7 million compared to March 31, 2011 due to net
charge-offs of previously reserved loans of $40.1 million partially offset
by the $13.3 million provision. Doral's second quarter 2011 provision for
loan and lease losses of $13.3 million increased $10.7 million from $2.6
million as of March 31, 2011, and decreased $31.3 million from $44.6
million as of June 30, 2010. In general, the increase in the provision for
loan and lease losses in the second quarter of 2011 compared to the first
quarter of 2011 resulted from increased term of delinquency of previously
delinquent residential mortgage loans, increased delinquent residential
mortgage loans, new market information received increasing estimated losses
on loans evaluated individually for impairment in the second quarter, and
refinements made to the loss reserving methodologies that decreased the
first quarter reserve. The $13.3 million provision for loan and lease
losses in the second quarter of 2011 resulted mainly from the following:

The provision for loan and lease losses for the second quarter of 2011,
reflected a decrease of $31.3 million compared to the second quarter of
2010, primarily in all the Puerto Rico loan portfolios, and reflects
specific provisions made in the second quarter of 2010 and lower level of
non-performing loans in the second quarter of 2011.

Non-Performing Assets

The following table sets forth information with respect to Doral
Financial's non-accrual loans, OREO and other NPA's as of the periods
indicated:

Non-performing loans (excluding FHA/VA loans guaranteed by the US
government) as of June 30, 2011 were $560.5 million, a decrease of $11.0
million and $65.9 million from March 31, 2011 and December 31, 2010,
respectively. During the second quarter of 2011, there was an increase in
non-performing residential mortgage loans of $25.4 million compared to
March 31, 2011 and a decrease of $0.5 million compared to December 31,
2010, respectively, due primarily to increased term of delinquency of
previously delinquent residential mortgage loans. Non-performing commercial
loans decreased $36.6 million and $65.3 million when compared to March 31,
2011 and December 31, 2010, respectively. The decrease when compared to
March 31, 2011 is due primarily to $34.9 million in charge-offs
complemented with continued workout efforts.

Non-performing assets, including non-performing loans previously discussed,
decreased by $33.4 million, or 4.3%, as of June 30, 2011 compared to March
31, 2011, and $107.2 million, or 12.5%, compared to December 31, 2010. The
decrease in non-performing loans during the second quarter of 2011 compared
to March 31, 2011 was complemented by decreases in non-performing FHA/VA
guaranteed loans of $20.2 million and in OREO of $2.2 million. Compared to
December 31, 2010 the decrease in non-performing loans was complemented by
a decrease in non-performing FHA/VA guaranteed loans of $42.1 million.

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

Non-Interest Income

Second quarter 2011 vs. First quarter 2011 -- Non-interest income of $38.8
million for the second quarter of 2011, reflected an increase of $10.2
million when compared to non-interest income of $28.6 million for the first
quarter of 2011, respectively. The increase in non-interest income when
compared to March 31, 2011 was due to:

Second quarter 2011 vs. Second quarter 2010 -- The $159.0 million increase
in non-interest income in the second quarter of 2011 compared to the second
quarter of 2010 was due to:

Six Months ended June 30, 2011 vs. Six Months ended June 30, 2010 --
Non-interest income of $67.4 million for the six month period ended June
30, 2011 was up $151.0 million or 181.0% when compared to the same period
in 2010. The increase in non-interest income was mainly due to:

Non-Interest Expense

Second quarter 2011 vs. First quarter 2011 --
second quarter 2011 non-interest expense of $63.6 million was up $2.8
million compared to the first quarter of 2011. The increase was mainly
driven by an increase of $2.8 million in compensation and benefits composed
of: (i) a decrease in salaries of $0.4 million related to a reduction in
force of approximately 123 full time equivalent employees; (ii) an increase
in severance expense of $1.4 million related to the reduction in force in
the second quarter of 2011; (iii) an increase in production and performance
bonuses of $0.6 million; (iv) a decrease in taxes and other benefits of
$0.3 million; and (v) an increase in stock based compensation benefits of
$1.4 million related to certain stock incentive bonuses and tax benefits
thereon.

