Doral Financial Corporation Reports Record Earnings for the Year Ended

Doral Financial Corporation Reports Record Earnings for the Year Ended December 31, 2004, the 7th Consecutive Year It Has Achieved Record Earnings

    Business Editors/Financial Editors

    SAN JUAN, Puerto Rico--(BUSINESS WIRE)--Jan. 18, 2005--Doral Financial Corporation (NYSE: DRL), a diversified financial holding company with banking operations in the United States and Puerto Rico and the largest residential mortgage lender in Puerto Rico, reported record results for the year ended December 31, 2004, the 7th consecutive year it has achieved record earnings.
    Net income for the fourth quarter of 2004 amounted to $150.5 million, compared to $94.7 million for the fourth quarter of 2003, an increase of 59%. For the year ended December 31, 2004, Doral Financial earned a record $489.6 million, compared to $321.3 million for the same period a year ago, an increase of 52%. For the fourth quarter of 2004, consolidated earnings per diluted share were $1.22, compared to $0.76 for the fourth quarter of 2003, which represents an increase of 61%. For the year ended December 31, 2004, consolidated earnings per diluted share were $3.95, compared to $2.70 for the same period of 2003, an increase of 46%. Consolidated earnings per diluted share reflect the adoption of a new accounting pronouncement effective for periods ending after December 15, 2004 and applied by retroactively restating previously reported earnings per share. This new accounting pronouncement resulted in the addition of 8.674 million shares of common stock to the fully diluted common stock share base by assuming the conversion of the 1.38 million outstanding shares of the Company's contingently convertible preferred stock.
    For the year ended December 31, 2004, Doral Financial achieved a return on assets (ROA) of 3.85%, compared to 3.46% a year ago and a return on common equity (ROE) of 38.54%, compared to 32.36% for the year ended December 31, 2003.
    On August 22, 2004, local legislation was enacted to provide a temporary reduction in the long-term capital gain tax rates. The law amends the Puerto Rico Internal Revenue Code of 1994 to reduce the long-term capital gain tax rates by fifty percent for transactions occurring from July 1, 2004 through June 30, 2005. During the fourth quarter ended December 31, 2004, the Company effected certain tax planning strategies to accelerate long-term capital gains that had been deferred for tax purposes and, as a consequence, the Company recorded an income tax benefit of $77.0 million. Excluding this benefit, the Company's effective income tax rate for the fourth quarter ended December 31, 2004 was approximately 18%.
    Investment activities for the fourth quarter of 2004 resulted in a loss of $95.4 million, compared to a loss of $8.0 million for the fourth quarter of 2003. The loss on investment activities during the fourth quarter of 2004 was principally due to an impairment on the value of the Company's interest-only strips (IOs) of $97.5 million as a result of increases in the 3-month London Interbank Offered Rate ("LIBOR") which reduced the anticipated spread of the Company's variable rate IOs. If contrary to what is generally expected, LIBOR decreases, a portion of the impairment charges on the value of the IOs could be recovered. The Company recorded impairment charges on the value of its IOs of $131.0 million for the year ended December 31, 2004, compared to a positive valuation adjustment of $7.3 million for the corresponding 2003 period. Investment activities resulted in a loss of $190.1 million for the year ended December 31, 2004, compared to a gain of $11.0 million for the respective 2003 period. The loss on investment activities experienced during 2004 also included derivatives undertaken for interest rate management purposes.
    Net interest income for the fourth quarter of 2004 amounted to $70.3 million, compared to $57.4 million for the same period a year ago, an increase of 23%. For the year ended December 31, 2004, net interest income amounted to $265.9 million, compared to $181.5 million for the year ended December 31, 2003, an increase of 47%. The increase in net interest income resulted from higher net interest earning assets during the 2004 periods.
