Doral Financial Corporation Reports Earnings for the Second Quarter Ended June 30, 2008

SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Doral Financial Corporation (NYSE:DRL) (“Doral” or the “Company”), the holding company of Doral Bank, a leading community bank based in Puerto Rico, today announced it earned for the second quarter ended June 30, 2008, net income of $1.6 million (before the payment of preferred stock dividends), an improvement of $39.1 and $3.9 million compared to the second quarter 2007 and first quarter 2008, respectively.

“We are pleased with the execution of our strategy to transform Doral from a monoline business to a traditional full service community bank. We have made solid progress in our key fundamentals, including higher core operating income and net interest margin, and improvements in compliance and controllership.”

Having successfully raised $610 million of equity capital in July 2007, Doral and Doral Bank maintain regulatory capital ratios substantially above well capitalized requirements.

“We are pleased with the execution of our strategy to transform Doral from a monoline business to a traditional full service community bank. We have made solid progress in our key fundamentals, including higher core operating income and net interest margin, and improvements in compliance and controllership.

“To that end, we’ve added thousands of new banking customers and increased mortgage production, all while reducing expenses. We’ve also launched innovative programs, including loss mitigation and restructuring programs, to assist homeowners and positively impact the quality of life in our communities. There is more work to be done and we remain cautious about the economic environment as we move forward,” said Glen R. Wakeman, President and CEO of Doral Financial Corporation.

Doral experienced significant improvements in key fundamentals:

• Expanded Net Interest Margin from 1.30% in the second quarter of 2007 to 2.02% in the second quarter of 2008
• Increased mortgage production by 56% to $256.2 million in the second quarter of 2008, from $164.6 million in the same period in 2007
• Opened more than 55,000 new retail deposit accounts since the beginning of the year. Increased retail banking and insurance fees 22% to $9.4 million for the second quarter 2008, compared to $7.7 million for the same period in 2007
• Lowered non-interest expense as a result of the Company’s effort to control costs and the elimination of expenses related to its recapitalization efforts; non-interest expense fell 27.4% to $55.6 million in the second quarter 2008, from $76.6 million for the same period in 2007
• Implemented innovative community programs, including “Ruta Pink,” a community program that aims to promote early detection of breast cancer, the second highest cause of death of women in Puerto Rico. Doral, in association with Susan G. Komen for the Cure Puerto Rico, is providing free mammograms to women without health insurance. The seven-month program is visiting Doral Bank branches island wide and is accompanied by an educational publicity campaign on breast cancer awareness. Doral also implemented a loss mitigation and restructuring program to help Doral clients who are having difficulties paying their mortgage. So far, Doral’s loss mitigation and restructuring programs have helped more than 4,000 families stay in their homes.

FINANCIAL HIGHLIGHTS

		Current Quarter v. Prior Quarter v. Same Period 2007
		(Quarter to Date, Unaudited, $ in thousands except share data)
SELECTED FINANCIAL INFORMATION		June 2008 Actual				March 2008 Actual				Variance v. Prior Quarter				June 2007 Actual				Variance v. Same Period
Net interest income		$	48,855			$	39,044			$	9,811			$	34,629			$	14,226
Provision			10,683				4,786				5,897				19,322				(8,639	)
Non-interest income			24,895				17,379				7,516				24,897				(2	)
Non-interest expense			55,626				54,563				1,063				76,619				(20,993	)
Net (loss) income before tax			7,441				(2,926	)			10,367				(36,415	)			43,856
Tax expense (benefit)			5,799				(628	)			6,427				1,063				4,736
Net (loss) income			1,642				(2,298	)			3,940				(37,478	)			39,120
Net (loss) income available to common stockholders			(6,683	)			(10,623	)			3,940				(45,803	)			39,120
Diluted (loss) earnings per common share		$	(0.12	)		$	(0.20	)		$	0.08			$	(8.49	)		$	8.37
Diluted weighted average number of common shares outstanding			53,810,110				53,810,110				-				5,397,412				48,412,698
Net interest margin			2.02	%			1.80	%			0.22	%			1.30	%			0.72	%

Net income for the second quarter of 2008 amounted to $1.6 million (before the payment of preferred stock dividends), an improvement of $39.1 and $3.9 million compared to the second quarter 2007 and first quarter 2008, respectively. Net loss attributable to common shareholders for the second quarter of 2008 amounted to $6.7 million, or a diluted loss per share of $0.12, compared to net loss of $45.8 million, or a diluted loss per share of $8.49, for the second quarter of 2007.