Other significant variances in non-interest expenses during the second
quarter of 2011 compared to the first quarter of 2011 consisted of:

Second quarter 2011 vs. Second quarter 2010

The $40.5 million decrease in non-interest expense in the second quarter of
2011 compared to the same period in 2010 resulted from the following:

Six Months ended June 30, 2011 vs. Six Months ended June 30, 2010 --
Non-interest expense of $124.4 million for the six month period ended June
30, 2011 was down $47.1 million or 27.5% when compared to the same period
of 2010. The decrease in non-interest expense was mainly due to:

Income Tax Expense

The Puerto Rico income tax law does not provide for the filing of a
consolidated tax return; therefore, income tax expense on the Company's
consolidated statement of income is the aggregate income tax expense of
Doral's individual subsidiaries. Doral Bank FSB and Doral Money, Inc. are
U.S. corporations and are subject to U.S. income tax on their income
derived from all sources. Except for Doral Bank FSB and Doral Money, Inc.
substantially all of the Company's operations are conducted through
subsidiaries in Puerto Rico.

Second quarter 2011 reflected an income tax expense of $2.9 million
compared with a $5.1 million and $4.5 million income tax expense for the
first quarter of 2011 and second quarter of 2010, respectively. The
decrease in tax expense was due to the recognition in the first quarter of
2011 of a $2.3 million deferred tax adjustment resulting from the net
effect on Doral's deferred tax asset of the Puerto Rico tax reform
legislation approved in January 2011 lowering the effective tax rate and
the increased earnings expectation of profitable Puerto Rico entities.

Income tax expense reflected a decrease of $1.6 million compared to the
second quarter of 2010 due to taxes recognized in 2010 related to U.S.
source income, as well as the impact of tax rate change on the valuation
allowance partially offset by realization of operational deferred tax
assets.

Balance Sheet

Doral's assets totaled $8.0 billion at June 30, 2011, compared to $8.5
billion at March 31, 2011 and $8.6 billion at December 31, 2010. Total
assets at June 30, 2011, when compared to March 31, 2011 were affected by a
(i) decrease of $747.2 million in available for sale securities as part of
the Company's interest rate risk management strategies, offset by an
increase in total net loans of $172.8 million from the continued growth of
the US syndicated loans portfolio, and an increase in cash and due from
banks and restricted cash of $75.9 million.

Total liabilities were $7.2 billion at June 30, 2011, compared to $7.6
billion at March 31, 2011 and $7.8 billion at December 31, 2010. Total
liabilities as of June 30, 2011 were principally affected by (i) a decrease
in brokered deposits of $206.0 million, (ii) a decrease in securities sold
under agreements to repurchase of $734.5 million, offset by (iii) an
increase in advances from FHLB of $477.4 million and (iv) an increase of
$22.6 million in retail deposits.

Loan Portfolio

Doral's loans held for investment, net portfolio consists primarily of
residential mortgage loans (June 30, 2011 -- 65.6%, March 31, 2011 --
67.8%, December 31, 2010 -- 68.6%). Approximately 85.3%, 88.9% and 89.6%
of the total net loan portfolio is secured by real estate as of June 30,
2011, March 31, 2011 and December 31, 2010, respectively. The total net
loan portfolio increased $172.8 million compared to March 31, 2011 and
increased $112.9 million compared to December 31, 2010. The increase when
compared to March 31, 2011 was mainly due to an increase of approximately
$246.0 million in commercial and industrial loans, mainly related to
participation in syndicated loans in the US operations, partially offset by
decreases in construction and land of $43.9 million, FHA/VA guaranteed
residential loans of approximately $28.8 million, and commercial real
estate of $14.0. The increase when compared to December 31, 2010 is mostly
related to participation in syndicated commercial loans in the U.S.
mainland.

Capital

Doral Financial's stockholders' equity totaled $864.3 million at June 30,
2011, compared to $860.7 million and $862.2 million at March 31, 2011 and
December 31, 2010, respectively. The Company reported accumulated other
comprehensive income (net of tax) ("OCI") of $1.6 million, $1.1 million and
$4.2 million as of June 30, 2011, March 31, 2011 and December 31, 2010,
respectively.

The Company's regulatory prescribed capital ratios exceed the published
well capitalized standards established in applicable banking regulations.
As of June 30, 2011 the Tier 1 Leverage, Tier 1 Risk-based Capital and
Total Risk-based Capital ratios were 9.07%, 13.41% and 14.67%, respectively
which represents approximately $335.9 million, $413.8 million and $260.7
million of Tier 1 Leverage, Tier 1 Risk-based Capital and Total Risk-based
Capital in excess of the published well-capitalized standards of 5%, 6% and
10%, respectively.

The following table provides the regulatory capital ratios for Doral
Financial:

Refer to Non-Generally Accepted Accounting Principles in United States
("GAAP") section for a reconciliation of stockholders' equity (GAAP) to
Tier 1 common equity (non-GAAP).