    Loan production volume for the fourth quarter of 2004 was a record $2.0 billion, compared to $1.7 billion for the comparable 2003 period, an increase of $299.2 million or 17%. For the year ended December 31, 2004, loan production volume was $7.8 billion, compared to $6.5 billion for the corresponding 2003 period, an increase of 20%. The increase reflected the continued high demand for new housing in Puerto Rico and Doral's strong share of the new housing market, especially in the growing government-sponsored affordable housing loan sector. Many of these mortgage products benefit from local tax exemption on the interest earned thereon. The strength of mortgage loan production, helped increase the servicing portfolio to a record $14.3 billion as of December 31, 2004 from $12.7 billion as of December 31, 2003.
    Net gain on mortgage loan sales and fees, the main component of non-interest income, was $165.8 million for the fourth quarter of 2004 compared to $116.1 million for the corresponding 2003 period. Net gain on mortgage loan sales and fees was $598.8 million for the year ended December 31, 2004, compared to $390.1 million for the corresponding period a year ago. The increase was principally due to increased volume of loan sales as a result of record mortgage loan production. Demand for the Company's mortgage loans has increased to record levels.
    Net servicing loss for the quarter ended December 31, 2004 was approximately $0.4 million compared to a loss of $3.6 million for the fourth quarter of 2003. For the year ended December 31, 2004, net servicing income was $4.9 million compared to a loss of $15.1 million for the corresponding period of 2003. The increase in net servicing income for the quarter and year ended December 31, 2004, was due to reduced amortization and impairment charges resulting from lower prepayments. The Company recorded amortization and impairment charges of $10.7 million and $35.7 million during the quarter and year ended December 31, 2004, respectively, compared to $12.7 million and $50.4 million for the same periods a year ago.
    Commissions, fees and other income increased 40% during the fourth quarter of 2004 from $5.8 million for the quarter ended December 31, 2003 to $8.1 million. For the year ended December 31, 2004, commissions, fees and other income increased to $36.8 million, compared to $25.8 million for the corresponding 2003 period. The increase during the 2004 periods was due primarily to increased commissions and fees earned by Doral Financial's retail banking and insurance agency operations.
    Non-interest expenses increased 24% during the fourth quarter of 2004 from $47.0 million for the fourth quarter of 2003 to $58.3 million. For the year ended December 31, 2004, non-interest expenses increased to $209.1 million, compared to $185.8 million for the corresponding 2003 period. The increase during the 2004 periods reflects increases in compensation and benefits related to higher head count, occupancy and other office expenses and professional fees resulting from the continued expansion of Doral Financial's mortgage banking and banking operations and compliance with the requirements of the Sarbanes-Oxley Act of 2002.
    The provision for loan losses was $1.0 million and $5.5 million for the quarter and year ended December 31, 2004, respectively, as compared to $2.8 million and $14.1 million for the respective 2003 periods. The Company determined, based on an analysis of the credit quality and composition of its loan portfolio, that a smaller provision for 2004 was required to maintain its level of loan loss reserves at an appropriate level.
    Doral Bank, Puerto Rico, the Company's principal banking subsidiary, finished the year 2004 with $11.2 billion in assets, including assets of its international banking entity subsidiary, Doral International, Inc., and $3.4 billion in deposits, an increase of 67% and 23%, respectively, compared to December 31, 2003.
    Doral Bank, New York also continued its steady growth. As of December 31, 2004, Doral Bank NY had assets of $562.3 million and deposits of $385.6 million, an increase of 11% and 16%, respectively, compared to December 31, 2003.
    Mr. Salomon Levis, Chairman of the Board and Chief Executive Officer, called the financial results for 2004 "truly outstanding, with the Company achieving the following milestones during the year:

--	Record Loan Production of $7.8 billion, up 20% for the year
--	Record Earnings of $489.6 million, an increase of 52% over 2003
--	Record Consolidated Bank Assets of $11.7 billion and Consolidated Deposits of $3.6 billion at year end, up 63% and 23% for the year, respectively
--	Record Capital of $2.0 billion, up 24% for the year, a Tier-One Capital ratio close to 20%, one of the highest in the financial industry
--	Record Loan Servicing Portfolio of $14.3 billion, up 12% for the year
--	Record Consolidated Assets of $15.1 billion at year end, up 45% for the year
--	Record ROA of 3.85% and ROE of 38.54% for the year
--	Record Efficiency Ratio of 23.1% for the year, one of the best among all banking or financial holding companies in the U.S.
--	Increased dividend rate on our common stock which was increased twice during the year
--	Record all time high for the price of Doral's common stock, up 53% for the year and 3,754% for the last 10 years, compared to an increase of 11% and 281% corresponding to the same periods for the S&P 500 Bank Index

    For the year 2005, we anticipate the following highlights:

    -- A significant increase in tax-exempt AAA rated Mortgage-Backed
    Securities and U.S. Treasuries with the resulting increase in
    tax-exempt interest income, as a result of deploying our
    strong capital and cash positions

    -- Another year of strong residential mortgage loan production
    and a strong increase in secured real estate commercial loans
    and other loan products at the Company's banking entities

    -- Continued strong demand of new housing loans including the
    growing government-sponsored affordable housing loans, most of
    which enjoy tax-exempt interest rates

    -- Continued strong production of refinancing loans for debt
    consolidation purposes which are highly profitable for the
    Company

    -- Continued strength from the Company's banking operations

    -- Increased commissions and profitability from our insurance
    agency business

    -- Maintenance of an effective asset/liability management
    program."

    Mr. Levis closed by stating: "Even though the market is anticipating higher interest rates, we expect that 2005 will be another year of challenges and opportunities for the Company. We remain optimistic and are committed to working hard and to deliver to our shareholders enhanced value on a consistent basis."
    Doral Financial's Chief Executive Officer and its Senior Executive Vice President and Treasurer are available to answer appropriate questions regarding earnings results as well as other corporate matters at any time convenient to interested participants. You are welcome to call.

    FORWARD LOOKING STATEMENTS

    This press release contains certain "forward-looking statements" concerning the Company's economic future performance. The words or phrases "expect," "anticipate," "project," "look forward," "should" and similar expressions are meant to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
    The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, changes in interest rates, competitive and regulatory factors and legislative changes, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected.
    The Company 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 such statements.

Quarter Ended --------------------------------------- December 31, September 30, ------------------------- ------------- 2004 2003 2004 ------------ ------------ ------------ Interest income $ 160,412 $ 124,004 $ 146,399 Interest expense 90,067 66,640 76,545 ------------ ------------ ------------ Net interest income 70,345 57,364 69,854 Provision for loan losses 1,009 2,776 325 ------------ ------------ ------------ Net interest income after provision for loan losses 69,336 54,588 69,529 ------------ ------------ ------------ Non-interest income: Net gain on mortgage loan sales and fees 165,840 116,056 165,480 ------------ ------------ ------------ Investment activities: Trading activities (96,751) (9,743) (61,290) Gain on sale of investment securities 1,341 1,750 10,548 ------------ ------------ ------------ Total investment activities (95,410) (7,993) (50,742) ------------ ------------ ------------

Servicing (loss) income (379) (3,588) 5,928

Commissions, fees and other income 8,084 5,777 10,241 ------------ ------------ ------------ Total non-interest income 78,135 110,252 130,907 ------------ ------------ ------------ Non-interest expense: Compensation and benefits, net 23,642 19,235 23,630 Taxes, other than payroll and income taxes 2,506 2,200 2,389 Advertising 4,410 3,898 3,366 Professional services 4,540 2,446 3,053 Communication and information systems 3,614 3,545 3,610 Occupancy and other office expenses 7,542 5,863 7,105 Depreciation and amortization 5,102 3,998 4,345 Other, net 6,993 5,846 6,723 ------------ ------------ ------------ Total non-interest expense 58,349 47,031 54,221 ------------ ------------ ------------ Income before income taxes 89,122 117,809 146,215 Income tax benefit (expense) 61,392 (23,155) (25,587) ------------ ------------ ------------ Net Income $ 150,514 $ 94,654 $ 120,628 ============ ============ ============ Earnings Per Common Share: Basic $ 1.32 $ 0.80 $ 1.04 ============ ============ ============ Diluted $ 1.22 $ 0.76 $ 0.97 ============ ============ ============ Weighted Average Common Shares Outstanding: Basic 107,908,774 107,903,632 107,908,216 ============ ============ ============ Diluted 120,105,894 119,354,462 119,843,976 ============ ============ ============ Common Shares Outstanding At End Of Period 107,908,862 107,903,912 107,908,412 ============ ============ ============

Year Ended ------------------------- December 31, ------------------------- 2004 2003 ------------ ------------ Interest income $ 570,847 $ 452,570 Interest expense 304,949 271,090 ------------ ------------ Net interest income 265,898 181,480 Provision for loan losses 5,507 14,085 ------------ ------------ Net interest income after provision for loan losses 260,391 167,395 ------------ ------------ Non-interest income: Net gain on mortgage loan sales and fees 598,762 390,081 ------------ ------------ Investment activities: Trading activities (200,607) 5,591 Gain on sale of investment securities 10,550 5,447 ------------ ------------ Total investment activities (190,057) 11,038 ------------ ------------ Servicing (loss) income 4,893 (15,117)