Net interest income for the second quarter of 2008 was $48.9 million, compared to $34.6 million for the same period in 2007. The $14.3 million increase in net interest income for 2008, compared to 2007, was driven principally by (1) a reduction in interest expense associated with the repayment of the Company’s $625.0 million senior notes on July 20, 2007 using proceeds from the $610.0 million equity investment by Doral Holdings in the Company, and (2) a $6.8 million reduction in deposits costs as a result of the repositioning of the Company’s deposit products during the fourth quarter of 2007 and the general decline in interest rates. A reduction in leverage, combined with the faster decline in interest expense, resulted in an expansion in the net interest margin from 1.30% in the second quarter of 2007 to 2.02% in the second quarter of 2008.

For the second quarter of 2008, the provision for loan and lease losses amounted to $10.7 million, compared to $19.3 million for the same period in 2007. In 2007, the Company transferred $1.3 billion of loans from the loans held for sale portfolio to the loans receivable portfolio, which resulted in an increase in the provision of $8.8 million, and accounts for the majority of the difference between the provisions for the second quarter of 2008 compared to the corresponding 2007 period.

Non-interest income in the second quarter of 2008 was $24.9 million and consisted of $9.4 million in retail banking and insurance fees, $12.4 million of net servicing income and a $5.2 million gain from the redemption of VISA, Inc. shares in relation to their global restructuring. These fees were partially offset by a loss in trading activity for the quarter of $7.9 million.

Non-interest expense for the second quarter of 2008 was $55.6 million, compared to $76.6 million for the corresponding period in 2007. The $21.0 million reduction in non-interest expense for the quarter was driven by the elimination of expenses associated with the 2007 recapitalization efforts and cost control measures implemented by the Company in 2008.

Total assets as of June 30, 2008 were $10.4 billion, an increase of 12% compared to $9.3 billion as of December 31, 2007. The increase in total assets during the first half of 2008 was due primarily to a net increase in the Company’s available for sale securities portfolio of approximately $1.2 billion. The increase in total liabilities of $1.2 billion was driven by the increase of borrowings used to finance the purchase of these securities.

Non-performing assets as of June 30, 2008 were $728.1 million having increased $19.6 million from March 31, 2008 levels. Non-performing construction loans fell 8% in the second quarter of 2008 to $238.1 million due to underlying home sales and Doral initiatives. The total portfolio of construction loans decreased 4%. Also in the second quarter, non-performing mortgage and commercial loans grew 6% to $297.4 million and 11% to $109.7 million respectively. At the end of the second quarter, approximately 95% of the Company’s loan portfolio was collateralized by real property.

CAPITAL RATIOS

The Company’s banking subsidiaries continue to be well capitalized for bank regulatory purposes as of June 30, 2008.

		As of June 30, 2008
REGULATORY CAPITAL RATIOS		DORAL FINANCIAL (2)		DORAL BANK PR		DORAL BANK NY		Well- Capitalized Minimum		Adequately- Capitalized Minimum
Total Capital (Total capital to risk-weighted assets)		17.0%		13.5%		14.1%		10.0%		8.0%
Tier 1 Capital Ratio (Tier 1 capital to risk-weighted assets)		15.7%		12.3%		13.6%		6.0%		4.0%
Leverage Ratio (1)		9.5%		6.1%		10.2%		5.0%		4.0%
(1) Tier 1 capital to average assets in the case of Doral Financial and Doral Bank PR and Tier 1 capital to adjusted total assets in the case of Doral Bank NY.
(2) Doral Financial was not subject to regulatory capital requirements as of June 30, 2008. Ratios were prepared as if the Company were subject to the requirement for comparability purposes.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements. In addition, Doral Financial may make forward-looking statements in its press releases 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” are 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” 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. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:

• 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 Doral Financial’s loans and other assets;
• Doral Financial’s ability to derive sufficient income to realize the benefit of its deferred tax assets;
• the strength or weakness of the Puerto Rico and the United States economies;
• changes in interest rates and the potential impact of such changes in interest rates on Doral Financial’s net interest income;
• the performance of U.S. capital markets;
• the fiscal and monetary policy of the federal government and its agencies;
• potential adverse development from ongoing enforcement actions by bank regulatory agencies;
• risks arising from material weaknesses in Doral Financial’s internal control over financial reporting; and
• developments in the regulatory and legal environment for financial services companies in Puerto Rico and the United States.

Doral Financial does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of those statements.

Investors should carefully consider these factors and the risk factors outlined under Item 1A. Risk Factors, in our 2007 Annual Report on Form 10-K.