Non-GAAP Financial Measures

This earnings press release contains GAAP financial measures and non-GAAP
financial measures. Non-GAAP financial measures are set forth when
management believes they will be helpful to an understanding of the
Company's results of operations or financial position. Where non-GAAP
financial measures are used, the comparable GAAP financial measure, as well
as the reconciliation to the comparable GAAP financial measure, can be
found in the text or in the attached tables of this earnings release.

Tier 1 common equity to risk-weighted assets ratio

The Federal Reserve began supplementing its assessment of the capital
adequacy of bank holding companies based on a variation of Tier 1 capital
known as Tier 1 common equity in connection with the Supervisory Capital
Assessment Program. Tier 1 common equity is considered to be a non-GAAP
financial measure since it is not formally defined by GAAP and, unlike Tier
1 capital, is not a federal banking regulatory requirement.

Ratios calculated based upon Tier 1 common equity have become a focus of
regulators and investors, and management believes ratios based on Tier 1
common equity assist investors in analyzing Doral's capital position. This
ratio is calculated by dividing Tier 1 capital less non-common equity items
by risk weighted assets, which assets are calculated in accordance with
applicable bank regulatory requirements.

FORWARD-LOOKING STATEMENTS

This earnings release contains forward-looking statements within the
meaning of, and subject to the protection of, the Private Securities
Litigation Reform Act of 1995. In addition, Doral Financial Corporation may
make forward-looking statements in its other press releases, filings with
the Securities and Exchange Commission ("SEC") or in other public or
shareholder communications and its senior management may make
forward-looking statements orally to analysts, investors, the media and
others.

These forward-looking statements may relate to the Company's financial
condition, results of operations, plans, objectives, future performance and
business, including, but not limited to, statements with respect to the
adequacy of the allowance for loan and lease losses, market risk and the
impact of interest rate changes, capital markets conditions, capital
adequacy and liquidity, and the effect of legal proceedings, regulatory
matters and new accounting standards on the Company's financial condition
and results of operations. Forward-looking statements can be identified by
the fact that they do not relate strictly to historical or current facts,
but instead represents Doral Financial's current expectations regarding
future events. Such statements may be generally identified by the use of
words or phrases such as "would be," "will allow," "intends to," "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," "believe," "expect," "predict," "forecast,"
"anticipate," "target," "goal," "may" or words of similar meaning or
similar expressions.

Doral Financial cautions readers not to place undue reliance on any of
these forward-looking statements since they speak only as of the date made
and represent Doral Financial's expectations of future conditions or
results and are not guarantees of future performance. The Company does not
undertake and specifically disclaims any obligations to update any
forward-looking statements to reflect occurrences or unanticipated events
or circumstances after the date of those statements.

Forward-looking statements are, by their nature, subject to risks and
uncertainties and changes in circumstances, many of which are beyond Doral
Financial's control. Risk factors and uncertainties that could cause the
Company's actual results to differ materially from those described in
forward-looking statements can be found in the Company's Annual Report on
Form 10-K for the year ended December 31, 2010 which is available in the
Company's website at , as updated from time to time
in the Company's periodic and other reports filed with the SEC.

Institutional Background

Doral Financial Corporation is a bank holding company engaged in banking
(including thrift operations), mortgage banking and insurance agency
activities through its wholly-owned subsidiaries Doral Bank ("Doral Bank
PR"), Doral Bank, FSB ("Doral Bank US") with operations in the New York
metropolitan area and since September 2010 in the northwest region of
Florida, Doral Insurance Agency, Inc. ("Doral Insurance Agency"), and Doral
Properties, Inc. ("Doral Properties"). Doral Bank PR in turn operates three
wholly-owned subsidiaries Doral Mortgage LLC ("Doral Mortgage"), Doral
Money, Inc. ("Doral Money"), engaged in commercial and middle market
syndicated lending primarily in the New York metropolitan area, and CB,
LLC, an entity formed to dispose of a real estate project of which Doral
Bank PR took possession during 2005. Doral Money consolidates two variable
interest entities created for the purpose of entering into a collateralized
loan arrangement with a third party.

Doral Financial Corporation's common shares trade on the New York Stock
Exchange under the symbol DRL. Additional information about Doral Financial
Corporation may be found on the Company's website at
.

For more information contact:

Investor Relations:
Christopher Poulton
EVP

212-329-3794

Media:
Lucienne Gigante
VP Public Relations

787-474-6298



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Date: 07/29/2011 - 01:26
Language: English
News-ID 1025756
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