Commissions, fees and other income 36,786 25,770 ------------ ------------ Total non-interest income 450,384 411,772 ------------ ------------ Non-interest expense: Compensation and benefits, net 89,305 82,940 Taxes, other than payroll and income taxes 9,363 7,587 Advertising 15,079 15,311 Professional services 12,620 8,644 Communication and information systems 13,812 13,323 Occupancy and other office expenses 26,825 22,787 Depreciation and amortization 18,030 14,963 Other, net 24,018 20,247 ------------ ------------ Total non-interest expense 209,052 185,802 ------------ ------------ Income before income taxes 501,723 393,365 Income tax benefit (expense) (12,098) (72,066) ------------ ------------ Net Income $ 489,625 $ 321,299 ============ ============ Earnings Per Common Share: Basic $ 4.23 $ 2.78 ============ ============ Diluted $ 3.95 $ 2.70 ============ ============ Weighted Average Common Shares Outstanding: Basic 107,907,699 107,861,415 ============ ============ Diluted 119,744,176 112,661,848 ============ ============ Common Shares Outstanding At End Of Period 107,908,862 107,903,912 ============ ============

Doral Financial Corporation Consolidated Statements of Financial Condition (Dollars in Thousands) (NYSE:DRL) (Unaudited)

As of -------------------------------------- December September December 31, 30, 31, 2004 2004 2003 ------------ ------------ ------------ Assets Cash and due from banks $ 64,940 $ 82,858 $ 84,713 ----------- ----------- ----------- Money market investments 2,470,786 2,024,317 870,009 ----------- ----------- ----------- Investment securities: Trading securities, at fair value 1,243,543 1,220,437 944,150 Securities available-for-sale, at fair value 4,982,508 4,445,982 2,850,598 Securities held-to-maturity, at amortized cost 2,316,780 2,492,435 1,640,909 Federal Home Loan Bank of NY (FHLB) stock, at cost 86,120 86,120 81,720 ----------- ----------- ----------- Total investment securities 8,628,951 8,244,974 5,517,377 ----------- ----------- ----------- Loans: Mortgage loans held for sale, at lower of cost or market 1,560,949 1,638,683 1,966,608 Loans receivable, net 1,752,490 1,626,249 1,410,849 ----------- ----------- ----------- Total loans 3,313,439 3,264,932 3,377,457 ----------- ----------- -----------

Receivable and mortgage servicing advances 112,103 99,668 90,835 Accounts receivable from investment sales 40,052 726,094 19,520 Accrued interest receivable 66,393 60,772 63,771 Servicing assets, net 203,245 191,713 167,498 Premises and equipment, net 146,551 145,661 136,037 Real estate held for sale, net 20,072 20,287 19,253 Other assets 35,869 40,091 47,526 ----------- ----------- ----------- Total assets $15,102,401 $14,901,367 $10,393,996 =========== =========== ===========

Liabilities Deposits $ 3,643,080 $ 3,420,813 $ 2,971,272 Securities sold under agreements to repurchase 6,305,163 5,898,550 3,602,942 Advances from FHLB 1,294,500 1,294,500 1,206,500 Loans payable 279,560 177,204 178,334 Notes payable 1,105,202 1,106,367 602,581 Accounts payable from investment purchases 325,740 879,895 2,245 Accrued expenses and other liabilities 176,387 268,371 237,682 ----------- ----------- ----------- Total liabilities 13,129,632 13,045,700 8,801,556 ----------- ----------- -----------

Stockholders' Equity Preferred stock, at aggregate liquidation preference value: Perpetual noncumulative nonconvertible preferred stock (Series A, B and C) 228,250 228,250 228,250 Perpetual cumulative convertible preferred stock 345,000 345,000 345,000 Common stock, $1 par value; 500,000,000 shares authorized; 107,908,862, 107,908,412 and 107,903,912 shares issued and outstanding as of December 31, 2004, September 30, 2004 and December 31, 2003, respectively 107,909 107,908 107,904 Additional paid-in capital 161,639 159,212 151,902 Legal surplus 22,612 13,806 13,806 Retained earnings 1,187,294 1,073,334 804,518 Accumulated other comprehensive loss, net of income tax (79,935) (71,843) (58,940) ----------- ----------- ----------- Total stockholders' equity 1,972,769 1,855,667 1,592,440 ----------- ----------- ----------- Total liabilities and stockholders' equity $15,102,401 $14,901,367 $10,393,996 =========== =========== ===========

Doral Financial Corporation Selected Financial Data (Dollars in Thousands, except Per Share Data) (NYSE:DRL) (Unaudited)

Quarter Ended Year Ended ----------------------------------- --------------------- Operational December September December Data 31, 30, 31, ----------------------- ----------- --------------------- 2004 2003 2004 2004 2003 ----------- ----------- ----------- ---------- ---------- Loan Production $2,030,434 $1,731,269 $1,985,515 $7,802,694 $6,478,802 =========== =========== =========== ========== ==========

As of ------------------------------------------- December September December 31, 30, 31, ----------------- ------------ ------------ 2004 2004 2003 ----------------- ------------ ------------ Loan Servicing Portfolio $14,264,367 $13,873,789 $12,690,244 ================= ============ ============

Quarter Ended Year Ended -------------------------- ---------------- December September December 31, 30, 31, ---------------- --------- ---------------- Asset Quality Data 2004 2003 2004 2004 2003 -------- ------- --------- -------- -------

Allowance for loan losses $28,401 $28,211 $28,575 $28,401 $28,211 Net charge-offs $ 866 $ 1,953 $ 1,136 $ 4,051 $ 4,267

Quarter Ended Year Ended -------------------------- ---------------- December September December 31, 30, 31, ---------------- --------- ---------------- Financial Ratios 2004 2003 2004 2004 2003 -------- ------- --------- ------- -------

Return on average assets 4.04% 3.70% 3.66% 3.85% 3.46% Return on average common equity 42.72% 34.32% 37.47% 38.54% 32.36%

Efficiency ratio 23.92% 26.78% 21.56% 23.07% 31.91%

Quarter Ended Year Ended -------------------------- ---------------- December September December 31, 30, 31, ---------------- --------- ---------------- Per Share Data 2004 2003 2004 2004 2003 -------- ------- --------- ------- -------

Book value per common share $ 12.97 $ 9.45 $ 11.88 $ 12.97 $ 9.45 Cash dividends per common share $ 0.18 $ 0.12 $ 0.15 $ 0.60 $ 0.40 Common stock dividend payout ratio 14.75% 15.79% 15.46% 15.19% 14.81%

Doral Financial Corporation Selected Financial Data (continued) (Dollars in Thousands) (NYSE:DRL) (Unaudited)

Quarter Ended Year Ended -------------------------- ---------------- Commissions, Fees and December September December Other Income 31, 30, 31, ---------------- --------- ---------------- 2004 2003 2004 2004 2003 -------- ------- -------- -------- -------- Retail banking fees $ 3,614 $ 2,933 $ 3,570 $ 13,578 $ 11,000 Securities brokerage and asset management fees and commissions 440 367 389 1,945 2,993 Insurance agency commissions 2,949 2,148 2,972 11,852 7,910 Other Income 1,081 329 3,310 9,411 3,867 -------- ------- -------- -------- -------- Total commissions, fees and other income $ 8,084 $ 5,777 $ 10,241 $ 36,786 $ 25,770 ======== ======= ======== ======== ========

Quarter Ended Year Ended -------------------------- ---------------- Segment Information December September December 31, 30, 31, ---------------- --------- ---------------- Net Income 2004 2003 2004 2004 2003 -------- ------- -------- -------- -------- Reportable Segments: Mortgage banking $111,148 $64,218 $ 67,826 $290,269 $192,515 Banking 36,743 28,383 48,542 184,661 121,369 Institutional securities 923 778 1,006 4,366 5,551 Insurance agency 2,661 1,644 2,867 10,932 6,058 Intersegment Eliminations (961) (369) 387 (603) (4,194) -------- ------- -------- -------- -------- Consolidated Net Income $150,514 $94,654 $120,628 $489,625 $321,299 ======== ======= ======== ======== ========

--30--ML/ny*

CONTACT: Doral Financial Corporation Mario S. Levis, 787-474-6709

KEYWORD: INTERNATIONAL LATIN AMERICA INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: Doral Financial Corporation

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